CHAPTER VI
SECRETARY OF THE TREASURY
_Funding_
The material comfort of every people depends more immediately upon the correct management of its finances than upon any other branch of government. _Haute finance_, to use a French expression for which there is no English equivalent, demands in its application the faculties of organization and administration in their highest degree. The relations of money to currency and credit, and their relations to industry and agriculture, or in modern phrase of capital to labor, fall within its scope. The history of France, the nation which has best understood and applied true principles of finance, supplies striking examples of the benefits a finance minister of the first order renders to his country, and the dangers of false theories. The marvelous restoration of its prosperity by the genius of Colbert, the ruin caused by the malign sciolism of Law, are familiar to all students of political economy. Nor has the United States been less favored. The names of Morris, Hamilton, Gallatin, and Chase shine with equal lustre.
Morris, the Financier of the Revolution, was called to the administration of the money department of the United States government when there was no money to administer. Before his appointment as "Financier" the expenses of the government, military and civil, had been met by expedients; by foreign loans, lotteries, and loan office certificates; finally by continental money, or, more properly speaking, bills of credit emitted by authority of Congress and made legal tender by joint action of Congress and the several States. The relation of coin to paper in this motley currency appears in the appendix to the "Journal of Congress" for the year 1778, when the government paid out in fourteen issues of paper currency, $62,154,842; in specie, $78,666; in French livres, $28,525.[10] The power of taxation was jealously withheld by the States, and Congress could not go beyond recommending to them to levy taxes for the withdrawal of the bills emitted by it for their quotas, _pari passu_ with their issue. When the entire scheme of paper money failed, the necessary supplies for the army were levied in kind. In the spring of 1781 the affairs of the Treasury Department were investigated by a committee of Congress, and an attempt was made to ascertain the precise condition of the public debt. The amount of foreign debt was approximately reached, but the record of the domestic debt was inextricably involved, and never definitely discovered. Morris soon brought order out of this chaos. His plan was to liquidate the public indebtedness in specie, and fund it in interest-bearing bonds. The Bank of North America was established, the notes of which were soon preferred to specie as a medium of exchange. Silver, then in general use as the measure of value, was adopted as the single standard. The weight and pureness of the dollar were fixed by law. The dollar was made the unit of account and payment, and subdivisions were made in a decimal ratio. This was the dollar of our fathers. Gouverneur Morris, the assistant of the Financier, suggested the decimal computation, and Jefferson the dollar as the unit of account and payment. The board of treasury, which for five years had administered the finances in a bungling way, was dissolved by Congress in the fall of 1781, and Morris was left in sole control. Semi-annual statements of the public indebtedness were now begun. The expenses of the government were steadily and inflexibly cut down to meet the diminishing income. A loan was negotiated in Holland, and, with the aid of Franklin, the amount of indebtedness to France was established.
The public debt on January 1, 1783, was $42,000,375, of which $7,885,088 was foreign, bearing four and five per cent. interest; and $34,115,290 was held at home at six per cent. The total amount of interest was $2,415,956. No means were provided for the payment of either principal or interest. In July of the previous year Morris urged the wisdom of funding the public debt, in a masterly letter to the president of Congress. On December 16 a sinking fund was provided for by a resolution, which, though inadequate to the purpose, was at least a declaration of principle. In February, 1784, Morris notified Congress of his intended retirement from office. He may justly be termed the father of the American system of finance. In his administration he inflexibly maintained the determination, with which he assumed the office, to apply the public funds to the purpose to which they were appropriated. He declared that he would "neither pay the interest of our debts out of the moneys which are called for to carry on the war, nor pay the expenses of the war from the funds which are called for to pay the interest of our debts." One new feature of Morris's administration was the beginning of the sale of public lands.
On the retirement of Mr. Morris, November, 1784, a new board of treasury was charged with the administration of the finances, and continued in control until September 30, 1788, when a committee, raised to examine into the affairs of the department, rendered a pitiful report of mismanagement for which the board had not the excuse of their predecessors during the war. They had only to observe the precepts which Morris had enunciated, and to follow the methods he had prescribed, with the aid of the assistants he had trained. But the taxes collected had not been covered into the Treasury by the receivers. Large sums advanced for secret service were not accounted for; and the entire system of responsibility had been disregarded. John Adams attributed all the distresses at this period to "a downright ignorance of the nature of coin, credit and circulation;" an ignorance not yet dispelled. More truly could he have said that our distresses arose from willful neglect of the principle of accountability in the public service.
The first Congress under the new Constitution met at New York on March 4, 1789, but it was not until the autumn that the executive administration of the government was organized by the creation of the three departments: State, Treasury, and War.
The bill establishing the Treasury Department passed Congress on September 2, 1789. Hamilton was appointed secretary by Washington on September 11. On September 21 the House directed the secretary to examine into and report a financial plan. On the assembling of Congress, June 14, 1790, Hamilton communicated to the House his first report, known as that on public credit. The boldness of Hamilton's plan startled and divided the country. Funding resolutions were introduced into the House. The first, relating to the foreign debt, passed unanimously; the second, providing for the liquidation of the domestic obligations, was sharply debated, but in the end Hamilton's scheme was adopted. The resolutions providing for the assumption of the state debts, which he embodied in his report, aroused an opposition still more formidable, and it was not until August 4 that by political machinery this part of his plan received the assent of Congress. To provide for the interest on the debt and the expenses of the government, the import and navigation duties were raised to yield the utmost revenue available; but, in the temper of Congress, the excise law was not pressed at this session. The secretary had securely laid the foundations of his policy. Time and sheer necessity would compel the completion of his work in essential accord with his original design. The President's message at the opening of the winter session added greatly to the prestige of Hamilton's policy by calling attention to the great prosperity of the country and the remarkable rise in public credit. The excise law, modified to apply to distilled spirits, passed the House in January. The principle of a direct tax was admitted. On December 14, 1790, in obedience to an order of the House requiring the secretary to report further provision for the public credit, Hamilton communicated his plans for a national bank. Next in order came the establishment of a national mint. Thus in two sessions of Congress, and in the space of little more than a year from the time when he took charge of the Treasury, Hamilton conceived and carried to successful conclusion an entire scheme of finance.
One more measure in the comprehensive system of public credit crowned the solid structure of which the funding of the debt was the cornerstone. This was the establishment of the sinking fund for the redemption of the debt. Hamilton conformed his plan to the maxim, which, to use his words, "has been supposed capable of giving immortality to credit, namely, that with the creation of debts should be incorporated the means of extinguishment, which are twofold. 1st. The establishing, at the time of contracting a debt, funds for the reimbursement of the principal, as well as for the payment of interest within a determinate period. 2d. The making it a part of the contract, that the fund so established shall be inviolably applied to the object." The ingenuity and skill with which this master of financial science managed the Treasury Department for more than five years need no word of comment. Nor do they fall within the scope of this outline of the features of his policy. His reports are the textbook of American political economy. Whoever would grasp its principles must seek them in this limpid source, and study the methods he applied to revenue and loans. Well might Webster say of him in lofty praise, "He smote the rock of national resources, and abundant streams of revenue gushed forth; he touched the dead corpse of Public Credit, and it sprung upon its feet."
On the resignation of Hamilton, January 31, 1795, Washington invited Wolcott, who was familiar with the views of Hamilton and on such intimate terms with him that he could always have his advice in any difficult emergency, to take the post. Wolcott had been connected with the department from its organization, first as auditor, afterwards as comptroller of the Treasury. He held the Treasury until nearly the end of Adams's administration. On November 8, 1800, upon the open breach between Mr. Adams and the Hamilton wing of the Federal party, Wolcott, whose sympathies were wholly with his old chief, tendered his resignation, to take effect at the close of the year. On December 31 Mr. Samuel Dexter was appointed to administer the department. But the days of the Federal party were now numbered: it fell of its own dissensions, "wounded in the house of its friends."
There is little in the administration of the finances by Wolcott to attract comment. He managed the details of the department with integrity and skill. On his retirement a committee of the House on the condition of the Treasury was appointed. No similar examination had been made since May 22, 1794. On January 28, 1801, Mr. Otis, chairman of the committee, submitted the results of the investigation in an unanimous report that the business of the Treasury Department had been conducted with regularity, fidelity, and a regard to economy; that the disbursements of money had always been made pursuant to law, and generally that the financial concerns of the country had been left by the late secretary in a state of good order and prosperity. During his six years of administration of the finances Wolcott negotiated six loans, amounting in all to $2,820,000. The emergencies were extraordinary,--the expenses of the suppression of the Whiskey Insurrection in 1794, and the sum required to effect a treaty of peace with Algiers in 1795. To fund these sums Mr. Wolcott had recourse to an expedient which marked an era in American finance. This was the creation of _new stock_, subscribed for at home. No loan had been previously placed by the government among its own citizens. Between 1795 and 1798, four and a half, five, and six per cent. stocks were created. In 1798 the condition of the country was embarrassing. There was a threatening prospect of war. Foreign loans were precarious and improvident; the market rate of interest was eight per cent. Under these circumstances an eight per cent. stock was created, not redeemable until 1809. An Act of March 3, 1795, provided for vesting in the sinking fund the surplus revenues of each year.
In the formation of the first Republican cabinet Mr. Gallatin was obviously Mr. Jefferson's first choice for the Treasury. The appointment was nevertheless attended with some difficulties of a political and party nature. The paramount importance of the department was a legacy of Hamilton's genius. Its possession was the Federalist stronghold, and the Senate, which held the confirming power, was still controlled by a Federalist majority. To them Mr. Gallatin was more obnoxious than any other of the Republican leaders. In the few days that he held a seat in the Senate (1793) he offended Hamilton, and aroused the hostility of the friends of the secretary by a call for information as to the condition of the Treasury. As member of Congress in 1796 he questioned Hamilton's policy, and during Adams's entire administration was a perpetual thorn in the sides of Hamilton's successors in the department. The day after his election, February 18, 1801, Mr. Jefferson communicated to Mr. Gallatin the names of the gentlemen he had already determined upon for his cabinet, and tendered him the Treasury. The only alternative was Madison; but he, with all his reputation as a statesman and party leader, was without skill as a financier, and in the debate on the Funding Bill in 1790 had shown his ignorance in the impracticability of his plans. If Jefferson ever entertained the thought of nominating Madison to the Treasury, political necessity absolutely forbade it. That necessity Mr. Gallatin, by his persistent assaults on the financial policy of the Federalists, had himself created, and he alone of the Republican leaders was competent to carry out the reforms in the administration of the government, and to contrive the consequent reduction in revenue and taxation, which were cardinal points of Republican policy. Public opinion had assigned Gallatin to the post, and the newspapers announced his nomination before Mr. Jefferson was elected, and before he had given any indication of his purpose. To his wife Mr. Gallatin expressed some doubt whether his abilities were equal to the office, and whether the Senate would confirm him, and said, certainly with sincerity, 'that he would not be sorry nor hurt in his feelings if his nomination should be rejected, for exclusively of the immense responsibility, labor, etc., attached to the intended office, another plan which would be much more agreeable to him and to her had been suggested, not by his political friends, but by his New York friends.' He was by no means comfortable in his finances, and he had already formed a plan of studying law and removing to New York. He had made up his mind to leave the western country, which would necessarily end his congressional career. His wife was forlorn in his absence, and suffered so many hardships in her isolated residence that he felt no reluctance to the change. To one of his wife's family he wrote at this time:--
"As a political situation, the place of secretary of the treasury is doubtless more eligible and congenial to my habits; but it is more laborious and responsible than any other, and the same industry which will be necessary to fulfill its duties, applied to another object, would at the end of two years have left me in the possession of a profession which I might have exercised either in Philadelphia or New York. But our plans are all liable to uncertainty, and I must now cheerfully undertake that which had never been the object of my ambition or wishes."
Well might he hesitate as he witnessed the distress which had overtaken the great party which for twelve years had held the posts of political honor. Fortunately, perhaps for himself and certainly for his party and the country, the proposition came at a time when he had definitively determined upon a change of career. His situation was difficult. The hostility of the Federal senators, and the great exertions which were being made to defeat the appointment, led him to the opinion that, if presented on March 4, it would be rejected. There was the alternative of delay until after that date, which would involve a postponement of the confirmation until the meeting of Congress in December, but there was no certainty that it would then be ratified. Meanwhile he would be compelled to remove to Washington at some sacrifice and expense. He therefore at first positively refused "to come in on any terms but a confirmation by the Senate first given." He was finally induced to comply with the general wish of his political friends. The appointment was withheld by the President that the feeling in the Senate might be judged from its action on the rest of the nominations submitted. They were all approved, and Mr. Dexter consented to hold over until his successor should be appointed. Thus Mr. Gallatin's convenience was entirely consulted. He remained in Washington a few days to confer with the President as to the general conduct of the administration, and on March 14 set out for Fayette to put his affairs in order and to bring his wife and family to Washington. On May 14 Jefferson wrote to Macon, "The arrival of Mr. Gallatin yesterday completed the organization of our administration."
Mr. Gallatin soon realized the magnitude of his task. He did nothing by halves. To whatever work he had to do, he brought the best of his faculty. No man ever better deserved the epithet of "thorough." He searched till he found the principle of every measure with which he had concern and understood every detail of its application. This perfect knowledge of every subject which he investigated was the secret of his political success. As a committee man, he was incomparable. No one could be better equipped for the direction of the Treasury Department than he, but he was not satisfied with direction; he would manage also; and he went to the work with untiring energy. A quarter of a century later he said of it, in a letter to his son, "To fill that office in the manner I did, and as it ought to be filled, is a most laborious task and labor of the most tedious kind. To fit myself for it, to be able to understand thoroughly, to embrace and control all its details, took from me, during the two first years I held it, every hour of the day and many of the night and had nearly brought on a pulmonary complaint. I filled the office twelve years and was fairly worn out."
Mr. Gallatin first drew public attention to his knowledge of finance in the Pennsylvania legislature. An extract from his memorandum of his three years' service gives the best account of this incident. In it appear the carefully matured convictions which he inflexibly maintained.
"The report of the Committee of Ways and Means of the session 1790-1791 (presented by Gurney, chairman) was entirely prepared by me, known to be so, and laid the foundation of my reputation. I was quite astonished at the general encomiums bestowed upon it, and was not at all aware that I had done so well. It was perspicuous and comprehensive; but I am confident that its true merit, and that which gained me the general confidence, was its being founded in strict justice without the slightest regard to party feelings or popular prejudices. The principles assumed, and which were carried into effect, were the immediate reimbursement and extinction of the state paper money, the immediate payment in specie of all the current expenses or warrants on the Treasury (the postponement and uncertainty of which had given rise to shameful and corrupt speculations), and provision for discharging, without defalcation, every debt and engagement previously recognized by the State. In conformity with this, the State paid to its creditors the difference between the nominal amount of the state debt assumed by the United States and the rate at which it was funded by the act of Congress.
"The proceeds of the public lands, together with the arrears, were the fund which not only discharged all the public debts, but left a large surplus. The apprehension that this would be squandered by the Legislature was the principal inducement for chartering the Bank of Pennsylvania with a capital of two millions of dollars, of which the State subscribed one half. This and similar subsequent investments enabled Pennsylvania to defray out of the dividends all the expenses of government without any direct tax during the forty ensuing years, and till the adoption of the system of internal improvement, which required new resources."
This report was printed in the Journal of the House, February 8, 1791. The next year he made a report on the same subject which was printed February 22, 1792.
But his equal grasp of larger subjects was shown in his sketch of the finances of the United States, which he published in November, 1796. It presents under three sections the revenues, the expenses, and the debts of the United States, each subdivided into special heads. The arguments are supported by elaborate tabular statements. No such exhaustive examination had been made of the state of the American finances. The one cardinal principle which he laid down was the extinguishment of debt. He severely criticised Hamilton's methods of funding, and outlined those which he himself later applied. He charged upon Hamilton direct violations of law in the application of money, borrowed as principal, to the payment of interest on that principal. The public funds he regarded as three in number: 1st, the sinking fund; 2d, the surplus fund; 3d, the general fund.
