second year after the war, is founded on the supposition that the direct
and other internal taxes or duties laid for the first year, together
with the existing revenue, and twenty-five millions borrowed by loans or
Treasury notes, will be sufficient to defray the expense incurred prior
to and during the first year of the war. The deficiency in the regular
force for that year must be supplied by large drafts of militia, which
will be as expensive at least as the regular soldiers whose place they
will supply.
But it appears very doubtful whether such a large sum as forty-five
millions can be raised annually by loans and Treasury notes. It is
necessary in the first place to correct some erroneous opinions
respecting the extent to which these notes may be kept in circulation,
and the legitimate objects to which they may be applied.
The Treasury notes were first introduced on my suggestion, which was no
new discovery, since they are a mere transcript of the Exchequer Bills
of Great Britain. As these have been resorted to for more than a
century, and have never become there a portion of the ordinary currency,
the extent to which they may be used for other purposes is well
ascertained, and bears always a certain ratio to the wealth of the
country and to the revenue of the State. Whether issued to the bank as
an anticipation of the revenue, or used by capitalists for short
investments, the gross amount has rarely exceeded twenty millions
sterling. Judging from past experience, the amount which may, in time of
war, be kept in circulation at par in the United States falls far short
of a proportionate sum.
The amount of Treasury Notes issued during the years 1812
and 1813 amounted to $8,930 000
Of which there had been paid including interest $4,240 000
The amount in actual circulation was less than five millions, and thus
far they had been kept at par.
All the demands from the other departments had been met by the Treasury,
and there were but few, if any, outstanding arrears. Nothing had as yet
been collected on account of the direct tax and of the internal duties.
Besides the five millions of Treasury Notes, there had been paid into
the Treasury in the years 1812 and 1813, $28,740,000 on account of war
loans, and $22,283,000 from the customs. The balance in the Treasury
amounted to $5,196,542 on the 31st December, 1813.
The amount of Treasury Notes issued during the year 1814 amounted to
near eight millions, and there had been paid off during the same year,
including interest, $2,700,000; making an addition of about five
millions and a half, and the total amount outstanding about ten millions
and a half. The receipts during that year, on account of the direct tax
and internal duties, amounted to $3,877,000, from war loans to
$15,080,000, and from customs to only six millions. Before the end of
the year, Government was unable to pay the notes which had become due.
It is perfectly clear that, if new notes could not be issued in lieu of
those which had become due, it was because they had fallen below par,
and therefore that the amount outstanding was greater than the demand
for them. There was but one remedy, and it was very simple. A reduction
in that amount must be made, by funding at their market price a quantity
sufficient to re-establish the equilibrium. But all the banks west of
New England had in the meanwhile suspended their specie payments. A
period of anarchy in the currency of the country was the consequence,
and lasted till those payments were resumed in the year 1817.
The result of the suspension of specie payments in England was, that the
notes of the Bank of England became in fact a legal tender and the
standard of the currency. All the other banks were obliged to keep their
own notes on a par with those of that bank; and all that was necessary
in order to prevent a depreciation, was to regulate the issues of the
Bank of England, so as to keep them at par with gold and silver.
Nevertheless, the clamor for more currency prevailed; the bank found it
very convenient and profitable to issue notes which it was not obliged
to pay, and these finally depreciated twenty-five per cent. But in the
United States the banks were under no other control than that of the
several States respectively. The consequence was, that we had fifty and
more species of local currencies, varying in value in the different
States or districts of country, and from time to time in the same
district. The banks might with facility have resumed specie payments
during the first year of peace. The efforts of the Secretary of the
Treasury to induce them to resume proved unsuccessful; and the
resumption did not take place till after a new Bank of the United States
had been organized.
We have had two general suspensions of specie payments, the last at a
time of profound peace. I was then behind the scenes, had some agency in
restoring specie payments, and may speak on that subject with knowledge
and confidence. The obstacles came partly from the Banks, principally
from the Debtor interest, which excites sympathy and preponderates
throughout the United States. The mis-named Bank of the United States,
and the banks under its influence, were, it is true, a formidable
impediment; and this obstacle is now fortunately removed. Still the
continuance of specie payments stands, whenever a crisis occurs, on a
most precarious basis; and if any important place, especially New York,
happened to break, all the banks through the United States would
instantaneously follow the example. This is the most imminent danger to
which the Treasury of the United States will be exposed in time of war;
and what effect the Sub-Treasury system may produce in that respect
remains to be tested by experience.
