Albert Gallatin Part 9

Balance in Treasury, January 1 $2,000,000 Receipts from duties and sales of lands as by estimate of November 22, 1811 8,200,000 Loan authorized by law 11,000,000 Treasury notes as authorized by House of Representatives 5,000,000 ---------- $26,200,000

The issue of _treasury notes_ was a novel experiment in the United States; but they were favorably received, and Mr. Gallatin calculated that the full amount authorized by law, $5,000,000, could be put in circulation during the year. The result of a loan seemed more doubtful.

The old six per cents. and deferred stock had already fallen two or three per cent. below par. Mr. Gallatin again recommended the conversion of these securities into a new six per cent. stock, which would facilitate the new loan, and to prevent the necessity of applying, the same years, the large sums required in reimburs.e.m.e.nt of and purchase of the public debt.

On December 1 Mr. Gallatin made his last annual statement.

_Treasury Report for Fiscal Year ending September_ 30, 1812.

RECEIPTS.

Customs, sales of lands, etc. $10,934,946.20 On account of loan of eleven millions, act 14 March, 1812 5,847,212.50 -------------- $16,782,158.70 Balance in Treasury October 1, 1811 3,947,818.36 -------------- $20,729,977.06 ==============

DISBURs.e.m.e.nTS.

Civil Department, foreign intercourse $1,823,069.35 Army, militia, forts, etc. $7,770,300.00 Navy Department 3,107,501.54 Indian Department 230,975.00 ------------- 11,108,776.54 Interest on debt $2,498,013.19 On account of princ.i.p.al 2,938,465.99 ------------- 5,436,479.18 -------------- $18,368,325.07 Leaving in Treasury 30 Sept., 1812 2,361,652.69 -------------- $20,729,977.76

The sums obtained or secured on loans during the year amounted to $13,100,209, and the secretary had the satisfaction to state "that notwithstanding the addition thus made to the public debt, and although a considerable portion has been remitted from England and brought to market in America, the public stocks (which had at first experienced a slight depression) have been for the last three months, and continue to be, at par." His last report to the commissioners of the sinking fund of February 5, 1813, stated the usual application of $8,719,773 to the princ.i.p.al and interest of the debt.

In his report of December 1, 1812, Mr. Gallatin announced that a loan of twenty-one millions was needed for the service of 1813. Congress authorized a loan of $16,000,000, having six years to run, and an additional issue of $5,000,000 of treasury notes. Congress adjourned on March 4. Their procrastination and the pressing demands of the War Department nearly beggared the Treasury before the loans could be negotiated and covered into it.

On April 17 Mr. Gallatin wrote to the secretaries of the army and of the navy, and sent a copy of his letters to Mr. Madison with information that the loan had been filled, and the probable receipts of the Treasury from ordinary sources for the year ascertained. These he estimated at $9,300,000. Deducting the annual appropriation for interest on the debt, the sum expended to March 31, and the amount needed for the civil service, there remained for the War and Navy Departments together the sum of $18,720,000.

The loan of $16,000,000 was obtained in the following places:--

States east of New York $486,700 State of New York 5,720,000 Philadelphia, Pa. 6,858,400 Baltimore and District of Columbia 2,393,300 State of Virginia 187,000 Charleston, S. C. 354,000 ----------- $16,000,000

The history of this subscription is not without interest. The extremely small subscriptions in New England and in the Southern States can hardly be explained on any other theory than that of a belief in the collapse of the finances of the United States and a dissolution of the Union, for which the New England States had certainly been prepared by their governing minds.[14]

Books were opened on March 12 and 13, 1813, at Portsmouth, Salem, Boston, Providence, New York, Albany, Philadelphia, Baltimore, Was.h.i.+ngton, Richmond, and Charleston. In the two days the subscriptions only reached the sum of $3,956,400. They were again opened on the 25th of March at New York, Philadelphia, Baltimore, and Was.h.i.+ngton. The New England and Southern States seem to have been disregarded because of their indifference in the first instance. The books remained open from March 25 to 31, during which time there were received $1,881,800, a total of $5,838,200.

The pressure fell on the Middle States. In these, fortunately for the government, there were three great capitalists whose faith in the future prosperity of the United States was unimpaired. All were foreigners: David Parish and Stephen Girard in Philadelphia and John Jacob Astor in New York. These now came forward, no doubt at the instance of Mr.