In July, 1800, Mr. Gallatin published a second pamphlet, "Views of the Public Debt, Receipts, and Expenditures of the United States," the object of the inquiry being to ascertain the result of the fiscal operations of the government under the Constitution. The entire field of American finance is examined from its beginning. He severely condemns the mode of assumption of the state debts in Hamilton's original plan, and no doubt his strictures are technically correct. The debts assumed for debtor States were not due by the United States, nor was there any moral reason for their assumption. But the assumption was sound financial policy, and all the cost to the nation was amply repaid by the order which their assumption drew out of chaos, and the vigor given to the general credit by the strengthening of that of its parts. The course of the Federalists and Republicans on this question shows that the former had at heart the welfare of all the States, while the latter confined their interest to their own body politic.
Had Mr. Gallatin never penned another line on finance, these two remarkable papers would place him in the first rank of economists and statisticians. There are no errors in his figures, no flaws in his reasoning, no faults in his deductions. In construction and detail, as parts of a complete financial system of administration, they are beyond criticism. Opinions may differ as to the ends sought, but not as to the means to those ends.
For a long period Mr. Gallatin found no more time for essays; he was now to apply his methods. These may be traced in his printed treasury reports, which are lucid and instructive. He was appointed to the Treasury on May 14, 1801, as appears by the official record in the State Department. Before he entered on the duties of the office he submitted to Mr. Jefferson, March 14, 1801, some rough sketches of the financial situation, and suggested the general outlines of his policy. He insisted upon a curtailment in the appropriations for the naval and military establishments, the only saving adequate to the repeal of all internal duties; and upon the discharge of the foreign debt within the period of its obligation. He estimated that the probable receipts and expenditures for the year 1801 would leave a surplus of more than two millions of dollars applicable to the redemption of the debt.
On taking personal charge of the Treasury Department, his first business was to get rid of the arrears of current business which had accumulated since the retirement of Wolcott; his next, to perfect the internal revenue system, so far as it could be remedied without new legislation. The entire summer of 1801 was passed in "arranging, or rather procuring correct statements amongst the Treasury documents," a task of such difficulty that he was unwilling, on November 15, to arrive at an estimate of the revenue within half a million, or to commit himself to any opinion as to the feasibility of abolishing the internal revenues. In his "notes" submitted to Jefferson upon the draft of his first message, there are several passages of interest which show Mr. Gallatin's logical habit of searching out economic causes. Under the head of finances, he remarks, "The revenue has increased more than in the same ratio with population: 1st, because our wealth has increased in a greater ratio than population; 2d, because the seaports and towns, which consume imported articles much more than the country, have increased in a greater proportion." The final paragraph in these "notes" is a synopsis of his entire scheme of administration.
"There is but one subject not mentioned in the message which I feel extremely anxious to see recommended. It is generally that Congress should adopt such measures as will effectually guard against misapplications of public moneys, by making specific appropriations whenever practicable; by providing against the application of moneys drawn from the Treasury under an appropriation to any other object or to any greater amount than that for which they have been drawn; by limiting discretionary power in the application of that money; whether by heads of department or by any other agents; and by rendering every person who receives public moneys from the Treasury as immediately, promptly, and effectually accountable to the accounting officer (the comptroller) as practicable. The great characteristic, the flagrant vice, of the late administration has been total disregard of laws, and application of public moneys by the Department to objects for which they were not appropriate."
Outlines for a system of specific appropriations were inclosed.
That the mission of Jefferson's administration was the reduction of the debt, Gallatin set forth in his next letter of November 16, 1801. "I am firmly of opinion that if the present administration and Congress do not take the most effective measures for that object, the debt will be entailed on us and the ensuing generations, together with all the systems which support it, and which it supports." On the other hand he says, "If this administration shall not reduce taxes, they never will be permanently reduced." To reduce both the debt and the taxes was as much a political as a financial problem. To solve it required the reduction to a minimum of the departments of War and Marine. But Mr. Jefferson was not a practical statesman. His individuality was too strong for much surrender of opinion. He stated the case very mildly when he wrote in his retirement that he sometimes differed in opinion from some of his friends, from those whose views were as "pure and as sound as his own." It was not his habit to consult his entire cabinet except on general measures. The heads of each department set their views before him separately. Under this system Mr. Gallatin was never able to realize that harmonious interdependence of departments and subordination of ways to means which were his ideal of cabinet administration.
The successful application of Mr. Gallatin's plan would have subordinated all the executive departments to the Treasury. The theory was perfect, but it took no account of the greed of office, the jealousies of friends, the opposition of enemies, and the unknown factor of foreign relations. A speck on the horizon would cloud the peaceful prospect, a hostile threat derange the intricate machinery by which the delicate financial balance was maintained. Mr. Gallatin was fast realizing the magnitude of his undertaking, in which he was greatly embarrassed by the difficulty of finding faithful examining clerks, on whose correctness and fidelity a just settlement of all accounts depends. The number of independent offices attached to the Treasury made the task still more arduous. He wrote to Jefferson at this time, "It will take me twelve months before I can thoroughly understand every detail of all these several offices. Current business and the more general and important duties of the office do not permit me to learn the lesser details, but incidentally and by degrees. Until I know them all I dare not touch the machine." One of the acquirements which he considered indispensable for a secretary of the treasury was a "thorough knowledge of book-keeping." The recollection of his persistent demands for information from Hamilton and Wolcott during his congressional career would have stung the conscience of an ordinary man. But Gallatin was not an ordinary man. He asked nothing of others which he himself was not willing to perform. His ideal was high, but he reached its summit. It seems almost as if, in his persistent demand that money accountability should be imposed by law upon the Treasury Department, he sought to set the measure of his own duty, while in the requirement that it should be extended to the other departments, he pledged himself to the perfect accomplishment of that duty in his own.
In his first report to Congress,[11] made December 18, 1801, Mr. Gallatin submitted his financial estimate for the year 1802.
REVENUE. EXPENDITURES.
Imposts $9,500,000 Int. on debts. $7,100,000 Lands } 450,000 Civil List 980,000 Postages } Army 1,420,000 Internal Rev. 650,000 Navy 1,100,000 ---------- ---------- $10,600,000 $10,600,000
Mr. Wolcott, in his last report to the Commissioners of the Sinking Fund, stated the amount in the Treasury to its credit at $500,718. Mr. Gallatin denied that there was any such surplus, but said that instead of a credit balance the treasury books showed a deficiency of $930,128 on the aggregate revenue from the establishment of the government to the close of the year 1799. Elliott, in his "Funding System," said concerning this once vexed controversy, that it was difficult to reconcile such a diversity of opinion on so intricate a subject; and concerning the official statements of Hamilton and Wolcott, that it was hardly to be credited that they were so superficial or imperfect. Mr. Gallatin himself furnishes the apology that the difference might arise from "entries made or omitted on erroneous principles." To the Federal financiers the palliation was as offensive as the charge, and rankled long and sore. If it were not possible, when Elliott made an examination, to arrive at the precise facts, it is certainly now a secret as secure from discovery as the lost sibylline leaves.
Mr. Gallatin stated the debt of the United States--
On January 1, 1801, at $80,161,207.60 On January 1, 1802, at 77,881,890.29 --------------- Reduction $2,279,317.31
This difference was the amount of principal paid during the year 1801, the result of the management of his predecessors. On December 18, 1801, Mr. Gallatin entered upon an examination of the time in which the total debt might be discharged, and showed that, by the annual application of $7,300,000 to the principal and interest the debt would in eight years, _i. e._ on January 1, 1810, be reduced (by the payment of $32,289,000 of the principal) to $45,592,739, and that the same annual sum of $7,300,000 would discharge the whole debt by the year 1817. The revenues of the Union he found sufficient to defray all the current expenses. In his report to Congress at the beginning of the session he designated this sum of $7,300,000 to be set aside from the revenues, and Congress gave the requisite authority. An extract from a tabular statement submitted to the House of Representatives, April 16, 1810, will show how nearly Mr. Gallatin approached the result at which he aimed, and the nature of the embarrassment he encountered on the path.
------+--------------+--------------+---------------+-------------+ | Amount of | Payments | Debt | Annual | Years.| Public Debt | on | Contracted. | Increase. | | January 1st. | Principal. | | | ------+--------------+--------------+---------------+-------------+ 1802 |$80,712,632.25| $3,657,945.95| - | - | 1803 | 77,054,686.30| 5,627,565.42| $15,000,000* |$9,372,434.58| 1804 | 86,427,120.88| 4,114,970.38| - | - | 1805 | 82,312,150.50| 6,588,879.84| - | - | 1806 | 75,723,270.66| 6,504,872.02| - | - | 1807 | 69,218,398.64| 4,022,080.67| - | - | 1808 | 65,196,317.97| 8,173,125.88| - | - | 1809 | 57,023,192.09| 3,850,889.77| - | - | 1810 | 53,172,302.32| - | - | - | ------+--------------+--------------+---------------+-------------+ ----------------- Annual Decrease. ----------------- $3,657,948.95 - 4,114,970.38 6,588,879.84 6,504,872.02 4,022,080.67 8,173,125.88 3,850,889.77 - ----------------- * Louisiana purchase.
1802 $80,712,632.25 Decrease $36,912,764.51 1810 53,172,302.32 Increase 9,372,434.58 -------------- -------------- $27,540,329.93 Decrease in 8 yrs. $27,540,329.93
From this it appears that, notwithstanding the extraordinary increase of the principal by the amount of the Louisiana purchase, Mr. Gallatin contrived a reduction of $27,540,329. But if to this be added the true reduction for the year 1803, namely, the difference between the Louisiana debt, $15,000,000, and the increase for that year, by reason of that purchase, $9,372,434, say $6,627,565, the reduction is found to be, and but for that disturbing cause would have reached, $34,167,895, a sum exceeding by $1,878,895 that estimated by Mr. Gallatin in his report of 1801 as the amount of eight years' reduction, namely, $32,289,000.
The ways and means of this remarkable example of financial management appear in the following extracts from Elliott's synoptical statement (table given on page 194).
The purchase of Louisiana was the extraordinary financial measure of Jefferson's first presidential term. Though the new obligation for the consideration money, fifteen millions of dollars, was a large sum in proportion to the total existing debt of the United States, it did not in the least derange Gallatin's plan of funding and reduction, but was brought without friction within his general scheme. With the terms of the contract Gallatin had nothing to do. They were arranged by Livingston and Monroe, the American commissioners; the intervention of the houses of Hope and the Barings being a part of the understanding between the commissioners and the French government. These bankers engaged to make the money payments and take six per cent. stock of the United States at seventy-eight and one half cents on the dollar. With this price Mr. Gallatin does not seem to have been satisfied, though of course he interposed no objection to the terms; but to Jefferson he wrote, August 31, 1803, that the low price at which that stock had been sold, was "not ascribable to the state of public credit nor to any act of your administration, and particularly of the Treasury Department;" and he adds in a postscript, "at that period our threes were in England worth one per cent. more at market than the English."
RECEIPTS.
------------------+----------------+---------------+-------------+ Four years | Customs. | Internal | Direct | ending | | Revenue. | Taxes. | December 31. | | | | ------------------+----------------+---------------+-------------+ Adams, 1800 | $30,347,093.62 | $2,808,382.37 | $734,223.97 | +--------------- +-------------- +------------ + Jefferson, 1804 | 44,766,997.61 | 1,936,053.30 | 862,986.46 | 1808 | 59,813,257.40 | 63,110.73 | 131,539.54 | +--------------- +-------------- +------------ + | 104,580,255.01 | 1,999,146.03 | 994,526.00 | ------------------+----------------+---------------+-------------+
------------------+-------------+--------------+---------------+ Four years | Postage. | Public | Loans and | ending | | Lands. | Treasury | December 31. | | | Notes. | ------------------+-------------+--------------+---------------+ Adams, 1800 | $223,000.00 | $95,947.46 | $7,055,791.25 | +-------------+--------------+---------------+ Jefferson, 1804 | 157,427.26 | 1,009,556.56 | 25,255.00 | 1808 | 60,074.90 | 2,419,541.86 | 179,534.81 | +-------------+--------------+---------------+ | 217,502.10 | 3,429,098.42 | 205,089.81 | ------------------+-------------+--------------+---------------+
------------------+--------------+----------------+---------------- Four years | Dividends | Miscellaneous. | Total. ending | and sales of | | December 31. | Bank Stock. | | ------------------+--------------+-------------- -+---------------- Adams, 1800 | $607,220.00 | $168,971.76 | $42,040,630.45 +--------------+----------------+---------------- Jefferson, 1804 | 1,416,360.00 | 672,148.72 | 50,846,784.91 1808 | -- | 85,782.03 | 62,758,841.27 +--------------+----------------+---------------- | 1,416,360.00 | 757,930.75 | 113,605,626.18 ------------------+--------------+----------------+----------------
EXPENDITURES.
------------------+---------------+---------------+--------------+ Four years | Civil List. | Foreign |Miscellaneous.| ending | | Intercourse | | December 31. | | including | | | | Awards. | | ------------------+---------------+---------------+--------------+ Adams, 1800 | $2,329,433.08 | $1,793,879.57 | $621,633.37 | +---------------+---------------+--------------+ Jefferson, 1804 | 2,297,648.17 | 3,144,093.00 | 1,169,601.87 | 1808 | 2,616,772.77 | 5,441,669.24 | 1,721,876.87 | +---------------+---------------+--------------+ | 4,914,420.94 | 8,585,762.24 | 2,891,478.74 | ------------------+---------------+---------------+--------------+
------------------+---------------+-------------+--------------+ Four years | Military | Pensions. | Indian | ending | Forts, etc. | | Department. | December 31. | | | | | | | | ------------------+---------------+-------------+--------------+ Adams, 1800 | $8,076,750.71 | $356,677.06 | $99,299.88 | +---------------+-------------+--------------+ Jefferson, 1804 | 4,549,572.11 | 301,968.66 | 279,500.00 | 1808 | 6,126,656.97 | 316,806.16 | 849,700.00 | +---------------+-------------+--------------+ | 10,676,229.08 | 618,774.82 | 1,129,200.00 | ------------------+---------------+-------------+--------------+
------------------+----------------+----------------+---------------- Four years | Naval | Public Debt. | Total. ending | Establishment. | | December 31. | | | | | | ------------------+----------------+----------------+---------------- Adams, 1800 | $8,070,777.52 | $18,957,962.69 | $40,306,413.88 +----------------+----------------+---------------- Jefferson, 1804 | 5,432,049.15 | 32,258,658.68 | 49,433,091.64 1808 | 6,853,673.79 | 32,927,739.85 | 56,854,985.65 +----------------+----------------+---------------- | 12,285,722.94 | 65,186,398.53 | 106,288,077.29 ------------------+----------------+----------------+----------------
Adams--Receipts $42,040,630.45 Adams--Expenditures 40,306,413.88 -------------- Under Wolcott, Secretary 1,734,216.57
Jefferson--Receipts $113,605,626.18 Jefferson--Expenditures 106,288,077.29 -------------- Under Gallatin, Secretary 7,317,584.89[12]
[**Transcriber's Note: Some of the numbers in the above tables do not add up, but reflect the actual numbers given in the original document.]
The arrangements being completed, Jefferson called Congress together in October, 1803, for a ratification of the treaty; the commissioners, by virtue of the authority granted them, had already guaranteed the advance by the Barings of ten million livres ($2,000,000). On October 25, 1803, Gallatin made a report to Congress on the state of the finances. It showed a reduction of the public debt in the two and one half years of his management, April 1, 1801, to September 30, 1803, of $12,702,404. The only question to be considered was whether any additional revenues were wanted to provide for the _new debt_ which would result from the purchase of Louisiana.
