IRV 
 
 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 IRVINE 
 
 GIFT OF 
 
 Dr . and Mrs . 
 JOHN F. BELL
 
 1 

 
 LIBRARY OF 
 ECONOMICS AND POLITICS. 
 
 EDITED BY 
 RICHARD T. ELY, Ph.D., LL.D.
 
 LIBRARY OF ECONOMICS AND POLITICS. 
 
 RICHARD T. ELY, Ph..D, LL.D., Editor. 
 
 NUMBER ONE 
 
 THE HISTORY, ORGANIZATION AND 
 INFLUENCE OF 
 
 THE INDEPENDENT TREASURY 
 
 OF THE UNITED STATES. 
 
 BY 
 
 DAVID KINLEY, A.B., 
 
 Fellow and Assistant in Political Economy in the University 
 of Wisconsin. 
 
 NEW YORK: 46 East Fourteenth Street. 
 
 THOMAS Y. CROWELL & CO. 
 
 BOSTON: 100 Purchase Street.
 
 
 Copyright, 1893, 
 By T. Y. Crowell & Co.
 
 PREFACE. 
 
 'T^HIS essay was begun with the purpose only of tra- 
 cing the influence of the Independent Treasury on 
 business, the part which constitutes chapter vi. of the 
 book. But in view of the growing importance of the 
 subject, it seemed best to make the study as complete as 
 my opportunities would permit. It is hoped that some 
 light is thrown on a matter that will force itself on public 
 attention before many years more, if the evil of the 
 system continues to grow, as it is likely to do. 
 
 The essay was begun with a prejudice in favor of the 
 sub-treasury system, because it seemed pre-eminently an 
 institution of the people. But as a result of the investi- 
 gation I have been forced to change my opinion, and 
 regard the system as injurious to the business interests of 
 the country. 
 
 I owe thanks to the many friends who have cordially 
 helped me with suggestions, material, and criticism. Dr. 
 Ely, the editor, has kindly encouraged me from time to 
 time in the work, and made helpful suggestions on many 
 points. Dr. W. A. Scott. Dr. F. J. Turner, and Dr. C. H. 
 Haskins, also, of the University of Wisconsin, have aider!
 
 IV PREFACE. 
 
 me with valuable criticism and suggestion. Dr. J. A. 
 Woodburn, of Indiana University, kindly read a large 
 part of the work, and many changes were made as a 
 result of his friendly criticism. I owe a similar debt of 
 thanks to Professor F. W. Taussig, of Harvard Univer- 
 sity, and to Professor Woodrow Wilson, of Princeton, 
 both of whom have read several of the critical chapters, 
 and made suggestions that have been very helpful to me. 
 Through the kind offices of Professor Taussig I also got 
 the benefit of criticism, on the chapter concerning crises, 
 from the ripe experience and learning of Professor Dunbar. 
 I take pleasure, also, in expressing my appreciation of the 
 many courtesies shown me by the officials of the Treasury 
 Department at Washington, and by those of the sub-treas- 
 ury in New York City, especially the cashier, Mr. Maurice 
 Muhleman, as well as by many bank officers and members 
 of the Stock Exchange in New York City. I am indebted, 
 moreover, to ex-Secretary C. S. Fairchild for some pam- 
 phlets ; and to ex-Treasurer C. N. Jordan for permission 
 to reprint his article on " An Associated National Bank." 
 The chapters in the latter half of the book are, of 
 course, the ones that are of most vital interest. 
 
 David Kinley. 
 University of Wisconsin, Nov. i, 1892.
 
 TABLE OF CONTENTS. 
 
 CHAPTER PAGE 
 
 I. The Old Bank of the United States i 
 
 II. The State Banks as Depositories 16 
 
 III. Development of the Independent Treasury . . 40 
 
 IV. The Organization and Work of the Independent 
 
 Treasury 82 
 
 V. The Independent Treasury and the Management 
 
 of Loans 96 
 
 VI. The Influence of the Independent Treasury on 
 
 Business 120 
 
 VII. The Relation of the Independent Treasury to 
 
 Crises 162 
 
 VIII. Proposals for the Replacement of the Inde- 
 pendent Treasury 217 
 
 IX. A Reorganization of the Banking System to 
 
 Replace the Independent Treasury . . . : 257 
 
 vn
 
 APPENDIX 
 
 CHAPTER PACE 
 
 I. List of Works Consulted 269 
 
 II. Sub-Treasury Law, and Amendments .... 271 
 
 III. Correct Currency Statement 289 
 
 IV. Average Monthly Surplus of New York Banks . 250 
 
 V. The French Indemnity Incident 291 
 
 VI. Influence of Sub-Treasury on Bank Management, 293 
 
 VII. Rules Governing the Issue and Redemption of 
 
 Currency 296 
 
 VIII. Regulations for the Deposit ok Puiilic Moneys . 304 
 IX. Proposals of the Hon. M. A. Harter as to Bonds 
 
 for the Basis of National Bank Circulation . 308 
 
 X. Monthly Government Receipts from Customs . 310 
 
 XL Government Disbursements for Four Years . .311 
 
 XII. Alleged Repeal of Sub-Treasury Law . . . . 312 
 
 XIII. Dates of Pensions' Payments 313 
 
 XIV. Proposals of the Hon. C. N. Jordan for an Associ- 
 
 ated National Bank 314 
 
 Index 325 
 
 viii
 
 THE INDEPENDENT TREASURY. 
 
 CHAPTER I. 
 THE OLD BANK OF THE UNITED STATES. 
 
 FEW questions, unless we except that of the tariff, 
 played so prominent a part in national politics down 
 as late as 1840, as did that of a national bank. Its con- 
 stitutionality and its expediency, its advantages and its 
 dangers, its strength and its weakness as a government 
 resource, were debated and re-debated, painted in dark 
 and in light, looked at from every standpoint, held up for 
 praise and ridicule, with a violence of partisan feeling 
 that entered into but few others of the discussions which 
 determined measures that were to be worked into our 
 political life. It was a question on which parties lost and 
 won ; a question on which great statesmen changed their 
 opinions, and parties shifted their ground ; on which there 
 was a flux and reflux of public opinion and governmental 
 policy, until it was settled at last, nearly half a century 
 ago, more as a party issue than as a question of scientific 
 economics ; a vindication of party strength, and a neces- 
 sary outcome of the drift of practical politics rather than 
 a triumph of economic and financial truth over fallacy, 
 or the consensus of concerted and convinced opinion as 
 to the merits of the question.
 
 2 THE INDEPENDENT TREASURY. 
 
 It was in the third session of the first Congress that 
 events began so to shape themselves as to point certainly 
 to a national bank as a part of our governmental ma- 
 chinery. In this session, provision was intended to be 
 made for the payment of the debts of the States, which had 
 been assumed by the general government. The bitter hos- 
 tility which the anti-federalists had displayed towards the 
 adoption of the Constitution had been turned largely 
 against the assumption of these debts ; and now that that 
 was decided, the same hostility was displayed against the 
 measures of the government to provide for their payment. 
 
 Secretary Hamilton had made his famous report on the 
 means for the support of the public credit, and had pro- 
 posed a scheme for a national bank. He expressed it as 
 his opinion "that a national bank is an institution of 
 primary importance to the prosperous administration of 
 the finances, and would be of the greatest utility in the 
 operations connected with the support of the public 
 credit." The question was discussed, not only with the 
 bitter hostility of partisanship to which the unsettled 
 canons of constitutional interpretation then gave freer 
 play than they do to-day, but also with a display of ear- 
 nest patriotism and splendid talent which some like to 
 think is not seen to-day. The measure, substantially as 
 proposed by Hamilton, was finally adopted, and in 1791 
 became a part of the law of the land, so that for the next 
 twenty years the first United States bank was to be a 
 feature of the fiscal administration of the government. 
 
 It served its purpose well, and was one of the instru- 
 ments which enabled Hamilton to establish financial order, 
 and, on the solid foundation of re-established credit, to 
 start the country again in the direction of industrial and 
 commercial prosperity. In the eloquent words of Webster,
 
 The old bank of the united states. 3 
 
 " He was made Secretary of the Treasury ; and how he 
 fulfilled the duties of such a place, at such a time, the 
 whole country perceived with delight, and the whole world 
 saw with admiration. He smote the rock of national 
 resources, and abundant streams of revenue gushed forth. 
 He touched the dead corpse of the public credit, and it 
 sprung upon its feet." 
 
 The question of rechartering the bank came up in Con- 
 gress in 18 10, and was supported by Secretary Gallatin. 
 The lateness of the session, however, prevented any action 
 until the next year, when the application for a recharter 
 was renewed. Despite the fact that " this bank, so far as 
 we can judge from the information we have in regard to 
 it, was soberly managed, successful, and beneficial in 
 restraining the issues of the smaller banks," x the bill was 
 lost under pressure from the eighty-eight State banks then 
 in existence, fjut the sad experience of the four succeed- 
 ing years taught its opponents that whatever demerits 
 characterized the plan they had defeated, yet these were 
 far exceeded by those of the system that replaced it. The 
 government money had been intrusted to the State banks 
 because, after the lapse of life of the national bank, there 
 was no other place of deposit. By the act establishing the 
 department of the treasury, the United States Treasury had 
 a legal, not a substantial, existence. The use of the State, 
 or local, banks became, then, a necessity. But they be- 
 trayed their trust ; or, at least, they failed in the strain to 
 which they were subjected in the trying times of the war 
 of 181 2. In the fall of 1814 all of the banks south of 
 New England suspended specie payments. Nearly one 
 hundred of them had been fiduciaries of the government, 
 and carried down with them about nine million dollars of 
 
 1 Sumner's " History of American Currency,'' p. 63.
 
 4 THE INDEPENDENT TREASURY. 
 
 its funds. The government, in order to meet its expenses, 
 contracted loans which were placed at between eighty and 
 ninety, and paid for in bank notes depreciated from ten to 
 twenty per cent. The lesson was heeded, and when appli- 
 cation was made for a charter for a second United States 
 bank, the request met but little opposition. Even Henry 
 Clay, who in 1811 had opposed a bank, gave the measure 
 his support now, although he afterwards explained 1 that 
 he did so, not because he believed in it as a good thing, 
 but only as necessary under the conditions then existing. 
 
 Accordingly, on the 10th of April, 18 16, the bank act 
 was passed. It is interesting to notice that Madison ap- 
 proved and signed the bill, though in 1791 he had parted 
 political company with Hamilton on an issue identical 
 with this, and had at that time laid down a political dogma 
 of strict construction which his action now violated. 2 
 
 The capital was $35,000,000, one-fifth of which was to 
 be subscribed by the government in coin or " stock ; " one- 
 fifth was to be in specie, and the other three-fifths in specie 
 or government stock. The bank was to pay the govern- 
 ment a bonus of $1,500,000; it was to be the depository 
 of the public moneys, and was required to disburse them, 
 free of charge, in any part of the country. Five of the 
 twenty-five directors were to be appointed by the President. 
 The charter was, as before, for twenty years. On the 1st 
 of January, 181 7, the bank opened for business, with the 
 country on the brink of a great monetary crisis, but " too 
 late to prevent the crash which followed." The manage- 
 ment of the bank during the first two years of its existence 
 was far from satisfactory. It aggravated the troubles of 
 
 1 Benton's " Thirty Years' View," li. ioo. 
 
 2 Benton says lie yielded to the authorities without surrendering his con- 
 victions. " Thirty Years' View,'" i. 323.
 
 THE OLD BANK OF THE UNITED STATES. 5 
 
 the financial situation instead of relieving them. Specie 
 payments were nominally resumed in 18 17, but the insidi- 
 ous canker of inflation had eaten its way into the arteries 
 of business, and in the crisis of 18 19 came another suspen- 
 sion, that lasted for two years. " In the first two years of 
 its existence the great bank was carried to the verge 
 of bankruptcy by as bad banking as was ever heard 
 of. Instead of checking the other banks in their improper 
 proceedings, it led and surpassed them all. A clique 
 inside the bank was jobbing in its shares, and robbing it 
 to provide the margins. Instead of rectifying the currency, 
 it made the currency worse. Instead of helping the cur- 
 rency out of the distress produced by the war, it plunged the 
 country into the commercial crisis of 18 19, which caused 
 a general liquidation, lasting four or five years. ... It is 
 almost incredible that the legislation of any civilized coun- 
 try could have opened the chance for such abuses of credit, 
 banking, and currency as then existed." * On April 1, 
 1819, just fifteen months after the bank began its career 
 for the purpose of restoring financial health to the 
 country, the history of its operations was told in the fol- 
 lowing statement of its condition: "Specie, $126,745.28; 
 notes, $6,000,000; due other banks, $79,125.99; due 
 government, $500,000 ; due Barings, $900,000. . . The 
 New York and Boston branches were in worse condition. 
 The Baltimore branch had given $3,000,000 discounts, 
 of which the parent bank had no knowledge, apparently 
 from corrupt motives. $1,671,221 were lost there. The 
 total losses to date were $3,500,000. Dividends for 
 $4,410,000 had been paid, of which $1,348,553 had been 
 gained by interest on public securities. Net loss over 
 $500,000. The bank now took the most energetic meas- 
 
 1 Sumner's " Andrew Jackson,'' p. 233. (American Statesmen Scries.)
 
 6 THE INDEPENDENT TREASURY. 
 
 ures to save itself, and in seventy days was once more 
 solvent, but it had ruined the community. The ' golden 
 age ' was now far in the past, and was seen to be only a 
 gilt paper age after all. The ruin was almost universal." 1 
 
 It was only by a desperate effort that the bank finally 
 weathered the storm brought on by its own mismanage- 
 ment and that of the State banks. 
 
