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Albert Gallatin - American Statesmen Series, Vol. XIII
by John Austin Stevens
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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.

III. That the capital stock of the bank should be increased to thirty millions of dollars, to be subscribed for, 1, five millions by citizens of the United States; 2, fifteen millions by the States; a branch to be established in each subscribing State; 3, payments by either individuals or States to be in specie or public stock of the United States at rates to be fixed by law; the subscribing States to pay in ten annual installments.

IV. That some share should be given in the direction to the general and state governments by appointment of directors in the general direction and branches.

The result of this plan would be, 1st, that the United States might, from the interest on the public deposits, accumulate during years of peace and prosperity a treasure sufficient to meet periods of war and calamity; 2d, that they might rely on a loan of eighteen millions of dollars in any sudden emergency; 3d, that by the payment in ten installments the increase in capital would be in proportion to the progressive state of the country; 4th, that the bank itself would form an additional bond of common interest and union amongst the several States. But these arguments availed not against the blind and ignorant jealousy of the Republican majority in the House. The days of the bank were numbered. Congress refused to prolong its existence, and the institution was dissolved. Fortunately for the country, it wound up its affairs with such deliberation and prudence as to allow of the interposition of other bank credits in lieu of those withdrawn, and thus prevented a serious shock to the interests of the community. In the twenty years of its existence from 1791 to 1811 its management was irreproachable. Its annual dividends from 1791 to 1809 were 8-2/3 per cent., and its stock, always above par, from 1805 to 1809 ranged from 20 to 40 per cent. premium.

In its numerous and varied relations to the government it had been a useful and faithful servant, and its directors had never assumed the attitude of money kings, of which the Jeffersonian democracy pretended to stand in hourly dread. To the general and important nature of its financial service Mr. Gallatin gave his testimony in 1830; after his own direct participation in public affairs had ended.

"Experience, however, has since confirmed the great utility and importance of a bank of the United States in its connection with the Treasury. The first great advantage derived from it consists in the safekeeping of the public moneys, securing in the first instance the immediate payment of those received by the principal collectors, and affording a constant check on all their transactions; and afterwards rendering a defalcation in the moneys once paid, and whilst nominally in the treasury, absolutely impossible. The next, and not less important, benefit is to be found in the perfect facility with which all the public payments are made by checks or treasury drafts, payable at any place where the bank has an office; all those who have demands against government are paid in the place most convenient to them; and the public moneys are transferred through our extensive territory at a moment's warning without any risk or expense, to the places most remote from those of collection, and wherever public exigencies may require."

Late in life, in a letter to John M. Botts, June 14, 1841, Mr. Gallatin expressed the same opinions with regard to the usefulness of a government bank as an aid to the Treasury Department, but limited his approval to that use. "Except in its character of fiscal agent to the general government I attach much less importance to a national bank than several of those who are in favor of it." "Did I believe," he adds in the same letter, "that a bank of the United States would effectually secure us a sound currency, I would think it a duty at all hazards to promote the object."

The reason for his doubts in 1841 is easily seen in the impossibility of annihilating or controlling the three hundred distinct currencies of as many banks, each nominally convertible into specie at its point of issue; a financial puzzle which Mr. Chase solved in the device and organization of the present national banking system, which, without involving the government in banking operations, affords to the people a homogeneous currency of uniform value, and secures its convertibility by reasonable but absolute restrictions, upon conformity to which the existence of the banks depends. The exigencies of war compelled an acquiescence in the plans of Mr. Chase, which, at the time when Mr. Gallatin expressed his doubts, could not have been had in any system whatever which involved the subordination of the banks.

The wide spread of the state bank system, with its irresponsible and unlimited issues, occurring subsequent to Mr. Gallatin's withdrawal from the Treasury, was a consequence of the failure to renew the charter of the Bank of the United States; and if ever there were a system by which the inhabitants of States whose floating capital was small were placed at the mercy of moneyed corporations of the States where it was abundant, it was the state bank system. The experience of the old confederation had not taught this lesson. The colonial system was continued by the several States, and bills of credit were issued on their faith. The continental system was a compound of the main features of this plan. The bills were issued by the Congress, but the States were relied upon for their ultimate redemption.

The collapse of the entire fabric of finance led to the establishment of the Bank of North America, the notes of which were redeemable and redeemed at the bank counters. The article in the Constitution of 1787, prohibiting the issue of bills of credit by the States, was evidently intended to secure a uniform currency to the people of the United States, and it has been by a strange perversion of this manifest intention that the power has been conceded to the States to charter corporations to do that which was forbidden to themselves in their sovereign capacity; namely, to issue bills of credit, which bank-notes are. It is idle to say that, because such bills were not a "legal tender," they were therefore not of the character which the Constitution forbade. Necessity knows no law, and in the absence of any other currency the people were perforce compelled to take what they could get. Experience later showed that large amounts of paper money manufactured in one State were easily put in circulation in far distant communities, and considerable sums, through the operations of wear and tear and the vicissitudes incident to its fragile nature, never returned to plague the inventor.

At the time of the organization of the National Bank by Hamilton, there were but three banks in the United States: the Bank of North America, the Bank of New York, and the Bank of Massachusetts. Their added capital amounted to two millions of dollars, and their issues were inconsiderable.

Mr. Gallatin estimated that in January, 1811, just before the expiration of the bank charter, there were in the United States eighty-eight state banks with a capital of $42,612,000.

- - Notes in Capital. Circulation. Specie. - - Bank of the United States $10,000,000 $5,400,000 $5,800,000 Eighty-eight State Banks 42,610,601 22,700,000 9,600,000 - - $52,610,601 $28,100,000 $15,400,000 - -

Over the local institutions the Bank of the United States always exercised a salutary control, checking any disposition to overtrade by restraining their issues and holding them to a proper specie reserve; and this by no other interference except its countenance or ill favor, as such banks severally observed or disregarded the ordinary rules of financial prudence. The immediate effect of the refusal of Congress to recharter the Bank of the United States was to bring the Treasury to the verge of bankruptcy. The interference of Parish, Girard, and Astor alone saved the credit of the government, and this interference was no doubt prompted by self-interest. That Mr. Astor was hostile to the bank is certain. Gallatin wrote to Madison in January, 1811, that Mr. Astor had sent him a verbal message, "that in case of non-renewal of the charter of the Bank of the United States, all his funds and those of his friends, to the amount of two millions of dollars, would be at the command of government, either in importing specie, circulating government paper, or in any other way best calculated to prevent any injury arising from the dissolution of the bank," and he added that Mr. Bentson, Mr. Astor's son-in-law, in communicating this message said, "that in this instance profit was not Mr. Astor's object, and that he would go great lengths, partly from pride and partly from wish, to see the bank down." In 1813, when the bank was "down," Mr. Gallatin was no longer master of the situation. He offered to treat directly with Parish, Girard, and Astor for ten millions of dollars, but finding some hesitation, he opened the loan for subscription. When the subscription failed, he was at the mercy of the capitalists.

Another immediate effect of the dissolution of the bank was the withdrawal from the country of the foreign capital invested in the bank, more than seven millions of dollars. This amount was remitted, in the twelve months preceding the war, in specie. Specie was at that time a product foreign to the United States, and by no means easy to obtain. Specie, as Mr. Gallatin profoundly observed, does not precede, but follows wealth. The want of it nearly destroyed Morris's original plan for the Bank of North America, and was only made up by the fortunate receipt of the French remittances. In 1808 the specie in the vaults of the treasury reached fourteen millions of dollars, but during the operation of the Embargo Act, the banks of New England had gradually accumulated a specie reserve, and that of Richmond, Virginia, pursued the same policy. Together they held one third of the entire specie reserve of the banks. The amount of specie in the Bank of the United States, January 1, 1811, had fallen to $5,800,000, which soon found its way abroad.

