Albert Gallatin Part 10

The acquisition of Louisiana, the large carrying trade which had pa.s.sed under the American flag, and the rapid prosperity of the financial and industrial condition of the country aroused the jealousy of Great Britain, and determined her to check the further progress of the United States by war, if need be. The capture of the American frigate Chesapeake by the man-of-war Leopard, June 22, 1807, was only the first in a series of outrages which rendered the final collision, though long delayed, inevitable. Mr. Gallatin at once recognized that the Treasury could no longer be conducted on a peace basis. "Money," he wrote to Joseph H. Nicholson, "we will want to carry on the war; our revenue will be cut up; new and internal taxes will be slow and not sufficiently productive; we must necessarily borrow. This is not pleasing to me, but it must be done." Congress was called together for October 26, 1807, and on November 5, Mr. Gallatin sent in his annual report. There was still hope that Great Britain would make amends for the outrage, and Congress was certainly peaceably disposed. In the condition of the Treasury there was no reason as yet for recommending extraordinary measures. The revenues for the year pa.s.sed the sum of seventeen millions; the balance in the Treasury reached eight and one half millions; the surplus on a peace footing was twelve millions. Mr. Gallatin recommended that the duties should be doubled in case war were threatened. He said, "Should the revenue fall below seven millions of dollars, not only the duty on salt and the Mediterranean duties could be immediately revived, but the duties on importation generally be considerably increased, perhaps double, with less inconvenience than would arise from any other mode of taxation." Experience had proven that this source of revenue is in the United States "the most productive, the easiest to collect, and least burdensome to the great ma.s.s of the people." But still the war-cloud did not break. Mr. Canning contented himself with war in disguise, and by his Order in Council of November 11, 1807, shut the ports of Europe to American trade, and wiped away the advantages of the United States as a neutral power. The United States answered with the act of embargo on December 22, 1807, completing, as far as it was possible for legislation to effect it, the blockade of the Treasury Department as regarded revenues from foreign imports. The immediate effect, however, of these acts in Great Britain and America was an enormous temporary increase of importations in the interim from the time of the pa.s.sage of the act until the date when it took effect. To aid merchants in this peculiar condition of affairs an act was pa.s.sed by Congress, on March 10, 1808, extending the terms of credit on revenue bonds.

Mr. Gallatin's report of December 16, 1808, closed the record of his eight years of management of the Department. In the second term of Jefferson's administration, 1805-1808, the gross amount of imports had risen to $443,990,000, and the customs collected to nearly $60,000,000.

In the entire eight years, 1800-1808, the gross amount of importations was $781,000,000, and the customs yielded $105,000,000. The entire expenses of the government in the same period, including $65,000,000 of debt, had been liquidated from customs alone.

The specie in the Treasury on September 20, 1808, reached nearly $14,000,000. Mr. Jefferson knew of the amount in the Treasury when he wrote his last message, November 8, 1808, and he could not have been ignorant of Mr. Gallatin's warning of the previous year that a continuance of the embargo restriction would reduce the revenue below the point of annual expenditures and require an additional impost; yet he had the ignorance or the presumption to say in his message, "Shall it (the surplus revenue) lie unproductive in the public vaults? Shall the revenue be reduced? or shall it not rather be appropriated to the improvement of roads, ca.n.a.ls, rivers, education, and other great foundations of prosperity and union under the powers which Congress may already possess or such amendments of the Const.i.tution as may be approved by the States? While uncertain of the course of things, the time may be advantageously employed in obtaining the powers necessary for a system of improvement, should it be thought best." In these words Jefferson surrendered the vital principle of the Republican party. In his satisfaction at the only triumph of his administration, the management of the finances and the purchase of a province without a ripple on the even surface of national finance, he gave up the very basis of the Republican theory, the reduction of the government to its possible minimum, and actually proposed a system of administration coextensive with the national domain, an increase of the functions of government, and consequently of executive power.

