fbpx
Wikipedia

First Report on the Public Credit

January 22, 2023

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.[1] The report analyzed the financial standing of the United States and made recommendations to reorganize the national debt and to establish the public credit.[2] Commissioned by the US House of Representatives on September 21, 1789, the report was presented on January 9, 1790,[3] at the second session of the 1st US Congress.[4]

First Report on the Public Credit
Alexander Hamilton's First Report on the Public Credit, January 9, 1790

The 40,000-word document[5] called for full federal payment at face value to holders of government securities ("redemption")[3] and the federal government to assume funding of all state debt ("assumption").[3] The political stalemate[6] in Congress that ensued led to the Compromise of 1790, which located the permanent US capital on the Potomac River ("residency").

The Federalists' success in winning approval for Hamilton's reforms led to the emergence of an opposition party, the Democratic-Republicans[7] and set the stage for political struggles that would persist for decades in American politics.[8]

Government debt under the Articles of Confederation

During the American Revolution, the Continental Congress, under the Articles of Confederation, amassed huge war debts but lacked the power to service these obligations by tariffs or other taxation.[9][10] As an expedient, the revolutionary government resorted to printing money and bills of credit,[3] but that currency rapidly underwent depreciation.[3][9] To avoid bankruptcy, the Continental Congress eliminated $195 million of its $200 million debt by fiat.[9][10] After the American Revolutionary War, the Continental currency, called "Continentals," would be deemed worthless.[3]

 
Continental One Third Dollar Note (obverse)

With its finances in disarray, the legislature abdicated its fiscal responsibilities by shifting them to the 13 states.[9] When the state legislatures failed to meet quotas for war material by local taxation, Patriot armies turned to confiscating supplies from farmers and tradesmen, compensating them with IOUs of uncertain value.[11] By the end of the war, over $90 million in state debt was outstanding.[12] Much of the state and national fiscal disorder, exacerbated by an economic crisis in urban commercial centers,[13] had remained unresolved when the Report was issued.[14]

Funding of national debt

With ratification of the US Constitution in 1787,[15] Congress could impose import duties and levy taxes for the raising of revenue to honor those financial obligations.[15][16]

The US national debt, according to the Report, included $40 million in domestic debt and $12 million in foreign debt, both of which were inherited from the Continental Congress.[17][18] In addition, the 13 states altogether owed $25 million from debts incurred during the American Revolution. The combined US debt, as calculated, stood at $77 million.[19][20]

A consensus arose in Congress for the primary source of revenue to be tariff and tonnage duties,[21][22] which would serve to cover operating expenses for the central government and to pay interest and principal on foreign and domestic debt.[21] Under the guidance of US Representative James Madison, who led the House,[23] a tariff act was passed on July 4, 1789.[21][22]

Congress created the executive departments in September 1789, and Alexander Hamilton was confirmed by the Senate to regulate the powerful Treasury Department.[23][24] Madison, having "actively promoted" Hamilton's appointment,[25] was expected to co-operate in creating an energetic central government.[26]

Schemes to establish public credit: repudiation, discrimination, redemption

 
Alexander Hamilton portrait by John Trumbull 1806

With sources of revenue legislated, Congress proceeded to address the pressing issue of public credit.[27] Establishing government credit, the government's ability to borrow, was deemed a necessity if the nation was to endure.[10] To convince investors to purchase US securities, a system was needed for the reliable payment of interest.[10] Considering the magnitude of the debt burden that it had inherited,[28] Congress wished to dispose of it with economy,[10] and "the only real difference of opinion... was how much of the existing debt had to be redeemed in order to establish the government credit."[10]

Various plans had been considered to pay down the domestic debt under the new federal government.[29] Some advocates wanted to scale back the debt to ease tax burdens abruptly to retire the debt quickly. Proposals to default on the loans were termed partial or full "repudiation."[30] None of them, however, suggested defaulting on any portion of the $12 million foreign debt,[31] with $1.5 million in interest,[32] which was regarded as a "sacred obligation [to be] paid in full."[10]

A significant portion of the nation's $40 million domestic debt [20] was owed to Patriots who had supported the War of Independence by loans or personal service. Many of them were combat veterans who, during demobilization in 1783,[13] had been paid in IOUs, "certificates of indebtedness"[33] or "securities" (not to be confused with the worthless Continental currency or bills of credit)[3] and redeemable when the government's fiscal order had been restored.[34]

Schemes more in sympathy with the ex-soldiers who had relinquished their certificates to speculators at reduced rates were termed "discrimination" and called for paying the original holder of the security at full value and for reimbursing the current holder of the security at its purchase price. The combined payments would, however, exceed the denomination of the original certificate.[35]

US Representative James Madison of Virginia offered his own variation of "discrimination" that would preserved the federal obligation of face value debt repayment.[30] In his version, current certificate holders would be reimbursed at their purchase price for the devalued certificate, and the balance would be handed to the original holder. The government outlay would match the face value of the original certificate.[36]

Hamilton rejected both "repudiation" and "discrimination" and championed "redemption," the reserving of payment at full value strictly to the current holders of the certificates, with arrears of interest.[37]

Near the close of the first session of the 1st Congress in September 1789, with the matter of establishing public credit unresolved, the legislature directed the new Secretary of the Treasury, Alexander Hamilton, to prepare a report on credit.[38]

Political debate over Hamilton's "Redemption"

 
James Madison

Hamilton's First Report on the Public Credit was delivered to Congress on January 9, 1790. It called for payment in full on all government debts as the foundation for establishing government credit.[39] Hamilton argued that to be required for the creation of a favorable climate for investment in government securities and for the transformation of the public debt to a source of capital.[40] His model was the British financial system, which absolutely required fidelity to creditors.[41]

Before the government could resume borrowing,[10] Hamilton insisted for the $13 million in arrears of interest to be converted into principal, with payments at 4% on reissued securities.[42] The plan would be funded by pledging a portion of the government tariff and tonnage revenue irrevocably to the payment schedule.[43] Additionally, contracted debt would be serviced by sinking funds derived from postal service revenue that was earmarked for that purpose.

