by the paper issues of many banks. Stocks were selling far below the
prices of twelve months before. Even the business men who did not
endorse the tariff of 1842 had adjusted their affairs to it, and now
everybody understood that a new scale of duties, based upon free-trade
ideas, lay on the treasury anvil. Calls for the government funds held
and used by state depositories and for the specie of all the banks
were feared. The banks cannot support a loan, and even in peace our
capitalists have never done so, remarked the financial editor of the
New York _Herald_, probably the best newspaper authority.[33.7]
The government must look abroad, concluded the editor, and in Europe
no light could be seen. By 1842 our state debts, mostly held there,
had amounted to nearly $200,000,000. Mississippi, Michigan, Arkansas
and Florida sank in the mire of repudiation. Pennsylvania, Maryland,
Indiana, Illinois and Louisiana became delinquent. The bonds of South
Carolina fell below par. Missouri passed a stay law. Sidney Smith, when
he met a Pennsylvanian at dinner, felt like dividing the man's raiment
among the British guests, most of whom, if not all, had probably
suffered by the "dishonor" of the state. Indeed, the bondholders were
disposed to throw off half of the interest rate, if our national
treasury would assume the debts; but a proposition to do this failed in
Congress.[33.8]
As early as 1841 even our six per cent national bonds would not sell in
Europe, though money commanded less than half as large a return there.
"Who will lend on American securities?" asked the London _Spectator_
the very month we began war upon Mexico. Our credit then grew worse
instead of better. The war bill precipitated a panic in Wall Street,
and soon business in the west and south was described as prostrate.
Bad as such a financial outlook was in itself, too, it involved a
consequent ill. Evidently the administration would have to pinch; and,
as Madame de Sévigné once remarked, "There is nothing so expensive as
want of money."[33.8]
The Democrats, however, were committed against the protective tariff of
1842, now in force, and Polk as a party man felt that something must
be done about it. Walker no doubt shared this opinion; and, having
gained immense prestige in the south by his brilliant advocacy of the
annexation of Texas, he very likely hoped that by now carrying into
effect the fiscal ideas prevalent in that section, he might supplant
Calhoun. Probably, too, he sincerely believed in these ideas. To him
the existing scale of duties appeared to be the cause of the shrinking
revenues; and he stated boldly that war, which had been recognized for
some time as a possibility, "would create an increased necessity for
reducing our present high duties in order to obtain sufficient revenue
to meet increased expenditures."[33.9]
[NEW FISCAL LAWS]
Soon after hostilities began, therefore, a tariff bill came before
Congress. It was bitterly and stubbornly fought. In the Senate its
defeat appeared sure; but Crittenden and Clayton, believing it could
only prove a discreditable failure, had a Whig support it in order
to gain party advantage at the expense of the nation, and by this
unworthy trick and the casting vote of the presiding officer it
passed. In company with it went a warehouse bill and the restoration
of the sub-treasury system, which divorced the government from the
banks, and required the treasury to accept and pay out only specie.
About the first of August, 1846, this entire system became law. "Our
administration seems enamoured of ruin, and woos calamity for itself,"
exclaimed the Whig _North American_; our credit is threatened by the
sub-treasury plan; our industries are deprived of protection; "while
an expensive war is eating out our vitals, our revenue is to be
diminished"; and a direct tax will have to be laid.[33.9]
The new tariff became effective on the first of December, 1846. As of
course importers waited for it, a lean period preceded that event, and
the heavy receipts that followed it, providing Walker with an apt
retort, did not prevent the total for the year ending with June, 1847,
from coming short of his estimate by more than four millions. Without
waiting to acquire this unwelcome fact, however, the government found
itself compelled in June, 1846, to revise at a sharp angle upward its
predictions of the expenditures. Over and above their calculations
of the previous December the war and navy departments now called for
$23,952,904, which Polk informed Congress was "the largest amount
which any state of the service" would require up to July 1, 1847.
The secretary of the treasury had expected to find on July 1, 1847,
a surplus (virtually that estimated for the previous year minus half
a million) of at least $4,332,441, and had confidently hoped for a
substantial gain in revenue; but he admitted that it was now requisite,
since a working capital of four millions for the treasury and the
mints had to be kept on hand, to provide $12,586,406 of additional
income.[33.10]
The proper method of handling our war finances was, in the first place,
to increase the existing taxes--not only to obtain funds promptly,
but as a firm support for the nation's credit and a basis for those
temporary loans which are a wise expedient at the beginning of a war;
and Walker expected the proposed tariff to answer this purpose. But
the question how to raise these twelve and a half millions remained.
