Enlistment of Minors
Another measure that generated opposition in New England was a new enlistment law. Like the conscription bill, this measure was drawn up by William Bibb and introduced in the Senate by William Branch Giles on November 5.179 It provided for doubling the land bounty, so that new recruits would receive 320 acres of land as well as $124 in cash. It also authorized the enlistment of minors 18 or older without the consent of parent, guardian, or master, and it exempted from militia duty anyone who provided a recruit for the regular army at his own expense—presumably by paying a sizeable cash bounty. (The government would still pay the land bounty.)
Federalists in both houses denounced the provision for minor enlistments. Cyrus King of Massachusetts said the proposal struck at “the best feelings of the heart” and was “inhuman, immoral, and oppressive.” According to Thomas P. Grosvenor of New York, the bill would have the effect of “jeopardizing the good order of the community, violating contracts, disturbing the sacred rights of natural affection, and all the felicities of domestic life.”180 In an obvious attempt to frighten southerners, Daniel Webster declared that the bill could serve as a precedent for taking slaves from their masters.181 Republicans made little attempt to reply to these arguments. The only concession they made was to give minors a four-day grace period in which to cancel their enlistments. Thus amended, the bill passed both houses and was signed into law on December 10.182
Like the conscription bill, the enlistment law unleashed a storm of opposition in New England. Theodore Dwight, a Federalist editor and pamphleteer, told a Connecticut congressman: “We do not believe your right to annul the laws of the States [governing minors], & do not intend you shall do it in Connecticut.”183 There was talk in Connecticut of prosecuting army officers who enlisted minors, and state judges routinely discharged minors from the service.184 In Massachusetts a state judge discharged a minor because his consent papers had been signed by only one parent. According to an army officer, this threatened the legality of all minors enlisted in Massachusetts—about 2,500 soldiers.185 Both Massachusetts and Connecticut passed laws prohibiting the enlistment of minors without consent, although the Bay State judiciously waited until after the war was over and recruiting had been suspended. The Connecticut assembly also strengthened its habeas corpus laws to facilitate the release of minors who were recruited into the service.186
State Armies Approved
A third army bill taken up by Congress met with little opposition and in fact had the full support of Federalists. This legislation was framed initially to raise the 40,000 volunteers for local defense that Monroe had called for, but after the defeat of conscription it was modified so that it also raised troops for use on the northern frontier. In its final form, the bill authorized recruiting 40,000 volunteers—which Monroe planned to use in Canada—and accepting up to 40,000 state troops into federal service for local defense.187
This bill represented a significant departure from existing policy: hitherto the administration had opposed state armies, fearing that they would siphon off potential recruits from the regular army. Many states, however, preferred state troops over militia because they were more professional and less disruptive. Virginia had authorized a state army in early 1813, mainly out of fear of a slave revolt. This army was disbanded several months later at the request of the national government, but only after the administration promised to keep a body of regulars at Norfolk and pay the expenses of some militia called out without federal authority.188
The New England states could not be placated so easily. Connecticut authorized a state army in 1812, and Massachusetts and Rhode Island followed suit in 1814. At first the administration was reluctant to sanction the use of these troops, but by the summer of 1814 British raids along the coast had become so common that the War Department relented. The administration agreed to accept Rhode Island’s troops into federal service in lieu of militia, and other states, at least seven of whom had authorized armies, clamored for the same treatment. The new law put Congress’s stamp of approval on the practice.189
Naval Reform and Expansion
Congress also dealt with naval affairs in this session, even though most of the nation’s ships were bottled up in port. On November 15, shortly before leaving office, Secretary of the Navy William Jones delivered a report to Congress making several recommendations for overhauling the service. To facilitate naval administration, he called for the creation of a board of commissioners that would be responsible for overseeing the construction of warships, the procurement of naval stores, and the deployment of the fleet. There was little objection to this proposal.190 Now that the nation was committed to a long-term naval construction program, a more efficient means of administering the service was needed. Hence Congress passed the necessary legislation with little debate.191