It is impossible to draw any inference respecting Treasury Notes, from
what took place in the United States during the confused state of the
currency in the years 1815 and 1816. The taxes were paid everywhere with
the cheapest local currency, in Treasury Notes only in the places where
specie payments had been continued, or where bank notes were nearly at
par. The depreciation of the Treasury Notes was arrested by the fact,
that they might at all times be converted into a six or seven per cent.
stock; but in that case they became assimilated to a direct loan. They
never can become a general currency, on account of their varying value,
so long as they bear an interest and are made payable at some future
day. In order to give them that character, they should assume that of
bank notes, bearing no interest and payable on demand. It does not
require the gift of prophecy to be able to assert that, as the wants of
Government increased, such notes would degenerate into paper money to
the utter ruin of the public credit.
They may, however, be made a special currency for the purpose of paying
taxes as gold and silver, and to the exclusion of any other species of
paper currency. The amount which might be thus kept in circulation, in
addition to that wanted for short investments, would be limited by the
gross amount of the annual revenue, and bear but a small proportion to
it; since one thousand dollars, in silver or in any paper currency, are
sufficient to effect in one year fifty payments of the same amount.
Although the amount kept in circulation may fluctuate according to
circumstances, the fundamental principle is, that the issue of such
notes is an anticipation of the revenue, which, after it has reached the
maximum that may be kept in circulation without being depreciated, never
can be increased. Be the amount ten or twenty millions, the anticipation
may be continued, but not renewed; it is not an annual resource, but
one, the whole amount of which never can exceed that which may be kept
in circulation. The operation consists in re-issuing annually the
amount which is paid off in the year. Whenever, owing to incidental
fluctuations, the amount to be redeemed by the Treasury exceeds that
which may be re-issued, the difference must be immediately funded at the
market price of the notes, so as to keep them always at par or a little
above par.
It is evident, that if the direct tax and internal duties laid in
August, 1813, had been imposed in July, 1812; and if the acts of
January, 1815, which increased both, had been enacted in August, 1813;
there would have been an addition of at least eight millions to the
revenue of the years 1812 and 1813; the Treasury Notes which had become
due would have been paid, public credit would have been maintained, and
the amount of war loans lessened.
The principal causes of the fall of public stocks during a war, and of
the consequent necessity of borrowing on dearer terms, are a want of
confidence in Government, and the large amount of stocks thrown in the
market beyond the natural demand for them. The effect of this last cause
is remarkably illustrated by the fluctuations in the price of the stocks
of Great Britain, where it does not appear that there ever was a want of
confidence in the ability and fidelity of Government in fulfilling its
engagements. The British three per cents. are now, and were before the
war of American Independence, and before those which had their origin in
the French revolution, near par or at par. They fell gradually during
the war of independence, and were as low as fifty-four in February,
1782. The long war with France was attended with the same result, and
the three per cents. had fallen to fifty-five in July, 1812.
Notwithstanding the deranged state of the finances of the United States
in 1814, the American stocks had not fallen in the same proportion. Such
great depreciation is the result of the long continuance of a war. No
one can say what would have been its progress, had the last war with
England continued much longer.
There was not, however, at that time, at least in America, any want of
confidence in the Government: no one doubted that it would ultimately
faithfully discharge all its engagements. Although the General
Government is in no way responsible for the errors of any of the
individual States, it is nevertheless certain, that the credit of the
Union has been injured abroad by the failure of several of the States to
fulfil their engagements, and that no expectation can be entertained of
being able to borrow money in Europe. It is not less true that the
Administration will cease to enjoy the confidence of American
capitalists, if the measures it has recommended should be adopted and
productive of war. No one can doubt that, if that event should take
place, the Americans will fight in defence of their country, and none
with greater zeal and bravery than the people of the Western States.
During the last war, their militia and volunteers flocked either to the
Lakes, to New Orleans, or wherever there was danger; nor did they refuse
to take part in offensive operations, and to serve without the limits of
the United States. But men cannot, either there or elsewhere, afford to
render gratuitous services. Whether regulars, volunteers, or militia,
they must be fed, clothed, transported, supplied with arms and
artillery, and paid. There is as yet but very little active circulating
capital in the new States: they cannot lend; they, on the contrary, want
to borrow money. This can be obtained in the shape of loans only from
the capitalists of the Atlantic States. A recurrence to public documents
will show that all the loans of the last war were obtained in that
quarter.
Men of property are perhaps generally more timid than others, and
certainly all the quiet people, amongst whom the public stocks are
ultimately distributed, are remarkably cautious. Prudent capitalists,
who do not speculate, and consider public stocks only as convenient and
safe investments, will not advance money to Government so long as it is
controlled by men whom they consider as reckless, and as entertaining
rather lax opinions respecting public credit. Yet money will be
obtained, but on much dearer terms than if public confidence was
unimpaired. There will always be found bold speculators, who will
advance it at a premium--enhanced by the want of competition, and
proportionate to the risks they may be supposed to incur. Independent of
this, it is most certain that the rate of interest at which loans may be
obtained, will always be increased in proportion to their magnitude. The
only ways by which these difficulties may be obviated, or at least
lessened, are perfect fidelity in fulfilling the engagements of
Government; an economical, that is to say, a skilful application of the
public moneys to the most important objects, postponing all those which
are not immediately wanted, or are of inferior real utility; and an
increase of the amount of revenue derived from taxation. This has the
double advantage of diminishing the amount to be borrowed, and of
inspiring confidence to the money-lenders. In all cases, direct loans
will be preferable to, and prove a cheaper mode of raising money than
the over issues of Treasury Notes.
