been bought by speculators at ruinous figures—­ten, twenty, and thirty cents on the dollar.  Accordingly, it had been suggested, even in very respectable quarters, that a discrimination should be made between original holders and speculative purchasers.  Some who held this opinion urged that the speculators who had paid nominal sums for their bonds should be reimbursed for their outlays and the original holders paid the difference; others said that the government should “scale the debt” by redeeming, not at full value but at a figure reasonably above the market price.  Against the proposition Hamilton set his face like flint.  He maintained that the government was honestly bound to redeem every bond at its face value, although the difficulty of securing revenue made necessary a lower rate of interest on a part of the bonds and the deferring of interest on another part.

=Funding and Assumption Carried.=—­There was little difficulty in securing the approval of both houses of Congress for the funding of the national debt at full value.  The bill for the assumption of state debts, however, brought the sharpest division of opinions.  To the Southern members of Congress assumption was a gross violation of states’ rights, without any warrant in the Constitution and devised in the interest of Northern speculators who, anticipating assumption and funding, had bought up at low prices the Southern bonds and other promises to pay.  New England, on the other hand, was strongly in favor of assumption; several representatives from that section were rash enough to threaten a dissolution of the union if the bill was defeated.  To this dispute was added an equally bitter quarrel over the location of the national capital, then temporarily at New York City.

[Illustration:  FIRST UNITED STATES BANK AT PHILADELPHIA]

A deadlock, accompanied by the most surly feelings on both sides, threatened the very existence of the young government.  Washington and Hamilton were thoroughly alarmed.  Hearing of the extremity to which the contest had been carried and acting on the appeal from the Secretary of the Treasury, Jefferson intervened at this point.  By skillful management at a good dinner he brought the opposing leaders together; and thus once more, as on many other occasions, peace was purchased and the union saved by compromise.  The bargain this time consisted of an exchange of votes for assumption in return for votes for the capital.  Enough Southern members voted for assumption to pass the bill, and a majority was mustered in favor of building the capital on the banks of the Potomac, after locating it for a ten-year period at Philadelphia to satisfy Pennsylvania members.