 After the recovery, a period of several years of prosper- 
 ity followed, and the management of the bank was thor- 
 oughly reorganized and sound. From this time on until 
 the great "Bank War " its affairs seem to have been con- 
 ducted with a view to performing its duty to the govern- 
 ment as well as to its individual stockholders, and it 
 rendered such aid to the public, directly and indirectly, 
 as entitled it to respect and fair treatment on the part of 
 the servants of the people. Thus it redeemed its bad 
 past, and had come to be regarded as a permanent fiscal 
 agent of the government, the existence of which would be 
 continued as a matter of course. But the bank contro- 
 versy was not yet over. It was about to be revived, and to 
 become a prominent issue in a period of our national 
 politics more distinguished for the bitterness of its per- 
 sonal animosities than perhaps any other in our annals. 
 
 To a complete understanding of the origin of this bitter 
 strife, we must notice not only the events and issues of the 
 political turmoil out of which it immediately emerged, but 
 also a deeper influence, which really lay at the bottom of 
 the political agitation of the time. That influence, from 
 want of a better name, we may call the American spirit. 
 What this term implies may be best understood by briefly 
 recalling the conditions of the country and people of that 
 time. 
 
 1 Sumner's " History of American Currency," p. 78.
 
 THE OLD BANK OF THE UNITED STATES. 7 
 
 With a population of less than twenty millions, scattered 
 over a vast territory, with abundance of unoccupied land 
 that could be secured on easy terms, and with a population 
 that was mainly agricultural, class lines were but lightly 
 drawn, society was more democratic than it is now, and 
 the people were in reality, as well as in name, more nearly 
 " peers " than they are to-day. The equality of the Con- 
 stitution was a realized fact, especially in the North. 
 Social equilibrium was more stable, because it was not 
 disturbed by the existence of at least a disproportionate 
 number of those who find it difficult to make a comfort- 
 able living. Comfort and a high standard of living were 
 the lot of the great majority. Politically, the spirit of the 
 people was intensely democratic. There was a marked 
 feeling against anything that looked like aristocracy, that 
 had the semblance of creating class distinctions, or that 
 even emanated from, or had any connection with, the aristo- 
 cratic institutions of the Old World. In addition to these 
 conditions, perhaps a partial consequence of them, was a 
 widespread belief, which has not yet wholly disappeared, 
 that the country, from its peculiar form of government, 
 had little or nothing to learn from the history and experi- 
 ence of the nations of the Old World. We looked upon 
 ourselves as a "favored nation," with a destiny to be worked 
 out on new and independent lines. There was, withal, 
 even then, the " hurrah element " in politics, an inevitable 
 element of popular government, which, adopting some 
 catch-word or phrase as a rallying cry, would at times sweep 
 to victory on a tide of popular feeling and with a policy, 
 or no-policy, that set reason and the accumulated experi- 
 ence of years at defiance. In a way, the American Eagle 
 screamed louder then, with less to scream about, than 
 he does to-day. And the party leader who could take
 
 8 THE INDEPENDENT TREASURY. 
 
 advantage of this democratic prejudice had an easy road 
 to success. True, the sober second thought of the people, 
 or the fruits of a mistake, would occasionally come in 
 time to prevent serious disaster. And, moreover, our 
 gigantic resources and unparalleled opportunities have 
 at times brought us safely through crises, despite our 
 own bad management. But if there be such a thing as 
 national luck, we in this country certainly must have 
 enjoyed a good share of it, since, in spite of stupendous 
 blunders, we have hitherto managed to escape lasting 
 national disaster. 
 
 One phase of this anti-aristocratic feeling was mani- 
 fested in an intense dislike of banks of issue. This preju- 
 dice has cropped out at times all along in our history. 
 Even to-day, after an experience of a quarter of a century 
 with a bank currency unsurpassed for safety and conven- 
 ience by any in the world, the same prejudice cries out 
 against the supposed privileges of our National Banks, as 
 banks of issue. Our agricultural classes, especially, seem 
 to think that these deprive the people at large of some- 
 thing that rightly belongs to them. The resolutions of 
 recent conventions of the Farmers' Alliance unanimously 
 favoring " the abolition of all National Banks " are familiar 
 to all observers of contemporary politics. It is true, of 
 course, that the National Banks have a special privilege 
 in being allowed to make a profit on issues secured, not 
 by their own integrity and stability, but by the credit of 
 the government. But the value of this privilege now is 
 small, and it can always be easily regulated so that the 
 loss to the people from letting the banks, instead of 
 the government, issue notes, will be more than offset by 
 the taxes collected on the bank issues, and by the avoid- 
 ance of the peculiar dangers of government paper.
 
 THE OLD BANK OF THE UNITED STATES. g 
 
 In this feeling against the banks, again, experience, 
 whether of our own country or of foreign lands, seems 
 to count for nothing. Evidently, the existence of such a 
 feeling, whether reasonable or not, offers fine scope for 
 party manipulation, of which, as we shall see, the political 
 managers of the " Bank War " were not slow to take 
 advantage. 
 
 In fact, the spirit of democratic equality and the preju- 
 dice against banks played a large part in the famous polit- 
 ical turmoil that resulted in the overthrow of the second 
 United States Bank, and in the ultimate establishment of 
 our present sub-treasury system. 
 
 Doubtless it was largely the gratitude of the people for 
 his military services, rather than any realizing sense of 
 his administrative ability in civil affairs, that first placed 
 Andrew Jackson in the presidential chair. It was his 
 success in making his attack on the bank appear as a 
 defence of the interests of the people and government 
 against insidious assaults of the " moneyed power," which, 
 combined with the spirit of hero-worship that exists in- 
 tensely, though spasmodically, in popular governments, 
 raised him to that high honor a second time. It is one 
 of the numerous instances of the determining influence of 
 the " shouting element " in popular politics. For Jack- 
 son's acts during his first term, so far as they related to 
 finance at least, can hardly be dignified by the name of a 
 policy, or find any justification in political science or ex- 
 perience. It is true, indeed, that in the state of affairs 
 which prevailed at the time, his conduct was the best he 
 could have followed for the future interests of the country. 
 For his lack of financial ability would probably have 
 caused disaster if he had attempted a positive, construc- 
 tive, plan of action. It was well, therefore, that he was.
 
 IO THE INDEPENDENT TREASURY. 
 
 content to destroy and leave reconstruction to more skil- 
 ful hands. 
 
 And yet the country owes a debt of gratitude to Presi- 
 dent Jackson, because, even although he was swayed by the 
 political circumstances of the period, and by his own in- 
 tense personal convictions and prejudices, he yet was a 
 veritable bulwark of popular rights against the encroach- 
 ments of the money power which was exerted when the 
 bank degenerated into politics. We may not credit him 
 with a foresight of the evils that probably would have 
 arisen had the single national bank monopoly been per- 
 petuated ; but we may be thankful to him for rendering 
 them impossible by destroying, for whatever reasons, the 
 source whence these evils would have sprung. 
 
 The events of what is known as the " Bank War " are 
 familiar to all students of American history, so that a 
 detailed account of it is not necessary. 1 But it will be 
 well, for our present purpose, to recall its main features, 
 because it was really the first step in the logical sequence 
 of events that led to the establishment of the Independent 
 Treasury. 
 
 As already said, the ten years following the revulsion of 
 1819-25 were years of almost unbroken prosperity. The 
 bank management was sound, government credit was 
 excellent, the public debt was rapidly reduced, and the 
 industrial and commercial situation was healthy. The 
 question of the continuance of the bank was not under 
 discussion. In fact, scarcely any mention of the subject 
 
 1 For a general survey of the whole matter, see von Hoist's " Constitutional 
 History of the United States," vol. ii. ; Schurz's "Henry Clay" (American 
 Statesmen Series); Sumner's '-Andrew Jackson" (American Statesmen 
 Series) ; " Thirty Years' View ; " Bolles's " Financial History of the United 
 States ; " Young's " American Statesman ; " Story's " Commentaries on The 
 Constitution," Book III. chapter xxv. See also bibliography in Lalor's 
 " Cyclopaedia of Political Science," article " Bank Controversy."
 
 THE OLD BANK OF THE UNITED STATES. II 
 
 was made until President Jackson referred to it in his 
 message of December, 1829. In this message he re- 
 opened the question of the constitutionality of the bank, 
 but the committee to which this portion of the message 
 was referred in the House of Representatives made a 
 report favorable to the institution. 
 
 There seems no reason to doubt the honesty of Jack- 
 son's opinion that the bank was unconstitutional, and at 
 first he probably had no feeling in the matter except that 
 which sprang from his convictions on this point. Certain 
 events, however, increased his hostility to the bank, and 
 strengthened his resolution to destroy it. The principal 
 of these were the disagreement that arose between Secre- 
 tary Ingham of the Treasury, and Air. Biddle, president 
 of the bank, concerning the management of the branch 
 bank at Portsmouth, N. H. ; the delay of three months 
 in paying five millions of three per cent, government 
 stock which fell due in July, 1832 ; the refusal to pay 
 drafts on the branch banks except at the branches them- 
 selves ; the action of the bank in the matter of the French 
 indemnity; 1 and the alleged interference of the bank in 
 the presidential campaign of 1832. 
 
 When President Jackson first attacked the bank, the 
 weapon he chiefly relied on was the alleged unconsti- 
 tutionality of the charter. It was around this point that 
 the great battle of earlier days had been fought and won, 
 when Hamilton finally succeeded in persuading Congress 
 to establish the first bank. That was the first of the 
 many rapid strides by which the power of the federal 
 government has been gradually extended by the applica- 
 tion of that doctrine of "implied powers " which has been 
 so aptly called the " chief dynamic principle of our Con- 
 
 1 For an account of this interesting episode, see Appendix, p. V.
 
 12 THE INDEPENDENT TREASURY. 
 
 stitution." But the day, now long since lost to sight, had 
 already passed when an effort could be successfully 
 made to check the assumption of any authority by the 
 general government on the plea of " necessary," or " im- 
 plied," powers. 
 
 Foiled in this line of attack, General Jackson turned 
 his attention to securing evidences of mismanagement 
 and illegal procedure, and it was on the basis of alleged 
 unsoundness that he justified the removal of the deposits 
 from the bank in 1833. But his effort to prove misman- 
 agement was a failure. 
 
