signed
02/12/1814
02/12/1814. John Q. Adams|Albert Gallatin In 1812, the nation went to war without a wide-ranging financial strategy. The federal government's revenue largely came from customs duties and land sales, but war meant that revenue from these sources nosedived. There was no federal taxation of incomes and the Bank of the United States' charter had been allowed to run out in 1811, depriving the government of a major source of loans and credit. The government now had to use state banks and wealthy individuals as the basis for capital for its loans. In July 1813 Congress consented to a series of direct taxes on land and property, and on transactions and products including auction sales, carriages, liquor distilleries, retail wine licenses and refined sugar.All this proved hardly sufficient. By the spring of 1814 Congress authorized Madison to borrow $32.5 million to pay for the war, but by summer the domestic investment climate for U.S. Treasury bonds was weak, and the government's inability to borrow money hampered its ability to pay for the defense of Washington. This money might, however, be found in Europe with those that sympathized with the American cause. American negotiators were already in Europe hoping to negotiate the end of the war. These included John Quincy Adams, the chief US diplomat in Europe, Henry Clay, Albert Gallatin, Jonathan Russell, and James Bayard. The Ghent negotiators were charged with finding the funds, and they hoped that William Crawford, American ambassador In Paris, would assist and succeed. After all, France and Britain had been art war for over a decade.Meanwhile, in April 1814, President James Madison, who had opposed the creation of the first Bank of the United States in 1791, reluctantly admitted to the need for another national bank to finance the war. Some politicians and diplomats placed their hopes on the building of this Bank and other national measures rather than foreign loans.In early December 1814, shortly before the Treaty of Ghent was signed but at a time when an agreement was not at all certain, the Ghent negotiators issued these instructions to Crawford regarding the loans. European lenders were to be assured that the U.S. government was pledged to repay the loans, and the lines to them were to be kept open and flowing, but because of a potential treaty to end the war, and the fact that the investors buying stock in the new Bank of the United States would be a possible alternative source of funds, the foreign loans might not be needed.Autograph letter signed by both Gallatin and Adams, Ghent, December 2, 1814, to Ambassador Crawford, asking him to handle this delicate assignment. ""We have received your letter of the 23rd let. We think that our instructions respecting the proposed loan will warrant our pledging the United States for the reimbursement of the principal in Europe. It is however probable that the Secretary of the Treasury hopes to succeed in raising the price of stock in America. There can be no doubt that will happen if his plan for a Bank, which will absorb 24 millions of the new stock, is adopted by Congress.. And we may presume that to have been his motive for not sending by the [ship] Fingal the other three millions of stock, as had been intended by his predecessor. Considering also the present state of negotiations at this place, we think it advisable not to make at this moment a definitive arrangement with any house for the sale of the stock in our hands. The rate of 85% is as much as could be expected at this time, and we do not suppose that a short delay will affect that price in any considerable degree. But it is extremely desirable that in the meanwhile the enquiries on the subject should be pursued and the negotiation with the several banking houses of Paris should be kept alive.“Of the result of our mission you will of course be immediately informed, and if it proves unsuccessful Mr. Gallatin will proceed to Paris, and take in consent with you the necessary measures on the subject of the loans.”The Treaty of Ghent was signed December 24, 1814, thus ending the war. But by then the United States government was essentially bankrupt and loans were hard to come by. The financial difficulties continued, and in 1815 domestic taxes were raised. Hopes for the Bank of the United States were premature, as it was not chartered until 1816. The debt incurred in the war was not paid off until 1837. (Inventory #: 20286)
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