Excise and direct taxes, the administration believed, would not be
prompt enough, and would not seem to the public warranted by the
circumstances. It was therefore recommended to Congress that both
treasury notes and a loan should be resorted to; and on July 22, 1846,
without much debate, the issue of ten millions in such obligations, to
be sold at not less than par, was authorized.[33.11]
Treasury notes could not really serve the government's purpose well,
for they were soon to be paid, the expense of handling them fell upon
the treasury, and, as they were receivable for duties, they were
sure to pour into the customhouses instead of real money whenever
they should be cheaper than specie. The treasury, bound by law to
pay out only the latter, would then have to buy coin at the market
price--presumably, as Gallatin said, with depreciated notes. These
would then fall still more, and so the process appeared certain to
continue.
[BONDS ISSUED]
But notes were the most convenient and readiest, if not the only way
of quickly anticipating revenue; they were particularly suited to the
nature of the government's expenditures; they provided an easy method
of transmitting the large sums that would be needed in the south on
the war account; and financial critics at New York approved of them.
Not all were of that opinion, however. About the middle of September
the appearance of notes for half a million was announced by one
journal under the heading, "Extensive Paper Money Manufactory"; but
the government persisted, and by the ninth of December, 1846, nearly
four millions of them were out. This with the balance--more than nine
millions--handed over by the previous fiscal year, made up for the lean
customs receipts of this period.[33.12]
Meanwhile attention was given to the more substantial resource of a
loan. At the end of September the secretary of the treasury disappeared
mysteriously from his accustomed haunts, and to Polk's acute distress
of mind wandered for more than two weeks in the perilous jungle of
Wall Street. His experiences there were in fact rather hard. The
capitalists looked with favor on the project of a loan and had plenty
of money, but--believing the government would require a large amount,
and therefore that a loan made now would be likely to depreciate, as
well as actuated by their characteristic spirit of thrift--they stood
out for six per cent. The New York and Boston banks, it was thought at
the White House, were in league against the administration. Besides,
the public had little information about the way money was being spent,
and felt apprehensive of extravagance and a huge debt. Many believed
the war had cost half a million each day. Not a few distrusted Walker.
He had engineered Mississippi into bankruptcy, and had become insolvent
personally. In the Senate his reputation had been that of a needy
adventurer, intensely ambitious, clever in debate and intrigue, but not
of solid ability, and especially not a financier. At present nobody
denied his real talents or his extreme devotion to work, but he was
charged with inaccuracy and with sophistical reasoning.[33.13]
Apparently five and two fifths per cent was all he felt ready to
offer, and special reasons could be given for halting there, since
it was feared that issuing a six per cent loan at par would injure
the United States sixes, now held at 106, and also the credit of the
government. But finally, with the approval of the President and the
Cabinet, he advertised, October 30, for bids on a five million loan for
ten years at six per cent. November 12 the tenders were opened. For a
small fraction of the amount a slight premium was offered, and for the
rest par. No doubt the rate, in comparison with European standards,
had to be regarded as high, but on the other hand this was our first
specie loan, and was said to be the only war loan ever taken without a
discount.[33.13]
Plainly, however, more needed to be done. It was already
extraordinarily difficult to pay the comparatively small expenses
of the war, wrote the British minister at this time. Congress had
not fully provided for even the minimum needs recognized by the
sanguine, if not sophistical, Walker; and early in December, 1846, his
annual report intimated that on July 1, 1848, with a due allowance
for the working capital of the treasury, there would be a deficit
of twenty-three millions. Apparently a loan was requisite, and he
advised making the term twenty years. Then, with no little anxiety,
the administration waited. At the end of December Bancroft wrote
privately, "If we can raise the ways and means," we can surmount the
other difficulties. On the eleventh of January, 1847, a bill virtually
embodying Walker's recommendations was thrown into the House, and a
long, acrimonious debate ensued. The treasury "languishes," announced
the organ of the government; needed volunteers could not be called
out; but the legislators had irrepressible things to say. At length,
however, on January 28 the bill providing $23,000,000 became a law.
Though it primarily contemplated treasury notes, it permitted the
Executive liberty of action; and a large amount of six per cent bonds
were sold.[33.14]
But Polk was by no means out of trouble now. Walker's estimate made
no mention of great outstanding purchases, for which the contractors
had not yet sent in their accounts. Not only the customs duties but
the sales of public lands were coming far short of his expectations.
