Albert Gallatin
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 reimbursement of the principal of the new debt.... If
the national revenue exceeds the national expenditure, a simple
appropriation for the payment of the principal 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.
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 reimbursement 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
==============
DISBURSEMENTS.
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 principal 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
principal 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,
Washington, 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 Washington. 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 passed. 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