The plans of Hamilton having been formulated, it remained to be determined whether they should be adopted by the lawmaking power or should remain a splendid but abortive monument to the constructive skill of their author. Vigorous opposition was expected by Hamilton to the measures which he proposed. He had endeavored to meet and disarm such opposition as far as possible in the careful and illuminating language of his report, but it soon became evident that against nearly all parts of it a bitter and persistent battle would be waged. The owners of capital and the commercial element were represented in the Northern and Eastern States rather than in the South, and the representatives of the former states strongly supported from the first the entire policy of the Secretary of the Treasury. Rumors were already abroad that something was to be done to restore the national credit, but it was not until the reading of Hamilton's report in the House (January 14, 1790) that the full scope of his plans was made manifest.

The effect of the report was so favorable upon the public credit as to forge weapons for its enemies. This came about through the sudden rise in the public funds, and the promptness with which speculators bought them up from holders who were ignorant of their value. Funds which would have been gladly disposed of at three shillings to the pound, or fifteen per cent. of their face value, at any time within the previous three years, rose before noon the next day fifty per cent. of their quoted price. It was not yet certain that the project would be adopted by Congress, but shrewd men were willing to discount the future in much the same manner that brokers in Wall Street do at the present time. The absence of a well-organized stock market, with the ramifications of telegraphic quotations throughout the Union, put in the hands of the more daring of these speculators an opportunity to avail themselves of the ignorance of others to an extent which would not be possible to-day. Agents were soon scouring the country, buying up the certificates of the debt in all its varied forms, before the news of Hamilton's great report had reached the humble holders, some of whom were old soldiers or quiet farmers who had been compelled to furnish supplies for the army. Jefferson says in his Anas:—

"Couriers and relay horses by land, and swift-sailing pilot-boats by sea, were flying in all directions. Active partners and agents were associated and employed in every state, town, and county, and the paper bought up at five shillings, and even as low as two shillings in the pound, before the holder knew that Congress had already provided for its redemption at par."

This sudden and remarkable effect of Hamilton's recommendations put weapons in the hands of the enemies of the project, because it seemed to give force to their argument that a distinction should be made between those to whom the debt was originally issued at par and the new holders who had obtained it at a discount. Long and bitter were the debates in the House over this and other branches of Hamilton's project. But it was so obvious that a distinction between the holders of the debt would run directly counter to its character as negotiable paper, and would be almost impossible of just execution, that the friends of the funding project easily had the best of the argument. Madison, although inclined to oppose Hamilton, was forced to admit that the debt must be funded at par without discrimination. He brought forward a project to pay the original holders the difference between par and the price at which they had sold, and to pay to the present holders only what they had paid for the securities. This was shown to be so impracticable that only thirteen votes were given for it in a House of forty-nine members voting. The advocates of the entire funding project carried it in committee of the whole (March 9, 1790) by a vote of 31 to 26.

The debates had so strengthened the position of Hamilton that the wisdom of funding the debt of the Union at par was now generally admitted. His opponents and those who feared too great a concentration of power in the capitalist class and the central government made their stand on the proposal to assume the state debts. When the resolution reported by the committee of the whole was taken up in the House on March 29, several representatives from North Carolina appeared in the House and swelled the ranks of the opposition. North Carolina had been late in accepting the Constitution, and her members had not been present on previous votes. When, therefore, a motion to recommit the financial projects was made, it was carried by a vote of 29 to 27. The advocates of assumption were so indignant, and so convinced that one part of the project was as vital as the other, that they voted to recommit the original funding resolution. Further debate took place, but without shaking the firmness of the opposition to the assumption of the state debts. The project was rejected in committee (April 12) by a vote of 31 to 29.

The situation was a grave one. Hamilton felt that the future of the Union was at stake. If his projects were not adopted substantially as a whole, the new government would be without credit and the work of the Convention of 1789 would be in vain. The government at Washington would be as helpless as the Continental Congress and its committees had been. This opinion was shared by all those who favored a vigorous central government, and practically by all the members of the party in Congress which was forming in support of the measures of Hamilton and looking to him as their leader. While casting about for some means for meeting the emergency, Hamilton fell upon a plan which represents one of the few cases in which he had recourse to diplomacy in his public career. The question of the location of the national capital had been for some time pending in Congress. It had already become involved with the assumption of the state debts. A strong bid had been made by the opponents of assumption for the five votes of Pennsylvania by the offer to locate the capital for fifteen years at Philadelphia.

