The financial history of the United States, from 1789 to 1860.

Front matter

m i

H

I

Prefatory Note

The final volume will cover the period from the opening of the civil war, in 1860, to the refunding of the national bonds, in 1881. The preparation of it is well advanced, and the author expects to complete it by the end of next year.

CHAPTER II. The Second United-States Bank, and the Public Deposits 317

CONTENTS. 9

Page CHAPTEK III.

CHAPTEK TV.

Tariff Legislation, 1824-1832 375

CHAPTEK V.

Tariff Legislation, 1832-1842 413

CHAPTEK VI.

CHAPTEK VII.

Tariff Legislation, 1846-1860 449

CHAPTER VIII.

The Tonnage Revenues . 467

CHAPTER IX.

Warehousing and Drawbacks 478

CHAPTEK X.

Collection of Duties 486

CHAPTER XI. \ Coinage 502

CHAPTER XII. t Appropriations and Expenditures, 1815-1828 .... 518

CHAPTER XIII.

- Appropriations and Expenditures, 1828-1840 . . . .538

CHAPTER XIV.

Accounting 567

CHAPTER XV.

Book I. From 1789, To The War Of 1812

FINANCIAL HISTORY

OF

THE UNITED STATES.

CHAPTER I.

The independence of the American Republic had been acknowledged by the nations of the earth. From necessity a written constitution had been adopted. These were great achievements truly, and well might the people believe in their capacity to deal successfully with any future political problem. But to organize and maintain the government was an undertaking scarcely less perilous than the great feats which they had just performed. By a seven-years' war the people had won independence ; six years of agitation had brought forth an admirable constitution ; but a hundred anxious years were to pass before national security was established.

The first Congress convened in New York. Without delay the members engaged in the work of creating the state, war, and treasury departments. A discussion was kindled over Gerry's suggestion, that the latter department be placed under the control of a board of commissioners. Gerry was afraid to intrust so much power to one individual. But only a few members agreed with him. Most of them contrasted the administration of financial boards under the old government with the administration of Morris, to the obvious disadvantage of the former. Gerry himself had served as a member of one of those boards : he knew how inefficient they were, and had often spoken frankly about the way they managed the public business. The debate, though lasting several days, was very one-sided; and Congress wisely determined to appoint one person who alone should be responsible for administering the finances, and who should singly reap the glory, or incur the displeasure and shame, attending his official action.

Another question, of less importance, though worth notice, was raised over that portion of the committee's report establishing the treasury department, which required the secretary " to digest and report plans for the improvement and management of the revenue, and the support of the public credit." There was no hesitation in requiring him to prepare estimates of the public receipts and expenditures ; but to go farther was regarded by many as a dangerous exercise of power. It was feared that members might be led, by the deference often paid to one who makes a special study of a subject, to support the plans of the secretary even against their own judgment. Perhaps the mischief would not stop here : it might spread until all the ministers were admitted on the floor to explain their plans, thus laying the foundation for an aristocracy or a detestable monarchy. Although these sentiments were not shared by all the members of the House, yet the report was so modified, that the secretary was simply required "-to digest and prepare plans," thus leaving the question how they should be reported to the future determination of Congress.

When the secretary had prepared his first report, which contained a plan for supporting the public credit, he inquired whether Congress would receive the report orally, or in writing. Some members said the subject was so difficult, that a written report could be more perfectly mastered : others contended that inquiries would be necessary, and that the secretary ought to be present to answer them. It was resolved to receive the report in writing, and the precedent thus established has always been followed; though it may be seriously questioned, whether, if the secretary were allowed to explain his reports, and required to answer questions put to him orally in the House in regard to them, more light would not be cast on the treasury business, and greater watchfulness and wisdom be displayed in conducting it.

The Act establishing the treasury department provided for the appointment of a secretary (who was to be the head of the department), and also for an assistant to the secretary (who was to be appointed by the secretary himself), a comptroller, an auditor, a treasurer, and a register.

