The first necessity of the new government was to lay the taxes authorized under the new Constitution for its own support, for the payment of interest, and eventually for sinking the principal of the public debt. Two days after the House organized, Madison introduced a scheme, which eventually passed into the first tariff act. On May 13, 1789, after agreeing to a duty on "looking-glasses and brushes," it was moved to lay a tax of ten dollars each on imported slaves. A Georgia member protested against the tax as intended for the benefit of Virginia, and "hoped gentlemen would have some feeling for others;" the proposition failed.
[Sidenote: Question of protection.]
Another amendment, however, raised the most important political question connected with taxation. April 9, 1789, a Pennsylvania member wished to increase the list of dutiable articles, so as "to encourage the productions of our country and to protect our infant manufactures." A South Carolina member at once objected. Two days later a petition from Baltimore manufacturers asked Congress to impose on "all foreign articles which can be made in America such duties as will give a just and decided preference to our labors." New England opposed the proposed duties because molasses, hemp, and flax were included; molasses was a "raw material" for the manufacture of rum; and hemp and flax were essential for the cordage of New England ships. Lee of Virginia moved to strike out the duty on steel, since a supply could not be furnished within the United States, and he thought it an "oppressive, though indirect, tax on agriculture."
[Sidenote: The first tariff.]
The act as passed July 4, 1789, bore the title of "An Act for the encouragement and protection of manufactures;" yet the highest ad valorem duty was fifteen per cent. To be sure, the high rates of freight at that time afforded a very large additional protection; but no general revenue act ever passed by Congress has imposed so low a scale of duties.
[Sidenote: Hamilton's scheme.]
By the time the revenue had begun to come in under this Act, Secretary Hamilton had worked out in his mind a general financial system, intended to raise the credit and to strengthen the authority of the Union. The first step was to provide a sufficient revenue to pay running expenses and interest. Finding that the first tariff produced too little revenue, in 1790 and again in 1792 it was slightly increased, at Hamilton's suggestion. The second part of his scheme was to lay an excise, an internal duty upon distilled spirits. In 1791 a tax, in its highest form but twenty-five cents a gallon, was laid on spirits distilled from foreign or domestic materials. The actual amount of revenue from this source was always small; but Hamilton expected that the people in the interior would thus become accustomed to federal officers and to federal law. The effect of the revenue Acts was quickly visible: in 1792 the annual revenue of the government had risen to $3,600,000.
77. NATIONAL AND STATE DEBTS (1789, 1790).
[Sidenote: The debt funded.]
The third part of Hamilton's scheme was to fund the national debt into one system of bonds, and to pay the interest. When he assumed control of the Treasury he found, as nearly as could be calculated, ten millions of foreign debt with about two millions of accrued interest, and twenty-nine millions of domestic debt with eleven millions of accrued interest,—a total of more than fifty-two millions. So far as there was any sale for United States securities they had fallen to about twenty-five per cent of their par value. Jan. 14, 1790, Hamilton submitted one of a series of elaborate financial reports; it called on Congress to make such provision for principal and interest as would restore confidence. By this time an opposition had begun to rise against the great secretary, and Madison proposed to inquire in each case what the holder of a certificate of debt had paid for it; he was to be reimbursed in that amount, and the balance of the principal was to be paid to the original holder. Hamilton pointed out that in order to place future loans the Treasury must assure the public that bonds would be paid in full to the person holding a legal title. Congress accepted Hamilton's view, and an act was passed by which the interest was to be promptly paid, and an annual sum to be set apart for the redemption of the principal. The securities of the United States instantly began to rise, and in 1793 they were quoted at par. The credit of the government was reestablished.