Gallatin, who was a personal friend of each. Parish and Girard offered on April 5 to take eight millions of the loan at the rate of eighty-eight dollars for a certificate of one hundred dollars bearing interest at six per cent., redeemable before December 31, 1825, they to receive one quarter of one per cent. commission on the amount accepted, and in case of a further loan for the service of the year 1813, to be placed on an equal footing with its takers. John Jacob Astor on the same day and at the same place proposed to take for himself and his friends the sum of two million and fifty-six thousand dollars of the loan on the same conditions. These offers were accepted and the loan was complete.

An offer on behalf of the State of Pennsylvania to take one million of the loan was received too late. Altogether the offers amounted to about eighteen millions, or two millions more than the sum demanded. Mr.

Gallatin, clinging to his old plan, endeavored to negotiate this loan at par, by offering a premium of a thirteen years' annuity of one per cent., but found it impracticable. Indeed, the system of annuity, general in England, has never found favor as an investment in the United States.

This was Mr. Gallatin's last financial transaction. A few weeks later, at his own request, he severed his actual connection with the Treasury Department and was on his way to St. Petersburg to secure the proffered mediation of the emperor of Russia between the United States and Great Britain.

Thus ended Mr. Gallatin's administration of the national finances. The hour for saving had pa.s.sed. The imperious necessities of war take no heed of economic principles. The work which the secretary had done became as the rope of sand. It is not surprising that Gallatin wearied of his post; that he watched with vain regret and unavailing sighs the unavoidable increase of the national debt, and that he sought relief in other services where success was not so evanescent as in the Treasury Department. Before the close of Madison's administration, February 12, 1816, the public debt had run up to over one hundred and twenty-three millions,[15] and a sum equal to the entire amount of Mr. Gallatin's savings in two terms had been expended in one. But his work had not been in vain. The war was the crucial test of the soundness of his financial policy. The maxims which he announced, that debt can only be reduced by a surplus of revenue over expenditure, and the accompaniment of every loan by an appropriation for its extinguishment, became the fundamental principle of American finance. Mr. Gallatin was uniformly supported in it by Congress and public opinion. It was faithfully adhered to by his distinguished successors, Dallas and Crawford, and the impulse thus given continued through later administrations, until, in 1837, twenty years after the peace, the entire debt had been extinguished. All this without any other variation from Mr. Gallatin's original plan than an increase of the annual appropriation, to the sinking fund for its reimburs.e.m.e.nt, from eight to ten millions.[16]

The only charge which has ever been made against Gallatin's administration was, that he reduced the debt at the expense of the defenses and security of the country; but, to quote the words of one of his biographers:[17] "Mr. Gallatin had the sagacity to know that it [the redemption of the debt] would make but little difference in the degree of preparation of national defense and means of contest, for which it is impossible ever to obtain a considerable appropriation before the near approach of the danger that may render them necessary. He knew that the money thus well and wisely devoted to the payment of the debt was only rescued from a thousand purposes of extravagance and mal-application to which all our legislative bodies are so p.r.o.ne whenever they have control of surplus funds." In our own day the irresistible temptations of a full treasury need no labored demonstration. Friend and foe drop political differences over the abundant fleshpot. The very thought of catering to such appet.i.tes disgusted Gallatin. To Jefferson he frankly said, in 1809, that while he did not pretend to step out of his own sphere and to control the internal management of other departments, yet he could not "consent to act the part of a mere financier, to become a contriver of taxes, a dealer of loans, a seeker of resources for the purpose of supporting useless baubles, of increasing the number of idle and dissipated members of the community, of fattening contractors, pursers, and agents, and of introducing in all its ramifications that system of patronage, corruption, and rottenness which you justly execrate."

RECEIPTS AND EXPENDITURES DURING MADISON'S ADMINISTRATION, FROM ELLIOTT'S SYNOPTICAL EXHIBITS.

RECEIPTS.