The Act of July, 1812, which doubled the duties on importations,
afforded a resource which, on account of the high rate at this time of
those duties, cannot now be resorted to. Duties may, however, be levied
on the importation of Tea and Coffee, and perhaps some other articles
now duty free. Other modifications may be found useful, but it may be
difficult to ascertain, even without any regard to protection, what are
the rates of duties which should be imposed in time of war on the
various imported articles, in order to render the revenue derived from
that source as productive as possible.
It must also be observed that if, on account of the credit then allowed
for the payment of duties on importations, the Treasury had, when the
war of 1812 commenced, a resource in the revenue previously accrued but
not yet collected, which does not now exist; on the other hand the
United States were still encumbered with a considerable portion of the
Revolutionary debt, and the payments on account of its principal and
interest amounted during the years 1812, 1813, 1814, to about
$11,000,000, whilst the annual interest on the now existing debt is less
than one million.
The direct tax of the year 1815 amounted to $6,000,000, and the revenue
which accrued during the same year, on the aggregate of internal duties,
as increased or imposed at the same time, amounted to about the same
sum. That year is also the most proper for a comparative view of the
revenue derived from each object. In the subsequent years the revival of
business increased the amount derived from the duties connected with the
commerce of the country, much beyond that which could be collected in
time of war; whilst, on the other hand, the excise on spirits was much
less productive. The nett revenue derived from internal duties, which
accrued during that year was in round numbers, about
Excise on spirits $2,750,000
Licences to retailers 880,000
Sales at auction 780,000
Stamp duties 420,000
Tax on carriages 150,000
Refined sugar 80,000
Several manufactured articles 840,000
Household furniture 20,000
Watches worn by individuals 80,000
----------
Total $6,000,000
The three last items were those added on Mr. Dallas's recommendation to
the first items laid in 1813, but the rate of which was increased, also
on his recommendation. The manufactured articles not before taxed on
which the new duties were laid were, pig and bar iron, nails; wax and
tallow candles; hats, caps and umbrellas; paper and playing cards;
leather, saddles, bridles, boots and shoes; beer, ale and porter; snuff,
cigars and manufactured tobacco. This was the boldest measure proposed
by the Secretary, for these duties were from their nature intrinsically
obnoxious. Yet no voice was raised against them; and so far from
becoming unpopular, Mr. Dallas, by his courage and frankness, acquired a
well-earned popularity. No stronger proof can be adduced of the
propriety of telling the whole truth and placing an entire confidence in
the people.
The only important measure omitted at that time, was an Act of Congress
ordering that all the Treasury notes actually due and not paid should be
immediately funded at their nominal value; that is to say, that for
every one hundred dollars in Treasury notes, the same amount of funded
stock should be issued as it was necessary to give for one hundred
dollars in gold or silver. It was impossible to obtain a regular loan in
time, and on reasonable terms, for the purpose of defraying the war
expenses of the first six months of the year 1815. There was an absolute
necessity for recurring to Treasury notes for that purpose, and the
attention of the Treasury was forcibly directed to that object. But the
first and fundamental element of public credit is the faithful and
punctual fulfilment of the public engagements; and the payment of the
Treasury notes, when becoming due, was as necessary as that of the
interest of the funded debt, which never was suspended during the war.
As an immediate and considerable issue of Treasury notes was absolutely
necessary, it was not sufficient that they might be convertible into a
funded stock, which was already much below par, since that would be in
fact an issue of depreciated paper. The Act should, therefore, have
pledged the public faith, that if the Treasury notes were not discharged
in specie when they became due, they should be funded at their nominal
value on the same terms as above stated. Mr. Dallas to great energy
united pre-eminent talents, he wanted only experience; and I have no
doubt that, had the war continued, he would within six months have
adopted that course. If I have alluded here to this subject, it is on
account of the primary importance, if placed hereafter in a similar
difficult position, of adhering rigorously to those principles
respecting the legitimate use of Treasury notes and the punctual
discharge of every public engagement, which are absolutely necessary for
the maintenance of public credit.
