Albert Gallatin Part 8

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 doc.u.ment.]

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 princ.i.p.al 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 princ.i.p.al as a new departure in American finance. The princ.i.p.al 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 a.s.sociated Banks,[13] this policy was matter of grave debate. The determined American pride of Mr. Chase prevailed, and both the princ.i.p.al _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 r.e.t.a.r.d the payment of the princ.i.p.al of the old debt; and the fund would be sufficient, besides paying the interest on both, to discharge the princ.i.p.al 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

Reimburs.e.m.e.nt 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 reelection. 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 inc.u.mbrance would remain on the revenue than the interest and reimburs.e.m.e.nt 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 pa.s.sed 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 acc.u.mulation 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 acc.u.mulation 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 antic.i.p.ations, 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 ma.s.s of the citizens, and immediately affect almost every individual of the community. Loans are supplied by capital previously acc.u.mulated 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 circ.u.mstances 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 ma.s.s 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 Const.i.tution. 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 a.n.a.lysis 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 princ.i.p.ally 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 disburs.e.m.e.nts 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 princ.i.p.al 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 circ.u.mstances. 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 princ.i.p.al 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 antic.i.p.ated.

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 princ.i.p.al 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 princ.i.p.al 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 circ.u.mstances, 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 acc.u.mulation 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 princ.i.p.al 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, pa.s.sing 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 reimburs.e.m.e.nt of the princ.i.p.al of the new debt.... If the national revenue exceeds the national expenditure, a simple appropriation for the payment of the princ.i.p.al 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.