Jones also recommended establishing a school to train officers for the navy. This was the first of many times that Congress considered the matter, but most people thought that service at sea was the best school, and the navy’s success in the nation’s wars seemed to confirm this. Hence not until 1845 was the Naval Academy at Annapolis established, and even then it was done without a congressional appropriation. Jones’s final recommendation called for a system of compulsory service to ensure an adequate supply of seamen for the navy. The fleet, Jones said, was desperately short of men, and conscription was justified because most seamen escaped militia duty. But this proposal smacked too much of the British practice of impressment to receive any serious consideration.192
Congress also passed another naval expansion bill. With most of the nation’s larger warships blockaded in port, smaller vessels had come to play a greater role in the war. American privateers had been particularly effective against British commerce. “The effects of their enterprises against the commerce of the enemy,” said a Virginia congressman, “had been great and important.” A fleet of “small, swift-sailing vessels . . . would, in all probability, conduce to put a speedy end to the war, by the impression it would make on the enemy’s commerce.”193 In accordance with this thinking, Congress authorized the purchase or construction of twenty schooners carrying 8 to 16 guns.194 The conflict ended, however, before any of these vessels could be put to sea.
The Dismal State of Public Finance
The financial problems the nation faced were every bit as pressing as its military problems, and this issue also created divisions in the Republican party. Before leaving office in late September, George Campbell delivered his last financial report to Congress. Conceding that Gallatin’s plan of war finance had broken down, Campbell said that it was no longer possible to finance the war with borrowed money. “The experience of the present year,” he said, “furnishes ground to doubt whether this be practicable.” Estimating a revenue shortfall of $11.7 million for the balance of 1814 and heavy expenses for 1815, Campbell recommended that Congress impose new taxes and raise the interest rate on treasury notes.195
While Congress waited for Campbell’s successor to make more detailed recommendations, the Virginia paper money advocates seized the initiative. Thomas Jefferson, who had never been fond of bank paper, wrote to friends to urge the expediency of paper money both to finance the war and to serve as a circulating medium. “Congress may now borrow, of the public and without interest,” he told a friend, “all the money they may want to the amount of a competent circulation, by merely issuing their own promissory notes.” “Our experience,” he told Madison, “has proved [paper money] may be run up to 2. or 300 M[illion] without more than doubling . . . prices.”196 Monroe shared Jefferson’s views, and so too did a number of congressmen, including Nathaniel Macon, who was fond of saying that “paper money never was beat.”197 Madison, however, was cool to the idea.198
On October 10 John W. Eppes, another advocate of paper money, introduced a compromise proposal from the House Ways and Means Committee. It called for new taxes and a new issue of interest-bearing treasury notes “in sums sufficiently small fo
r the ordinary purposes of society.” Unlike the treasury notes already in circulation, the new notes would not be redeemable in specie, although they could be exchanged for bonds or used to pay taxes or buy public lands. Since they were designed to serve as a national currency, they were essentially a form of paper money.199
A week later Dallas submitted his first report on public finance. Although Madison had urged him to be conciliatory to Congress, the Philadelphia financier refused to pull his punches.200 He painted an even bleaker picture of public finance than Campbell had, estimating a revenue shortfall for the year of $12.3 million. Dallas asked for authority to borrow money and to issue additional treasury notes, but he rejected Eppes’s scheme for relying on treasury notes as a circulating medium because of their high interest rate and their exposure “to every breath of popular prejudice or alarm.” Instead, he argued that the best way to put the nation on a sound financial footing was with new taxes and a national bank.201
U.S. Public Finance, 1790–1815. This chart shows a fairly healthy balance sheet for the young republic until the War of 1812 sent expenditures soaring while revenues remained flat or actually fell.
