Econlib

The Library

Other Sites

 Front Page arrow Titles (by Subject) arrow GALLATIN TO JEFFERSON. - The Writings of Albert Gallatin, vol. 1

Return to Title Page for The Writings of Albert Gallatin, vol. 1

Search this Title:

Also in the Library:

Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO JEFFERSON. - Albert Gallatin, The Writings of Albert Gallatin, vol. 1 [1879]

Edition used:

The Writings of Albert Gallatin, ed. Henry Adams (Philadelphia: J.B. Lippincott, 1879). 3 vols.

Part of: The Writings of Albert Gallatin, 3 vols.

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


GALLATIN TO JEFFERSON.

Washington, November 8, 1809.

Dear Sir,—

I perused your affectionate letter of the 11th ult.1 with lively sensations of pleasure, excited by that additional evidence of your continued kindness and partiality. To have acquired and preserved your friendship and confidence is more than sufficient to console me for some late personal mortifications, though I will not affect to conceal that these, coming from an unexpected quarter, and being, as I thought, unmerited, wounded my feelings more deeply than I had at first been aware of. [Had I listened only to those feelings, I would have resigned and probably taken this winter a seat in Congress, which, as a personal object, would have been much more pleasing than my present situation, and also better calculated to regain the ground which, to my surprise, I found I had lost, at least in one of the branches of the Legislature. After mature consideration, I relinquished the idea, at least for that time, in a great degree on account of my personal attachment to Mr. Madison, which is of old standing, I am sure reciprocal, and strengthened from greater intimacy; and also because I mistrusted my own judgment, and doubted whether I was not more useful where I was than I could be as a member of Congress. All this passed in my mind before the last session, and the communication which I made to you at Monticello arose from subsequent circumstances.]2

Yet I can assure you that I will not listen to those feelings in forming a final determination on the subject on which I conversed with you at Monticello. The gratitude and duty I owe to the country which has received me and honored me beyond my deserts, the deep interest I feel in its future welfare and prosperity, the confidence placed by Mr. Madison in me, my personal and sincere attachment for him, the desire of honorably acquiring some share of reputation, every public and private motive, would induce me not to abandon my post, if I am permitted to retain it, and if my remaining in office can be of public utility. But in both respects I have strong apprehensions, to which I alluded in our conversation. It has seemed to me from various circumstances that those who thought they had injured were disposed to destroy, and that they were sufficiently skilful and formidable to effect their object. As I may not, however, perhaps see their actions with an unprejudiced eye, nothing but irresistible evidence, both of the intention and success, will make me yield to that consideration. But if that ground which you have so forcibly presented to my view is deserted; if those principles which we have uniformly asserted and which were successfully supported during your Administration are no longer adhered to, you must agree with me that to continue in the Treasury would be neither useful to the public nor honorable to myself.

The reduction of the public debt was certainly the principal object in bringing me into office, and our success in that respect has been due both to the joint and continued efforts of the several branches of government and to the prosperous situation of the country. I am sensible that the work cannot progress under adverse circumstances. If the United States shall be forced into a state of actual war, all the resources of the country must be called forth to make it efficient, and new loans will undoubtedly be wanted. But whilst peace is preserved, the revenue will, at all events, be sufficient to pay the interest and to defray necessary expenses. I do not ask that in the present situation of our foreign relations the debt be reduced, but only that it shall not be increased so long as we are not at war. I do not pretend to step out of my own sphere and to control the internal management of other Departments. But it seems to me that as Secretary of the Treasury I may ask that, whilst peace continues, the aggregate of the expenditure of those Departments be kept within bounds such as will preserve the equilibrium between the national revenue and expenditure without recurrence to loans. I cannot, my dear sir, consent to act the part of a mere financier, to become a contriver of taxes, a dealer of loans, a seeker of resources for the purpose of supporting useless baubles, of increasing the number of idle and dissipated members of the community, of fattening contractors, pursers, and agents, and of introducing in all its ramifications that system of patronage, corruption, and rottenness which you so justly execrate. I thought I owed it to candor and friendship to communicate as I did to Mr. Madison and to yourself my fears of a tendency in that direction, arising from the quarter and causes which I pointed out, and the effect such a result must have on my conduct. I earnestly wish that my apprehensions may have been groundless, and it is a question which facts, and particularly the approaching session of Congress, will decide. No efforts shall be wanted on my part in support of our old principles. But, whatever the result may be, I never can forget either your eminent services to the United States nor how much I owe to you for having permitted me to take a subordinate part in your labors.

