Albert Gallatin
on account of the principal 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 passed.
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 anticipated, 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 assumed 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 substitute
could have been anticipated. 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 shibboleth to declare in and out of
season, to be unconstitutional. 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 passed 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 passed, 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 passage 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.
* * * * *
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 entitled
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 passed 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
townships. The sales under Adams's administrations were trifling, the