Hamilton resigned from office in 1794 and was succeeded by Oliver Wolcott who main tained the Federalist policy of his predecessor. The administration of each was subjected to severe and hitter criticism by the Republican party under the leadership of Albert Gallatin. Charges were made that the accounts were jnggled, that adequate information of the con dition of the treasury was not given to Con gress, and that appropriations were not made for specific objects but in lump sums, giving undue and arbitrary power to the Treasury De partment. In 1801 the Republicans came into power with Albert Gallatin as Secretary of the Treasury. Economy and abolition of what were regarded as inquisitorial taxes were immedi ately entered upon. Appropriations for the army, navy and diplomatic service were reduced and the excise duties were repealed. The lat ter step, however, was taken contrary to the opinion of Gallatin, who wished to husband the resources of the treasury in order to pay off the national debt as rapidly as possible. The commercial prosperity of the country at this period was at a high level; our neutral com merce took advantage of the European wars; exports and imports were large, and customs revenues for several years continued to increase by more than $1,000,000 annually. Notwith standing the loss of the internal revenue duties and the issue of a new loan of $11,250,000 re quired by the purchase of Louisiana, the posi tion of the treasury steadily improved, so that the debt was reduced from $86,000,000 in 1804 to $45,000,000 in 1812. The success of this opera tion was largely due to Gallatin's insistence that $8,000,000 should be annually appropriated to the extinction of the debt regardless of all other de mands. Gallatin also introduced the practice of rendering annually to Congress a statement of the finances, and during his administration the policy of making appropriations specific was established.
In order to meet the expenditures of the war with Tripoli a special revenue was created in 1804 by the imposition of additional duties of per cent on all imported articles paying ad valorem duties; this was known as the Mediter ranean Fund. In 1806 the import duty on salt was removed. In 1809 there was a temporary check to the good fortune of the treasury owing to the Embargo Act, but upon its repeal there was prompt recovery. Irritation between Eng land and the United States was deep-seated, and in 1812 the treasury faced a situation for which it was ill-prepared. War with England made a heavy loss in customs revenue, for a large part of the commerce of the United States was with that country; there was no internal reve nue system to fall back upon; and the estrange ment of the wealthy merchants of New Eng land, who opposed the war, made it difficult to borrow money in that section. The failure to
renew the charter of the United States Bank in 1811 also deprived the government of a sub stantial agency either for making temporary loans or selling securities. Moreover, there were intrigues in the Republican party directed against Gallatin; his influence was so far weakened that in May 1813 he retired from the treasury.
The extraordinary demands occasioned by war were at first met by loans in which short time treasury notes played an important part. Between 1812 and 1816, $84,400,000 of govern ment stock was sold, of which $17,700,000 was redeemed during theperiod, making a net in crease of $66,700,000; $36,600,000 treasury notes were issued of which about one-half were re deemed, leaving $18,400,000 outstanding at the close of the war. Funds were borrowed under disadvantageous terms, a large part of the stock being sold at a discount; of $41,000,000 bor rowed up to the end of 1812, ,New England contributed less than $3,000,000. The financial distress was also aggravated in 1814 by the sus pension of specie payments by local banks in all sections of the country except New Eng land; thus the receipts of the government, both for taxes and loans, were in depreciated cur rency. It is estimated that for loans of over $80,000,000 the treasury received but $34,000,000, as measured in specie. Treasury notes were issued under five different acts; the earlier ones were in denominations of less than $100 and were not designed for circulation; before the close of the war, however, provision was made for the issue of notes as low as $3. With the exception of the last issue all notes were re deemable in one year; and again with the excep tion of the small notes, all bore interest; none of the notes was legal tender.
Congress too tardily endeavored to enlarge the sources of fiscal supply by increased taxes. The customs duties were doubled at the outset, but this gave little strength, since commerce was almost at a standstill. In 1813 a direct tax of $3,000,000 was levied and internal revenue duties were revived. It takes time, however, to establish the machinery of a new tax sys tem, and no receipts from either of the above sources appear on the books of the treasury ac counts until 1814. As a consequence of this feeble financiering, deficit followed defic.t, amounting in the years 1812-15 to $68,600,00J. Gallatin was succeeded in the treasury by Wil liam Jones and George W. Campbell, neither of whom was able to cope with the situation, and in October 1814, Alexander J. Dallas, a con servative Republican and friend of Gallatin, was made secretary. The mischief, however, had already been accomplished, and Dallas was un able while the war lasted to extricate the treas ury from the embarrassments occasioned by in adequate taxes and depreciated currency. See