America's Fiscal Constitution (70 page)

71
. President Jefferson responded to congressional objections by restoring some of the military cuts, so Gallatin settled for a budget allocating half of all revenues for debt reduction and confining all other spending to the remaining half. As revenues grew, Gallatin succeeded in devoting two-thirds of budgets to debt service, including reductions in the principal amount of the debt. After Jefferson’s first term, Gallatin reported total expenditures of $49.6 million and revenues of $1 million more. Interest on debt totaled $16.2 million, and principal payments totaled $19.2 billion. If accounted for using modern budget accounting, the $19.2 billion in debt reduction, net of additional borrowing, would be treated as a budget surplus.

72
. Gallatin understood better than even Hamilton the central bank functions of the Treasury Department. Gallatin believed that federal debt obligations of over $70 million far exceeded the need for debt as currency. Gallatin thought that short-term notes, with little or no interest, would circulate freely while US debt obligations bearing the interest rates set in 1790 would be held for investment, possibly in Europe. Gallatin also believed that the United States would pay lower interest rates for debt with a fixed maturity, while Hamilton had imitated the British practice of issuing debt instruments without fixed terms.

73
. Wright,
One Nation Under Debt
, 171.

74
. Jefferson quoted in Hofstadter,
The Idea of a Party System
, 151.

75
. See Appendix A.

C
HAPTER
3

1
. Thomas Jefferson quoted in Cerami,
Jefferson’s Great Gamble
, 58.

2
. DeConde,
This Affair of Louisiana
, 150.

3
. Malone,
Correspondence
, 60, 62.

4
. DeConde,
This Affair of Louisiana
, 136.

5
. American diplomats did not know that Great Britain had bribed Talleyrand in 1803 to maintain tension between France and the United States. Ambassador Livingston had also paid Talleyrand, an action authorized by Secretary of State Madison, as a standard, though distasteful, means of receiving an audience.

6
. Kukla,
Wilderness So Immense
, 268–269.

7
. DeConde,
This Affair of Louisiana
, 164.

8
. Adams,
The First Administration
, 322–323, and Kukla,
Wilderness So Immense
, 274–175.

9
. Kukla,
Wilderness So Immense
, 278–280.

10
. Gallatin,
Writings: Volume 1
, 256. Jefferson and later Monroe used this ambiguity over the status of Texas in their bargaining attempts with Spain to buy part of the Floridas.

11
. Adams,
The Life of Albert Gallatin
, 318.

12
. Walters,
Albert Gallatin
, 154.

13
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series B at 99–108 and 301.

14
. Jefferson to John C. Breckinridge, August 12, 1803, in Jefferson,
Memoirs
, 521.

15
. Adams,
The First Administration
, 83.

16
. Adams,
The Life of Albert Gallatin
, 270.

17
. Perkins,
American Public Finance
, 263.

18
. Jefferson quoted in Kimmel,
Federal Budget and Fiscal Policy
, 16.

19
. On November 21, 1806, after victories in central Europe, Napoleon issued the Berlin Decree, which banned the importation of British goods into the ports of his European allies. A year later, British foreign secretary George Canning secured Orders of Council that forbade trade with France and its allies and instructed the Royal Navy to blockade French ports.

20
. Jefferson quoted in Sloan,
Principle & Interest
, 203.

21
. Jefferson to Pierre Samuel Du Pont de Nemours, April 15, 1811, Founders Online, National Archives,
http://founders.archives.gov/documents/Jefferson/03-03-02-0432
.

22
. Jean-Baptiste Say quoted in Forsythe,
Taxation and Political Change
, 380.

23
. Madison to Jefferson, March 6, 1812, Founders Online, National Archives,
http://founders.archives.gov/documents/Madison/03-04-02-0238
.

24
. Perkins,
American Public Finance
, 17.

25
. Department of the Treasury,
National Loans
, 52–53.

26
. Kearny,
Sketch of American Finances
, 92.

27
. Ibid.

28
. Adams,
Administrations of James Madison
, 1077.

29
. Borneman,
1812
, 251.

30
. Madison, “Sixth Annual Message.”

31
. Ammon,
James Monroe
, 340.

32
. Gouverneur Morris quoted in Ketcham,
James Madison
, 592.

33
. Rothbard,
The Panic of 1819
, 2–3.

34
. Dallas,
Alexander James Dallas
, 235–237.

35
. Dewey,
Financial History
, 134.

36
. Walters,
Albert Gallatin
, 286.

37
. Macdonald,
A Free Nation Deep in Debt
, 349–350.

38
. Mahon, “The Negotiations at Ghent in 1814.”

39
. Lord Liverpool quoted in Adams,
The Life of Albert Gallatin
, 539.

40
. Andrew Jackson quoted in Goodwin,
Andrew Jackson
, 158.

41
. On January 1, 1815, there had been obligations on Treasury notes due but unpaid of $2,799,220. Dallas still had to accept received bank notes, selling at a discount to the dollar value of gold coins, in subscriptions of federal debt. The month before getting news of the peace treaty, House Ways and Means Chairman and Jefferson’s son-in-law John Eppes asked a leading Federalist congressman, William Gaston of North Carolina, whether the Federalists would “take up the government if we give it to them?” Gaston said they would decline the gift.

42
. Department of the Treasury,
National Loans
, 58; Studenski and Krooss,
Financial History
, 79.