------------+----------------+---------------+----------------+ Four Years | Customs. | Internal | Direct Taxes. | Ending | | Revenue. | | Dec. 31. | | | | ------------+----------------+---------------+----------------+ 1812 | $38,151,330.15 | $18,674.03 | $28,491.87 | 1816 | 62,813,212.43 | 11,470,507.24 | 8,639,611.38 | |----------------+---------------+----------------+ Madison | 100,964,542.58 | 11,489,181.27 | 8,668,103.25 | ------------+----------------+---------------+----------------+ ----------------+----------------+-------------------+----------------+ Postage. | Public Lands. | Loans and | Dividends | | | Treasury Notes. | Sales of | | | | Bank Stock. | ----------------+----------------+-------------------+----------------+ $85,077.40 | $2,889,466.46 | $15,606,201.30 | - | 364,787.84 | 4,977,570.54 | 94,321,103.73 | - | ----------------+----------------+-------------------+----------------+ 449,865.24 | 7,867,037.00 | 109,927,305.03 | - | ----------------+----------------+-------------------+----------------+

----------------+---------------- Miscellaneous. | Total.

| | ----------------+---------------- $209,309.34 | $56,988,550.55 630,248.16 | 183,217,041.32 ----------------+---------------- 839,557.50 | 240,205,591.87 ----------------+----------------

EXPENDITURES.

-----------+-----------------+---------------+----------------+ Four Years | Civil List. | Foreign | Miscellaneous. | Ending | | Intercourse. | | Dec. 31. | | | | -----------+-----------------+---------------+----------------+ 1812 | $2,887,197.98 | $860,281.28 | $1,619,849.12 | 1816 | 3,768,342.61 | 1,042,633.42 | 5,015,100.92 | |-----------------+---------------+----------------+ Madison | 6,655,540.59 | 1,902,914.70 | 6,634,950.04 | -----------+-----------------+---------------+----------------+

----------------+----------------+-------------------+----------------+ Military Dept. | Pensions. | Indian Dept. | Naval Dept. | | | | | | | | | ----------------+----------------+-------------------+----------------+ $19,480,722.54 | $338,023.68 | $944,848.84 | $10,006,934.54 | 70,809,210.90 | 435,614.48 | 1,140,015.30 | 26,326,169.25 | ----------------+----------------+-------------------+----------------+ 90,289,933.44 | 773,638.16 | 2,084,864.14 | 36,333,103.79 | ----------------+----------------+-------------------+----------------+

----------------+---------------- Public Debt. | Total.

| | ----------------+---------------- $26,920,285.12 | $63,058,143.10 56,508,652.66 | 165,045,739.54 ----------------+---------------- 83,428,937.78 | 228,103,882.64 ----------------+----------------

_Revenue_

_L'etat c'est moi_ was the autocratic maxim of Louis Quatorze. An adherence to it cost the Bourbons their throne. Burke was more philosophical when he said, "The revenue of the State is the State." Its imposition, its collection, and its application involve all the principles and all the powers of government, const.i.tutional or extraordinary. It is the sole foundation of public credit, the sole support of the body politic, its life-blood in peace, its nerve in war.

The "purse and the sword" are respectively the resource and defense of government and peoples, and they are interdependent powers. With the discovery of the sources of revenue, and the establishment of its currents, Mr. Gallatin, in the first eight years of his administration of the Treasury, had nothing to do. He had only to maintain those systems which Hamilton had devised, and which, wisely adapted to the growth of the country, proved amply adequate to the ordinary expenditures of the government and to the gradual extinguishment of the debt. The entire revenue included three distinct branches: imposts on importations and tonnage, internal revenue, sales of public lands. The duties on imports of foreign merchandise were alone sufficient to meet the current expenses of the various departments of administration on a peace establishment, and, increasing with the growth of the country, would prove ample in future. The gross amount of imports in the four years of Adams's administration, 1796-1800, was about three hundred and fourteen millions of dollars, and the customs yielded about thirty millions.

Mr. Gallatin's first annual report, submitted to the House of Representatives in December, 1801, exhibited his financial scheme. He recapitulated the various sources of permanent revenue. They were those of Hamilton's original tariff.

The revenues for the year ended September 30, 1801, were the basis of the estimates for future years. These were

Duties on imports and tonnage $10,126,213.92 Internal revenue 854,000.00 Land sales 400,000.00 -------------- $11,380,213.92

But the close of the war in Europe sensibly diminished the enormous carrying trade which fell to the United States as neutrals, and, as a consequence, the revenue from that source; large quant.i.ties of goods were brought into the United States and reexported to foreign ports under a system of debenture. The revenue on what Mr. Gallatin calls "this accidental commerce" was $1,200,000. He therefore _estimated the permanent revenues at_

Customs duties $9,500,000 Land sales 400,000 Postage 50,000 Internal revenue 650,000 ----------- $10,600,000

Or, without the internal revenue, say ten millions of permanent revenue, as a basis for _the permanent expenditures_.

