LETTER FROM THE SECRETARY OF THE TREASURY, IN ANSWER TO A LETTER OF THE CHAIRMAN OF THE COMMITTEE or WAYS AND MEANS, REQUESTING - INFORMATION AS TO THE MOST ELIGIBLE METHOD OF OBTAINING LOANS. March 21st ? 1810. printed by order of the House of Representatives , WASHINGTON CITY; PRINTED BY R. C. WEIGHTMAN 1810, LETTERS. January 8th , 1810, SIR, HAVING stated in your several reports that loans would constitute the principal resource of the United States for defraying extraordinary expenses, the committee of ways and means have instructed me to request, that you will re¬ port your opinion as to the most eligible mode of obtaining money by loan—keeping in view both the facility of borrowing sums commensurate with the exigencies of the United States, and the ulti¬ mate extinguishment of the debt contracted. You have already given your opinion in favor of an increase of duties on importation. To what extent can this be carried with safety ? Can any other resources except taxes and loans be relied on for immediate revenue ? I have the honor to be, With respect, Your most obedient, JOHN W. EPPES, Albert Gallatin , esq. Secretary of the Treasury. 4 TREASURY DEPARTMENT, February 26th, 181®. SIR, I HAVE the honor to submit the following observations in answer to the several objects of inquiry embraced by your letter of the 8th ultimo. The amount of extraordinary expenses which, may be authorised by Congress being yet unas¬ certained, it is not even at this time practicable to state with precision, the sum which maybe wanted on loan for the service of this year. And in relation to ensuing years, it would be prema¬ ture to lay down any general rules respecting the most eligible mode of borrowing sums of money, commensurate with the exigencies of the United States in case of war. It is therefore thought suf ficient for the present to point out some of the most obvious means of effecting loans generally ; leaving it a subject of subsequent consideration to decide according to existing circumstances on the most eligible mode, and on the arrangement of details. The inquiries of the committee of ways and means apply to the three following points : 1st. What is the most eligible mode of obtaining money by loan ? keeping in view both the facility of bor¬ rowing sums commensurate with the exigencies of the°JTnited States, and the ultimate extinguish¬ ment of the debt contracted. 2dly. To what ex¬ tent can an increase of duties on importation be earned with safety ? 3dly. Can any other re¬ sources besides taxes and loans be relied on for immediate revenue ? LOANS. 1st. The commissioners of the sinking fund wilj, out of the annual appropriation of eight millions of dollars for the payment of the debt, reimburse in 1810, the residue of the exchanged six per cent, stock, amounting to 3,750,000 dollars, and in 1811, the whole of the converted six per cent, stock, amounting to 1,860,000 dollars. It is probable that the owners of those two species of stock would consent to reloan the amount, provided it ivas made irredeemable for a few years. 2dly. It has already been stated in the annual report of November 5th, 1807, referred to in that of this year, “ that the several banks of the Uni¬ ted States might find it convenient, as the dimi¬ nished commerce of the country might require less capital, to loan to government a considerable por¬ tion of their capital stock, then computed at about forty millions of dollars.” Such temporary loans can be obtained only to a limited amount; but they are convenient in two respects : 1st. They do not diminish the facility of obtaining other loans from individuals, inasmuch as they do not in¬ crease the amount of stock at market : 2dly. Be¬ ing redeemable at will, and in any sums wdiich may suit the convenience of government, interest is paid onlyas long as the money is wanted ; and the extinguishment of the debt contracted is ren¬ dered more easy and certain. 3d. Loans may be obtained from individuals to an extent commensurate with the national capital, and limited by the existing demand for that capi¬ tal for private purposes. The terms must vary according to circumstances, always giving the pre¬ ference to the most simple form that can effect the object A portion of the public lands may per¬ haps, if necessary, either as a premium or by giv¬ ing an option to subscribers, be advantageously ap¬ plied in facilitating loans or improving their terms. 4th. Treasury notes, bearing interest and paya¬ ble to order, one year after date, may be annually issued to a moderate amount, and be put in circu¬ lation both through the medium of banks, and in payment of supplies. A portion would be absorb¬ ed during the year by the payment of public lands and revenue bonds, and the redemption of the resi¬ due be provided for by the loan of the ensuing year. This annual anticipation of the revenue, though liable to abuse, may, if kept within strict bounds, facilitate both the collection of the revenue and the loans themselves. In relation to the extinguishment of the debt contracted, those who borrow can do nothing more than to provide and pledge funds sufficient for that object, and to give such a form to the debt as may not impede its redemption. To ren¬ der it irredeemable for no longer time than is ne¬ cessary in order to obtain the