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Hamilton’s proposed funding system was heavily criticized. Because most government bonds had been sold off to speculators, critics like James Madison believed that the original holders, mainly Revolutionary War veterans, were being cheated out of their fair reward.
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"The Budget Opened" by Senator William Maclay of Pennsylvania, February 6, 1790, written for the Philadelphia Independent Gazetteer (Newsbank).
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Madison's Argument:
Excerpt from Madison's speech to Congress, The Gazette of the United States, February 24, 1790 (Newsbank).
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Excerpt from pro-debt discrimination article written by "An Old Soldier," The Independent Chronicle, March 25, 1790 (Newsbank).
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Madison's Speech to Congress, February 11, 1790
one of three things must be done; either pay both, reject wholly one or the other, or make a composition between them on some principle of equity ...[7] |
A composition, then, is the only expedient that remains; let it be a liberal one, in favor of the present holders; let them have the highest price which has prevailed in the market; and let the residue belong to the original sufferers. This will not do perfect justice; but it will do more real justice, and perform more of the public faith, than any other expedient proposed.[8] |
Madison's Defeat:
Hamilton thought that any attempt to repudiate the debt or discriminate between its original and present holders would be not only unjust to those who had taken the risk of purchasing the securities but ruinous to the honor and credibility of the nation.[9]
Senator William Clay of Pennsylvania by Nick Ruggieri (First Federal Congress: Setting Precedent).
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[James] Madison's matter was over before I came down, and a poor show his party made. The obstinacy of this man has ruined the opposition. The Secretary's report will now pass through, perhaps unaltered.[10] |
the motion for a discrimination was negatived by a great majority - the subject of assuming the State debts is now under discussion. 
Rep. Benjamin Goodhue of Massachusetts (The New York Public Library).
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Rep. Benjamin Goodhue of MA to Michael Hodge, February 24, 1790 (First Federal Congress: Funding the National Debt).
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