The secretary was required to digest and prepare plans for the improvement and management of the revenue and for the support of the public credit; to prepare and report estimates of the public revenue and the public expenditures ; to superintend the collection of the revenue ; to decide on the forms of keeping and stating accounts, and making returns, and to grant, nnder prescribed limitations, warrants for drawing money from the treasury, and, in relation to the sale of the public lands, to do whatever Congress might require of him ; to report and give information to either branch of the Legislature, in person or in writing, respecting all matters referred to him by either body, or which should appertain to his office ; and also to do such other services relating to the finances as Congress should direct.

The Act also prescribed the duties of the comptroller, treasurer, auditor, and register. None of these officers were to be concerned, either directly or indirectly, in commerce, vessels, public lands, or other public property, or purchase or dispose of any public securities of any State, or of the United States, or reap any gain for transacting the public business. 1 The clerks in the several departments were appointed by their respective chiefs. 2

For the head of the treasury department, Hamilton was wisely chosen. Though only thirty-two years old, public opinion had marked him for the place and the hour. He possessed pre-eminent genius for organization, for creation. Morris had long before discovered these qualities in him. The position was indeed an arduous one. The old board of the treasury had not done any thing toward ascertaining the nature and amount of the public debt ; a revenue system was to be created ; the public indebtedness was to be ascertained, and provision made for its payment, beside organizing all the machinery of the treasury department for collecting and disbursing

i Act, Sept. 2, 1789, 1 Cong., first session, chap. 12. 2 Act, Sept. 11, 1789, 1 Cong., first session, chap. 13.

the public revenues. 1 How he fulfilled the duties of his position " the whole country perceived with delight, and the world saw with admiration. He smote the rock of the national resources, and abundant streams gushed forth. He touched the dead corpse of the public credit, and it sprung upon its feet. The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton." 2

John Eveleigh of North Carolina was appointed comptroller, and Oliver Wolcott of Connecticut auditor. Ill health soon caused Eveleigh to retire, and Wolcott was promoted to the vacancy.

The war department was established a few clays earlier than the treasury department ; but the law was enacted so hurriedly, that no provision was made for the disbursement of funds appropriated to it, or for the settlement of its accounts. The treasury department collected the public funds, and accounted for them : the war department was solely one of expenditure. The secretary of war ought to have been authorized to draw from the treasury the sums appropriated for the use of his department, and to have been solely responsible for the expenditure of them. The secretary of the treasury ought to have had no concern with the war department, except giving warrants for the moneys thus appropriated. Such warrants would have been an acquittal to the treasury

1 The old board, too, had bequeathed to the treasury department a vast chaotic mass of accounts which had accumulated under the Confederation. — Gibbs's Administrations of Washington and Adams, vol. i. p. 28.

2 Webster's Speeches, vol. i. p. 199.

department and a charge against the secretary of war. The accounts relating to their expenditure, made under his sole direction, and finally adjusted by the auditor and comptroller of the treasury, would have constituted his acquittal. Thus the responsibility of each department, as well as its operations and accounts, would have been distinct and complete.

Instead of adopting this plan, the duties of the two departments in expending money for the military and naval service were blended, and the part allotted to each department was not very precisely defined. It may be remarked, however, that all contracts for rations, clothing, and magazine supplies, were made at the treasury ; while all expenditures for other objects were made by the secretary of war.