The annual report of the Treasury, presented December 16, 1808, showed no diminution of resources. The total receipts for the fiscal year were nearly eighteen millions. The total receipts for--

Customs reached $26,126,648 On which debentures were allowed on exportations 10,059,457 ----------- Actual receipts from customs $16,067,191

But this source of revenue was now definitively closed by the embargo, while the expenditures of the government were increased. Mr. Gallatin met the situation frankly and notified Congress of the resources of the Treasury.

RESOURCES FOR 1809

Cash in Treasury $13,846,717.52 Back customs, net 2,154,000.00 -------------- Total resources $16,000,717.52

The receipts from importations and land sales would be offset by deductions for bad debts and extensions of credit to importers. The expenditures were set at $13,000,000, which would leave in the Treasury for extraordinary expenditure $3,000,717. The disburs.e.m.e.nts had been far beyond the estimates; those for the military and naval establishments reaching together six millions.

It is not to be supposed that Mr. Gallatin saw this depletion of the Treasury, this rapid dissipation of the specie,--always desirable and never more so than in periods of trouble,--without disappointment and regret. His report to Congress was as outspoken politically as it was financially, and from a foreign-born citizen to an American Congress must have carried its sting. "Either America," he wrote, "must accept the position of commerce allotted to her by the British edicts, and abandon all that is forbidden,--and it is not material whether this is done by legal provisions limiting the commerce of the United States to the permitted places, or by acquiescing in the capture of vessels stepping beyond the prescribed bounds. Or the nation must oppose force to the execution of the orders of England; and this, however done, and by whatever name called, will be war." He recalled to them his advice of the preceding years in a vein of tempered bitterness: "Had the duties been doubled on January 1, 1808, as was then suggested, in case of war the receipts into the Treasury during that and the ensuing year would have been increased nine or ten millions of dollars." He then proposed to continue the Mediterranean Fund and to double all existing duties on importations after January 1, 1809. He informed them that no internal taxes, either direct or indirect, were contemplated by him even in the case of hostilities against the two belligerent powers; France having responded to the Orders in Council by Napoleon's Milan decree, December 17, 1807, which was quite as offensive to the United States as that of Canning. With true statesmans.h.i.+p Mr. Gallatin nerved the country to extraordinary exertion by reminding it that the geographical situation of the United States and their history since the Revolution removed every apprehension of frequent wars.

During the year 1809 the country drifted along apparently without rudder or compa.s.s, helmsman or course, and the treasury locker was being rapidly reduced to remainder biscuit. Mr. Madison was inaugurated in March. In his first message, May 23, 1809, he exposed the financial situation with an indecision which was as marked a trait of his character as optimism was of that of Jefferson. In his message of November 29, 1809, he said "the sums which had been previously acc.u.mulated in the Treasury, together with the receipts during the year ending on September 30 last, and amounting to more than nine millions of dollars, have enabled us to fulfill all our engagements and defray the current expenses of government without recurring to any loan; but the insecurity of our commerce and the consequent demands of the public revenue will probably produce a deficiency in the receipts of the ensuing year." Beyond this Madison did not venture; Gallatin was left alone.

The Treasury report of December 8, 1809, announced the beginning of short rations. The expenses of government, exclusively of the payments on account of the princ.i.p.al of the debt, had exceeded the actual receipts into the Treasury by a sum of near $1,300,000. If the military and naval establishments were to be continued at the figures of 1809, when six millions were expended, there would result a deficiency of $3,000,000, and a loan of $4,000,000 would be necessary. Otherwise the Mediterranean Fund would suffice. The cash in the Treasury had fallen from nearly fourteen millions on June 2, 1809, to less than six millions on September 3, following. In this report Gallatin expressed his opinion, that the system of restriction established by the embargo and partly relaxed must be entirely reinstated or wholly abandoned. On May 1, 1810, an act of strict prohibition of importations from Great Britain and her dependencies was pa.s.sed.