The notes of the Bank of the United States, payable on demand in gold and silver at the counters of the bank, or any of its branches, were, by its charter, receivable in all payments to the United States; but this quality was also stripped from them on March 19, 1812, by a repeal of the act according it. To these disturbances of the financial equilibrium of the country was added the necessary withdrawal of fifteen millions of bank credit and its transfer to other institutions. This gave an extraordinary impulse to the establishment of local banks, each eager for a share of the profits. The capital of the country, instead of being concentrated, was dissipated. Between January 1, 1811, and 1815, one hundred and twenty new banks were chartered, and forty millions of dollars were added to the banking capital. To realize profits, the issues of paper were pushed to the extreme of possible circulation. Meanwhile New England kept aloof from the nation. The specie in the vaults of the banks of Massachusetts rose from $1,706,000 on June 1, 1811, to $7,326,000 on June 1, 1814. This was a consequence of the New England policy of opposition. Mr. Gallatin estimated that the proceeds of loans, exclusive of treasury notes and temporary loans, paid into the treasury from the commencement of the war to the end of the year 1814 were $41,010,000: of which sum the Eastern States lent $2,900,000; the Middle States, $35,790,000; Southwestern States, $2,320,000.

The floating debt of the United States, consisting of treasury notes and temporary loans unpaid, amounted, January 1, 1815, to $11,250,000, of which nearly four fifths were loaned by the cities of New York, Philadelphia, and Baltimore, and the District of Columbia. The suspension of the banks was precipitated by the capture of Washington. It began in Baltimore, which was threatened by the British, and was at once followed in Philadelphia and New York. Before the end of September all the banks south and west of New England had suspended specie payment. In his "Considerations on the Currency," Mr. Gallatin expressed his—

"deliberate opinion that the suspension might have been prevented at the time when it took place, had the Bank of the United States been in existence. The exaggerated increase of state banks, occasioned by the dissolution of that institution, would not have occurred. That bank would as before have restrained them within proper bounds and checked their issues, and through the means of its offices it would have been in possession of the earliest symptoms of the approaching danger. It would have put the Treasury Department on its guard; both, acting in concert, would certainly have been able, at least, to retard the event; and as the treaty of peace was ratified within less than six months after the suspension took place, that catastrophe would have been avoided."

But within fifteen months the bank issues increased from forty-five and a half to sixty millions.

- Capital. Circulation. Specie. - Banks of New England. $15,690,000 $5,320,000 $8,200,000 Other Banks 66,930,000 44,730,000 8,600,000 - 1815. 208 State Banks. $82,620,000 $50,050,000 $16,800,000 1816. 246 State Banks. 89,822,422 68,000,000 19,000,000 -

The depression of the local currencies ranged from seven to twenty-five per cent. In New York and Charleston it was seven to ten per cent. below the par of coin. At Philadelphia from seventeen to eighteen per cent. At Washington and Baltimore from twenty to twenty-two, and at Pittsburgh and on the frontier, twenty-five per cent. below par. The circulating medium, or measure of values, being doubled, the price of commodities was doubled. The agiotage, of course, was the profit of the bankers and brokers; a sum estimated at six millions of dollars a year, or ten per cent. on the exchanges of the country, which McDuffie, in his celebrated report, estimated at sixty millions annually.

In November the Treasury Department found itself involved in the common disaster. The refusal of the banks, in which the public moneys were deposited, to pay their notes or the drafts upon them in specie deprived the government of its gold and silver; and their refusal, likewise, of credit and circulation to the issues of banks in other States deprived the government also of the only means it possessed for transferring its funds to pay the dividends on the debt and discharge the treasury notes. Mr. Dallas found himself compelled to appeal to the banks by circular to subscribe for sufficient treasury notes to secure them such advances as might be asked of them for the discharge of the public obligations.

"In the latter end of the year 1814," says Mr. Gallatin, "Mr. Jefferson suggested the propriety of a gradual issue by government of two hundred millions of dollars in paper;" commenting upon which Mr. Gallatin remarks that Mr. Jefferson, from the imperfect data in his possession, "greatly overrated the amount of paper currency which could be sustained at par; and he had, on the other hand, underrated the great expenses of the war;" but at "all events," he adds, "the issue of government paper ought to be kept in reserve for extraordinary circumstances." But here it may be remarked that the evolution of the systems of American finance seems to lead slowly but surely to an entire divorce of banking from currency, and the day is not far distant when the circulating medium of the United States will consist of gold and silver, and of government issues restricted, according to the English principle, to the minimum of circulation, and kept equivalent to coin by a specie reserve in the treasury; while the banks, their circulation withdrawn and the institutions freed from any tax, will be confined to their legitimate business of receiving deposits and making loans and discounts.

On October 14, 1814, Alexander J. Dallas, Mr. Gallatin's old friend, who had been appointed secretary of the treasury on the 6th of the same month, in a report of a plan to support the public credit, proposed the incorporation of a national bank. A bill was passed by Congress, but returned to it by Madison with his veto on January 15, 1815. In this peculiar document Madison "waived the question of the constitutional authority of the legislature to establish an incorporated bank, as being precluded, in his judgment, by repeated recognitions, under varied circumstances, of the validity of such an institution in acts of the legislative, executive, and judicial branches of the government." But he objected for reasons of detail. Mr. Dallas again, as a last resort, insisted on a bank as the only means by which the currency of the country could be restored to a sound condition. In December, 1815, Dallas reported to the committee of the House of Representatives on the national currency, of which John C. Calhoun was chairman, a plan for a national bank, and on March 3, 1816, the second Bank of the United States was chartered by Congress. The capital was thirty-five millions, of which the government held seven millions in seventy thousand shares of one hundred dollars each. Mr. Madison approved the bill. This completed the abandonment of every shred of principle claimed by the Republican party as their rule of action. They struggled through the rest of their existence without a political conviction. The national bank, and the system of internal taxation which had been scorned by Jefferson and Madison as unconstitutional, were accepted actually under Madison's administration. Gallatin's success, owing to the development and application of Hamilton's plans, was a complete vindication of the theory and practice of the Federalists which they abhorred; Jefferson's plan of a government issue of paper money was a higher flight into the upper atmosphere of implied powers than Hamilton ever dreamed of.

The second national bank of the United States was also located at Philadelphia, and chartered for twenty years. The manner in which it performed its financial service is admirably set forth in Mr. Gallatin's "Considerations on the Currency," already mentioned. It acted as a regulator upon the state banks, checked excessive issues on their part, and brought the paper currency of the country down from sixty-six to less than forty millions, before the year 1820.

In April, 1816, Mr. Dallas having signified his intention to resign the Treasury, Mr. Madison wrote to Gallatin, offering him his choice between the mission to France and the Treasury Department. Mr. Gallatin's reply was characteristic. He declined the Treasury, but with reluctance, since he thought he would be more useful at home than abroad, and because he preferred to be in America rather than in Europe. One of his preponderating reasons was that, although he felt himself competent to the higher duties of the office, there was, for what he conceived "a proper management of the Treasury, a necessity for a mass of mechanical labor connected with details, forms, calculating, etc., which having lost sight of the thread and routine, he could not think of again learning and going through." He was aware that there was "much confusion due to the changes of office and the state of the currency, and thought that an active young man could alone reinstate and direct properly that department."

In June of the same year, while waiting for the Peacock, which was to carry him across the sea, Gallatin wrote Mr. Madison an urgent letter, impressing upon him the necessity of restoring specie payment, and his perfect conviction that nothing but the will of the government was wanted to reinstate the country in its moral character in that respect. He dreaded the "paper taint," which he found spreading as he journeyed northward.

