In September 1789, ten days after Hamilton became Secretary of Treasury, the House of Representatives asked him to create a plan to meet the national debt. Hamilton estimated it to be $54,124,464.56, including interest. The general assumption was that the debt would be reduced somewhat, and that U.S. citizens would receive only partial repayment. Most domestic debt certificates were held by speculators and merchants who had purchased them at drastically discounted prices from Revolutionary War soldiers and patriots. Thus, many Americans felt that it was unnecessary to pay the speculators the full price of the debt, since they had obtained the certificates at a discount.
Some of Hamilton's recommendations, as presented to Congress in 1790, were, thus, something of a surprise. Few Congressmen objected to his suggestion to pay the foreign debt in full, since repayment of debt was important in establishing the new nation's credibility. There was much controversy over his proposal to pay back the domestic debt in full. Hamilton asserted that the current holders of the bonds, whether they were speculators or not, should be paid in full. Although some members of Congress protested the unfairness of rewarding speculators without paying anything to the soldiers and others who had originally held the bonds.
Another contentious proposal was that the federal government should assume state debts. Northern states tended to have larger debts than southern states, so those in the north supported the proposal, while southern Congressmen opposed it as an unfair burden to the nation. A compromise was finally reached, which allowed the federal government to assume responsibility for state war debts, provided that the national capital be built in the South.
The nation clearly did not have the money to pay back the debt immediately. Congress had established customs duties on all imports and a tonnage duty on all shipping, arranged to levy high duties on foreign ships, and low duties on American vessels. These customs revenues were funneled into the Treasury, from which the nation's war debts were to be settled. Hamilton suggested that the debt be funded by reissuing bonds to be paid back in full after 15 or 20 years. Thus, rather than eliminating the debt, Hamilton's plan created a large, permanent public debt, issuing new bonds as old ones were paid off. Congress approved this proposal.
In addition to ideas on how to fund the debt, Hamilton made four other sets of proposals: establishing a national bank; creating an American coinage system; establishing an excise tax; and creating protective tariffs for American industry. Hamilton felt that the new nation needed to establish a National Bank to act as a safe depository for federal tax revenue; facilitate public and private borrowing; and create a uniform and stable American currency by issuing sound paper money. After significant debate (see A National Bank), Washington signed the National Bank Bill into law.
As part of his attempt to create a unified monetary system, Hamilton began an American coinage system. He replaced the various foreign coins in circulation with American coins. Jefferson suggested a decimal system (based on 10) for currency, which Hamilton accepted. Hamilton chose the bi-metal system, which was considered the best system being used at the time. In 1792, Congress passed the Mint Act. The silver dollar was valued at 371.25 grains of pure silver, while the gold dollar was valued at 24.75 grains of pure gold. Most silver coins were minted at the U.S. Mint in Philadelphia, from foreign silver coins, since silver mines had not been opened in the U.S. Copper coins were minted for small change; and few gold coins were minted, since gold was more valuable overseas than in the U.S. In 1792, the American gold, silver and copper coins were first put into circulation.
Nevertheless, the federal government lacked the funds needed to meet their operating and debt-repayment expenses. The 1789 tariff act, putting duties on certain imports, had not raised enough money to meet the government's expenses. Hamilton recommended that a tariff be levied on foreign imports to protect domestic industries and discourage imports, as well as raise government revenue. This was the only major Hamilton proposal to be rejected by Congress. In 1791, however, Hamilton was able to convince Congress to pass an excise tax on whiskey. (An excise tax is one placed on goods produced or services performed within the country.)