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