Deeply as these two subjects interested him, his permanent and peculiar task was a different one. To Mr. Gallatin finance was an instinct. He knew well, as Mr. Hamilton had equally clearly understood before him, that the heart of the government was the Treasury; like many another man of high financial reputation, he had little talent for money-making, and never was, or cared to be, rich; but he had one great advantage over most Americans of his time, even over Mr. Hamilton and Mr. Jefferson; he was an economist as well as a statesman; he was exact not merely in the details but in the morality of affairs; he held debt in horror; punctilious exactness in avoiding debt was his final axiom in finance; the discharge of debt was his first principle in statesmanship; searching and rigid economy was his invariable demand whether in or out of office, and he made this demand imperative upon himself as upon others.
Mr. Hamilton, to whom the organization of the financial system was due, and who left public life just as Gallatin began his Congressional career, had belonged to a different school and had acted on different principles. Adhering more or less closely to the English financial and economical theories then in vogue, he had intentionally constructed a somewhat elaborate fabric, of which a considerable national debt was the foundation. Had Mr. Hamilton foreseen in 1790 the course public affairs would take during the next ten years, he would perhaps have modified his plan and would have guarded more carefully against overloading the Treasury; but at that moment it was not unreasonable to suppose that what the country wanted was centralization, and that a national debt was one means of consolidating divergent local interests. Mr. Hamilton, therefore, accepted as much debt as he thought the country could reasonably bear, and allowed the rest to be expunged. In forming this debt he had at least in one respect permitted an unnecessary and very mischievous addition to be made to the acknowledged and existing national burden. In order to settle the accounts between the States, he had permitted Congress—perhaps forced Congress—to assume a large proportion of the State debts. The balance to be adjusted by payment of the debtor to the creditor States was ultimately ascertained to be a little more than $8,000,000. To settle this account as nearly as it was settled in fact, required an assumption of State debts to the amount of $11,609,000; but, instead of waiting for a settlement of accounts, Congress had, in 1790, voted to assume a certain amount of State debts at once and to charge each State in the ultimate settlement with the amount assumed on her account. A sum of over $18,000,000 was thus funded, and so much debt transferred from the States to the national government. In addition to this sum a further amount of about $3,500,000 was funded in order to get rid of the balances in favor of the creditor States. Altogether, including back interest from 1790 to 1795, a debt of $22,500,000 was imposed on the new government, where half that sum would have answered the purpose, and of this about $2,000,000 was actually new debt, created for the occasion.
The entire amount of the national debt when fairly funded was about $78,000,000. Had no political complications in its foreign relations embarrassed the government, this burden might have been easily carried in spite of Indian wars and even in spite of the whiskey rebellion, though these troubles steadily tended to increase the sum. The annual charge was in 1796 nearly $4,000,000, but after the year 1800 an additional charge of $1,100,000 on deferred stock was to be provided for by taxation, and this future addition to the annual charge hung over the government during all these years as a perpetual anxiety. The population of the country in 1791 was not quite 4,000,000 souls, of whom 700,000 were slaves. The expenditures, including the charge on the debt, amounted in 1796 to about $7,000,000 a year, and the receipts nearly balanced the expenditures. Considering the poverty of the country, taxation was high; so high as to make any increase dangerous. Thus the new government was not in a condition to hazard experiments, and needed five or ten years of careful management in order to give the country time for expansion.
In the middle of this state of affairs, while the Treasury was wrestling with the problems of Indian wars and domestic revolt, came the ominous signs of foreign aggression. War was thought to be imminent, either with France or England, from 1795 to 1800, and the government was in great straits to provide for it. The time now came when the Federalists would probably have been delighted to recover the ten millions which had been unnecessarily assumed, and the theory of a national debt must have taken a different aspect in their eyes. Mr. Hamilton had not calculated on this emergency; his system had rested on the assumption that the old situation was to be permanent. The question was forced upon the country whether it should increase its debt or neglect its defences.
Here was the point where the theories of Mr. Hamilton and of Mr. Gallatin sharply diverged. The Federalists in a body demanded an army and navy, with an indefinite increase of debt. Mr. Gallatin and his party demanded that both army and navy should be postponed until they could be created without increase of debt. The question as a matter of statesmanship was extremely difficult. In a country like America any really efficient defence, either by land or sea, was out of the question except at an appalling cost, yet to be quite defenceless was to tempt aggression. Deeper feelings, too, were involved in the dispute. An army and a navy might be used for domestic as well as foreign purposes; to use the words of Fisher Ames in private consultation with the Secretary of the Treasury in 1800, when the situation was most critical: “a few thousand, or even a few hundred, regular troops, well officered, would give the first advantages to government in every contest;”[33] and this idea was always foremost in the minds of the extreme Federalists as it was among the extreme Republicans. To crush democracy by force was the ultimate resource of Hamilton. To crush that force was the determined intention of Jefferson.