In this manner the business was conducted until 1792, when the office of " Accountant for the War Department " was created. He was charged "with the settlement of all accounts relative to the pay of the army, the subsistence of officers, bounties to soldiers, the expenses of the recruiting-service, and the incidental and contingent expenses of the department." Two other features of the Act require mention. The first was, all contracts and purchases for supplying the department of war were to be made by the treasury department. The other feature was, all expenditures for the pay of the army, the subsistence of officers, bounties to soldiers, the expenses of the recruiting-service, and the incidental and contingent expenses of the war department, were to be made by the secretary of war, the money to pay therefor having previously been ordered from the treasury. 1

In consequence of this legislation, the expenditures of the war department fell under two general divisions, — those for supplies of all kinds, and those for services and contingent expenses. The expenditures of the first class were neither controlled by the secretary of war, nor did he account for them : they were put under the management of the treasury department. The business was conducted in the following manner: the secretary of war informed the secretary of the treasury by letter what supplies were needed by his department, when and where they were wanted, and in some cases furnished the necessary samples, patterns, forms, and models. The secretary of the treasury complied with the demand of the war department to the extent of the appropriations authorized ; the purveyor of public supplies, whose office was created by a subsequent Act, executing the demand under the secretary of the treasury's direction.

At that time two modes of procuring supplies were employed by the treasury, — contract and purchase. The contracts were of two descriptions, — the larger, such as those for clothing and provisions, which were executed by the secretary of the treasury himself, and distinct accounts of which were opened in the public books ; and the smaller contracts, such as those for occasional supplies, which were concluded by the purveyor, and comprised in the general settlement of his accounts. Purchases of supplies, when they could be effected at the seat of government, were made by the purveyor ; and this was his chief employment. For purchases in the country, and for procuring occasional supplies at military and recruiting posts, the secretary of the treasury employed the agency of the supervisors and the collectors of the customs.

The accounts of the purveyor, and of all agents and contractors who procured or furnished supplies, were settled at the treasury, without any agency or interference of the war department. They passed first under the examination of the auditor, who reported them to the comptroller, whose decision was final.

When supplies were procured and delivered on requisitions of the war department, they became subject to the disposal of the secretary of war ; and the duty and responsibility of the secretary of the treasury ceased.

The second class of expenditures in the department of war — those for services and contingent expenses, including the pay of the army, subsistence of the officers, bounties, recruiting, protection of the frontiers, etc. — were made under the sole direction of the secretary of war. The money for these objects was drawn from the treasury in the following manner : the secretary of war addressed a letter to the secretary of the treasury, requesting an advance of money to the treasurer of the United States in his capacity as treasurer for the war department. The letter specified the sum wanted and the head of the appropriation under which it was to be applied. The secretary of the treasury complied with the request to the extent of the appropriation made for that purpose. A warrant for the sum, signed by the secretary, countersigned by the comptroller, and recorded by the register, was drawn on the treasurer of the United States in favor of himself as treasurer for the war department. When the warrant was paid, the amount was charged to the war department in the books of the treasury, and from that time remained subject to the disposal of the secretary of war, who drew it, as occasion required, by warrants signed by himself, and countersigned by the accountant. The latter officer kept an account of all these warrants, and to him every account for the expenditure of money drawn under them was rendered in the first instance. He adjusted them, and reported them, like all other accounts of public expenditure, to the auditor of the treasury. From him they passed to the comptroller, whose action was conclusive.

In the latter branch, therefore, of the expenditures for the department of war, the control and responsibility of that department were complete, and the accounts were susceptible of a clear and distinct division and adjustment. The secretary of war drew from the treasury the moneys appropriated by law, expended them, and accounted for them. 1 But in the other branch of expenditures — those which related to supplies for the use of the war department — there was a divided, and consequently an imperfect, responsibility. The secretary of war judged what supplies were necessary ; but instead of purchasing them, and drawing money from the treasury to pay for

1 In expending them, and accounting therefor, the accountant of the department was the agent of the secretary, and made up and stated his accounts, and submitted them, with the vouchers belonging to them, to the auditor and comptroller of the treasury, who settled them like the accounts c-f all other persons intrusted with public money. The secretary of the treasury had no further concern in the business* than to pay to the secretary of war the moneys appropriated by law for that department. In respect to this class of expenditures there was a perfect responsibility in each department, — in the treasury, for its payment; in the other, for its expenditure.