While from the incompetency of the administration the country was fast approaching the real crisis of open war, the Republicans in Congress were deliberately destroying and undermining the basis of national credit, by which alone it could be carried on. In February the United States Bank, by which, and its branches, the customs were collected throughout the country, was destroyed by the refusal of Congress to renew its charter. Mr. Gallatin in his combinations never contemplated such a contingency as the total destruction of the fiscal agency on which the government had relied for twenty years. Unwilling to struggle longer against the mean personalities and factious opposition of his own party in Congress, he tendered his resignation to Mr. Madison. But the Republican party was a party of opposition, not of government. With the exception of Mr. Gallatin, no competent administrative head had as yet appeared. There was no one in the party or out of it to take his place.

Mr. Madison knew it. Mr. Gallatin felt it, and remained. Congress met in November. On the 25th Mr. Gallatin sent in his annual report; the receipts reached thirteen and a half million dollars.

The budget for 1812 left a deficiency to be provided for of $1,200,000.

This was a small matter. The revenue Mr. Gallatin proposed to increase, on the plan before recommended, by additions of fifty per cent, to the imposts on foreign commerce. This he preferred to any internal tax.

At the close of the year the country, chafed beyond endurance by the indignities put upon it and the sufferings it encountered without compensation to its pride, was eager for war. Congress was no way loath to try the dangerous path out of its labyrinth of blunders. The near contingency imposed the necessity of an immediate examination of the sources of revenue. In January, 1812, Mr. Gallatin was requested by the chairman of the Committee of Ways and Means to give his opinion as to the probable amount of receipts from duties on tonnage and merchandise in the event of war. This, in view of the vigorous restrictions laid by France under her continental system of exclusion, Mr. Gallatin estimated under existing rules as not to exceed $2,500,000. He then stated, without hesitation, that it was practicable and advisable to double the rate of duties, and to renew the old duty on salt. The sum acquired, with this addition, he antic.i.p.ated, would amount to $5,400,000.

On the basis of annual loans of ten millions of dollars during the continuance of the war (the sum a.s.sumed by the committee), the deficiency for 1814 would amount, by Mr. Gallatin's estimate, to $4,200,000. To produce a net revenue equal to this deficiency he stated that the gross sum of taxes to be laid must be five millions of dollars.

He then reverted to his report of December 10, 1808, in which he had stated that "no internal taxes, either direct or indirect, were contemplated, even in the case of hostilities carried on against the two great belligerent powers." The balance in the Treasury was then nearly fourteen millions of dollars, but in view of the daily decrease of the revenue he had recommended "that all the existing duties be doubled on importations subsequent to the first day of January, 1809." As the revenues of 1809, 1810, and 1811 had yielded $26,000,000, the sum on hand, with the increase thus recommended, would have reached $20,000,000, a sum greater than the net amount of the proposed internal taxes in four years.

At that time no symptoms had appeared from which the absolute dissolution of the Bank of the United States without any subst.i.tute could have been antic.i.p.ated. If its charters had been renewed, on the conditions suggested by Mr. Gallatin, the necessity for internal taxes would have been avoided. The resources of the country, properly applied, however, were amply sufficient to meet the emergency; but Mr. Gallatin distinctly threw upon Congress, and by implication upon the Republican majority, the responsibility for the state of the Treasury, and the imperative necessity for a form of taxation which it detested as oppressive, and which it was a party s.h.i.+bboleth to declare in and out of season, to be unconst.i.tutional. The choice of the administration was between the Bank which Jefferson detested and Gallatin favored, and the internal tax which Mr. Gallatin considered as the most repulsive in its operation of any form of revenue.

But necessity knows no law, and the prime mover, if not the original author, of the opposition to Hamilton's system was driven to propose the renewal of the measures, opposition to which had brought the Republican party into power, and had placed himself at the head of the Treasury. He now proposed to raise the five millions deficiency by internal taxation--$3,000,000 by direct tax and $2,000,000 by indirect tax.