No allowance appeared to be made for the effect of bounty land scrip
that was likely to reduce them still more. The Vera Cruz expedition
and a possible march to the enemy's capital were in view. Indeed, the
real war had only begun. Besides, the temper of Congress had already
threatened trouble and made it. Not only to ensure additional revenue
in general, but in particular--it would seem--to strengthen the credit
of the government by showing how the interest on its obligations would
be taken care of, the Secretary brought up again the suggestion of his
annual report, that a duty of twenty-five per cent should be placed
on tea and coffee, which--although the free list had been restricted
in the tariff of 1846--had been left untaxed. In fact it had been
intimated by him at New York, even if not actually promised, that
such a step would be taken; and a few days before Christmas, 1846, he
notified the committee on ways and means that probably without this
assistance a satisfactory loan could not be made. Yet Congress rejected
the proposition by a great majority.[33.15]
A plan of Benton's also--to grade the public lands on the basis of
their attractiveness, and reduce prices accordingly--which would have
increased the income of the government, failed to pass, though endorsed
by Polk, Walker and the general land commissioner. Pessimists were
happy. With Polk, the war, the weather, the sub-treasuries "and perhaps
the Devil" to struggle against, wrote a correspondent of Martin Van
Buren, soon not an ingot would be "left standing," and there was "no
calculating, no prophesying" what would become of the nation.[33.15]
[A TARIFF FOR MEXICAN PORTS]
Apparently to offset the failure of the tea and coffee tax, Walker's
active brain produced another scheme, designed not only to bring in
revenue and reassure the capitalists, but also to please the shipping
men of the United States and neutral countries. This was to open the
Mexican ports controlled by us, and permit merchandise to enter there
under a moderate scale of duties. During March, 1847, assisted by
Senator Benton and the attorney general, Polk satisfied himself that
under his powers as commander-in-chief he could impose and collect
the duties as military contributions, for by the right of conquest
he could either exclude commerce or admit it on his own terms, and
contributions were legitimate under the laws of war. Said Vattel, "A
nation [at war] on every opportunity lays its hands on the enemy's
goods, appropriates them to itself, and thereby, besides weakening
the adversary, strengthens itself, and at least in part, procures an
indemnification, an equivalent, either for the very cause of the war,
or for the expences and losses resulting from it"; and a low scale of
duties was an extremely mild application of this principle.[33.16]
Moreover, it was quite as legitimate under our Constitution also,
though not expressly mentioned, as to blockade or bombard Vera Cruz,
respecting which the organic law was equally silent. Indeed, to have
left the ports wide open or allowed the high Mexican tariff to remain
in force would, in addition to being harmful to us, have required
as great an exercise of authority. Finally, Scott and some of our
naval commanders, moved by the evident proprieties of the situation,
fixed duties and used the proceeds at their discretion, and it was
manifestly better to arrange the business in a uniform, well-considered
manner.[33.16]
It might have been expected that substantially either our own or the
Mexican tariff would be applied, but neither would have answered.
Mexican imports were very different from ours; specific, not _ad
valorem_, duties had been customary there; and competent appraisers
could not be found. On the other hand the unreasonable Mexican duties,
besides preventing commerce to a large extent, encouraged fraud and
smuggling. In March, 1847, therefore, a special tariff was prepared by
Walker, lowering the Mexican duties on imports more than one half, and
substituting for all port dues and charges a uniform tax of one dollar
per ton; and on March 31 Polk ordered the system to be put in force.
Mexico retorted that goods paying the American duties--especially goods
prohibited by her laws--would be confiscated, and this attitude caused
some uneasiness in France; but it seemed fairly evident that the United
States would protect neutrals accepting our policy, and not only the
foreign merchants in Mexico but the neutral governments felt highly
pleased with our course.[33.17]
The authorities at Washington, however, did not rejoice as much. The
real difficulty lay, not in landing merchandise at the ports, but in
placing it before Mexican customers, and comparatively few of the
latter could be reached. Persevering efforts were made to solve the
problem on both coasts. Sometimes, for reasons not fully understood,
the Mexican government issued licenses for the passage of goods to the
interior, and for a consideration local authorities in the northeast
did the same; but even these documents were not always valid against
officials and military men whose "patriotism" had not been "sweetened."
European merchants could see this difficulty. Up to October 20, 1847,
only one small cargo from that direction entered the harbor of Vera
Cruz, and Walker admitted privately that a very small part of the few
imports was disposed of for consumption beyond the coast. In a word,
this vaunted plan gave no substantial help on the problem of supporting
the war.[33.18]
[GOOD FORTUNE HELPS US]
But by this time the good luck which has been supposed to keep an
eye on the United States of America had intervened. In 1846 came the
great Irish famine. British provision laws were suspended. Faced with
starvation people cared little what they paid, if they could obtain
food. Our agricultural products, which had fallen heavily in market
value since October 1, 1845, rose with astonishing buoyancy. Western
grain that had scarcely been worth transporting--frequently not worth
it--became precious. A ship could earn thirty per cent of her cost in
one round trip, yet hardly enough vessels could be found. So abrupt
was the turn that a financial editor who had predicted on December 17,
1846, a speedy return to the distress of 1837, declared on January
30, 1847, "We are on the high road to an unprecedented prosperity."
