of his person & dress—his linen is often
soiled & his clothes tattered.” That may
have been an exaggeration, but Gallatin’s
homeliness and his reputation for thrift
encouraged such exaggerations. Even his
smoking habits became the stuff of fable.
He stopped buying cigars in bulk, a Con-
gressman reported, because he found that
he smoked fewer and spent less if he
bought only a quarter’s worth at a time.
Gallatin’s thrift became legendary
because he slashed federal spending to find
the money he needed to repay the national
debt. During his years as an opposition
leader in Congress, Gallatin had dismissed
Alexander Hamilton’s plan for repaying
the debt. Hamilton’s plan used revenues
from specific taxes to pay interest on
particular bonds, all subject to a variety
of contingencies. It also allocated sur-
pluses, which had probably never existed
and which no one had ever bothered to
calculate, to a sinking fund that could
repurchase bonds in the market. The plan
was complicated and—perhaps intention-
ally—confusing. Jefferson described it as
“a number of scraps & remnants many of
which were nothing at all” applied to “dif-
ferent objects in reversion and remainder
until the whole system was involved in
impenetrable fog.” Its purpose was not so
much to extinguish the debt as to manipu-
late repayments and repurchases in order
to support the government’s credit and
increase the price of its bonds.
Gallatin had fundamentally different
intentions. The only way the government
could reduce its debt, he had repeated
throughout his six years in Congress, was
to spend less than it received. In the flush
of the Republicans’ electoral triumph, he
set out to do that.
As he set to work on the first Republi-
can budget, Gallatin used straightforward
arithmetic. He estimated that federal reve-
nues for the following year would amount
to $10.6 million. He liquidated the various
existing appropriations for principal and
interest on the debt into a definite annual
sum of $7.3 million. He determined (with
a bit of algebra that both he and Jef-
ferson found difficult) that fixed annual
payments of that amount could repay
the entire federal debt within 16 years.
Since the terms of some of the bonds
prevented the government from repaying
them any earlier, he adopted the $7.3 mil-
lion annual payment as the foundation for
his budget. That left him $3.3 million to
Letter from Albert Gallatin to Blair W. Clenachan, Esq., agent and commissioner of loans
in Philadelphia, dated October 31, 1811, regarding pension disbursements.
pay government expenses that had aver-
aged $5.8 million over the previous four
years. Pressure to repeal Hamilton’s excise
taxes on whiskey and other goods soon
required Gallatin to cut another $650,000
from spending, but he pressed ahead. He
thought import duties would raise enough
money to pay for peacetime government.
Within months Congress had adopted
Gallatin’s budget and replaced Hamil-
ton’s vague debt repayment plan with a
$7.3 million fixed annual appropriation
that took priority over all other federal
spending.
Gallatin’s reforms provoked a diatribe
from Hamilton that lasted almost as long
as it took Congress to enact them. In
newspaper essay after essay, Hamilton
excoriated Gallatin for pandering to the
people and cutting off the government
spending that was needed to strengthen the
new nation. “Practical politicians,” Hamil-
ton said, knew that governments must use
their fiscal resources to encourage national
prosperity. Gallatin’s obsession with debt
repayment would “sink the government”
by cutting off the money essential to “its
respectability,” “the accomplishment of
its most salutary plans,” and “its power of
being useful.” Indeed, Hamilton sneered,
Gallatin’s reforms would not even be pos-
sible if Hamilton himself had not already
stabilized the government’s finances by
funding the public debt. The reforms were
the measures of “LITTLE POLITICIANS,
who now...enjoy the benefits of a policy,
www.MoAF.org | Fall 2018 | FINANCIAL HISTORY 21