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. 
 
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