In January 1817, delegates from the banks of New York, Philadelphia, Baltimore and Virginia met in Philadelphia and agreed to a general and simultaneous resumption of specie payments. The Bank of the United States proposed a compact which was accepted by the state banks and ratified by the secretary of the treasury. That institution engaged, to a reasonable extent, to support any bank menaced. This engagement and the importation of seven millions of specie from abroad by the Bank of the United States secured a general restoration of specie payment. In 1822 Mr. Gallatin was tendered and declined the office of president of the Bank of the United States.

In 1829 he prepared for Mr. Ingham, then secretary of the treasury, a masterly statement of the relative value of gold and silver. In 1830 Mr. Gallatin wrote for the "American Quarterly Review" his essay, "Considerations on the Currency and Banking System of the United States." Appearing at the time when the renewal of the charter of the Bank of the United States was an absorbing question, this essay was equally sought for by both the friends and opponents of the bank. It is not confined, however, to this subject, but covers the entire field of American finance. His treatment of the currency question was novel. He analyzed the systems of Europe, compared them with those which prevailed in the United States, and reached the conclusion, the general correctness of which has been justified by the experience of all other nations, and sooner or later will be accepted by our own; namely, the necessity of a currency strong in the precious metals, and the restriction of paper money to notes of one hundred dollars to be issued by the government. This limit is higher than that adopted in France and England, but the general principle that a circulating medium is sound only as it is strong in gold and silver, and that gold and silver can only be retained permanently by making a place for them in the circulating medium by a restriction of paper issues, will yet find favor even in this paper-loving country.

In 1832 Mr. Gallatin accepted the presidency of a bank in New York, the subscription to the stock of which, $750,000, was completed by Mr. John Jacob Astor on condition that Mr. Gallatin should manage its affairs. The direction of its concerns, without absorbing his time, kept him in the financial current. The bank was called the National Bank of New York. But not in this modest post was he to find the financial path smooth. It is true he had lived in the flesh to see the financial millennium. The rapid growth of the country and the faithful adherence of his successors in the Treasury Department to the funding principle had at last realized his dream. The national debt was extinguished. The last dollar was paid. Louis McLane, secretary of the treasury, on December 5, 1832, in his report on the finances, said that the dividends derived from the bank shares held by the United States were more than was required to pay the interest, and that the debt might therefore be considered as substantially extinguished after January 1, 1833.

On December 3, 1833, Roger B. Taney, secretary of the treasury, reported to Congress that he had directed the removal of the deposits of the government from the Bank of the United States and placed them in banks of his own selection. He gave a number of reasons for this extraordinary exercise of the power which he obtained by his appointment on September 23, 1833. He received his reward in June, 1834, being then transferred by President Jackson to the seat of chief justice of the Supreme Court. In his annual report Taney named, among his elaborate reasons for the removal, that the bank had used its money for electioneering purposes, and that he "had always regarded the result of the last election of President of the United States as the declaration of a majority of the people that the charter ought not to be renewed." He further expressed the opinion "that a corporation of that description was not necessary either for the fiscal operations of the government or the general convenience of the people." It mattered little to him that Mr. Gallatin had only recently pointed out that from the year 1791 the operations of the Treasury had, without interruption, been carried on through the medium of banks; during the years 1811 to 1814, by the state banks, with a result which no one had as yet forgotten; before and since that brief interval through the Bank of the United States. Enough for Taney, that it was the will of his imperious master, 'the pugnacious animal,' as Gallatin aptly termed him.

In October, 1834, Taney's successor in the Treasury, Levi Woodbury, gave notice that the remaining debt, unredeemed after January 1, 1835, would cease to bear interest and be promptly paid on application to the commissioners of loans in the several States. On December 8, 1835, Mr. Woodbury reported "an unprecedented spectacle presented to the world of a government virtually without any debts and without any direct taxation." The surplus revenues, about thirty-seven and a half millions of dollars, had by an act of the previous session been distributed among the several States. But the secretary and the country soon found that they were on dangerous ground. In December, 1837, the same secretary, alarmed at his responsibility, said to Congress, in warning words, "We are without any national debt to absorb and regulate surpluses, or any adequate supply of banking institutions which provide a sound currency for general purposes by paying specie on demand, or which are in a situation fully to command confidence for keeping, disbursing, and transferring the public funds in a satisfactory manner."

The Bank of the United States, on the expiration of its charter in March, 1836, accepted a charter from the State of Pennsylvania; but, though its influence continued to be as great, its direction was no longer the same. Abandoning its legitimate business, it speculated in merchandise, and even kept an agent in New Orleans to compete with the Barings in purchases of the cotton crop as a basis for exchange. Precisely as in 1811, after the withdrawal of the control of the Bank of the United States, the state banks ran a wild career of speculation. From 1830 to 1837 three hundred new banks sprang up with an additional capital of one hundred and forty-five millions, doubling, as twenty years before, the banking capital of the country. This volume the deposits of the Treasury continued to swell. Mr. Woodbury was the first to take alarm. In December, 1836, he reported the specie in the country to have increased from thirty millions in 1833 to seventy-three millions at the date of his report, and the paper circulation, in the same period, to have advanced, since the removal of the deposits from the Bank of the United States, from eighty millions to one hundred and twenty millions, or forty millions in eighteen months; and the bank capital, in the same period, to have increased from two hundred to three hundred millions. Importation augmented; the balance of trade suddenly turned against the United States to the extent of one hundred and fifty millions, and coin began to flow abroad to liquidate the account. There was no debt to attract foreign investment and arrest the export of specie. Added to this was the withdrawal of the government deposits from the pet banks, which compelled an immediate contraction. The result was inevitable. On May 10, 1837, the New York banks suspended, Mr. Gallatin's institution being of course dragged down with the rest. It is idle to suppose that any single bank can hold out against a general suspension. It may liquidate or become a bank of deposits, but it cannot maintain its relations with its sister institutions except on a basis of common accord.

A general suspension followed. Mr. Woodbury proved himself equal to the emergency, and recommended a plan of "keeping the public money under new legislative provisions without using banks at all as fiscal agents." This was the beginning of the sub-treasury system, a new departure in treasury management, and a further evolution in American finance. It still remains, and will no doubt be permanent. Its establishment was necessary because of the absence of a national bank.

Mr. Gallatin at once turned his attention to bring about first a liquidation and then a resumption. It was a favorite maxim with him, that "the agonies of resumption are far harder to endure than those of suspension," as it is easier to refrain from lapse of virtue than to restore moral integrity once impaired. But in resumption the suffering falls where it belongs, on the careless, the improvident, and the over-trader.

On August 15, 1837, the officers of the banks of New York city, in a general meeting, appointed a committee of three to call a convention of the principal banks to agree upon a time for a resumption of specie payments. This committee, of which Mr. Gallatin was chairman, on August 18 addressed a circular to the principal banks in the United States, inviting the expression of their wishes as to the time and place for a convention, suggesting New York as the place, and October, 1837, as the time. They said, in addition, that the banks of New York city, in view of the law of the State dissolving them as legal corporations in case of suspension for one year, must resume at some time between January 1 and March 15, 1838. The circular committed the New York banks to no definite action, but expressed the opinion that the fall in the rate of exchanges indicated an early return of specie to par, when resumption could be effected without danger. The banks of Philadelphia held a meeting on August 29, and adopted resolutions declaring it inexpedient to appoint delegates to the proposed convention. Aware of the reasons for this action, the chief of which was the extended and perhaps insolvent condition of the United States Bank of Pennsylvania, the New York committee invited the banks in the several States to appoint delegates to meet on November 27, 1837, in New York. Delegates from banks of seventeen States and the District of Columbia appeared. On the 30th resolutions were brought in recommending a general resumption on July 1, without precluding an earlier resumption on the part of such banks as might find it necessary. The Pennsylvania banks opposed this action with resolutions condemning the idea of immediate resumption as impracticable, and also, in the absence of delegates from the banks of Louisiana, Mississippi, Alabama, and Tennessee, as unwise. The convention met again on December 2, when an adjournment was carried to April 11, 1838, when delegates from the banks not represented were invited to attend. Mr. Gallatin saw that the combination of the Philadelphia and Boston banks, under the lead of Mr. Biddle, would certainly force a further postponement. Exchange on London, which had been as high as 121, the true par being about 109-1/2, nominal, had fallen to 111-1/2, which, considering that the city bank paper was at a discount of five per cent., was at the rate of 2-1/2 per cent. below specie par. The exportation of specie had entirely ceased.

