Part 6

Thus in the year 1814, the revenue derived from customs had been reduced to one fourth part (to nearly one sixth part, if compared according to the revenue accrued, or amount of importations), the tonnage employed in the foreign trade of the United States to nearly one ninth; and that of the American vessels employed in that trade, to one fourteenth part of their respective average amount during the eleven years of peace.

The small American navy did during the last war with England all and more than could have been expected. The fact was established to the satisfaction of the world and of Great Britain herself, that the navy of the United States, with a parity of force, was at least equal to that of England. But the prodigious numerical superiority of the British navy rendered it impossible for a few frigates to protect the commerce of the United States, which was accordingly almost annihilated. We have now ten ships of the line, and a proportionate number of frigates and smaller vessels. The great numerical superiority of the British navy still continues; and it cannot be doubted that, in case of war, every exertion will be made by the British Government to maintain its superiority in our seas and on our coasts. Still it is but a portion of her force that can be employed in that way, and, taking every circumstance into consideration, it may be confidently hoped that our commerce, though much lessened, will be partially protected by our navy. Although the actual diminution which will be experienced is altogether conjectural, I think that no great error is to be apprehended in estimating the revenue from customs, after the first year of the war, at about one half of its present amount; and the whole revenue from that source, from the sale of lands and all the branches of the existing income, at fourteen millions of dollars; leaving to be provided for sixty to sixty-five millions, besides the interest on loans, which, for a war of three years, may be estimated at about six millions of dollars on an average. However energetic and efficient Congress and the Executive may be, the resources and strength of the nation can be but gradually brought forth: the expenses will therefore be less during the first year, after which the whole amount will be required and will be annually wanted. In reference therefore to the second year of the war--

Assuming the total war expenses at $65,000,000 All the others at 12,000,000 ------------ In all, $77,000,000 From which deduct for existing revenue, 14,000,000 ------------ To be provided for by taxes and loans, $63,000,000 On the principle that the amount of annual taxes should be at least equal to the expenses of the peace establishment and the interest on the war loans, annual peace expenses at 27,000,000 And for interest on the loans of 1st and 2d years, viz. 1st year 25, and 2d year 45 millions at 7 per cent. 5,000,000 ------------ Together, $32,000,000 From which deduct existing revenue, 14,000,000 ------------ Leaves to be provided for by new taxes, at least $18,000,000 And by loans, 45,000,000 ------------ $63,000,000

The estimate of 5,000,000 dollars for the interest of the loans the second year after the war, is founded on the supposition that the direct and other internal taxes or duties laid for the first year, together with the existing revenue, and twenty-five millions borrowed by loans or Treasury notes, will be sufficient to defray the expense incurred prior to and during the first year of the war. The deficiency in the regular force for that year must be supplied by large drafts of militia, which will be as expensive at least as the regular soldiers whose place they will supply.

But it appears very doubtful whether such a large sum as forty-five millions can be raised annually by loans and Treasury notes. It is necessary in the first place to correct some erroneous opinions respecting the extent to which these notes may be kept in circulation, and the legitimate objects to which they may be applied.

The Treasury notes were first introduced on my suggestion, which was no new discovery, since they are a mere transcript of the Exchequer Bills of Great Britain. As these have been resorted to for more than a century, and have never become there a portion of the ordinary currency, the extent to which they may be used for other purposes is well ascertained, and bears always a certain ratio to the wealth of the country and to the revenue of the State. Whether issued to the bank as an anticipation of the revenue, or used by capitalists for short investments, the gross amount has rarely exceeded twenty millions sterling. Judging from past experience, the amount which may, in time of war, be kept in circulation at par in the United States falls far short of a proportionate sum.

The amount of Treasury Notes issued during the years 1812 and 1813 amounted to $8,930 000 Of which there had been paid including interest $4,240 000

The amount in actual circulation was less than five millions, and thus far they had been kept at par.

All the demands from the other departments had been met by the Treasury, and there were but few, if any, outstanding arrears. Nothing had as yet been collected on account of the direct tax and of the internal duties. Besides the five millions of Treasury Notes, there had been paid into the Treasury in the years 1812 and 1813, $28,740,000 on account of war loans, and $22,283,000 from the customs. The balance in the Treasury amounted to $5,196,542 on the 31st December, 1813.