GALLATIN TO JOHN W. EPPES, Chairman of Committee of Ways and Means.

Treasury Department, February 26, 1810.

Sir,—

I have the honor to submit the following observations in answer to the several objects of inquiry embraced by your letter of the 8th ultimo. The amount of extraordinary expenses which may be authorized by Congress being yet unascertained, it is not, even at this time, practicable to state with precision the sum which may be wanted on loan for the service of this year. And in relation to ensuing years it would be premature to lay down any general rules respecting the most eligible mode of borrowing sums of money commensurate with the exigencies of the United States in case of war. It is, therefore, thought sufficient for the present to point out some of the most obvious means of effecting loans generally, leaving it a subject of subsequent consideration to decide, according to existing circumstances, on the most eligible mode, and on the arrangement of details.

The inquiries of the Committee of Ways and Means apply to the three following points: 1st. What is the most eligible mode of obtaining money by loan, keeping in view both the facility of borrowing sums commensurate with the exigencies of the United States and the ultimate extinguishment of the debt contracted? 2dly. To what extent can an increase of importation be carried with safety? 3dly. Can any other resources, besides taxes and loans, be relied on for immediate revenue?

Loans.—1st. The commissioners of the sinking fund will, out of the annual appropriation of eight millions of dollars for the payment of the debt, reimburse, in 1810, the residue of the exchanged six per cent. stock, amounting to $3,750,000, and, in 1811, the whole of the converted six per cent. stock, amounting to $1,860,000. It is probable that the owners of those two species of stock would consent to re-loan the amount, provided it was made irredeemable for a few years.

2d. It has already been stated, in the annual report of November 5, 1807, referred to in that of this year, “that the several banks of the United States might find it convenient, as the diminished commerce of the country might require less capital, to loan to government a considerable portion of their capital stock, then computed at about forty millions of dollars.” Such temporary loans can be obtained only to a limited amount, but they are convenient in two respects: 1st. They do not diminish the facility of obtaining other loans from individuals, inasmuch as they do not increase the amount of stock at market. 2dly. Being redeemable at will, and in any sums which may suit the convenience of government, interest is paid only as long as the money is wanted; and the extinguishment of the debt contracted is rendered more easy and certain.

3d. Loans may be obtained from individuals to an extent commensurate with the national capital, and limited by the existing demand for that capital for private purposes. The terms must vary according to circumstances, always giving the preference to the most simple form that can effect the object. A portion of the public lands may perhaps, if necessary, either as a premium or by giving an option to subscribers, be advantageously applied in facilitating loans or improving their terms.

4th. Treasury notes bearing interest, and payable to order one year after date, may be annually issued, to a moderate amount, and be put in circulation, both through the medium of banks, and in payment of supplies. A portion would be absorbed during the year by the payment of public lands and revenue bonds, and the redemption of the residue be provided for by the loan of the ensuing year. This annual anticipation of the revenue, though liable to abuse, may, if kept within strict bounds, facilitate both the collection of the revenue and the loans themselves.

In relation to the extinguishment of the debt contracted, those who borrow can do nothing more than to provide and pledge funds sufficient for that object, and to give such a form to the debt as may not impede its redemption. To render it irredeemable for no longer time than is necessary in order to obtain the money; to make it reimbursable by instalments at fixed periods; never to create, for the sake of diminishing the annual interest, a greater nominal amount of stock than the sum actually borrowed; and, above all, never incur expenses which are not actually necessary for the defence or welfare of the country; are principles essential for a nation which does not contemplate a system of perpetual and increasing debt. But for its actual reimbursement we must principally depend on the return of prosperous circumstances, on the growing resources of the country, and on the wisdom of our successors. The artificial provisions of a sinking fund may always be rendered inefficient by the necessities or extravagance of government. The real amount of a national debt cannot be diminished unless the aggregate of revenue, including the funds assigned to the sinking fund, and exclusively of new loans, exceeds the aggregate of expenditures other than those for the payment of the principal of the debt. Favorable circumstances and a rigid economy in the current expenses have enabled the United States to reimburse, during the last eight years, one-half of the debt created by the Revolutionary war and during some of the ensuing years. Similar circumstances and an adherence to the same principles will be requisite to secure the actual reimbursement of the debt which it may now be necessary to contract. But that government will possess resources amply sufficient for that object cannot be doubted. The proceeds of the public lands would alone, slowly, perhaps, but certainly, extinguish a much greater debt than the United States have it now in their power to create. And it is sufficiently ascertained that the national wealth of the United States, and, therefore, the means of raising revenue, increase in a ratio still more rapid than their population,—a population which almost doubles every twenty years.