Mr. Gallatin’s policy was early, openly, and vigorously avowed and persistently maintained. In this session of 1795-96, when appropriations for finishing three frigates were demanded, he said in a few words what he continued to say to the end of his service: “I am sensible that an opinion of our strength will operate to a certain degree on other nations; but I think a real addition of strength will go farther in defending us than mere opinion. If the sums to be expended to build and maintain the frigates were applied to paying a part of our national debt, the payment would make us more respectable in the eyes of foreign nations than all the frigates we can build. To spend money unnecessarily at present will diminish our future resources, and instead of enabling us will perhaps render it more difficult for us to build a navy some years hence.” “Perhaps I may be asked if we are then to be left without protection. I think there are means of protection which arise from our peculiar situation, and that we ought not to borrow institutions from other nations, for which we are not fit. If our commerce has increased, notwithstanding its want of protection; if we have a greater number of seamen than any other nation except England, this, I think, points out the way in which commerce ought to be protected. The fact is, that our only mode of warfare against European nations at sea is by putting our seamen on board privateers and covering the sea with them; these would annoy their trade and distress them more than any other mode of defence we can adopt.”[34]
Yet government has to deal with beings ruled not only by reason but by feeling, and its success depends on the degree to which it can satisfy or at least compromise between the double standard of criticism. Mr. Gallatin habitually made too little allowance for the force and complexity of human passions and instincts. Self-contained and self-reliant himself, and, like most close reasoners, distrustful of everything that had a mere feeling for its justification, he held government down to an exact observance of rules that made no allowance for national pride. The three frigates whose construction he so pertinaciously resisted were the Constitution, the Constellation, and the United States. The time came, after Mr. Gallatin and his party had for nearly twelve years carried out their own theories with almost absolute power, when the American people, bankrupt and disgraced on land, turned with a frenzy of enthusiasm towards the three flags which these frigates were carrying on the ocean, and, with little regard to party differences, would have seen the national debt and no small part of the national life expunged rather than have parted with the glories of these ships; when the broadsides of the Constitution and United States, to use the words of George Canning in the British Parliament, “produced a sensation in England scarcely to be equalled by the most violent convulsion of nature;” and when Mr. Gallatin himself, exhausting every resource of diplomacy in half the courts of Europe, found that his country had no national dignity abroad except what these frigates had conquered.
Notwithstanding all this, and with every motive to recognize in the fullest extent the honors won by the American navy, the cool and candid decision of history should be that Mr. Gallatin was essentially in the right. A few years of care and economy were alone necessary in order to secure the certainty of national power, and that power would be so safe in its isolation as to be able to dispense with great armies and navies. The real injury suffered by Great Britain in the war of 1812 was not in the loss of half a dozen vessels of war out of her eight hundred in commission, but in the ravages of our privateers on her commercial marine. As a matter of fact the United States have continued to act on Mr. Gallatin’s theory; government has never pretended to protect the national commerce by a powerful navy; no navy, not even that of Great Britain, could protect it in case of war. That commerce has continued to flourish without such protection. Every one concedes that it would be the wildest folly even now, with forty millions of people and a continent to protect, for America to establish a proportionate navy. Every smatterer in finance knows that, inefficient as the existing navy is, hundreds of millions have been uselessly expended upon it. There could be no more instructive thesis proposed to future Secretaries of the Treasury than to ask themselves on entering into office, “What would Mr. Gallatin wish to do with the navy were he now in my place?”
But opposition to a navy was only a detail in Mr. Gallatin’s theory of American finance, and his plans extended over a far wider range than could be comprehended within the limits of one or many speeches. The debate on the British treaty had, no doubt, won him a large share of attention, but the essentials of power in a deliberative body are only to be secured by labor and activity and by mastery of the business in hand. Mr. Gallatin knew perfectly well what was to be done, and lost no time in acting. Before the House had been ten days in session, on the 17th December, 1795, he brought forward a resolution for the appointment of “a committee to superintend the general operations of finance. No subject,” said he, “more requires a system, and great advantages will be derived from it.” This is the origin of the standing Committee of Ways and Means, the want of which hitherto he ascribed, it seems, to Mr. Hamilton’s jealousy of legislative supervision. On the 21st December the resolution was adopted and a committee of fourteen appointed, Mr. William Smith, of South Carolina, being chairman, supported by Theodore Sedgwick, Madison, Gallatin, and other important members of the House.
The British treaty consumed most of this session, and until that question was settled the regular business was much neglected; but Mr. Gallatin did not wait till then in order to begin his attack. As early as April 12, 1796, a somewhat warm debate arose in the House on the subject of the debt, and he undertook, with an elaborate comparison of receipts and expenditures, to analyze the financial situation and to show that the revenue was steadily running behindhand. The true situation of the government was a point not altogether easy to ascertain. One of several English ideas adopted by Mr. Hamilton from Mr. Pitt was a sinking fund apparatus. Even at that time of Mr. Pitt’s supreme authority it can hardly be conceived that any one really believed a sinking fund to be effective so long as the government’s expenditure exceeded its income; it was, however, certainly the fashion to affect a belief in its efficacy at all times, and although, if Mr. Pitt and Mr. Hamilton had been pressed on the subject, they might perhaps have agreed that a sinking fund was always expensive and never efficient except when there was a surplus, they would in the end have fallen back on the theory that it inspired confidence in ultimate payment of the debt. Their opponents would not unnaturally consider it to be a mere fraud designed to cover and conceal the true situation.