22. FINANCES (1789-1816). Finances of the United States government in 1789 were in a most unfavorable condition. Not only had the Revolutionary War left a legacy of national indebtedness, amounting in 1784 to $39,000,000 exclusive of the continental bills of credit, but owing to the defective revenue system pre scribed by the Articles of Confederation, no adequate provision could be made either to pay the principal or to meet the annual interest charges. When the new Federal government under the Constitution was established, the debt had swelled to $54,000,000; of this $11,700,000 was owed abroad. In addition to the above obligations, there was an unknown amount of State indebtedness, approximating $20,000,000. The total debt was a heavy burden for a popula tion of less than and for a country as yet undeveloped in its material resources.
In 1790 Congress enacted an elaborate fund ing scheme providing for three loans, the first of $12,000,000 to take up the foreign indebted ness; a second, to the full amount of the domes tic debt, accepting at face value all obligations previously authorized, excepting bills of credit which were rated at 100 to 1; and a third of $21,500,000 to cover such State indebtedness as has been incurred for war purposes. The act was a complicated measure with ingenious con trivances, not only to make the loans accept able to holders of old obligations, but also, by varying rates of interest and deferred interest on a portion of the debt, to afford the new gov ernment time to recover from its financial mis fortunes. On two points there was bitter op position to the passage of the act: (1) From those who objected to the acceptance of old certificates of indebtedness at their face value, inasmuch as these had passed current at depre ciated value, and had fallen into the hands of speculators; (2) from the Southern States which had paid off a larger share of their in debtedness, and consequently were unwilling to be burdened with the debts of States which had been less self-sacrificing. The first objec tion was met by the firm contention that na tional credit could not tolerate discrimina tion; the second was removed by a shrewd bargain which established the new capital in Southern territory on the boundaries of Mary land and Virginia. In 1795 after the funding operations were over, the total debt amounted to $80,700,000, bearing an annual interest charge of about $3,000,000.
The revenue system established in 1789 was of simple character. A tariff act with low rates was passed; specific duties were placed on about 30 articles; ad valorem rates of from to 15 per cent on a few specified commodities, and a 5 per cent ad valorem rate on uncnumerated articles. Tonnage duties were included, and the principle of discrimination against goods imported in foreign vessels and foreign shipping was adopted. Although the rates imposed in this tariff were low, the debate on the measure as well as the preamble of the act shows that the principal of protection of home industry was recognized.
In the law establishing a treasury department, provision was made for a Secretary of the Treasury, a Cabinet position; for a comptroller to pass on the legality of bills presented against the government; for an auditor responsible for the accuracy of the accounts; for a register to preserve the accounts; and for a treasurer to receive and pay out money on presentation of proper warrants. The framework of this sys tem has continued until the present time and has proved highly effective in safeguarding the government against illegal expenditures. Alex ander Hamilton (q.v.) was chosen Secretary of the Treasury, and by his constructive genius, exhibited in a remarkable series of reports on public credit, a mint, national bank and manu factures, encouraged Congress to establish its credit on a broad and generous basis. Through his influence the Bank of the United States was established which granted temporary loans to the government, furnished a sound note circula tion and took care of the government funds. In 1791 it was found that additional revenue was needed, and under the advice of Hamilton internal revenue duties were imposed upon the distillation of spirits. This provoked opposi tion, especially in the agricultural section of the Middle and Southern States. Here it was claimed that the interior was sacrificed to the commercial interests of the Northern seaboard. In 1794 there was open defiance in Pennsyl vania, and the Federal troops were called out to put down the so-called Whisky Insurrection (q.v.). It was contended that the collection of the taxes was inconsistent with the principle of individual liberty, that it injured morals by in ducing false swearing, was burdensome, and interfered unduly with the business of distilling. Although the opposition failed in its efforts, the tax was not fruitful, amounting in 1793 to only $422,000 from which about one-quarter was de ducted for cost of collection and returns for drawbacks. In 1794 excise duties were extended to carriages, sales of liquors, manufacture of snuff, refining of sugar and auction sales. The constitutionality of the carriage tax was as sailed on the ground that it was a direct tax and should be levied by apportionment accord ing to population. The Supreme Court, how ever, in the case of United States v. Hylton (1796) decided that under the Constitution there were practically but two direct taxes, the poll tax and the tax on land, that the carriage tax was an indirect tax and consequently constitu tional. Expenditures continued to exceed the earlier estimates; the Indian War of 1790 was followed by the Whisky Insurrection, and in 1797 new military and naval expenditures were demanded on account of the strained relations with France. In 1798 a direct tax of $2,000,000 was laid upon dwelling-houses, lands and slaves. In 1800 the total receipts from all sources was about $10,848,000, of which $9,081,000 was de rived from custbms and $1,543,000 from internal revenue and the direct tax.