These considerations, connected with others, stated at large in the annual reports of November, 1807, and December, 1808, produced a conviction that loans might, without danger, be resorted to as the principal resource for supporting a war. Permit me at the same time to observe that the suggestion has been confined to that object alone, and that, excepting the case of war, either immediate or contemplated, it appears consistent with sound policy to raise during the year the means of defraying all the national expenses, borrowing no larger sum than the amount of principal of old debt paid during the year. The propriety of providing, even in time of war, a revenue equal to the annual expenses on a peace establishment, the interest of the existing debt, and that on the loans which may be raised, has also been suggested in former reports.

Increase of Duties.—On that subject but little can be added to the opinions expressed on former occasions. I still think that this source of revenue is, in the United States and at this time, the most productive, the easiest to collect, the least burdensome to the great mass of the people; and that the duties on importation generally may, in case of war, be doubled without inconvenience or danger.

In time of peace, and particularly under existing circumstances, habits of smuggling might be promoted by so great an increase. But the precise rate which may with safety be adopted can only be a matter of opinion, to be tested by experience. I would not hesitate, however, to mention an additional duty of five per cent. on merchandise paying ad valorem duties, and an increase of 33⅓ per cent. on the existing duties on all other articles, as attended with very little danger, and preferable to any other new source of taxation. A renewal of the duty on salt, which produced six hundred thousand dollars a year, may be exceptionable in other respects, but, on account of the bulk of the article, is liable to no objection in the present view of the subject.

It was stated in the annual report of December last, that an increase of duties would not, on account of the terms of credit allowed for the payment of duties, supersede the necessity of a loan for the service of this year. The amount of that loan might, of course, be diminished if no credit, or a credit of only sixty days, was allowed for the payment of the proposed additional duties.

Public Lands.—These constitute the only great national resource, exclusively of loans and taxes. They have already been mentioned as forming a fund for the ultimate extinguishment of the public debt; and the possibility of their being used as a means of facilitating loans has been suggested. A portion might also be usefully applied as a bounty to officers and soldiers, whenever it may become necessary to raise a considerable force. But, as an object of immediate revenue, I much doubt whether this can be materially increased without a radical change in the present system.

Not less than ten land offices are now in full operation, offering a great choice of good lands, situated in various climates, and suited to the habits of the citizens of every portion of the Union. They are sold at the rate of two dollars and sixty-four cents, if paid for at the time of purchase, and in tracts of one hundred and sixty acres. As much is sold as there is actual demand for land in similar situations at that price. The sales are, however, almost exclusively confined to those who are, or intend to become, actual settlers, and all the money which can be raised by that description of purchasers is annually paid to the United States. In order to increase immediately the amount of sales, a different capital from that which has heretofore been applied to that object—the capital of persons who will purchase for the purpose of selling again with a profit—must be brought into action. But it is evident that no person will purchase lands at the present price as an object of speculation whilst the United States continue to sell at the same price in small tracts. To effect the proposed object it would be necessary not only to reduce the price, but to make a difference between that of lands sold in large tracts and that asked for small tracts, sufficient to encourage purchases on an extensive scale. That alteration might produce an additional revenue, but appears to me extremely injurious in other respects. The present system of sales has been tried, and answers the expectations of the Legislature. A gradual increase must, notwithstanding some temporary fluctuations, necessarily take place. On that I would rely; nor would I venture to suggest any other change than that already proposed on a former occasion,—a moderate and general reduction of prices, discontinuing at the same time all sales on credit, but continuing to sell at the same rate large or small tracts of land.

I have the honor to be, very respectfully, sir, your obedient servant.

[Enclosure.]

Extract from the annual report of the Secretary of the Treasury, dated November 6, 1807:

“It will be sufficient to state, 1st. That it appears necessary to provide a revenue at least equal to the annual expenses on a peace establishment, the interest of the existing debt, and the interest on the loans which may be raised. 2d. That those expenses, together with the interest of the debt, will, after the year 1808, amount to a sum less than seven millions of dollars, and therefore that, if the present revenue of fourteen millions five hundred thousand dollars shall not be diminished more than one-half by a war, it will still be adequate to that object, leaving only the interest of war loans to be provided for.

“Whether taxes should be raised to a greater amount, or loans be altogether relied on, for defraying the expenses of a 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 capitals 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 a nation may also, from various circumstances, be, at times, so far impaired as to leave no resource but taxation. In both respects the situation of the United States is totally dissimilar.

