Definition
In January 1790, Treasury Secretary Alexander Hamilton proposed that the federal government take over the states' war debts, about twenty-five million dollars on top of a federal debt of about fifty-four million. He wanted the states' creditors to look to the national government for payment, which would tie their interests to the Union rather than to their states. Virginia and other states that had paid off much of their debt objected, and the House voted the plan down in April 1790. In June 1790, Thomas Jefferson invited Hamilton and Madison to dinner, and in return for a permanent capital on the Potomac River, enough southern congressmen switched their votes to pass assumption.
Why it matters on the AP exam
Assumption is the part of Hamilton's financial plan that most directly raised the question of federal versus state power, and it divided the country by region, since states such as Virginia that had paid their debts would now help pay the debts of states such as Massachusetts that had not. The Compromise of 1790 that passed it is a common example of sectional bargaining in the early republic. Taking on the state debts also required new federal revenue, including the 1791 whiskey tax that set off the Whiskey Rebellion. Jefferson later said Hamilton had duped him into the bargain, and he and Madison came to see Hamilton's program as serving northern merchants and speculators at the expense of southern and western farmers, a split that helped produce the first political parties.
In the sources
“…as the pill would be a bitter one to the Southern states, something should be done to soothe them…”
Connections
- Funding at par: the companion measure, which paid the federal government's own debt at face value
- Compromise of 1790: the dinner bargain in which southern votes for assumption bought a permanent capital on the Potomac
- First Bank of the United States: another part of Hamilton's program, chartered in 1791
- Whiskey Rebellion: western farmers rose against the 1791 whiskey tax that helped pay interest on the debt