Albert Gallatin

by John Austin Stevens

In the summer of 1807 war with England seemed inevitable. Gallatin had the satisfaction to report a full treasury,—the amount of specie October 7, 1807, reaching over eight and one half millions,—and an annual unappropriated surplus, which could be confidently relied upon, of at least three millions of dollars. On this subject his remarks in the light of subsequent history are of extreme interest. While refraining from any recommendations as to the application of this surplus, either to “measures of security and defense,” or to “internal improvements which, while increasing and diffusing the national wealth, will strengthen the bonds of union,” as “subjects which do not fall within the province of the Treasury Department,” he proceeds to consider the advantage of an accumulation in the Treasury. In this report he rises with easy flight far above the purely financial atmosphere into the higher plane of political economy.

“A previous accumulation of treasure in time of peace might in a great degree defray the extraordinary expenses of war and diminish the necessity of either loans or additional taxes. It would provide during periods of prosperity for those adverse events to which every nation is exposed, instead of increasing the burthens of the people at a time when they are least able to bear them, or of impairing, by anticipations, the resources of ensuing generations....

“That the revenue of the United States will in subsequent years be considerably impaired by a war neither can nor ought to be concealed. It is, on the contrary, necessary, in order to be prepared for the crisis, to take an early view of the subject, and to examine the resources which should be selected for supplying the deficiency and defraying the extraordinary expenses....

“Whether taxes should be raised to a greater amount or loans be altogether relied on for defraying the expenses of the war, is the next subject of consideration.

“Taxes are paid by the great mass of the citizens, and immediately affect almost every individual of the community. Loans are supplied by capital previously accumulated by a few individuals. In a country where the resources of individuals are not generally and materially affected by the war, it is practicable and wise to raise by taxes the greater part at least of the annual supplies. The credit of the nation may also from various circumstances be at times so far impaired as to have no resource but taxation. In both respects the situation of the United States is totally dissimilar....

“An addition to the debt is doubtless an evil, but experience having now shown with what rapid progress the revenue of the Union increases in time of peace, with what facility the debt, formerly contracted, has in a few years been reduced, a hope may confidently be entertained that all the evils of the war will be temporary and easily repaired, and that the return of peace will, without any effort, afford ample resources for reimbursing whatever may have been borrowed during the war.”

He then enumerates the several branches of revenue which might be selected to provide for the interest of war loans and to cover deficiencies. First, a considerable increase of the duties on importations; and here he says:—

“Without resorting to the example of other nations, experience has proven that this source of revenue is in the United States the most productive, the easiest to collect, and the least burthensome to the great mass of the people. 2d. Indirect taxes, however ineligible, will doubtless be cheerfully paid as war taxes, if necessary. 3d. Direct taxes are liable to a particular objection arising from unavoidable inequality produced by the general rule of the Constitution. Whatever differences may exist between the relative wealth and consequent ability of paying of the several States, still the tax must necessarily be raised in proportion to their relative population.”

The Orders in Council of November 11, 1807, avowedly adopted to compel all nations to give up their maritime trade or accept it through Great Britain, reached Washington on December 18, 1807, and were immediately replied to by the United States by an embargo act on December 22. The history of the political effect of this measure is beyond the limits of this economic study, and will be touched upon in a later chapter, but the result of its application upon the Treasury falls within this analysis of the methods of Mr. Gallatin's administration.

On December 18 Gallatin wrote Jefferson that “in every point of view, privations, sufferings, revenue, effect on the enemy, politics at home, etc.,” he preferred “war to a permanent embargo;” nevertheless he was called upon to draft the bill. The correctness of Mr. Gallatin's prevision was soon apparent. In his report of December 10, 1808, he reviewed the general effect of the measure. "The embargo has brought into and kept in the United States almost all the floating property of the nation. And whilst the depreciated value of domestic product increases the difficulty of raising a considerable revenue by internal taxes, at no former time has there been so much specie, so much redundant unemployed capital in the country." Again stating his opinion that loans should be principally relied on in case of war, he closed with the following words: “The high price of public stocks (and indeed of all species of stocks), the reduction of the public debt, the unimpaired credit of the general government, and the large amount of existing bank stock in the United States [estimated by him at forty millions of dollars], leave no doubt of the practicability of obtaining the necessary loans on reasonable terms.”