America's Fiscal Constitution (16 page)

Tyler’s secretary of the treasury, Tom Ewing of Ohio, tried to distance the Tyler administration from Van Buren’s reliance on short-term notes.
He attempted to sell $12 million in bonds, an amount greater than the capacity of the fragile banking system. Ewing wrote and Congress passed legislation chartering the Fiscal Bank of the United States. Tyler vetoed it as an infringement on the rights of state-chartered banks. Ewing tried to avoid that problem with a new bill creating the Fiscal Corporation of the United States, an entity that had the sole function of accepting deposits and purchasing federal debt. At Calhoun’s urging, Tyler also vetoed that bill. Treasury Secretary Ewing subsequently resigned, and frustrated Whigs expelled the president from their party.

Though federal leaders had argued about how to borrow during the depression, the nation’s track record of paying down debt served it well when the economy recovered in 1843. The Treasury was able to market a long-term bond at a modest effective yield of 4.82 percent.

Van Buren’s political party prepared for a comeback in 1844, the year in which it officially adopted the “Democratic Party” name. Van Buren himself steadily lined up support for another presidential nomination. He was confident in his ability to find common ground within a party. In 1844 that familiar ground experienced the tremors of an earthquake that would eventually shatter its foundation and national unity. Party politics began dividing along the fault line of slavery.

Van Buren sought to stifle the very discussion of the emotional topic of slavery. Neither he nor anyone else could silence John Quincy Adams, however. Adams had returned to Washington as an independent member of the House of Representatives in 1830. Since then, his impolitic voice—one that had once urged members of Congress not to be “palsied” by the will of constituents—repeatedly reminded citizens that slavery violated the ideals of Christian morality and democratic equality. He frustrated Democratic and Whig leaders with a long and ultimately successful fight against congressional rules that prohibited legislative debate over slavery. Every year Adams’s message gained resonance, particularly among devout Christians in the North, a group whose numbers grew during that era’s Great Awakening. Appeals to widely shared moral values tend to prevail in American politics when they are not countered by some other deep conviction. That fact explains the historical aversion to saddling future generations with debt. In 1844 Calhoun felt compelled to defend slavery by writing a racist tract that claimed enslavement was the only “moral” way to incorporate Africans and their descendants into American society.

Moral issues brook little compromise. Adams and Calhoun turned the debate over whether to annex Texas into a national referendum on the extension of slavery. The Democratic and Whig frontrunners for the presidential nomination in 1844, Van Buren and Henry Clay, tried to separate the issues of Texas and slavery by embracing the concept of territorial expansion while opposing the annexation of Texas on the grounds that it would provoke war with Mexico. Many Texans invited annexation, since their republic had been unable to balance its budget or pay its debts.

Jackson’s strong endorsement of the annexation of Texas undermined Van Buren’s position in the days leading up to the Democratic nominating convention. Van Buren, the Little Magician, ran out of tricks after unsuccessfully trying to eliminate a convention rule—that he had once endorsed—requiring a two-thirds majority vote for the nomination of a presidential candidate. After numerous ballots, a tired and deadlocked convention abandoned Van Buren and nominated the first “dark horse” presidential candidate, James Knox Polk of Tennessee.

Polk proceeded to win a very close election and then appointed the unusual Robert Walker, who had led the fight to preserve the two-thirds rule at the convention, as secretary of treasury. A tiny man with a quick mind and acerbic wit, Walker combined elite East Coast credentials with frontier sensibilities. He had been educated at the University of Pennsylvania and married Benjamin Franklin’s granddaughter before moving to Mississippi to seek his fortune. As a senator from Mississippi, he became the most vocal advocate for annexing Texas.