Rather than seeking to liquidate the national debt, Hamilton recommended for government securities to be traded at par to promote their exchange as legal tender equivalent in value to hard currency.[40] Regular payments of the public debt would allow Congress to increase federal money supply safely, which would stimulate capital investments in agriculture and manufacturing. With economic prosperity, the enterprises would more easily carry their tax burdens and provide the revenue to service the national debt.[44]

Monied speculators, alerted that Congress, under the new Constitution, might provide for payment at face value for certificates, sought to buy up devalued securities for profit and investment.[45] Concerns arose since many certificates, almost three quarters of them,[46] had been exchanged for well below par during periods of inflation,[34] some as low as 10 cents on the dollar,[47] but they sold at 20-25% while the Report was debated.[48]

When the report was made public in January 1790, speculators in Philadelphia and New York sent buyers by ship to southern states to buy up securities before the South became aware of the plan. Devalued certificates were relinquished by holders at low rates even after the news had been received, which reflected the widely held conviction in the South that the credit and assumption measures would be defeated in Congress. The value of government certificates continued to fall months after Hamilton's scheme was published, and "the sellers speculated upon the purchasers."[49]

US Representative James Madison led a vigorous opposition to Hamilton's "redemption"[30][50] but fully supported the development of good credit. In his address to the House on February 11, 1790, Madison characterized Hamilton's "redemption" as a formula to defraud "battle-worn veterans of the war for independence" [30] and a handout to well-to-do speculators, mostly rich Northerners, including some members of Congress.[51] Madison's "discrimination" promised to correct those abuses in the names of financial rectitude and natural justice.[36]

Introducing political rhetoric into the debate that resonated with his home state of Virginia,[52] Madison laid the groundwork for a national party for democrats.[53] His principled opposition to "redemption" was consistent with his view of a federal government designed to shield the less powerful from a majority interest, in this case his agrarian constituency, from Federalist-sponsored economic nationalism.[54]

The essence of Hamilton's economic position on "redemption" was that any compromise on the sanctity of promissory notes would undermine confidence in credit[55] and that concentrating capital into fewer hands would strengthen commercial investment and encourage constructive economic growth,[56] which would enlarge government credit available to business enterprises.[57]

As Hamilton's plan would greatly simplify and streamline finances, he found Madison's concern over the question of honoring both original and present holders of government securities naïve and counterproductive.[58]

Adopting a much-broader view of the effects of speculation, Hamilton acknowledged that many certificates had been obtained by wealthy individuals, but he considered the "few great fortunes" of minor significance and a "necessary evil" in the transition to sound credit.[59] His object was "to serve the nation, not to enrich a clique," and to establish faith in the national currency to avoid bankruptcy.[60] Ultimately, he wished to unleash the vast productive potential he perceived as part of America's destiny.[61]

In promoting the utility of his program, however, Hamilton had neglected to address popular perceptions of injustices to wartime patriots by postwar speculation.[62] The Federalists, yoking their political fortunes to the financial elites,[63] failed to cultivate their natural political base: "small businessmen and conservative farmers."[64] Hamilton confessed years later that "the Federalists have... erred in relying so much on the rectitude and utility of their measures, as to have neglected the cultivation of popular favor, by fair and justifiable expedients."[65]

Congress rejected Madison's "discrimination" in favor of Hamilton's "redemption" by 36 to 13 in the House of Representatives,[30] which preserved the sanctity of contracts as the cornerstone establishing confidence in public credit.[66] Madison's defeat, however, established his reputation "as a friend of the common man."[67]

Credit, private or public, is of greatest consequence to every country. Of this, it might be called the invigorating principle.

— Alexander Hamilton [29]

"Assumption:" shifting state debt to federal government

The key provision in Hamilton's fiscal reform was termed "assumption" and called for the 13 states to consolidate their outstanding debt of $25 million[68] and to transfer it to the federal government for servicing under a general funding plan.[69]

Hamilton's chief objectives were both economic and political.[36][70] Economically, state securities were vulnerable to local fluctuations in value and thus to speculative buying and selling, activities that would threaten the integrity of a national credit system.[71] Furthermore, with each state legislature formulating separate repayment plans, the federal government would be forced to compete with states for sources of tax revenue. Hamilton's "assumption" promised to obviate those conflicts.[72]

Politically, Hamilton sought to "tie the creditors to the new [central] government"[73] by linking their financial fortunes to the success of his economic nationalism.[74] That would, in turn, gradually cause a decline in state authority and a relative increase in federal influence.[50][75]

Agrarian opposition to "assumption"

Hamilton's funding scheme and "redemption" had won relatively quick approval,[76] but "assumption" was stalled by bitter resistance from southern legislators, led by James Madison.[77]

One of the effects of "assumption" would be to distribute the collective debt burden among all the states, the more solvent members paying a share of the more indebted ones.[78] Most of the southern states, except for South Carolina, had successfully paid down the bulk of their wartime debt.[79] Virginia, relatively debt-free, led the fight against 'assumption." Madison argued that the proposed national tax would overburden Virginia planters operating on a narrow margin of profit.[36][80] Requiring solvent states to contribute to states suspected of mismanaging their fiscal affairs was deemed unjust.[81]

Before any vote on "assumption," Madison insisted on a balancing of state accounts, termed "settlement," to determine the burden that each state would be compelled to contribute under the plan. He calculated that under Hamiliton's plan, Virginia would be responsible for providing $5 million in new federal revenue, but the federal government would assume only $3 million of Virginia's debt.[82]

