The statutes show no legislation during Mr. Gallatin's period of administration, and to its close he was in continual struggle to force upon Congress and the departments an accord with his pet plan of minute specific appropriation of the sums estimated for and expended by each. Mr. Madison heartily agreed with Mr. Gallatin on this subject, and on taking office placed the relations of the State Department upon the desired footing. But the heads of the Army and Navy were never willing to consent to the strict limitation which Mr. Gallatin would have imposed on their expenditures. In his notes to Jefferson for the draft of his first message in 1801, Mr. Gallatin said that the most important reform he could suggest was that of 'specific appropriations,' and he inclosed an outline of a form to be enforced in detail. In January, 1802, he sent to Joseph H. Nicholson a series of inquiries to be addressed to himself by a special committee on the subject, with regard to the mode by which money was drawn from the Treasury and the situation of accounts between that department and those of the Army and Navy. To these questions he sent in to the House an elaborate reply, which he intended to be the basis of legislation. Strict appropriation was the ideal at which he aimed, and this word was so often on his tongue or in his messages that it could not be mentioned without a suggestion of his personality. He carried the same nicety of detail into his domestic life. He managed his own household expenses, and at a time when bountiful stores were the fashion in every household he insisted on a rigid observance of the more precise French system. He made an appropriation of a certain sum each day for his expenses, and required from his purveyor a strict daily account of disbursements. An amusing story is told of him at his own table. On an occasion when entertaining a company at dinner, he was dissatisfied with the menu and expressed his disapprobation to his maître d'hôtel, a Frenchman, who replied to him in broken English, that it was not his fault, but that of the “mal-appropriations.”
The example set by Mr. Gallatin in this particular was never forgotten, and from his day to this strict accountability has been the tradition of the Treasury Department, now greatly increased in detail, but in structure essentially as it was originally organized. Of its management Mr. Sherman was able to say in his report of December 1, 1879, "The organization of the several bureaus is such, and the system of accounting so perfect, that the financial transactions of the government during the past two years, aggregating $3,354,345,040, have been adjusted without question with the exception of a few small balances, now in the process of collection, of which it is believed that the government will eventually lose less than $13,000, or less than four mills for each $1000 of the amount involved;" and in 1880 he said with entire truth, “The department is a well organized and well conducted business office, depending mainly for its success upon the integrity and fidelity of the heads of bureaus and chiefs of divisions.”
Banking
There is no more instructive chapter in the history of finance than that upon the banking system of the United States. It has its distinct eras of radical change, each of which presents a series of tentative experiments. The outcome, by a process of development, in which political expediency has been as effective an agency as financial necessity, is the present national banking system. Though the term “government,” or “national,” bank is constantly used in reference to the great banking institutions of England, France, and the United States, no one of these is in the true sense of the word a national bank. The Bank of England is a chartered corporation, the Bank of France an association instituted by law. The Bank of North America, and the Bank of the United States which followed it, were founded on the same principle. Both were corporations of individuals intimately connected with the government, enjoying certain privileges accorded and being under certain restrictions, but otherwise independent of government control.
The Bank of North America, the first bank established in the United States, was also the first which had any direct relation to the government. It was the conception of the comprehensive and original mind of Robert Morris, the financier or superintendent of the public finances of the United States. Its purpose was not the convenience or profit of individuals, but to draw together the scattered financial resources of the country and found a public credit. He submitted his plan to Congress, which adopted a resolution of approval May 26, 1781. The original plan contemplated a capital of ten millions of dollars; but the collection of such a sum in gold and silver in one depository was beyond the range of possibility at that period, and the capital was finally fixed at four hundred thousand dollars, in one thousand shares of four hundred dollars each. Subscription books were immediately opened, but not more than $70,000 was entered during the summer months. The arrival at Boston of a French war frigate with a remittance of $470,000 in specie, which was brought to Philadelphia and deposited in the vaults of the bank, enabled Mr. Morris to mature his plans. He designed to retain this sum in the bank as a specie basis; but the necessities of the country were so urgent during the critical season of the Yorktown campaign, that nearly one half of it was exhausted before an organization could be effected. In December Congress passed an ordinance of incorporation. Mr. Morris then subscribed the specie remaining in the Treasury, about $254,000, for shares for account of the United States, which became thereby the principal stockholder. The limit assigned by the ordinance remained, however, at ten millions of dollars. There was nothing in the acts of Congress which implied any exclusive right of the United States government in the bank except during the war of the Revolution. A local charter was obtained from the legislature of Pennsylvania, and the bank was opened in Philadelphia for the transaction of business in January, 1782. Its services to the government during the period of the war were inestimable. In the words of Hamilton, “American independence owes much to it.” But after the war such were the local jealousies, the fears of oppression, and the dread of foreign influence, that, on the petition of the inhabitants of Philadelphia and some of the neighboring counties, the legislature of Pennsylvania repealed its charter on September 13, 1785. The bank continued its operations, however, under the charter from Congress. On March 17, 1787, the legislature of Pennsylvania renewed the charter for fourteen years and limited the capital to two millions of dollars. The charter was extended for a similar term of fourteen years on March 26, 1799. Thus in the beginning of the American banking system are found that distrust and jealousy of money power which seem inherent in democracies. The exercise of state jurisdiction over the existence of the Bank of North America suggested possible embarrassments, which could not escape the discernment of Hamilton, whose policy, as it was also that of the Federal party, was to strengthen the powers of the government in every vital branch of administration.