The sum called for by treaty, fifteen millions, consisted of two items: 1st, $11,250,000 payable to the government of France in a stock bearing an interest of six per cent. payable in Europe, and the principal to be discharged at the Treasury of the United States; 2d, a sum which could not exceed, but might fall short of, $3,750,000, payable in specie at the Treasury of the United States to American citizens having claims of a certain description upon the government of France.
It is interesting here to note Mr. Gallatin's distinction between the place of payment of interest and of principal as a new departure in American finance. The principal and interest of foreign loans had up to that period been paid abroad. But a United States stock was an obligation of a different character and properly payable at home. In the large negotiations which Secretary Chase had in 1862 with the Treasury Note Committee of the Associated Banks,[13] this policy was matter of grave debate. The determined American pride of Mr. Chase prevailed, and both the principal _and interest_ of the loans created were made payable at the Treasury of the United States. These may be small matters in their financial result, but are grave points in national policy.
The only financial legislation necessary to carry out the Louisiana purchase was a provision that $700,000 of the duties on merchandise and tonnage, a sum sufficient to pay the interest on the new debt, be added to the annual permanent appropriation for the sinking fund, making a sum of $8,000,000 in all.
The new debt would, Gallatin said, neither impede nor retard the payment of the principal of the old debt; and the fund would be sufficient, besides paying the interest on both, to discharge the principal of the old debt before the year 1818, and of the new, within one year and a half after that year. In this expectation he relied solely on the maintenance of the revenue at the amount of the year 1802, and in no way depended on its probable increase as a result of neutrality in the European war; nor on any augmentation by reason of increase of population or wealth, nor the effect which the opening of the Mississippi to free navigation might be expected to have on the sales of public lands and the general resources of the country.
In his report of December 9, 1805, Mr. Gallatin reviewed the results of his first four years of service, April 1, 1801, to March 31, 1805.
RECEIPTS.
Duties on tonnage and importation of foreign merchandise $45,174,837.22
From all other sources 5,492,629.82 -------------- $50,667,467.04 ==============
EXPENDITURES.
Civil list and miscellaneous $3,786,094.79
Intercourse with foreign nations 1,071,437.84
Military establishment and Indian department 4,405,192.26
Naval establishment 4,842,635.15
Interest on foreign debt 16,278,700.95
Reimbursement of debt from surplus revenue 19,281,446.57 -------------- $49,665,507.56
The Louisiana purchase and the admirable manner of its financial arrangement were important factors in Jefferson's reëlection. Mr. Gallatin was now sure of four years, at least, for the prosecution of his plan of redemption of the public debt. Estimating that with the increase of population at the rate of thirty-five per cent. in ten years, and the corresponding growth of the revenue, he could count upon a net annual surplus of $5,500,000, he now proposed to convert the several outstanding obligations into a six per cent. stock amounting, January 1, 1809, to less than _forty millions of dollars_, which the continued annual appropriation of $8,000,000 would, besides paying the interest on the Louisiana debt, reimburse within a period of less than seven years, or before the end of the year 1815. After that year no other incumbrance would remain on the revenue than the interest and reimbursement of the Louisiana stock, the last payment of which in the year 1821 would complete the final extinguishment of the public debt. The conversion act was passed February 1, 1807, and books were opened on July 1 following. On February 27, 1807, Mr. Gallatin made a special report on the state of the debt from 1801 to 1807, showing a diminution, notwithstanding the Louisiana purchase, of $14,260,000.
In the summer of 1807 war with England seemed inevitable. Gallatin had the satisfaction to report a full treasury,--the amount of specie October 7, 1807, reaching over eight and one half millions,--and an annual unappropriated surplus, which could be confidently relied upon, of at least three millions of dollars. On this subject his remarks in the light of subsequent history are of extreme interest. While refraining from any recommendations as to the application of this surplus, either to "measures of security and defense," or to "internal improvements which, while increasing and diffusing the national wealth, will strengthen the bonds of union," as "subjects which do not fall within the province of the Treasury Department," he proceeds to consider the advantage of an accumulation in the Treasury. In this report he rises with easy flight far above the purely financial atmosphere into the higher plane of political economy.
"A previous accumulation of treasure in time of peace might in a great degree defray the extraordinary expenses of war and diminish the necessity of either loans or additional taxes. It would provide during periods of prosperity for those adverse events to which every nation is exposed, instead of increasing the burthens of the people at a time when they are least able to bear them, or of impairing, by anticipations, the resources of ensuing generations....
"That the revenue of the United States will in subsequent years be considerably impaired by a war neither can nor ought to be concealed. It is, on the contrary, necessary, in order to be prepared for the crisis, to take an early view of the subject, and to examine the resources which should be selected for supplying the deficiency and defraying the extraordinary expenses....
"Whether taxes should be raised to a greater amount or loans be altogether relied on for defraying the expenses of the war, is the next subject of consideration.
"Taxes are paid by the great mass of the citizens, and immediately affect almost every individual of the community. Loans are supplied by capital previously accumulated by a few individuals. In a country where the resources of individuals are not generally and materially affected by the war, it is practicable and wise to raise by taxes the greater part at least of the annual supplies. The credit of the nation may also from various circumstances be at times so far impaired as to have no resource but taxation. In both respects the situation of the United States is totally dissimilar....
"An addition to the debt is doubtless an evil, but experience having now shown with what rapid progress the revenue of the Union increases in time of peace, with what facility the debt, formerly contracted, has in a few years been reduced, a hope may confidently be entertained that all the evils of the war will be temporary and easily repaired, and that the return of peace will, without any effort, afford ample resources for reimbursing whatever may have been borrowed during the war."
He then enumerates the several branches of revenue which might be selected to provide for the interest of war loans and to cover deficiencies. First, a considerable increase of the duties on importations; and here he says:--
"Without resorting to the example of other nations, experience has proven that this source of revenue is in the United States the most productive, the easiest to collect, and the least burthensome to the great mass of the people. 2d. Indirect taxes, however ineligible, will doubtless be cheerfully paid as _war taxes_, if necessary. 3d. Direct taxes are liable to a particular objection arising from unavoidable inequality produced by the general rule of the Constitution. Whatever differences may exist between the relative wealth and consequent ability of paying of the several States, still the tax must necessarily be raised in proportion to their relative population."
The Orders in Council of November 11, 1807, avowedly adopted to compel all nations to give up their maritime trade or accept it through Great Britain, reached Washington on December 18, 1807, and were immediately replied to by the United States by an embargo act on December 22. The history of the political effect of this measure is beyond the limits of this economic study, and will be touched upon in a later chapter, but the result of its application upon the Treasury falls within this analysis of the methods of Mr. Gallatin's administration.
On December 18 Gallatin wrote Jefferson that "in every point of view, privations, sufferings, revenue, effect on the enemy, politics at home, etc.," he preferred "war to a permanent embargo;" nevertheless he was called upon to draft the bill. The correctness of Mr. Gallatin's prevision was soon apparent. In his report of December 10, 1808, he reviewed the general effect of the measure. "The embargo has brought into and kept in the United States almost all the floating property of the nation. And whilst the depreciated value of domestic product increases the difficulty of raising a considerable revenue by internal taxes, at no former time has there been so much specie, so much redundant unemployed capital in the country." Again stating his opinion that loans should be principally relied on in case of war, he closed with the following words: "The high price of public stocks (and indeed of all species of stocks), the reduction of the public debt, the unimpaired credit of the general government, and the large amount of existing bank stock in the United States [estimated by him at forty millions of dollars], leave no doubt of the practicability of obtaining the necessary loans on reasonable terms."
The receipts into the Treasury during the year ending September, 1808, the last of Jefferson's administration, were $17,952,419.90
The disbursements during the same period were 12,635,275.46 ------------- Excess of receipts $5,317,144.44
And the specie in Treasury, October 1, 1808 $13,846,717.82
From January 1, 1791, to January 1, 1808, the debt had fallen from $75,169,974 to $57,023,192; during the first ten years it had increased nearly seven millions of dollars, in the last eight it had been diminished more than twenty millions and Louisiana had been purchased. Thus closed the second term of Gallatin's service. Happen what might, the credit of the country could not be in a better situation to meet the exigencies of a war. A letter from Mr. Jefferson to Mr. Gallatin after the close of this administration, and Gallatin's reply, show the entire accord between them upon the one cardinal point of financial policy. Mr. Jefferson, October 11, 1809, wrote from Monticello, "I consider the fortunes of our republic as depending in an eminent degree on the extinction of the public debt before we engage in any war; because, that done, we shall have revenue enough to improve our country in peace and defend it in war, without incurring either new taxes or new loans." And urging Gallatin to retain his post, he closed with the striking words, "I hope, then, you will abandon entirely the idea you expressed to me, and that you will consider the eight years to come as essential to your political career. I should certainly consider any earlier day of your retirement as the most inauspicious day our new government has ever seen." To which Gallatin replied from Washington, on November 10:--
"The reduction of the public debt was certainly the principal object in bringing me into office, and our success in that respect has been due both to the joint and continued efforts of the several branches of government and to the prosperous situation of the country. I am sensible that the work cannot progress under adverse circumstances. If the United States shall be forced into a state of actual war, all the resources of the country must be called forth to make it efficient and new loans will undoubtedly be wanted. But whilst peace is preserved, the revenue will, at all events, be sufficient to pay the interest and to defray necessary expenses. I do not ask that in the present situation of our foreign relations the debt be reduced, but only that it shall not be increased so long as we are not at war."
In his eight years of service under Jefferson, Gallatin had not found the Treasury Department a bed of roses. Under Madison there was an undue proportion of thorns.
It has been shown that the entire reliance of Gallatin for the expenses of government was on customs, tonnage dues, and land sales. The effect of the Embargo Act was soon felt in the falling off of importations, and consequently in the revenue from this source. Mr. Gallatin felt the strain in the spring of 1809; and on March 18, soon after Mr. Madison's inauguration, he gave notice to the commissioners of the sinking fund of a probable deficiency. In his annual report to Congress, December, 1809, he announced the expenses of government, exclusive of the payments on account of the principal of the debt, to have exceeded the actual receipts into the Treasury by a sum of near $1,300,000. For this deficiency, and the sum required for the sinking fund, Gallatin was authorized in May to borrow from the Bank of the United States $3,750,000 at six per cent., reimbursable on December 31, 1811. Of this sum only $2,750,000 was taken, the expenses having proved less than Mr. Gallatin had anticipated.
Madison called Congress together on November 1, 1811. The political tension was strong, and he was anxious to throw the responsibility of peace or war upon Congress. On November 22, 1811, Mr. Gallatin made his report on the finances and the public debt. It was, as usual, explicit and in no manner despondent. The actual receipts arising from revenue alone exceeded the current expenses, including the interest paid on the debt, by a sum of more than five and one half millions of dollars. The public debt on January 1, 1812, was $45,154,463. Since Gallatin took charge of the department, the United States had in ten years and nine months paid in full the purchase money of Louisiana, and increased its revenue nearly two millions of dollars. For eight years eight millions of dollars had been annually paid on account of the principal and interest of the debt. And as though intending to leave as the legacy of his service a lesson of financial policy, he said:--
"_The redemption of principal has been effected without the aid of any internal taxes, either direct or indirect, without any addition during the last seven years to the rate of duties on importations, which on the contrary have been impaired by the repeal of the duty on salt, and notwithstanding the great diminution of commerce during the last four years._ It therefore proves decisively the ability of the United States with their ordinary revenue to discharge, in ten years of peace, a debt of forty-two millions of dollars, a fact which considerably lessens the weight of the most formidable objection to which that revenue, depending almost solely on commerce, appears to be liable. In time of peace it is almost sufficient to defray the expenses of a war; in time of war it is hardly competent to support the expenses of a peace establishment. Sinking at once, under adverse circumstances, from fifteen to six or eight millions of dollars, it is only by a persevering application of the surplus which it affords us in years of prosperity, to the discharge of the debt, that a total change in the system of taxation or a perpetual accumulation of debt can be avoided. But if a similar application of such surplus be hereafter strictly adhered to, forty millions of debt, contracted during five or six years of war, may always, without any extraordinary exertions, be reimbursed in ten years of peace. This view of the subject at the present crisis appears necessary for the purpose of distinctly pointing out one of the principal resources within reach of the United States. But to be placed on a solid foundation, it requires the aid of a revenue sufficient at least to defray the ordinary expenses of government, and to pay the interest on the public debt, including that on new loans which may be authorized."
From this plain declaration, it was evident that the sum necessary to pay interest on new loans, and provide for their redemption by the operation of the sinking fund, could not be obtained from the ordinary sources of revenue, and that resort must be had to extraordinary imposts or direct taxation. On January 10, 1812, in response to an inquiry of the Ways and Means Committee as to an increase of revenue in _the event of a war_, Gallatin submitted a project for war loans of ten millions a year, irredeemable for ten years. He pointed out that the government had never since its organization obtained considerable loans at six per cent. per annum, except from the Bank of the United States, and these, on a capital of seven millions, never amounted to seven millions in the whole. As the amount of prospective loans would naturally raise the amount of interest, it seemed prudent not to limit the rate of interest by law; ineligible as it seemed to leave that rate discretionary with the executive, it was preferable to leaving the public service unprovided for. For the same reason the loans should be made irredeemable for a term not less than ten years.
He then repeated a former suggestion, that "treasury notes," bearing interest, might be issued, which would to that extent diminish the amount to be directly borrowed and also provide a part of the circulating medium, passing as bank notes; but their issue must be strictly limited to that amount at which they would circulate without depreciation. So long as the public credit is preserved and a sufficient revenue provided, he entertained no doubts of the possibility of procuring on loan the sums necessary to defray the extraordinary expenses of a war. He warned the committee, and through it Congress, that "no artificial provisions, no appropriations or investments of particular funds in certain persons, _no nominal sinking fund_, however constructed, will ever reduce a public debt unless the net annual revenue shall exceed the aggregate of the annual expenses, including the interest of the debt." He then submitted the following estimates:--
"The current or peace expenses have been estimated at nine millions of dollars. Supposing the debt contracted during the war not to exceed fifty millions and its annual interest to amount to three millions, the aggregate of the peace expenditure would be no more than twelve millions. And as the peace revenue of the United States may at the existing rate of duties be fairly estimated at fifteen millions, there would remain from the first outset a surplus of three millions applicable to the redemption of the debt. So far, therefore, as can be now foreseen, there is the strongest reason to believe that the debt thus contracted will be discharged with facility and as speedily as the terms of the loans will permit. Nor does any other plan in that respect appear necessary than to extend the application of the annual appropriation of eight millions (and which is amply sufficient for that purpose) to the payment of interest and reimbursement of the principal of the new debt.... If the national revenue exceeds the national expenditure, a simple appropriation for the payment of the principal of the debt and coextensive with the object is sufficient and will infallibly extinguish the debt. If the expense exceeds the revenue, the appropriation of any specific sum and the investment of the interest extinguished or of any other fund, will prove altogether nugatory; and the national debt will, notwithstanding that apparatus, be annually increased by an amount equal to the deficit in the revenue.... What appears to be of vital importance is that _the crisis_ should at once be met by the adoption of efficient measures, which will with certainty provide means commensurate with the expense, and, by _preserving unimpaired instead of abusing that public credit on which the public resources so eminently depend, will enable the United States to persevere in the contest until an honorable peace shall have been obtained_."