The abolition of the British corn laws ensured our farmers not only
temporary relief but a permanent market. Cotton, too, and even cotton
goods were in active demand abroad; and a famine in Germany gave us
additional support.[33.19]
Every vessel from the other side brought more of the specie that had
been expected to disappear from circulation here. Between the first
of January and the middle of July, 1847, approximately twenty-four
millions came in, besides about five millions in the pockets of
immigrants. Everybody who did anything or had anything shared in the
general increase of wealth. Hoarding went out of fashion. All were
spenders. In particular, a craze for dress demanded great quantities of
European fabrics. The warehousing plan also stimulated importation. For
the quarter ending with September, 1847, the customs duties amounted
to more than eleven millions--almost half the total of the preceding
year--and for the week ending with October 1 they were nearly double
those of the corresponding week in 1846. In a word, gold rained upon
us; the languishing treasury revived; and the credit of the government
revived with it. Later, in the autumn of 1847, to be sure, the
financial downpour abated, but it had already done its work. The ship
of state rode now beyond the bar.[33.19]
Yet Polk still had to cope with difficulties. Early in December,
1847, when Congress assembled, he found it necessary to present large
estimates and to admit that a deficit of nearly sixteen millions was to
be expected by July 1, 1848; and there seemed to be little hope that
Congress would provide additional revenue. Borrowing was inevitable,
and Walker's report of December 8 proposed a loan of $18,500,000.
Nothing was done, however. The banks of New York and Boston endeavored
to force upon the government a fiscal policy more acceptable to them,
and a strong element in Congress, of which more will be heard in
the next chapter, not only entertained a similar desire, but seemed
willing to impair the credit of the administration. At length, on the
nineteenth of January, 1848, a bill was introduced, and after a further
delay another long debate opened. "How is the loan bill getting on,
Sir?" inquired a newspaper correspondent of a Representative of the
People after it had been on the tapis for about a month. "Oh, they are
spouting away, spouting away, Sir," was the careless reply. But on the
last day of March a six per cent loan of $16,000,000 was authorized on
substantially the same basis as the previous loans. The treaty of peace
had been signed on February 2, and the new bonds brought a premium
rising in some instances to $4.05 on a hundred.[33.20]
[THE MEXICANS TAXED]
In the same report (December, 1847) Walker announced, though evidently
a little chastened in spirit, that relief would soon come from
Mexico. What he chiefly counted upon at this time, however, was not
customs duties. As early as the nineteenth of September, 1846, Polk,
justly offended by the enemy's disdainful treatment of our olive
branch, decided that instead of endeavoring longer to conciliate
the Mexicans by paying liberally for supplies, we should bring them
to terms by levying contributions or taking needed articles without
compensation, and this course was promptly recommended to General
Taylor; but he replied, as we have seen, that such a policy was
impracticable. Shortly after the capture of Vera Cruz General Scott
received instructions of the same tenor, and he made a similar reply.
Early in the autumn of 1847, however, as Mexico had again rejected the
olive branch, this change of system was pressed upon Scott with fresh
urgency, and before long explicit orders to make all the revenues and
resources of Mexico available, as far as they could be, followed.[33.21]
Scott, however, knowing the laws of war and the wishes of his
government, began operations without waiting for these later
instructions. Almost immediately after entering the capital he laid
upon it an assessment of $150,000, and set on foot an examination
into the general question of drawing revenues from the country, which
eventually showed that nearly twenty-three millions a year could
theoretically be collected, should we take possession of the whole
territory. November 25, he directed that no rent should be paid
for houses and quarters except so far as contracts existed. About
three weeks later, notice was given that in the districts held by
the Americans all the taxes and dues previously paid to the Mexican
government would be required of the authorities for the support of our
army; and at the end of December an assessment equal to four times the
direct taxes paid in 1843 was laid upon the states. Scott's action
was of course taken by Wool, now commanding in the northeast, as a
pattern.[33.22]
But again Walker's hopes were disappointed. The most important of
the monopolies, tobacco, had to be given up because the American
product could not be excluded, and for administrative reasons the
other monopolies also were surrendered. Owing to the dangers of waste,
corruption, extortion and resentment, the business of collecting taxes
had to be entrusted to the state authorities, and they possessed
wonderful dexterity in the arts of evasion. State assessments were
actually made on México and Vera Cruz only. The owners of occupied
buildings were in many cases friends, and could not well be deprived
of their rents. Contracts or agreements that stood in the way had to
be respected. Gold and silver were clandestinely exported. Smuggling
across the northern border could not be stopped. Brigands exacted
their toll. The time required for investigation and planning, and in
certain instances for correspondence with our government, militated
against prompt action. We strongly desired to settle with Mexico
and evacuate the country, and hence--especially after the peace
negotiations began--it would not have been wise to run the risk of
exasperating the nation for the sake of a few dollars. In short the net
proceeds, including $106,928 turned in by naval officers, were only
$3,935,676.[33.23]