In 1814, America faced a grim prospect in the war. Britain rejected Russia's offer of mediation and for the third year in a row the treasury secretary projected a deficit. Treasury Secretary William Jones who served as interim secretary from April 2014 to February of 2014, reported that America should expect a shortfall of nearly $30 million in 1814, and recommended loans and new taxes. There was a catch though. To introduce new loans and taxes, the nation needed a second Bank of the United Sates (BUS). Madison was against the first Bank in 1791, and now was being asked to support the second Bank of the United Sates. But, America was flirting with bankruptcy and finding investors was becoming difficult due to the shaky public credit of the United States. Revenues were falling and the government could no longer cover its regular expenditures, let alone the costs of war. Soldier's pay was six to twelve months in arrears, the Springfield Armory had closed, and there was no money to recruit new soldiers. By November of 1814, the U.S. government finally defaulted on the treasury notes due and it's debt payments. The U.S. government was essentially bankrupt. President Madison knew that if the war continued into 1815, the costs of war would become unbearable.
Now, Secretary George Campbell who took over from Jones projected that war expenses for 1815 would reach $56 million. Congress would have no choice but to implement new taxes in 1815. President James Madison, was not about to give up fighting the war. In his 1815 State of the Union address, he first outlined the dire needs of prosecuting the war. The ranks of the Regular army needed to be filled with new recruits, the engagements those serving in the special corps needed to be lengthened, and the militia system needed to be brought further into active service.
"To meet the extended and diversified warfare adopted by the enemy, great bodies of militia have been taken into service for the public defense, and great expenses incurred. That the defense everywhere may be both more convenient and more economical, Congress will see the necessity of immediate measures for filling the ranks of the Regular Army and of enlarging the provision for special corps, mounted and unmounted, to be engaged for longer periods of service than are due from the militia. I earnestly renew, at the same time, a recommendation of such changes in the system of the militia as, by classing and disciplining for the most prompt and active service the portions most capable of it, will give to that great resource for the public safety all the requisite energy and efficiency."
Yet, Madison was keenly aware of the financial woes of the country. The expenses during the first nine months of the year were $2 million greater than the revenue received, and $11 million of that received came from loans. Congress had to find some way to appropriate more money. Madison urged Congress to take up with out delay, means to appropriate funds to continue the war. Times were tough, but there was no backing down, "our country calls for its greatest efforts".
"The moneys received into the Treasury during the nine months ending on the 30th day of June last amounted to $32M, of which near $11M were the proceeds of the public revenue and the remainder derived from loans. The disbursements for public expenditures during the same period exceeded $34M, and left in the Treasury on the first day of July near $5M. The demands during the remainder of the present year already authorized by Congress and the expenses incident to an extension of the operations of the war will render it necessary that large sums should be provided to meet them.Later in the same address, after describing the nature of our enemy which I will save for the next post, Madison reminded Congress of the "enlightened patriotism" of the American people. Madison believed that the people would "cheerfully and proudly bear every burden of every kind which the safety and honor of the nation demand". People all over the country were promptly and proudly paying there taxes. It was now time for Congress to tap into this spirit and find the means to pay for the continuation of the war.
From this view of the national affairs Congress will be urged to take up without delay as well the subject of pecuniary supplies as that of military force, and on a scale commensurate with the extent and the character which the war has assumed. It is not to be disguised that the situation of our country calls for its greatest efforts."
"In providing the means necessary the National Legislature will not distrust the heroic and enlightened patriotism of its constituents. They will cheerfully and proudly bear every burden of every kind which the safety and honor of the nation demand. We have seen them everywhere paying their taxes, direct and indirect, with the greatest promptness and alacrity. We see them rushing with enthusiasm to the scenes where danger and duty call. In offering their blood they give the surest pledge that no other tribute will be withheld."To finance the war, there were many taxes enacted. During those years, Congress enacted taxes on houses, land, slaves, auction sales, carriages and refined sugar. On top of it, Madison now reluctantly supported a Bank of the United States to finance the continued war. Thus, it was on December 9, 1814 under a new Secretary of Treasury Alexander J. Dallas, that Senate passed a new bank bill establishing a new national bank to finance the war and to increase taxes. There was a brief respite, peace with Britain did come and Congress rejected new efforts to create the bank. Unfortunately, the federal government's financial position continued to deteriorate and in April of 1816, James Madison signed an act to establish the second Bank of the United States. More on this to come.
http://www.presidency.ucsb.edu/ws/index.php?pid=29456
http://www.bandyheritagecenter.org/Content/Uploads/Bandy%20Heritage%20Center/files/1812/Financing%20the%20War%20of%201812.pdf
http://millercenter.org/president/madison/key-events
http://www.federalreservehistory.org/Events/DetailView/95
http://millercenter.org/president/madison/key-events
http://tenpound.com/bookmans-log/2010/08/mr-jammy-and-me.html
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