money ; to make it reimbursable by instalments at fixed periods; never to create for the sake of diminishing the annual interest, a greater nominal amount of stock than the sum actually borrowed; and above all never to incur expenses which are not actually necessary for the defence or welfare of the country, are prin¬ ciples essential for a nation which does not con¬ template a system of perpetual and increasing debt* But for its actual reimbursement we must princi¬ pally depend on the return of prosperous circum¬ stances, on the growing resources of the country, and on the wisdom of our successors. The arti- artificial provisions of a sinking fund may always be rendered inefficient by the necessities or extra¬ vagance of government. The real amount of a national debt cannot be diminished unless the ag¬ gregate of revenue, including the funds assigned to the sinking fund, and exclusively of new loans, ex* 7 cceds the aggregate of expenditures, other than those for the payment of the principal of the debt. Favorable circumstances, and a rigid economy in the current expenses have enabled the United States to reimburse during the last eight years, one half of the debt created by the revolutionary war, and during some of the ensuing years. Similar circumstances, and an adherence to the same prin¬ ciples will be requisite to secure the actual reim bursement of the debt which it may now be ne¬ cessary to contract. But that government will possess resources amply sufficient for that object, cannot be doubted. The proceeds of the public lands would alone, slowly perhaps but certainly, extinguish a much greater debt than the United States have it now in their power to create. And it is sufficiently ascertained that the national wealth of t;,e United States, and therefore the means of raising revenue, increase in a ratio still more rapid than their population, a population which almost doubles every twenty years. Those considerations, connected with others Stated at large in the annual reports of November 1807 and December 1808, have produced a con¬ viction that loans might without danger be resort¬ ed to as the principal resource for supporting a war. Permit me at the same time to observe, that the suggestion has been confined to that ob¬ ject alone, and that excepting the case of war, either immediate or contemplated, it appears con¬ sistent with sound policy to raise during the year the means of defraying all the national expenses, borrowing no larger sum than the amount of prin cipal of old debt paid during the year. The pro priety of providing, even in time of war, a reve¬ nue equal to the annual expenses on a peace estab¬ lishment, the interest of the existing debt, and that f. & on the loans which may be raised, has also been suggested in former reports. INCREASE OF DUTIES. On that subject, but little can be added to the opinions expressed on former occasions. I still think that this source of revenue is in the United States and at this time the most productive, the easiest to collect, the least burthensome to the great mass of the people ; and that the duties on importation generally may, in case of war, be doubled without inconvenience or danger. In time of peace, and particularly under exist¬ ing circumstances, habits of smuggling might be promoted by so great an increase. But the pre¬ cise rate which may with safety be adopted can only be a matter of opinion to be tested by expe¬ rience. I would not hesitate however to mention an additional duty of five per cent, on merchandise paying ad valorem duties, and an increase of 33£ per cent, on the existing duties on all other articles, as attended with very little danger, and preferable to any other new source of taxation. A renewal of the duty on salt which produced six hundred thousand dollars a year, may be exceptionable in other respects, but on account of the bulk of the article, is liable to no objection in the present view of the subject. It was stated in the annual report of December last, that an increase of duties would not, on ac¬ count of the terms of credit allowed for the pay¬ ment of duties, supersede The necessity of a loan for the service of this year. The amount of thgt loan might of course be diminished, if no credit, , or a credit of only sixty days was allowed for the payment of the proposed additional duties. 9 PUBLIC LANDS. These constitute the only great national re¬ source exclusively of loans and taxes. They have already been mentioned as forming a fund for the ultimate extinguishment of the public debt; and the possibility of their being used as a means of facilitating loans, has been suggested. A portion might also be usefully applied as a bounty to of¬ ficers and soldiers whenever it may become neces¬ sary to raise a considerable force. But as an ob¬ ject of immediate revenue, I much doubt whether this can be materially increased without a radical change in the present system. Not less than ten land offices are now in full operation, offering a great choice of good lands, situated in various climates, and suited to the ha¬ bits of the citizens of every portion of the Union. They are sold at the rate of two dollars an acre, or rather at one dollar and sixty four cents, if paid for at the time of purchase, and in tracts of one hundred and sixty acres. As