In his comprehensive plan of government Hamilton included a financial institution to develop the national resources, strengthen the public credit, aid the Treasury Department in its administration, and provide a secure and sound circulating medium for the people. On December 13, 1790, he sent in to Congress a report on the subject of a national bank. The Republican party, then in the minority, opposed the plan as unconstitutional, on the ground that the power of creating banks or any corporate body had not been expressly delegated to Congress, and was therefore not possessed by it. Washington's cabinet was divided; Jefferson opposing the measure as not within the implied powers, because it was an expediency and not a paramount necessity. Later he used stronger language, and denounced the institution as “one of the most deadly hostility existing against the principles and form of our Constitution,” nor did he ever abandon these views. There is the authority of Mr. Gallatin for saying that Jefferson “died a decided enemy to our banking system generally, and specially to a bank of the United States.” But Hamilton's views prevailed. Washington, who in the weary years of war had seen the imperative necessity of some national organization of the finances, after mature deliberation approved the plan, and on February 25, 1791, the Bank of the United States was incorporated. The capital stock was limited to twenty-five thousand shares of four hundred dollars each, or ten millions of dollars, payable one fourth in gold and silver, and three fourths in public securities bearing an interest of six and three per cent. The stock was immediately subscribed for, the government taking five thousand shares, two millions of dollars, under the right reserved in the charter. The subscription of the United States was paid in ten equal annual installments. A large proportion of the stock was held abroad, and the shares soon rose above par. By an act of March 2, 1791, the funded three per cents. were also made receivable in payment of subscriptions to the bank, whence it has been said that out of the funding system sprung the bank, as three fourths of its capital consisted of public stocks. Authority was given the bank to establish offices of discount and deposit within the United States. The chief bank was placed in Philadelphia, and branches were established in eight cities, with capitals in proportion to their commercial importance.
In 1809 the stockholders of the Bank of the United States memorialized the government for a renewal of their charter, which would expire on March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in which he reviewed the operations of the bank from its organization. Of the government shares, five million dollars at par, two thousand four hundred and ninety-three shares were sold in 1796 and 1797 at an advance of 25 per cent., two hundred and eighty-seven in 1797 at an advance of 20 per cent., and the remaining 2220 shares in 1802, at an advance of 45 per cent., making together, exclusive of the dividends, a profit of $671,680 to the United States. Eighteen thousand shares of the bank stock were held abroad, and seven thousand shares, or a little more than one fourth part of the capital, in the United States. A table of all the dividends made by the bank showed that they had on the average been at the rate of 8-3/8 (precisely 8-13/34) per cent. a year, which proved that the bank had not in any considerable degree used the public deposits for the purpose of extending its discounts. From a general view of the debits and credits, as presented, it appeared that the affairs of the Bank of the United States, considered as a moneyed institution, had been wisely and skillfully managed. The advantages derived by the government Mr. Gallatin stated to be, 1, safekeeping of the public moneys; 2, transmission of the public moneys; 3, collection of the revenue; 4, loans. The strongest objection to the renewal of the charter lay in the great portion of the bank stock held by foreigners. Not on account of any influence over the institution, since they had no vote; but because of the high rate of interest payable by America to foreign countries. If the charter were not renewed the principal of that portion, amounting to $7,200,000, must at once be remitted abroad; but if the charter were renewed, dividends equal to an interest of about 8-1/2 per cent. per annum must be remitted. Mr. Gallatin's report closed with the following suggestions:—
I. That the bank should pay an interest to the United States on the public deposits above a certain sum.
II. That it should be bound to lend the United States a sum not exceeding three fifths of its capital.