s arrears
of interest.

The domestic debt was due originally to officers and soldiers of the war
for independence; farmers who had furnished supplies for the army, or
suffered losses by seizure of their products; and capitalists who had
loaned money to the continental Congress during the war, or spent their
fortunes freely in support of the cause. These were sacred debts; but
the position into which the paper which represented these outstanding
claims had fallen, afforded a specious argument against the propriety of
paying their nominal value to the holders. So long had public justice
delayed in liquidating these claims, that they had sunk to one sixth of
their nominal value, and a greater portion of the paper was held by
speculators. It thus lost the power with which it appealed to the public
sympathy when in the hands of the original holders, and there was a
general sentiment against a full liquidation of these claims. It was
therefore suggested that the principle of a scale of depreciation should
be applied to them, as had been done in the case of the continental
money, in paying them--that is, at the rates at which they had been
purchased by the holders. It was especially urged that this principle
should be applied to the arrears of interest, then accumulated to an
amount almost equal to one half the principal.

In his report, Hamilton took strong grounds against this idea, as being
unjust, dishonest, and impolitic. In the latter point of view, he justly
argued that public credit was essential to the new federal government,
and without it sudden emergencies, to which all governments as well as
individuals are exposed, could not be met promptly and efficiently.
Public credit, he said, could only be established by the faithful
discharge of public debts in strict conformity to the terms of contract.
In the case in question the contract was to pay so much money to the
holders of the certificates, or to their assignees. This was plain, and
nothing but a full and faithful discharge of the nominal value of the
debt could satisfy the contract. Thus he argued concerning the
principal, and he applied the same logic to the accumulated overdue
interest. It ought to have been paid when due, according to contract,
and was as much an honest debt as the principal.

Hamilton went further. He strongly recommended the assumption of the
state debts by the federal government, amounting in the aggregate,
overdue interest included, to