 Speaking merely from the point of view of sound bank 
 management, in the list of charges that had been piled up 
 since he first attacked the bank in 1829, " we can find 
 nothing but frivolous complaints and ignorant criticism 
 successfully refuted, except when we touch the branch 
 drafts." 1 There were, indeed, many points of bad man- 
 agement, but they were mistakes to be corrected, not to 
 be made reasons for destruction. The usurpation of the 
 important business of the bank by the Exchange Commit- 
 tee was wrong ; the discretion allowed President Biddle 
 in the struggle was too great ; the policy of temporarily 
 loaning the cash in the drawer, on collateral securities, 
 without interest, was exceedingly bad business policy ; 
 these and similar administrative mistakes were the first 
 steps in the career of the bank that led to its downfall 
 and ruin. It was guilty of great financial errors, but they 
 were not beyond remedy ; and that they formed a reason- 
 able ground for such hostility as was displayed, is untrue. 
 And it may fairly be questioned, even although we deny 
 the legitimacy of the point, whether that very hostility was 
 not a powerful force in driving the institution into the 
 
 1 Sumner's " Andrew Jackson," p. 267. (American Statesmen Series.)
 
 THE OLD BANK OF THE UNITED STATES. 1 3 
 
 road that led to ruin. It is not proven that the funds of 
 the bank, acknowledged to have been used in legitimate 
 methods of self-defence, were ever devoted to the uses 
 of political partisanship at all. It is hardly correct to 
 say that the bank made a panic in 1834, for the tangible 
 grounds of a panic were absent ; and the crisis that came, 
 real and distressing as indeed it was, may be fairly 
 attributed, less to contraction by the bank, than to the 
 fears engendered as to the possible consequences of the 
 enmity of the Executive. 
 
 In the struggle with the President, the bank forgot that 
 it was more than a private institution, that one of the pur- 
 poses of its existence was the service of the government, 
 and that in its capacity of fiscal agent it owed the country 
 a duty and service with which its private interests should 
 not have been allowed to interfere. Yet even here, while 
 it cannot be justified, it might claim to be excused, on the 
 ground that the government itself, whose interests it had 
 in charge, was seeking to cripple its power to conserve 
 these interests. 
 
 For most of the years of its existence the bank gave 
 the country a more " uniform currency " than existed at 
 its creation ; it facilitated the fiscal operations of the gov- 
 ernment ; it collected the revenues ; it equalized exchanges ; 
 and it gave a healthy tone to the business of the country. 
 But neither its principles nor its acts were perfect. It 
 was not a panacea for industrial distress, nor a preven- 
 tive of its occurrence. It may justly be charged with 
 sins of both commission and omission, and the path it 
 finally trod, whatever the force that impelled it thereto, 
 can but make us rejoice that its custody of the people's 
 money ceased before it leaped over the precipice of ruin 
 on which it for a long time stood, and over which it finally
 
 14 THE INDEPENDENT TREASURY. 
 
 plunged. The first two or three years of its life were 
 marred by acts financially so vicious and in their results 
 so injurious to the people, that we stand amazed at the 
 brazenness of its evil doing, and wonder how banking 
 so deliberately selfish and pernicious to the interests of 
 society, could have been permitted by the law. But it 
 afterwards assumed a course of integrity, and redeemed 
 its past by valuable service, until the time when, in its old 
 age, it again forgot the principles of honor, and entered 
 on the period of decay. There were in its management 
 forces at work that, if it had been let alone, would prob- 
 ably have finally worked its ruin. But they could have 
 been checked if the government had been friendly in- 
 stead of hostile, and if the bank had kept its policy up to 
 the high-water mark of business integrity. As it was, the 
 course of the Administration aided in hastening the end. 
 
 In 1835 the " Bank War " may be said to have come to 
 a close, so far as actual conflict was concerned, and the 
 President had won. The remaining acts of the bank were 
 only the making of the arrangements of surrender. When 
 the time came, however, for the charter to expire, the bank 
 did not give up its corporate existence. It obtained a 
 charter from the State of Pennsylvania, by means that 
 would not bear a critical examination according to the 
 standards of either business or political integrity. Instead 
 of winding up its affairs and paying the government the 
 money it owed, it transferred all its effects to the new cor- 
 poration, and continued business as before. It even put 
 into circulation again the notes which it had issued as 
 Bank of the United States. 
 
 It may be easily believed that the institution that could 
 do this had already sunk far below the plane of strict busi- 
 ness honor. In fact, the affairs of the bank were at this
 
 THE OLD BAA r K OF THE UNITED STATES. 1 5 
 
 time very dishonestly managed. No means now seemed 
 too corrupt for it to use in the accomplishment of its pur- 
 poses, and if it had now been in control of the government 
 resources there probably would be a sad story to tell of 
 their loss. The inevitable end came in the crash of 1839. 
 The bank at this time was engaged in operations for which 
 it merits the severest condemnation, and against the results 
 of which it was not able to sustain itself. It closed its 
 doors in October, 1839, opened them for a short period 
 afterwards, and finally suspended in February, 1841. It 
 managed to pay its debts, but its whole capital was lost. 
 President Biddle was sued for over a million dollars, paid 
 out during his administration, for which no vouchers could 
 be found. He and several directors were indicted by the 
 Grand Jury, but were discharged. 
 
 The removal of the deposits to State banks, by Presi- 
 dent Jackson, in 1833, was the voluntary use of a system 
 which would necessarily have come into operation at the 
 expiration of the bank charter. For a few years the sys- 
 tem was used without legislative sanction, and its com- 
 pulsory employment, caused by the downfall of the United 
 States Bank, was the next step towards the policy of an 
 independent treasury. To trace the history of this step 
 and its influence in the evolution of the Sub-Treasury 
 be our effort in the next chapter.
 
 1 6 THE INDEPENDENT TREASURY. 
 
 CHAPTER II. 
 THE STATE BANKS AS DEPOSITORIES. 
 
 THE use of the local, or State, banks as depositories 
 of the public money was not new. The system had 
 been employed from the time of the adoption of the Con- 
 stitution until the organization of the first United States 
 Bank. It was the inconveniences and risks of the system 
 that partly influenced Hamilton in his efforts to establish 
 the national bank. The State banks had been used again 
 between 1811 and 1816, the interim between the expira- 
 tion of the life of the first national bank and the charter 
 of the second, and again they had proved so unsafe and 
 so false to their trust that not only did the bank charter 
 meet with but little opposition, but the bitter experience 
 of the five intervening years had converted some of its 
 former opponents into friends. 
 
 There appeared no reason for thinking that the local 
 banks would be more faithful to their trusts if they should 
 be given another trial than they had been before. In 
 fact, if we may trust Benton, such was, perhaps, President 
 Jackson's opinion, for Benton seems to intimate x that he 
 regarded the plan of using these banks as depositories as 
 a temporary expedient, and looked to the ultimate separa- 
 tion of the government from all banks. But if the Presi- 
 dent did really contemplate this separation, he saw that 
 its accomplishment then was an impossibility. 
 
 1 Cf. " The View," i., 554.
 
 THE STATE BANKS AS DEPOSITORIES. I J 
 
 Strictly speaking, the government deposits were not 
 " removed " from the United States Bank in 1833. The 
 government simply ceased depositing its receipts there ; 
 and the withdrawal of what was already in the Bank took 
 place in the ordinary course of government business. 
 
 The use of the State banks as depositories, began in 
 October, 1833. There was no law regulating the use of 
 these banks, and therefore the public moneys were for a 
 time practically under the control of the President and 
 the Secretary of the Treasury. It fell to them to select 
 the banks to be intrusted with the public deposits and to 
 name the conditions on which they should be received 
 and kept. Contracts were made by the Secretary with 
 selected banks, according to which the banks were to give 
 security for the government money whenever the deposits 
 should exceed one-half the bank capital paid in. In addi- 
 tion, the government reserved the right to demand security 
 whenever it was thought advisable, even if the deposits did 
 not exceed the sum mentioned. The banks furthermore 
 agreed to perform for the government all the services 
 formerly rendered by the Bank of the United States. 
 
 The banks also undertook, by mutual agreement, to 
 honor one another's notes and drafts, thus seeking to 
 provide a "general currency at least as sound as that of 
 the Bank of the United States." They were forbidden to 
 issue small notes, and were required to keep one-third of 
 their reserve in specie. The problem before the govern- 
 ment was to make regulations which should secure the 
 safety of its deposits, and to provide a circulation of State 
 bank notes to replace the thirty- five millions ! soon to be 
 withdrawn by the national bank. 
 
 One immediate result of the refusal to recharter the 
 
 1 See Young's " American Statesman," p. 666.
 
 is the independent treasury. 
 
 national bank, was a "mushroom crop" of local banks all 
 eager for the government patronage. In his report, sub- 
 mitted in December, 1834, Secretary Taney urged on 
 Congress the necessity for an act regulating the deposits, 
 but nothing was done about the matter. A bill for the 
 purpose did, indeed, pass the House, but met its death 
 in the Senate on the report of the finance committee that 
 it ought not to pass, mainly because its passage would in- 
 dicate acquiescence on the part of the Senate in the course 
 pursued by the Executive. The provisions of the bill were 
 also regarded as inadequate for safety. It was not until 
 1835 that Congress took any action on the matter of regu- 
 lating the deposits. Accordingly, from October, 1833, 
 until that time, or for about two years, they were kept 
 in the State banks without authority of Congress, a fact 
 which the President's opponents had unceasingly used as 
 an argument against him. The bill finally passed was 
 identical with that which had been defeated in the Senate 
 two years before. By this act the banks which could not 
 pay specie were dropped from the list of deposit banks. 
 A circular letter of the Treasury Department to the 
 deposit banks, Sept. 26, 1833, said : " The deposits of 
 public money will enable you to afford increased facilities 
 to commerce, and to extend your accommodations to in- 
 dividuals." It also recommended "merchants engaged 111 
 foreign trade " as the most deserving recipients of ex- 
 tended credit. Evidently the prestige of foreign trade 
 was yet tolerably high, and its fair name had not yet 
 suffered the obloquy that a " Chinese " tariff wall has 
 brought upon it in these latter days. The invitation of 
 the Secretary of the Treasury to the banks to use the 
 public money as a basis for enlarging their discounts is 
 interesting, in view of the fact that such a use of them by
 
 THE STATE BANKS AS DEPOSITORIES. \C) 
 
 the national bank had constituted one of the chief griev- 
 ances against it in the minds of the supporters of the 
 administration. The hint was not needed, however. New 
 banks came into existence every day, and all increased 
 their discounts rapidly. In the eight years between 1830 
 and 1838, the bank capital of the country increased from 
 $145,192,268 to $290,772,091 ; deposits rose from $55,- 
 559,928 to $127,397,185 ; and discounts and loans, from 
 $200,451,214 to $525, 115, 702. x The signs of the coming 
 storm had been gathering for a considerable period of 
 time. Imports had swelled from $101,030,000 in 1832, to 
 $189,980,000 in 1836, an increase of 87 per cent. The 
 customs receipts of 1836 exceeded by 44 per cent, those of 
 the year 1834, and the sales of the public lands for 1836 
 were, for the first time in the history of the country, in 
 excess of the customs receipts. The large importations 
 were in this case the indication of rising prices, of which 
 foreign manufacturers were hastening to take advantage. 
 The upward trend of prices came from the inflation of the 
 currency by excessive issues of bank-notes. The increased 
 sales of public lands were another sign of the inflation. 
 It was by means of these increased sales that the govern- 
 ment was enabled to get rid of its debt and found itself 
 the possessor of the surplus of millions that were dis- 
 tributed, or "deposited," among the States in 1837. 
 
 But, as usual, these signs of a coming storm were un- 
 heeded by all save a few. In 1836 came the inevitable 
 results — a marked rise of prices and rife speculation. The 
 inflation bubble grew rapidly greater until, in 1837, li 
 burst, scattering ruin in all directions. Nearly all the 
 banks failed. They had $32,000,000 of government de- 
 
 i Cf. Sumner's " History of American Currency," p. 12-5 ; Bolles*s " Finan- 
 cial History of The United States," vol. ii.. p. 346.
 
 26 THE INDEPENDENT TREASURY. 
 
 posits, $25,000,000 of which were paid in notes depreciated 
 ten per cent., causing a loss of two and a half millions. 1 
 
 The catastrophe was undoubtedly hastened by several 
 acts of the Executive, which received severe condemna- 
 tion at the time, but must, in our better light, meet with 
 approval and commendation. By order of the Secretary 
 of the Treasury, the. receipt after Sept. 30, 1835, °f 
 bank-notes of a denomination less than five dollars, had 
 been prohibited. In the following year their payment to 
 public officers or creditors was prohibited, and no notes 
 less than ten dollars were to be received or paid by the 
 government after an appointed date, July 4, 1836. More- 
 over, the deposit banks were ordered to make one-fifth of 
 every payment which did not exceed five hundred dollars, 
 in gold, if so desired by the creditor. They were also 
 requested to cease issuing notes below the denomination 
 of five dollars, by July 4, 1836, and below ten dollars, by 
 March 3, 1837. The purpose of these regulations was " to 
 render the currency of the country more safe, sound, and 
 uniform." Of course the immediate result intended to be 
 produced was the displacement of small notes by coin. 
 The orders were an effort to create a specie circulation. 
 And within the limits of the denominations chosen there is 
 no more efficacious method of replacing specie with paper, 
 or vice versa, than the prohibition of such coins or notes 
 of the assigned denominations as are in common use. 
 
