What is the significance of funding at par?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Since you have posted this under history, I assume that you are asking about the issue about "funding at par" of government debt after the Revolutionary War.

During the war, governments had borrowed money from people and given them bonds in return.  Many of those people had sold their bonds to speculators for much less than face value.  The question, then, was how much the government would pay for the bonds after the Constitution was written.  If they did funding at par (buying the bonds at face value) they would be rewarding these speculators (typically rich people) who had paid much less than the government would pay them.

The government ended up funding at par, which was a win for Alexander Hamilton who wanted the government to act in ways that would make rich investors happy so the economy could be strong.  Therefore, the significance of this was that the government chose to act in a way that made rich people happy in the days right after the new government was set up.

mkoren's profile pic

mkoren | Middle School Teacher | (Level 3) Senior Educator

Posted on

Funding at par means the government will redeem bonds at face value. This was a huge issue in the early days of our country. Alexander Hamilton wanted to pay our debts. Part of his plan called for redeeming bonds issued during the Revolutionary War and issued by state governments during the time when the Articles of Confederation was our plan of government at face value. This was highly controversial because many people sold their bonds to speculators for a fraction of what they paid for the bond because they believed they would never see face value for the bonds.

Since the wealthy were the people who bought these bonds at low prices, they would benefit a great deal from Hamilton’s plan. Many of these speculators lived in the North. Thus, this plan would mostly benefit the North and the wealthy. In order to get his plan accepted, Hamilton was willing to accept a compromise that would move the capital to its current location in Washington, D.C.

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