Part 16 (1/2)

76. REVENUE AND PROTECTION (1789-1792).

[Sidenote: Revenue scheme.]

The first necessity of the new government was to lay the taxes authorized under the new Const.i.tution for its own support, for the payment of interest, and eventually for sinking the princ.i.p.al of the public debt. Two days after the House organized, Madison introduced a scheme, which eventually pa.s.sed into the first tariff act. On May 13, 1789, after agreeing to a duty on ”looking-gla.s.ses and brushes,” it was moved to lay a tax of ten dollars each on imported slaves. A Georgia member protested against the tax as intended for the benefit of Virginia, and ”hoped gentlemen would have some feeling for others;” the proposition failed.

[Sidenote: Question of protection.]

Another amendment, however, raised the most important political question connected with taxation. April 9, 1789, a Pennsylvania member wished to increase the list of dutiable articles, so as ”to encourage the productions of our country and to protect our infant manufactures.” A South Carolina member at once objected. Two days later a pet.i.tion from Baltimore manufacturers asked Congress to impose on ”all foreign articles which can be made in America such duties as will give a just and decided preference to our labors.” New England opposed the proposed duties because mola.s.ses, hemp, and flax were included; mola.s.ses was a ”raw material” for the manufacture of rum; and hemp and flax were essential for the cordage of New England s.h.i.+ps. Lee of Virginia moved to strike out the duty on steel, since a supply could not be furnished within the United States, and he thought it an ”oppressive, though indirect, tax on agriculture.”

[Sidenote: The first tariff.]

The act as pa.s.sed July 4, 1789, bore the t.i.tle of ”An Act for the encouragement and protection of manufactures;” yet the highest ad valorem duty was fifteen per cent. To be sure, the high rates of freight at that time afforded a very large additional protection; but no general revenue act ever pa.s.sed by Congress has imposed so low a scale of duties.

[Sidenote: Hamilton's scheme.]

By the time the revenue had begun to come in under this Act, Secretary Hamilton had worked out in his mind a general financial system, intended to raise the credit and to strengthen the authority of the Union. The first step was to provide a sufficient revenue to pay running expenses and interest. Finding that the first tariff produced too little revenue, in 1790 and again in 1792 it was slightly increased, at Hamilton's suggestion. The second part of his scheme was to lay an excise, an internal duty upon distilled spirits. In 1791 a tax, in its highest form but twenty-five cents a gallon, was laid on spirits distilled from foreign or domestic materials. The actual amount of revenue from this source was always small; but Hamilton expected that the people in the interior would thus become accustomed to federal officers and to federal law. The effect of the revenue Acts was quickly visible: in 1792 the annual revenue of the government had risen to $3,600,000.

77. NATIONAL AND STATE DEBTS (1789, 1790).

[Sidenote: The debt funded.]

The third part of Hamilton's scheme was to fund the national debt into one system of bonds, and to pay the interest. When he a.s.sumed control of the Treasury he found, as nearly as could be calculated, ten millions of foreign debt with about two millions of accrued interest, and twenty-nine millions of domestic debt with eleven millions of accrued interest,--a total of more than fifty-two millions. So far as there was any sale for United States securities they had fallen to about twenty-five per cent of their par value. Jan. 14, 1790, Hamilton submitted one of a series of elaborate financial reports; it called on Congress to make such provision for princ.i.p.al and interest as would restore confidence. By this time an opposition had begun to rise against the great secretary, and Madison proposed to inquire in each case what the holder of a certificate of debt had paid for it; he was to be reimbursed in that amount, and the balance of the princ.i.p.al was to be paid to the original holder. Hamilton pointed out that in order to place future loans the Treasury must a.s.sure the public that bonds would be paid in full to the person holding a legal t.i.tle. Congress accepted Hamilton's view, and an act was pa.s.sed by which the interest was to be promptly paid, and an annual sum to be set apart for the redemption of the princ.i.p.al. The securities of the United States instantly began to rise, and in 1793 they were quoted at par. The credit of the government was reestablished.

[Sidenote: a.s.sumption proposed.]

Now came a fourth part of Hamilton's scheme, upon which he laid great stress: he proposed that the outstanding State debts should likewise be taken over by the general government. The argument was that the States had incurred their debts for the common purpose of supporting the Revolution.

There was strong opposition, particularly from States like Virginia, which had extinguished the greater part of their own debt. The House showed a bare majority in favor of the a.s.sumption project; on the appearance of members from North Carolina, which had just entered the Union, that majority was, on April 12, 1790, reversed.

[Sidenote: The seat of government.]

[Sidenote: Compromise.]

Meanwhile the old question of the permanent seat of the federal government had been revived, and, as in the days of the Confederation, it seemed impossible to agree. It was expected that the capital would lie somewhere in the Northern States; at one time Germantown was all but selected. The Virginia members suddenly took fire, and Lee declared that ”he was averse to sound alarms or introduce terror into the House, but if they were well founded he thought it his duty;” and Jackson of Georgia declared that ”this will blow the coals of sedition and injure the Union.” The matter was laid over until the middle of 1790. It was evident that the friends of a.s.sumption were in a small minority, and the friends of a Northern capital in a small majority. Hamilton worked upon Jefferson to secure a compromise. The matter was adjusted at Jefferson's table: a few Northern votes were obtained for a Southern capital, and two Virginia members agreed to vote for a.s.sumption. By very narrow majorities it was therefore agreed that the national capital should be placed on the Potomac River, and that State debts amounting to $21,500,000 should be a.s.sumed. A few months later the President selected the site of the present national capital, and in due time the debts were taken up.

78. UNITED STATES BANK (1791, 1792).

[Sidenote: A bank proposed.]

Having thus reorganized the finances of the country, Hamilton now proposed the fifth part of his scheme,--the establishment of a national bank. In a report of Dec. 14, 1790, he presented the subject to the attention of Congress. He urged that it would benefit the public by offering an investment, that it would aid the government in making loans and by collecting taxes, and that its notes would be a useful currency. Hamilton drafted a bill, which was an adaptation of the charter of the Bank of England. The capital of $10,000,000, and the management of the bank, were to be private; but the government was to be a stockholder, and to have the right of requiring periodical statements of the bank's condition.

The Senate pa.s.sed the bill without a division, substantially as drawn by Hamilton. Apparently it was on the point of going through the House, when Smith of South Carolina objected, and Jackson of Georgia declared that he had never seen a bank bill in the State of Georgia; ”nor will they ever benefit the farmers of that State or of New York;” and he called it an unconst.i.tutional monopoly.

[Sidenote: The question of implied powers.]