He calculated that the annual application of $7,200,000 to the payment of interest and principal would pay off about thirty-eight millions of the debt in eight years, and, fixing this as his standard, he proposed to make the other departments content themselves with whatever they could get as the difference between $7,200,000 and the revenue estimated at $9,800,000. On these terms alone he would consent to part with the internal revenue, which produced about $650,000.

This, however, seems to have been beyond his power. Few finance ministers have ever pressed their economies with more perseverance or authority than Mr. Gallatin, but he never succeeded in carrying on the government with so much frugality as this, and the sketch seems to indicate what the Administration would have liked to do, rather than what it did. The report of the Secretary of the Treasury a month later shows that he had been obliged to modify his plan. As officially announced, it was as follows:

Revenue. Expenditure.
Impost,$9,500,000 Interest, &c.,$7,100,000
Lands and postage,45,000 Civil expend.,980,000
$9,950,000 Military “1,420,000
Internal revenue,650,000 Naval “1,100,000
Total,$10,600,000 $10,600,000

The problem of repealing the internal taxes was therefore not yet settled, and it is not very clear on the face of the estimates how it would be possible to effect this object. Mr. Gallatin expected to do it by economies in the military and naval establishments by which he should save the necessary $650,000. It is worth while to look forward over his administration and to see how far this expectation was justified, in order to understand precisely what his methods were.

His first step, as already noticed, was to fix the rate at which the debt should be discharged. This rate was ultimately represented by an annual appropriation of $7,300,000, which at the end of eight years, according to his first report, would pay off $32,289,000, and leave $45,592,000 of the national debt, and within the year 1817 would extinguish that debt entirely. This sum of $7,300,000 was therefore to be set aside out of the revenue as the permanent provision for paying the principal and interest of the debt.

Of the residue of income, which, without the internal taxes, was estimated at about $2,700,000, the civil expenditure was to require one million, the army and navy the remainder. But the tables of actual expenditure show a very different result:

Civil.Military.Naval.Total.
1802$1,462,928$1,358,988$915,561$3,737,477
18031,841,634944,9571,215,2304,001,821
18042,191,0081,072,0151,189,8324,452,855
18053,768,597991,1351,597,5006,357,232
18062,890,1361,540,4201,649,6416,080,197
18071,697,8961,564,6101,722,0644,984,570
18081,423,2833,196,9851,884,0676,504,335
18091,195,8033,761,1082,427,7587,384,669
18101,101,1442,555,6921,654,2445,311,080
18111,367,2902,259,7461,965,5665,592,602
Total.$18,939,719$19,245,656$16,221,463$54,406,838

From these figures it appears that Mr. Gallatin’s proposed economies were never realized, and that his results must have been attained by other means. The average expenditure on the navy during these ten years was $1,600,000 a year. Instead of establishments costing $2,700,000, the average annual expenditure reached $5,400,000, or precisely double the amount named. As a matter of fact, notwithstanding the frugality of Mr. Gallatin and the complaints of parsimony made by the Federalists, it is difficult to see how Mr. Jefferson’s Administration was in essentials more economical than its predecessors, and this seems to have been Mr. Gallatin’s own opinion at least so far as concerned the Navy Department. On the 18th January, 1803, he wrote a long letter to Mr. Jefferson on the navy estimates, closing with a strong remonstrance: “I cannot discover any approach towards reform in that department, and I hope that you will pardon my stating my opinion on that subject when you recollect with what zeal and perseverance I opposed for a number of years, whilst in Congress, similar loose demands for money. My opinions on that subject have been confirmed since you have called me in the Administration, and although I am sensible that in the opinion of many wise and good men my ideas of expenditure are considered as too contracted, I feel a strong confidence that on this particular point I am right.” Again, on the 20th May, 1805, he renewed his complaint: “It is proper that I should state that the War Department has assisted us in that respect [economy] much better than the Navy Department.... As I know that there was an equal wish in both departments to aid in this juncture, it must be concluded either that the War is better organized than the Navy Department, or that naval business cannot be conducted on reasonable terms. Whatever the cause may be, I dare predict that whilst that state of things continues we will have no navy nor shall progress towards having one. As a citizen of the United States it is an event that I will not deprecate, but I think it due to the credit of your Administration that, after so much has been expended on that account, you should leave an increase of, rather than an impaired fleet. On this subject, the expense of the navy greater than the object seemed to require, and a merely nominal accountability, I have, for the sake of preserving perfect harmony in your councils, however grating to my feelings, been almost uniformly silent, and I beg that you will ascribe what I now say to a sense of duty and to the grateful attachment I feel for you.”

Nevertheless, the internal duties were abolished as one of the first acts of Mr. Jefferson’s Administration, and at the same time Congress adopted Mr. Gallatin’s scheme of regulating the discharge of the public debt. The truth appears to be that the repeal of these taxes was a party necessity, and that under the pressure of that necessity both the Secretary of War and the Secretary of the Navy were induced to lower their estimates to a point at which Mr. Gallatin would consent to part with the tax. Mr. Gallatin never did officially recommend the repeal. This measure was founded on a report of John Randolph for the Committee of Ways and Means, and Mr. Randolph’s recommendation rested on letters of the War and Navy Secretaries promising an economy of $600,000 in their combined departments. These economies never could be effected. The resource which for the time carried Mr. Gallatin successfully over his difficulties was simply the fact that he had taken the precaution to estimate the revenue very low, and that there was uniformly a considerable excess in the receipts over the previous estimate; but even this good fortune was not enough to save Mr. Gallatin’s plan from failure. The war with Tripoli had already begun, and further economies in the navy were out of the question. Government attempted for two years to persevere in its scheme, but it soon became evident that, even with the increased production of the import duties, the expense of that war could not be met without recovering the income sacrificed by the repeal of the internal taxes in 1802. Accordingly an addition of 2½ per cent, was imposed on all imported articles which paid duty ad valorem. The result of the whole transaction, therefore, amounted only to a shifting of the mode of collection, or, in other words, instead of raising a million dollars from whiskey, stamps, &c., the million was raised on articles of foreign produce or manufacture. This extra tax was called the Mediterranean Fund, and was supposed to be a temporary resource for the Tripolitan war.