them, he informed the secretary of the treasury what was wanted, and he procured them. Thus the former officer was responsible for making known the need of supplies ; and the latter officer, for their quality, price, and delivery. The moneys thus appropriated for the war department were expended by the secretary of the treasury, who was converted, with respect to these expenditures, into a subordinate agent of the department of war. The supplies were purchased for one purpose, and charged to the corresponding head of appropriation. When placed in the public stores, they were found useful for another purpose, and were accounted for under another head. The secretary of war, who used them, did not know to what account they were charged; and the secretary of the treasury, who purchased and charged them, did not know for what purpose they were used. Hence there resulted an endless confusion and uncertainty in the accounts ; and the apprehended difficulty to ascertain what expenses were incurred for any particular branch of the military service often changed into an impossibility. 1

When the navy department was created, the same state of things existed therein for a time. At last a new arrangement was devised for obviating the difficulties described, which was as simple as it was effective. This consisted in endowing the secretaries of war and of the navy with the same powers and responsibilities with respect to expenditures for supplies as the former already possessed with respect to expenditures for services. The office of accountant for the navy department was estab-

1 Harper's Report on Expenditures of the Ex. Departments, July 5, 1798, 1 Finance, p. 590.

lished ; the purveyor of supplies was put under the direction of the navy and war departments ; and the money appropriated for each department was thereafter accounted for under such separate heads of appropriation as conveyed a clear idea of the amount expended in each department of the public service. 1

i Act, July 16, 1798, 5 Cong., second session, chap. 85.

CHAPTER II.

HOW THE ACCOUNTS AND DEPOSITS WEEE KEPT.

Before tracing the laws enacted for funding and paying the public debt, we shall describe how Hamilton kept the public accounts and deposits. If this, as well as the preceding chapter, seem uninviting to the reader, let him be assured that neither could be omitted in a fairly rounded history of the national finances.

When the new government was fairly launched, it collected an income from imports and tonnage, spirits distilled within the United States, from fines, penalties, and forfeitures, domestic and foreign loans, revenues of the post-office, duties on patents, coined cents, and debts from individuals.

The duties on imports and tonnage were received by the collectors of customs. The duties on spirits distilled within the United States were received by collectors of divisions into which the country was divided, who paid them to the inspectors of surveys, by whom they we*re paid to the supervisors of districts. The fines, penalties, and forfeitures incurred, were received by the marshals, who paid them to the collectors of customs and to the supervisors of districts, except those incurred for crime against the United States, which were sent by the marshals directly to the treasury. The domestic loans, duties

1789.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 15

on patents, and debts from individuals, were paid into the treasury without any intermediate agency. Foreign loans were received by the bankers abroad under whose immediate agency they were made. The revenue of the post-office was received by the deputy postmasters, who paid it to the postmaster-general ; and the coined cents were received by the treasurer of the mint.

The treasurer was the medium of all receipts and disbursements of public moneys. All receipts and disbursements must be sanctioned by warrants drawn on and in favor of that officer. These warrants were signed by the secretary of the treasury, countersigned by the comptroller, and registered by the register. Warrants for receipts required an acknowledgment of the treasurer in order to discharge the payer; and warrants for disbursements required an equivalent acknowledgment by the person receiving them to discharge the treasurer.

Five modes were adopted in regard to receipts, each of which may be briefly explained. The first mode was for the treasurer to draw bills or drafts, under the special direction of the secretary of the treasury, on those who had public funds in their hands. Such drafts, before leaving the treasurer, were registered and countersigned by the register of the treasury, or by a confidential clerk designated for that purpose. This mode applied to money drawn from other countries, as well as to money accruing in the United States, except that foreign bills were always countersigned by the register himself.