On March 14 Congress authorized a public loan of eleven millions of dollars, leaving it optional with the banks who subscribed to take stock, or to loan the money on special contract. The books were opened May 1 and 2, and in the two days $6,118,900 were subscribed: $4,190,000 by banks and $1,928,000 by individuals. The rate was six per cent. Mr. Gallatin reported this result, and proposed the issue of treasury notes for such amount as was desired within the limit of the loan to bear interest at five and two fifths per cent. a year, equal to a cent and a half per day on a hundred dollars' note; 2d, to be payable one year after date of issue; 3d, to be in the meanwhile receivable in payment of all duties, taxes, or debts due to the United States. The first of these ingenious qualifications was adopted by Mr. Chase in his issue of the seven-thirties.
On June 18 war was declared. On the 28th Mr. Gallatin submitted his estimate of receipts and expenditures for the year.
EXPENDITURES IN ROUND NUMBERS.
Civil and miscellaneous $1,560,000 Military establishment, and Indian dept 12,800,000 Naval establishment 3,940,000 Public debt 8,000,000 ---------- $26,300,000 ==========
FUNDS PROVIDED.
Balance in Treasury, January 1 $2,000,000 Receipts from duties and sales of lands as by estimate of November 22, 1811 8,200,000 Loan authorized by law 11,000,000 Treasury notes as authorized by House of Representatives 5,000,000 ---------- $26,200,000
The issue of _treasury notes_ was a novel experiment in the United States; but they were favorably received, and Mr. Gallatin calculated that the full amount authorized by law, $5,000,000, could be put in circulation during the year. The result of a loan seemed more doubtful. The old six per cents. and deferred stock had already fallen two or three per cent. below par. Mr. Gallatin again recommended the conversion of these securities into a new six per cent. stock, which would facilitate the new loan, and to prevent the necessity of applying, the same years, the large sums required in reimbursement of and purchase of the public debt.
On December 1 Mr. Gallatin made his last annual statement.
_Treasury Report for Fiscal Year ending September_ 30, 1812.
RECEIPTS.
Customs, sales of lands, etc. $10,934,946.20 On account of loan of eleven millions, act 14 March, 1812 5,847,212.50 -------------- $16,782,158.70 Balance in Treasury October 1, 1811 3,947,818.36 -------------- $20,729,977.06 ==============
DISBURSEMENTS.
Civil Department, foreign intercourse $1,823,069.35 Army, militia, forts, etc. $7,770,300.00 Navy Department 3,107,501.54 Indian Department 230,975.00 ------------- 11,108,776.54 Interest on debt $2,498,013.19 On account of principal 2,938,465.99 ------------- 5,436,479.18 -------------- $18,368,325.07 Leaving in Treasury 30 Sept., 1812 2,361,652.69 -------------- $20,729,977.76
The sums obtained or secured on loans during the year amounted to $13,100,209, and the secretary had the satisfaction to state "that notwithstanding the addition thus made to the public debt, and although a considerable portion has been remitted from England and brought to market in America, the public stocks (which had at first experienced a slight depression) have been for the last three months, and continue to be, at par." His last report to the commissioners of the sinking fund of February 5, 1813, stated the usual application of $8,719,773 to the principal and interest of the debt.
In his report of December 1, 1812, Mr. Gallatin announced that a loan of twenty-one millions was needed for the service of 1813. Congress authorized a loan of $16,000,000, having six years to run, and an additional issue of $5,000,000 of treasury notes. Congress adjourned on March 4. Their procrastination and the pressing demands of the War Department nearly beggared the Treasury before the loans could be negotiated and covered into it.
On April 17 Mr. Gallatin wrote to the secretaries of the army and of the navy, and sent a copy of his letters to Mr. Madison with information that the loan had been filled, and the probable receipts of the Treasury from ordinary sources for the year ascertained. These he estimated at $9,300,000. Deducting the annual appropriation for interest on the debt, the sum expended to March 31, and the amount needed for the civil service, there remained for the War and Navy Departments together the sum of $18,720,000.
The loan of $16,000,000 was obtained in the following places:--
States east of New York $486,700 State of New York 5,720,000 Philadelphia, Pa. 6,858,400 Baltimore and District of Columbia 2,393,300 State of Virginia 187,000 Charleston, S. C. 354,000 ----------- $16,000,000
The history of this subscription is not without interest. The extremely small subscriptions in New England and in the Southern States can hardly be explained on any other theory than that of a belief in the collapse of the finances of the United States and a dissolution of the Union, for which the New England States had certainly been prepared by their governing minds.[14]
Books were opened on March 12 and 13, 1813, at Portsmouth, Salem, Boston, Providence, New York, Albany, Philadelphia, Baltimore, Washington, Richmond, and Charleston. In the two days the subscriptions only reached the sum of $3,956,400. They were again opened on the 25th of March at New York, Philadelphia, Baltimore, and Washington. The New England and Southern States seem to have been disregarded because of their indifference in the first instance. The books remained open from March 25 to 31, during which time there were received $1,881,800, a total of $5,838,200.
The pressure fell on the Middle States. In these, fortunately for the government, there were three great capitalists whose faith in the future prosperity of the United States was unimpaired. All were foreigners: David Parish and Stephen Girard in Philadelphia and John Jacob Astor in New York. These now came forward, no doubt at the instance of Mr. Gallatin, who was a personal friend of each. Parish and Girard offered on April 5 to take eight millions of the loan at the rate of eighty-eight dollars for a certificate of one hundred dollars bearing interest at six per cent., redeemable before December 31, 1825, they to receive one quarter of one per cent. commission on the amount accepted, and in case of a further loan for the service of the year 1813, to be placed on an equal footing with its takers. John Jacob Astor on the same day and at the same place proposed to take for himself and his friends the sum of two million and fifty-six thousand dollars of the loan on the same conditions. These offers were accepted and the loan was complete. An offer on behalf of the State of Pennsylvania to take one million of the loan was received too late. Altogether the offers amounted to about eighteen millions, or two millions more than the sum demanded. Mr. Gallatin, clinging to his old plan, endeavored to negotiate this loan at par, by offering a premium of a thirteen years' annuity of one per cent., but found it impracticable. Indeed, the system of annuity, general in England, has never found favor as an investment in the United States.
This was Mr. Gallatin's last financial transaction. A few weeks later, at his own request, he severed his actual connection with the Treasury Department and was on his way to St. Petersburg to secure the proffered mediation of the emperor of Russia between the United States and Great Britain.
Thus ended Mr. Gallatin's administration of the national finances. The hour for saving had passed. The imperious necessities of war take no heed of economic principles. The work which the secretary had done became as the rope of sand. It is not surprising that Gallatin wearied of his post; that he watched with vain regret and unavailing sighs the unavoidable increase of the national debt, and that he sought relief in other services where success was not so evanescent as in the Treasury Department. Before the close of Madison's administration, February 12, 1816, the public debt had run up to over one hundred and twenty-three millions,[15] and a sum equal to the entire amount of Mr. Gallatin's savings in two terms had been expended in one. But his work had not been in vain. The war was the crucial test of the soundness of his financial policy. The maxims which he announced, that debt can only be reduced by a surplus of revenue over expenditure, and the accompaniment of every loan by an appropriation for its extinguishment, became the fundamental principle of American finance. Mr. Gallatin was uniformly supported in it by Congress and public opinion. It was faithfully adhered to by his distinguished successors, Dallas and Crawford, and the impulse thus given continued through later administrations, until, in 1837, twenty years after the peace, the entire debt had been extinguished. All this without any other variation from Mr. Gallatin's original plan than an increase of the annual appropriation, to the sinking fund for its reimbursement, from eight to ten millions.[16]
The only charge which has ever been made against Gallatin's administration was, that he reduced the debt at the expense of the defenses and security of the country; but, to quote the words of one of his biographers:[17] "Mr. Gallatin had the sagacity to know that it [the redemption of the debt] would make but little difference in the degree of preparation of national defense and means of contest, for which it is impossible ever to obtain a considerable appropriation before the near approach of the danger that may render them necessary. He knew that the money thus well and wisely devoted to the payment of the debt was only rescued from a thousand purposes of extravagance and mal-application to which all our legislative bodies are so prone whenever they have control of surplus funds." In our own day the irresistible temptations of a full treasury need no labored demonstration. Friend and foe drop political differences over the abundant fleshpot. The very thought of catering to such appetites disgusted Gallatin. To Jefferson he frankly said, in 1809, that while he did not pretend to step out of his own sphere and to control the internal management of other departments, yet he could not "consent to act the part of a mere financier, to become a contriver of taxes, a dealer of loans, a seeker of resources for the purpose of supporting useless baubles, of increasing the number of idle and dissipated members of the community, of fattening contractors, pursers, and agents, and of introducing in all its ramifications that system of patronage, corruption, and rottenness which you justly execrate."
RECEIPTS AND EXPENDITURES DURING MADISON'S ADMINISTRATION, FROM ELLIOTT'S SYNOPTICAL EXHIBITS.
RECEIPTS.
------------+----------------+---------------+----------------+ Four Years | Customs. | Internal | Direct Taxes. | Ending | | Revenue. | | Dec. 31. | | | | ------------+----------------+---------------+----------------+ 1812 | $38,151,330.15 | $18,674.03 | $28,491.87 | 1816 | 62,813,212.43 | 11,470,507.24 | 8,639,611.38 | |----------------+---------------+----------------+ Madison | 100,964,542.58 | 11,489,181.27 | 8,668,103.25 | ------------+----------------+---------------+----------------+ ----------------+----------------+-------------------+----------------+ Postage. | Public Lands. | Loans and | Dividends | | | Treasury Notes. | Sales of | | | | Bank Stock. | ----------------+----------------+-------------------+----------------+ $85,077.40 | $2,889,466.46 | $15,606,201.30 | - | 364,787.84 | 4,977,570.54 | 94,321,103.73 | - | ----------------+----------------+-------------------+----------------+ 449,865.24 | 7,867,037.00 | 109,927,305.03 | - | ----------------+----------------+-------------------+----------------+
----------------+---------------- Miscellaneous. | Total. | | ----------------+---------------- $209,309.34 | $56,988,550.55 630,248.16 | 183,217,041.32 ----------------+---------------- 839,557.50 | 240,205,591.87 ----------------+----------------
EXPENDITURES.
-----------+-----------------+---------------+----------------+ Four Years | Civil List. | Foreign | Miscellaneous. | Ending | | Intercourse. | | Dec. 31. | | | | -----------+-----------------+---------------+----------------+ 1812 | $2,887,197.98 | $860,281.28 | $1,619,849.12 | 1816 | 3,768,342.61 | 1,042,633.42 | 5,015,100.92 | |-----------------+---------------+----------------+ Madison | 6,655,540.59 | 1,902,914.70 | 6,634,950.04 | -----------+-----------------+---------------+----------------+
----------------+----------------+-------------------+----------------+ Military Dept. | Pensions. | Indian Dept. | Naval Dept. | | | | | | | | | ----------------+----------------+-------------------+----------------+ $19,480,722.54 | $338,023.68 | $944,848.84 | $10,006,934.54 | 70,809,210.90 | 435,614.48 | 1,140,015.30 | 26,326,169.25 | ----------------+----------------+-------------------+----------------+ 90,289,933.44 | 773,638.16 | 2,084,864.14 | 36,333,103.79 | ----------------+----------------+-------------------+----------------+
----------------+---------------- Public Debt. | Total. | | ----------------+---------------- $26,920,285.12 | $63,058,143.10 56,508,652.66 | 165,045,739.54 ----------------+---------------- 83,428,937.78 | 228,103,882.64 ----------------+----------------
* * * * *
_Revenue_
_L'État c'est moi_ was the autocratic maxim of Louis Quatorze. An adherence to it cost the Bourbons their throne. Burke was more philosophical when he said, "The revenue of the State is the State." Its imposition, its collection, and its application involve all the principles and all the powers of government, constitutional or extraordinary. It is the sole foundation of public credit, the sole support of the body politic, its life-blood in peace, its nerve in war. The "purse and the sword" are respectively the resource and defense of government and peoples, and they are interdependent powers. With the discovery of the sources of revenue, and the establishment of its currents, Mr. Gallatin, in the first eight years of his administration of the Treasury, had nothing to do. He had only to maintain those systems which Hamilton had devised, and which, wisely adapted to the growth of the country, proved amply adequate to the ordinary expenditures of the government and to the gradual extinguishment of the debt. The entire revenue included three distinct branches: imposts on importations and tonnage, internal revenue, sales of public lands. The duties on imports of foreign merchandise were alone sufficient to meet the current expenses of the various departments of administration on a peace establishment, and, increasing with the growth of the country, would prove ample in future. The gross amount of imports in the four years of Adams's administration, 1796-1800, was about three hundred and fourteen millions of dollars, and the customs yielded about thirty millions.
Mr. Gallatin's first annual report, submitted to the House of Representatives in December, 1801, exhibited his financial scheme. He recapitulated the various sources of permanent revenue. They were those of Hamilton's original tariff.
The revenues for the year ended September 30, 1801, were the basis of the estimates for future years. These were
Duties on imports and tonnage $10,126,213.92 Internal revenue 854,000.00 Land sales 400,000.00 -------------- $11,380,213.92
But the close of the war in Europe sensibly diminished the enormous carrying trade which fell to the United States as neutrals, and, as a consequence, the revenue from that source; large quantities of goods were brought into the United States and reëxported to foreign ports under a system of debenture. The revenue on what Mr. Gallatin calls "this accidental commerce" was $1,200,000. He therefore _estimated the permanent revenues at_
Customs duties $9,500,000 Land sales 400,000 Postage 50,000 Internal revenue 650,000 ----------- $10,600,000
Or, without the internal revenue, say ten millions of permanent revenue, as a basis for _the permanent expenditures_.
To bring the expenditures within this sum, however, a reduction in the army and navy establishments was necessary. This Gallatin soon found to be too radical a measure for success, either in the cabinet or Congress, however well it may have accorded with Jefferson's utopian views. In the budget of 1802 the internal revenue, $650,000, was, therefore, a necessary item. The expenditures proposed were
Annual appropriation for interest and principal of debt $7,100,000 Civil list $780,000 Foreign intercourse 200,000 Military and Indian Dept 1,420,000 Naval 1,100,000 ----------- $3,500,000 3,500,000 ----------- $10,600,000
In this budget the estimate for the military establishment was an increase over that of Wolcott for 1801, which was $1,120,000. But the Republicans in the House were not content with this arrangement. The internal revenues were utterly distasteful to them. They had been laid against their protest and collected under military menace. They were of those Federal measures of which they would have none. John Randolph, chairman of the Committee of Ways and Means, reported, March 2, 1802, against the entire system of internal duties, in the old words of the Pennsylvania radicals, as vexatious, oppressive, and peculiarly obnoxious; as of the nature of an excise which is hostile to the genius of a free people, and finally because of their tendency to multiply offices and increase the patronage of the executive. The repeal was imperative upon the Republican party. On April 6, 1802, the act was repealed and the surplus of the budget stripped from it, without Mr. Gallatin's consent, certainly, but also without protest from him.
The prosperity of the country continued. The impost duties for the fiscal year ending September 30, 1802, rose to $12,280,000, the sales of the public lands to $326,000, and the postage to $50,500, a total of $12,656,500, and left in the Treasury, September 30, 1802, the sum of $4,539,675. This large increase in the Treasury did not in the least change Mr. Gallatin's general plan, and his budget for 1803 was based on his original scale of a permanent revenue of $10,000,000, to correspond with which the estimates of the preceding year were reduced. The fiscal year closed September 30, 1803, with a balance in the Treasury of $5,860,000. This situation of the finances was fortunate in view of secret negotiations which the President and Congress were initiating for the purchase of Louisiana from France.
The secretaries of war and of the navy had promised to reduce their expenditures to a figure approximate to Mr. Gallatin's estimates; but the breaking out of hostilities with Tripoli prevented the proposed economy, and Mr. Gallatin was called upon to provide for an increased expenditure with one certain source of revenue definitively closed. He therefore proposed an additional tax of two and one half per cent. on all importations which paid an _ad valorem_ duty. This additional impost, laid by act of March 25, 1804, called the Mediterranean Fund, remained in force long after the war closed and held its place on the books of the Treasury under that name.