43
. See Appendix A.

44
. Coxe,
A Statement
, liv.

45
. John C. Calhoun quoted in Niven,
John C. Calhoun
, 54.

46
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 298.

47
. Adams,
Administrations of James Madison
, 1264–1275. See also Morris, “The First Congress.”

48
. Ricardo,
Works
, 539.

49
. The bank had assets of $41 million in outstanding loans and $2.5 million in silver and gold reserves, with offsetting liabilities of $13 million in deposits and $10 million in outstanding paper notes at the beginning of 1818.

50
. McCraw,
The Founders and Finance
, 251.

51
. Rohrbough,
The Land Office Business
, 141.

52
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 298.

53
. Dangerfield,
The Era of Good Feelings
, 183.

54
. Rohrbough,
The Land Office Business
, 141. Though overextended bank balance sheets made the Panic of 1819 worse, most historical writing about the Panic tends to ignore the inevitable impact of the European recession and the US trade deficit. When export demand for cotton and tobacco declined sharply, US citizens and merchants had to import less to avoid the total loss of gold reserves. Exports fell from $93 million in 1818 to $54 million in 1821. Imports fell from $122 million to $54 million during the same period, eliminating the trade deficit.

55
. Madison,
Letters and Other Writings
, vol. 3, 166.

56
. Ammon,
James Monroe
, 469.

57
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 298.

58
. Lipscomb,
The Writings of Thomas Jefferson
, vol. 15, 296–297.

59
. The federal government dropped the price of land while restricting new land loans. It instituted a loan forgiveness program for those not able to make payments on the old $2 per acre minimum purchase price.

60
. Monroe, “Eighth Annual Message.”

61
. Malone,
Correspondence
, 40.

C
HAPTER
4

1
. Dangerfield,
The Era of Good Feelings
, 349.

2
. Van Buren,
Autobiography
, 195.

3
. Adams, “First Annual Message.”

4
. James Monroe quoted in Hofstadter,
The Idea of a Party System
, 200.

5
. Hofstadter,
The Idea of a Party System
, 244.

6
. Van Buren’s failed attempt in 1824 to work within the old system of electing a president had taught him some valuable lessons. He had backed the early front-runner, Treasury Secretary William Crawford, in hopes that his Albany Regency and Virginia’s dominant “Richmond Junto” would create momentum for Crawford in the informal congressional caucus. Even after a stroke rendered Crawford blind and mute fourteen months before the election, Van Buren secured the nomination of the congressional caucus for him. Nevertheless, most congressmen declined to attend an event that marked the demise of the process that many critics had derided as the “King Caucus.” Van Buren did manage to deliver just enough of New York’s electoral votes for Crawford to place third and disqualify Henry Clay, who placed fourth, from being considered for the presidency by the House of Representatives.

7
. After the passage of the Twelfth Amendment to the Constitution in 1806, voters were required to cast one vote for president and one vote for vice president. (Prior to the Twelfth Amendment, two votes were cast for president, and the vice president was the person who received the second highest number of votes.) However, without a party nominating process, there was not yet a formal procedure in place for fashioning a “ticket.”

8
. Martin Van Buren quoted in Remini,
Life of Andrew Jackson
, 161.

9
. Thomas Jefferson quoted in Brands,
Andrew Jackson
, 97.

10
. Parton,
Andrew Jackson
, vol. 2, 354.

11
. Van Buren himself explained, in memoirs published after his death, that “by adding the General’s personal popularity to the strength” of Jefferson’s old party, he hoped to overcome the power and patronage of an incumbent administration enjoying the benefits of economic prosperity. As for Jackson’s political views, Van Buren said he would have to rely on “good fortune” that Jackson’s Jeffersonian principles from the 1790s would have survived into the 1820s.

12
. John Randolph quoted in Graham,
Free, Sovereign and Independent States
, 207.

13
. Brands,
Andrew Jackson
, 70.

14
. Jackson, “First Inaugural Address.”

15
. “Report on the Finances: December 1829,” in
Reports of the Secretary of the Treasury
, vol. 3, 17.

16
. Larson,
Internal Improvement
, 191. Federal budgets during the nineteenth century routinely included public works projects in the appropriations of the Department of the Army, which supervised construction through the Corps of Engineers.
Historians would do well to review those budgets rather than political speeches to determine the scale of spending on public works.

17
. Andrew Jackson quoted in Brands,
Andrew Jackson
, 478.

18
. Remini,
Life of Andrew Jackson
, 197.

19
. Thomas Hart Benton quoted in Remini,
Andrew Jackson: Lessons
, 180.

20
. See Appendix B.

21
. Jackson deposited the surplus funds, without interest, into various favored state banks. Since Jackson’s Treasury required deposits to be made in banks with gold reserves, banks in New York—the center of international commerce that required substantial gold reserves—received a third of the funds. Ironically, the populist Jackson accelerated the rise of Wall Street.

22
. The states treated the distributed surplus as a grant. To avoid any constitutional challenge, the federal government treated the surplus payments as loans without interest or any defined maturity. This distribution was similar to the no-interest deposits that had long been used to support the commercial banking system.

23
. The budget crisis in Great Britain at the same time gave rise to a set of fiscal policies that became known as “liberal.” Those policies included cuts in spending and import taxes on food products and higher income taxes.