 These orders of the Treasury Department were supple- 
 mented by the famous "Specie Circular," issued July 11. 
 1836, which raised public excitement to a higher pitch, 
 probably, than any other incident in the bank war, unless 
 we except the removal of the deposits. The object of 
 this circular was to prevent the absorption of the public 
 
 1 Finance Report, 1838.
 
 THE STATE BANKS AS DEPOSITORIES. 21 
 
 lands by speculators, and to check the accumulation in the 
 Treasury of bank-notes, many of which would doubtless 
 prove inconvertible. It required payments for public lands 
 to be made in gold and silver. "The best justification of 
 this measure was that ten millions of paper on its way to 
 the Land Office was arrested by this circular." Between 
 Aug. 16 and Dec. 15, exceptions were to be made in cases 
 of purchases not greater than three hundred and twenty 
 acres. After the 15th of December the operation of the 
 order was unconditional. 
 
 This famous '"' circular " was the pin that pricked the 
 bubble of inflation. It is unfair to say that the responsi- 
 bility for the panic that followed must be laid at the door 
 of these orders. The panic was the result of the tremen- 
 dous inflation, and would have come in any case. The 
 specie circular simply aided in hastening the explosion, 
 thereby probably making its evils less than they would 
 have been had credit been allowed to be inflated to its 
 self-bursting point. Moreover, the circular had the good 
 effect of saving the public lands from the grasp of specu- 
 lative monopoly, and of making the losses of the govern- 
 ment less than they would have been had it gone on 
 receiving worthless notes. The measure had a beneficial 
 effect from the social standpoint also, in saving " the new 
 States from a non-resident proprietorship, one of the 
 greatest obstacles to the advancement of a new country, 
 and the prosperity of an old one." 1 
 
 Another measure that had a large influence in precipitat- 
 ing the crisis was the law for the deposit of the surplus rev- 
 enue among the States. 2 Speaking of this, Schurz says : 3 
 
 1 Jackson's Message, 24th Congress, Second Session. 
 
 2 For a full account of this, see Bourne's excellent essay on " The Distribu- 
 tion of the Surplus Revenue in 1837." 
 
 3 In his " Henry Clay," vol. ii., p. 121.
 
 22 THE INDEPENDENT TREASURY. 
 
 "The effect of the law was to hurry on a crisis. The distribution 
 of the public deposits among the ' pet banks ' had served to place 
 capital arbitrarily in different parts of the country, without much 
 regard to the requirements of legitimate business. The regulations 
 imposed upon the deposit banks by the new law, especially the pro- 
 vision that the public deposits in no one bank should exceed three- 
 fourths of its paid-up capital, led in some cases to an equally arbi- 
 trary dislocation of funds from banks which had an excess of deposits 
 to other banks in other places which had less than the amount 
 allowed. But the distribution of the treasury surplus among the 
 several States produced this effect of arbitrary dislocation on a lar- 
 ger scale. On Jan. i, 1837, the surplus available for distribution 
 amounted to #37,468,859. That surplus was nominally in the banks, 
 but really in the hands of borrowers who used it for legitimate busi- 
 ness or speculation. Withdrawing it from the banks meant, therefore, 
 withdrawing it from the business men or speculators who had bor- 
 rowed it. The funds so withdrawn were made for some time una- 
 vailable." 
 
 The failure of the banks did not occur, however, until 
 May, 1837, after Jackson had retired from the presidential 
 chair. The general suspension necessitated a meeting of 
 Congress ; for the federal officials could receive and pay 
 out the notes of specie-paying banks only ; and as the 
 deposit banks had suspended with the others, the fiscal 
 machinery of the government was stopped and the action 
 of Congress was therefore needed. Accordingly, Presi- 
 dent Van Buren summoned an extra session for Sept. 4, 
 1837. In his message the President recalled the history 
 of the various methods of keeping the public money, and 
 remarked that although the advocates of the use of 
 national and State banks were still to be found, " it is 
 apparent that the events of the last few months have 
 greatly augmented the desire, long existing among the 
 people of the United States, to separate the fiscal opera- 
 tions of the government from those of individuals or
 
 THE STATE BANKS AS DEPOSITORIES. 2$ 
 
 corporations." Van Buren himself argued against the 
 re-establishment of a national bank, on the ground that 
 the people had declared against it in two elections. He 
 maintained, too, that the United States Bank did not, or 
 could not, prevent over-issue and depreciation, an asser- 
 tion which could hardly be sustained by the facts, at least 
 in the days of the honest management of the bank's affairs. 
 He further declared that it was no part of the govern- 
 ment's business to regulate " domestic exchange," and 
 therefore advocated the entire separation of the govern- 
 ment from banks, proposing that it collect, keep, and dis- 
 burse its own funds. The possibility of doing so was 
 greater than ever before, and continually growing more so 
 as the country developed, because the difficulties of trans- 
 fer were constantly being lessened. This was a rec- 
 ommendation of the Independent Treasury, as it was 
 called by its friends, or Sub-Treasury as its opponents 
 named it. The system was, in fact, virtually in operation 
 already. Secretary Woodbury informed Congress in his 
 report, that although on the suspension of specie payments 
 six banks had been retained as depositories, part of the 
 public money was kept as a special deposit in Washington, 
 part at the mint, and the rest with the officers collecting 
 it. The Secretary urged on Congress either an enlarge- 
 ment and adaptation of this method, which he was employ- 
 ing on his own responsibility, or a new organization of 
 commissioners and receivers-general, " to gather the col- 
 lections to more central points, and to keep the public 
 money, or such as could not be kept safely and expended 
 conveniently in the hands of the collecting officers." 
 
 The President and the Secretary were not alone in sug- 
 gesting plans of relief and future action. Congress was 
 deluged with memorials and petitions suggesting plans of
 
 24 THE INDEPENDENT TREASURY. 
 
 one kind and another. Some had points of merit, but 
 most were characterized by that sublime indifference to 
 history, experience, and economic law, that is a marked 
 feature of the empiric schemes of which, in all such crises, 
 political charlatanism and ignorance are prolific. One 
 interesting proposal 1 emanated from Maryland, the author 
 being Littleton D. Treackle. He proposed "in fact a 
 National Bank of Deposits and Exchange, without the 
 faculty of discounting or circulation, in connection with a 
 system of State institutions for the keeping and distribu- 
 tion of the Federal revenue, under guards and guaranties 
 commensurate with the wealth and credit of the several 
 States," etc. These State institutions were to be depart- 
 ments of the government and not corporations, and the 
 basis of their circulation should be specie. For the issue 
 of notes it was proposed to appoint commissioners, State 
 and Federal, to "devise and prepare" a national currency 
 in convenient denominations from twenty to one thousand 
 dollars, which should be apportioned among the States in 
 proportion to their electoral votes, not exceeding $100,000 
 for each Senator and Representative. Each State was to 
 receive its share of this valuable paper on condition of the 
 annual payment of one per cent on the amount required, 
 and on providing not less than one-fourth of that amount 
 in the legal coin of the United States as a basis of its oper- 
 ations. The principal institution of each State was to 
 have the custody of the public money and to provide for 
 its disbursement. 
 
 This proposed national currency was to be receivable 
 for all public dues, but was not intended to serve alone as 
 money, but to be only auxiliary to specie. The amount 
 suggested for issue was $28,000,000. Evidently these v 
 
 1 See Sen. Doc. No. 6, 25th Cong., ist Session.
 
 THE STATE BANKS AS DEPOSITORIES. 25 
 
 " departments " would have been simply banks whose 
 notes were furnished by the government, subject to a tax 
 of one per cent, on the amount issued, and secured by a 
 deposit of twenty-five per cent. 
 
 The schemes actually considered in Congress, however, 
 were three : the revival of a national bank ; the revival, or 
 continuance, of the deposit system established by the act 
 of June 23, 1836 ; and the keeping of the public money 
 by public officers. The last, or Independent Treasury 
 plan, which, as already said, received the support of 
 President Van Buren, had been proposed as long ago as 
 1834, by Senator Gordon of Virginia. It was dropped at 
 that time from lack of support, but was now brought for- 
 ward as the measure of the Administration by Senator 
 Silas Wright 1 of New York, who had been a stanch and 
 consistent supporter of the Jacksonian financial policy. 
 The bill now proposed was entitled a bill 4i imposing addi- 
 tional duties as depositaries, in certain cases, on public 
 officers," and its provisions, as amended during discussion, 
 were essentially those that afterwards became the law of 
 the land in the final establishment of the Constitutional 
 Treasury, or Independent Treasury, or Sub-Treasury, as 
 it was variously called. 
 
 The measure was keenly debated, the " specie clause " 
 being the main object of attack. The adoption of this 
 clause, it was argued, would leave the bank notes in the 
 hands of the people and give the specie to the govern- 
 ment. It was argued that convertible State bank notes 
 should be received for government dues ; that the adop- 
 tion of the independent system wduld render the public 
 money insecure ; that it would open the way to favorit- 
 
 1 See Gillett's " Life and Times of Silas Wright." Vol. i., chap. lxiv. and 
 elsewhere.
 
 26 THE INDEPENDENT TREASURY. 
 
 ism, in such ways as, for instance, accommodating political 
 friends in the payment of customs ; that it would contract 
 the currency ; and finally, that it would increase executive 
 patronage and so give the President too much power. 
 The Whigs, moreover, represented the measure as an 
 attack on the banks and the whole credit system of the 
 country, and designated it as an " experiment," novel and 
 contrary to the habits of the people. Webster character- 
 ized the bill as a backward step, from developed civilized 
 credit to bolts and bars. " The use of money," he further 
 said, " is in the exchange. It is designed to circulate, not 
 to be hoarded. All that government should have to do 
 with it is to receive it to-day, that it may pay it away to- 
 morrow. It should not receive it before it needs it ; and 
 it should part with it as soon as it owes it. To keep it, 
 that is, to detain it, to hold it back from general use, to 
 hoard it, is a conception belonging to barbarous times 
 and barbarous governments." l That is sound doctrine 
 even for to-day. 
 
 On the other side, it was urged that under the proposed 
 system the public money would be more secure, that a 
 specie circulation would be promoted, and the currency 
 made more uniform ; that the action of the banks had 
 made the separation of the government from them neces- 
 sary, and that a government was not worthy of its name 
 if it could not manage its own finances. Further, it was 
 maintained, the failure of the banks might at any time 
 sweep the public deposits away and jeopardize the credit 
 of the country; and, finally, the Independent Treasury 
 system would be more plain and simple in its arrange- 
 ments, and truer to the spirit of the constitution. The 
 bill succeeded in passing the Senate, but met with defeat 
 
 1 Speech on the Sub-Treasury, del. in the Sen. Mar. 12, 1838.
 
 THE STATE BANKS AS DEPOSITORIES. 2 J 
 
 in the House, being laid on the table by a vote of 120 to 
 107. The contest over it showed the Whigs ranged in 
 defence of the use of State banks, which they formerly 
 opposed, and the friends of the Administration supporting 
 the measure which but lately they had condemned. Dur- 
 ing the three months that elapsed before the first regular 
 session of the twenty-fifth Congress began, the measure 
 did not apparently gain aught in the estimation of the 
 public. The subject had, indeed, been a matter of wide 
 and earnest public discussion ; and on it, aside from mere 
 political argument, much that was logically sound had been 
 said and written. The most elaborate defence of the plan 
 was set forth by Wm. M. Gouge in a pamphlet ! which 
 deserves consideration as the best exposition of the aims 
 and hopes of the promoters of the system. 
 
 Writing of the chaos of repudiation and ruin into which 
 business had then fallen, the author quaintly compares 
 the condition of the country to that of the man out of 
 whom the devil was driven but returned with " seven other 
 spirits more wicked than himself," so that the "last state 
 of that man is worse than the first." The devil driven 
 out was, of course, the United States Bank, and the more 
 wicked spirits typified deposit banks, which had wrought 
 such widespread havoc. 
 