On December 15 Mr. Gallatin and his committee appointed at the general convention submitted a report which he had drafted, which, though addressed to the New York banks, covered the whole ground. Meanwhile the highest authority in Pennsylvania had given it as his opinion "that the banks of Pennsylvania were in a much sounder state than before the suspension, and that the resumption of specie payments, so far as it depends on their situation and resources, may take place at any time."

On February 28, 1838, Mr. Gallatin's committee made a further report showing that the liabilities of the New York banks had been reduced more than twelve millions and a half, or fifty per cent., and asserting that with the support of the community and the state authorities they could resume on an equal footing on May 10. This declaration was welcomed with great satisfaction by a general meeting of the citizens of New York. On April 11 the general convention again met in New York. The Philadelphia banks declined to attend. A letter from Mr. Woodbury promised the support of the Treasury Department. A committee of one from each State was appointed, which recommended the first Monday in October as the earliest day for a general resumption. The convention could not, however, be brought to fix upon so early a day, but finally fixed upon January 1, 1839, and adjourned. The New York banks would have accepted July 1, 1838, but this being refused they resumed alone on May 10, and the force of public opinion compelled resumption by nearly all the banks of the country on July 1.

The terrible contraction was fatal to the United States Bank of Pennsylvania, which after a vain struggle closed its doors in October, 1839, and carried with it the entire banking system of the Southern and Southwestern States. Although in no way similar to the semi-governmental institutions which preceded it, yet, from its similarity of name and identity of location, its disastrous failure added to the blind popular distrust of its predecessors, which narrow-minded politicians had fostered for their own selfish purposes. Fortunately the sub-treasury plan of Mr. Woodbury supplied the need of a safe place of deposit which, since the refusal of Congress to renew the charter of the old bank, had been sorely felt.

In 1838, on the foundation of the Bank of Commerce under the free banking law of the State of New York, the presidency of it was first tendered to Mr. Gallatin. The directors of this bank were among the most distinguished financiers of the city, and its object was to provide a conservative institution with sufficient power and capital to act as a regulator upon the New York banks. Profit to the stockholders was secondary to the reserve power for general advantage.

In June, 1839, Mr. Gallatin resigned his post as president of the National Bank of New York. In 1841 he published a financial essay, which he entitled "Suggestions on the Banks and Currency of the United States," a paper full of information, but from the nature of the subject not to be compared in general interest with his earlier paper, which is as fresh to-day as when it was written. Mr. Gallatin condemned paper currency as an artificial stimulus, and the ultimate object of his essays was to annihilate what he termed the "dangerous instrument." He admitted its utility and convenience, when used with great sobriety, but he deprecated its tendency to degenerate into a depreciated and irredeemable currency. This tendency the present national banking law arrests, but the law rather invites than prohibits the stimulus of increased issues. The last word has not yet been said on national currency, which, though the basis of all commercial transactions, has necessarily no other relation to banks than that which it holds to any individual in the community.

Economic questions have interested the highest order of mind on the two continents. Sismondi published a paper on commercial wealth in 1803, and in 1810 a memoir on paper money, which he prepared to show how it might be suppressed in the Austrian dominions; Humboldt made a special study of the sources and quantity of the precious metals in the world, in which Mr. Gallatin aided him by investigation in America. Michel Chevalier was interested in the same subjects; surviving his two masters in the art and witnessing the marvelous effects of the additions made by America to the store of precious metals, he continued the study in the spirit of his predecessors, and favored the world with instructive papers. Mr. Gallatin's contributions to this science are remarkable for minute research and careful deductions.

In 1843 President Tyler tendered the Treasury portfolio to Mr. Gallatin. The venerable financier looked upon the offer as an act of folly to which a serious answer seemed hardly necessary. Yet as silence might be misconstrued, he replied that he wanted no office, and to accept at his age that of secretary of the treasury would "be an act of insanity." He was then in his eighty-third year. The offer of the post was but an ill-considered caprice of Mr. Tyler.

FOOTNOTES:

[Footnote 10: Cents are omitted as confusing figures.]

[Footnote 11: The first Annual Report of the Secretary of the Treasury. This was under the Supplementary Treasury Act.]

[Footnote 12: Excess of receipts, notwithstanding the purchase of Louisiana and payments on account of principal and interest of the debt.]

[Footnote 13: These were the banks of New York, Boston, Philadelphia, and Baltimore. Seven presidents formed the committee. John A. Stevens of New York was chairman, by request of the Secretary of the Treasury. The other members were named by him. The sum advanced to the government was one hundred and fifty millions of dollars in coin.]

[Footnote 14: At Portland, $120,000; Salem, $183,600; Boston, $75,300; Providence, $67,800; Richmond, $49,000; Norfolk, $103,000; Charleston, $354,000.]

[Footnote 15: Report of Secretary Dallas, September 20, 1816.]

[Footnote 16: Act of March 3, 1817.]

[Footnote 17: Democratic Review, xii. 641.]

[Footnote 18: Chairman of the Committee of Ways and Means.]



CHAPTER VII

IN THE CABINET

The general principles which Mr. Jefferson proposed to apply in his conduct of the government were not principles of organization but of administration. The establishments devised by Hamilton, in accordance with or in development of the provisions of the Constitution, were organic. The new policy was essentially restrictive and economic. The military and naval establishments were to be kept at their lowest possible limit. The Treasury Department was to be conducted on strictly business principles. The debt was to be reduced and finally paid by a fixed annual appropriation. The revenue was to be raised by imposts on importation and tonnage, and by direct taxation, if necessary. The public land system was to be developed. A scheme of internal improvements by land and water highways was to be devised. All these purposes except the last had been declared by the opposition during the last part of Washington's second term and during Adams's presidency, and had been lucidly expounded by Madison, Gallatin, Giles, Nicholas, and others of the Republican leaders. On all these subjects Mr. Gallatin was in accord with his chief. Only upon the bank question were they at issue. Mr. Jefferson detested or feared the aristocracy of money, while Gallatin, with a clearer insight into commercial and financial questions, recognized that in a young country where capital was limited, and specie in still greater disproportion to the increasing demands of trade, a well-ordered, well-managed money institution was an enormous advantage, if not an imperative necessity to the government and the people.

