Inquiry Into the Origin and Course of Political Parties in the United States

by Martin Van Buren

These observations afford evidence of the wounded spirit under which he was acting, and also of the strong sense he entertained of the influence which a necessity for taxation is calculated to exert upon the minds of a legislature anxious for the redemption of a public debt. Do they not further explain the motive for the array of taxes that would be required to carry into effect the Resolution of 1792, in favor of making provision for the redemption of the funded debt, contained in his report upon that resolution?

When speaking of now resorting to the old practice of anticipating revenues, that is, by making provision for the payment of both principal and interest, in the departure from which practice the English Funding System had its birth, he says:—

"This would be at the same time an antidote against what may be pronounced the most plausible objections to the system of funding public debts; which are, that, by facilitating the means of supporting expense they encourage to enterprises which produce it, and by furnishing in credit a substitute for revenue, likely to be too freely used to avoid the odium of laying new taxes, they occasion a tendency to run in debt. Though these objections to funding systems—which, giving the greatest possible energy to public credit, are a great source of national security, strength, and prosperity—are very similar to those which speculative men urge against national and individual opulence, drawn from its abuses; and though perhaps, upon a careful analysis of facts, they would be found to have much less support in them than is imagined, attributing to those systems effects which are to be ascribed, more truly, to the passions of men and perhaps to the genius of particular governments; yet, as they are not wholly unfounded, it is desirable to guard, as far as possible, against the dangers which they suppose, without renouncing the advantages which these systems undoubtedly afford."

When we find him thus dallying with a pet system on the eve of its abandonment, thus filling a paper designed to prepare the way for that result with his reasons for deprecating it, who can suppose that its impending fate was of his own suggestion, or doubt that he looked to its restoration under more favorable auspices?

The Secretary very naturally endeavors in this paper to place the provisions now recommended in respect to the Sinking Fund upon the same footing with those contained in his first Report upon public credit, conformably to which his funding system was established. Without the slightest desire to assail or to weaken any of his attempts to rest his acts on the most favorable ground consistent with truth, it is yet due to the memories of the patriotic men who by their fearless and persevering efforts succeeded in discrediting that dangerous system, and finally in causing it to be discontinued from the operations of our Government, that the circumstances under which they acted should not be misrepresented. The difference between the provisions of the Sinking Fund first and now adopted was great indeed. The grant of the funds to the first, to say nothing of their insufficiency, lacked the essential quality of being irrevocable, but was left subject to the action of Congress. There was therefore no reason to think that more might be expected from the Sinking Fund here than had been realized in England, where it had not only been found entirely ineffectual even in time of peace, but the funds vested in the Commissioners had on more than one occasion been used as a basis for new loans. But now, when the business of redemption was entered upon in earnest, that matter was placed upon a very different footing. The funds were not only more ample, but they were vested in the Commissioners as an irrevocable trust, and the faith of the Government was pledged that its execution should not be interfered with. As widely different were the dispositions of the Government and the sentiments of its principal supporters. On the former occasion the proposals submitted to Congress by the head of the Treasury Department, and most trusted officer of the Government, were to fund the entire debt of the United States upon the following terms, viz: 1st. That the whole principal should be forever irredeemable at the option of the United States; 2d. That they should not even reserve to themselves a right to pay more than two dollars upon a hundred of the principal, however full their coffers, and however great their convenience to pay; and, that no obstacle might be wanting to the redemption of that pittance, he proposed further to assume and fund in the same way twenty-five millions of the debts of the States which the Federal Government was under no obligations to pay and was not asked to assume. This policy was entered upon in the face of the fact that the debt of England, under a similar system, had, in eighty years, increased from some five millions to two hundred and seventy-six millions of pounds sterling, and was still increasing.