To bring the expenditures within this sum, however, a reduction in the army and navy establishments was necessary. This Gallatin soon found to be too radical a measure for success, either in the cabinet or Congress, however well it may have accorded with Jefferson's utopian views. In the budget of 1802 the internal revenue, $650,000, was, therefore, a necessary item. The expenditures proposed were

Annual appropriation for interest and princ.i.p.al of debt $7,100,000 Civil list $780,000 Foreign intercourse 200,000 Military and Indian Dept 1,420,000 Naval 1,100,000 ----------- $3,500,000 3,500,000 ----------- $10,600,000

In this budget the estimate for the military establishment was an increase over that of Wolcott for 1801, which was $1,120,000. But the Republicans in the House were not content with this arrangement. The internal revenues were utterly distasteful to them. They had been laid against their protest and collected under military menace. They were of those Federal measures of which they would have none. John Randolph, chairman of the Committee of Ways and Means, reported, March 2, 1802, against the entire system of internal duties, in the old words of the Pennsylvania radicals, as vexatious, oppressive, and peculiarly obnoxious; as of the nature of an excise which is hostile to the genius of a free people, and finally because of their tendency to multiply offices and increase the patronage of the executive. The repeal was imperative upon the Republican party. On April 6, 1802, the act was repealed and the surplus of the budget stripped from it, without Mr.

Gallatin's consent, certainly, but also without protest from him.

The prosperity of the country continued. The impost duties for the fiscal year ending September 30, 1802, rose to $12,280,000, the sales of the public lands to $326,000, and the postage to $50,500, a total of $12,656,500, and left in the Treasury, September 30, 1802, the sum of $4,539,675. This large increase in the Treasury did not in the least change Mr. Gallatin's general plan, and his budget for 1803 was based on his original scale of a permanent revenue of $10,000,000, to correspond with which the estimates of the preceding year were reduced. The fiscal year closed September 30, 1803, with a balance in the Treasury of $5,860,000. This situation of the finances was fortunate in view of secret negotiations which the President and Congress were initiating for the purchase of Louisiana from France.

The secretaries of war and of the navy had promised to reduce their expenditures to a figure approximate to Mr. Gallatin's estimates; but the breaking out of hostilities with Tripoli prevented the proposed economy, and Mr. Gallatin was called upon to provide for an increased expenditure with one certain source of revenue definitively closed. He therefore proposed an additional tax of two and one half per cent. on all importations which paid an _ad valorem_ duty. This additional impost, laid by act of March 25, 1804, called the Mediterranean Fund, remained in force long after the war closed and held its place on the books of the Treasury under that name.

The bulk of the cost of Louisiana was met by an issue of bonds; but Mr.

Gallatin, true to his principle, applied the moneys in the Treasury as far as they would go. The budget for 1805 was on a different scale. The increase in the debt demanded a proportionate increase in the revenue to meet the additional sum required for interest and gradual annual reimburs.e.m.e.nt. The Mediterranean Fund was sufficient to meet the increased amounts required for the navy. In this manner he held up the Navy Department to a strict accountability and made it responsible to Congress and not to the cabinet for its administration, and he thus, from his own point of view, relieved the Treasury Department from any responsibility for extraordinary expenditure.

Mr. Gallatin closed his four years of administration with flying colors.

The successful management of the finances was an important factor in the election of 1804, which returned Mr. Jefferson to the presidential chair and insured to the country the inestimable advantages of Mr. Gallatin's practical mind. Order reigned in his department at least, and order subordinate to the strictest requirements of law. In the four years, 1801-1804, Jefferson's first term, the imports aggregated $337,363,510 and the customs yielded $45,000,000.

The annual report, made December 9, 1805, announced an increasing revenue, amounting in all to thirteen and one half millions of dollars, chiefly from customs. Still Mr. Gallatin made but small addition to his estimates for the coming year. The permanent revenue he raised to twelve and one half millions and increased the appropriation for the payment of the debt and interest to eight millions. Nothing occurred during the next year to check the growth of the country; the revenue continued on a rising scale, and reached close upon fifteen millions of dollars.

So far Mr. Gallatin had met but inconsiderable obstacles in his course, and these he used to his advantage to impress economy upon the Army and Navy Departments, and enforce his principle of minute appropriations for their government. All that he had already accomplished in the establishment of a sound financial system and the support of the credit of the United States was but the basis of a broader structure of national economy. His extensive scheme of internal improvements was hardly matured when the thunder broke in the clear sky.