The bulk of the cost of Louisiana was met by an issue of bonds; but Mr. Gallatin, true to his principle, applied the moneys in the Treasury as far as they would go. The budget for 1805 was on a different scale. The increase in the debt demanded a proportionate increase in the revenue to meet the additional sum required for interest and gradual annual reimbursement. The Mediterranean Fund was sufficient to meet the increased amounts required for the navy. In this manner he held up the Navy Department to a strict accountability and made it responsible to Congress and not to the cabinet for its administration, and he thus, from his own point of view, relieved the Treasury Department from any responsibility for extraordinary expenditure.
Mr. Gallatin closed his four years of administration with flying colors. The successful management of the finances was an important factor in the election of 1804, which returned Mr. Jefferson to the presidential chair and insured to the country the inestimable advantages of Mr. Gallatin's practical mind. Order reigned in his department at least, and order subordinate to the strictest requirements of law. In the four years, 1801-1804, Jefferson's first term, the imports aggregated $337,363,510 and the customs yielded $45,000,000.
The annual report, made December 9, 1805, announced an increasing revenue, amounting in all to thirteen and one half millions of dollars, chiefly from customs. Still Mr. Gallatin made but small addition to his estimates for the coming year. The permanent revenue he raised to twelve and one half millions and increased the appropriation for the payment of the debt and interest to eight millions. Nothing occurred during the next year to check the growth of the country; the revenue continued on a rising scale, and reached close upon fifteen millions of dollars.
So far Mr. Gallatin had met but inconsiderable obstacles in his course, and these he used to his advantage to impress economy upon the Army and Navy Departments, and enforce his principle of minute appropriations for their government. All that he had already accomplished in the establishment of a sound financial system and the support of the credit of the United States was but the basis of a broader structure of national economy. His extensive scheme of internal improvements was hardly matured when the thunder broke in the clear sky.
The acquisition of Louisiana, the large carrying trade which had passed under the American flag, and the rapid prosperity of the financial and industrial condition of the country aroused the jealousy of Great Britain, and determined her to check the further progress of the United States by war, if need be. The capture of the American frigate Chesapeake by the man-of-war Leopard, June 22, 1807, was only the first in a series of outrages which rendered the final collision, though long delayed, inevitable. Mr. Gallatin at once recognized that the Treasury could no longer be conducted on a peace basis. "Money," he wrote to Joseph H. Nicholson, "we will want to carry on the war; our revenue will be cut up; new and internal taxes will be slow and not sufficiently productive; we must necessarily borrow. This is not pleasing to me, but it must be done." Congress was called together for October 26, 1807, and on November 5, Mr. Gallatin sent in his annual report. There was still hope that Great Britain would make amends for the outrage, and Congress was certainly peaceably disposed. In the condition of the Treasury there was no reason as yet for recommending extraordinary measures. The revenues for the year passed the sum of seventeen millions; the balance in the Treasury reached eight and one half millions; the surplus on a peace footing was twelve millions. Mr. Gallatin recommended that the duties should be doubled in case war were threatened. He said, "Should the revenue fall below seven millions of dollars, not only the duty on salt and the Mediterranean duties could be immediately revived, but the duties on importation generally be considerably increased, perhaps double, with less inconvenience than would arise from any other mode of taxation." Experience had proven that this source of revenue is in the United States "the most productive, the easiest to collect, and least burdensome to the great mass of the people." But still the war-cloud did not break. Mr. Canning contented himself with war in disguise, and by his Order in Council of November 11, 1807, shut the ports of Europe to American trade, and wiped away the advantages of the United States as a neutral power. The United States answered with the act of embargo on December 22, 1807, completing, as far as it was possible for legislation to effect it, the blockade of the Treasury Department as regarded revenues from foreign imports. The immediate effect, however, of these acts in Great Britain and America was an enormous temporary increase of importations in the interim from the time of the passage of the act until the date when it took effect. To aid merchants in this peculiar condition of affairs an act was passed by Congress, on March 10, 1808, extending the terms of credit on revenue bonds.
Mr. Gallatin's report of December 16, 1808, closed the record of his eight years of management of the Department. In the second term of Jefferson's administration, 1805-1808, the gross amount of imports had risen to $443,990,000, and the customs collected to nearly $60,000,000. In the entire eight years, 1800-1808, the gross amount of importations was $781,000,000, and the customs yielded $105,000,000. The entire expenses of the government in the same period, including $65,000,000 of debt, had been liquidated from customs alone.
The specie in the Treasury on September 20, 1808, reached nearly $14,000,000. Mr. Jefferson knew of the amount in the Treasury when he wrote his last message, November 8, 1808, and he could not have been ignorant of Mr. Gallatin's warning of the previous year that a continuance of the embargo restriction would reduce the revenue below the point of annual expenditures and require an additional impost; yet he had the ignorance or the presumption to say in his message, "Shall it (the surplus revenue) lie unproductive in the public vaults? Shall the revenue be reduced? or shall it not rather be appropriated to the improvement of roads, canals, rivers, education, and other great foundations of prosperity and union under the powers which Congress may already possess or such amendments of the Constitution as may be approved by the States? While uncertain of the course of things, the time may be advantageously employed in obtaining the powers necessary for a system of improvement, should it be thought best." In these words Jefferson surrendered the vital principle of the Republican party. In his satisfaction at the only triumph of his administration, the management of the finances and the purchase of a province without a ripple on the even surface of national finance, he gave up the very basis of the Republican theory, the reduction of the government to its possible minimum, and actually proposed a system of administration coextensive with the national domain, an increase of the functions of government, and consequently of executive power.
The annual report of the Treasury, presented December 16, 1808, showed no diminution of resources. The total receipts for the fiscal year were nearly eighteen millions. The total receipts for--
Customs reached $26,126,648 On which debentures were allowed on exportations 10,059,457 ----------- Actual receipts from customs $16,067,191
But this source of revenue was now definitively closed by the embargo, while the expenditures of the government were increased. Mr. Gallatin met the situation frankly and notified Congress of the resources of the Treasury.
RESOURCES FOR 1809
Cash in Treasury $13,846,717.52 Back customs, net 2,154,000.00 -------------- Total resources $16,000,717.52
The receipts from importations and land sales would be offset by deductions for bad debts and extensions of credit to importers. The expenditures were set at $13,000,000, which would leave in the Treasury for extraordinary expenditure $3,000,717. The disbursements had been far beyond the estimates; those for the military and naval establishments reaching together six millions.
It is not to be supposed that Mr. Gallatin saw this depletion of the Treasury, this rapid dissipation of the specie,--always desirable and never more so than in periods of trouble,--without disappointment and regret. His report to Congress was as outspoken politically as it was financially, and from a foreign-born citizen to an American Congress must have carried its sting. "Either America," he wrote, "must accept the position of commerce allotted to her by the British edicts, and abandon all that is forbidden,--and it is not material whether this is done by legal provisions limiting the commerce of the United States to the permitted places, or by acquiescing in the capture of vessels stepping beyond the prescribed bounds. Or the nation must oppose force to the execution of the orders of England; and this, however done, and by whatever name called, will be war." He recalled to them his advice of the preceding years in a vein of tempered bitterness: "Had the duties been doubled on January 1, 1808, as was then suggested, in case of war the receipts into the Treasury during that and the ensuing year would have been increased nine or ten millions of dollars." He then proposed to continue the Mediterranean Fund and to double all existing duties on importations after January 1, 1809. He informed them that no internal taxes, either direct or indirect, were contemplated by him even in the case of hostilities against the two belligerent powers; France having responded to the Orders in Council by Napoleon's Milan decree, December 17, 1807, which was quite as offensive to the United States as that of Canning. With true statesmanship Mr. Gallatin nerved the country to extraordinary exertion by reminding it that the geographical situation of the United States and their history since the Revolution removed every apprehension of frequent wars.
During the year 1809 the country drifted along apparently without rudder or compass, helmsman or course, and the treasury locker was being rapidly reduced to remainder biscuit. Mr. Madison was inaugurated in March. In his first message, May 23, 1809, he exposed the financial situation with an indecision which was as marked a trait of his character as optimism was of that of Jefferson. In his message of November 29, 1809, he said "the sums which had been previously accumulated in the Treasury, together with the receipts during the year ending on September 30 last, and amounting to more than nine millions of dollars, have enabled us to fulfill all our engagements and defray the current expenses of government without recurring to any loan; but the insecurity of our commerce and the consequent demands of the public revenue will probably produce a deficiency in the receipts of the ensuing year." Beyond this Madison did not venture; Gallatin was left alone.
The Treasury report of December 8, 1809, announced the beginning of short rations. The expenses of government, exclusively of the payments on account of the principal of the debt, had exceeded the actual receipts into the Treasury by a sum of near $1,300,000. If the military and naval establishments were to be continued at the figures of 1809, when six millions were expended, there would result a deficiency of $3,000,000, and a loan of $4,000,000 would be necessary. Otherwise the Mediterranean Fund would suffice. The cash in the Treasury had fallen from nearly fourteen millions on June 2, 1809, to less than six millions on September 3, following. In this report Gallatin expressed his opinion, that the system of restriction established by the embargo and partly relaxed must be entirely reinstated or wholly abandoned. On May 1, 1810, an act of strict prohibition of importations from Great Britain and her dependencies was passed.
While from the incompetency of the administration the country was fast approaching the real crisis of open war, the Republicans in Congress were deliberately destroying and undermining the basis of national credit, by which alone it could be carried on. In February the United States Bank, by which, and its branches, the customs were collected throughout the country, was destroyed by the refusal of Congress to renew its charter. Mr. Gallatin in his combinations never contemplated such a contingency as the total destruction of the fiscal agency on which the government had relied for twenty years. Unwilling to struggle longer against the mean personalities and factious opposition of his own party in Congress, he tendered his resignation to Mr. Madison. But the Republican party was a party of opposition, not of government. With the exception of Mr. Gallatin, no competent administrative head had as yet appeared. There was no one in the party or out of it to take his place. Mr. Madison knew it. Mr. Gallatin felt it, and remained. Congress met in November. On the 25th Mr. Gallatin sent in his annual report; the receipts reached thirteen and a half million dollars.
The budget for 1812 left a deficiency to be provided for of $1,200,000. This was a small matter. The revenue Mr. Gallatin proposed to increase, on the plan before recommended, by additions of fifty per cent, to the imposts on foreign commerce. This he preferred to any internal tax.
At the close of the year the country, chafed beyond endurance by the indignities put upon it and the sufferings it encountered without compensation to its pride, was eager for war. Congress was no way loath to try the dangerous path out of its labyrinth of blunders. The near contingency imposed the necessity of an immediate examination of the sources of revenue. In January, 1812, Mr. Gallatin was requested by the chairman of the Committee of Ways and Means to give his opinion as to the probable amount of receipts from duties on tonnage and merchandise in the event of war. This, in view of the vigorous restrictions laid by France under her continental system of exclusion, Mr. Gallatin estimated under existing rules as not to exceed $2,500,000. He then stated, without hesitation, that it was practicable and advisable to double the rate of duties, and to renew the old duty on salt. The sum acquired, with this addition, he anticipated, would amount to $5,400,000.
On the basis of annual loans of ten millions of dollars during the continuance of the war (the sum assumed by the committee), the deficiency for 1814 would amount, by Mr. Gallatin's estimate, to $4,200,000. To produce a net revenue equal to this deficiency he stated that the gross sum of taxes to be laid must be five millions of dollars. He then reverted to his report of December 10, 1808, in which he had stated that "no internal taxes, either direct or indirect, were contemplated, even in the case of hostilities carried on against the two great belligerent powers." The balance in the Treasury was then nearly fourteen millions of dollars, but in view of the daily decrease of the revenue he had recommended "that all the existing duties be doubled on importations subsequent to the first day of January, 1809." As the revenues of 1809, 1810, and 1811 had yielded $26,000,000, the sum on hand, with the increase thus recommended, would have reached $20,000,000, a sum greater than the net amount of the proposed internal taxes in four years.
At that time no symptoms had appeared from which the absolute dissolution of the Bank of the United States without any substitute could have been anticipated. If its charters had been renewed, on the conditions suggested by Mr. Gallatin, the necessity for internal taxes would have been avoided. The resources of the country, properly applied, however, were amply sufficient to meet the emergency; but Mr. Gallatin distinctly threw upon Congress, and by implication upon the Republican majority, the responsibility for the state of the Treasury, and the imperative necessity for a form of taxation which it detested as oppressive, and which it was a party shibboleth to declare in and out of season, to be unconstitutional. The choice of the administration was between the Bank which Jefferson detested and Gallatin favored, and the internal tax which Mr. Gallatin considered as the most repulsive in its operation of any form of revenue.
But necessity knows no law, and the prime mover, if not the original author, of the opposition to Hamilton's system was driven to propose the renewal of the measures, opposition to which had brought the Republican party into power, and had placed himself at the head of the Treasury. He now proposed to raise the five millions deficiency by internal taxation--$3,000,000 by direct tax and $2,000,000 by indirect tax.
Continuing his lucid and remarkable report with careful details of the methods to be adopted, Gallatin closed with an urgent recommendation that the crisis should at once be met by the adoption of efficient measures to provide, with certainty, means commensurate with the expense, and by preserving unimpaired, instead of abusing, that credit on which the public resources eminently depend, to enable the United States to persevere in the contest until an honorable peace should be obtained. Thus he held the bitter cup to the lips of the Republican Congress, which, however, was not yet to drain its full measure. War was declared June 18, 1812. On July 1, 1812, an act was passed imposing an additional duty of one hundred per cent. on all importations, an additional ten per cent. on goods brought in foreign vessels, and also a duty of $1.50 per ton on all foreign vessels. The duty was to remain until the expiration of one year after peace should be made with Great Britain. On December 5, 1812, Mr. Gallatin sent in his last report. The balance in the treasury was $3,947,818. His estimate for the service of the year 1813 was a war budget. Resources, $12,000,000; expenditures, $31,926,000; promising a deficiency of $19,925,000. For this and other contingencies Mr. Gallatin asked for a loan of twenty millions. The authority was granted, but the recommendations of direct and indirect taxes were disregarded. Here Mr. Gallatin's direct connection with the customs system closed.
The value of foreign importations during Madison's first term was $275,230,000, and the customs derived from them thirty-eight millions of dollars.
* * * * *
Congress adjourned March 4, 1813, but was called together again in May, when the subject of internal taxes was again forced upon them. The internal revenue was a part of Hamilton's general scheme. His original bill was passed, and, after numerous amendments suggested by trial, its grievances were tempered and the friction removed. In Adams's term it yielded nearly three millions of dollars. In Jefferson's first term, before the rise in customs revenue allowed of its abandonment, Mr. Gallatin drew from this source nearly two millions of dollars, enough to pay the interest and provide for the extinguishment of a six per cent. loan of thirty millions; a war budget in itself. But it had been so entirely set aside that in Jefferson's second term, 1808-1812, it had fallen to a little over sixty-three thousand; in Madison's first term, to a little under nineteen thousand dollars. Was it to this Mr. Dallas referred in that passage of his report, made in 1815, on the financial operations of the war, in which he expresses his regret "that there existed no system by which the internal resources of the country could be brought at once into action, when the resources of its external commerce became incompetent to answer the exigencies of the time? The existence of such a system would probably have invigorated the early movements of the war, might have preserved the public credit unimpaired, and would have rendered the pecuniary contributions of the people more equal, as well as more effective." "It certainly," to use the words of this Mr. Gallatin's oldest and best political friend, "furnishes a lesson of practical policy." Disagreeable as the necessity was, it could not be avoided, and Mr. Gallatin met it manfully. Nay more, he seems to have had a grim satisfaction in proposing the measure to the Congress which had thwarted him in his plans. In accordance with his suggestions, Congress, in the extra session of May, 1813, laid a direct tax of $3,000,000 upon the States, and specific duties upon refined sugar, carriages, licenses to distillers of spirituous liquors, sales at auction, licenses to retailers of wines, and upon notes of banks and bankers. These duties, in the beginning temporary, were calculated to yield $500,000, and with the direct tax to give a sum of $3,500,000. But the increasing expenditures again requiring additional sums of revenue, the duties were made permanent and additional taxes were laid; the entire revenue for 1815 being raised so as to yield $12,400,000. In the second term of Mr. Madison the internal revenue brought in nearly eleven and a half millions. The Federalists, who as a party were opposed to the war, enjoyed the situation; Mr. Gallatin was compelled to impose the internal revenue tax which he detested, and Mr. Dallas was called upon to enforce its application.