Since a direct tax of six millions could be raised thirty years ago,
there can be no difficulty in raising one of nine millions at the very
beginning of the war: this must be gradually increased, but would be
most heavily felt if beyond eighteen millions. Should an equal sum be
raised by internal duties, the annual loans wanted after the first year
of the war would be lessened in the same proportion. The following
estimate may assist in forming a correct opinion on that subject:--
The stamp duties, those on sales at auction, the
licences of retailers, and the carriage tax,
which accrued in the year 1815, amounted
together to $2,230,000, and may be now estimated
at twice as much $4,460,000
The aggregate annual value of leather, boots,
shoes, and other manufactures of leather; of
hats, caps and bonnets; snuff and cigars;
paper and playing cards, manufactured in the
United States, are estimated by the last census
at fifty-three millions, a tax on which of ten
per cent would give 5,300,000
On the same authority, three millions pounds of
spermaceti and wax candles would yield, at
five cents per pound, 150,000
Three millions two hundred and fifty thousand
pounds of refined sugar, at the same rate 160,000
Five hundred tons of pig and bar iron, nails and
brads, at two dollars per ton 1,000,000
The gross amount of spirits and beer manufactured
in the United States, is stated in the
census at sixty-five millions of gallons; but
the happy influence of the Temperance cause
has probably reduced this amount to less than
fifty millions, a tax on which of ten cents per
gallon 5,000,000
----------
$16,070,000
I have inserted only such articles as were heretofore taxed, and have no
means of indicating such other as might be added or preferred; nor must
I be understood as recommending any specially, or in reference to the
rates of duties to be imposed on any one.
It has been very generally asserted that men of property were averse to
the war because the losses and burthens which it must occasion fall
exclusively upon them; and that poor men were generally in favor of war,
because they had nothing to lose.
It is true that the first great loss, caused by the war, will fall
immediately on those interested in the maritime commerce of the United
States, either as owners, insurers, or in any way employed in it.
Considering the imminent danger to which is exposed the immense amount
of American property afloat on every sea, and the certain annihilation,
during the war, of the fisheries, of the commerce with Great Britain,
and of that with all the countries beyond Cape Horn and the Cape of Good
Hope, the American merchants may be alarmed at the prospect of a war,
the necessity of which they do not perceive. But if the apprehension of
immediate danger is more vividly felt, the calamitous effects of the war
on the agricultural interests are not less certain. The price of all the
products, of which large quantities are exported, must necessarily fall
so low that all the farmers must lessen the amount and with it their
income, whilst they must pay dearer for all the articles which they are
obliged to purchase. The distinction between rich and poor is vague. The
most numerous class in the United States is that of the men who are at
the same time owners and cultivators of the soil, and who have but
small properties and a very moderate income. Every diminution of this,
whether from the want of a market or from any additional tax, is in that
and the corresponding class of mechanics, attended with the privation of
the necessaries or comforts of life. The really rich, the capitalists
who have independent incomes, and are not obliged to engage in any of
the active pursuits of life, may, in any calamitous season, accumulate
less, or at most, must retrench only some luxuries. Thus the unavoidable
losses and burthens which are the consequences of a war, fall with the
greatest weight on those who derive their means of existence from the
pursuits of industry, and whose industry alone contributes to the
increase of the general wealth of the country.
But this is not all. Exclusive of those who, either as contractors, or
in some other way, are concerned with the large supplies wanted for the
support of the army and navy, there is a class of capitalists who are
enriched by the war. These are the money lenders, who shall have been
bold enough to take up the public loans: unless indeed it should be
intended to break public faith, and, on the return of peace, to question
the obligation to pay them, upon the pretence of their enormous profits.
What these profits are may be again illustrated by the example of Great
Britain.
It has already been seen that, whenever a war is one of long
continuance, the British Government may at first borrow at par, and ends
by being compelled to sell its stock at the rate of fifty per cent of
its nominal value; which gives for the whole of the war loans an average
of about 75 per cent. In point of fact that Government received in the
year 1812 less than 55 per cent; for the money actually received
consisted of bank notes, which had then depreciated twenty per cent; so
that the money lenders gave only that which was equivalent to forty-four
per cent, in gold or silver, of the nominal value of the stock which
they received. Besides receiving the interest on the nominal amount of
the stock till the principal shall have been paid, they might shortly
after the peace, and may now, receive from ninety-seven per cent to par,
in gold or silver, for that same stock for which they gave but
forty-four. Thus, assuming the public debt of Great Britain at eight
hundred thousand pounds sterling; not only was the whole of that
capital destroyed by the wars; not only are the British people subject
now, and it would seem for ever, to a burthen of taxes sufficient to pay
the interest on that debt; but of the eight hundred millions thus
consumed, only six hundred were received by the public, and the other
two hundred millions made the rich capitalists, who had advanced the
money, still richer.