The amount of Treasury Notes issued during the year 1814 amounted to near eight millions, and there had been paid off during the same year, including interest, $2,700,000; making an addition of about five millions and a half, and the total amount outstanding about ten millions and a half. The receipts during that year, on account of the direct tax and internal duties, amounted to $3,877,000, from war loans to $15,080,000, and from customs to only six millions. Before the end of the year, Government was unable to pay the notes which had become due. It is perfectly clear that, if new notes could not be issued in lieu of those which had become due, it was because they had fallen below par, and therefore that the amount outstanding was greater than the demand for them. There was but one remedy, and it was very simple. A reduction in that amount must be made, by funding at their market price a quantity sufficient to re-establish the equilibrium. But all the banks west of New England had in the meanwhile suspended their specie payments. A period of anarchy in the currency of the country was the consequence, and lasted till those payments were resumed in the year 1817.

The result of the suspension of specie payments in England was, that the notes of the Bank of England became in fact a legal tender and the standard of the currency. All the other banks were obliged to keep their own notes on a par with those of that bank; and all that was necessary in order to prevent a depreciation, was to regulate the issues of the Bank of England, so as to keep them at par with gold and silver. Nevertheless, the clamor for more currency prevailed; the bank found it very convenient and profitable to issue notes which it was not obliged to pay, and these finally depreciated twenty-five per cent. But in the United States the banks were under no other control than that of the several States respectively. The consequence was, that we had fifty and more species of local currencies, varying in value in the different States or districts of country, and from time to time in the same district. The banks might with facility have resumed specie payments during the first year of peace. The efforts of the Secretary of the Treasury to induce them to resume proved unsuccessful; and the resumption did not take place till after a new Bank of the United States had been organized.

We have had two general suspensions of specie payments, the last at a time of profound peace. I was then behind the scenes, had some agency in restoring specie payments, and may speak on that subject with knowledge and confidence. The obstacles came partly from the Banks, principally from the Debtor interest, which excites sympathy and preponderates throughout the United States. The mis-named Bank of the United States, and the banks under its influence, were, it is true, a formidable impediment; and this obstacle is now fortunately removed. Still the continuance of specie payments stands, whenever a crisis occurs, on a most precarious basis; and if any important place, especially New York, happened to break, all the banks through the United States would instantaneously follow the example. This is the most imminent danger to which the Treasury of the United States will be exposed in time of war; and what effect the Sub-Treasury system may produce in that respect remains to be tested by experience.

It is impossible to draw any inference respecting Treasury Notes, from what took place in the United States during the confused state of the currency in the years 1815 and 1816. The taxes were paid everywhere with the cheapest local currency, in Treasury Notes only in the places where specie payments had been continued, or where bank notes were nearly at par. The depreciation of the Treasury Notes was arrested by the fact, that they might at all times be converted into a six or seven per cent. stock; but in that case they became assimilated to a direct loan. They never can become a general currency, on account of their varying value, so long as they bear an interest and are made payable at some future day. In order to give them that character, they should assume that of bank notes, bearing no interest and payable on demand. It does not require the gift of prophecy to be able to assert that, as the wants of Government increased, such notes would degenerate into paper money to the utter ruin of the public credit.

They may, however, be made a special currency for the purpose of paying taxes as gold and silver, and to the exclusion of any other species of paper currency. The amount which might be thus kept in circulation, in addition to that wanted for short investments, would be limited by the gross amount of the annual revenue, and bear but a small proportion to it; since one thousand dollars, in silver or in any paper currency, are sufficient to effect in one year fifty payments of the same amount.

Although the amount kept in circulation may fluctuate according to circumstances, the fundamental principle is, that the issue of such notes is an anticipation of the revenue, which, after it has reached the maximum that may be kept in circulation without being depreciated, never can be increased. Be the amount ten or twenty millions, the anticipation may be continued, but not renewed; it is not an annual resource, but one, the whole amount of which never can exceed that which may be kept in circulation. The operation consists in re-issuing annually the amount which is paid off in the year. Whenever, owing to incidental fluctuations, the amount to be redeemed by the Treasury exceeds that which may be re-issued, the difference must be immediately funded at the market price of the notes, so as to keep them always at par or a little above par.