 Gouge estimated the number of depositories that would 
 be necessary for the transaction of the business of the 
 Treasury at thirty-six, their locations to be those of 
 the banks formerly used as depositories. He thought that 
 the expense would be less than that of the banks, prob- 
 ably aggregating not more than $101,600. " So plain would 
 be the accounts," he goes on to say, " that we might choose 
 
 1 " An Inquiry into the Expediency of Dispensing with Bank Agency and 
 Bank Paper in the Fiscal Concerns of the U. S." Philadelphia, 1S37, pp. 56.
 
 28 THE INDEPENDENT TREASURY. 
 
 for chief book-keepers of these Sub-Treasuries the disci- 
 ples of the ingenious cordwainer who daily threw into the 
 leg of one boot a slip containing a statement of his receipts 
 for the day, and into the leg of the other a slip contain- 
 ing a statement of his expenditures." 
 
 The probabilities of loss, Gouge declared, would be 
 less with independent depositories than with banks; for 
 there would be less loss from fire, since the deposits would 
 be in specie ; less from peculation, because the accounts 
 would be simpler ; and less from robbery because thieves 
 could carry off but little of the metallic money, on account 
 of its weight ! To the objection that the system would 
 lock up money, the author replied that there should be 
 no surplus to lock up. The inconvenience of transfer 
 could be obviated, he declared, by the use of drafts ; and 
 gold and silver payments could be easily maintained. 
 Gouge held, contrary to the general opinion, that the 
 system would decrease executive patronage. These views 
 of Gouge's are exceedingly interesting because they show 
 how widely even the most intelligent of the advocates of 
 the Independent Treasury miscalculated the scope and 
 influence of the system, and underrated the growth of the 
 fiscal life of the government. 
 
 Congress assembled again on the 4th of December. 
 President Van Buren again recommended his favorite 
 measure, and again it was brought before the Senate by 
 its champion, Mr. Wright, but only to have its success in 
 the Senate once more offset by defeat in the House 
 of Representatives. The debate was participated in by 
 Clay, Calhoun, Webster, and others, in speeches of the 
 power and brilliancy that characterized their great auth- 
 ors, but the arguments were mainly political. 
 
 The subject was again brought up, in the session of
 
 THE STATE BANKS AS DEPOSITORIES. 29 
 
 1839-40, after it had been urged, as usual, by President 
 Van Buren in his message. And then at last the bitter 
 struggle came temporarily to an end. The Independent 
 Treasury was established. It barely escaped its former 
 fate in the House ; for it passed that body, June 30, 
 1840, after long and bitter debate, only by the small 
 majority of seventeen, in a total vote of two hundred and 
 thirty-one. According to the act, one-fourth of all govern- 
 ment dues had to be paid in specie after June 30, 1840, 
 and an additional one-fourth had to be so paid each suc- 
 cessive year until the whole should become thus payable. 
 
 Thus was at length established the system for which 
 Van Buren had risked his office — risked and lost. For 
 the idea was adopted by him as his own, and although he 
 pushed it perseveringly on to success, in the very achieve- 
 ment of that success " it helped sink the originator." 
 But the country owes a debt of gratitude to him for his 
 persistent adherence to a " hard-money " system. The 
 severance of the government from the banks, as banks 
 were then constituted, relying largely as they did on 
 government support for the convertibility of their notes, 
 was the means of removing a large element of uncertainty 
 from the credit of the government, and of insuring to the 
 currency the " soundness " for which the people had 
 struggled so long in vain. It was, therefore, an act of 
 wise statesmanship, commendable to its promoter, and 
 worthy of the gratitude of all who believe in maintaining 
 the credit of the country ; and a large share of this 
 credit must be accorded to Mr. Van Buren ; for although 
 he fell, his fall was not the reward of a bad policy, but 
 rather of the political expediency, party exigency, and 
 ignorant prejudice which in all governments so often 
 pull large men down to set small ones up, and supplant
 
 30 THE INDEPENDENT TREASURY. 
 
 sound and statesmanlike policies with those that are 
 weak and charlatanical. For it certainly was his adher- 
 ence to his fiscal policy which wrecked Van Buren's 
 Administration on the lee shore of adverse popular opin- 
 ion, and which, altogether aside from the ephemeral feel- 
 ings and fantastic exhibitions that influenced the masses 
 in the next presidential campaign, created in the minds of 
 the soberer portion of the nation the current of opinion 
 on which Harrison was borne to victory in 1841. 
 
 The shortness of Harrison's Administration prevented 
 any action on the Sub-Treasury and the currency. But 
 Tyler, on his accession, declared his intention of adhering 
 to the policy which Harrison and the party were known to 
 favor. Under a proclamation which had been issued by 
 Harrison, Congress assembled in special session on the 
 last day of May, 1841. In calling attention in his mes- 
 sage to the state of the revenue and the currency, Tyler 
 proposed no definite plan of reform. The people had, he 
 thought, sustained Jackson in his course against the na- 
 tional bank ; the State bank deposit policy and the Sub- 
 Treasury had both been condemned ; therefore he left 
 the whole question to Congress, saying : — 
 
 " I shall be ready to concur with you in the adoption of such a 
 system as you may propose, reserving to myself the ultimate power 
 of rejecting any measure which may, in my view of it, conflict with the 
 Constitution, or otherwise jeopard the prosperity of the country." 
 
 Bills were immediately introduced into Congress for the 
 repeal of the Sub-Treasury act, and for the incorporation 
 of a bank. As usual, a large number of petitions and 
 resolutions for and against the movement were sent to 
 Congress, but, as usual also, they could be regarded only 
 as expressions of party fealty, and not as intelligent opin-
 
 THE STATE BANKS AS DEPOSITORIES. 3 I 
 
 ions based on careful consideration of the merits of 
 the question. During the year since its establishment the 
 Sub-Treasury system had worked more smoothly than 
 might have been fairly expected. Secretary Ewing took 
 occasion, in a report of July, 1840, to argue against the 
 system. He maintained that it exposed the government 
 funds to risks of loss; that it was cumbrous, expensive, and 
 inconvenient ; that it tended to centre disbursements in 
 some Eastern cities, especially New York ; and that it in- 
 jured business by contracting the currency. He reviewed 
 the history of the government policy in the matter of 
 keeping its own money, recalling the fact that there had 
 been two periods of twenty years each in which a national 
 bank was used, and intervals, comprising a period of nine 
 years, in which State banks were employed. During 
 the rest of the time the funds were administered by indi- 
 vidual officers and agents. 
 
 The Secretary said that the losses under the State bank 
 system from 181 1 to 1816 had been about one million of 
 dollars; 1 from 1833-1837 there had been no money loss, 
 but much inconvenience. There had been no loss through 
 either of the national banks, and no delay or expense 
 in transmitting public money, so far as the banks were 
 concerned. The Secretary recommended the establish- 
 ment of a bank, for which he afterwards submitted a plan 
 the fate of which is told below. In fact, the results of 
 the trial of the Sub-Treasury failed to justify any of the 
 prophecies of the Whigs. It may be fairly said, however, 
 that this was the result of circumstances rather than of 
 any merits of the system, for the conditions were, on the 
 whole, favorable to success. However, the Sub-Treasury 
 Act was repealed Aug. 13, 1841, and a bill was imme- 
 
 1 Finance Reports, 1833 and 1837.
 
 32 THE INDEPENDENT TREASURY. 
 
 diately reported by Henry Clay for the establishment of 
 a bank. Clay personally preferred a bank after the old 
 pattern, but yielded to the wishes of the President and 
 his friends, and recommended an institution substantially 
 such as they desired. The course pursued by President 
 Tyler with reference to the establishment of the bank 
 is curious but painful reading. He vetoed Clay's bill, 
 though it had been passed by both Houses in the con- 
 fident expectation of his approval. He asked his Secre- 
 tary of the Treasury to draft a bill, and his request was 
 complied with even to naming the proposed institution to 
 suit his whim. He approved the plan when read at a 
 Cabinet meeting. Congress passed it unchanged except 
 in two points, and sent it to him. He talked over it, 
 wept over it, prayed over it — and vetoed it, on constitu- 
 tional grounds that militated equally against the bill of 
 Secretary Ewing, which he had approved. The veto fell 
 like a thunderbolt on his party, and it deserted him. All 
 the members of his Cabinet except Webster resigned, and 
 the country beheld the novel spectacle of a President 
 without a party. He broke his faith on the rocks of 
 vacillating purpose and conceited ambition, and, as he 
 deserved, was left stranded on them, alone. 
 
 Yet it was fortunate, perhaps, that both the bills men- 
 tioned were vetoed, for ejther of them would have been 
 likely to work great mischief to the country. Some of the 
 provisions of Ewing's proposed plan were as follows: The 
 bank, which must be in the District of Columbia, was to 
 have a capital of thirty million dollars. It could establish 
 branches in the different States, but only with the consent 
 of the States and under their control. The government 
 subscription of six millions was to be in " stock " created 
 for the purpose, and the States were to be allowed the
 
 THE STATE BANKS AS DEPOSITORIES. 33 
 
 privilege of subscribing in a similar way. The bank was 
 to perform the usual duties of the " fiscal agent " of the 
 government, and all government debts were to be dis- 
 charged by checks payable in the notes of the bank, 
 which were also receivable for government dues. Divi- 
 dends were to be limited to six per cent., and all surplus 
 above two millions of dollars was to go to the gov- 
 ernment. The bank could not incur a debt of over 
 twenty millions more than its deposits, nor make loans 
 to more than one and three-fourths times its capital. Its 
 specie reserve must be at least one-third of its circulation. 
 Its dealings were to be limited to coin, bullion, notes, 
 and inland bills of exchange ; and no loan could be made 
 for more than six months, and no debt could be renewed. 
 The limit of a government loan from the bank was to be 
 three millions, for not more than six months. The charter 
 was to be, as usual, for twenty years. Congress, in adopt- 
 ing the plan, raised the dividend rate to seven per cent., 
 stopped all discounts and loans when the note circulation 
 amounted to three times the specie on hand, and rejected 
 the provision requiring the consent of the States to the 
 establishment of branches. 
 
 In criticism of this plan it may be said, first, that if the 
 government is to own shares at all, it should pay in its 
 capital like any other stockholder. This same mistake 
 was made in the case of the United States Bank. In its 
 financial aspect it resembles the conduct of railroad " pro- 
 moters " who issue stock certificates, a certain amount of 
 which they divide among themselves without paying in a 
 dollar of the capital. It was an effort to share the gain 
 without sharing the risk of loss. The burden was 
 thrown on the other stockholders. Still, this was less 
 vicious financially than some of the other provisions.
 
 34 THE INDEPENDENT TREASURY. 
 
 The absolute prohibition of the renewal of debts, the debt 
 limitations, and the support given to the credit of the 
 bank notes by the government credit, were bad features. 
 The limitation of possible loans to the government was 
 a ridiculous attempt to check the possible abuse of execu- 
 tive power and patronage. The limitation on discounts, 
 if put into rigid operation on the verge of a crisis, would 
 have precipitated a panic, exactly contrary as it was in 
 effect to the method of freely discounting at such times 
 that has received the sanction of the experience and the 
 judgment of wise bankers. The rejection of this plan and 
 its predecessor is one of those cases in which the very 
 weakness of a man like Tyler accomplishes, in spite 
 of him, the good he seeks, though in a way the exact 
 opposite of what he intends. 
 
 During the next few years the subject was less dis- 
 cussed, as it was supplanted in public attention by the ques- 
 tions of the tariff and the annexation of Texas. In the 
 third session of the twenty-seventh Congress, however, 
 the matter came up again. The Committee of Ways and 
 Means made a report on the President's proposed " Plan 
 of an Exchequer," condemning the Sub-Treasury, passing 
 by the State bank system as already rejected by the peo- 
 ple, and as unsafe on account of the failure of the banks, 
 and praising the old national bank system. The Com- 
 mittee's opinion of the Sub-Treasury is shown in the fol- 
 lowing remarks : " Its model may be found in the imperial 
 institutions of Darius, the king of Persia, and its princi- 
 ples have descended, with little modification and slight 
 improvement, it is believed, through all governments where 
 banks do not exist, and are now found in perfect operation 
 in the island of Cuba." 
 
