In United States history, the Second Report on the Public Credit, also referred to as The Report on a National Bank,Malone, 1960, p. 259 was the second of four influential reports on fiscal and

economic policy ''Economic Policy'' is a quarterly peer-reviewed academic journal published by Oxford University Press, Oxford Academic on behalf of the Centre for Economic Policy Research, the Center for Economic Studies (University of Munich), and the Paris Scho ...

delivered to

Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...

by the first

U.S. Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...

Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Fathers of the United States, Founding Father who served as the first U.S. secretary of the treasury from 1789 to 1795 dur ...

.Staloff, 2005, p. 91 Submitted on December 14, 1790, the report called for the establishment of a

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

with the primary purpose to expand the flow of

legal tender Legal tender is a form of money that Standard of deferred payment, courts of law are required to recognize as satisfactory payment in court for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything ...

, monetizing the

national debt A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occ ...

Malone, 1960, p. 262 by issuing of federal bank notes.Miller, 1960, p. 53 Modeled on the

Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...

, the privately held but publicly funded institution would also serve to process revenue fees and to perform fiscal duties for the federal government.Staloff, 2005, p. 97 Hamilton regarded the bank as indispensable to produce a stable and flexible financial system.Brock, 1957, p. 44 The ease with which Federalists advanced legislation to incorporate the bank impelled agrarian opposition that was hostile to Hamilton's emerging

economic nationalism Economic nationalism or nationalist economics is an ideology that prioritizes state intervention in the economy, including policies like domestic control and the use of tariffs and restrictions on labor, goods, and capital movement. The core bel ...

. Resorting to constitutional arguments, Representative

James Madison James Madison (June 28, 1836) was an American statesman, diplomat, and Founding Fathers of the United States, Founding Father who served as the fourth president of the United States from 1809 to 1817. Madison was popularly acclaimed as the ...

challenged Congress's broad authority to grant charters of incorporation under the "necessary and proper" clause of the

US Constitution The Constitution of the United States is the supreme law of the United States of America. It superseded the Articles of Confederation, the nation's first constitution, on March 4, 1789. Originally including seven articles, the Constitut ...

and charged Hamilton with violating a literal, strict constructionist interpretation of the founding document.Staloff, 2005, p. 116 Despite Madison’s objections, the Bank Bill of 1791 penned to form the

First Bank of the United States The President, Directors and Company of the Bank of the United States, commonly known as the First Bank of the United States, was a National bank (United States), national bank, chartered for a term of twenty years, by the United States Congress ...

passed without amendment in the

US House of Representatives The United States House of Representatives is a chamber of the bicameral United States Congress; it is the lower house, with the U.S. Senate being the upper house. Together, the House and Senate have the authority under Article One of th ...

by a vote of 39-20Miller, 1960, p. 57 on February 8, 1791. The bank was endowed with a 20-year charter.

Debate on constitutionality of Bank

Madison's misgivings on the Bank's constitutionality raised doubts in President Washington's mind as to the legality of the Bank Bill. Washington delayed signing it to consult with his cabinet. Secretary of State

Thomas Jefferson Thomas Jefferson (, 1743July 4, 1826) was an American Founding Fathers of the United States, Founding Father and the third president of the United States from 1801 to 1809. He was the primary author of the United States Declaration of Indepe ...

and Attorney General

Edmund Randolph Edmund Jennings Randolph (August 10, 1753 September 12, 1813) was a Founding Father of the United States, attorney, and the seventh Governor of Virginia. As a delegate from Virginia, he attended the Constitutional Convention and helped to cre ...

concurred with Madison that the federal government was one of strictly

enumerated powers The enumerated powers (also called expressed powers, explicit powers or delegated powers) of the United States Congress are the powers granted to the federal government of the United States by the United States Constitution. Most of these powers ar ...

Miller, 1960, p. 58-59 and bolstered that argument by citing the Tenth Amendment. They advanced the position of

states' rights In United States, American politics of the United States, political discourse, states' rights are political powers held for the state governments of the United States, state governments rather than the federal government of the United States, ...

and believed in limited federal power.Malone, 1960, p. 263 The Tenth Amendment was not ratified until December 15, 1791 after the Bank Bill passed Congress on February 2, 1791 and so it was not then part of the Constitution. Hamilton's famous rebuttal on the Bank was submitted to Washington on February 23, 1791. It introduced the doctrine of "

implied powers In the United States, implied powers are powers that, although not directly stated in the Constitution, are indirectly given based on expressed powers. History When George Washington asked Alexander Hamilton to defend the constitutionality of the ...

" based on the principle of broad construction of the Constitution. He argued that the authority to create the Bank was not explicitly mandated in the Constitution but was inherent to a central government and was required for it to fulfill its duties prescribed in the founding document. The "broad" or "liberal"Malone, 1960, p. 264 interpretation swayed Washington, who signed the Bank Bill on February 25, 1791. Hamilton's success in advancing his fiscal and financial plans moved Madison and Jefferson towards establishing the political foundations for a

two-party system A two-party system is a political party system in which two major political parties consistently dominate the political landscape. At any point in time, one of the two parties typically holds a majority in the legislature and is usually referr ...