Later in the session Dallas sent two additional reports to Congress. The first, dated December 2, outlined the Treasury’s problems in paying the national debt.202 The second, submitted on January 17, contained Dallas’s estimates for 1815. Disbursements for the year were expected to top $56 million (including $15.5 million merely to service the debt), while income—even with new taxes—would be a paltry $15.1 million. This meant that the government would have to raise $40.9 million through loans and treasury notes.203
According to George Ticknor, who was in the gallery when Eppes read this report to the House, Republicans were dumbfounded by Dallas’s figures. “You can imagine nothing like the dismay with which [Dallas’s report] has filled the Democratic party,” he said. “All his former communications were but emollients and palliations, compared with this final disclosure of the bankruptcy of the nation.” After reading the report, Eppes “threw it upon the table with expressive violence” and, turning to Federalist William Gaston, half in jest said: “Well, sir, will your party take the Government if we will give it up to them?” “No, sir,” replied Gaston, “not unless you will give it to us as we gave it to you.”204
New Loans and Taxes
Congress’s first order of business was to give Dallas the authority he needed to raise money to cover expenses for 1814. There was little opposition to authorizing an additional $10.5 million in treasury notes.205 Dallas also wanted to borrow $3 million to replace an equivalent sum of government bonds that had been shipped to Europe for sale.206 Federalists tried to limit the interest on the new loan to 8 percent and to pledge specific taxes for the loan’s redemption (which was the practice in Britain), but their amendments were defeated and the bill passed essentially unchanged.207
The administration was able to borrow only a fraction of the $3 million authorized by Congress. Three New York banks agreed to accept $600,000 in bonds in exchange for short-term money. The banks paid $80 for each $100 in bonds at 7 percent, but since they paid in depreciated bank notes, the government actually got the equivalent of only $65—which worked out to $390,000 specie value. Since this was short-term money that was paid off in four months, the effective interest rate was just over 60 percent. The subscribers to the earlier loans in 1814 now clamored for additional bonds to make up the 15 percent difference, but the Treasury refused to bow to their demands until Congress finally mandated payment in 1855.208
Raising the $40.9 million that Dallas had said would be necessary for 1815 seemed impossible. Dallas had recommended that the government issue $15 million in treasury notes and try to borrow $25 million.209 But the chances of borrowing this sum were so remote that Congress decided to reverse his figures. The war ended before the necessary legislation was passed, but ultimately Congress authorized $25 million in treasury notes and a loan of $18.5 million.210
Besides authorizing additional loans and treasury notes, Congress also imposed new taxes. As unpalatable as this was, everyone recognized that as long as the war continued there was no other way to restore public credit. Accordingly, members of the Ways and Means Committee met and, with “the British list of taxes before them,” drew up bills for a host of new internal duties.211
Seven of the bills became law.212 The most important imposed a direct tax of $6 million. This was twice the direct tax levied in 1814, and it was to be collected annually instead of just once. Any state could secure a 10- or 15-percent discount by paying the tax directly into the Treasury, but in contrast to 1814, when seven states had taken advantage of this provision, only four did in 1815.213 Congress also imposed a tax of 20 cents on each gallon of spirits distilled in the United States. This duty, which was in addition to the tax imposed on stills in 1813, was greater than the tax that had precipitated the Whiskey Rebellion in 1794.214
Southern and western Republicans protested that both the direct tax and the “whiskey” tax bore too heavily on their constituents. “If any thing could revolt our citizens against the war,” Jefferson declared, “it would be the extravagance with which they are about to be taxed. . . . The taxes proposed cannot be paid.”215 Most northerners, however, considered the taxes fair, and Federalists took special delight in forcing those responsible for the war to pay for it. “You must ‘pay for the whistle which you have purchased,’” said Grosvenor.216
The other revenue bills were less controversial. Taxes were imposed on various goods manufactured in the United States, including iron products, candles, hats, umbrellas, paper, saddles, boots, beer, tobacco, leather, jewelry, and gold, silver, and plated ware. Gold and silver watches were also taxed as was household furniture valued at more than $200. In addition, the existing duties on auctions sales, retailers, and postage were increased by 50 to 100 percent, and the duty on carriages by a lesser amount.
