To enable the government to pay the interest of the debt thus funded, an augmentation was made in 1790, of the duties on imported wines, spirits and coffee; and in the following session a duty was im posed on stills and domestic spirits.
As many who were then holders of soldiers' cer tificates and other evidences of debt, due by the old government, had purchased them at one-eighth or one-tenth of their nominal value, the terms offered by the new government must be regarded as having been very favourable. The public creditors were not slow in accepting the offer, and by the 31st of December 1794, there had been funded, by computation, exclusive of temporary loans, and of the amount due to the Bank of the United States, on account of subscription to the stock of that institution.
During the administration of Washington and John Adams, every possible effort was made to re duce the amount of the public debt. The duties on imports were either increased or arranged in a new form, by seven different acts, between the 10th of August 1790 and the 13th of March 1300. The duties on stills and domestic spirits were also in creased, or arranged in a new form by three differ ent acts. To these were added, at different times, duties on auctions, on retailers of wines and spirits, duties on stamps, on refined sugar, on snuff, and on carriages; and, finally, in 1798, a direct tax of two millions was imposed on real estate.
By an act of 1790, only S600,000 of the revenue derived from the permanent duties were reserved for defraying the proper expenses of government. All the rest was appropriated to the payment of the in terest of the public debt, and for the redemption of the principal. In subsequent years it was found necessary to increase the appropriation for de fraying the proper expenses of government; but, whenever this was done, additions were made to the duties on imported goods, or to the internal taxes, to keep the sinking fund unimpaired. Not withstanding these efforts, the sinking fund did not become effective in reducing the amount of the pub lic debt, till the year 1801; for, though between the first of January 1791, and the first of January 1800, old debts were paid to the amount of S3,164,232 84, new debts were, in the same period contracted, of the amount of s10.,786, 100.
The war with the Indians; the insurrection in western Pennsylvania, which it cost the govern ment S1,250.000 to suppress; the transactions with Algiers, which cost S1,500,000; the still greater expenses incurred in the disputes with France, in 1798 and 1799, and the compensation of upwards of S2,600,000 which it was found necessary to al low to creditors, for losses occasioned by legal impediments to the collection of debts, con tracted prior to the peace of 1783, were so many extraordinary occasions of expense, which rendered an increase of the public debt in this period una voidable.
During nearly the whole of this time, our finan cial affairs were more or less embarrassed. Money was, to the merchant, worth much more than the legal rate of interest; and as there was little loan able capital in the country, the difficulty the go vernment found in borrowing was considerable. Of this we have a remarkable example in 1795, when, as stated by Mr Gallatin, " it borrowed eight hun dred thousand dollars in six per cent stock, at par, and as cash, from the bank of the United States, which seems to have produced only seven hundred and twenty thousand dollars in specie." This was paying a premium of 11 per cent, besides six per cent interest. In 1796, it opened books for subscription to a loan of five millions, at six per cent, of which it obtained only eighty thousand. Advances made by the bank of the United States, in anticipation of the revenue, and intended to be temporary, remained unpaid for a much longer period than the bank con templated, or the government desired; and at length the government was obliged to sell part of its bank stock, to satisfy the claims of the institution.
In this period, many changes were made in the form of the public debt. It consisted originally, as we have seen above, of certain amounts due to France, Holland and Spain; and of certain amounts due to domestic creditors, for which certificates were issued, of six per cent, deferred six per cent, and three per cent stocks. At the same time, when the act was passed for funding the domestic debt, the president was authorised to borrow twelve mil lions of dollars, solely for the purpose of discharg ing the arrears of interest, and the instalments of the principal of the foreign debt. Under this act, moneys were borrowed in Holland, by which the Spanish debt, amounting with interest to S259,083 05, was discharged in 1792 and 1793, and upwards of eight millions of dollars paid on account of the principal and interest of the French debt, in 179t and the three subsequent years.