It is evident, that if the direct tax and internal duties laid in August, 1813, had been imposed in July, 1812; and if the acts of January, 1815, which increased both, had been enacted in August, 1813; there would have been an addition of at least eight millions to the revenue of the years 1812 and 1813; the Treasury Notes which had become due would have been paid, public credit would have been maintained, and the amount of war loans lessened.

The principal causes of the fall of public stocks during a war, and of the consequent necessity of borrowing on dearer terms, are a want of confidence in Government, and the large amount of stocks thrown in the market beyond the natural demand for them. The effect of this last cause is remarkably illustrated by the fluctuations in the price of the stocks of Great Britain, where it does not appear that there ever was a want of confidence in the ability and fidelity of Government in fulfilling its engagements. The British three per cents. are now, and were before the war of American Independence, and before those which had their origin in the French revolution, near par or at par. They fell gradually during the war of independence, and were as low as fifty-four in February, 1782. The long war with France was attended with the same result, and the three per cents. had fallen to fifty-five in July, 1812. Notwithstanding the deranged state of the finances of the United States in 1814, the American stocks had not fallen in the same proportion. Such great depreciation is the result of the long continuance of a war. No one can say what would have been its progress, had the last war with England continued much longer.

There was not, however, at that time, at least in America, any want of confidence in the Government: no one doubted that it would ultimately faithfully discharge all its engagements. Although the General Government is in no way responsible for the errors of any of the individual States, it is nevertheless certain, that the credit of the Union has been injured abroad by the failure of several of the States to fulfil their engagements, and that no expectation can be entertained of being able to borrow money in Europe. It is not less true that the Administration will cease to enjoy the confidence of American capitalists, if the measures it has recommended should be adopted and productive of war. No one can doubt that, if that event should take place, the Americans will fight in defence of their country, and none with greater zeal and bravery than the people of the Western States. During the last war, their militia and volunteers flocked either to the Lakes, to New Orleans, or wherever there was danger; nor did they refuse to take part in offensive operations, and to serve without the limits of the United States. But men cannot, either there or elsewhere, afford to render gratuitous services. Whether regulars, volunteers, or militia, they must be fed, clothed, transported, supplied with arms and artillery, and paid. There is as yet but very little active circulating capital in the new States: they cannot lend; they, on the contrary, want to borrow money. This can be obtained in the shape of loans only from the capitalists of the Atlantic States. A recurrence to public documents will show that all the loans of the last war were obtained in that quarter.

Men of property are perhaps generally more timid than others, and certainly all the quiet people, amongst whom the public stocks are ultimately distributed, are remarkably cautious. Prudent capitalists, who do not speculate, and consider public stocks only as convenient and safe investments, will not advance money to Government so long as it is controlled by men whom they consider as reckless, and as entertaining rather lax opinions respecting public credit. Yet money will be obtained, but on much dearer terms than if public confidence was unimpaired. There will always be found bold speculators, who will advance it at a premium--enhanced by the want of competition, and proportionate to the risks they may be supposed to incur. Independent of this, it is most certain that the rate of interest at which loans may be obtained, will always be increased in proportion to their magnitude. The only ways by which these difficulties may be obviated, or at least lessened, are perfect fidelity in fulfilling the engagements of Government; an economical, that is to say, a skilful application of the public moneys to the most important objects, postponing all those which are not immediately wanted, or are of inferior real utility; and an increase of the amount of revenue derived from taxation. This has the double advantage of diminishing the amount to be borrowed, and of inspiring confidence to the money-lenders. In all cases, direct loans will be preferable to, and prove a cheaper mode of raising money than the over issues of Treasury Notes.

The Act of July, 1812, which doubled the duties on importations, afforded a resource which, on account of the high rate at this time of those duties, cannot now be resorted to. Duties may, however, be levied on the importation of Tea and Coffee, and perhaps some other articles now duty free. Other modifications may be found useful, but it may be difficult to ascertain, even without any regard to protection, what are the rates of duties which should be imposed in time of war on the various imported articles, in order to render the revenue derived from that source as productive as possible.

It must also be observed that if, on account of the credit then allowed for the payment of duties on importations, the Treasury had, when the war of 1812 commenced, a resource in the revenue previously accrued but not yet collected, which does not now exist; on the other hand the United States were still encumbered with a considerable portion of the Revolutionary debt, and the payments on account of its principal and interest amounted during the years 1812, 1813, 1814, to about $11,000,000, whilst the annual interest on the now existing debt is less than one million.

