Albert Gallatin

by John Austin Stevens

The public debt on January 1, 1783, was $42,000,375, of which $7,885,088 was foreign, bearing four and five per cent. interest; and $34,115,290 was held at home at six per cent. The total amount of interest was $2,415,956. No means were provided for the payment of either principal or interest. In July of the previous year Morris urged the wisdom of funding the public debt, in a masterly letter to the president of Congress. On December 16 a sinking fund was provided for by a resolution, which, though inadequate to the purpose, was at least a declaration of principle. In February, 1784, Morris notified Congress of his intended retirement from office. He may justly be termed the father of the American system of finance. In his administration he inflexibly maintained the determination, with which he assumed the office, to apply the public funds to the purpose to which they were appropriated. He declared that he would “neither pay the interest of our debts out of the moneys which are called for to carry on the war, nor pay the expenses of the war from the funds which are called for to pay the interest of our debts.” One new feature of Morris's administration was the beginning of the sale of public lands.

On the retirement of Mr. Morris, November, 1784, a new board of treasury was charged with the administration of the finances, and continued in control until September 30, 1788, when a committee, raised to examine into the affairs of the department, rendered a pitiful report of mismanagement for which the board had not the excuse of their predecessors during the war. They had only to observe the precepts which Morris had enunciated, and to follow the methods he had prescribed, with the aid of the assistants he had trained. But the taxes collected had not been covered into the Treasury by the receivers. Large sums advanced for secret service were not accounted for; and the entire system of responsibility had been disregarded. John Adams attributed all the distresses at this period to “a downright ignorance of the nature of coin, credit and circulation;” an ignorance not yet dispelled. More truly could he have said that our distresses arose from willful neglect of the principle of accountability in the public service.

The first Congress under the new Constitution met at New York on March 4, 1789, but it was not until the autumn that the executive administration of the government was organized by the creation of the three departments: State, Treasury, and War.

The bill establishing the Treasury Department passed Congress on September 2, 1789. Hamilton was appointed secretary by Washington on September 11. On September 21 the House directed the secretary to examine into and report a financial plan. On the assembling of Congress, June 14, 1790, Hamilton communicated to the House his first report, known as that on public credit. The boldness of Hamilton's plan startled and divided the country. Funding resolutions were introduced into the House. The first, relating to the foreign debt, passed unanimously; the second, providing for the liquidation of the domestic obligations, was sharply debated, but in the end Hamilton's scheme was adopted. The resolutions providing for the assumption of the state debts, which he embodied in his report, aroused an opposition still more formidable, and it was not until August 4 that by political machinery this part of his plan received the assent of Congress. To provide for the interest on the debt and the expenses of the government, the import and navigation duties were raised to yield the utmost revenue available; but, in the temper of Congress, the excise law was not pressed at this session. The secretary had securely laid the foundations of his policy. Time and sheer necessity would compel the completion of his work in essential accord with his original design. The President's message at the opening of the winter session added greatly to the prestige of Hamilton's policy by calling attention to the great prosperity of the country and the remarkable rise in public credit. The excise law, modified to apply to distilled spirits, passed the House in January. The principle of a direct tax was admitted. On December 14, 1790, in obedience to an order of the House requiring the secretary to report further provision for the public credit, Hamilton communicated his plans for a national bank. Next in order came the establishment of a national mint. Thus in two sessions of Congress, and in the space of little more than a year from the time when he took charge of the Treasury, Hamilton conceived and carried to successful conclusion an entire scheme of finance.

One more measure in the comprehensive system of public credit crowned the solid structure of which the funding of the debt was the cornerstone. This was the establishment of the sinking fund for the redemption of the debt. Hamilton conformed his plan to the maxim, which, to use his words, “has been supposed capable of giving immortality to credit, namely, that with the creation of debts should be incorporated the means of extinguishment, which are twofold. 1st. The establishing, at the time of contracting a debt, funds for the reimbursement of the principal, as well as for the payment of interest within a determinate period. 2d. The making it a part of the contract, that the fund so established shall be inviolably applied to the object.” The ingenuity and skill with which this master of financial science managed the Treasury Department for more than five years need no word of comment. Nor do they fall within the scope of this outline of the features of his policy. His reports are the textbook of American political economy. Whoever would grasp its principles must seek them in this limpid source, and study the methods he applied to revenue and loans. Well might Webster say of him in lofty praise, “He smote the rock of national resources, and abundant streams of revenue gushed forth; he touched the dead corpse of Public Credit, and it sprung upon its feet.”

On the resignation of Hamilton, January 31, 1795, Washington invited Wolcott, who was familiar with the views of Hamilton and on such intimate terms with him that he could always have his advice in any difficult emergency, to take the post. Wolcott had been connected with the department from its organization, first as auditor, afterwards as comptroller of the Treasury. He held the Treasury until nearly the end of Adams's administration. On November 8, 1800, upon the open breach between Mr. Adams and the Hamilton wing of the Federal party, Wolcott, whose sympathies were wholly with his old chief, tendered his resignation, to take effect at the close of the year. On December 31 Mr. Samuel Dexter was appointed to administer the department. But the days of the Federal party were now numbered: it fell of its own dissensions, “wounded in the house of its friends.”