The importance of having Congress and its officials in a given city represented more at that time, in spite of the small size of the body and the relative insignificance of the interests before it, than would be the case to-day with either of the great commercial cities of New York, Boston, or Philadelphia. Local interests played the same part then as now in political manoeuvring, and possession of the capital looked larger in the eyes of some members than the financial policy of the Union. In the sarcastic language of Professor McMaster, "The state debts might remain unpaid, the credit of the nation might fall, but come what might, the patronage of Congress must be drawn from New York and distributed among the grog-shops and taverns of Philadelphia."

Hamilton took advantage of this situation to save assumption and to fix the financial policy of the United States. The Senate had rejected the proposal to establish the capital at Philadelphia, and when the project came back to the House, Baltimore was substituted by a majority of two. The Pennsylvanians and their friends in the Senate retaliated by mutilating the funding bill and daring the assumptionists to reject it. The latter held to their position and rejected the bill, 35 to 23. It was while matters were in this acute stage, while threats were made on behalf of the North that the Union would be broken up if assumption were not carried, that Hamilton one day in front of the President's house met Thomas Jefferson. Jefferson had recently returned from France to assume the position of Secretary of State. What followed is best told in Jefferson's own words, because he afterwards claimed that he had been "duped" by Hamilton and acted without knowledge of the effect of what he was doing. Jefferson's account of the matter is as follows:—

"As I was going to the President's one day, I met him (Hamilton) in the street. He walked me backwards and forwards before the President's door for half an hour. He painted pathetically the temper into which the legislature had been wrought; the disgust of those who were called the creditor states: the danger of the secession of their members, and the separation of the states. He observed that the members of the administration ought to act in concert; that though this question was not of my department, yet a common duty should make it a common concern; that the President was the centre on which all administrative questions ultimately rested, and that all of us should rally around him, and support, with joint efforts, measures approved by him; and that the question having been lost by a small majority only, it was probable that an appeal from me to the judgment and discretion of some of my friends might effect a change in the vote, and the machine of government, now suspended, might be again set into motion. I told him that I was really a stranger to the whole subject; that not having yet informed myself of the system of finance adopted, I knew not how far this was a necessary sequence; that undoubtedly, if its rejection endangered a dissolution of our Union at this incipient stage, I should deem that the most unfortunate of all consequences, to avert which all partial and temporary evils should be yielded. I proposed to him, however, to dine with me the next day, and I would invite another friend or two, bring them into conference together, and I thought it impossible that reasonable men, consulting together coolly, could fail, by some mutual sacrifices of opinion, to form a compromise which was to save the Union. The discussion took place. I could take no part in it but an exhortatory one, because I was a stranger to the circumstances which should govern it. But it was finally agreed, that whatever importance had been attached to the rejection of this proposition, the preservation of the Union and of concord among the states was more important, and that, therefore, it would be better that the vote of rejection should be rescinded, to effect which some members should change their votes. But it was observed that this pill would be peculiarly bitter to the Southern States, and that some concomitant measure should be adopted to sweeten it a little to them. There had been projects to fix the seat of government either at Philadelphia or at Georgetown on the Potomac; and it was thought that by giving it to Philadelphia for ten years, and to Georgetown permanently afterwards, this might, as an anodyne, calm in some degree the ferment which might be excited by the other measure alone. Some two of the Potomac members (White and Lee, but White with a revulsion of stomach almost convulsive) agreed to change their votes, and Hamilton undertook to carry the other point. In doing this, the influence he had established over the eastern members, with the agency of Robert Morris with those of the Middle States, effected his side of the engagement."

Hamilton had little of the state pride which influenced the men of Massachusetts, New York, Virginia, or of any other state who had grown up on the soil won by their English ancestors by their blood or the sweat of their brows. To him the question of the location of the capital seemed insignificant in comparison with the foundation of the Union upon the rock of a comprehensive financial policy. It is significant of the commanding influence which the young secretary had acquired, and the well-knit party which was gathering around him, that he had no difficulty in carrying his part of the programme for seating the capital eventually on the banks of the Potomac. The bill to remove the capital was passed on July 9, 1790, by a majority of three, and the assumption of the state debts was carried soon after. The form of the assumption differed somewhat from the proposal of Hamilton, but it accomplished the result at which he aimed. A specific sum, $21,500,000, was assumed by the government and distributed among the states in set proportions. The project passed the Senate July 22, by a vote of 14 to 12, and the House on July 24, by a vote of 34 to 28. A great step was thus taken in the consolidation of the Union, and notice was given to the world that the United States proposed to pay their debts and fulfill with scrupulous honor their financial obligations.