Second Report on Public Credit

The Second Report on Public Credit was the second report of three major reports on economic policy issued by Founding Father of the United States and first United States Treasury Secretary Alexander Hamilton on the request of Congress for consideration on establishing a national banking system with the creation of the Bank of the United States; privately operated but owned in part by the government.

Plan's proposals

Hamilton believed that a national bank could achieve the following purposes:

• make loans
• handle government funds
• issue financial notes
• provide national currency
• help the national government regulate finance efficiently

Plan's support

Thomas Jefferson, together with James Madison believed that creating such a power as the Bank of the United States, if not now, then soon enough would cause the elastic clause to be stretched too far, causing all the state divisions to be subsumed under a single, powerful national government. Jefferson specifically could find no enabling principle in the Constitution for a bank, but Hamilton said there were "implied powers" in the document which were needed to make the system work. The bank, a public corporation funded by private capital, would serve as the depository of government funds and the fiscal agent of the Treasury. President Washington disagreed but Hamilton won support as with his first reports proposals, and in 1791 the First Bank of the United States was given a 20 year charter, and immediately provided services to government, merchants, and financiers that helped create a national market. Hamilton won another round in 1791 when the Congress imposed excise taxes on distilled liquor. The bank went into operation in 1791.

Plan's results

Although the democratic-republicans denounced "speculation", Hamilton's program had strong positive effects on the economy. The creation of paper securities created liquid wealth that could be moved by entrepreneurs to the areas of fastest growth; they also attracted much needed European investment. The securities provided collateral for loans which were used to invest in new turnpikes, bridges, canals, steamboats, mines, mills, factories and international trade. The economy flourished in the 1790s; exports, for example, tripled in value from 1791 ($19 million) to 1796 ($67 million), with most carried in American ships. However, after Hamilton left office in 1795, his successor, Oliver Wolcott Jr., informed congress that the federal government needed more funding and recommended selling the government's share in the stock of the First Bank. Congress agreed and divested from the bank. A few years later the United States suffered a depression following the collapse of a real estate bubble in 1796-1797. Thousands of Americans went bankrupt and many of them, including Robert Morris, the "Financier of the Revolution", were punished with years in debtors' prison. Congress refused to renew the First Bank's charter in 1811 and the bank was subsequently purchased by Stephen Girard.

See also

• First Report on the Public Credit - Hamiton's report on public finance.
• Report on Manufactures -Hamilton's report on encouraging manufacturing.
• Federalist Party - Hamilton's political party.
• Political economy - Overview of economic theory research.