Continuing his lucid and remarkable report with careful details of the methods to be adopted, Gallatin closed with an urgent recommendation that the crisis should at once be met by the adoption of efficient measures to provide, with certainty, means commensurate with the expense, and by preserving unimpaired, instead of abusing, that credit on which the public resources eminently depend, to enable the United States to persevere in the contest until an honorable peace should be obtained. Thus he held the bitter cup to the lips of the Republican Congress, which, however, was not yet to drain its full measure. War was declared June 18, 1812. On July 1, 1812, an act was pa.s.sed imposing an additional duty of one hundred per cent. on all importations, an additional ten per cent. on goods brought in foreign vessels, and also a duty of $1.50 per ton on all foreign vessels. The duty was to remain until the expiration of one year after peace should be made with Great Britain. On December 5, 1812, Mr. Gallatin sent in his last report. The balance in the treasury was $3,947,818. His estimate for the service of the year 1813 was a war budget. Resources, $12,000,000; expenditures, $31,926,000; promising a deficiency of $19,925,000. For this and other contingencies Mr. Gallatin asked for a loan of twenty millions. The authority was granted, but the recommendations of direct and indirect taxes were disregarded. Here Mr. Gallatin's direct connection with the customs system closed.

The value of foreign importations during Madison's first term was $275,230,000, and the customs derived from them thirty-eight millions of dollars.

Congress adjourned March 4, 1813, but was called together again in May, when the subject of internal taxes was again forced upon them. The internal revenue was a part of Hamilton's general scheme. His original bill was pa.s.sed, and, after numerous amendments suggested by trial, its grievances were tempered and the friction removed. In Adams's term it yielded nearly three millions of dollars. In Jefferson's first term, before the rise in customs revenue allowed of its abandonment, Mr.

Gallatin drew from this source nearly two millions of dollars, enough to pay the interest and provide for the extinguishment of a six per cent.

loan of thirty millions; a war budget in itself. But it had been so entirely set aside that in Jefferson's second term, 1808-1812, it had fallen to a little over sixty-three thousand; in Madison's first term, to a little under nineteen thousand dollars. Was it to this Mr. Dallas referred in that pa.s.sage of his report, made in 1815, on the financial operations of the war, in which he expresses his regret "that there existed no system by which the internal resources of the country could be brought at once into action, when the resources of its external commerce became incompetent to answer the exigencies of the time? The existence of such a system would probably have invigorated the early movements of the war, might have preserved the public credit unimpaired, and would have rendered the pecuniary contributions of the people more equal, as well as more effective." "It certainly," to use the words of this Mr. Gallatin's oldest and best political friend, "furnishes a lesson of practical policy." Disagreeable as the necessity was, it could not be avoided, and Mr. Gallatin met it manfully. Nay more, he seems to have had a grim satisfaction in proposing the measure to the Congress which had thwarted him in his plans. In accordance with his suggestions, Congress, in the extra session of May, 1813, laid a direct tax of $3,000,000 upon the States, and specific duties upon refined sugar, carriages, licenses to distillers of spirituous liquors, sales at auction, licenses to retailers of wines, and upon notes of banks and bankers. These duties, in the beginning temporary, were calculated to yield $500,000, and with the direct tax to give a sum of $3,500,000. But the increasing expenditures again requiring additional sums of revenue, the duties were made permanent and additional taxes were laid; the entire revenue for 1815 being raised so as to yield $12,400,000. In the second term of Mr. Madison the internal revenue brought in nearly eleven and a half millions. The Federalists, who as a party were opposed to the war, enjoyed the situation; Mr. Gallatin was compelled to impose the internal revenue tax which he detested, and Mr. Dallas was called upon to enforce its application.

[Ill.u.s.tration: A. J. Dallas]

