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258 PART 3 REVOLUTION AND REPUBLICAN CULTURE, 1754%u20131800Hamilton asked Congress to redeem at face value the $55 million in Confederation securities held by foreign and domestic investors (Figure 7.1). His reasons were simple: as an underdeveloped nation, the United States needed good credit to secure loans from Dutch and British financiers. However, Hamilton%u2019s redemption plan would give enormous profits to speculators, who had bought up depreciated securities. For example, the Massachusetts firm of Burrell & Burrell had paid $600 for Confederation notes with a face value of $2,500; it stood to reap a profit of $1,900. Such windfall gains offended a majority of Americans, who condemned the speculative practices of capitalist financiers. Equally controversial was Hamilton%u2019s proposal to pay the Burrells and other note holders with new interest-bearing securities, thereby creating a permanent national debt and tying the interests of wealthy creditors to the survival of the new nation.Patrick Henry condemned this plan %u201cto erect, and concentrate, and perpetuate a large monied interest%u201d and warned that it would prove %u201cfatal to the existence of American liberty.%u201d James Madison demanded that Congress recompense those who originally owned Confederation securities: the thousands of shopkeepers, farmers, and soldiers who had bought or accepted them during the dark days of the war. However, it would have been difficult to trace the original owners; moreover, nearly half the members of the House of Representatives owned Confederation securities and would profit personally from Hamilton%u2019s plan. Melding practicality with selfinterest, the House rejected Madison%u2019s suggestion.Hamilton then proposed that the national government further enhance public credit by assuming the war debts of the states. This assumption plan, costing $22%u00a0million, also favored well-to-do creditors such as Abigail Adams, who had bought depreciated Massachusetts government bonds with a face value of $2,400 for only a few hundred dollars and would reap a windfall profit. Still, Adams was a long-term investor, not a speculator like Assistant Secretary of the Treasury William Duer. Knowing Hamilton%u2019s intentions in advance, Duer and his associates secretly bought up $4.6%u00a0million of the war bonds of southern states at bargain rates. Congressional critics condemned Duer%u2019s speculation. They also pointed out that some states had already paid off their war debts; in response, Hamilton promised to reimburse those states. To win the votes of congressmen from Virginia and Maryland, the treasury chief arranged another deal: he agreed that the permanent national capital would be FIGURE 7.1 Hamilton%u2019s Fiscal Structure, 1792As treasury secretary, Alexander Hamilton established a national debt by issuing government bonds and using the proceeds to redeem Confederation securities and assume the war debts of the states. To pay the annual interest due on the bonds, he used the revenue from excise taxes and customs duties. Hamilton deliberately did not attempt to redeem the bonds because he wanted to tie the interests of the wealthy Americans who owned them to the new national government.Hamilton%u2019s system of public credit(millions of dollars)War debtsassumedfrom statesOwed toforeigners$11.7$1.2$4.6 $1.0$4.4$42.4 $21.5 TotaldebtCustomsrevenueExcise andother revenueNational war debt (redemptionof Confederation securities)$75.6 million in bonds sold mostly to the wealthy,creating a permanent national debt = $5.6 million gross revenueAnnual interest owed to bondholders on debt + ++Net revenue for government spendingDebts AssetsamerhistoryHS11e_07_01Hamilton%u2019s Fiscal Structure, 179230p9 x 15p3First Proof02/15/24skills & processesMAKING CONNECTIONSWhy did Hamilton believe a national debt would strengthen the United States and help to ensure its survival?%u00a9 Bedford, Freeman & Worth Publishers. For review purposes only. Do not distribute.