The direct tax of the year 1815 amounted to $6,000,000, and the revenue which accrued during the same year, on the aggregate of internal duties, as increased or imposed at the same time, amounted to about the same sum. That year is also the most proper for a comparative view of the revenue derived from each object. In the subsequent years the revival of business increased the amount derived from the duties connected with the commerce of the country, much beyond that which could be collected in time of war; whilst, on the other hand, the excise on spirits was much less productive. The nett revenue derived from internal duties, which accrued during that year was in round numbers, about

Excise on spirits $2,750,000 Licences to retailers 880,000 Sales at auction 780,000 Stamp duties 420,000 Tax on carriages 150,000 Refined sugar 80,000 Several manufactured articles 840,000 Household furniture 20,000 Watches worn by individuals 80,000 ---------- Total $6,000,000

The three last items were those added on Mr. Dallas's recommendation to the first items laid in 1813, but the rate of which was increased, also on his recommendation. The manufactured articles not before taxed on which the new duties were laid were, pig and bar iron, nails; wax and tallow candles; hats, caps and umbrellas; paper and playing cards; leather, saddles, bridles, boots and shoes; beer, ale and porter; snuff, cigars and manufactured tobacco. This was the boldest measure proposed by the Secretary, for these duties were from their nature intrinsically obnoxious. Yet no voice was raised against them; and so far from becoming unpopular, Mr. Dallas, by his courage and frankness, acquired a well-earned popularity. No stronger proof can be adduced of the propriety of telling the whole truth and placing an entire confidence in the people.

The only important measure omitted at that time, was an Act of Congress ordering that all the Treasury notes actually due and not paid should be immediately funded at their nominal value; that is to say, that for every one hundred dollars in Treasury notes, the same amount of funded stock should be issued as it was necessary to give for one hundred dollars in gold or silver. It was impossible to obtain a regular loan in time, and on reasonable terms, for the purpose of defraying the war expenses of the first six months of the year 1815. There was an absolute necessity for recurring to Treasury notes for that purpose, and the attention of the Treasury was forcibly directed to that object. But the first and fundamental element of public credit is the faithful and punctual fulfilment of the public engagements; and the payment of the Treasury notes, when becoming due, was as necessary as that of the interest of the funded debt, which never was suspended during the war. As an immediate and considerable issue of Treasury notes was absolutely necessary, it was not sufficient that they might be convertible into a funded stock, which was already much below par, since that would be in fact an issue of depreciated paper. The Act should, therefore, have pledged the public faith, that if the Treasury notes were not discharged in specie when they became due, they should be funded at their nominal value on the same terms as above stated. Mr. Dallas to great energy united pre-eminent talents, he wanted only experience; and I have no doubt that, had the war continued, he would within six months have adopted that course. If I have alluded here to this subject, it is on account of the primary importance, if placed hereafter in a similar difficult position, of adhering rigorously to those principles respecting the legitimate use of Treasury notes and the punctual discharge of every public engagement, which are absolutely necessary for the maintenance of public credit.

Since a direct tax of six millions could be raised thirty years ago, there can be no difficulty in raising one of nine millions at the very beginning of the war: this must be gradually increased, but would be most heavily felt if beyond eighteen millions. Should an equal sum be raised by internal duties, the annual loans wanted after the first year of the war would be lessened in the same proportion. The following estimate may assist in forming a correct opinion on that subject:--

The stamp duties, those on sales at auction, the licences of retailers, and the carriage tax, which accrued in the year 1815, amounted together to $2,230,000, and may be now estimated at twice as much $4,460,000

The aggregate annual value of leather, boots, shoes, and other manufactures of leather; of hats, caps and bonnets; snuff and cigars; paper and playing cards, manufactured in the United States, are estimated by the last census at fifty-three millions, a tax on which of ten per cent would give 5,300,000

On the same authority, three millions pounds of spermaceti and wax candles would yield, at five cents per pound, 150,000

Three millions two hundred and fifty thousand pounds of refined sugar, at the same rate 160,000

Five hundred tons of pig and bar iron, nails and brads, at two dollars per ton 1,000,000