[Illustration: A. J. Dallas]
* * * * *
The only remaining source of revenue was the sale of public lands. This also was a part of Hamilton's original scheme. The public lands of the United States were acquired in three different ways, namely, 1, by cessions from the States of such lands as they claimed, or were entitled to by their original grants or charters from the crown, while colonies; 2, by purchase from Indian tribes; 3, by treaties with foreign nations,--those of 1783 and 1794 with Great Britain, of 1795 with Spain, and of 1803 with France. The need of bringing this vast territory under the control of the government and disposing of it for settlement was early apparent. In July, 1791, Hamilton sent in to the House a report on "A uniform system for the disposition of the lands, the property of the United States." In March preceding, grants of the United States had confirmed to the actual settlers in the Illinois country the possession of their farms. But what with the Indian wars and the rebellion within the United States, no action was taken by Congress to carry the recommendations of the secretary into effect, until Mr. Gallatin, whose residence on the frontier gave him direct interest in the subject, brought up the matter at the very first session he attended. In 1796 a bill was passed authorizing and regulating the sale of lands northwest of the Ohio and above the mouth of the Kentucky River, and a surveyor-general was appointed with directions to lay out these lands in townships. The sales under Adams's administrations were trifling, the total amount received from this source before the year 1800 being slightly over one hundred thousand dollars. In May, 1800, sales of the same lands were authorized at public vendue at not less than two dollars per acre; four land offices were established in the territory; surveyors were appointed, and a register of the land office was made a permanent official. In March, 1803, an act was passed to regulate the sale of the United States lands south of the Tennessee River, two land offices were established and public sale provided for at the same price set in the act of 1800. In March, 1804, the Indiana lands lying north of the Ohio and east of the Mississippi were brought within similar regulations, and an act was passed concerning the country acquired under Spanish and British grants. In the same month Louisiana was erected into two territories. The sums received from the sales during the first term of Jefferson's administration amounted to little more than one million of dollars. In January, 1805, the territory of Indiana was divided into two separate governments; that one which was set off received the name of Michigan, and in 1808, its territory was brought under the regulations of the land office.
The sums received from the sales in the second term of Jefferson's administration reached nearly two and one half millions of dollars, and in Madison's first term, nearly three millions of dollars. From first to last Mr. Gallatin never lost sight of the subject, though occasion did not serve for more than organization of the system which, in the four years ending 1836, yielded nearly fifty million dollars, and paid more than one third of the entire expenses of the government. To John W. Eppes[18] Mr. Gallatin wrote in the crisis of 1813, "The public lands constitute the only great national resource exclusive of loans and taxes. They have already been mentioned as a fund for the ultimate extinguishment of the public debt." The land offices were then in full operation.
In 1810 Mr. Gallatin prepared an "Introduction to the collection of laws, treaties, and other documents respecting the public lands," which was published pursuant to an act of Congress passed in April of that year.
_Free Trade_
While Mr. Gallatin differed from his early Republican associates in many of their theories of administration, he was a firm believer in the best of their principles, namely, the wisdom of giving free scope to the development of national resources with the least possible interference on the part of government. One of his purposes in his persistent desire for economy in expenditure was to reduce the tariff upon foreign importations to the lowest practicable limit. He was the earliest public advocate in America of the principles of free trade, and an experience of sixty years confirmed him in his convictions.
The extinguishment of the debt rendered a great reduction in the revenue possible. On the other hand, it brought the friends of a low tariff face to face with the problem of internal improvements. As the election of 1832 drew near, the advocates of the two systems ranged themselves in two great parties precisely as to-day: the advocates of the protective or American system with internal improvements as an outlet for accumulations of revenue on the one side; on the other the advocates of free trade. Between his desire for the advantages of the one with its attendant disadvantages of government interference in its prosecution, and the freedom of commerce from undue restrictions, Mr. Gallatin did not hesitate. He threw the whole force of his experience and character into the free trade cause, and became the leader of its friends.
On September 30, 1831, a convention of the advocates of free trade, without distinction of party, met at the Musical Fund Hall in Philadelphia. Two hundred and twelve delegates appeared. Among them were Theodore Sedgwick, George Peabody, and John L. Gardner from Massachusetts; Preserved Fish, John Constable, John A. Stevens, Jonathan Goodhue, James Boorman, Jacob Lorillard, and Albert Gallatin from New York; C. C. Biddle, George Emlen, Isaac W. Norris from Pennsylvania; Langdon Cheves, Henry Middleton, Joseph W. Allston, and William C. Preston from South Carolina; and men of equal distinction, bankers, merchants, statesmen, and political economists from other States. Of this convention Mr. Gallatin was the soul. He opened its business by stating the objects of the meeting, and nominated the Hon. Philip P. Barbour of Virginia for president. A general committee of two from each State was appointed, which recommended an address to the people of the United States and a memorial to Congress. The address to the people closed with a declaration that the near extinguishment of the national debt, which would be discharged by the available funds of the government on January 1, 1833, suggested that the moment was propitious for the establishment of the principles of free trade. Thus the people of the United States, who had successfully asserted the doctrines of free government, might add to its claims upon the gratitude of the world by being the first also to proclaim the theory of a free and unrestricted commerce, the genuine "American system." Mr. Gallatin was the chairman of the committee of fourteen, one from each State represented in the convention, to prepare the memorial which was presented in their behalf to Congress, the conclusions of which, presented with his consummate ability, demonstrated with mathematical precision that a duty of twenty-five per cent. was sufficient for all the legitimate purposes of government. Here he found himself in direct opposition to Mr. Clay, whose political existence was staked upon the opposite theory. Mr. Clay answered in a great speech in the Senate in February, 1832, and forgot himself in personal denunciation of Mr. Gallatin as a foreigner with European interests at heart, and of utopian ideas; for this he expressed his regret to Mr. Gallatin in an interview arranged by mutual friends at a much later period. Mr. Gallatin's views were accepted as the policy of the country, and after some shifting of parties, in which friends and foes changed ground in subordination to other political exigencies, they prevailed in the tariff of 1846, the best arranged and most reasonable which the United States has yet seen.
It is certain that Mr. Gallatin was opposed to "protective" revenue. His preference was for an "even" duty on all imports. This is not the place for an economic discussion. The true policy of the United States is probably between the extremes of protection and free trade. The nature of our population has been changed by the enormous immigration of the last fifty years. Moreover, instead of an absolute freedom from debt the nation has had to endure the legacy of debt left by the Civil War, to meet which a development of all its resources of manufacture as well as of agriculture is required.
_Administration_
To arrive at a correct estimate of Mr. Gallatin's administration of the Treasury Department, a cursory review of the establishment as he received it from the hands of Mr. Wolcott is necessary. This review is confined to administration in its limited sense, namely, the direction of its clerical management under the provisions of statute law. The organization of the department as originated by Hamilton and established by the act of September 2, 1789, provided for a secretary of the treasury as head of the department, whose general duty should be to supervise the fiscal affairs of the country, and particularly to suggest and prepare plans for the improvement and support of the public credit; and, under his direction and supervision, a comptroller to adjust and preserve accounts; an auditor to receive, examine, and rectify accounts; a treasurer to receive, keep, and disburse moneys on warrants signed and countersigned; a register to keep the accounts of receipts and expenditures; and an assistant to the secretary of the treasury to fill any vacancy from absence or other temporary cause. In addition to the departments of State, Treasury, and War, a fourth, that of the Navy, was established April 30, 1798. The three departments were brought into relation with that of the Treasury by an act passed July 16, 1798, supplementary to that organizing the Treasury, and which provided, 1st, for the appointment of an accountant in each department, who was required to report to the accounting officer of the Treasury; 2d, that the Treasurer of the United States should only disburse by warrants on the Treasury, countersigned by the accountant of the Treasury; 3d, that all purchases for supplies for military or naval service should be subject to the inspection and revision of the officers of the Treasury. Mr. Jefferson, after his usual fashion of economy in the wrong direction, proposed to Mr. Gallatin "to amalgamate the comptroller and auditor into one, and reduce the register to a clerk of accounts: so that the organization should consist, as it should at first, of a keeper of money, a keeper of accounts, and the head of the department." But in the Treasury Department there was no extravagance during Gallatin's administration, and the shifting of responsibility would bring no saving of salaries.
In May, 1800, an act was passed making it "the duty of the secretary of the treasury to digest, prepare, and lay before Congress at the commencement of every session a report on the subject of finances, containing estimates of the public revenue and expenditures, and plans for improving and increasing the revenue from time to time, for the purpose of giving information to Congress in adopting modes for raising the money requisite to meet the expenditures." Hamilton had never sent in any other than a statement of expenditure for the past fiscal year, together with the estimate of the accountant of the Treasury for the proximate wants of the departments of government. Mr. Gallatin incorporated in his annual report a balance sheet in accordance with the ordinary forms of book-keeping familiar to every accountant and indispensable in every business establishment, and such as is presented to the public in the monthly and annual statements of the Treasury Department at this day.
The statutes show no legislation during Mr. Gallatin's period of administration, and to its close he was in continual struggle to force upon Congress and the departments an accord with his pet plan of minute specific appropriation of the sums estimated for and expended by each. Mr. Madison heartily agreed with Mr. Gallatin on this subject, and on taking office placed the relations of the State Department upon the desired footing. But the heads of the Army and Navy were never willing to consent to the strict limitation which Mr. Gallatin would have imposed on their expenditures. In his notes to Jefferson for the draft of his first message in 1801, Mr. Gallatin said that the most important reform he could suggest was that of 'specific appropriations,' and he inclosed an outline of a form to be enforced in detail. In January, 1802, he sent to Joseph H. Nicholson a series of inquiries to be addressed to himself by a special committee on the subject, with regard to the mode by which money was drawn from the Treasury and the situation of accounts between that department and those of the Army and Navy. To these questions he sent in to the House an elaborate reply, which he intended to be the basis of legislation. Strict appropriation was the ideal at which he aimed, and this word was so often on his tongue or in his messages that it could not be mentioned without a suggestion of his personality. He carried the same nicety of detail into his domestic life. He managed his own household expenses, and at a time when bountiful stores were the fashion in every household he insisted on a rigid observance of the more precise French system. He made an appropriation of a certain sum each day for his expenses, and required from his purveyor a strict daily account of disbursements. An amusing story is told of him at his own table. On an occasion when entertaining a company at dinner, he was dissatisfied with the menu and expressed his disapprobation to his maître d'hôtel, a Frenchman, who replied to him in broken English, that it was not his fault, but that of the "mal-appropriations."
The example set by Mr. Gallatin in this particular was never forgotten, and from his day to this strict accountability has been the tradition of the Treasury Department, now greatly increased in detail, but in structure essentially as it was originally organized. Of its management Mr. Sherman was able to say in his report of December 1, 1879, "The organization of the several bureaus is such, and the system of accounting so perfect, that the financial transactions of the government during the past two years, aggregating $3,354,345,040, have been adjusted without question with the exception of a few small balances, now in the process of collection, of which it is believed that the government will eventually lose less than $13,000, or less than four mills for each $1000 of the amount involved;" and in 1880 he said with entire truth, "The department is a well organized and well conducted business office, depending mainly for its success upon the integrity and fidelity of the heads of bureaus and chiefs of divisions."
_Banking_
There is no more instructive chapter in the history of finance than that upon the banking system of the United States. It has its distinct eras of radical change, each of which presents a series of tentative experiments. The outcome, by a process of development, in which political expediency has been as effective an agency as financial necessity, is the present national banking system. Though the term "government," or "national," bank is constantly used in reference to the great banking institutions of England, France, and the United States, no one of these is in the true sense of the word a national bank. The Bank of England is a chartered corporation, the Bank of France an association instituted by law. The Bank of North America, and the Bank of the United States which followed it, were founded on the same principle. Both were corporations of individuals intimately connected with the government, enjoying certain privileges accorded and being under certain restrictions, but otherwise independent of government control.
The Bank of North America, the first bank established in the United States, was also the first which had any direct relation to the government. It was the conception of the comprehensive and original mind of Robert Morris, the financier or superintendent of the public finances of the United States. Its purpose was not the convenience or profit of individuals, but to draw together the scattered financial resources of the country and found a public credit. He submitted his plan to Congress, which adopted a resolution of approval May 26, 1781. The original plan contemplated a capital of ten millions of dollars; but the collection of such a sum in gold and silver in one depository was beyond the range of possibility at that period, and the capital was finally fixed at four hundred thousand dollars, in one thousand shares of four hundred dollars each. Subscription books were immediately opened, but not more than $70,000 was entered during the summer months. The arrival at Boston of a French war frigate with a remittance of $470,000 in specie, which was brought to Philadelphia and deposited in the vaults of the bank, enabled Mr. Morris to mature his plans. He designed to retain this sum in the bank as a specie basis; but the necessities of the country were so urgent during the critical season of the Yorktown campaign, that nearly one half of it was exhausted before an organization could be effected. In December Congress passed an ordinance of incorporation. Mr. Morris then subscribed the specie remaining in the Treasury, about $254,000, for shares for account of the United States, which became thereby the principal stockholder. The limit assigned by the ordinance remained, however, at ten millions of dollars. There was nothing in the acts of Congress which implied any exclusive right of the United States government in the bank except during the war of the Revolution. A local charter was obtained from the legislature of Pennsylvania, and the bank was opened in Philadelphia for the transaction of business in January, 1782. Its services to the government during the period of the war were inestimable. In the words of Hamilton, "American independence owes much to it." But after the war such were the local jealousies, the fears of oppression, and the dread of foreign influence, that, on the petition of the inhabitants of Philadelphia and some of the neighboring counties, the legislature of Pennsylvania repealed its charter on September 13, 1785. The bank continued its operations, however, under the charter from Congress. On March 17, 1787, the legislature of Pennsylvania renewed the charter for fourteen years and limited the capital to two millions of dollars. The charter was extended for a similar term of fourteen years on March 26, 1799. Thus in the beginning of the American banking system are found that distrust and jealousy of money power which seem inherent in democracies. The exercise of state jurisdiction over the existence of the Bank of North America suggested possible embarrassments, which could not escape the discernment of Hamilton, whose policy, as it was also that of the Federal party, was to strengthen the powers of the government in every vital branch of administration.