After these propositions had been substantially adopted by Congress and sustained by the Government, Hamilton, having the entire direction of its affairs, and knowing the spirit and firmness with which those who disapproved of his schemes always maintained their views of the public interest, had no right to complain of, and ought not to have been surprised at, the opposition he encountered from them, under the weight of which his Funding System, in respect to the future action of the Government in the management of its finances, soon became a dead letter, no further thought of than to get rid of the debts that had been contracted under it, with the intent to return to the old mode of anticipating revenue, that of direct loans payable at or after specific periods, principal as well as interest; the only way by which, as Adam Smith had demonstrated, a nation could avoid a permanent and ruinous public debt,—a view of the subject which came too late for England, but was, happily, in season for us. Though the Government had, by the Act of March 3d, 1795, passed to carry into effect the improved views of Washington, placed the management of our finances upon a better footing, no progress was made in the reduction of the public debt; but the act doubtless accomplished much in restraining its increase. It was not an easy thing to keep down the public debt under an administration which, like that of Mr. Adams, in pursuance of the express advice of Hamilton to Wolcott, paid upon its loans an annual interest of eight per cent., the highest that had then ever been paid except by England to her bank upon the loan obtained from it on its first establishment.

Upon Jefferson's accession to power he denounced a public debt, in his message to Congress, as a "moral canker," and invoked the aid of the legislature for its extinction at the earliest practicable period. The Committee of Ways and Means, with John Randolph at its head (his brightest period of public usefulness), entered upon the subject "con amore." They called upon the Secretary of the Treasury for a thorough exposition of the state of the public debt, and for his opinion in regard to the best mode of dealing with it. Mr. Gallatin's reply, which may be found in the publication of American State Papers,—title "Finance," Vol. I.,—gave a full statement of the then condition of the debt, and pointed out the defects through which the Act of March 3, 1795, had been rendered inadequate to the accomplishment of all the objects for which it was designed. I will refer to but one of them, which consisted in its limiting the appropriation for the redemption of the public debt, beyond that which had been funded, to "surpluses which shall remain at the end of every calendar year, and which, during the session of Congress next thereafter, shall not be otherwise specially appropriated or reserved by law." Our experience of the action of Congress has been too full to make it necessary to speak of the extreme improbability of any considerable surpluses being left by that body acting under no more specific restraint than that which is here provided, and upon examination of the books of the treasury it was found that so far from there having been any such surpluses from the establishment of the present Government in 1789 till the close of the year 1799, the appropriations charged upon the revenue by Congress had exceeded, by nearly a million of dollars, the whole amount of such revenue, whether collected or outstanding.

To remedy results so unfavorable to the accomplishment of the object in view, the Secretary advised specific appropriations of such sums as, upon a fair estimate of the wants and resources of the country, ought in the opinion of Congress to be applied to the payment of the public debt, and to make such appropriations irrevocable and their application mandatory on the Commissioners of the Sinking Fund. The committee adopted the suggestion with alacrity as one which, in addition to securing the early performance of a sacred duty, could not in their opinion fail to induce economy on the part of Congress in its disposition of the public funds. They therefore reported a bill, which became a law, appropriating annually to the Sinking Fund seven millions three hundred thousand dollars for the payment of the public debt. This sum was increased to eight millions in consequence of the purchase of Louisiana. During the administration of Mr. Madison the annual appropriation was increased to ten millions, besides an additional appropriation of nine millions, and one of four millions if the Secretary of the Treasury should deem it expedient; and all of these appropriations were made irrevocable and compulsory as respected the action of the Commissioners of the Sinking Fund.

The consequences of this change in the action of the Government upon the subject of the public debt and of this liberality of appropriations under Democratic administrations, were the discharge of thirty-three millions of the principal of the debt, besides the payment of interest on the whole, during the Presidency of Mr. Jefferson, and its final extinguishment under President Jackson, notwithstanding the intervention of a war with England commenced at a period of the greatest financial embarrassment.

I have been induced to take so extended a notice of this matter as well by the circumstance, to which I have before referred, that it presented a leading subject of party divisions in this country, as because of the influence which it and its adjuncts the Bank of the United States and the Protective System have exerted upon our politics. It has been seen that the Funding System, however, preceded the bank in its establishment, and it became also an "obsolete idea" many years before the latter was declared to be such by its most devoted advocate and reckless supporter, Daniel Webster. That the bank did not share that fate at a much earlier period was because Henry Clay and John C. Calhoun, both disciples of the old Republican school,—the former one of the ablest among the opponents of the revival of the bank in 1811,—tempted by the political allurements of the day in 1815, advocated the establishment of a new bank, and because that pure man and patriot, James Madison, under mistaken impressions in respect to the absolute necessity of such an institution, gave his assent to its incorporation.