In surrendering their debt into the hands of the Treasury Department, the states would sanction the principle of collective decision-making at the national level on state matters and "enormously strengthen" the influence of the federal government.[83] At the heart of the opposition lay a political fear of "consolidation," with power and wealth concentrated in fewer hands and the states "absorbed by the new federal government."[84]

Madison and his majority in the House blocked passage of the legislation on "assumption" in a test vote in April.[85] Subsequent votes ended in rejection and had brought "the business of Congress to a standstill" by June 1790.[86]

"Residency," "assumption," and "dinner-table bargain"

The US Constitution had provided for the establishment of a permanent "seat of government," a national capital, without designating a location.[87] New York City served as a temporary site to conduct federal affairs until a permanent "residence" could be agreed upon.[88] Intense Congressional debates arose over the "residency question" and resulted in proposals identifying 16 possible sites in competing states, none of which could muster majority support.[87][89] A number of government officials and state delegations gathered in clandestine meetings and political dinners[90] to resolve the stalled "assumption" bill by linking the "residency" debate to passage of Hamilton's financial program.[91]

Thomas Jefferson, who recently returned from France, where he had acted as a foreign diplomat, understood the practical necessity of Hamilton's fiscal goals establishing America's legitimacy throughout Europe's financial centers.[92] As the newly appointed Secretary of State, Jefferson invited Hamilton to meet privately with the opposition leader James Madison in an effort to broker a compromise on "assumption" and "residence."[93][94] The "dinner-party bargain"[95][96] made Madison withdraw his opposition and permit passage of the Assumption Bill.[97] For his part, Hamilton agreed to suppress opposition for the permanent location of the nation's capital at Georgetown on the Potomac, the present site of Washington, DC.[96][98] Hamilton's support was superfluous, as the Potomac location had already been secured.[95][99]

Jefferson and Madison acquiesced in the passage of "assumption" as an expedient to avoid government bankruptcy and disunion,[100][101] not because they condoned Hamilton's economic nationalism.[102] Jefferson's "dinner-party"[6] was in fact "the final chapter in an ongoing negotiation that [succeeded] because the ground had already been prepared"[99][103] and produced "the first great compromise of the new federal government."[102]

Jefferson and Madison extracted a major concession from Hamilton in the recalculation of Virginia's debt under the fiscal plan.[104] A zero-sum arrangement was contrived in which Virginia would pay $3.4 million to the federal government and receive exactly that amount in federal compensation.[99] The revision of Virginia 's debt, coupled with Potomac residence, ultimately netted it over $13 million.[105]

Indifferent to agrarian hostility to his economic proposals,[106] Hamilton had "[driven] into alliance two very different trends of opinion: the "gentlemen planters" cherished local autonomy and limited government enlisted the support of lower-middle class, and "artisans and western farmers" favored democratic government and majority rule.[107] Those forces, one with Republican commitments, the other with Democratic convictions, united in common cause against Hamilton's reforms and "laid the basis for a national party."[108]

The Residence Bill passed in the House by a vote of 32 to 29 on July 9, 1790, and the Assumption Bill cleared by a vote of 34 to 28 on July 26, 1790.[109]

Administration and performance

The adoption of Hamilton's report had the immediate effect of converting what had been virtually worthless federal and state certificates of indebtedness to $60 million of funded government securities.[110] The fully funded central government regained the ability to borrow and attracted foreign investment as social unrest destabilized Europe. In addition, the newly issued bonds provided a circulating currency and stimulated business investment.[110]

Hamilton submitted a schedule of excise taxes on December 13, 1790 [111] to augment revenue necessary to service debts assumed from the states.[112] The national debt reached $80 million and required nearly 80% of annual government expenditures. The interest alone on the national debt consumed 40% of the national revenue between 1790 and 1800.[56]

Hamilton was instrumental in setting up a national administration that would carry out those programs. Setting the highest possible standard, he has been called "one of the greatest administrators of all time."[113] He modernized performance in public office and personally oversaw the details of an increasingly complex system "without sacrificing dispatch, clarity or discipline."[113]

The Treasury Department quickly grew in stature and personnel, encompassing the United States Customs Service, the United States Revenue Cutter Service, and the network of Treasury agents that Hamilton had foreseen.[114] Hamilton immediately followed up his success with the Second Report on Public Credit, which contained his plan for the Bank of the United States, a national, privately operated bank endowed with public funds that became the forerunner of the Federal Reserve System. In 1791 Hamilton released a third report, the Report on Manufactures, which encouraged the growth and protection of manufacturing.

Hamilton's First Report on the Public Credit and his subsequent reports on a national bank and manufacturing stand as "the most important and influential state papers of their time and remain among the most brilliant government reports in American history."[115]