* * * * *
In his comprehensive plan of government Hamilton included a financial institution to develop the national resources, strengthen the public credit, aid the Treasury Department in its administration, and provide a secure and sound circulating medium for the people. On December 13, 1790, he sent in to Congress a report on the subject of a national bank. The Republican party, then in the minority, opposed the plan as unconstitutional, on the ground that the power of creating banks or any corporate body had not been expressly delegated to Congress, and was therefore not possessed by it. Washington's cabinet was divided; Jefferson opposing the measure as not within the implied powers, because it was an expediency and not a paramount necessity. Later he used stronger language, and denounced the institution as "one of the most deadly hostility existing against the principles and form of our Constitution," nor did he ever abandon these views. There is the authority of Mr. Gallatin for saying that Jefferson "died a decided enemy to our banking system generally, and specially to a bank of the United States." But Hamilton's views prevailed. Washington, who in the weary years of war had seen the imperative necessity of some national organization of the finances, after mature deliberation approved the plan, and on February 25, 1791, the Bank of the United States was incorporated. The capital stock was limited to twenty-five thousand shares of four hundred dollars each, or ten millions of dollars, payable one fourth in gold and silver, and three fourths in public securities bearing an interest of six and three per cent. The stock was immediately subscribed for, the government taking five thousand shares, two millions of dollars, under the right reserved in the charter. The subscription of the United States was paid in ten equal annual installments. A large proportion of the stock was held abroad, and the shares soon rose above par. By an act of March 2, 1791, the funded three per cents. were also made receivable in payment of subscriptions to the bank, whence it has been said that out of the funding system sprung the bank, as three fourths of its capital consisted of public stocks. Authority was given the bank to establish offices of discount and deposit within the United States. The chief bank was placed in Philadelphia, and branches were established in eight cities, with capitals in proportion to their commercial importance.
In 1809 the stockholders of the Bank of the United States memorialized the government for a renewal of their charter, which would expire on March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in which he reviewed the operations of the bank from its organization. Of the government shares, five million dollars at par, two thousand four hundred and ninety-three shares were sold in 1796 and 1797 at an advance of 25 per cent., two hundred and eighty-seven in 1797 at an advance of 20 per cent., and the remaining 2220 shares in 1802, at an advance of 45 per cent., making together, exclusive of the dividends, a profit of $671,680 to the United States. Eighteen thousand shares of the bank stock were held abroad, and seven thousand shares, or a little more than one fourth part of the capital, in the United States. A table of all the dividends made by the bank showed that they had on the average been at the rate of 8-3/8 (precisely 8-13/34) per cent. a year, which proved that the bank had not in any considerable degree used the public deposits for the purpose of extending its discounts. From a general view of the debits and credits, as presented, it appeared that the affairs of the Bank of the United States, considered as a moneyed institution, had been wisely and skillfully managed. The advantages derived by the government Mr. Gallatin stated to be, 1, safekeeping of the public moneys; 2, transmission of the public moneys; 3, collection of the revenue; 4, loans. The strongest objection to the renewal of the charter lay in the great portion of the bank stock held by foreigners. Not on account of any influence over the institution, since they had no vote; but because of the high rate of interest payable by America to foreign countries. If the charter were not renewed the principal of that portion, amounting to $7,200,000, must at once be remitted abroad; but if the charter were renewed, dividends equal to an interest of about 8-1/2 per cent. per annum must be remitted. Mr. Gallatin's report closed with the following suggestions:--
I. That the bank should pay an interest to the United States on the public deposits above a certain sum.
II. That it should be bound to lend the United States a sum not exceeding three fifths of its capital.
III. That the capital stock of the bank should be increased to thirty millions of dollars, to be subscribed for, 1, five millions by citizens of the United States; 2, fifteen millions by the States; a branch to be established in each subscribing State; 3, payments by either individuals or States to be in specie or public stock of the United States at rates to be fixed by law; the subscribing States to pay in ten annual installments.
IV. That some share should be given in the direction to the general and state governments by appointment of directors in the general direction and branches.
The result of this plan would be, 1st, that the United States might, from the interest on the public deposits, accumulate during years of peace and prosperity a treasure sufficient to meet periods of war and calamity; 2d, that they might rely on a loan of eighteen millions of dollars in any sudden emergency; 3d, that by the payment in ten installments the increase in capital would be in proportion to the progressive state of the country; 4th, that the bank itself would form an additional bond of common interest and union amongst the several States. But these arguments availed not against the blind and ignorant jealousy of the Republican majority in the House. The days of the bank were numbered. Congress refused to prolong its existence, and the institution was dissolved. Fortunately for the country, it wound up its affairs with such deliberation and prudence as to allow of the interposition of other bank credits in lieu of those withdrawn, and thus prevented a serious shock to the interests of the community. In the twenty years of its existence from 1791 to 1811 its management was irreproachable. Its annual dividends from 1791 to 1809 were 8-2/3 per cent., and its stock, always above par, from 1805 to 1809 ranged from 20 to 40 per cent. premium.
In its numerous and varied relations to the government it had been a useful and faithful servant, and its directors had never assumed the attitude of money kings, of which the Jeffersonian democracy pretended to stand in hourly dread. To the general and important nature of its financial service Mr. Gallatin gave his testimony in 1830; after his own direct participation in public affairs had ended.
"Experience, however, has since confirmed the great utility and importance of a bank of the United States in its connection with the Treasury. The first great advantage derived from it consists in the safekeeping of the public moneys, securing in the first instance the immediate payment of those received by the principal collectors, and affording a constant check on all their transactions; and afterwards rendering a defalcation in the moneys once paid, and whilst nominally in the treasury, absolutely impossible. The next, and not less important, benefit is to be found in the perfect facility with which all the public payments are made by checks or treasury drafts, payable at any place where the bank has an office; all those who have demands against government are paid in the place most convenient to them; and the public moneys are transferred through our extensive territory at a moment's warning without any risk or expense, to the places most remote from those of collection, and wherever public exigencies may require."
Late in life, in a letter to John M. Botts, June 14, 1841, Mr. Gallatin expressed the same opinions with regard to the usefulness of a government bank as an aid to the Treasury Department, but limited his approval to that use. "Except in its character of fiscal agent to the general government I attach much less importance to a national bank than several of those who are in favor of it." "Did I believe," he adds in the same letter, "that a bank of the United States would effectually secure us a sound currency, I would think it a duty at all hazards to promote the object."
The reason for his doubts in 1841 is easily seen in the impossibility of annihilating or controlling the three hundred distinct currencies of as many banks, each nominally convertible into specie at its point of issue; a financial puzzle which Mr. Chase solved in the device and organization of the present national banking system, which, without involving the government in banking operations, affords to the people a homogeneous currency of uniform value, and secures its convertibility by reasonable but absolute restrictions, upon conformity to which the existence of the banks depends. The exigencies of war compelled an acquiescence in the plans of Mr. Chase, which, at the time when Mr. Gallatin expressed his doubts, could not have been had in any system whatever which involved the subordination of the banks.
The wide spread of the state bank system, with its irresponsible and unlimited issues, occurring subsequent to Mr. Gallatin's withdrawal from the Treasury, was a consequence of the failure to renew the charter of the Bank of the United States; and if ever there were a system by which the inhabitants of States whose floating capital was small were placed at the mercy of moneyed corporations of the States where it was abundant, it was the state bank system. The experience of the old confederation had not taught this lesson. The colonial system was continued by the several States, and bills of credit were issued on their faith. The continental system was a compound of the main features of this plan. The bills were issued by the Congress, but the States were relied upon for their ultimate redemption.
The collapse of the entire fabric of finance led to the establishment of the Bank of North America, the notes of which were redeemable and redeemed at the bank counters. The article in the Constitution of 1787, prohibiting the issue of bills of credit by the States, was evidently intended to secure a uniform currency to the people of the United States, and it has been by a strange perversion of this manifest intention that the power has been conceded to the States to charter corporations to do that which was forbidden to themselves in their sovereign capacity; namely, to issue bills of credit, which bank-notes are. It is idle to say that, because such bills were not a "legal tender," they were therefore not of the character which the Constitution forbade. Necessity knows no law, and in the absence of any other currency the people were perforce compelled to take what they could get. Experience later showed that large amounts of paper money manufactured in one State were easily put in circulation in far distant communities, and considerable sums, through the operations of wear and tear and the vicissitudes incident to its fragile nature, never returned to plague the inventor.
At the time of the organization of the National Bank by Hamilton, there were but three banks in the United States: the Bank of North America, the Bank of New York, and the Bank of Massachusetts. Their added capital amounted to two millions of dollars, and their issues were inconsiderable.
Mr. Gallatin estimated that in January, 1811, just before the expiration of the bank charter, there were in the United States eighty-eight state banks with a capital of $42,612,000.
--------------------------+-------------+---------------+------------ | | Notes in | | Capital. | Circulation. | Specie. --------------------------+-------------+---------------+------------ Bank of the United States | $10,000,000 | $5,400,000 | $5,800,000 Eighty-eight State Banks | 42,610,601 | 22,700,000 | 9,600,000 --------------------------+-------------+---------------+------------ | $52,610,601 | $28,100,000 | $15,400,000 --------------------------+-------------+---------------+------------
Over the local institutions the Bank of the United States always exercised a salutary control, checking any disposition to overtrade by restraining their issues and holding them to a proper specie reserve; and this by no other interference except its countenance or ill favor, as such banks severally observed or disregarded the ordinary rules of financial prudence. The immediate effect of the refusal of Congress to recharter the Bank of the United States was to bring the Treasury to the verge of bankruptcy. The interference of Parish, Girard, and Astor alone saved the credit of the government, and this interference was no doubt prompted by self-interest. That Mr. Astor was hostile to the bank is certain. Gallatin wrote to Madison in January, 1811, that Mr. Astor had sent him a verbal message, "that in case of non-renewal of the charter of the Bank of the United States, all his funds and those of his friends, to the amount of two millions of dollars, would be at the command of government, either in importing specie, circulating government paper, or in any other way best calculated to prevent any injury arising from the dissolution of the bank," and he added that Mr. Bentson, Mr. Astor's son-in-law, in communicating this message said, "that in this instance profit was not Mr. Astor's object, and that he would go great lengths, partly from pride and partly from wish, to see the bank down." In 1813, when the bank was "down," Mr. Gallatin was no longer master of the situation. He offered to treat directly with Parish, Girard, and Astor for ten millions of dollars, but finding some hesitation, he opened the loan for subscription. When the subscription failed, he was at the mercy of the capitalists.
Another immediate effect of the dissolution of the bank was the withdrawal from the country of the foreign capital invested in the bank, more than seven millions of dollars. This amount was remitted, in the twelve months preceding the war, in specie. Specie was at that time a product foreign to the United States, and by no means easy to obtain. Specie, as Mr. Gallatin profoundly observed, does not precede, but follows wealth. The want of it nearly destroyed Morris's original plan for the Bank of North America, and was only made up by the fortunate receipt of the French remittances. In 1808 the specie in the vaults of the treasury reached fourteen millions of dollars, but during the operation of the Embargo Act, the banks of New England had gradually accumulated a specie reserve, and that of Richmond, Virginia, pursued the same policy. Together they held one third of the entire specie reserve of the banks. The amount of specie in the Bank of the United States, January 1, 1811, had fallen to $5,800,000, which soon found its way abroad.
The notes of the Bank of the United States, payable on demand in gold and silver at the counters of the bank, or any of its branches, were, by its charter, receivable in all payments to the United States; but this quality was also stripped from them on March 19, 1812, by a repeal of the act according it. To these disturbances of the financial equilibrium of the country was added the necessary withdrawal of fifteen millions of bank credit and its transfer to other institutions. This gave an extraordinary impulse to the establishment of local banks, each eager for a share of the profits. The capital of the country, instead of being concentrated, was dissipated. Between January 1, 1811, and 1815, one hundred and twenty new banks were chartered, and forty millions of dollars were added to the banking capital. To realize profits, the issues of paper were pushed to the extreme of possible circulation. Meanwhile New England kept aloof from the nation. The specie in the vaults of the banks of Massachusetts rose from $1,706,000 on June 1, 1811, to $7,326,000 on June 1, 1814. This was a consequence of the New England policy of opposition. Mr. Gallatin estimated that the proceeds of loans, exclusive of treasury notes and temporary loans, paid into the treasury from the commencement of the war to the end of the year 1814 were $41,010,000: of which sum the Eastern States lent $2,900,000; the Middle States, $35,790,000; Southwestern States, $2,320,000.
The floating debt of the United States, consisting of treasury notes and temporary loans unpaid, amounted, January 1, 1815, to $11,250,000, of which nearly four fifths were loaned by the cities of New York, Philadelphia, and Baltimore, and the District of Columbia. The suspension of the banks was precipitated by the capture of Washington. It began in Baltimore, which was threatened by the British, and was at once followed in Philadelphia and New York. Before the end of September all the banks south and west of New England had suspended specie payment. In his "Considerations on the Currency," Mr. Gallatin expressed his--
"deliberate opinion that the suspension might have been prevented at the time when it took place, had the Bank of the United States been in existence. The exaggerated increase of state banks, occasioned by the dissolution of that institution, would not have occurred. That bank would _as before_ have restrained them within proper bounds and checked their issues, and through the means of its offices it would have been in possession of the earliest symptoms of the approaching danger. It would have put the Treasury Department on its guard; both, acting in concert, would certainly have been able, at least, to retard the event; and as the treaty of peace was ratified within less than six months after the suspension took place, that catastrophe would have been avoided."
But within fifteen months the bank issues increased from forty-five and a half to sixty millions.
----------------------+-------------+--------------+------------ | Capital. | Circulation. | Specie. ----------------------+-------------+--------------+------------ Banks of New England. | $15,690,000 | $5,320,000 | $8,200,000 Other Banks | 66,930,000 | 44,730,000 | 8,600,000 ----------------------+-------------+--------------+------------ 1815. 208 State Banks.| $82,620,000 | $50,050,000 | $16,800,000 1816. 246 State Banks.| 89,822,422 | 68,000,000 | 19,000,000 ----------------------+-------------+--------------+------------
The depression of the local currencies ranged from seven to twenty-five per cent. In New York and Charleston it was seven to ten per cent. below the par of coin. At Philadelphia from seventeen to eighteen per cent. At Washington and Baltimore from twenty to twenty-two, and at Pittsburgh and on the frontier, twenty-five per cent. below par. The circulating medium, or measure of values, being doubled, the price of commodities was doubled. The agiotage, of course, was the profit of the bankers and brokers; a sum estimated at six millions of dollars a year, or ten per cent. on the exchanges of the country, which McDuffie, in his celebrated report, estimated at sixty millions annually.
In November the Treasury Department found itself involved in the common disaster. The refusal of the banks, in which the public moneys were deposited, to pay their notes or the drafts upon them in specie deprived the government of its gold and silver; and their refusal, likewise, of credit and circulation to the issues of banks in other States deprived the government also of the only means it possessed for transferring its funds to pay the dividends on the debt and discharge the treasury notes. Mr. Dallas found himself compelled to appeal to the banks by circular to subscribe for sufficient treasury notes to secure them such advances as might be asked of them for the discharge of the public obligations.
"In the latter end of the year 1814," says Mr. Gallatin, "Mr. Jefferson suggested the propriety of a gradual issue by government of two hundred millions of dollars in paper;" commenting upon which Mr. Gallatin remarks that Mr. Jefferson, from the imperfect data in his possession, "greatly overrated the amount of paper currency which could be sustained at par; and he had, on the other hand, underrated the great expenses of the war;" but at "all events," he adds, "the issue of government paper ought to be kept in reserve for extraordinary circumstances." But here it may be remarked that the evolution of the systems of American finance seems to lead slowly but surely to an entire divorce of banking from currency, and the day is not far distant when the circulating medium of the United States will consist of gold and silver, and of government issues restricted, according to the English principle, to the minimum of circulation, and kept equivalent to coin by a specie reserve in the treasury; while the banks, their circulation withdrawn and the institutions freed from any tax, will be confined to their legitimate business of receiving deposits and making loans and discounts.