The only remaining source of revenue was the sale of public lands. This also was a part of Hamilton's original scheme. The public lands of the United States were acquired in three different ways, namely, 1, by cessions from the States of such lands as they claimed, or were ent.i.tled to by their original grants or charters from the crown, while colonies; 2, by purchase from Indian tribes; 3, by treaties with foreign nations,--those of 1783 and 1794 with Great Britain, of 1795 with Spain, and of 1803 with France. The need of bringing this vast territory under the control of the government and disposing of it for settlement was early apparent. In July, 1791, Hamilton sent in to the House a report on "A uniform system for the disposition of the lands, the property of the United States." In March preceding, grants of the United States had confirmed to the actual settlers in the Illinois country the possession of their farms. But what with the Indian wars and the rebellion within the United States, no action was taken by Congress to carry the recommendations of the secretary into effect, until Mr. Gallatin, whose residence on the frontier gave him direct interest in the subject, brought up the matter at the very first session he attended. In 1796 a bill was pa.s.sed authorizing and regulating the sale of lands northwest of the Ohio and above the mouth of the Kentucky River, and a surveyor-general was appointed with directions to lay out these lands in towns.h.i.+ps. The sales under Adams's administrations were trifling, the total amount received from this source before the year 1800 being slightly over one hundred thousand dollars. In May, 1800, sales of the same lands were authorized at public vendue at not less than two dollars per acre; four land offices were established in the territory; surveyors were appointed, and a register of the land office was made a permanent official. In March, 1803, an act was pa.s.sed to regulate the sale of the United States lands south of the Tennessee River, two land offices were established and public sale provided for at the same price set in the act of 1800. In March, 1804, the Indiana lands lying north of the Ohio and east of the Mississippi were brought within similar regulations, and an act was pa.s.sed concerning the country acquired under Spanish and British grants. In the same month Louisiana was erected into two territories. The sums received from the sales during the first term of Jefferson's administration amounted to little more than one million of dollars. In January, 1805, the territory of Indiana was divided into two separate governments; that one which was set off received the name of Michigan, and in 1808, its territory was brought under the regulations of the land office.

The sums received from the sales in the second term of Jefferson's administration reached nearly two and one half millions of dollars, and in Madison's first term, nearly three millions of dollars. From first to last Mr. Gallatin never lost sight of the subject, though occasion did not serve for more than organization of the system which, in the four years ending 1836, yielded nearly fifty million dollars, and paid more than one third of the entire expenses of the government. To John W.

Eppes[18] Mr. Gallatin wrote in the crisis of 1813, "The public lands const.i.tute the only great national resource exclusive of loans and taxes. They have already been mentioned as a fund for the ultimate extinguishment of the public debt." The land offices were then in full operation.

In 1810 Mr. Gallatin prepared an "Introduction to the collection of laws, treaties, and other doc.u.ments respecting the public lands," which was published pursuant to an act of Congress pa.s.sed in April of that year.

_Free Trade_

While Mr. Gallatin differed from his early Republican a.s.sociates in many of their theories of administration, he was a firm believer in the best of their principles, namely, the wisdom of giving free scope to the development of national resources with the least possible interference on the part of government. One of his purposes in his persistent desire for economy in expenditure was to reduce the tariff upon foreign importations to the lowest practicable limit. He was the earliest public advocate in America of the principles of free trade, and an experience of sixty years confirmed him in his convictions.

The extinguishment of the debt rendered a great reduction in the revenue possible. On the other hand, it brought the friends of a low tariff face to face with the problem of internal improvements. As the election of 1832 drew near, the advocates of the two systems ranged themselves in two great parties precisely as to-day: the advocates of the protective or American system with internal improvements as an outlet for acc.u.mulations of revenue on the one side; on the other the advocates of free trade. Between his desire for the advantages of the one with its attendant disadvantages of government interference in its prosecution, and the freedom of commerce from undue restrictions, Mr. Gallatin did not hesitate. He threw the whole force of his experience and character into the free trade cause, and became the leader of its friends.

On September 30, 1831, a convention of the advocates of free trade, without distinction of party, met at the Musical Fund Hall in Philadelphia. Two hundred and twelve delegates appeared. Among them were Theodore Sedgwick, George Peabody, and John L. Gardner from Ma.s.sachusetts; Preserved Fish, John Constable, John A. Stevens, Jonathan Goodhue, James Boorman, Jacob Lorillard, and Albert Gallatin from New York; C. C. Biddle, George Emlen, Isaac W. Norris from Pennsylvania; Langdon Cheves, Henry Middleton, Joseph W. Allston, and William C.