See also

References

  1. ^ Brock, 1957, p. 40
  2. ^ Staloff, 2005, p. 91, Malone, 1960, p. 259 p. 259
  3. ^ a b c d e f g Malone, 1960, p. 260
  4. ^ Brock, 1957, p. 41, Smith, 1980, p. 147
  5. ^ Ellis, 2000, p. 60
  6. ^ a b Ellis, 2000, p. 50
  7. ^ Brock, 1959, p. 44, p. 45, Ellis, 2000, p. 80, Hofstadter, 1957, p. 14
  8. ^ Brock, 1957, p. 41, Hofstadter, 1948, p. 14, Malone, 1960, p. 265
  9. ^ a b c d Staloff, 2005, p. 69
  10. ^ a b c d e f g h Miller, 1960, p. 37
  11. ^ Staloff, 2005, p. 69-70
  12. ^ Staloff, 2005, p. 70
  13. ^ a b Hofstadter, 1957, p. 125
  14. ^ Ellis, 2000, p. 61
  15. ^ a b Miller, 1960, p. 14
  16. ^ Malone, 1960, p. 256
  17. ^ Smith, 198, p. 147
  18. ^ Staloff, 2005, p. 91-92
  19. ^ Staloff, 2005, p. 92
  20. ^ a b Ellis, 2000, p. 55
  21. ^ a b c Miller, 1960, p. 15
  22. ^ a b Malone, 1957, p. 256
  23. ^ a b Miller, 1960, p. 33
  24. ^ Malone, 1957, p. 257
  25. ^ Miller, 1960, p. 36
  26. ^ Miller, 1960, p. 35
  27. ^ Miller, 1960, p. 36-37, Malone, 1957, p. 259,
  28. ^ Miller, 1960, p. 14, p. 38
  29. ^ a b Brock, 1957, p. 41
  30. ^ a b c d e Ellis, 2000, p. 56
  31. ^ Brock, 1957, p. 41, Burstein, 2010, p. 214
  32. ^ Miller, 1960, p. 38
  33. ^ Malone, 1960, p. 260, Brock, 1957, p. 41
  34. ^ a b Ellis, 2000, p. 55-56
  35. ^ Brock, 1957, p. 41-42
  36. ^ a b c d Brock, 1957, p. 42
  37. ^ Malone, 1960, p. 259
  38. ^ Malone, 1957, p. 259, Miller, 1960, p. 39
  39. ^ Miller, 1960, p. 39
  40. ^ a b Staloff, 2005, p. 93
  41. ^ Miller, 1960, p. 40
  42. ^ Staloff, 2005, p. 92-93, Brock, 1957, p. 39
  43. ^ Miller, 1960, p. 39-40
  44. ^ Staloff, 2005, p. 94
  45. ^ Ellis, 2000, p. 56, Brock, 1957, p. 42, Miller, 1960, p. 44
  46. ^ Staloff, 2005, p. 92-93
  47. ^ Burstein, 2010, p. 214
  48. ^ Malone, 1960, p. 260, Staloff, 2005, p. 92
  49. ^ Miller, 1960, p. 44-45
  50. ^ a b Burstein, 2010, p. 214-215
  51. ^ Burstein, 2010, p. 214, Brock, 1957, p. 42, Miller, 1960, p. 42
  52. ^ Brock, 1957, p. 45
  53. ^ Brock, 1957, p. 46
  54. ^ Brock, 1957, p. 46, Miller, 1960, p. 41,
  55. ^ Brock, 1957, p. 42, Ellis, 2000, p. 62
  56. ^ a b Miller, 1960, p. 53
  57. ^ Ellis, 2000, p. 56, Miller, 1960, p. 41, Brock, 1957, p. 43
  58. ^ Ellis, 2000, p. 61, Miller, 1960, p. 41, Staloff, 2005, p. 95
  59. ^ Malone, 1960, p. 260, Brock, 1957, p. 43
  60. ^ Brock, 1957, p. 43
  61. ^ Brock, 1957, p. 52, Ellis, 2000, p. 61, p. 63, Staloff, 2005, p. 85, p. 86
  62. ^ Ellis, 2000, p. 61, Brock, 1957, p. 39 p. 41-42
  63. ^ Ellis, 2000, p. 64
  64. ^ Brock, 1957, p. 44
  65. ^ Brock, 1957, p. 39
  66. ^ Malone, 1960, p. 260, Staloff, 2005, p. 96, Miller, 1960, p. 43
  67. ^ Miller, 1960, p. 43
  68. ^ Ellis, 2000, p. 55, Varon, 2008, p. 31,
  69. ^ Ellis, 2000, p. 55, Staloff, 2005, p. 92, p. 96
  70. ^ Miller, 1969, p. 39
  71. ^ Brock, 1957, p. 42, Ellis, 2000, p. 57
  72. ^ Staloff, 2005, p. 92, p. 96
  73. ^ Smith, 1980, p. 147
  74. ^ Brock, 1957, p. 42, Miller, 1960, Staloff, 2005, p. 96
  75. ^ Miller, 1960, p. 41
  76. ^ Staloff, 2005, p. 96, p. 312
  77. ^ Ellis, 2000, p. 48
  78. ^ Smith, 1980, p. 148, Miller, 1960, p. 46
  79. ^ Malone, 1960, p. 260, Ellis, 2000, p. 57
  80. ^ Ellis, 2000, p. 65
  81. ^ Brock, 1957, p. 42, Ellis, 2000, p. 57, Burstein & Isenberg, 2010, p. 216
  82. ^ Ellis, 2000, p. 58, Miller, 1960, p. 46-47
  83. ^ Brock, 1957, p. 42, Ellis, 2000, p. 58, Burstein & Isenberg, 2010, p. 214-215
  84. ^ Ellis, 2000, p. 59
  85. ^ Malone, 1960, p. 261
  86. ^ Staloff, 2005, p. 312, Miller, 1960, p. 47
  87. ^ a b Ellis, 2000, p. 69
  88. ^ Ellis, 2000, p. 67
  89. ^ Malone, 1960, 261
  90. ^ Miller, 1960, p. 48
  91. ^ Ellis, 2000, p.50,p 72
  92. ^ Ellis, 2000, p. 68
  93. ^ Staloff, 2005, p. 96, p. 313
  94. ^ Ellis, 2000, p. 48-49
  95. ^ a b Burstein & Isenberg, 2010, p. 218
  96. ^ a b Ellis, 2000, p. 49
  97. ^ Miller, 1960, p. 49
  98. ^ Staloff, 2005, p. 313
  99. ^ a b c Ellis, 2000, p. 73
  100. ^ Varon, 2008, p. 31
  101. ^ Ellis, 2000, p. 50-51, p. 78
  102. ^ a b Staloff, 2005, p. 313
  103. ^ Burstein & Isenberg, 2010, p.218 - 219
  104. ^ Staloff, 2005, p. 96-97
  105. ^ Staloff, 2005, p. 96, p. 313, Ellis, 2000, p. 73-74
  106. ^ Brock, 1957, p. 42,
  107. ^ Hofstadter, 1948, p. 14-15
  108. ^ Malone, 1960, p. 260, Brock, 1957, p. 45, Staloff, 2005, p. 313
  109. ^ Ellis, 2000, p. 50, Smith, 1980, p. 154
  110. ^ a b Miller, 1960, p. 50
  111. ^ Staloff, 2006, p. 97
  112. ^ Miller, 1960, p. 155
  113. ^ a b Brock, 1959, p. 39
  114. ^ American Experience, hour 2American Experience
  115. ^ Staloff, 2005, p. 91, Miller, 1960, p. 63