much is sold as there is actual demand for land in similar situa¬ tions at that price. The sales are however almost exclusively confined to those who are or intend to become actual settlers, and all the money which can be raised by that description of purchasers, is annually paid to the United States. In order to increase immediately the amount of sales, a diffe¬ rent capital from that which has heretofore been applied to that object, the capital of persons who will purchase for the purpose of selling again with a profit must be brought into action. But it is evident that no person will purchase lands at the present price as an object of speculation, whilst the United States continue to sell at the same price in small tracts. To effect the proposed object, it % 10 would be necessary not only to reduce the price, but to make a difference between that of lands sold in large tracts, and that asked for small tracts, suf ficientto encourage purchases on an extensive scale. That alteration might produce an additional re¬ venue, but appears to me extremely injurious in other respects. The present system of sales has been tried, and answers the expectations of the legislature. A gradual increase must, notwith¬ standing some temporary fluctuations, necessarily take place. On that I would rely; nor would I venture to suggest any other change than that al¬ ready proposed on a former occasion, a moderate and general reduction of prices, discontinuing at the same time, all sales on credit, but continuing to sell at the same rate large or small tracts of land. I have the honor to be, Very respectfully, Sir, Your obedient servant, ALBERT GALLATIN Hon. John TV. Eppes , Chairman of the Committee of TVays and Means. Extract from the Annual Report of the Secretary of the Treasury , dated November &h, 1807. w It will be sufficient to state—1st. That it appears necessary to provide a revenue at least equal to the annual expenses on a peace establishment, the interest of the existing debt, and the interest on 11 the loans which may be raised. 2d—That those expenses, together with the interest of the debt, will, after the year 1808, amount to a sum less than seven millions of dollars, and therefore that if the present revenue of fourteen millions, five hun¬ dred thousand dollars, shall not be diminished more than one half by a war, it will still be adequate to that object, leaving only the interest of war loans to be provided for. Whether taxes should be raised to a greater a- mount, or loans be altogether relied on, for defray¬ ing the expenses of a war, is the next subject of consideration. Taxes are paid by the great mass of the citizens, and immediately affect almost every individual of the community; loans are supplied by capitals pre¬ viously accumulated by a few individuals. In a country where the resources of individuals are not generally and materially affected by the war, it is practicable and wise to raise by taxes the greater part at least of the annual supplies. The credit of a nation may also, from various circumstances, be, at times, so far impaired, as to leave no resource but taxation. In both respects, the situation of the United States is totally dissimilar. A maritime war will, in the United States, gene¬ rally and deeply affect, whilst it continues, the re¬ sources of individuals; as not only commercial pro¬ fits will be curtailed, but principally because a great portion of the surplus of agricultural produce, necessarily requires a foreign market. The reduc¬ ed price of the principal articles exported from the United States, will operate more heavily than any contemplated tax. And without inquiring whether a similar cause may not still more deeply and per¬ manently aifect a nation at war with the United States, it seems to follow, that so far as relates to America, the losses and privations caused by the 12 w n i\ should not be aggravated by taxes, beyond what is strictly necessary. An addition to the debt is doubtless an evil, but experience having now shewn, with what rapid progress the revenue of the Union increases in time of peace, with what facility the debt formerly contracted, has, in a few years, been reduced, a hope may confidently be enter¬ tained that all the evils of the war will be tempo¬ rary, and easily repaired; and that the return of peace will, without any effort, afford ample re¬ sources for reimbursing whatever may have been borrowed during the war. The credit of the United States is also unimpair¬ ed, either at home or abroad; and it is believed that loans to a reasonable amount may be obtain¬ ed on eligible terms. Measures have been taken to ascertain to what extent this may be effected a- broad. And it will be sufficient here to suggest, that the several banks of the United States may find it convenient, after the ensuing year, and as the diminished commerce of the country may re quire less capital, to loan to government a conside¬ rable portion of their capital stock, now computed at above forty millions of dollars. It might be premature to enter into a particular detail of the several branches of revived, which may be selected in order to provide for the interest of war loans, and to cover deficiencies in case the existing revenue should fall below seven millions of dollars. A general enumeration seems at present sufficient. 