Albert Gallatin Part 7

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 disburs.e.m.e.nts 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 embarra.s.sing. There was a threatening prospect of war. Foreign loans were precarious and improvident; the market rate of interest was eight per cent. Under these circ.u.mstances 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 a.s.saults 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 a.s.signed 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 a.s.sumed, and which were carried into effect, were the immediate reimburs.e.m.e.nt 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 a.s.sumed 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 princ.i.p.al 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 princ.i.p.al, to the payment of interest on that princ.i.p.al. 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 Const.i.tution. The entire field of American finance is examined from its beginning. He severely condemns the mode of a.s.sumption of the state debts in Hamilton's original plan, and no doubt his strictures are technically correct. The debts a.s.sumed for debtor States were not due by the United States, nor was there any moral reason for their a.s.sumption. But the a.s.sumption was sound financial policy, and all the cost to the nation was amply repaid by the order which their a.s.sumption 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 acc.u.mulated 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 pa.s.sed in "arranging, or rather procuring correct statements amongst the Treasury doc.u.ments," 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 pa.s.sages 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 embarra.s.sed 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 princ.i.p.al 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 princ.i.p.al 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 princ.i.p.al) 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 embarra.s.sment he encountered on the path.

------+--------------+--------------+---------------+-------------+ | Amount of | Payments | Debt | Annual | Years.| Public Debt | on | Contracted. | Increase. | | January 1st. | Princ.i.p.al. | | | ------+--------------+--------------+---------------+-------------+ 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 princ.i.p.al 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