I agree with you the best Answer is A.
Hamilton is famous for championing a strong Federal Government in control of a well regulated national financial market. Hamilton has this reputation in no small part due to the compromise on Revolutionary War debt of 1790 brokered with Thomas Jefferson to re-assume this debt from the States.
In the decades prior to Hamilton's bid to make the Federal Government responsible for the Revolutionary War Debt, there is no evidence congress gave any concern with regard to War for their systemic failure to pay foreign debts. During this time Congress would disband the Navy and Army. Congress actively debated the need for a standing Army and standing Navy. Jefferson thought they were a danger to the republic outlaying their utility. What brought John Adams around was the Barbary Pirates and their ever increasing demands for bribes/tribute not fear of war over debt.
Congress also failed to pay their own Constitutional Army veterans wages resulting in:
- Washington's Newburgh address where he voices sympathy for his soldiers for not being paid, rejects their desire for him to march on Congress and become King.
- Philadelphia Mutiny of 1783, where former members of Washington's Army captured congress for a time.
After being captured and held hostage by their own military veterans Congress still did not act on paying it's debt for more than 7 years.
This systemic defaulting on credit both foreign and domestic was not Congress being cheap or dishonorable. It stemmed from two inter related issues.
- Congress had no ability to tax or raise funds. Thus Congress had no money to address the nations debts including soldiers it had paid with promises and foreign nations which had loaned the United States money during the revolution. Congress had borrowed without any means to pay. Congress before the constitution was ratified could not even service the interest on its debt.
- A fundamental disagreement on how the states should be organized. One group lead by Thomas Jefferson favored strong States over weak federal government, and eventually the opposite view was held by Washington, Madison, and most famously Alexander Hamilton. One way to keep the federal government small, was to deny them financial independence from the States governments.
Important Dates for this Discussion:
- Apr 18, 1775 Revolution begins at Concord Massachusetts (debt begins to pile up)
- Oct 19, 1781 Cornwallis surrenders at Yorktown
- Mar 1, 1782 Congress defaults on domestic war debt
- Mar 15, 1783 Washington's Newburgh Address over back pay
- Jun 17, 1783 Philadelphia Mutiny over back pay
- Sept 3, 1783 Treaty of Paris is signed formally ending the war.
- March 4 1789 The US Constitution is ratified
- July 14, 1789 The French Revolution begins.
- July 16, 1790 *Hamilton concludes agreement on Debt with Jefferson.
- Aug 4, 1790. Congress Passes Funding Act of 1790 the legislative embodiment of Hamilton's proposal.
- Feb 1 1793. France executes Louis XVI and declares war on Britain.
- 1797 The United States Navy christens it's first six ships
- 1798 The Quasi War begins.
- Nov 9, 1799 The French Revolution concludes
- 1800 The Quasi War Ends.
- 1802 Anglo "French Revolutionary" War concludes
- 1803 The British Napoleonic Wars Begin
Facts are the United States defaulted on the Revolutionary War debt, both foreign and domestic. And the Quasi War with France occurred 10 years after Hamilton's famous deal to shore up the American finances, and 25 years(1775 when Revolution began) after Congress started racking up Revolutionary War debt which it never had the ability to repay. Also while Hamilton and Jefferson were hashing out the great financial compromise which made the former famous, The French Revolution(Jul 14, 1789 – Nov 9, 1799) was ongoing. France was in no position to threaten the US in 1790 when Hamilton was working on US credit worthiness. Finally, Holland which held the rest of the US non domestic debt was a financial power, a trading power, it was not a military power capable of existencially threatening the United States. Once the teacher said Alexander Hamilton and Revolutionary War debt, the question became about (1) a strong federal government vs the weaker confederation of states favored by Jefferson, and (2) Business. Both of these reasons are the classic reasons Alexander Hamilton wanted to sort out the nations truly horrific credit and debt repayment record.