The second mode was by making deposits in the several banks by a general order of the secretary of the treasury. As soon as they were made, they were passed by the banks to the credit of the treasurer. The officer making the deposits — who was either a supervisor of the revenue, or a collector of the customs — took duplicate receipts from the bank, one of which he immediately sent to the treasury, while retaining the other. The bank also made weekly returns, — one to the secretary of the treasury, another to the treasurer, — specifying the persons making the deposits and the amount of them.

The third mode was by remittances of the supervisors and collectors to the treasurer. These were generally made in bank-bills, though sometimes in bills or orders on individuals : in some cases, however, they were made in mutual credits and in specie. Another mode was by special direction from the secretary of the treasury to the supervisors and collectors of the customs to make advances, provisionally, for certain specified purposes; and the last mode was by warrants on persons in favor of the treasurer.

The first four modes of remitting money to the treasury, in the end- were resolved into the mode last described. All advances and payments were always sanctioned by warrants. No party who paid money could be discharged, save by a warrant receipted by the treasurer. Bills or drafts drawn by him were either deposited in a bank, or remitted to certain public officers or agents, as the secretary of the treasury directed.

In respect to disbursements, one mode was by warrants issued by the treasurer. This was the general method, and the invariable one when payments were made immediately at the treasury. The second mode was by drafts drawn by the treasurer, under special order of the

1789.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 17

secretary of the treasury, registered and countersigned by the register. The third mode was by a special order of the secretary of the treasury to the supervisors and collectors to make advances of money provisionally for certain specified purposes. These directions were never given with regard to any money which had passed to the credit of the treasurer. The last two modes were finally resolved into the first ; so that warrants finally issued for the sums paid either on the drafts of the treasurer, or under the direction of the secretary. These were the modes adopted by Hamilton for disbursing the public funds ; but in a very few instances there were some slight departures, which need not be described.

The forms established for keeping the public accounts, therefore, were based on the following principles : no payment into the treasury was valid so as to justify a definitive credit to the payer, unless the treasurer's receipt was indorsed on a warrant in the creditor's favor, signed by the secretary of the treasury, countersigned by the comptroller, and recorded and attested by the register; and no payment from the treasury was valid, unless made in pursuance of a warrant on the treasury, signed by the secretary of the treasury, countersigned by the comptroller, and attested by the register. 1

Such is the outline of the system adopted by Hamilton for receiving and disbursing the public funds. The preservation of the system, with only slight changes by every succeeding secretary, is proof of its excellence. It has withstood the test of a hundred years, and still remains not less effective than when first adopted.

1 Baldwin's Report on Condition of the Treas. Department, May 22, 1794, 1 Finance, p. 281.

In the beginning, the public money was kept in several banks, thus continuing the usage established by the Confederation. The treasurer himself never actually had any public money in his possession. It was, in fact, in a bank from the moment of receiving it until disbursed. The only exceptions were bank-bills, orders on individuals, mutual credits, and specie remitted by the supervisors of the revenue and collectors of the customs to the treasurer. As soon as received, they were deposited in a bank to the credit of the treasurer. Nor did the secretary of the treasury, or any other officer of the treasury department, at any time have possession of public money, except in a few instances too unimportant to be mentioned.

Previous to 1816 no law was enacted about the deposits, and the secretary of the treasury exercised his own authority in making them. 1 During the first three years of the government, the Bank of North America, which was now thriving under a charter from the State of Pennsylvania, was employed for that purpose. The banks of New York, of Massachusetts, and of Maryland, were next selected and used. When the United States bank was founded, in 1791, this was added to the number. 2 From time to time deposits were placed in other banks. 3 In 1809 Congress required disbursing-officers to keep " the public moneys in their hands " in some " incorporate bank, whenever practicable," which was to be " designated for the purpose by the President of the

1 Woodbury's Report on the Finances, September, 1837.

2 Woodbury's Report on tbe Public Money, December, 1834.

8 Gallatin's Report to tbe House, Dec. 23, 1806, 2 Finance, p. 216.

1816.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 19

United States." Nothing was said concerning the deposits of collecting-officers. 1

