Financial History 25th Anniversary Special Edition (104, Fall 2012) - Page 35

government, however, had precious little specie. Its credit standing, strong just a few years before, was now so feeble that investors, fearful of default, avoided government bonds. Moreover, sectional antagonisms threatened to tear the Union asunder. Many New Englanders protested against the war and traded with the enemy via Canada. As the war progressed and victory seemed increasingly unlikely, the nation’s financial crisis mounted. The war, which in 1813 alone cost some $20 million more than the government’s revenues, forced Gallatin, to the dismay of many in his party including President Jefferson, to reinstitute many polices created under Secretary of the Treasury Alexander Hamilton and the rival Federalist Party two decades before, at the beginning of the country. This included direct taxes, the sale of Federalist-style bonds and a plea for loans from state banks. Moreover, Hamilton, in 1791, had created the Bank of the United States, a quasi-central bank with $10 million in capital and a government ownership stake of 20%, with private capital providing 80% and a 20-year lifespan. That Federalist-inspired institution was killed in 1811 over party politics, with the Jeffersonians leading the charge to destroy the Bank. Gallatin had bucked the trend in his own party trying to get the Bank re-chartered, but he was unsuccessful and unpopular for that opinion. Alarmingly for Gallatin, he now faced the crisis without a central monetary authority. Congress’s unwillingness to significantly beef up tax revenues and New Englanders