Preston from South Carolina; and men of equal distinction, bankers, merchants, statesmen, and political economists from other States. Of this convention Mr. Gallatin was the soul. He opened its business by stating the objects of the meeting, and nominated the Hon. Philip P.

Barbour of Virginia for president. A general committee of two from each State was appointed, which recommended an address to the people of the United States and a memorial to Congress. The address to the people closed with a declaration that the near extinguishment of the national debt, which would be discharged by the available funds of the government on January 1, 1833, suggested that the moment was propitious for the establishment of the principles of free trade. Thus the people of the United States, who had successfully a.s.serted the doctrines of free government, might add to its claims upon the grat.i.tude of the world by being the first also to proclaim the theory of a free and unrestricted commerce, the genuine "American system." Mr. Gallatin was the chairman of the committee of fourteen, one from each State represented in the convention, to prepare the memorial which was presented in their behalf to Congress, the conclusions of which, presented with his consummate ability, demonstrated with mathematical precision that a duty of twenty-five per cent. was sufficient for all the legitimate purposes of government. Here he found himself in direct opposition to Mr. Clay, whose political existence was staked upon the opposite theory. Mr. Clay answered in a great speech in the Senate in February, 1832, and forgot himself in personal denunciation of Mr. Gallatin as a foreigner with European interests at heart, and of utopian ideas; for this he expressed his regret to Mr. Gallatin in an interview arranged by mutual friends at a much later period. Mr. Gallatin's views were accepted as the policy of the country, and after some s.h.i.+fting of parties, in which friends and foes changed ground in subordination to other political exigencies, they prevailed in the tariff of 1846, the best arranged and most reasonable which the United States has yet seen.

It is certain that Mr. Gallatin was opposed to "protective" revenue. His preference was for an "even" duty on all imports. This is not the place for an economic discussion. The true policy of the United States is probably between the extremes of protection and free trade. The nature of our population has been changed by the enormous immigration of the last fifty years. Moreover, instead of an absolute freedom from debt the nation has had to endure the legacy of debt left by the Civil War, to meet which a development of all its resources of manufacture as well as of agriculture is required.

_Administration_

To arrive at a correct estimate of Mr. Gallatin's administration of the Treasury Department, a cursory review of the establishment as he received it from the hands of Mr. Wolcott is necessary. This review is confined to administration in its limited sense, namely, the direction of its clerical management under the provisions of statute law. The organization of the department as originated by Hamilton and established by the act of September 2, 1789, provided for a secretary of the treasury as head of the department, whose general duty should be to supervise the fiscal affairs of the country, and particularly to suggest and prepare plans for the improvement and support of the public credit; and, under his direction and supervision, a comptroller to adjust and preserve accounts; an auditor to receive, examine, and rectify accounts; a treasurer to receive, keep, and disburse moneys on warrants signed and countersigned; a register to keep the accounts of receipts and expenditures; and an a.s.sistant to the secretary of the treasury to fill any vacancy from absence or other temporary cause. In addition to the departments of State, Treasury, and War, a fourth, that of the Navy, was established April 30, 1798. The three departments were brought into relation with that of the Treasury by an act pa.s.sed July 16, 1798, supplementary to that organizing the Treasury, and which provided, 1st, for the appointment of an accountant in each department, who was required to report to the accounting officer of the Treasury; 2d, that the Treasurer of the United States should only disburse by warrants on the Treasury, countersigned by the accountant of the Treasury; 3d, that all purchases for supplies for military or naval service should be subject to the inspection and revision of the officers of the Treasury.

Mr. Jefferson, after his usual fas.h.i.+on of economy in the wrong direction, proposed to Mr. Gallatin "to amalgamate the comptroller and auditor into one, and reduce the register to a clerk of accounts: so that the organization should consist, as it should at first, of a keeper of money, a keeper of accounts, and the head of the department." But in the Treasury Department there was no extravagance during Gallatin's administration, and the s.h.i.+fting of responsibility would bring no saving of salaries.