Sources

  • Bordewich, Fergus M. The First Congress: How James Madison, George Washington, and a Group of Extraordinary Men Invented the Government (2016) on 1789–91.
  • 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
  • Chernow, Ron (2004). Alexander Hamilton. New York: Penguin Books. ISBN 1-59420-009-2.
  • Ellis, Joseph J. 2000. Founding Brothers: The Revolutionary Generation., Alfred A. Knopf. New York. ISBN 0-375-40544-5
  • 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. ISBN 9781577660316
  • Staloff, Darren. 2005. Hamilton, Adams, Jefferson: The Politics of Enlightenment and the American Founding. Hill and Wang, New York. ISBN 0-8090-7784-1

External links

  • Full text entitled "Report Relative to a Provision for the Support of Public Credit". Founders Online, National Archives and Records Administration (Accessed 2016-10-25).
  • The original text from George Washington University
  • Alexander Hamilton. PBS American Experience (2007-05-14).

January 22, 2023
first, report, public, credit, four, major, reports, fiscal, economic, policy, submitted, founding, father, first, treasury, secretary, alexander, hamilton, request, congress, report, analyzed, financial, standing, united, states, made, recommendations, reorga. 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 1 The report analyzed the financial standing of the United States and made recommendations to reorganize the national debt and to establish the public credit 2 Commissioned by the US House of Representatives on September 21 1789 the report was presented on January 9 1790 3 at the second session of the 1st US Congress 4 First Report on the Public Credit Alexander Hamilton s First Report on the Public Credit January 9 1790The 40 000 word document 5 called for full federal payment at face value to holders of government securities redemption 3 and the federal government to assume funding of all state debt assumption 3 The political stalemate 6 in Congress that ensued led to the Compromise of 1790 which located the permanent US capital on the Potomac River residency The Federalists success in winning approval for Hamilton s reforms led to the emergence of an opposition party the Democratic Republicans 7 and set the stage for political struggles that would persist for decades in American politics 8 Contents 1 Government debt under the Articles of Confederation 2 Funding of national debt 3 Schemes to establish public credit repudiation discrimination redemption 4 Political debate over Hamilton s Redemption 5 Assumption shifting state debt to federal government 6 Agrarian opposition to assumption 7 Residency assumption and dinner table bargain 8 Administration and performance 9 See also 10 References 11 Sources 12 External linksGovernment debt under the Articles of Confederation EditDuring the American Revolution the Continental Congress under the Articles of Confederation amassed huge war debts but lacked the power to service these obligations by tariffs or other taxation 9 10 As an expedient the revolutionary government resorted to printing money and bills of credit 3 but that currency rapidly underwent depreciation 3 9 To avoid bankruptcy the Continental Congress eliminated 195 million of its 200 million debt by fiat 9 10 After the American Revolutionary War the Continental currency called Continentals would be deemed worthless 3 Continental One Third Dollar Note obverse With its finances in disarray the legislature abdicated its fiscal responsibilities by shifting them to the 13 states 9 When the state legislatures failed to meet quotas for war material by local taxation Patriot armies turned to confiscating supplies from farmers and tradesmen compensating them with IOUs of uncertain value 11 By the end of the war over 90 million in state debt was outstanding 12 Much of the state and national fiscal disorder exacerbated by an economic crisis in urban commercial centers 13 had remained unresolved when the Report was issued 14 Funding of national debt EditWith ratification of the US Constitution in 1787 15 Congress could impose import duties and levy taxes for the raising of revenue to honor those financial obligations 15 16 The US national debt according to the Report included 40 million in domestic debt and 12 million in foreign debt both of which were inherited from the Continental Congress 17 18 In addition the 13 states altogether owed 25 million from debts incurred during the American Revolution The combined US debt as calculated stood at 77 million 19 20 A consensus arose in Congress for the primary source of revenue to be tariff and tonnage duties 21 22 which would serve to cover operating expenses for the central government and to pay interest and principal on foreign and domestic debt 21 Under the guidance of US Representative James Madison who led the House 23 a tariff act was passed on July 4 1789 21 22 Congress created the executive departments in September 1789 and Alexander Hamilton was confirmed by the Senate to regulate the powerful Treasury Department 23 24 Madison having actively promoted Hamilton s appointment 25 was expected to co operate in creating an energetic central government 26 Schemes to establish public credit repudiation discrimination redemption Edit Alexander Hamilton portrait by John Trumbull 1806 With sources of revenue legislated Congress proceeded to address the pressing issue of public credit 27 Establishing government credit the government s ability to borrow was deemed a necessity if the nation was to endure 10 To convince investors to purchase US securities a system was needed for the reliable payment of interest 10 Considering the magnitude of the debt burden that it had inherited 28 Congress wished to dispose of it with economy 10 and the only real difference of opinion was how much of the existing debt had to be redeemed in order to establish the government credit 10 Various plans had been considered to pay down the domestic debt under the new federal government 29 Some advocates wanted to scale back the debt to ease tax burdens abruptly to retire the debt quickly Proposals to default on the loans were termed partial or full repudiation 30 None of them however suggested defaulting on any portion of the 12 million foreign debt 31 with 1 5 million in interest 32 which was regarded as a sacred obligation to be paid in full 10 A significant portion of the nation s 40 million domestic debt 20 was owed to Patriots who had supported the War of Independence by loans or personal