Second Report on Public Credit

The Second Report on the Public Credit also referred to as The Report on a National Bank was the second of three influential reports on fiscal and economic policy delivered to Congress by Secretary of the Treasury Alexander Hamilton. The Report, submitted on December 14, 1790, called for the establishment of a central bank, its primary purpose to expand the flow of legal tender by monetizing the national debt through the issuance of federal bank notes. Modeled on the Bank of England, this privately held, but publicly funded institution would also serve to process revenue fees and perform fiscal duties for the federal government. Secretary Hamilton regarded the bank as indispensable to producing a stable and flexible financial system.

The ease with which Federalists advanced legislation to incorporate the bank impelled agrarian opposition hostile to Hamilton's emerging economic nationalism. Resorting to constitutional arguments, Representative James Madison challenged Congress’s broad authority to grant charters of incorporation under the “necessary and proper” clause of the US Constitution, and charging Hamilton with violating a literal or strict constructionist interpretation of the founding document.

Despite Madison’s objections, the legislation to form the First Bank of the United States passed, without amendment, in the House by a vote of 37-20 on February 2, 1791, endowed with a twenty-year charter.

Madison’s misgivings on the bank’s constitutionality raised doubts in President Washington's mind as to the legality of the bank bill. and delayed signing it in order to consult with his cabinet. Secretary of State Thomas Jefferson and Attorney General Edmund Randolph concurred with Madison that the federal government was one of strictly enumerated powers, and bolstered that argument by citing the Tenth Amendment, advancing the position of states' rights and limited federal power.

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