Barnum loses his job as a clerk at a shipping company after the company goes bankrupt, and returns home for Caroline’s birthday (“A Million Dreams (Reprise)”). He takes out a loan from a bank, deceiving them into accepting his former employer’s lost ships as collateral. He uses this loan to set up Barnum’s American Museum in downtown Manhattan, an attraction showcasing various wax models. Initially, sales are slow. On the suggestion of his children to showcase something “alive”, Barnum searches for “freaks” to serve as performers for his museum (“Come Alive”). He gathers a large group of them including Lettie Lutz. This attracts a large audience despite protests and poor reviews from James Gordon Bennett, prompting Barnum to rename his venture “Barnum’s Circus”.