Peace was necessary to the success of this general policy of internal progress, but peace was not to be had for the asking. It was not till half a century later that the power of the western continent as a food-producing country was fully felt by Europe, and peace with the United States became almost a condition of existence to millions in the old world, while this country became independent, in fact as in name, to the fullest meaning of the word. Peace was not menaced during Jefferson's first administration, for the Federalists had left no legacy of diplomatic discord to embarrass their successors. The divisions of opinion were on home affairs. The Republican party was the first opposition which had reached power since the formation of the government. The Federalists had not hesitated to confine the patronage of the executive to men of their own way of thinking. The Republicans had attacked that principle. There were men even in the ranks of Jefferson's administration who scouted the idea that the President of the United States could become "the President of a party." But practice and principle are not always in accord, even in administrations of sentimental purity, and the pressure for office was as great in 1800 as it has ever since been on the arrival of a new party to power. Beyond all other departments of government, the Treasury depends for its proper service upon business capacity and a knowledge of the principles of accounting and office routine. Mr. Gallatin was well aware of the difficulties his predecessors had encountered in finding and retaining competent examining and auditing clerks. As there was no reason to suppose that all this talent was to be found in the ranks of the Republican party, and his common sense pointed out the folly of limiting the market of supply, he early (July 25, 1801) prepared a circular to collectors, in which he informed them "that the door of office was no longer to be shut against any man because of his political opinions, but that integrity and capacity suitable to the station were to be the only qualifications required; and further, the President, considering freedom of opinion or freedom of suffrage at public elections imprescriptible rights of citizens, would regard any exercise of official influence to sustain or control the same rights in others as injurious to the public administration and practically destructive of the fundamental principles of a republican Constitution." But Mr. Jefferson and Mr. Madison opposed this simple declaration of a principle which has since been the base of every attempt at reform in the civil service. Mr. Jefferson answered that after one half of the subordinates were exchanged, talents and worth might alone be inquired into in the case of new vacancies. This was a miserable shuffling policy which defeated itself. For a Federalist to retain office when such a discrimination was applied was of itself a degradation. Mr. Jefferson here threw away and forever lost the power to establish the true system, and fixed the curse of patronage upon American administration. The true principle may be stated in the form of an axiom. Administrations should rely for continuation upon measures, not on patronage. Gallatin yielded with reluctance to the spirit of persecution which he did not hesitate to say disgraced the Republican cause, and sank them to a level with their predecessors. Notwithstanding his aversion, he was compelled to follow the policy of the cabinet. Its first result was to divide the Republican party, and to alienate Burr, whose recommendation of Matthew L. Davis for the naval office at New York was disregarded. Had the new administration declined to make removals except for cause, such a dispute would have been avoided. As it was, the friends of Burr considered the refusal as a declaration of war. Appointments became immediately a part of the machinery of Republican administration, as it had been part of that of their predecessors, and each was carefully weighed and considered in its reference to party quite as much as to public service.

Already looking forward to the next presidential election, Gallatin was anxious for an agreement upon Jefferson's successor, and even before the meeting of the first Congress of his term he advised the President on this point, and he also proposed the division of every State into election districts by a general constitutional provision.

Jefferson submitted the draft of his annual messages to the head of each department, and invited their comments. Gallatin was minute in his observations, and it is interesting to note the peculiar precision and caution of his character in the nice criticisms of language and style, sometimes declaratory, sometimes non-committal, but always and obviously reasonable, and often presenting a brief argument for the change proposed. In these days of woman's rights it is curious to read "Th. J. to Mr. Gallatin. The appointment of a woman to office is an innovation for which the public is not prepared, nor am I."

Gallatin suggested a weekly general conference of the President and the secretaries at what is now styled a cabinet meeting, and private conferences of the President with each of the secretaries once or twice a week on certain days and at fixed hours. The business to come before the House was also to be considered, and the policy to be pursued determined upon. Unfortunately in this case again Jeffersonian theory did not accord with Jeffersonian practice. Even erratic Randolph complained of the want of system at these cabinet meetings, where each was at liberty to do and say as he chose; a severe trial, this, to Gallatin. In 1845 Mr. Gallatin wrote to Edward Coles that it was "quite unusual to submit to the cabinet the manner in which the land or naval forces authorized by Congress, and for which appropriations had been made, should be employed," and added that on no occasion, in or out of cabinet, was he ever consulted on those subjects prior to the year 1812.

In the difficulty which arose with the Barbary powers Mr. Gallatin earnestly urged the payment of an annuity to Tripoli, if necessary for peace. He considered it a mere matter of calculation whether the purchase of peace was not cheaper than the expense of a war. This policy was to be continued for eight years, at the end of which he hoped that a different tone might be assumed. In a note on the message of 1802, Gallatin expressed the hope to Jefferson that his administration would "afford but few materials for historians." He would never sacrifice permanent prosperity to temporary glitter.

Mr. Gallatin's counsel was sought, and his opinion deferred to, on subjects which did not fall directly within the scope of administration. Even on questions of fundamental constitutional law his judgment was not inferior to that of Madison himself. In one notable instance he differed from Mr. Lincoln, the attorney-general, whom he held in high esteem as a good lawyer, a fine scholar, "a man of great discretion and sound judgment." This was in 1803, when the acquisition of East Louisiana and West Florida was a cabinet question. Mr. Lincoln considered that there was a difference between a power to acquire territory for the United States and the power to extend by treaty the territory of the United States, and held that the first was unconstitutional. Mr. Gallatin held that the United States as a nation have an inherent right to acquire territory, and that, when acquisition is by treaty, the same constituted authorities in whom the treaty power is vested have a constitutional right to sanction the acquisition, and that when the territory has been acquired Congress has the power either of admitting into the Union as a new State or of annexing to a State, with the consent of that State, or of making regulations for the government of the territory. Mr. Jefferson concurred in this opinion, while at the same time he thought it safer not to permit the enlargement of the Union except by amendment of the Constitution. Mr. Gallatin's view was practically applied in the cases named, and later in the annexation of Texas, although he disapproved of the latter as contrary to good faith and the law of nations. He advised Jefferson, also, not to lay the treaty by which Louisiana was acquired before the House until after its ratification by the Senate, taking the ground that until then it was not a treaty, and urging that great care should be taken to do nothing which might be represented as containing any idea of encroachment on the rights of the Senate. He personally interested himself in the arrangements for taking possession of New Orleans, and, considering the expense as trifling compared with the object, urged the dispatch of an imposing force of not less than fifteen thousand men, which would add to the opinion entertained abroad of our power, resources, and energy; five thousand of these to be active troops; ten thousand an enrolled reserve. The acquisition of Louisiana was the grand popular feature of the foreign policy of the first term of Jefferson's administration. The internal management left much to be desired.

While his general views were exalted, and his principles would stand the nicest examination in their application, Mr. Jefferson was not fortunate in his choice of methods or men. It is not enough for an administration to be pure; it should be above suspicion. This his was not. Time has not washed out the stain of his intimacy with William Duane, the editor of the infamous "Aurora." Citizen Duane, as he styled himself in the first days of the administration, quarreled with Gallatin because he would not apply the official guillotine, and thereafter pursued him with uncompromising hostility. Of favoritism in appointments Mr. Gallatin could not be accused. During his twelve years in the Treasury he procured places for but two friends; one was given an obscure clerkship in the department; the other, John Badollet, was made register in the land office at Vincennes, against whom Gallatin said in the application for appointment which he reluctantly made, there was but one objection, "that of being his personal and college friend."

The dispositions for the sale of lands in the western territory, the extinguishment of titles, and the surveys fell under Mr. Gallatin's general supervision, and were the objects of his particular care. So also was the establishment of the authority of the United States in the Louisiana territory. In the course of these arrangements he was brought into contact with Mr. Pierre Choteau of St. Louis, who controlled the Indian trade of a vast territory. The foundation of an intimate acquaintance was then laid. The influence of this remarkable man over the Western Indians and the extent of his trading operations with them was great, and has never since been equaled. About this period Mr. John Jacob Astor informed the government that he had an opportunity, of which he intended to take advantage, to purchase one half of the interest of the Canadian Fur Company, which, notwithstanding the treaty of 1794, engrossed the trade by way of Michilimackinac with our own Indians. Before that period this lucrative traffic had been exclusively in British hands, and the hostility of the Indian tribes rendered any interference in it by Americans dangerous to life and property, and their participation since had been merely nominal. Jefferson's cabinet received the proposal with satisfaction, but, in their strict interpretation of the Constitution, could find no way of giving any aid to the scheme beyond the official promise of protection, which it fell to Mr. Gallatin to draft. Mr. Jefferson wrote to Mr. Astor a letter to the same effect. Mr. Astor, however, was not deterred from his enterprise, but, under the charter of the American Fur Company granted by the State of New York, extended his project to the Indians west of the Rocky Mountains, and made of it an immense business, employing several vessels at the mouth of the Columbia River and a large land party beyond the Rocky Mountains. He finally founded the establishment of Astoria. This settlement fell into the hands of the British during the war of 1812. Mr. Astor sought to persuade the American government to permit him to renew the establishment at its close, only asking a flag and a lieutenant's command, but Mr. Madison would not commit himself to the plan.