Polk and Walker’s relentless pursuit to annex the state led to war with Mexico, a war Walker financed with debt and taxes imposed on Mexican commerce. With a strong economy and good credit history, the federal government was able to sell bonds in exchange for amounts paid entirely in gold and silver coins. To pay for their war, Polk’s government issued net debt of $49 million in bonds and Treasury notes.
³³
The Treasury received bids totaling $57.7 million for an $18 million bond issue. President Polk also encouraged Congress to economize on spending unrelated to the conflict, “a high duty which . . . becomes the more imperative in a period of war.”
³⁴

The Mexican Cession of 1848 and the acquisition of territory in the northwest from Great Britain extended the nation’s borders to the Pacific Ocean. The 1.2 million square miles of new territory obtained by the Polk administration exceeded even the size of the Louisiana Purchase. In
1850 the United States assumed $10 million in debts of the Republic of Texas—which previously had traded at 10 cents on the dollar—in return for a large portion of Texas’s territory that included much of present-day New Mexico and parts of other states to the north. Texas received $5 million in 1852, and another $5 million was paid to bondholders, who included prominent political and financial figures in Washington.
³⁵

Secretary Walker initiated the first comprehensive federal tax reform in American history. The Walker Tariff of 1846 attempted to set import tax rates based on the principle that they should be simplified and fixed at the “the lowest rate which will yield the largest amount of revenue.”
³⁶
It imposed three different rates that would be applied to goods in three basic categories, with luxuries such as whiskey and cigars being taxed at the highest rate.

Walker’s reform of import taxes was one of the few “tax reforms” in federal history that did not sacrifice revenue. Whigs complained about lower import taxes, but the nation’s iron and textile industries continued to thrive.

Thirteen years of astounding economic growth—1844 through 1856—followed the recovery from the Panic of 1837. A tide of immigration—which rose steadily from 114,371 new residents in 1845 to 427,833 in 1854—helped fuel this growth. The almost 2.9 million immigrants who arrived in America during those years equaled a sixth of the entire national population in 1840. More Germans arrived in 1854 than the total number of immigrants from all countries during the period between 1820 and 1832.
³⁷
The number of Irish immigrants arriving in 1851 alone exceeded the entire population of Florida, Delaware, Rhode Island, or Iowa.

Farm output soared. The value of wheat, corn, and beef production doubled in the ten years beginning in 1844, as did the value of cotton exports. Railroad construction exploded in Ohio, Indiana, and Illinois. Railroads integrated those states—the Old Northwest territory—into the economy of the Northeast. The use of anthracite coal also boosted iron production dramatically in this period.

Gold discoveries increased national production of the world’s most precious commodity. The population of California, which exported more than $45 million worth of gold annually by the mid-1850s, rose twenty-fold, giving rise to new needs for transportation and communication to connect the new state to the rest of the nation.
³⁸
Gold production permitted the United States, for the first time, to rely on its own coins rather than those imported from Spain and Mexico. Credit expanded as banks accumulated gold reserves.

Federal revenues and surpluses grew apace. Sales of public lands soared to $9 million per year by the mid-1850s.
³⁹
From 1844 to 1854, the value of exports increased from $105 million to $237 million, while imports rose from $104 million to $309 million.
⁴⁰
Import tax revenues climbed steadily from $17 million in 1843 to a high of $64 million in 1854, which allowed the government to pay off much of the debt incurred during the Panic of 1837 and the Mexican-American War.
⁴¹
In 1854 the federal debt of $42 million was no greater than it had been just before the War of 1812, when the country’s economy was much smaller.
⁴²
Since the federal government would have to buy back additional debt at a sharp premium over its face value, cash balances accumulated in the Treasury. Congress raised spending to subsidize postal service to the West Coast and to deploy military forces to counter hostility from displaced Native Americans.

This remarkable period of economic expansion is just one example of many throughout American history when no one seriously entertained the idea that the federal government needed to spend borrowed money in order for the economy to grow.

By the 1850s the national political debate focused on social rather than economic issues. The massive wave of foreign immigration sparked a nativist backlash. Above all, a rising population in the Western territories forced the United States to confront choices about the future of slavery outside the South.