The Revolutionary war began Apr 18, 1775. The United States Constitution was ratified March 4 1789. That's fourteen years where the United States Federal government had no revenue and could not pay it's debt. It couldn't even afford to pay the interest on the debt, it actually borrowed internationally from France and Holland to pay the interest on the domestic debt. Congress was not "motivated" by imminent war in or before the timeframe Alexander Hamilton decided being a financial cripple and systemic defaulter was bad for America's business interests.
(*) Before the Constitution was ratified the United States were organized under the Articles of Confederation. These articles did not permit the Federal Government to tax and thus did not permit the federal government reliable to service any of it's financial obligations including debt. The United States Federal government only received the right to tax and secure it's revenue with the ratification of the U.S. Constitution in 1789.
A Short History of United States Credit Defaults
Congress had no power of taxation, so it made each of the several states responsible for redeeming a proportion of the notes(war debt) according to population. The administration of these notes was delegated to a "Board of the Treasury" in 1776. To refuse the notes or receive them below par was punishable by having your ears cut off and other horrible penalties.
The notes progressively depreciated as the public began to realize that neither the states nor their Congress had the will or capacity to redeem them. In November of 1779, Congress announced a devaluation of 38.5 to 1 on the Continentals, which amounted to an admission of default. In this year refusal to accept the notes became widespread, and trade was reduced to barter, causing sporadic famines and other privations.
Eventually, Congress agreed to redeem the notes at 1,000 to 1. At a rate of 0.82 troy ounces to the Spanish milled dollar and $36 (2011) dollars to the troy ounce of silver, this first default resulted in a cumulative loss of approximately $7 billion dollars to the American public.
The Default on Continental Domestic Loans
In addition to its currency issuance, the Continental Congress borrowed money both domestically and abroad. The domestic debt totaled approximately $11 million Spanish dollars. The interest on this debt was paid primarily by money received from France and Holland as part of separate borrowings. When this source of funding dried up, Congress defaulted on its domestic debt starting on March 1, 1782. Partial satisfaction of these debts was made later by accepting the notes for payments of taxes and other indirect considerations. By the Funding Act of 1790, Congress repudiated these loans entirely, but offered to convert them to new ones with less favorable terms, thereby memorializing the default in the form of a Federal law.
The Quasi War was from 1798 to 1800. Hamilton is famous for promoting a strong Federal government and it's credit worthiness a decade prior to the Quasi War. Hamilton's famous proposal towards this goal was to have the federal government assume (or rather reassume) the Revolutionary War debts from the States (mostly that of the North).
The Hamilton, Jefferson compromise had the Federal Government assuming the revolutionary war debt was concluded July 16th, 1790.
Hamilton primary goal in having the United States Federal Government to assume and pay off the revolutionary war debt, had to do with credit worthiness, business and carving out a role for the Federal Government. The revolutionary war debts at the time resided with individual states not the Federal Government. Many of those states especially in the North had not been in a position to service those debts due to their own post war economic troubles. What Hamilton wanted to do was to have the Federal Government assume these debts. The problem was southern states like Virginia were wealthy enough to have paid off most of their assigned war debt prior to Hamilton's proposed deal and thus they didn't have much incentive to have the federal government assume the war debt of Northern States like New York and Massachusetts. The famous bargain struck by Hamilton from NY and Jefferson from Va which allowed the Federal Government to assume this largely Northern held debt moved the nations capital from Philadelphia to the South. Washington DC on lands granted by both Virginia and Maryland, two southern states below the Mason Dixon line.
Hamilton's motivation was he wanted the United States to be credit worthy. To be a great trading nation you had to be able to borrow money, and have established credit. The best way to establish the credit worthiness of the new nation was to assume the debt of the States and then to make good on that debt becoming trustworthy to European creditors. Hamilton wanted one central (Federal) authority with the power to secure it's own revenue granted under the Constitution to be in charge of this national debt/credit. Jefferson and Southern leaders vocally opposed the strong federal authority opting rather for a decentralized plan where each state was more autonomous and acted together only when they were all in agreement. Jefferson and his southern allies proved more interested in capturing the capital there by elevating the South in the Union.