1. Not only the duty on salt and the Mediterra¬ nean duties may be immediately revived, but the duties on importations generally may, in case of war, be considerably increased, perhaps doubled, with less inconvenience than would arise from any other mode of taxation. Without resorting to the example ol other nations, experience has proven 13 that this source of revenue is, in the United States* the most productive, the easiest to collect, arid the least burthensome to the great mass of the people. In time of war, the danger of smuggling is diminish* ed; the scarcity of foreign articles prevents the dm ty ever falling on the importer; the consumers are precisely those members of the community who are best able to pay the duty ; and the increase of domestic manufactures, which may be indirectly effected, is in itself a desirable object. 2. Indirect taxes, however ineligible, will doubt¬ less be cheerfully paid as war taxes, if necessary.— Several modifications of the system formerly adopt¬ ed might however be introduced, both in order to diminish some of the inconveniencies which were experienced, and particularly to insure the collec¬ tion of the duties. 3. Direct taxes are liable to a particular objecr tion, arising from the unavoidable inequality pro¬ duced by the general rule of the constitution.— Whatever difference may exist between the relative wealth, and consequent ability of paying, of the se¬ veral states, still the tax must necessarily be raised in proportion to their relative population. Should it however become necessary to resort to that re¬ source, it is believed that a tax raised upon that species of property in each state, which by the state laws, is liable to taxation, as had originally been contemplated by Congress, would be preferable to a general assessment, laid uniformly on the same species of property in all the states, as was ultimate¬ ly adopted.” Extract of the Annual Report of the Secretary of the Treasury , of December 10 th, 1808. IT is certainly only with a view to war, either immediate or contemplated, that it will become n'e- u cessary to resort, at least to any considerable ex¬ tent, to extraordinary sources of supply. Legitimate resources can be derived only from loans or taxes; and the reasons which induce a be¬ lief that loans should be principally relied on, in case of war, were stated in the annual report of last year. That opinion has been corroborated by every subsequent view which has been taken of the subject, as well as by the present situation of the country. The embargo has brought into, and kept in the United States almost all the floating property of the nation. And whilst the deprecia¬ ted value of domestic products increases the diffi¬ culty of raising a considerable revenue by internal taxes, at no former time has there been so much specie, so much redundant unemployed capital in the country "The high price of public stocks, and indeed of all species of stocks, the reduction of the public debt, the unimpaired credit of the general government, and the large amount of existing bank stock in the United States, leave no doubt of the practicability of obtaining the necessary loans on reasonable terms. The geographical situation of the United States, their history since the revolution, and above all, present events, remove every apprehension of fre¬ quent wars. It may therefore be confidently ex. pected, that a revenue derived solely from duties on importations, though necessarily impaired by war, will always be amply sufficient, during long intervals of peace, not only to defray current ex¬ penses, but also to reimburse the debt contracted during the few periods of war. . No internal taxes, either direct or indirect, are therefore contemplated, even in the case of hostili¬ ties earned on against the two great belligerent powers. Exclusively of the authority which must, 15 from time to time, be given to borrow the sums re¬ quired, (always providing for the reimbursement of such loans within limited periods,) and of a due economy in the several branches of expenditure, nothing more appears necessary than such modifi¬ cations, and increase of the duties on importations, as are naturally suggested by existing circumstan¬ ces. Although importations have already considera¬ bly diminished, and may under the system now in force, shortly be altogether discontinued, no rea¬ sonable objection is perceived against an increase of duties on such as may still take place. Had the duties been double on the 1st of Janua¬ ry, 1808, as was then suggested in case of war, the receipts into the treasury during that and the ensu¬ ing year, would have been increased nine or ten millions of dollars. Those articles of universal con¬ sumption, on which an increase of duty would be inconvenient, are generally either free of duty or abundant. It is therefore proposed that not only the Mediterranean duties, which will expire on the 1st day of January next, should be continued, but that all the existing duties should be doubled on importations subsequent to that day. ^ * ; '' ,y r ■ $ T w\ $ ' 5 • * • i . ' Vri. -,•■<■.' r • 7 . * C ... », • . • " •• ■ • — o; * .v /'.jt '.■) ioo:? ■ • .;■} •mh , . \ • \ ■ • no 0 ' ■ ; ■ 070 Tin;. 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