 In its details the exchequer plan was, according to the
 
 THE STATE BANKS AS DEPOSITORIES. 35 
 
 committee, essentially the Sub-Treasury with certain bank- 
 ing functions added, and herein was the main objection to 
 the scheme. When the bill came before Congress a 
 remarkable amendment was submitted by one member. 1 
 He proposed the issue of one hundred millions of dollars, 
 bearing interest for ten years at two and a half per cent., 
 based on the public lands as security, and to be distributed 
 among the States in proportion to their respective " federal 
 numbers." According to this plan, " fiscal agencies " 
 were to be established, whose beneficent operations, com- 
 bined with the blessings of the land currency, would bring 
 on a millennium of prosperity of which the present advo- 
 cates of " coining all the land of the country " have never 
 dreamed. The proposed scheme is one of the most curi- 
 ous of the monetary vagaries that have been brought to 
 public attention in our short history as a nation. 
 
 During all this time the government officials kept the 
 public money as best they could. That is, the unlegalized 
 system of government agents as depositaries continued, and 
 the operations of the Treasury rested on the law of 1789 
 and the resolutions of 18 16. Many of the public officials 
 deposited in selected banks. 
 
 In his message at the opening session of the twenty- 
 ninth Congress, President Polk revived the matter and 
 urged the re-establishment of the Sub-Treasury. Secretary 
 Walker came to the President's aid in his annual report, 
 and brought forward anew the arguments so often pre- 
 sented against the use of banks. Though he advocated their 
 complete and final rejection, he pointed out the uselessness 
 of establishing a constitutional Treasury " if it is to receive 
 or disburse the paper of banks." The proposed measure 
 again underwent earnest public discussion and again met 
 with strenuous opposition. The arguments which were 
 
 1 Horace Everett, of Vermont.
 
 $6 THE INDEPENDENT TREASURY. 
 
 brought forward were pretty much the same that had been 
 used before, but the long discussion enabled them to be 
 presented in a more complete form. It was again urged in 
 favor of the Independent Treasury that the union of the 
 government with the banks was unconstitutional. The 
 constitutional argument, on both sides, is of only historical 
 interest now, but it is perhaps worth while to note its 
 points. The constitutional argument for the Sub-Treasury 
 was based on the words of the Constitution that " no 
 money shall be drawn from the Treasury but in conse- 
 quence of appropriations made by law." This, it was main- 
 tained, meant " a substantive treasury, substantial treas- 
 urer, and a real treasurer." Again, the first Congress, in 
 establishing the Treasury Department, declares that " it 
 shall be the duty of the Treasurer to reserve and keep the 
 moneys of the United States." Of course the argument 
 from this provision depends on the logical content of 
 " receive " and " keep." If " keep " is, as the adherents of 
 the proposed system urged, to be understood literally, why 
 not also " receive " ? But for the Treasurer personally to 
 handle all the receipts of the government is impossible. 
 Moreover, what is the literal meaning of " keep " in this 
 connection ? 
 
 The whole constitutional argument against the use of 
 banks by the government was but a phase of the old doctrine 
 of States' Rights and Supremacy which prevented Congress 
 from assuming such control over the banking system of 
 the country as would have made it safe, would have pre- 
 vented " wild-cat " banking, would have saved the finan- 
 cial good name of the country, and would have made the 
 sub-treasury system unnecessary by making the banks as 
 safe for government use as they are to-day. 
 
 The arguments urged in favor of the banks were the safer
 
 THE STATE BANKS AS DEPOSITORIES. T>7 
 
 keeping and the free and safer transmission of the 
 public moneys; the easier and more inexpensive collection 
 of the government revenues ; the greater facility of obtain- 
 ing loans, and the receipt of interest by the government 
 on its deposits. The first of these arguments, as to the 
 safer keeping and transmission of the government money, 
 is patently weak. As Mr. Niles had years before remarked, 
 a government is not worthy of its name if it cannot protect 
 its own property. And if it cannot protect its own prop- 
 erty how could any bank do so when the government is 
 the ultimate source of protection to the bank ? The only 
 strength of the argument lies in the fact that if a bank 
 should lose government deposits it would have to replace 
 them — if it could, if it had any means left wherewith to 
 do so. The matter of interest is unimportant and should 
 have no weight by the side of other considerations. A far 
 more weighty objection to the system under discussion was 
 brought forward when it was said that the continued pay- 
 ment of government debts in coin was impracticable. The 
 use of treasury notes, it was said, would become necessary, 
 and they would remain at par only so long as public 
 deposits were on hand. The argument had some truth 
 in it, but it was not true to the extent its advocates thought 
 or maintained. Aside from political exigencies, under a 
 sound system of finance, payments in actual specie are 
 only inconvenient and costly, not impracticable, in some 
 varying proportion to their amount and frequency. 
 
 In a review of the subject the editor of the Ba?ikers' 
 Magazine ' asserted : " That scheme [the Sub-Treasury] 
 we consider utterly impracticable and indefensible." Such 
 a law " cannot be in force for six consecutive months, nor 
 will it be, in our opinion, strictly complied with for forty- 
 eight hours." 
 
 1 Vol. i., p. 15 (1845-46).
 
 38 THE INDEPENDENT TREASURY. 
 
 The subject went the old, weary round of discussion in 
 Congress, supported and attacked with arguments that 
 applied and arguments that did not, with arguments to 
 the point and arguments aside from the point, and emerged 
 at last into light from behind the clouds of personalities, 
 party animosities, and " counsel without knowledge," that 
 more or less darkened the subject during the whole ten 
 years from the time when it had been first proposed. 
 
 As before, the hottest fight was made over the provision 
 requiring receivers and disbursers of the public money, 
 including all postmasters, to receive and pay out specie 
 only. On the face of it, this was, of course, the most 
 probably impracticable provision of the bill. Objection 
 was also made to the employment of so large a portion of 
 specie in the payment of duties, on the ground that it would 
 embarrass business ; and the expensiveness of the system 
 was held up as a further reason for condemnation. 
 
 However, the tide had turned, the ship of state was 
 being guided by the political compeers and descendants 
 of Jackson and his policy, and public opinion was less pro- 
 nounced against the measure than it had been. Thus it 
 happened that the Sub-Treasury was re-established. The 
 bill was reported by the Committee of Ways and Means, 
 and passed the House, April 2, 1846, by a vote of 123 to 
 67. It received the sanction of the Senate, on the 1st of 
 August, by a strict party vote of 28 to 24, and went into 
 effect immediately, thus consummating the policy of the 
 "divorce of bank and State " which was begun by Jack- 
 son and carried on by Van Buren, and in his time lasted 
 " just long enough to prostrate the party which brought it 
 into being; which expired with the elevation of the op- 
 posing party — was revived with the restoration of 'the 
 democracy,' and has since continued, through changes of
 
 THE STATE BANKS AS DEPOSITORIES. 39 
 
 administration, undisturbed ; having received the general 
 acquiescence of the popular will, if not the positive ap- 
 proval of the public judgment." 1 
 
 And so the " divorce " of bank and State, which had 
 for a time been " a mensa et thoro" now became " a 
 vinculo." The act found its justification in the nature and 
 condition of the banking system of the time, which made 
 the reliance of the government on the banks for financial 
 safety dangerous and, therefore, undesirable. Under the 
 old national banking system the issue of notes was, in- 
 deed, fairly well under government control. But the 
 character of that system was unsuited to the rapidly 
 growing needs of the country, and threatened a social 
 differentiation incompatible with the preservation of the 
 democratic equality necessary to the vitality of republican 
 government. 2 The State banking system had been well 
 denominated " wild-cat." Utterly irresponsible, and be- 
 yond control in the strength of the doctrine of State 
 supremacy, in its evil and untenable form which was 
 swept away only by the blood of Civil War, these banks 
 were indeed a veritable powder magazine by the explo- 
 sion of which the credit and good name of the nation, 
 if it trusted them, might at any time be shattered. 
 
 It is in this danger that we must look for the justifi- 
 cation of the removal of the government finances to a 
 sounder and safer basis. Whatever may be the influence 
 of its operation now, the establishment of the Sub-Treasury 
 was, under the circumstances, justifiable and necessary. 
 Whether its continuance is so is another question, the 
 answer to which it remains to discover from the history 
 of its existence. 
 
 1 Young's "American Statesman," p. 739. 
 
 2 Cf. Schurz's "Henry Clay"' (American Statesmen Scries), vol. ii., pp. 
 48-50
 
 40 THE INDEPENDENT TREASURY. 
 
 CHAPTER III. 
 
 DEVELOPMENT OF THE INDEPENDENT 
 TREASURY. 
 
 THUS at last were fully realized the wishes of those 
 who had worked to give the United States Treasury 
 a substantial existence, in distinction from the merely 
 legal life which it had hitherto enjoyed. The first sec- 
 tion of the new law 1 defined the Treasury thus: "The 
 rooms prepared and provided in the new treasury build- 
 ing, at the seat of government, for the use of the Treas- 
 urer of the United States, his assistants and clerks, and 
 occupied by them, and also the fire-proof vaults and safes 
 erected in said rooms for the keeping of the public moneys 
 in the possession and under the immediate control of said 
 Treasurer, and such other apartments as are provided for 
 in this act as places of deposit of the public money, are 
 hereby constituted, and declared to be, the Treasury of 
 the United States." The other places of deposit pro- 
 vided for were Philadelphia, New Orleans, New York, 
 Boston, Charleston, and St. Louis. The appointment of 
 assistant treasurers was provided for in the last four 
 places, while in the other two the treasurers of the mints 
 were to perform the duties of assistant treasurers. 
 
 The sixth section contains the provisions which essen- 
 tially modified the nature of the Treasury. It provides 
 "That the Treasurer of the United States, the treasurer 
 
 1 The act is given in full in Appendix, p. ii.
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 4 1 
 
 of the mint of the United States, the treasurers, and those 
 acting as such, of the various branch mints, all collectors 
 of the customs, all surveyors of the customs acting also 
 as collectors, all assistant treasurers, all receivers of 
 public moneys at the several land offices, all postmasters, 
 and all public officers of whatsoever character be, and 
 they are hereby, required to keep safely, without loaning, 
 using, depositing in banks, or exchanging for other fundi 
 than as allowed by this act, all the public money col- 
 lected by them, or otherwise at any time placed in their 
 possession and custody, till the same is ordered, by the 
 proper department or officer of the government, to be 
 transferred or paid out ; and when such orders for trans- 
 fer or payment are received, faithfully and promptly to 
 make the same as directed, and to do and perform all 
 other duties as fiscal agents of the government, which 
 may be imposed by this or any other acts of Congress, or 
 by any regulation of the Treasury Department made in 
 conformity to law; and also to do and perform all acts and 
 duties required by law, or by direction of any of the execu- 
 tive departments of the government, as agents for paying 
 pensions, or for making any other disbursements which 
 either of the heads of those departments may be required 
 by law to make, and which are of a character to be made 
 by the depositories hereby constituted, consistently with 
 the official duties imposed on them." 
 
 Sections seven and eight provide for the giving of 
 bonds; nine provides for deposits by collectors; ten, for 
 transfers by the Secretary of the Treasury; eleven and 
 twelve, for examinations of the condition of the Sub- 
 Treasuries and depositories; thirteen provides means, 
 such as fire-proof vaults, etc., for the safe keeping of the 
 public funds; fourteen, for the transfer of balances from
 
 42 THE INDEPENDENT TREASURY. 
 
 one depository to another, by the Secretary of the Treas- 
 ury; fifteen directs the method of deposit by marshals, 
 district attorneys, etc. ; sixteen defines and provides pen- 
 alties for embezzlement, and for violations of the act; and 
 seventeen for temporary quarters. Sections eighteen and 
 nineteen contain the provisions around which the con- 
 flict of debate had waged most fiercely. In them occurs 
 the famous specie clause, which requires the payment of 
 public dues and disbursements in gold or silver coin or 
 treasury notes only. The specie clause was not to go 
 into effect until the ist of January, 1847. Section 
 twenty supplements the two previous sections by requir- 
 ing that all exchanges of funds must be on a gold and 
 silver basis. The mode of payment of drafts is prescribed 
 by the twenty-first section, and that of salaries by the 
 twenty-second. In the twenty-third, and final, section, 
 provision is made for immediate incidental expenses. 
 
 From this brief summary it is clear that the act com- 
 pletely accomplished the separation of bank and State, at 
 which it was aimed. It made the government distinc- 
 tively its own banker, essentially and actually, even to 
 the furnishing of the paraphernalia of office-room. Taken 
 in conjunction with the law sanctioning the emission of 
 treasury notes, the sub-treasury act established a bank 
 of issue. 
 
