First Report on the Public Credit
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In the 1790 Report on Public Credit, Secretary of the Treasury Alexander Hamilton made the controversial proposal that would have had the Federal Government assume state debts incurred during the Revolution. It was a bold move to empower the federal government over State governments, and it drew sharp criticism from Secretary of State Thomas Jefferson and Speaker of the House of Representatives James Madison. The disagreements between Jefferson and Hamilton extended to other proposals Hamilton made to Congress, and they grew especially bitter, with Hamilton's followers calling themselves Federalists and Jefferson's calling themselves republicans. These divisions are the first manifestations of political parties in the U.S.
Jefferson and Madison eventually brokered a deal with Hamilton that required him to use his influence to place the permanent capital on the Potomac River, while Jefferson and Madison would encourage their friends to back Hamilton's assumption plan. In the end, Hamilton's assumption, together with his proposals for funding the debt, passed legislative opposition and became law.