In May, 1800, an act was pa.s.sed making it "the duty of the secretary of the treasury to digest, prepare, and lay before Congress at the commencement of every session a report on the subject of finances, containing estimates of the public revenue and expenditures, and plans for improving and increasing the revenue from time to time, for the purpose of giving information to Congress in adopting modes for raising the money requisite to meet the expenditures." Hamilton had never sent in any other than a statement of expenditure for the past fiscal year, together with the estimate of the accountant of the Treasury for the proximate wants of the departments of government. Mr. Gallatin incorporated in his annual report a balance sheet in accordance with the ordinary forms of book-keeping familiar to every accountant and indispensable in every business establishment, and such as is presented to the public in the monthly and annual statements of the Treasury Department at this day.

The statutes show no legislation during Mr. Gallatin's period of administration, and to its close he was in continual struggle to force upon Congress and the departments an accord with his pet plan of minute specific appropriation of the sums estimated for and expended by each.

Mr. Madison heartily agreed with Mr. Gallatin on this subject, and on taking office placed the relations of the State Department upon the desired footing. But the heads of the Army and Navy were never willing to consent to the strict limitation which Mr. Gallatin would have imposed on their expenditures. In his notes to Jefferson for the draft of his first message in 1801, Mr. Gallatin said that the most important reform he could suggest was that of 'specific appropriations,' and he inclosed an outline of a form to be enforced in detail. In January, 1802, he sent to Joseph H. Nicholson a series of inquiries to be addressed to himself by a special committee on the subject, with regard to the mode by which money was drawn from the Treasury and the situation of accounts between that department and those of the Army and Navy. To these questions he sent in to the House an elaborate reply, which he intended to be the basis of legislation. Strict appropriation was the ideal at which he aimed, and this word was so often on his tongue or in his messages that it could not be mentioned without a suggestion of his personality. He carried the same nicety of detail into his domestic life. He managed his own household expenses, and at a time when bountiful stores were the fas.h.i.+on in every household he insisted on a rigid observance of the more precise French system. He made an appropriation of a certain sum each day for his expenses, and required from his purveyor a strict daily account of disburs.e.m.e.nts. An amusing story is told of him at his own table. On an occasion when entertaining a company at dinner, he was dissatisfied with the menu and expressed his disapprobation to his maitre d'hotel, a Frenchman, who replied to him in broken English, that it was not his fault, but that of the "mal-appropriations."

The example set by Mr. Gallatin in this particular was never forgotten, and from his day to this strict accountability has been the tradition of the Treasury Department, now greatly increased in detail, but in structure essentially as it was originally organized. Of its management Mr. Sherman was able to say in his report of December 1, 1879, "The organization of the several bureaus is such, and the system of accounting so perfect, that the financial transactions of the government during the past two years, aggregating $3,354,345,040, have been adjusted without question with the exception of a few small balances, now in the process of collection, of which it is believed that the government will eventually lose less than $13,000, or less than four mills for each $1000 of the amount involved;" and in 1880 he said with entire truth, "The department is a well organized and well conducted business office, depending mainly for its success upon the integrity and fidelity of the heads of bureaus and chiefs of divisions."

_Banking_

There is no more instructive chapter in the history of finance than that upon the banking system of the United States. It has its distinct eras of radical change, each of which presents a series of tentative experiments. The outcome, by a process of development, in which political expediency has been as effective an agency as financial necessity, is the present national banking system. Though the term "government," or "national," bank is constantly used in reference to the great banking inst.i.tutions of England, France, and the United States, no one of these is in the true sense of the word a national bank. The Bank of England is a chartered corporation, the Bank of France an a.s.sociation inst.i.tuted by law. The Bank of North America, and the Bank of the United States which followed it, were founded on the same principle. Both were corporations of individuals intimately connected with the government, enjoying certain privileges accorded and being under certain restrictions, but otherwise independent of government control.