T
HE
L
ITTLE
M
AGICIAN AND
S
ALMON
C
HASE

Martin Van Buren was not content to sit on the sidelines and let Polk, Walker, and Calhoun run the party he had done so much to build. Within a few years of his loss of the Democratic nomination in 1844, Van Buren emerged as a catalyst for the formation of a new political party opposed to the extension of slavery into the territories. They called themselves Free Soilers and, eventually, many of the new party’s members became the first Republicans.

For awhile after 1844 Van Buren was content to watch with pride as his loyal lieutenant, Silas Wright, developed a national following. As New York’s governor, Wright helped break up the Old World property laws that perpetuated the Hudson River aristocracy. Polk and other party leaders offered the vice presidential nomination to the popular Wright after the South turned against Van Buren at the 1844 convention. Wright
curtly declined the invitation in a message transmitted from the Baltimore Democratic convention to Washington, DC, by the nation’s first major telegraph line. Wright would not abandon Van Buren or serve in an administration that advocated the addition of states permitting slavery.

Van Buren’s political prowess commanded respect; Wright’s forthright principles earned affection. Northern Democrats grieved when Wright died while working on his farm in 1847. Even more mourned after John Quincy Adams died early the following year. No death of a public figure affected Northern citizens so greatly since the passing of Adams’s father and Thomas Jefferson on the fiftieth anniversary of the Declaration of Independence in 1826. The irascible former president, who had once urged members of Congress not to be swayed by the will of their constituents, had strengthened the will of many Americans on the issue of slavery.

Van Buren returned to the political fray as his old adversary was laid to rest. He rallied a faction within the New York Democratic Party in opposition to the extension of slavery. People called members of this group “Barnburners” because they fought in the spirit of a stubborn Dutch farmer who, according to legend, had burned down his barn to kill a detested rat.

John Van Buren, the former president’s son and a powerful orator, excited a Barnburner convention in 1848 with a slogan adopted in part by a new political movement: “Free Trade, Free Labor, Free Soil, Free Speech, and Free Men.” Martin Van Buren himself wrote a well-publicized “Barnburner Manifesto,” which declared that “free labor and slave labor . . . cannot flourish under the same laws.”
⁴³

Antislavery activist Salmon Chase of Ohio wrote excitedly to his friend Charles Sumner that the Barnburners’ stand on slavery represented a turning point “in the History of Parties in the Country.”
⁴⁴
The Barnburners asked for Chase’s help in organizing a new national party, a task that Chase had spent a lifetime preparing for.

Chase was one of eight children left destitute in New Hampshire after his father’s death. After being raised by a relative in the clergy on the Ohio frontier, Chase studied law under William Wirt, who served as attorney general for a record twelve years during the Monroe and Adams administrations. He then practiced law in the boomtown of Cincinnati, the heart of the nation’s slaughterhouse industry and home to the West’s most active Christian abolitionists.

There, in 1834, the scholarly young Chase prepared the first standard text on Ohio law, in which he argued that the Northwest Ordinance of
1787 showed the intention of the Founding Fathers to prohibit slavery in all states created from federal territories. Chase also believed that federal fugitive slave laws infringed on the constitutional right of states to ban slavery within their boundaries, an argument he put to the test when representing a runaway slave named Matilda. Matilda escaped to Cincinnati when her white father and “master” brought her on a trip across the river from Kentucky. She found refuge in the household of James Birney, an antislavery publisher in Cincinnati. Though Chase lost the trial and Matilda was ultimately returned to slavery, the young lawyer’s stature grew in the national antislavery movement.

Chase then worked to raise the profile of the miniscule Liberty Party, founded by Matilda’s patron, James Birney. Chase labored in hopes of creating a vehicle for Northern Democrats whom he expected to break from their national party on the issue of slavery. As a result, Chase aligned his views with Democratic opposition to debt and bank notes. He framed his opposition to slavery as a populist attack on “the Slave Power” in the form of Southern plantation owners who often dominated their region’s politics. Years of relentless effort by Chase failed to enlist a single established Northern Democratic leader, and by 1848 his dream of finding a new antislavery party seemed quixotic.