service Many of them were combat veterans who during demobilization in 1783 13 had been paid in IOUs certificates of indebtedness 33 or securities not to be confused with the worthless Continental currency or bills of credit 3 and redeemable when the government s fiscal order had been restored 34 Schemes more in sympathy with the ex soldiers who had relinquished their certificates to speculators at reduced rates were termed discrimination and called for paying the original holder of the security at full value and for reimbursing the current holder of the security at its purchase price The combined payments would however exceed the denomination of the original certificate 35 US Representative James Madison of Virginia offered his own variation of discrimination that would preserved the federal obligation of face value debt repayment 30 In his version current certificate holders would be reimbursed at their purchase price for the devalued certificate and the balance would be handed to the original holder The government outlay would match the face value of the original certificate 36 Hamilton rejected both repudiation and discrimination and championed redemption the reserving of payment at full value strictly to the current holders of the certificates with arrears of interest 37 Near the close of the first session of the 1st Congress in September 1789 with the matter of establishing public credit unresolved the legislature directed the new Secretary of the Treasury Alexander Hamilton to prepare a report on credit 38 Political debate over Hamilton s Redemption Edit James Madison Hamilton s First Report on the Public Credit was delivered to Congress on January 9 1790 It called for payment in full on all government debts as the foundation for establishing government credit 39 Hamilton argued that to be required for the creation of a favorable climate for investment in government securities and for the transformation of the public debt to a source of capital 40 His model was the British financial system which absolutely required fidelity to creditors 41 Before the government could resume borrowing 10 Hamilton insisted for the 13 million in arrears of interest to be converted into principal with payments at 4 on reissued securities 42 The plan would be funded by pledging a portion of the government tariff and tonnage revenue irrevocably to the payment schedule 43 Additionally contracted debt would be serviced by sinking funds derived from postal service revenue that was earmarked for that purpose Rather than seeking to liquidate the national debt Hamilton recommended for government securities to be traded at par to promote their exchange as legal tender equivalent in value to hard currency 40 Regular payments of the public debt would allow Congress to increase federal money supply safely which would stimulate capital investments in agriculture and manufacturing With economic prosperity the enterprises would more easily carry their tax burdens and provide the revenue to service the national debt 44 Monied speculators alerted that Congress under the new Constitution might provide for payment at face value for certificates sought to buy up devalued securities for profit and investment 45 Concerns arose since many certificates almost three quarters of them 46 had been exchanged for well below par during periods of inflation 34 some as low as 10 cents on the dollar 47 but they sold at 20 25 while the Report was debated 48 When the report was made public in January 1790 speculators in Philadelphia and New York sent buyers by ship to southern states to buy up securities before the South became aware of the plan Devalued certificates were relinquished by holders at low rates even after the news had been received which reflected the widely held conviction in the South that the credit and assumption measures would be defeated in Congress The value of government certificates continued to fall months after Hamilton s scheme was published and the sellers speculated upon the purchasers 49 US Representative James Madison led a vigorous opposition to Hamilton s redemption 30 50 but fully supported the development of good credit In his address to the House on February 11 1790 Madison characterized Hamilton s redemption as a formula to defraud battle worn veterans of the war for independence 30 and a handout to well to do speculators mostly rich Northerners including some members of Congress 51 Madison s discrimination promised to correct those abuses in the names of financial rectitude and natural justice 36 Introducing political rhetoric into the debate that resonated with his home state of Virginia 52 Madison laid the groundwork for a national party for democrats 53 His principled opposition to redemption was consistent with his view of a federal government designed to shield the less powerful from a majority interest in this case his agrarian constituency from Federalist sponsored economic nationalism 54 The essence of Hamilton s economic position on redemption was that any compromise on the sanctity of promissory notes would undermine confidence in credit 55 and that concentrating capital into fewer hands would strengthen commercial investment and encourage constructive economic growth 56 which would enlarge government credit available to business enterprises 57 As Hamilton s plan would greatly simplify and streamline finances he found Madison s concern over the question of honoring both original and present holders of government securities naive and counterproductive 58 Adopting a much broader view of the effects of speculation Hamilton acknowledged that many certificates had been obtained by wealthy individuals but he considered the few great fortunes of minor significance and a necessary evil in the transition to sound credit 59 His object was to serve the nation not to enrich a clique and to establish faith in the national currency to avoid bankruptcy 60 Ultimately he wished to unleash the vast productive potential he perceived as part of America s destiny 61 In promoting the utility of his program however Hamilton had neglected to address popular perceptions of injustices to wartime patriots by postwar speculation 62 The Federalists yoking their political fortunes to the financial elites 63 failed to cultivate their natural political base small businessmen and conservative farmers 64 Hamilton confessed years later that the Federalists have erred in relying so much on the rectitude and utility of their measures as