By Nancy Spannaus

December 7, 2021—On December 13, 1790 U.S. Treasury Secretary Alexander Hamilton submitted his second report on public credit to the U.S. Congress, a report better known as the Report on the National Bank. This initiative, which was signed into law on February 25, 1791, proved to be a lifesaver for the country, bringing the nation out of bankruptcy, and serving as a tool to revive public credit, create the equivalent of a national currency, and provide capital for agriculture, manufacturing, and commerce.

Celebrate Alexander Hamilton's National Bank!
The First Bank of the United States, still standing in Philadelphia

Hamilton’s bank did not have its charter renewed, but national banks (and banking) based on its same principles have been revived again and again in our nation’s history. There was the Second National Bank, Lincoln’s national banking system (including greenbacks), and Franklin Roosevelt’s Reconstruction Finance Corporation. All featured the Federal government utilizing federal credit to stimulate economic growth in the physical economy of the entire country, from canals to railroads to some of the basic water and transportation infrastructure we rely on today.

It’s long past time we recognized the positive role of Hamilton’s national bank, and the principles upon which it is based. Indeed, let’s celebrate Hamilton’s National Bank by applying its principles today.[1]

The Role of Public Credit

You can find a substantial number of posts on Hamilton’s Bank of the United States on this blog, as well as video presentations on our You Tube channel. Rather than repeat that material, I want to turn to Hamilton’s final official report, his January 1795 Report on a Plan for the Further Support of Public Credit, where he summarized what his term as Treasury Secretary has accomplished and how he proposed the nation move forward, including making provisions to pay down the war debt.

There was much that Hamilton had to be proud of, and the country grateful for.  He had established U.S. government credit, reduced taxes on the American population, reduced the rate of interest the U.S. government paid on its debt from 6% to 4.5%, and set the economy humming again. But he was rightly concerned that the principles upon which he based this turnaround were not understood. And the fundamental principle was that of public credit.

The final section of Hamilton’s report, given right before he left office, is a vigorous defense and eloquent encomium to public credit. While noting the need for the government to have access to loans in case of emergencies such as war, Hamilton makes a much broader argument for it being “the invigorating principle” of the country. “Credit is not only one of the main pillars of the public safety—it is among the principal engines of useful interprise [sic] and internal improvement. As a substitute for Capital it is little less useful than Gold or silver, in Agriculture, in Commerce, in the Manufacturing and mechanic arts….,” he writes.

Celebrate Alexander Hamilton's National Bank!
An American Iron Forge in the 18th century. Private industry also gains from sound public credit

Nor is public credit only useful for government. Public and private credit are intimately entwined, and the sound establishment of public credit underwrites the productive activity of the farmer, the merchant, and the manufacturer. Hamilton elaborates:

The proof of this needs no laboured deduction. It is matter of daily experience in the most familiar pursuits. One man wishes to take up and Cultivate a piece of land—he purchases upon Credit, and in time pays the purchase money out of the produce of the soil improved by his labour. Another sets up in trade; in the Credit founded upon a fair character, he seeks and often finds the means of becoming at length a wealthy Merchant. A third commences business as a manufacturer or Mechanic, with skill, but without Money. Tis by Credit that he is enabled to procure the tools the materials and even the subsistence of which he stands in need, ’till his industry has supplied him with Capital; and even then he derives from an established and increased credit the means of extending his undertakings. [capitalization and italics in the original]

The Opposition

Hamilton’s tone in this final report is very polemical, as was his follow-up piece on the Defense of the Funding System. The fact is that he had good reason to worry that the growing power of the Jeffersonians would undo the progress that had been made.

Jefferson and much of his party (by no means all) represented what might be called “fiscal conservatives” today. They had opposed the National Bank because, among more venal interests, they did not want the Federal government to use its bonded debt to back investment in industry or infrastructure; rather, they wanted immediate rapid payment, if not repudiation, of the war debts. They wanted a “cash on the barrelhead” approach to government expenditures, including on vital infrastructure like the system of post roads. Never mind that major multi-state projects like that required huge expenditures over years and would ultimately increase the productivity of the economy overall (and the tax revenues of the government) many fold. If you didn’t have the cash, you should cut the program.

Celebrate Alexander Hamilton's National Bank!
Thomas Jefferson nearly succeeded in sabotaging the National Bank.

This backward mentality was usefully identified by a French visitor[2] to the United States in the early 1830s as like that of a peasant. Astounded at the investment and infrastructure boom he saw in America under the Second National Bank, he made the following contrast:

In France… it would be difficult to teach them to look upon a scrap of paper, although redeemable at sight with coin, as equivalent to the metals. A metallic currency, has, in our notions, a superiority to any other representative of value, which to an American … is quite incomprehensible; to our peasants, it is the object of a mysterious feeling, a real worship; and, in this respect, we are all of us more or less peasants.

The Americans, on the other hand, have a firm faith in paper; and it is not a blind faith … Their confidence is founded in reason, their courage is a matter of reflexion …. [I] will be a long time before we shall be in a condition, in France, to enjoy such a system of credit as exists in the United States or England; in this respect we are yet in a state of barbarism…

In fact, the system of credit Hamilton set up, which used government debt to capitalize the Bank of the United States, did not reflect a “faith in paper.” It reflected confidence that the population and natural resources of the country could be mobilized to create a more productive economy, through extending credit judiciously to the right projects. The issue was not an immediate return, or balancing the ledger, but investing for progress. This could be done without crippling taxation: it just required intelligent investment.

If the United States had stuck to the views of Hamilton’s opponents, we never would have built an economy that was the envy of the world. Jefferson, for example, railed against proposals for nation-unifying internal improvements that would be funded without any necessary increased taxation through the Bonus Bill of 1817, or the Second National Bank. Jefferson’s vision won through the Jackson administration, with the near-inevitable result of the Civil War.

Belief in the Future

Credit, of course, implies a belief in the future, the expenditure of funds today that will realize a profit in years, or decades, to come. Should that expenditure be made for the public good, or the general welfare, Credit will indeed benefit not only the present, but future generations.

Celebrate Alexander Hamilton's National Bank!
Alexander Hamilton, painted posthumously by John Trumbull in 1806.

When we turn our backs on Credit, public credit, we are in fact expressing our despair about the future. Does that not characterize the activity of a huge portion of our politicians since the death of John F. Kennedy?

Hamilton’s banking principles, based on the use of public credit for the public good, built and preserved our country. It would be no exaggeration, to my mind, to say that if we don’t adopt the principles behind that bank once again, our future as a nation is bleak indeed.

[1] HR 3339, the bill for a National Infrastructure Bank, is based on Hamiltonian principles. At $5 trillion, this bank would be able to provide federally backed credit (not through new taxes) to fund our nation’s desperate infrastructure needs. See for more information.

[2] Michel Chevalier trip was described in his Society, Manners and Politics in the United States: Being a Series of Letters on North America, 1834-1836.

Nancy Spannaus is the author of Hamilton Versus Wall Street: The Core Principles of the American System of Economics, which is available through https://iuniverse/bookstore.


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