The government must look abroad, concluded the editor, and in Europe no light could be seen. By 1842 our state debts, mostly held there, had amounted to nearly $200,000,000. Mississippi, Michigan, Arkansas and Florida sank in the mire of repudiation. Pennsylvania, Maryland, Indiana, Illinois and Louisiana became delinquent. The bonds of South Carolina fell below par. Missouri passed a stay law. Sidney Smith, when he met a Pennsylvanian at dinner, felt like dividing the man’s raiment among the British guests, most of whom, if not all, had probably suffered by the “dishonor” of the state. Indeed, the bondholders were disposed to throw off half of the interest rate, if our national treasury would assume the debts; but a proposition to do this failed in Congress.[8]

As early as 1841 even our six per cent national bonds would not sell in Europe, though money commanded less than half as large a return there. “Who will lend on American securities?” asked the London Spectator the very month we began war upon Mexico. Our credit then grew worse instead of better. The war bill precipitated a panic in Wall Street, and soon business in the west and south was described as prostrate. Bad as such a financial outlook was in itself, too, it involved a consequent ill. Evidently the administration would have to pinch; and, as Madame de Sévigné once remarked, “There is nothing so expensive as want of money.”[8]

The Democrats, however, were committed against the protective tariff of 1842, now in force, and Polk as a party man felt that something must be done about it. Walker no doubt shared this opinion; and, having gained immense prestige in the south by his brilliant advocacy of the annexation of Texas, he very likely hoped that by now carrying into effect the fiscal ideas prevalent in that section, he might supplant Calhoun. Probably, too, he sincerely believed in these ideas. To him the existing scale of duties appeared to be the cause of the shrinking revenues; and he stated boldly that war, which had been recognized for some time as a possibility, “would create an increased necessity for reducing our present high duties in order to obtain sufficient revenue to meet increased expenditures.”[9]

NEW FISCAL LAWS

Soon after hostilities began, therefore, a tariff bill came before Congress. It was bitterly and stubbornly fought. In the Senate its defeat appeared sure; but Crittenden and Clayton, believing it could only prove a discreditable failure, had a Whig support it in order to gain party advantage at the expense of the nation, and by this unworthy trick and the casting vote of the presiding officer it passed. In company with it went a warehouse bill and the restoration of the sub-treasury system, which divorced the government from the banks, and required the treasury to accept and pay out only specie. About the first of August, 1846, this entire system became law. “Our administration seems enamoured of ruin, and woos calamity for itself,” exclaimed the Whig North American; our credit is threatened by the sub-treasury plan; our industries are deprived of protection; “while an expensive war is eating out our vitals, our revenue is to be diminished”; and a direct tax will have to be laid.[9]

The new tariff became effective on the first of December, 1846. As of course importers waited for it, a lean period preceded that event, and the heavy receipts that followed it, providing Walker with an apt retort, did not prevent the total for the year ending with June, 1847, from coming short of his estimate by more than four millions. Without waiting to acquire this unwelcome fact, however, the government found itself compelled in June, 1846, to revise at a sharp angle upward its predictions of the expenditures. Over and above their calculations of the previous December the war and navy departments now called for $23,952,904, which Polk informed Congress was “the largest amount which any state of the service” would require up to July 1, 1847. The secretary of the treasury had expected to find on July 1, 1847, a surplus (virtually that estimated for the previous year minus half a million) of at least $4,332,441, and had confidently hoped for a substantial gain in revenue; but he admitted that it was now requisite, since a working capital of four millions for the treasury and the mints had to be kept on hand, to provide $12,586,406 of additional income.[10]

The proper method of handling our war finances was, in the first place, to increase the existing taxes—not only to obtain funds promptly, but as a firm support for the nation’s credit and a basis for those temporary loans which are a wise expedient at the beginning of a war; and Walker expected the proposed tariff to answer this purpose. But the question how to raise these twelve and a half millions remained. Excise and direct taxes, the administration believed, would not be prompt enough, and would not seem to the public warranted by the circumstances. It was therefore recommended to Congress that both treasury notes and a loan should be resorted to; and on July 22, 1846, without much debate, the issue of ten millions in such obligations, to be sold at not less than par, was authorized.[11]

Treasury notes could not really serve the government’s purpose well, for they were soon to be paid, the expense of handling them fell upon the treasury, and, as they were receivable for duties, they were sure to pour into the customhouses instead of real money whenever they should be cheaper than specie. The treasury, bound by law to pay out only the latter, would then have to buy coin at the market price—presumably, as Gallatin said, with depreciated notes. These would then fall still more, and so the process appeared certain to continue.

BONDS ISSUED

But notes were the most convenient and readiest, if not the only way of quickly anticipating revenue; they were particularly suited to the nature of the government’s expenditures; they provided an easy method of transmitting the large sums that would be needed in the south on the war account; and financial critics at New York approved of them. Not all were of that opinion, however. About the middle of September the appearance of notes for half a million was announced by one journal under the heading, “Extensive Paper Money Manufactory”; but the government persisted, and by the ninth of December, 1846, nearly four millions of them were out. This with the balance—more than nine millions—handed over by the previous fiscal year, made up for the lean customs receipts of this period.[12]