Among Mr. Jefferson's pet schemes was that of a substitution of gunboats for fortifications, and for supporting the authority of the laws within harbors. The mind of Mr. Jefferson had no doubt been favorably disposed to this mode of offensive defense by the experience of Lafayette at Annapolis, in his southern expedition in the spring of 1781, when his entire flotilla, ammunition of war, and even the city of Annapolis, were saved from destruction by two improvised gunboats, which, armed with mortars and hot shot, drove the British blockading vessels out of the harbor. Jefferson first suggested the scheme in his annual message of 1804, and Gallatin did not interfere; but when, in 1807, the President insisted, in a special message, on the building of two hundred vessels of this class, Mr. Gallatin objected, because of the expense in construction and maintenance, and secondly, of their infallible decay. Mr. Jefferson persisted, and Mr. Gallatin's judgment was vindicated by the result. Two years later, of one hundred and seventy-six gunboats constructed, only twenty-four were in actual service. In his letter of criticism, Mr. Gallatin gave as his opinion, that "it would be an economical measure for every naval nation to burn their navy at the end of a war and to build a new one when again at war, if it was not that time was necessary to build ships of war." The principle was the same as to gunboats, and the objection of time necessary for building did not exist.

This year he also laid before the President a memorandum of preparatory measures for defense against Great Britain, from whom an attack was expected by land and sea, and a second plan for offensive operations on the northern frontier, which is complete in its geographical and topographical information, and its estimate of resources in men, material, and money. At the same time he urged upon Mr. Jefferson to moderate the tone of his message, so as not to widen the breach by hurting the pride of Great Britain.

In connection with the land system, Mr. Jefferson favored, and Mr. Gallatin devised, an extensive plan of internal improvements. The route of the Cumberland road from the Potomac to the Ohio was reported to Congress in 1807; a coast survey was ordered in the same year. The first superintendent was Hassler, a Swiss, whom Mr. Gallatin brought to the notice of Mr. Jefferson. In 1808 a general plan of improvement was submitted to the Senate. This included canals parallel with the seacoast, making a continuous line of inland navigation from the Hudson to Cape Fear; a great turnpike from Maine to Georgia; the improvement of the Susquehanna, Potomac, James, and Santee rivers to serve the slope from the Alleghanies to the Atlantic; of the Alleghany, Monongahela, and Kanawha, to serve the country westward to the Mississippi, the head waters of these rivers to be connected by four roads across the Appalachian range; a canal at the falls of the Ohio; a connection of the Hudson with Lake Champlain, and of the same river with Lake Ontario at Oswego; and a canal around Niagara Falls. The entire expense he estimated at $20,000,000, to be met by an appropriation of $2,000,000 a year for ten years; the stock created for turnpikes and canals to be a permanent fund for repairs and improvements.

A national university for education in the higher sciences was also recommended by Jefferson in his message of 1806, but Mr. Gallatin had little faith in the popularity of this scheme. After the convulsion of 1794 in Geneva, Gallatin's old college mate, D'Yvernois, conceived the plan of transporting the entire University of Geneva to the United States, and wrote on the subject to Jefferson and Adams; but his idea was based on the supposition that fifteen thousand dollars' income could be had from the United States in support of the institution, which was, of course, at the time impracticable. Jefferson believed that these plans of national improvement could be carried into effect only by an amendment to the Constitution; but Mr. Gallatin, as in the bank question, was disturbed by no such scruples, and he recommended Mr. Jefferson to strike from his message the words "general welfare," as questionable in their nature, and because the proposition seemed to acknowledge that the words are susceptible of a very dangerous meaning.

To a permanent embargo act Mr. Gallatin was from the beginning opposed. He recognized the mischief of government prohibitions, and thought that statesmen might well hesitate before they took the hazard of regulating the concerns of individuals. The sequel proved the correctness of this judgment. But Mr. Jefferson could not bring his mind to any more decisive measure, indeed, it may justly be said, to any measure whatever. Taking advantage of Mr. Madison's election to the presidency, he simply withdrew from the triumvirate, and, passing over the subject in silence in his last message, he ignominiously left to Mr. Madison and Mr. Gallatin the entire responsibility which the threatening state of the foreign relations of the country imposed on the Republican party.

The question was now between the enforcement of the Embargo Act and war. To take off the embargo seemed a declaration of weakness. To add to it a non-importation clause was the only alternative. In November, 1808, Mr. Gallatin prepared for George W. Campbell, chairman of the Committee on Foreign Relations of the House, the declaration known as Campbell's report, which recited, in clear, compact form, the injuries done to the United States by Great Britain, and closed with resolutions to the effect that the United States could not submit to the edicts of Great Britain and France, and with a recommendation of non-intercourse and for placing of the country in a state of defense. After long debate the resolutions were adopted by large majorities, and the policy of resistance was finally determined upon—resistance, not war. Thus the United States resorted, as the colonies had resorted in 1774, to a policy of non-importation. But the condition of the States was not that of the colonies. Then all the colonies were commercial, and the entire population was on the seaboard; the prohibition fell with equal weight upon all. Now there were large interior communities whom restrictions upon commerce would rather benefit than injure. Yet neither the Sons of Liberty nor the non-importation associations had been able to enforce their voluntary agreements either before or after the Congress of 1774. If this were to be the mode of resistance, stringent measures must be adopted to make it effective. Mr. Gallatin accordingly called upon Congress for the necessary powers. They at once responded with the Enforcement Act, which Mr. Gallatin proceeded to apply with characteristic administrative vigor, and summoned Jefferson to authorize the collectors of revenue to call the military force of the United States to support them in the exercise of their restrictive authority. There was to be no evasion under the systems which Hamilton devised and Gallatin knew so well how to administer.

His annual report made to Congress on December 10 had clearly set forth the situation, and, without recommending war, had pointed out how it might be carried on. Macon wrote of him on December 4 to their mutual friend, Joseph H. Nicholson, "Gallatin is decidedly for war." After his report was sent in the situation became still more perplexing. Rumors came of an intention to call a convention of the five New England States, with New York, if possible, to take ground against the embargo. As these indications of dissatisfaction became manifest, and the contingency of the employment of force at home presented itself, Gallatin made a careful balance of the advantages and inconveniences of embargo, non-intercourse, and letters of marque. This paper, dated February, 1809, and entitled, "Notes on the Political Situation," no doubt served as a brief for consultation with Madison upon his inaugural message, it being then understood that Gallatin was to be secretary of state. As he states one of the advantages of letters of marque to be "a greater chance of unity at home," this measure he probably preferred. The Senate had already, on January 4, passed a bill ordering out the entire naval force of the country, and on the 10th the House adopted the same bill by a vote of 64 to 59. Mr. Gallatin opposed this action strenuously. On February 2 the House voted by a large majority to remove the embargo on March 4. Non-intercourse with Great Britain and France and trade everywhere else were now the conditions. This significant expression of the feeling of Congress no doubt determined Mr. Gallatin to suggest letters of marque. Whether he pressed them upon Mr. Madison or not is uncertain. Meanwhile Mr. Gallatin suffered the odium of opposition to the will of Congress, and Mr. Madison's power was broken before he took his seat. A few Republican senators inaugurated an opposition to their chief after the fashion of modern days, and Mr. Madison was given to understand that Mr. Gallatin would not be confirmed if nominated as secretary of state. Mr. Madison yielded to this dictation, and from that day forward was, as he deserved to be, perplexed and harassed by a petty oligarchy. Mr. John Quincy Adams, in a note on this affair, says that, "had Mr. Gallatin been appointed secretary of state, it is highly probable war with Great Britain would not have taken place." But it is improbable that any step in foreign intercourse was taken without Mr. Gallatin's knowledge and approbation. Such are the traditions of the triumvirate.