All the taxes were to remain in effect until public credit was restored. The total amount that accrued from all the internal taxes—including those adopted in 1813—was $13.7 million in 1815.217 Although the Republicans were slow to impose internal taxes during the war, the system finally adopted was the most sweeping enacted before the Civil War—far more sweeping than anything envisioned by the Federalists in the 1790s.
A National Bank Defeated
Even more controversial than the tax bills was Dallas’s plan for a national bank. Historically, Republicans had opposed a bank, but as the nation’s financial situation deteriorated, congressional support for a bank mounted. Proponents saw a number of advantages to a bank: as a source for a national currency and government loans, as a means of transferring funds across the country, and as a vehicle for establishing a more orderly system of public and private finance. But even the bank’s proponents could not agree on the details, and there was opposition to the project in both parties. Some Republicans still regarded a national bank as a dangerous and unconstitutional expedient that would open the door to commercial tyranny, and many Federalists feared that it would be “a mere machine for manufacturing paper money.”218
In his first report to Congress on October 17, Dallas outlined his own plan for a bank. Much to the dismay of some Republicans, the bank he recommended was an enlarged version of the first national bank—devised mainly by Alexander Hamilton in 1791—though it was to have much closer ties to the government. Like the first bank, Dallas’s bank would have a twenty-year charter and maintain its central office in Philadelphia (still the nation’s financial capital), with branch offices in other cities. The bank’s capital stock was set at $50 million, five times the capital of the first national bank. Of this, $30 million would be offered to the public. Subscribers would have to put up at least one-fifth of the purchase price in specie and the balance in war bonds or treasury notes. The government would take the remaining $20 million in stock in exchange for war bonds. The bank would be governed by fifteen directors, five of whom (including the presid
ent) would be chosen by the government. The bank’s notes could be used to settle all obligations with the federal government, and the bank would be required to lend the Treasury up to $30 million at 6 percent interest.219
Speaker Cheves had taken care at the beginning of the session to pack the House Ways and Means Committee with pro-bank men, although the chair was still held by the hostile Eppes.220 On November 7, Jonathan Fisk introduced a bill from committee that provided for incorporating a bank along the lines sketched out by Dallas.221 Although Dallas had not discussed whether the bank could suspend specie payments, Fisk’s bill expressly authorized the administration to take this action. Federalists were appalled by the entire proposal, fearing that the government would exert too much control over the bank and that the institution would flood the country with bank notes. According to William Gaston, the bank’s specie would be so limited that any sizeable loan to the government would necessitate an immediate suspension of specie payments.222
Many Republicans—including John C. Calhoun—agreed with the Federalists. Calhoun forced a series of amendments that fundamentally changed the bank’s character by making it more autonomous. The government’s right to purchase bank stock and to select bank directors was eliminated; so too was the forced loan to the government, the Treasury’s mandatory acceptance of the bank’s notes, and the authority to suspend specie payments. The bank’s capital was also scaled back to $30 million, and the stock could be purchased only with specie or with treasury notes hereafter issued.223 Nothing was left of Dallas’s proposal, said a Republican, “except the name—every feature and every important principle is changed.”224
Dallas vigorously protested that in this form the bank would benefit neither the government nor the country. If the administration issued the large number of treasury notes needed to float the bank, he warned, it would “have an injurious effect upon the credit of the Government; and, also, upon the prospects of a loan for 1815.”225 These arguments carried some weight in the House. There was also a backlash among regular Republicans against “Calhoun & [the] other giddy young men” who had spearheaded the drive to change the original bill.226 As a result, Calhoun’s bill was voted down by a large majority.227
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