There is little in the administration of the finances by Wolcott to attract comment. He managed the details of the department with integrity and skill. On his retirement a committee of the House on the condition of the Treasury was appointed. No similar examination had been made since May 22, 1794. On January 28, 1801, Mr. Otis, chairman of the committee, submitted the results of the investigation in an unanimous report that the business of the Treasury Department had been conducted with regularity, fidelity, and a regard to economy; that the disbursements of money had always been made pursuant to law, and generally that the financial concerns of the country had been left by the late secretary in a state of good order and prosperity. During his six years of administration of the finances Wolcott negotiated six loans, amounting in all to $2,820,000. The emergencies were extraordinary,—the expenses of the suppression of the Whiskey Insurrection in 1794, and the sum required to effect a treaty of peace with Algiers in 1795. To fund these sums Mr. Wolcott had recourse to an expedient which marked an era in American finance. This was the creation of new stock, subscribed for at home. No loan had been previously placed by the government among its own citizens. Between 1795 and 1798, four and a half, five, and six per cent. stocks were created. In 1798 the condition of the country was embarrassing. There was a threatening prospect of war. Foreign loans were precarious and improvident; the market rate of interest was eight per cent. Under these circumstances an eight per cent. stock was created, not redeemable until 1809. An Act of March 3, 1795, provided for vesting in the sinking fund the surplus revenues of each year.

In the formation of the first Republican cabinet Mr. Gallatin was obviously Mr. Jefferson's first choice for the Treasury. The appointment was nevertheless attended with some difficulties of a political and party nature. The paramount importance of the department was a legacy of Hamilton's genius. Its possession was the Federalist stronghold, and the Senate, which held the confirming power, was still controlled by a Federalist majority. To them Mr. Gallatin was more obnoxious than any other of the Republican leaders. In the few days that he held a seat in the Senate (1793) he offended Hamilton, and aroused the hostility of the friends of the secretary by a call for information as to the condition of the Treasury. As member of Congress in 1796 he questioned Hamilton's policy, and during Adams's entire administration was a perpetual thorn in the sides of Hamilton's successors in the department. The day after his election, February 18, 1801, Mr. Jefferson communicated to Mr. Gallatin the names of the gentlemen he had already determined upon for his cabinet, and tendered him the Treasury. The only alternative was Madison; but he, with all his reputation as a statesman and party leader, was without skill as a financier, and in the debate on the Funding Bill in 1790 had shown his ignorance in the impracticability of his plans. If Jefferson ever entertained the thought of nominating Madison to the Treasury, political necessity absolutely forbade it. That necessity Mr. Gallatin, by his persistent assaults on the financial policy of the Federalists, had himself created, and he alone of the Republican leaders was competent to carry out the reforms in the administration of the government, and to contrive the consequent reduction in revenue and taxation, which were cardinal points of Republican policy. Public opinion had assigned Gallatin to the post, and the newspapers announced his nomination before Mr. Jefferson was elected, and before he had given any indication of his purpose. To his wife Mr. Gallatin expressed some doubt whether his abilities were equal to the office, and whether the Senate would confirm him, and said, certainly with sincerity, 'that he would not be sorry nor hurt in his feelings if his nomination should be rejected, for exclusively of the immense responsibility, labor, etc., attached to the intended office, another plan which would be much more agreeable to him and to her had been suggested, not by his political friends, but by his New York friends.' He was by no means comfortable in his finances, and he had already formed a plan of studying law and removing to New York. He had made up his mind to leave the western country, which would necessarily end his congressional career. His wife was forlorn in his absence, and suffered so many hardships in her isolated residence that he felt no reluctance to the change. To one of his wife's family he wrote at this time:—

“As a political situation, the place of secretary of the treasury is doubtless more eligible and congenial to my habits; but it is more laborious and responsible than any other, and the same industry which will be necessary to fulfill its duties, applied to another object, would at the end of two years have left me in the possession of a profession which I might have exercised either in Philadelphia or New York. But our plans are all liable to uncertainty, and I must now cheerfully undertake that which had never been the object of my ambition or wishes.”

Well might he hesitate as he witnessed the distress which had overtaken the great party which for twelve years had held the posts of political honor. Fortunately, perhaps for himself and certainly for his party and the country, the proposition came at a time when he had definitively determined upon a change of career. His situation was difficult. The hostility of the Federal senators, and the great exertions which were being made to defeat the appointment, led him to the opinion that, if presented on March 4, it would be rejected. There was the alternative of delay until after that date, which would involve a postponement of the confirmation until the meeting of Congress in December, but there was no certainty that it would then be ratified. Meanwhile he would be compelled to remove to Washington at some sacrifice and expense. He therefore at first positively refused “to come in on any terms but a confirmation by the Senate first given.” He was finally induced to comply with the general wish of his political friends. The appointment was withheld by the President that the feeling in the Senate might be judged from its action on the rest of the nominations submitted. They were all approved, and Mr. Dexter consented to hold over until his successor should be appointed. Thus Mr. Gallatin's convenience was entirely consulted. He remained in Washington a few days to confer with the President as to the general conduct of the administration, and on March 14 set out for Fayette to put his affairs in order and to bring his wife and family to Washington. On May 14 Jefferson wrote to Macon, “The arrival of Mr. Gallatin yesterday completed the organization of our administration.”