“A maritime war will, in the United States, generally and deeply affect, whilst it continues, the resources of individuals; as not only commercial profits will be curtailed, but principally because a great portion of the surplus of agricultural produce necessarily requires a foreign market. The reduced price of the principal articles exported from the United States will operate more heavily than any contemplated tax. And, without inquiring whether a similar cause may not still more deeply and permanently affect a nation at war with the United States, it seems to follow that, so far as relates to America, the losses and privations caused by the war should not be aggravated by taxes beyond what is strictly necessary. 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.

“The credit of the United States is also unimpaired, either at home or abroad; and it is believed that loans, to a reasonable amount, may be obtained on eligible terms. Measures have been taken to ascertain to what extent this may be effected abroad. And it will be sufficient here to suggest that the several banks of the United States may find it convenient after the ensuing year, and as the diminished commerce of the country may require less capital, to loan to government a considerable portion of their capital stock, now computed at about forty millions of dollars.

“It might be premature to enter into a particular detail of the several branches of revenue which may be selected in order to provide for the interest of war loans, and to cover deficiencies in case the existing revenue should fall below seven millions of dollars. A general enumeration seems at present sufficient:

“1. Not only the duty on salt and the Mediterranean duties may be immediately revived, but the duties on importation generally may, in case of war, be considerably increased, perhaps doubled, with less inconvenience than would arise from any other mode of taxation. 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 burdensome to the great mass of the people. In time of war the danger of smuggling is diminished, the scarcity of foreign articles prevents the duty ever falling on the importer, the consumers are precisely those members of the community who are best able to pay the duty, and the increase of domestic manufactures, which may be indirectly effected, is in itself a desirable object.

“2. Indirect taxes, however ineligible, will doubtless be cheerfully paid as war taxes if necessary. Several modifications of the system formerly adopted might, however, be introduced, both in order to diminish some of the inconveniences which were experienced, and, particularly, to insure the collection of the duties.

“3. Direct taxes are liable to a particular objection, arising from the unavoidable inequality produced by the general rule of the Constitution. Whatever difference 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. Should it, however, become necessary to resort to that resource, it is believed that a tax raised upon that species of property in each State, which, by the State laws, is liable to taxation, as had originally been contemplated by Congress, would be preferable to a general assessment, laid uniformly on the same species of property in all the States, as was ultimately adopted.”

[Enclosure.]

Extract from the annual report of the Secretary of the Treasury, of December 10, 1808:

“It is certainly only with a view to war, either immediate or contemplated, that it will become necessary to resort, at least to any considerable extent, to extraordinary sources of supply.

“Legitimate resources can be derived only from loans or taxes; and the reasons which induce a belief that loans should be principally relied on in case of war were stated in the annual report of last year. That opinion has been corroborated by every subsequent view which has been taken of the subject, as well as by the present situation of the country. 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 products 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. 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, leave no doubt of the practicability of obtaining the necessary loans on reasonable terms.

“The geographical situation of the United States, their history since the Revolution, and, above all, present events, remove every apprehension of frequent wars. It may, therefore, be confidently expected that a revenue derived solely from duties on importations, though necessarily impaired by war, will always be amply sufficient, during long intervals of peace, not only to defray current expenses, but also to reimburse the debt contracted during the few periods of war.

“No internal taxes, either direct or indirect, are therefore contemplated, even in the case of hostilities carried on against the two great belligerent powers. Exclusively of the authority which must from time to time be given to borrow the sums required (always providing for the reimbursement of such loans within limited periods), and of a due economy in the several branches of expenditure, nothing more appears necessary than such modifications and increase of the duties on importations as are naturally suggested by existing circumstances.

“Although importations have already considerably diminished, and may, under the system now in force, shortly be altogether discontinued, no reasonable objection is perceived against an increase of duties on such as may still take place.

“Had the duties been doubled on the 1st of January, 1808, as was then suggested, in case of war, the receipts into the Treasury during that and the ensuing year would have been increased nine or ten millions of dollars. Those articles of most universal consumption, on which an increase of duty would be inconvenient, are generally either free of duty or abundant; it is, therefore, proposed that not only the Mediterranean duties, which will expire on the first day of January next, should be continued, but that all the existing duties should be doubled on importations subsequent to that day.”

[1 ]See the letter of 11th October, 1809, in Jefferson’s Works, v. 477.

[2 ]Omitted in the draft as sent.