The Bank of North America, the first bank established in the United States, was also the first which had any direct relation to the government. It was the conception of the comprehensive and original mind of Robert Morris, the financier or superintendent of the public finances of the United States. Its purpose was not the convenience or profit of individuals, but to draw together the scattered financial resources of the country and found a public credit. He submitted his plan to Congress, which adopted a resolution of approval May 26, 1781. The original plan contemplated a capital of ten millions of dollars; but the collection of such a sum in gold and silver in one depository was beyond the range of possibility at that period, and the capital was finally fixed at four hundred thousand dollars, in one thousand shares of four hundred dollars each. Subscription books were immediately opened, but not more than $70,000 was entered during the summer months. The arrival at Boston of a French war frigate with a remittance of $470,000 in specie, which was brought to Philadelphia and deposited in the vaults of the bank, enabled Mr. Morris to mature his plans. He designed to retain this sum in the bank as a specie basis; but the necessities of the country were so urgent during the critical season of the Yorktown campaign, that nearly one half of it was exhausted before an organization could be effected. In December Congress pa.s.sed an ordinance of incorporation. Mr. Morris then subscribed the specie remaining in the Treasury, about $254,000, for shares for account of the United States, which became thereby the princ.i.p.al stockholder. The limit a.s.signed by the ordinance remained, however, at ten millions of dollars. There was nothing in the acts of Congress which implied any exclusive right of the United States government in the bank except during the war of the Revolution. A local charter was obtained from the legislature of Pennsylvania, and the bank was opened in Philadelphia for the transaction of business in January, 1782. Its services to the government during the period of the war were inestimable. In the words of Hamilton, "American independence owes much to it." But after the war such were the local jealousies, the fears of oppression, and the dread of foreign influence, that, on the pet.i.tion of the inhabitants of Philadelphia and some of the neighboring counties, the legislature of Pennsylvania repealed its charter on September 13, 1785. The bank continued its operations, however, under the charter from Congress. On March 17, 1787, the legislature of Pennsylvania renewed the charter for fourteen years and limited the capital to two millions of dollars. The charter was extended for a similar term of fourteen years on March 26, 1799. Thus in the beginning of the American banking system are found that distrust and jealousy of money power which seem inherent in democracies. The exercise of state jurisdiction over the existence of the Bank of North America suggested possible embarra.s.sments, which could not escape the discernment of Hamilton, whose policy, as it was also that of the Federal party, was to strengthen the powers of the government in every vital branch of administration.

In his comprehensive plan of government Hamilton included a financial inst.i.tution to develop the national resources, strengthen the public credit, aid the Treasury Department in its administration, and provide a secure and sound circulating medium for the people. On December 13, 1790, he sent in to Congress a report on the subject of a national bank.

The Republican party, then in the minority, opposed the plan as unconst.i.tutional, on the ground that the power of creating banks or any corporate body had not been expressly delegated to Congress, and was therefore not possessed by it. Was.h.i.+ngton's cabinet was divided; Jefferson opposing the measure as not within the implied powers, because it was an expediency and not a paramount necessity. Later he used stronger language, and denounced the inst.i.tution as "one of the most deadly hostility existing against the principles and form of our Const.i.tution," nor did he ever abandon these views. There is the authority of Mr. Gallatin for saying that Jefferson "died a decided enemy to our banking system generally, and specially to a bank of the United States." But Hamilton's views prevailed. Was.h.i.+ngton, who in the weary years of war had seen the imperative necessity of some national organization of the finances, after mature deliberation approved the plan, and on February 25, 1791, the Bank of the United States was incorporated. The capital stock was limited to twenty-five thousand shares of four hundred dollars each, or ten millions of dollars, payable one fourth in gold and silver, and three fourths in public securities bearing an interest of six and three per cent. The stock was immediately subscribed for, the government taking five thousand shares, two millions of dollars, under the right reserved in the charter. The subscription of the United States was paid in ten equal annual installments. A large proportion of the stock was held abroad, and the shares soon rose above par. By an act of March 2, 1791, the funded three per cents. were also made receivable in payment of subscriptions to the bank, whence it has been said that out of the funding system sprung the bank, as three fourths of its capital consisted of public stocks. Authority was given the bank to establish offices of discount and deposit within the United States. The chief bank was placed in Philadelphia, and branches were established in eight cities, with capitals in proportion to their commercial importance.