 The providing of vaults was simply a result of that 
 play on words which, after all, was part of the basis of 
 the constitutional argument. There was no sound reason 
 why, even though the government financial operations 
 were separated from the banks, the public money might 
 not have been kept in bank vaults, perhaps as special 
 deposits. 
 
 The places selected for the establishment of sub-
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 43 
 
 treasuries were those in which the government opera- 
 tions were most considerable, and which were centres for 
 the collection of revenue from the country round about, 
 and for the payment of the public creditors. The estab- 
 lishment of a Sub-Treasury or depository in a place 
 appears, also, to have been regarded as peculiarly advan- 
 tageous from a business point of view, because it was 
 thought to make trade brisker through the concentration 
 of larger amounts of money. Of course this supposition 
 had no foundation in fact, unless in the case of a place, 
 if there were any such, remote from a bank and accus- 
 tomed to make considerable payments to a hitherto distant 
 treasury agency. But the advantage in any case was 
 merely one of convenience, and was not due to any 
 possible fillip to the briskness of trade. That such a 
 combination of circumstances existed is, however, too 
 improbable to dwell on. As a matter of fact, the ground 
 covered by the new Sub-Treasuries and depositories was 
 substantially that formerly occupied by the banks through 
 which the government had done its business. The selec- 
 tion of the localities was made, then, not on political 
 grounds, but solely on the supposed conditions of the 
 public service. At a later time, the feeling that the 
 presence of a Sub-Treasury is advantageous to business 
 led to an attempt to secure the establishment of one in 
 Louisville. But the request was, as we shall see, 1 refused 
 by Congress. 
 
 The requirement that all public officers should safely 
 keep the public money committed to their charge without 
 depositing it in banks, was as absurd as it was unjust 
 to the officers and unsafe for the money. For no 
 proper places for safe-keeping were provided. The 
 
 1 See p. 76.
 
 44 THE INDEPENDENT TREASURY. 
 
 banks had vaults far safer than any place of deposit 
 that could be provided by most of the officers of 
 the government, in the lack of proper appropriations. 
 The new provision, then, made the public money 
 less, rather than more, safe, so far as fire and theft 
 were concerned. Moreover, it was unjust to throw so 
 great a responsibility on the holders of the public money, 
 without furnishing them with suitable accommodations 
 for keeping it. To be sure, section thirteen did provide 
 for fire-proof vaults, and section seventeen for temporary 
 quarters, but not in sufficient number; and, besides, they 
 could not be secured for some time to come. The specie 
 clause was a return to the provision passed by the first 
 Congress, that the Treasury should receive only coin in 
 payment of public dues. Of this clause Edward Everett 
 said that " if the attempt could be forced through, it 
 would be like an attempt on the part of the government 
 to make use of the ancient modes of travel and convey- 
 ance, while every citizen in his private affairs enjoyed 
 the benefits of steam navigation and railways." 1 In a 
 certain sense, Everett was right; but the remark seems 
 to indicate that he misconceived the whole drift of the 
 sub-treasury act, and especially of the specie clause. 
 As Secretary Walker had pointed out, the act without the 
 specie clause would have been useless, or worse. If the 
 government were to be no longer connected with banks, 
 especially in the way of having no control over their 
 issues, it was right that it should not use their notes. 
 The only other way whereby it could provide itself with 
 the "steam navigation and railways" of paper money, or 
 the aerial "wagon-way," to use Adam Smith's better fig- 
 ure, was to issue notes of its own. Every lover of sound 
 
 1 See Bankers' Magazine, August, 1885.
 
 DEVELOPMENT OF INDEPEXDEXT TREASURY. 45 
 
 finance must always fear that operation, which, under the 
 circumstances existing at that time, would have caused 
 untold trouble if it had been largely resorted to. The 
 only alternative was the use of specie, and to that, in the 
 main, the government wisely committed itself. The clause 
 was not, indeed could not be, observed to the very letter. 
 Even as late as 1855, we are told, it was little, if at all, 
 observed by postmasters. 1 Yet the clause was produc- 
 tive of great good, notwithstanding the imperfect manner 
 in which the law was executed. " All receipts from 
 lands, customs, and other public dues, were paid in gold 
 and silver and treasury notes; and these were employed 
 by the Treasurer in making payments. In this way a 
 stream of gold and silver was set in motion, limited in- 
 deed, and running chiefly from the public depositories to 
 the banks, and then returning. But it swelled to larger 
 dimensions."- In short, the specie clause, although it 
 was impeded and limited in its operation, was wholly 
 productive of good, and the departure from it under 
 financial stress in later times was a misfortune. 
 
 So far as the banks were concerned the new system 
 meant the loss of the government deposits from their 
 vaults, with the consequence of lessened discounts, and 
 the withdrawal of the support of government credit from 
 their notes. The banks might suffer from the first inci- 
 dent, but had no right to complain of it; and as for the 
 second, it was no fault of the government's if bank 
 notes could not be kept afloat at par without government 
 support. It is the duty of a bank to see that its notes 
 are convertible, at par, without the aid of the public 
 credit. 
 
 1 Young's " American Statesman," p. 874. 
 
 2 Bolles's " Financial History of the United States," 1789-1S60. p. 356.
 
 46 THE INDEPENDENT TREASURY. 
 
 The work which the new system had to accomplish 
 seemed simple enough, consisting as it did merely 
 of the receipt and payment of the public money. It 
 seemed that the organization of such a system should 
 not be any more difficult than that of such a system of 
 branches as was developed under the second United 
 States Bank. Having declared its purpose to pay specie, 
 however, the government was bound to do so at every 
 agency however remote from a great business centre. To 
 refuse to do so, or even to hesitate or to delay, was to 
 discredit itself. 
 
 The new system began its career under many difficul- 
 ties. No appropriation was made for the salaries of 
 assistant treasurers, or for the additional salaries of 
 treasurers of the mint who were to assume new duties 
 under the law, or for the payment of any special exam- 
 ining agents. Neither were any appropriations made 
 for the expense of transfers, or " to enable disbursing 
 agents to pay the public creditors at all times and places 
 with punctuality and despatch." Moreover, the provision 
 for incidental expenses was inadequate; no adequate 
 security was provided by the law for public money in the 
 hands of disbursing agents, and the powers of the depart- 
 ment as to the method of making payments abroad, were 
 not sufficiently defined. There were, in addition, certain 
 external difficulties to be overcome. Chief among these 
 were the opposition of the banks and the distrust and 
 friction incident on an untried system. 
 
 On the 25th of August, 1846, Secretary Walker issued 
 a circular to collectors, sub-treasurers, and other officials, 
 directing them to make all government drafts payable 
 to order, not bearer. The drafts were to be transfer- 
 able only by special indorsement, and payable only at
 
 DEVELOPMENT OF INDEPENDENT TREASURY, tf 
 
 designated places. If a draft were payable at a place 
 not more than fifty miles from Washington, it must be 
 presented for payment within twenty days from the date 
 of the draft; if at a point distant between fifty and one 
 hundred miles, it must be presented within forty days; 
 one hundred to two hundred miles, within sixty days; 
 two hundred to four hundred miles, eighty days; and 
 over four hundred miles, ninety days. All drafts not so 
 presented had to be sent to the Treasurer to be paid as 
 he should direct. No exchange of funds between dis- 
 bursing officers or other government agents was allowed, 
 except for gold or silver. Under the specie clause, the 
 Secretary directed that no payments could be made in 
 treasury drafts, even though a creditor should prefer 
 that mode of payment. The collectors of New York and 
 Boston were required to deposit their receipts daily, 
 while all other officers mentioned in section nine of the 
 act were required to do so weekly. During the next two 
 years the country had the Mexican war on its hands, and 
 in 1847 tne government was compelled to issue over 
 twenty millions of treasury notes, and to contract a 
 twenty-eight million dollar loan. 1 But the notes were 
 issued at par, and the bonds commanded a premium. 
 Throughout the war specie payments were kept up, the 
 treasury notes at no time falling more than one-half of 
 one per cent, below par in New York. The Secretary in 
 his report gives the Sub-Treasury much of the credit for 
 the success of the financial operations of the war. "The 
 Constitutional Treasury," he says, ''has been tried dur- 
 ing a period of war, when it was necessary to negotiate 
 very large loans, when our expenditures were being in- 
 creased and when transfers unprecedented in amount were 
 
 1 Including the conversion ot treasury notes.
 
 48 THE INDEPENDENT TREASURY. 
 
 required to distant points for disbursement. During the 
 last eleven months the government has received, trans- 
 ferred, and disbursed more specie than during the whole 
 aggregate period of fifty-seven years preceding since the 
 adoption of the Constitution." Over twenty -four millions 
 of specie were imported during the year, a net gain of 
 imports over exports of more than twenty-two millions. 
 This specie, the Secretary maintained, would have been 
 made the basis of a paper inflation which would have 
 produced a ruinous revulsion in business. Gouge, writing 
 at the time, took the same view. The Secretary wrote : 
 " From this revulsion we have been saved by the consti- 
 tutional Treasury, by which the specie imported, instead 
 of being converted into bank issues, has been made to 
 circulate directly, to a great extent, as a currency among 
 the people. . . . The government is now disconnected 
 from banks, and yet its stock and notes are at par, al- 
 though we have been constrained to contract heavy loans, 
 and to keep larger armies in the field than at any former 
 period. But during the last war, when the government 
 was connected with banks, its six per cent, stock and 
 treasury notes were depreciated twenty-five per cent., 
 payable in bank paper twenty per cent, below par, thus 
 amounting to a loss of forty-five cents in every dollar 
 upon the operation of the government." Even although 
 Secretary Walker's view of the beneficial influence of the 
 Independent Treasury be regarded as too favorable, we 
 may readily admit that the credit of the government was 
 upheld largely by the specie clause of the sub-treasury 
 act, which virtually bound it to redeem its notes and 
 bonds in coin, and that the operation of the act was to 
 keep up a specie circulation which gave a sound basis 
 to the whole currency.
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 49 
 
 How far these results would have been achieved, — 
 and how far, therefore, they were due to the Sub-Treas- 
 ury, — if, while the government was under the stress of 
 the war, trade had not assumed a tremendous bound, is, 
 it may be said, at least problematical. The large grain 
 exports of 1847, amounting to over $37,000,000, brought 
 in, as already noted, a large amount of specie; the aboli- 
 tion of the corn laws in Engand was attaining its full 
 effect, and the revolutionary disturbances in Europe in 
 1848 also tended to help American commerce. The 
 ''favorable balance of trade " was paid largely in imports 
 of specie, partly at least in answer to the government 
 demand for it, thus enabling that demand to be satisfied 
 without paying too great a price. But this specie remained 
 in the country, thus showing that it was satisfying a last- 
 ing need. This permanence of demand was doubtless 
 largely caused by the demand of the government. If the 
 conditions of business had not been favorable to securing 
 specie, however, it is not unlikely that the stress which 
 the demand for specie would have produced would have 
 strained the financial virtue of Congress to the point of 
 breaking or annulling the act. Consequently the Sub- 
 Treasury cannot be credited with the whole of the good 
 influence of increasing the metallic circulation. The 
 increase was largely due to favorable commercial and 
 financial conditions. Still, the independent action of the 
 government had a beneficial influence on the currency by 
 restraining bank issues. If the government money had 
 been deposited in the banks, as the banks were then 
 conducted, they would have made it the basis of further 
 issues of notes, forcing up prices and leading to an export 
 of specie. But it is not surprising that the contrast 
 between government finances and credit, in the wars of
 
 50 THE INDEPENDENT TREASURY. 
 
 1812 and of 1846, should have reconciled the people to 
 the new system. For that a post hoc readily becomes 
 a propter hoc in the popular mind, especially in the finan- 
 cial operations of a government, needs no proof to one 
 who knows anything of the popular arguments on the 
 subject, for example, of a protective tariff. 
 
 One small advantage of the system, that had not been 
 foreseen, was reported by Secretary Walker. This was 
 in the fact that whereas under the rigime of the banks 
 it had been necessary to keep four millions in the Treas- 
 ury to supply the mints with bullion for coinage, under 
 the Sub-Treasury, it was found that three millions would 
 do. 
 
 The experience of the first two years developed some 
 defects of detail in the system. Secretary Walker, in his 
 report for 1848, speaks of losses that arose from delay in 
 shipping foreign coin received in New York for customs 
 dues to Philadelphia for re-coinage, and therefore he 
 advocated the establishment of a branch mint at New 
 York. He still insisted, however, on the advantages of 
 the independence of the government in money matters, 
 asserting that "a system which has operated so benefi- 
 cially, both in war and in peace, must, in the main, be 
 wise and salutary." 
 
