Albert Gallatin
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
reimbursement. 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.
The acquisition of Louisiana, the large carrying trade which had passed
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 passed 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 mass 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 passage of the act
until the date when it took effect. To aid merchants in this peculiar
condition of affairs an act was passed 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, canals, rivers, education, and other great
foundations of prosperity and union under the powers which Congress may
already possess or such amendments of the Constitution 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 disbursements 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 statesmanship 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 compass, 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
accumulated 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