to have neglected the cultivation of popular favor by fair and justifiable expedients 65 Congress rejected Madison s discrimination in favor of Hamilton s redemption by 36 to 13 in the House of Representatives 30 which preserved the sanctity of contracts as the cornerstone establishing confidence in public credit 66 Madison s defeat however established his reputation as a friend of the common man 67 Credit private or public is of greatest consequence to every country Of this it might be called the invigorating principle Alexander Hamilton 29 Assumption shifting state debt to federal government EditThe key provision in Hamilton s fiscal reform was termed assumption and called for the 13 states to consolidate their outstanding debt of 25 million 68 and to transfer it to the federal government for servicing under a general funding plan 69 Hamilton s chief objectives were both economic and political 36 70 Economically state securities were vulnerable to local fluctuations in value and thus to speculative buying and selling activities that would threaten the integrity of a national credit system 71 Furthermore with each state legislature formulating separate repayment plans the federal government would be forced to compete with states for sources of tax revenue Hamilton s assumption promised to obviate those conflicts 72 Politically Hamilton sought to tie the creditors to the new central government 73 by linking their financial fortunes to the success of his economic nationalism 74 That would in turn gradually cause a decline in state authority and a relative increase in federal influence 50 75 Agrarian opposition to assumption EditHamilton s funding scheme and redemption had won relatively quick approval 76 but assumption was stalled by bitter resistance from southern legislators led by James Madison 77 One of the effects of assumption would be to distribute the collective debt burden among all the states the more solvent members paying a share of the more indebted ones 78 Most of the southern states except for South Carolina had successfully paid down the bulk of their wartime debt 79 Virginia relatively debt free led the fight against assumption Madison argued that the proposed national tax would overburden Virginia planters operating on a narrow margin of profit 36 80 Requiring solvent states to contribute to states suspected of mismanaging their fiscal affairs was deemed unjust 81 Before any vote on assumption Madison insisted on a balancing of state accounts termed settlement to determine the burden that each state would be compelled to contribute under the plan He calculated that under Hamiliton s plan Virginia would be responsible for providing 5 million in new federal revenue but the federal government would assume only 3 million of Virginia s debt 82 In surrendering their debt into the hands of the Treasury Department the states would sanction the principle of collective decision making at the national level on state matters and enormously strengthen the influence of the federal government 83 At the heart of the opposition lay a political fear of consolidation with power and wealth concentrated in fewer hands and the states absorbed by the new federal government 84 Madison and his majority in the House blocked passage of the legislation on assumption in a test vote in April 85 Subsequent votes ended in rejection and had brought the business of Congress to a standstill by June 1790 86 Residency assumption and dinner table bargain EditThe US Constitution had provided for the establishment of a permanent seat of government a national capital without designating a location 87 New York City served as a temporary site to conduct federal affairs until a permanent residence could be agreed upon 88 Intense Congressional debates arose over the residency question and resulted in proposals identifying 16 possible sites in competing states none of which could muster majority support 87 89 A number of government officials and state delegations gathered in clandestine meetings and political dinners 90 to resolve the stalled assumption bill by linking the residency debate to passage of Hamilton s financial program 91 Thomas Jefferson who recently returned from France where he had acted as a foreign diplomat understood the practical necessity of Hamilton s fiscal goals establishing America s legitimacy throughout Europe s financial centers 92 As the newly appointed Secretary of State Jefferson invited Hamilton to meet privately with the opposition leader James Madison in an effort to broker a compromise on assumption and residence 93 94 The dinner party bargain 95 96 made Madison withdraw his opposition and permit passage of the Assumption Bill 97 For his part Hamilton agreed to suppress opposition for the permanent location of the nation s capital at Georgetown on the Potomac the present site of Washington DC 96 98 Hamilton s support was superfluous as the Potomac location had already been secured 95 99 Jefferson and Madison acquiesced in the passage of assumption as an expedient to avoid government bankruptcy and disunion 100 101 not because they condoned Hamilton s economic nationalism 102 Jefferson s dinner party 6 was in fact the final chapter in an ongoing negotiation that succeeded because the ground had already been prepared 99 103 and produced the first great compromise of the new federal government 102 Jefferson and Madison extracted a major concession from Hamilton in the recalculation of Virginia s debt under the fiscal plan 104 A zero sum arrangement was contrived in which Virginia would pay 3 4 million to the federal government and receive exactly that amount in federal compensation 99 The revision of Virginia s debt coupled with Potomac residence ultimately netted it over 13 million 105 Indifferent to agrarian hostility to his economic proposals 106 Hamilton had driven into alliance two very different trends of opinion the gentlemen planters cherished local autonomy and limited government enlisted the support of lower middle class and artisans and western farmers favored democratic government and majority rule 107 Those forces one with Republican commitments the other with Democratic convictions united in common cause against Hamilton s reforms and laid the basis for a national party 108 The Residence Bill passed in the House by a vote of 32 to 29 on July 9 1790 and the Assumption Bill cleared by a vote of 34 to 28 on July 26 1790 109 Administration and performance EditThe adoption of Hamilton