The topic of discussion for this Constitution Monday comes from Article VI, Section 1: “All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation.” This provision guaranteed the creditors of the new nation would be paid in full.
“Considering the circumstances, this was a monumental undertaking, but it was the key to the early success of the tiny new nation. Alexander Hamilton, who became the first Secretary of the Treasury, put the debt of the Union at $11,710,387 owed to foreign banks and creditors (primarily in France and Holland) and $42,414,084 owed to banks and contractors in the United States. The states themselves owed about $25 million for expenditures in the common defense, and all of this amounted to a total indebtedness of about $79 million.
“The above provision in the Constitution promised to pay it all.” (See W. Cleon Skousen in The Making of America – The Substance and Meaning of the Constitution, p. 654.)
Jeffrey Sikkenga of The Heritage Foundation also wrote about this provision in the Constitution. “To finance the War of Independence, the American states and the Continental Congress sold millions of dollars in public bonds to soldiers, ordinary Americans, and investors both within America and abroad. The Constitutional Convention first addressed the debt issue during its debates on the proposed powers of Congress. On August 21, 1787, the Convention considered this proposal: `The Legislature of the U.S. shall have the power to fulfil the engagements which have been ent3ered into by Congress, and to discharge as well the debts of the U-S: as the debts incurred by the several States during the late war, for the common defence and general welfare.’
“Whether Congress could discharge the state debts was left unsettled because the ensuing debate centered on a different question: Would the new federal government necessarily inherit the debt obligations of the old Continental and Confederation Congresses? …
“Elbert Gerry objected that the August 21 proposal only gave the new Congress the `power’ rather than the obligation to pay back the debt. He feared that this wording would allow Congress to neglect the rightful return on bonds due to the creditor `class of citizens.’ …
“After some political struggles in the early 1790s, the new federal government made good on the bond obligations inherited from the Articles of Confederation, thus vitiating the possibility for serious constitutional controversy….” (See The Heritage Guide to the Constitution, pp. 289-290.)