The first term of Madison's administration was not eventful. There was discord in the cabinet. In the Senate the "invisibles," as the faction which supported Robert Smith, the secretary of state, was aptly termed, rejected Madison's nominations and opposed Gallatin's financial policy as their interests or whims prompted. Randolph said of Madison at this time, that he was "President de jure only." Besides this domestic strife, the cabinet was engaged in futile efforts to resist the gradually tightening cordon of British aggression. Erskine's amateur negotiations, quickly disavowed by the British government, and the short and impertinent mission of Jackson, who succeeded him and was dismissed from the United States, well served Canning's policy of delay. Madison, whose prejudices were as strongly with Englishmen and English ways as those of Jefferson were with the men and manners of France, averse to war and withheld also by Gallatin's persistent objections, negotiated and procrastinated until there was little left to argue about. In December, 1809, Macon made an effort to pass a stringent navigation act to meet the British Orders in Council and the French decrees. The bill passed the House but was emasculated in the Senate, the Republican cabal voting with the Federalists to strike out the effective clauses. The act interdicting commercial intercourse with Great Britain and France expired in May, 1810, and was not revived. A new act was passed, which was a virtual surrender of every point in dispute. Resistance was abandoned, and our ships and seamen were left to the mercy of both belligerents.

Mr. Gallatin's entire energies were bent upon strengthening the Treasury and opposing reckless expenditures. His most grievous disappointment, however, was in the refusal of Congress to renew the charter of the Bank of the United States. He used every possible effort to save this institution, which, in the condition of the country, was indispensable to a sound currency and the maintenance of specie payment. But with the dead weight of Mr. Madison's silence, if not indifference, the struggle was unequal and the bank fell. The course of Mr. Madison can hardly be excused. Political history records few examples of a more cruel desertion of a cabinet minister by his chief. Mr. Gallatin felt it deeply and tendered his resignation. The administration was going to pieces by sheer incapacity. The leaders took alarm and the cabinet was reconstructed, Monroe being called to the Department of State. But the enemies of Mr. Gallatin still clung to his skirts, determined to drag him to the dust. Duane attacked him in the most dangerous manner. Probably no man in America has ever been abused, vilified, maligned with such deliberate persistency as was Gallatin in the "Aurora" from the beginning of 1811 until the cabinet crisis, when Mr. Madison was compelled to choose between Smith and himself. Day after day leaders were devoted to personal assault upon him and to indirect insinuations of his superiority to Madison, by which the artful editor sought to arouse the jealousy of the President. The "Atlas at the side of the President," the "Great Treasury Law Giver," the "First Lord of the Treasury," the "Dagon of the Philistines," were favorite epithets. He was charged by turns with betraying cabinet secrets to Randolph, with amateur negotiation with Erskine, and with subserviency to British gold in the support of the Bank of the United States. Here is an instance of Duane's style: "We can say with perfect conviction that, if Mr. Madison suffer this man to lord it over him, Mr. Gallatin will drag him down, for no honest man in the country can support an administration of which he is a member with consistency or a pure conscience." It was charged upon Gallatin that his friends considered him as the real, while Madison was the nominal, president. More than this, he was accused of embezzlement and enormous speculations in the public lands. Gallatin's party pride must have been strong indeed to have induced him to stay an hour in an administration which granted its favors to the author of such assaults upon one of its chosen leaders.

Jefferson wrote to Mr. Wirt in May following, that, because of the bank, endeavors were made to drive from the administration (of Mr. Madison) the ablest man, except the President, who ever was in it, and to beat down the President himself because he was unwilling to part with such a counselor.

Monroe was appointed secretary of state in Smith's place in April, 1811. Other changes followed in the cabinet, but brought little relief to Mr. Gallatin. Financial affairs now occupied his entire attention; on the one hand was a diminishing treasury; on the other an expenditure reckless in itself and beyond the demands of the administration. Without the sympathy of either the Senate or House, Mr. Gallatin's position became daily more irksome, until at last he abandoned all attempt to control the drift of party policy, took the war party at their word, and sent in to the House a war budget.

Unfortunately for the country, the Republican party knew neither how to prepare for war, nor how to keep the peace. Mr. Madison had none of the qualifications of a war President; neither executive ability, decision of character, nor yet that more important faculty, knowledge of men. In his attachment to Mr. Madison and in loyalty to what remained of the once proud triumvirate of talent and power, Mr. Gallatin supplied the deficiencies of his fellows as best he could, until an offer of mediation between the United States and Great Britain on the part of the emperor of Russia presented an opportunity for honorable withdrawal and service in another and perhaps more congenial field. In March, 1813, the Russian minister, in a note to the secretary of state, tendered this offer. Mr. Gallatin had completed his financial arrangements for the year, and requested Mr. Madison to send him abroad on this mission. Unwilling to take the risk of new appointments, the President acceded to this proposal, and gave him leave of absence from his post in the Treasury. Mr. Gallatin did not anticipate a long absence, and felt, as he said to his old friend Badollet, that he could nowhere be more usefully employed than in this negotiation. Certainly he could have no regret in leaving a cabinet which had so little regard to his own feelings and so little political decency as to confer the appointment of adjutant-general in the United States army on his malignant assailant, William Duane of the "Aurora."

Mr. Gallatin's mission, followed by the resignation of his post in the cabinet, finally dissolved the political triumvirate, but not the personal friendship of the men. Numerous attempts were made to alienate both Jefferson and Madison from Gallatin while he held the portfolio of the Treasury, but one and all they signally and ignominiously failed. For Mr. Jefferson Mr. Gallatin had a regard near akin to reverence. A portrait of the venerable sage was always on his study table. When about setting out for France in 1816 he tendered his services to his old chief and wrote to him that 'in every country and in all times he should never cease to feel gratitude, respect, and attachment for him.' Jefferson fully reciprocated this regard. From Monticello he wrote to Gallatin in 1823: "A visit from you to this place would indeed be a day of jubilee, but your age and distance forbid the hope. Be this as it will, I shall love you forever, and rejoice in your rejoicings and sympathize in your ails. God bless and have you ever in His holy keeping." Nor does Mr. Gallatin seem to have allowed any feeling of disappointment or dissatisfaction at Mr. Madison's weakness to disturb their kindly relations. Their letters close with the reciprocal assurance of affection as well as of esteem.



CHAPTER VIII

IN DIPLOMACY

The Treaty of Ghent

On May 9, 1813, the ship Neptune sailed from New Castle on the Delaware, having on board Albert Gallatin and James A. Bayard, ministers of the United States, with their four secretaries, of whom were Mr. Gallatin's son James, and George M. Dallas, son of his old Pennsylvania friend. They were accompanied to sea by a revenue cutter. Off Cape Henlopen they were overhauled by the British frigate on the station, and their passport was countersigned by the English captain. On June 20 they reached the mouth of the river Gotha. Here the vessel lay at quarantine for forty-eight hours, during which the gentlemen paid a flying visit to Gottenburg. At dusk, on the 24th, the Neptune anchored in Copenhagen inner roads, the scene of Nelson's attack in 1801. Mr. Gallatin's brief memoranda of his voyage contain some crisp expressions. He found "despotism and no oppression. Poverty and no discontent. Civility and no servile obsequiousness amongst the people. Decency and sobriety."

