Congress on hearing this financial statement regarded the situation as desperate. “Tell Dr. Madison,” Senator Lacock was reported[354] to have said to the President’s private secretary, “that we are now willing to submit to his Philadelphia lawyer for head of the Treasury. The public patient is so very sick that we must swallow anything, however nauseous.” Dallas was nominated October 5, and confirmed the next day without opposition, as Secretary of the Treasury. No stronger proof could have been given of the helplessness of Congress, for Dallas was a man who under no other circumstances could have obtained a ray of popular favor.

Dallas’s character was high, his abilities undoubted, his experience large; but for ten years he had been one of the least popular men in Pennsylvania, the target of newspaper abuse and the champion of political independence. The people reasonably required that their leaders should more or less resemble some popular type, and if the result was monotonous the fault was in the society, not in its politics or its politicians; but Dallas was like no ordinary type in any people. His tone of intellectual and social superiority, his powdered hair, old-fashioned dress and refined manners, his free habits of expense, and the insubordination even more than the vivacity of his temper irritated the prejudices of his party.[355] He had little respect for Presidents, and none for Congress. For Jefferson and Virginia doctrines he felt distrust, which was returned. Earnest in temper and emphatic in tone, even to the point of tears and tropical excitability, Dallas came to Washington as though to lead a forlorn hope,—caring little for parties and less for ambition, but bent upon restoring to the government the powers that his friend Gallatin, too easily as he thought, had allowed to slip from its grasp.

The difficulties of the Treasury when Dallas took charge of it were not easily exaggerated. His own description,[356] given some six weeks afterward, made no disguise of them. “The Treasury,” he said, “was suffering under every kind of embarrassment. The demands upon it were great in amount, while the means to satisfy them were comparatively small, precarious in collection, and difficult in their application.... The means consisted, first, of the fragment of an authority to borrow money when nobody was disposed to lend, and to issue Treasury notes which none but necessitous creditors or contractors in distress ... seemed willing to accept;” second, of bank-credits, chiefly in the South and West, rendered largely useless by the suspension of specie payments; third, of the current receipts of taxes, also useless because paid chiefly in Treasury notes. The Treasury was bankrupt. The formal stoppage of payments in interest on the debt was announced, November 9, by an official letter from the secretary, notifying holders of government securities in Boston that the Treasury could not meet its obligations, and that “the government was unable to avert or to control this course of events.”[357] After that date the Treasury made no further pretence of solvency.

From this situation the government could be rescued only by a great effort; and obviously the currency must be first restored, for until some system of exchange could be established, every increase of taxation would merely increase unavailable bank deposits. Fifty millions of Southern bank-notes, locked in the vaults of Southern banks, would not pay the over-due interest on government bonds at Boston.

To this subject every one turned, but the schemes that seemed to have a chance of adoption were only two. The first came from President Jefferson, and was strongly pressed by the South. As Jefferson explained it, the plan seemed as simple as his plans were apt to be; he proposed to issue twenty millions in promissory notes every year as long as might be necessary. “Our experience,” he told the President,[358] “has proved it

Obviously the insuperable obstacle to this plan was the paper money of the State banks, which already stood at discounts varying from ten to fifty per cent in specie, and in any large quantity could not be discounted at all. Until private paper should be abolished, public or government paper could not be brought into common use. Jefferson’s views on this, as on the whole subject, were interesting.

“The banks have discontinued themselves,” he explained.[359] “We are now without any medium; and necessity, as well as patriotism and confidence, will make us all eager to receive Treasury notes if founded on specific taxes. Congress may now borrow of the public, and without interest, all the money they may want, to the amount of a competent circulation, by merely issuing their own promissory notes of proper denominations for the larger purposes of circulation, but not for the small. Leave that door open for the entrance of metallic money.... The State legislatures should be immediately urged to relinquish the right of establishing banks of discount. Most of them will comply on patriotic principles, under the convictions of the moment; and the non-complying may be crowded into concurrence by legitimate devices.”

Instead of “banks of discount,” Jefferson probably meant to say banks of issue, although the Virginia school was hostile to all banks, and possibly he wished to destroy the whole system. If the scheme were adopted, twenty million dollars in paper money would not supply the wants of the Treasury, which required at least fifty millions within a year. The resource was limited, even if the States could be compelled to stop the issue of private notes,—which was extremely doubtful in the temper of Massachusetts and with the leanings of Chief-Justice Marshall. Jefferson did not touch upon legal tender; but the assumption of power implied in the issue of paper money seemed to require that the government should exercise the right of obliging its creditors to accept it. The actual interest-bearing Treasury notes stood then at a discount of about twenty per cent. The proposed paper money could hardly circulate at a better rate, and coin was not to be obtained. Under such conditions the notes must be a forced currency if they were to circulate at all.

The scheme was reported to the House by the Committee of Ways and Means through its chairman, John W. Eppes, Jefferson’s son-in-law.[360] For the report Eppes was alone responsible, and the plan in his hands varied in some points from that of Jefferson. Starting from the admitted premise that loans were not to be obtained, and that money could not be transferred from one point to another in any existing medium at the disposition of government, Eppes proposed to issue Treasury notes “in sums sufficiently small for the ordinary purposes of society,” which were not to be made payable on demand in coin, but might at any time be exchanged for eight per cent bonds, and were to be received “in all payments for public lands and taxes.” Nothing was said of legal tender, or of driving bank-notes from circulation; but Eppes proposed to double the taxes at one stroke.

Eppes’s scheme lost the advantages of Jefferson’s without gaining any of its own. It abandoned the hope of abolishing bank paper; and in want of such a restraint on private issues, the proposed government paper would merely add one more element of confusion to the chaos already existing. Eppes further altered Jefferson’s plan by adding some ten millions instead of two millions to the burden of taxation; but even Jefferson protested that this part of the scheme was impracticable.