s report had the immediate effect of converting what had been virtually worthless federal and state certificates of indebtedness to 60 million of funded government securities 110 The fully funded central government regained the ability to borrow and attracted foreign investment as social unrest destabilized Europe In addition the newly issued bonds provided a circulating currency and stimulated business investment 110 Hamilton submitted a schedule of excise taxes on December 13 1790 111 to augment revenue necessary to service debts assumed from the states 112 The national debt reached 80 million and required nearly 80 of annual government expenditures The interest alone on the national debt consumed 40 of the national revenue between 1790 and 1800 56 Hamilton was instrumental in setting up a national administration that would carry out those programs Setting the highest possible standard he has been called one of the greatest administrators of all time 113 He modernized performance in public office and personally oversaw the details of an increasingly complex system without sacrificing dispatch clarity or discipline 113 The Treasury Department quickly grew in stature and personnel encompassing the United States Customs Service the United States Revenue Cutter Service and the network of Treasury agents that Hamilton had foreseen 114 Hamilton immediately followed up his success with the Second Report on Public Credit which contained his plan for the Bank of the United States a national privately operated bank endowed with public funds that became the forerunner of the Federal Reserve System In 1791 Hamilton released a third report the Report on Manufactures which encouraged the growth and protection of manufacturing Hamilton s First Report on the Public Credit and his subsequent reports on a national bank and manufacturing stand as the most important and influential state papers of their time and remain among the most brilliant government reports in American history 115 See also EditSecond Report on Public Credit Report on Manufactures Political economy The Federalist Papers Forum for Stable Currencies Report on a Plan for the Further Support of Public CreditReferences Edit Brock 1957 p 40 Staloff 2005 p 91 Malone 1960 p 259 p 259 a b c d e f g Malone 1960 p 260 Brock 1957 p 41 Smith 1980 p 147 Ellis 2000 p 60 a b Ellis 2000 p 50 Brock 1959 p 44 p 45 Ellis 2000 p 80 Hofstadter 1957 p 14 Brock 1957 p 41 Hofstadter 1948 p 14 Malone 1960 p 265 a b c d Staloff 2005 p 69 a b c d e f g h Miller 1960 p 37 Staloff 2005 p 69 70 Staloff 2005 p 70 a b Hofstadter 1957 p 125 Ellis 2000 p 61 a b Miller 1960 p 14 Malone 1960 p 256 Smith 198 p 147 Staloff 2005 p 91 92 Staloff 2005 p 92 a b Ellis 2000 p 55 a b c Miller 1960 p 15 a b Malone 1957 p 256 a b Miller 1960 p 33 Malone 1957 p 257 Miller 1960 p 36 Miller 1960 p 35 Miller 1960 p 36 37 Malone 1957 p 259 Miller 1960 p 14 p 38 a b Brock 1957 p 41 a b c d e Ellis 2000 p 56 Brock 1957 p 41 Burstein 2010 p 214 Miller 1960 p 38 Malone 1960 p 260 Brock 1957 p 41 a b Ellis 2000 p 55 56 Brock 1957 p 41 42 a b c d Brock 1957 p 42 Malone 1960 p 259 Malone 1957 p 259 Miller 1960 p 39 Miller 1960 p 39 a b Staloff 2005 p 93 Miller 1960 p 40 Staloff 2005 p 92 93 Brock 1957 p 39 Miller 1960 p 39 40 Staloff 2005 p 94 Ellis 2000 p 56 Brock 1957 p 42 Miller 1960 p 44 Staloff 2005 p 92 93 Burstein 2010 p 214 Malone 1960 p 260 Staloff 2005 p 92 Miller 1960 p 44 45 a b Burstein 2010 p 214 215 Burstein 2010 p 214 Brock 1957 p 42 Miller 1960 p 42 Brock 1957 p 45 Brock 1957 p 46 Brock 1957 p 46 Miller 1960 p 41 Brock 1957 p 42 Ellis 2000 p 62 a b Miller 1960 p 53 Ellis 2000 p 56 Miller 1960 p 41 Brock 1957 p 43 Ellis 2000 p 61 Miller 1960 p 41 Staloff 2005 p 95 Malone 1960 p 260 Brock 1957 p 43 Brock 1957 p 43 Brock 1957 p 52 Ellis 2000 p 61 p 63 Staloff 2005 p 85 p 86 Ellis 2000 p 61 Brock 1957 p 39 p 41 42 Ellis 2000 p 64 Brock 1957 p 44 Brock 1957 p 39 Malone 1960 p 260 Staloff 2005 p 96 Miller 1960 p 43 Miller 1960 p 43 Ellis 2000 p 55 Varon 2008 p 31 Ellis 2000 p 55 Staloff 2005 p 92 p 96 Miller 1969 p 39 Brock 1957 p 42 Ellis 2000 p 57 Staloff 2005 p 92 p 96 Smith 1980 p 147 Brock 1957 p 42 Miller 1960 Staloff 2005 p 96 Miller 1960 p 41 Staloff 2005 p 96 p 312 Ellis 2000 p 48 Smith 1980 p 148 Miller 1960 p 46 Malone 1960 p 260 Ellis 2000 p 57 Ellis 2000 p 65 Brock 1957 p 42 Ellis 2000 p 57 Burstein amp Isenberg 2010 p 216 Ellis 2000 p 58 Miller 1960 p 46 47 Brock 1957 p 42 Ellis 2000 p 58 Burstein amp Isenberg 2010 p 214 215 Ellis 2000 p 59 Malone 1960 p 261 Staloff 2005 p 312 Miller 1960 p 47 a b Ellis 2000 p 69 Ellis 2000 p 67 Malone 1960 261 Miller 1960 p 48 Ellis 2000 p 50 p 72 Ellis 2000 p 68 Staloff 2005 p 96 p 313 Ellis 2000 p 48 49 a b Burstein amp Isenberg 2010 p 218 a b Ellis 2000 p 49 Miller 1960 p 49 Staloff 2005 p 313 a b c Ellis 2000 p 73 Varon 2008 p 31 Ellis 2000 p 50 51 p 78 a b Staloff 2005 p 313 Burstein amp Isenberg 2010 p 218 219 Staloff 2005 p 96 97 Staloff 2005 p 96 p 313 Ellis 2000 p 73 74 Brock 1957 p 42 Hofstadter 1948 p 14 15 Malone 1960 p 260 Brock 1957 p 45 Staloff 2005 p 313 Ellis 2000 p 50 Smith 1980 p 154 a b Miller 1960 p 50 Staloff 2006 p 97 Miller 1960 p 155 a b Brock 1959 p 39 American Experience hour 2American Experience Staloff 2005 p 91 Miller 1960 p 63Sources EditBordewich Fergus M The First Congress How James Madison George Washington and a Group of Extraordinary Men Invented the Government 2016 on 1789 91 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 Chernow Ron 2004 Alexander Hamilton New York Penguin Books ISBN 1 59420 009 2 Ellis Joseph J 2000 Founding Brothers The Revolutionary Generation Alfred A Knopf New York ISBN 0 375 40544 5 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 amp Row New York ISBN 9781577660316 Staloff Darren 2005 Hamilton Adams Jefferson The Politics of Enlightenment and the American Founding Hill and Wang New York ISBN 0 8090 7784 1External links EditFull text entitled Report Relative to a Provision for the Support of Public Credit Founders Online National Archives and Records Administration Accessed 2016 10 25 The original text from George Washington University Alexander Hamilton PBS American Experience 2007 05 14 Retrieved from https en wikipedia org w index php title First Report on the Public Credit amp oldid 1131257405, wikipedia, wiki, book, books, library,

article

, read, download, free, free download, mp3, video, mp4, 3gp, jpg, jpeg, gif, png, picture, music, song, movie, book, game, games.