St. Petersburg was reached on July 21. Here Gallatin and Bayard found John Quincy Adams, then minister to Russia. He was one of the three commissioners appointed to treat for peace under the mediation which the Emperor Alexander had offered to the United States. Bayard and Adams were Federalists. To the moderate counsels of the former Jefferson owed his peaceable election. Gallatin and Adams had the advantage of thorough acquaintance with European politics. To Gallatin the study of history was a passion. He was familiar with the facts and traditions of diplomacy. He knew the purpose, the tenor, and the result of every treaty made for centuries between the great powers; even their dates were at ready command in his wonderful memory. But, excepting the few Frenchmen of distinction who in the exile which political revulsions imposed upon them had crossed the sea, he had no acquaintance with Europeans of high position, and none whatever with the diplomatic personnel of European courts. In this Adams was more fortunate. Educated abroad, while his father was minister to the court of St. James, he was from youth familiar with courts and their ways. To be the son of a president of the United States was no small matter at that day. The conjunction of these two men was rare. One of European birth and trained to American politics, the other of American birth and brought up in the atmosphere of European diplomacy. In their natural characteristics they were the opposite of one another. Adams was impetuous, overbearing, impatient of contradiction or opposition. Gallatin was calm, self-controlled, persistent; not jealous of his opinions, but ready to yield or abandon his own methods, if those of others promised better success; never blinded by passion or prejudice, but holding the end always in view. That end was peace; "peace at all times desirable," as Mr. Gallatin said a few days before his departure on his mission, but much more so, 'because of the incapacity shown in the conduct of the war, its inefficiency when compared with its expense, and the open hostility to it of a large number of the American people.' In the face of the disasters which had befallen the country Mr. Gallatin must have felt some qualms of conscience for his persistent opposition to the military and naval establishments. Their reorganization had place in his desire for peace. He said, May 5, 1813: "Taught by experience, we will apply a part of our resources to such naval preparations and organization of the public force as will, within less than five years, place us in a commanding situation." With the particulars of the dispute between the two countries he was perfectly familiar. His report prepared in 1808 for Mr. Campbell, chairman of the Committee on Foreign Relations, covered the whole ground of the American argument.

At the outset there seemed good ground for hope of an early agreement. European politics were at a critical point, and England naturally wished to husband her resources for a sudden emergency. The mediation of Russia Mr. Gallatin considered a salve to the pride of England. This reasoning seemed sound enough, but it had not taken account of one important element: the jealousy of England of any outside interference between herself and her ancient dependencies. Mr. Gallatin did not hold English diplomacy in very high regard. Late in life he said that the history of the relations of England and France was a story of the triumphs of English arms and of French diplomacy; that England was always victorious, but France had as often negotiated her out of the fruits of success. True as this remark was in general, it cannot be said of the policy of England in American affairs. She pushed to the utmost her exclusion of France from the American continent when the States were colonies, and now that they were free and independent she would listen to no foreign intervention. Neither in peace nor war should any third government stand between the two nations. This was and ever has been the true policy of Great Britain, and that it was not lost sight of in the heat of war is to the credit of her diplomacy. The offer of Russia to mediate was not welcome, and was set aside by Lord Castlereagh in a note of discouragement. There was no ground for the commissioners to stand upon; moreover the emperor and Count Nesselrode were absent from St. Petersburg, Count Romanzoff being left in charge of the foreign relations. The offer of mediation had originated with him. His policy was to curb the maritime power of England, and to secure in the negotiation a modification at least of the offensive practice of Great Britain in her assumed police of the sea.

The war was in fact a legacy of the necessarily incomplete diplomacy of Washington's administration and the Jay treaty. The determining cause was the enforcement of the right of search and the impressment of seamen from American vessels; a practice at variance with the rights and the law of nations. Monroe, Madison's secretary of state, urged the clear and distinct forbearance of this British practice as the one object to be obtained. An article in the treaty giving security in that respect was by Gallatin, as well as by Monroe, considered a sine qua non condition; while Mr. Bayard viewed an informal arrangement as equally efficient and more practicable than a solemn article. But there was no doubt of Bayard's determination to reach the result prescribed in their instructions.

Mr. Gallatin's first act after setting foot on European shores was to write to Baring Brothers & Co. at London. This he did from Gottenburg, requesting a passport for the Neptune, which the commission proposed to retain at St. Petersburg until their return. At the same time he intimated that he wished the British government to be informed of the object of the mission. For the expenses of the commission the ambassadors had authority to draw on the Barings. The reply of Mr. Alexander Baring must at once have opened Mr. Gallatin's eyes to the futility of the errand of the commissioners. His words clearly state the British grounds of objection: "The mediation of Russia was offered, not sought,—it was fairly and frankly accepted,—I do not see how America could with any consistency refuse it; but to the eyes of a European politician it was clear that such an interference could produce no practical benefit. The only question now seriously at issue between us is one purely of a domestic nature in each country respectively; no foreign government can fairly judge of it." Pointing out the difficulty of establishing any distinction between the great masses of the seafaring population of Great Britain and America, he finds that no other country can judge of the various positions of great delicacy and importance which spring from such a state of things; and says: "This is not the way for Great Britain and America really to settle their disputes; intelligent persons of the two countries might devise mutual securities and concessions which perhaps neither country would offer in the presence of a third party. It is a sort of family quarrel where foreign interference can only do harm and irritate at any time, but more especially in the present state of Europe, when attempts would be made to make a tool of America." These, he said he had good reason to know, were the sentiments of the British cabinet on the question of place of negotiation and foreign mediation. He also informed Mr. Gallatin that the mediation of Russia had been refused, and that the British government would express its desire to treat separately and directly either at London or Gottenburg. He warned Mr. Gallatin that an opinion prevailed in the British public that the United States were engaged to France by a secret political connection, which belief, though perhaps not shared by the government, would lead it to consider the persevering of the American commission upon bringing the insulated question before the powers of the Continent as a touchstone of their sincerity. He hoped that the American commissioners would come at once in contact with the British ministers, and pointed out the hesitation that every minister would feel at giving instructions on a matter so delicate as that "involving the rights and duties of sovereign and subject." He then declared that there was in England a strong desire for peace and for ending a contest in which the "two countries could only tease and weaken each other without any practical result," and at a time when England desired to carry her resources into the "more important field of European contest." He then gave Castlereagh's assurance, that the cartel-ship, the Neptune, should be respected, and expressed his own personal hope that he should ere long be gratified by seeing it bring, with the commissioners, the hope of peace to the shores of England.

Meanwhile Mr. Gallatin was engaged in explaining the American case to Romanzoff by conversation and by a written statement of the facts in the form of an unofficial note to the emperor. On August 10 word was received from the Emperor Alexander authorizing the renewal of the offer of mediation; and shortly after a letter from General Moreau, written to Mr. Gallatin from the imperial headquarters at Hrushova, assured him of his sympathy and assistance. His relations with Gallatin were of long standing and of an intimate nature. Moreau, after a long residence in America, to which he was warmly attached, had lately crossed the ocean and tendered his able sword to the coalition against Bonaparte. He informed Gallatin that one of the British ministers had said to him in Germany that England would not treat of her maritime rights under any mediation. He feared that American vanity would hardly consent to treat directly with Great Britain, and foresaw that the political adversaries of Madison and Gallatin would blame the precipitation of the United States government in sending over the envoys before the adhesion of England to the proposed arbitration was secured. He assured Gallatin of the interest of the Emperor Alexander in the Americans.

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