On June 1, 1812, President James Madison asked Congress to consider a declaration of war against Britain. The Democratic-Republican majority was happy to oblige.
Britainâ??s insults to the U.S. ranged from seizing its ships and forcing its sailors into the Royal Navy to supporting American Indian attacks along the Western frontier.
With war approaching, it fell to Treasury Secretary Albert Gallatin to figure out a way to pay for it. Gallatin hoped to borrow the money, but he wanted to raise taxes to cover the interest on the new debt. He worried that, otherwise, bond investors would be unwilling to lend large amounts of money to a young country. But the war hawks were ideologically and politically opposed to taxes -- particularly the excise (internal trade) taxes that Gallatin favored.
As the party of small government, the Democratic- Republicans believed that higher federal taxes were a threat to individual and statesâ?? rights. They also feared that raising taxes could hurt them at the ballot box. Congress did increase some tariffs (taxes on external trade) in the run-up to war, but failed to approve internal taxes while still expecting Gallatin to find funds to borrow. As Gallatin feared, there werenâ??t enough investors willing to lend the amount needed. The government was forced to print money.
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