On October 14, 1814, Alexander J. Dallas, Mr. Gallatin's old friend, who had been appointed secretary of the treasury on the 6th of the same month, in a report of a plan to support the public credit, proposed the incorporation of a national bank. A bill was passed by Congress, but returned to it by Madison with his veto on January 15, 1815. In this peculiar document Madison "waived the question of the constitutional authority of the legislature to establish an incorporated bank, as being precluded, in his judgment, by repeated recognitions, under varied circumstances, of the validity of such an institution in acts of the legislative, executive, and judicial branches of the government." But he objected for reasons of detail. Mr. Dallas again, as a last resort, insisted on a bank as the only means by which the currency of the country could be restored to a sound condition. In December, 1815, Dallas reported to the committee of the House of Representatives on the national currency, of which John C. Calhoun was chairman, a plan for a national bank, and on March 3, 1816, the second Bank of the United States was chartered by Congress. The capital was thirty-five millions, of which the government held seven millions in seventy thousand shares of one hundred dollars each. Mr. Madison approved the bill. This completed the abandonment of every shred of principle claimed by the Republican party as their rule of action. They struggled through the rest of their existence without a political conviction. The national bank, and the system of internal taxation which had been scorned by Jefferson and Madison as unconstitutional, were accepted actually under Madison's administration. Gallatin's success, owing to the development and application of Hamilton's plans, was a complete vindication of the theory and practice of the Federalists which they abhorred; Jefferson's plan of a government issue of paper money was a higher flight into the upper atmosphere of implied powers than Hamilton ever dreamed of.
The second national bank of the United States was also located at Philadelphia, and chartered for twenty years. The manner in which it performed its financial service is admirably set forth in Mr. Gallatin's "Considerations on the Currency," already mentioned. It acted as a regulator upon the state banks, checked excessive issues on their part, and brought the paper currency of the country down from sixty-six to less than forty millions, before the year 1820.
In April, 1816, Mr. Dallas having signified his intention to resign the Treasury, Mr. Madison wrote to Gallatin, offering him his choice between the mission to France and the Treasury Department. Mr. Gallatin's reply was characteristic. He declined the Treasury, but with reluctance, since he thought he would be more useful at home than abroad, and because he preferred to be in America rather than in Europe. One of his preponderating reasons was that, although he felt himself competent to the higher duties of the office, there was, for what he conceived "a proper management of the Treasury, a necessity for a mass of mechanical labor connected with details, forms, calculating, etc., which having lost sight of the thread and routine, he could not think of again learning and going through." He was aware that there was "much confusion due to the changes of office and the state of the currency, and thought that an active young man could alone reinstate and direct properly that department."
In June of the same year, while waiting for the Peacock, which was to carry him across the sea, Gallatin wrote Mr. Madison an urgent letter, impressing upon him the necessity of restoring specie payment, and his perfect conviction that nothing but the will of the government was wanted to reinstate the country in its moral character in that respect. He dreaded the "paper taint," which he found spreading as he journeyed northward.
In January 1817, delegates from the banks of New York, Philadelphia, Baltimore and Virginia met in Philadelphia and agreed to a general and simultaneous resumption of specie payments. The Bank of the United States proposed a compact which was accepted by the state banks and ratified by the secretary of the treasury. That institution engaged, to a reasonable extent, to support any bank menaced. This engagement and the importation of seven millions of specie from abroad by the Bank of the United States secured a general restoration of specie payment. In 1822 Mr. Gallatin was tendered and declined the office of president of the Bank of the United States.
In 1829 he prepared for Mr. Ingham, then secretary of the treasury, a masterly statement of the relative value of gold and silver. In 1830 Mr. Gallatin wrote for the "American Quarterly Review" his essay, "Considerations on the Currency and Banking System of the United States." Appearing at the time when the renewal of the charter of the Bank of the United States was an absorbing question, this essay was equally sought for by both the friends and opponents of the bank. It is not confined, however, to this subject, but covers the entire field of American finance. His treatment of the currency question was novel. He analyzed the systems of Europe, compared them with those which prevailed in the United States, and reached the conclusion, the general correctness of which has been justified by the experience of all other nations, and sooner or later will be accepted by our own; namely, the necessity of a currency strong in the precious metals, and the restriction of paper money to notes of one hundred dollars to be issued by the government. This limit is higher than that adopted in France and England, but the general principle that a circulating medium is sound only as it is strong in gold and silver, and that gold and silver can only be retained permanently by making a place for them in the circulating medium by a restriction of paper issues, will yet find favor even in this paper-loving country.
In 1832 Mr. Gallatin accepted the presidency of a bank in New York, the subscription to the stock of which, $750,000, was completed by Mr. John Jacob Astor on condition that Mr. Gallatin should manage its affairs. The direction of its concerns, without absorbing his time, kept him in the financial current. The bank was called the National Bank of New York. But not in this modest post was he to find the financial path smooth. It is true he had lived in the flesh to see the financial millennium. The rapid growth of the country and the faithful adherence of his successors in the Treasury Department to the funding principle had at last realized his dream. The national debt was extinguished. The last dollar was paid. Louis McLane, secretary of the treasury, on December 5, 1832, in his report on the finances, said that the dividends derived from the bank shares held by the United States were more than was required to pay the interest, and that the _debt_ might therefore be considered as substantially extinguished after January 1, 1833.
On December 3, 1833, Roger B. Taney, secretary of the treasury, reported to Congress that he had directed the removal of the deposits of the government from the Bank of the United States and placed them in banks of his own selection. He gave a number of reasons for this extraordinary exercise of the power which he obtained by his appointment on September 23, 1833. He received his reward in June, 1834, being then transferred by President Jackson to the seat of chief justice of the Supreme Court. In his annual report Taney named, among his elaborate reasons for the removal, that the bank had used its money for electioneering purposes, and that he "had always regarded the result of the last election of President of the United States as the declaration of a majority of the people that the charter ought not to be renewed." He further expressed the opinion "that a corporation of that description was not necessary either for the fiscal operations of the government or the general convenience of the people." It mattered little to him that Mr. Gallatin had only recently pointed out that from the year 1791 the operations of the Treasury had, without interruption, been carried on through the medium of banks; during the years 1811 to 1814, by the state banks, with a result which no one had as yet forgotten; before and since that brief interval through the Bank of the United States. Enough for Taney, that it was the will of his imperious master, 'the pugnacious animal,' as Gallatin aptly termed him.
In October, 1834, Taney's successor in the Treasury, Levi Woodbury, gave notice that the remaining debt, unredeemed after January 1, 1835, would cease to bear interest and be promptly paid on application to the commissioners of loans in the several States. On December 8, 1835, Mr. Woodbury reported "an unprecedented spectacle presented to the world of a government virtually without any debts and without any direct taxation." The surplus revenues, about thirty-seven and a half millions of dollars, had by an act of the previous session been distributed among the several States. But the secretary and the country soon found that they were on dangerous ground. In December, 1837, the same secretary, alarmed at his responsibility, said to Congress, in warning words, "We are without any national debt to absorb and regulate surpluses, or any adequate supply of banking institutions which provide a sound currency for general purposes by paying specie on demand, or which are in a situation fully to command confidence for keeping, disbursing, and transferring the public funds in a satisfactory manner."
The Bank of the United States, on the expiration of its charter in March, 1836, accepted a charter from the State of Pennsylvania; but, though its influence continued to be as great, its direction was no longer the same. Abandoning its legitimate business, it speculated in merchandise, and even kept an agent in New Orleans to compete with the Barings in purchases of the cotton crop as a basis for exchange. Precisely as in 1811, after the withdrawal of the control of the Bank of the United States, the state banks ran a wild career of speculation. From 1830 to 1837 three hundred new banks sprang up with an additional capital of one hundred and forty-five millions, doubling, as twenty years before, the banking capital of the country. This volume the deposits of the Treasury continued to swell. Mr. Woodbury was the first to take alarm. In December, 1836, he reported the specie in the country to have increased from thirty millions in 1833 to seventy-three millions at the date of his report, and the paper circulation, in the same period, to have advanced, since the removal of the deposits from the Bank of the United States, from eighty millions to one hundred and twenty millions, or forty millions in eighteen months; and the bank capital, in the same period, to have increased from two hundred to three hundred millions. Importation augmented; the balance of trade suddenly turned against the United States to the extent of one hundred and fifty millions, and coin began to flow abroad to liquidate the account. There was no debt to attract foreign investment and arrest the export of specie. Added to this was the withdrawal of the government deposits from the pet banks, which compelled an immediate contraction. The result was inevitable. On May 10, 1837, the New York banks suspended, Mr. Gallatin's institution being of course dragged down with the rest. It is idle to suppose that any single bank can hold out against a general suspension. It may liquidate or become a bank of deposits, but it cannot maintain its relations with its sister institutions except on a basis of common accord.
A general suspension followed. Mr. Woodbury proved himself equal to the emergency, and recommended a plan of "keeping the public money under new legislative provisions without using banks at all as fiscal agents." This was the beginning of the sub-treasury system, a new departure in treasury management, and a further evolution in American finance. It still remains, and will no doubt be permanent. Its establishment was necessary because of the absence of a national bank.
Mr. Gallatin at once turned his attention to bring about first a liquidation and then a resumption. It was a favorite maxim with him, that "the agonies of resumption are far harder to endure than those of suspension," as it is easier to refrain from lapse of virtue than to restore moral integrity once impaired. But in resumption the suffering falls where it belongs, on the careless, the improvident, and the over-trader.
On August 15, 1837, the officers of the banks of New York city, in a general meeting, appointed a committee of three to call a convention of the principal banks to agree upon a time for a resumption of specie payments. This committee, of which Mr. Gallatin was chairman, on August 18 addressed a circular to the principal banks in the United States, inviting the expression of their wishes as to the time and place for a convention, suggesting New York as the place, and October, 1837, as the time. They said, in addition, that the banks of New York city, in view of the law of the State dissolving them as legal corporations in case of suspension for one year, must resume at some time between January 1 and March 15, 1838. The circular committed the New York banks to no definite action, but expressed the opinion that the fall in the rate of exchanges indicated an early return of specie to par, when resumption could be effected without danger. The banks of Philadelphia held a meeting on August 29, and adopted resolutions declaring it inexpedient to appoint delegates to the proposed convention. Aware of the reasons for this action, the chief of which was the extended and perhaps insolvent condition of the United States Bank of Pennsylvania, the New York committee invited the banks in the several States to appoint delegates to meet on November 27, 1837, in New York. Delegates from banks of seventeen States and the District of Columbia appeared. On the 30th resolutions were brought in recommending a general resumption on July 1, without precluding an earlier resumption on the part of such banks as might find it necessary. The Pennsylvania banks opposed this action with resolutions condemning the idea of immediate resumption as impracticable, and also, in the absence of delegates from the banks of Louisiana, Mississippi, Alabama, and Tennessee, as unwise. The convention met again on December 2, when an adjournment was carried to April 11, 1838, when delegates from the banks not represented were invited to attend. Mr. Gallatin saw that the combination of the Philadelphia and Boston banks, under the lead of Mr. Biddle, would certainly force a further postponement. Exchange on London, which had been as high as 121, the true par being about 109-1/2, nominal, had fallen to 111-1/2, which, considering that the city bank paper was at a discount of five per cent., was at the rate of 2-1/2 per cent. below specie par. The exportation of specie had entirely ceased.
On December 15 Mr. Gallatin and his committee appointed at the general convention submitted a report which he had drafted, which, though addressed to the New York banks, covered the whole ground. Meanwhile the highest authority in Pennsylvania had given it as his opinion "that the banks of Pennsylvania were in a much sounder state than before the suspension, and that the resumption of specie payments, so far as it depends on their situation and resources, may take place at any time."
On February 28, 1838, Mr. Gallatin's committee made a further report showing that the liabilities of the New York banks had been reduced more than twelve millions and a half, or fifty per cent., and asserting that with the support of the community and the state authorities they could resume on an equal footing on May 10. This declaration was welcomed with great satisfaction by a general meeting of the citizens of New York. On April 11 the general convention again met in New York. The Philadelphia banks declined to attend. A letter from Mr. Woodbury promised the support of the Treasury Department. A committee of one from each State was appointed, which recommended the first Monday in October as the earliest day for a general resumption. The convention could not, however, be brought to fix upon so early a day, but finally fixed upon January 1, 1839, and adjourned. The New York banks would have accepted July 1, 1838, but this being refused they resumed alone on May 10, and the force of public opinion compelled resumption by nearly all the banks of the country on July 1.
The terrible contraction was fatal to the United States Bank of Pennsylvania, which after a vain struggle closed its doors in October, 1839, and carried with it the entire banking system of the Southern and Southwestern States. Although in no way similar to the semi-governmental institutions which preceded it, yet, from its similarity of name and identity of location, its disastrous failure added to the blind popular distrust of its predecessors, which narrow-minded politicians had fostered for their own selfish purposes. Fortunately the sub-treasury plan of Mr. Woodbury supplied the need of a safe place of deposit which, since the refusal of Congress to renew the charter of the old bank, had been sorely felt.
In 1838, on the foundation of the Bank of Commerce under the free banking law of the State of New York, the presidency of it was first tendered to Mr. Gallatin. The directors of this bank were among the most distinguished financiers of the city, and its object was to provide a conservative institution with sufficient power and capital to act as a regulator upon the New York banks. Profit to the stockholders was secondary to the reserve power for general advantage.
In June, 1839, Mr. Gallatin resigned his post as president of the National Bank of New York. In 1841 he published a financial essay, which he entitled "Suggestions on the Banks and Currency of the United States," a paper full of information, but from the nature of the subject not to be compared in general interest with his earlier paper, which is as fresh to-day as when it was written. Mr. Gallatin condemned paper currency as an artificial stimulus, and the ultimate object of his essays was to annihilate what he termed the "dangerous instrument." He admitted its utility and convenience, when used with great sobriety, but he deprecated its tendency to degenerate into a depreciated and irredeemable currency. This tendency the present national banking law arrests, but the law rather invites than prohibits the stimulus of increased issues. The last word has not yet been said on national currency, which, though the basis of all commercial transactions, has necessarily no other relation to banks than that which it holds to any individual in the community.
Economic questions have interested the highest order of mind on the two continents. Sismondi published a paper on commercial wealth in 1803, and in 1810 a memoir on paper money, which he prepared to show how it might be suppressed in the Austrian dominions; Humboldt made a special study of the sources and quantity of the precious metals in the world, in which Mr. Gallatin aided him by investigation in America. Michel Chevalier was interested in the same subjects; surviving his two masters in the art and witnessing the marvelous effects of the additions made by America to the store of precious metals, he continued the study in the spirit of his predecessors, and favored the world with instructive papers. Mr. Gallatin's contributions to this science are remarkable for minute research and careful deductions.
In 1843 President Tyler tendered the Treasury portfolio to Mr. Gallatin. The venerable financier looked upon the offer as an act of folly to which a serious answer seemed hardly necessary. Yet as silence might be misconstrued, he replied that he wanted no office, and to accept at his age that of secretary of the treasury would "be an act of insanity." He was then in his eighty-third year. The offer of the post was but an ill-considered caprice of Mr. Tyler.
FOOTNOTES:
[Footnote 10: Cents are omitted as confusing figures.]
[Footnote 11: The first Annual Report of the Secretary of the Treasury. This was under the Supplementary Treasury Act.]
[Footnote 12: Excess of receipts, notwithstanding the purchase of Louisiana and payments on account of principal and interest of the debt.]
[Footnote 13: These were the banks of New York, Boston, Philadelphia, and Baltimore. Seven presidents formed the committee. John A. Stevens of New York was chairman, by request of the Secretary of the Treasury. The other members were named by him. The sum advanced to the government was one hundred and fifty millions of dollars in coin.]
[Footnote 14: At Portland, $120,000; Salem, $183,600; Boston, $75,300; Providence, $67,800; Richmond, $49,000; Norfolk, $103,000; Charleston, $354,000.]
[Footnote 15: Report of Secretary Dallas, September 20, 1816.]
[Footnote 16: Act of March 3, 1817.]
[Footnote 17: _Democratic Review_, xii. 641.]
[Footnote 18: Chairman of the Committee of Ways and Means.]