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_.