In February, 1811, just before the expiration of the charter of the United-States bank, and after Congress had refused to extend it, Gallatin, who was secretary of the treasury, selected other banks as public depositories. The only condition required of them in the beginning was, that, in making discounts, preference should be given to those having custom-house bonds to discharge. The reason for imposing this condition was a very just one. The closing of the United-States bank and its branches would doubtless cause a pressure on other banking-institutions for pecuniary assistance. Of course, it was of primary importance to the government to collect its revenue with facility : consequently Gallatin exacted this requirement, so that the government might not suffer from the sudden dissolution of the national bank. Afterward the secretary required from each bank a monthly statement of its condition. 2 By order of the President the same banks were used by collecting as well as by disbursing officers.

The deposits were kept in this way until 1816, when the second United-States bank was founded. Its charter provided, " that the deposits of the money of the United States, in places in which the said bank and branches thereof may be established, shall be made in said bank or branches thereof, unless the secretary of the treasury shall at any time otherwise order and direct; in which case, the secretary of the treasury shall immediately lay

1 Act, 10 Cong., second session, chap. 28.

2 Gallatin's Report on Public Deposits in Banks, Jan. 13, 1812.

before Congress, if in session, and, if not, immediately after the commencement of the next session, the reasons of such order or direction." 1

The secretary of the treasury, therefore, retained discretionary power in keeping the public deposits. This power was exercised, to a limited extent, during the next three years ; but in 1832 he employed it in a terrific manner. He removed all the deposits from the National bank, and put them in State banks. Their removal fired the entire country with intense excitement, which burned for a long period with undiminished fury. Even when the excitement ceased, the evil consequences of the act continued, like the billows of the Atlantic, which heave and roll long after the storm which set them in motion has passed away.

The money received by the government in the beginning consisted of bank-notes and specie. Hamilton instructed the collectors of customs to receive certain State-bank notes, payable near the seat of government, and to credit them as cash, when forwarded by mail, or otherwise, to the treasurer. When the United-States bank was organized in 1791, its notes were accepted as equivalent to specie by the government : so were the notes of the second United-States bank. This action by Hamilton and his successors was apparently sanctioned by Congress in 1816. After that time deposits were made in specie, or bills of the United-States bank, or of such other specie-paying banks as the government depositors were willing to receive at par, and credit as cash. The practice of receiving bills on special deposit,

i Sect. 16.

1817.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 21

which was commenced in 1814, and continued for four years, was discontinued in 1818; and payments thereafter were made in specie or its equivalent. 1

The government sustained no losses from the employment of the National banks as depositories. The State banks employed after 1817 were less faithful. 2 During the succeeding seventeen years, the losses exceeded one million dollars from employing them ; although the second United States bank flourished nearly the whole period, and kept most of the deposits. 3

1 Woodbury's Annual Report, December, 1834.

2 Woodbury's Report on the Public Money, December, 1834. " Not a single selected State bank failed between the expiration of the old charter and the grant of the new one." — Woodbury.

3 Woodbury's Annual Report, December, 1838.

Chapter III. The Funding Of The Revolutionary Debt

Perhaps the gravest subject that ever confronted Congress was the Revolutionary debt. The more thoughtful political leaders felt that the destiny of the republic would turn upon the plans adopted for determining the amount, and providing for its payment. No one saw more difficulties than Hamilton, yet he was confident of finding a safe path for the nation. Nor was his faith, begotten by a profound study of the subject, shared by him alone. When President Washington was once conversing with Robert Morris about the condition of the finances of the country, he inquired, " What are we to do with this heavy debt ? " To which Morris replied, " There is but one man in the United States who can tell you : that is Alexander Hamilton." 1 Doubtless Morris's reply was still fresh in Washington's mind when selecting Hamilton for chief of the treasury department.