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Concept
First Report on the Public Credit
Summary
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 standing of the United States and made recommendations to reorganize the national debt and to establish the public credit. Commissioned by the US House of Representatives on September 21, 1789, the report was presented on January 9, 1790, at the second session of the 1st US Congress.
The 40,000-word document called for full federal payment at face value to holders of government securities ("redemption") and the federal government to assume funding of all state debt ("assumption"). The political stalemate 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 and set the stage for political struggles that would persist for decades in American politics.
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. As an expedient, the revolutionary government resorted to printing money and bills of credit, but that currency rapidly underwent depreciation. To avoid bankruptcy, the Continental Congress eliminated 200 million debt by fiat. After the American Revolutionary War, the Continental currency, called "Continentals," would be deemed worthless.
With its finances in disarray, the legislature abdicated its fiscal responsibilities by shifting them to the 13 states. 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. By the end of the war, over $90 million in state debt was outstanding.
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