. Based on a

New York New York most commonly refers to: * New York (state), a state in the northeastern United States * New York City, the most populous city in the United States, located in the state of New York New York may also refer to: Places United Kingdom * ...

Virginia Virginia, officially the Commonwealth of Virginia, is a U.S. state, state in the Southeastern United States, Southeastern and Mid-Atlantic (United States), Mid-Atlantic regions of the United States between the East Coast of the United States ...

alliance, the

Democratic-Republican Party The Democratic-Republican Party (also referred to by historians as the Republican Party or the Jeffersonian Republican Party), was an American political party founded by Thomas Jefferson and James Madison in the early 1790s. It championed li ...

would defeat the

Federalist Party The Federalist Party was a conservativeMultiple sources: * * * * * * * * and nationalist American political party and the first political party in the United States. It dominated the national government under Alexander Hamilton from 17 ...

in the " Revolution of 1800."

Design, function, and performance of Bank

The

Miller, 1960, p. 55 had a mixture of government and private ownership and was subject to public oversight. The federal government appointed five of the 25 Bank's directors and held one fourth of its stock. The remaining 20 of the Bank's directors were selected, and the other 75% of its stock was provided by the investors. The Secretary of the Treasury was presented with statements by Bank administrators to see that the

debt limit A debt limit or debt ceiling is a legislative mechanism restricting the total amount that a country can borrow or how much debt it can be permitted to take on. Several countries have debt limitation restrictions. Description A debt limit is a ...

did not exceed $10 million exclusive of deposits and to assure its compliance with the government's rules of incorporation. Certificates of indebtedness, or government

American Revolutionary War The American Revolutionary War (April 19, 1775 – September 3, 1783), also known as the Revolutionary War or American War of Independence, was the armed conflict that comprised the final eight years of the broader American Revolution, in which Am ...

debt, had been paid with government securities at face value, plus arrears of interest, under the terms of Hamilton's

First Report on the Public Credit The First Report on the Public Credit was one of four major reports on fiscal and economic policy submitted by Founding Father and first US Treasury Secretary Alexander Hamilton on the request of Congress. The report analyzed the financial stand ...

.Staloff, 2004, p. 97 The new securities were accepted by the Bank to purchase its stock up to three quarters (75%) of their value. Based on the collateral of the securities, the Bank issued new notes, producing a dramatic increase in the money supply and serving as the principal circulating medium, the legal tender, for the country. Hamilton enlisted the United States in a generous short-term loan arrangement in which the federal government borrowed $2 million in Bank stock with funds lent by the Bank itself.Miller, 1960, p. 56 "By 1792," observed the historian John Chester Miller, "largely as a result of the leadership assumed by Alexander Hamilton, the heavy war debt dating from the struggle for independence had been put in the course of ultimate extinction, the price of government securities had been stabilized close to their face value, hoarded wealth had been brought out of hiding, a system of debt management had been created, the power of the Federal government had been decisively asserted over the states, foreign capital had begun to pour into the United States, and the credit of the Federal government had been solidly established."Miller, 1960, p. 68-69 The Reports on the Public Credit and Hamilton's arguments for the Bank of the United States "laid the philosophical foundation for a genuinely effective national government."

References

Cited in footnotes

* Brock, W.R. 1957. ''The Ideas and Influence of Alexander Hamilton'' in Essays on the Early Republic: 1789-1815. Ed. Leonard W. Levy and Carl Siracusa. New York: Holt, Rinehart and Winston, 1974. * Burstein, Andrew and Isenberg, Nancy. 2010. ''Madison and Jefferson''. New York: Random House * Ellis, Joseph J. 2000. ''Founding Brothers: The Revolutionary Generation.'' Vintage Books. New York. * Garraty, John A. and Carnes, Mark C. 1999. American National Biography. Oxford University Press, New York. * Hofstadter, Richard. 1948. ''The American Political Tradition and the Men Who Made It''. New York: A. A. Knopf. * Malone, Dumas and Rauch, Basil. 1960. ''Empire for Liberty: The Genesis and Growth of the United States of America''. Appleton-Century Crofts, Inc. New York. * Miller, John C. 1960. ''The Federalists: 1789-1801.'' Harper & Row, New York. * Staloff, Darren. 2005. ''Hamilton, Adams, Jefferson: The Politics of Enlightenment and the American Founding''. Hill and Wang, New York.

External links

Full text entitled "Second Report on the Further Provision Necessary for Establishing Public Credit"
''Founders Online'',

National Archives and Records Administration The National Archives and Records Administration (NARA) is an independent agency of the United States government within the executive branch, charged with the preservation and documentation of government and historical records. It is also task ...

. (Accessed 2016-10-25) {{Authority control Banking in the United States National debt of the United States Financial history of the United States Government finances in the United States 1790s in the United States Works by Alexander Hamilton 1790 documents

Debate on constitutionality of Bank

Design, function, and performance of Bank

See also

References

Cited in footnotes

External links