 A side light is thrown on the working of the Sub- 
 Treasury system in a speech of Webster's, delivered in 
 Faneuil Hall, Boston, Oct. 24, 1848. He asserted 
 that on the 25th of the previous August the New York 
 banks had $5,800,000 in specie, and the New York Sub- 
 Treasury had $1,400, 000. On Sept. 29, the banks had 
 but $4,600,000, and the Sub-Treasury had $2,400,000, 
 thus having absorbed one million of dollars in a single 
 month, with the evil results of a scarcity of money and a
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 5 1 
 
 curtailment of discounts. It must be remembered, how- 
 ever, that \Yebster was making a political speech. It is 
 not at all probable that the specie lost by the banks was 
 all gained by the Sub-Treasury. Money was moving 
 westward at that season of the year. 
 
 In the following year, 1849, other inconveniences be- 
 came manifest. According to the provisions of the law, 
 disbursing officers to whom drafts were issued were re- 
 quired to receive the whole amount, no matter how large, 
 in one sum, even although they had to use it in making 
 many separate small payments. Hence the custody of 
 the money and the burden of transferring it to the places 
 where it was due were forced on these officers, and the 
 money was thus exposed to risk of loss or of theft. More- 
 over, the actual carriage of coin was expensive and unsafe; 
 there was great inconvenience from the accumulation of 
 coin where it was not needed, and the number of clerks 
 employed to do the work of the various offices was too 
 small. On account of these disadvantages, as he affirmed, 
 the new Secretary of the Treasury, Mr. Meredith, ques- 
 tioned the expediency of continuing the system. He 
 proposed that any person having a draft on a Sub-Treasury 
 might deposit it and draw on the deposit as he needed 
 the money. This was a proposal to make the Treasury a 
 bank of deposit for the safe keeping of the money of the 
 government creditors. But nothing was done about the 
 recommendation, even with reference to disbursing agents, 
 until 1857, after the matter had been repeatedly urged on 
 the attention of Congress. Then, however, it was pro- 
 vided that disbursing officers might draw checks on the 
 amounts to their credit in favor of the persons to whom 
 money was due, unless the amount was less than twenty 
 dollars.
 
 52 THE INDEPENDENT TREASURY. 
 
 As to the transfer of the public funds, obviously one 
 way was to transfer specie. But this could be done only 
 at great expense and risk and loss of time. A second 
 method of transfer was to give drafts to bankers and 
 brokers, and permit them to use the money long enough 
 to compensate them for the expense of transporting specie. 
 
 When Secretary Guthrie assumed office in 1853, he found 
 that " $475,000 was in the hands of agents under agree- 
 ments to transfer the same for the department to different 
 places of deposit, together with the sum of $2,226,982.27 
 unaccounted for and designed to pay interest." 1 The 
 Secretary abolished this method of making transfers and 
 effected them "by the sale of treasury drafts at the points 
 where the money was needed for disbursements, as author- 
 ized by law, or by an actual transfer by an officer of the 
 department." 2 Mr. Guthrie interpreted the Independent 
 Treasury law strictly, and insisted that the public money 
 should always be in the Treasury or in some sub-treas- 
 ury or legal depository. He required the assistant treas- 
 urers and officers of depositories to receive the deposits 
 of disbursing agents, so as to render the use of banks by 
 these agents unnecessary. It was well that the Secretary 
 held this opinion of the proper method of making trans- 
 fers, for the use of bankers and brokers as agents was an 
 exceedingly vicious makeshift. It opened the way widely 
 to favoritism towards particular banks, and was a source 
 of great risk. Some of the drafts were not accounted for 
 for long periods. Moreover, it was a virtual abandon- 
 ment of the principle of the complete separation from 
 banks, which was the underlying principle of the Inde- 
 pendent Treasury. That this mode of transferring funds 
 was much abused is shown by the increase in the amount 
 
 1 " Report on the Finances," 1852-53, p. 13. - Ibid.
 
 DEVELOPMEXT OF INDEPENDENT TREASURY. 53 
 
 of transfers when the method was used. When the 
 transfers were made in cash they amounted, in New 
 Orleans, to about $38,000 a month; under the system 
 of employing bankers and brokers the transfers" swelled 
 to $227,000. In Washington they rose from $135,000 a 
 month to $225,000. This evil was corrected, however. 
 in 1854, and the transfers were thereafter made in money. 
 About this time the California gold mines began to 
 have an influence on business by making gold a commod- 
 ity for export. The excess of gold exports over imports 
 rose from a little less than three millions of dollars in 
 1850 to twenty-four millions in 1851, thirty-seven mil- 
 lions in 1852, and became thirty-four, fifty-two, forty-one, 
 and fifty-six millions respectively, in the four following 
 years. The large gold production must have had a ten- 
 dency to make prices more irregular than they would 
 otherwise have been. Their trend was upwards, and on 
 a scale approximately adapted to the amount of gold 
 available in the market. The action of the Sub-Treasury 
 was a disturbing factor, irregular in its influence. In 
 1853 the receipts of the government exceeded its expen- 
 ditures, so that there was a considerable accumulation of 
 money in the Treasury. To prevent any stringency that 
 might be caused thereby the Secretary issued a circular, 
 on the 30th of July, offering to buy five million dollars' 
 worth of six per cent bonds. He secured them by paying 
 a premium of twenty-one per cent. During the year 
 1854, according to the report of Secretary Guthrie, the 
 Treasury kept up the demand for coin by receiving and 
 paying more than seventy-five million dollars of it. 
 Thus the circulation of specie was maintained despite 
 the tendency exerted by the small notes of the banks to 
 drive it out; for so long as the government insisted on
 
 54 THE INDEPENDENT TREASURY. 
 
 using specie, it could not be wholly driven from use. 1 
 The Treasurer stated in his report that no difficulty had 
 been found in the working of the law, and that the money 
 in the various sub-treasuries was " as safe and secure 
 as that in the Treasury." Evidently the machinery was 
 now in good running order. But allowance must be 
 made for official prejudice in favor of the system. 
 
 In May, 1854, Mr. William M. Gouge was appointed 
 special agent to examine the condition of the various 
 sub-treasuries and their operations. As has been al- 
 ready mentioned, the system was, at the time of its 
 establishment, under great disadvantages from the lack 
 of suitable buildings. In only a few of the places desig- 
 nated as the seats of depositories were such to be found. 
 Gouge reported that the government had not " in the 
 whole valley of the Ohio a building or a vault in which 
 to deposit a dollar or a paper." 2 Boston was the only 
 place provided with suitable buildings for the Sub-Treas- 
 ury. Most of the buildings actually used for the purpose 
 were unsuitable, being only such as each agent could 
 secure under his special circumstances, so that, as hith- 
 erto, the provisions for the safe keeping of the public 
 money against fire and burglars were totally inadequate. 
 
 1 This fact does not constitute a failure of Gresham's law, but rather is in 
 keeping with it ; for the operation of a special force — the uncompromising 
 demand of the government for coin — was necessary to prevent the paper 
 from driving out the gold. Legislation, or custom, or public opinion, may 
 exert such an influence as to maintain an existing monetary standard. Gresh- 
 am's law, like other economic laws, is a law of tendencies : and a statement 
 of it, in order to be correct, needs to be conditional. For an interesting account 
 of a similar apparent failure of the law see the article by Bernard Moses in the 
 Quarterly Journal of Economics, vol. vii. No. i, on " Legal Tender Notes 
 in California."' In this case the gold held its place against paper backed by 
 the fiat of government. 
 
 2 Finance Report, 1854, p. 256.
 
 DEI ELOPMENT OF INDEPENDENT TREASURY. 55 
 
 But the zeal and honesty of the officials made up for these 
 defects, showing, as the Secretary pointed out, that the 
 objection to this system, founded on probable loss from 
 the personal dishonesty of the assistant treasurers, was 
 unfounded. Gouge gives a description of one deposi- 
 tory visited by him, which is worth transcribing, if only 
 to show the niggardliness, or at least the carelessness, 
 of Congress in providing for the proper carrying out of 
 its legislation, and also the notable improvement that 
 has since taken place. The depository referred to 
 was that at Jeffersonville, Ind. Gouge says that it re- 
 minded him more strongly of what Robinson Crusoe's 
 fortifications may be supposed to have been, than any- 
 thing else he had ever seen. "The chief tavern of the 
 town was the building believed to afford the best secu- 
 rity, and an apartment adjoining the bar-room was made 
 a depository of the United States. Immediate access 
 from the bar-room to the depository was shut off by clos- 
 ing the door of communication, and, as further security, 
 the partition wall was lined with boards; but, as the 
 glass lights in the communciating door were left uncov- 
 ered, in order that the keeper of the public treasure might, 
 when in the bar-room, see into his own apartment, a 
 determined burglar could, in a few minutes, have forced 
 his way in. The entrance into the depository was 
 through a back passage under a stairway. Every person 
 who attempted to enter had to stoop till he was almost 
 double; and then he found his further progress obstructed 
 by a grated door, fastened by an iron chain in such away 
 that it could not be opened except by main force, or with 
 the consent of the sub-treasurer. When in the deposi- 
 tory the citizen who had business there found it divided 
 into two apartments by a temporary partition. One of
 
 56 THE INDEPENDENT TREASURY. 
 
 these was lighted by a single window, defended by iron 
 grates of no very great strength. In this division of the 
 room the officer kept the chief part of his silver in boxes; 
 screening the boxes themselves as well as he could from 
 public view by covering them with wooden casing some- 
 what resembling in form a giant coffin. In the other 
 division of the room, being that to which there was 
 entrance under the stairway, there was an iron safe, in 
 which the depositary kept his gold and so much silver as 
 he could store therein. Around this apartment ran a low 
 gallery, constructed by the depositary expressly that, in 
 case of attack, he might, if in danger of being overpow- 
 ered below, retire above, and shower down upon his 
 assailants stone bottles and other missiles of this kind, 
 of which he had provided an abundant store. He slept 
 in this room, and guns, pistols, and pikes completed his 
 assortment of weapons offensive and defensive." ] 
 
 Gouge recommended, in his report, that the actual 
 transfers of specie be reduced to a minimum and supple- 
 mented by the use of drafts on some specified sub-treas- 
 urer. These drafts, he recommended, should be issued 
 at any sub-treasury, on deposit of the amount in specie 
 at the issuing office. This mode of transfer was essen- 
 tially adopted afterwards. The object of making these 
 proposed drafts payable at a particular depository was to 
 prevent their passing from hand to hand as currency. For 
 with the restriction as to the place of redemption, if they 
 circulated at all it would be in the neighborhood of the 
 sub-treasury at which they were payable. 
 
 Gouge incorporated in his report a resume of the 
 advantages of the Independent Treasury as he saw them. 
 He insisted that it gave greater stability to the banks, 
 
 l See Finance Report, 1854.
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 57 
 
 not only by its restrictive influence on note issues, but 
 also by keeping specie in circulation. For the banks are 
 sustained, as he rightly argued, not only by the specie 
 which they have in their vaults, but also by all in the 
 country to which they may have immediate access by 
 the sale of securities. Gouge further maintained that 
 the amount of specie in the country had been more than 
 doubled by the action of the Constitutional Treasury 
 system. Summarizing his opinions, he declared that if 
 the Constitutional Treasury system were faithfully carried 
 out it would increase the amount of gold and silver in 
 circulation, weaken the force of bank expansions and 
 contractions, prevent the losses that had formerly arisen 
 from the use by public officers of public funds intrusted 
 to their care, give the government at all times complete 
 control of its own funds, prevent the derangement of 
 business caused by government's effecting large loans 
 through bank credits, and tend to prevent the general 
 suspension of specie payments, or facilitate their restora- 
 tion if suspension should occur. ''The less government 
 has to do with banks, and the less banks have to do with 
 government, the better for both." That doctrine was 
 eminently sound as banks were then constituted. 
 
 It may fairly be admitted that experience with the 
 Independent Treasury, up to the time when Gouge wrote, 
 justified him in the first four opinions mentioned in the 
 summary above, gave a superficial plausibility to the 
 fifth, and showed that there was a considerable amount 
 of truth in the last. For notwithstanding its many im- 
 perfections the system seems to have been at this time in 
 good working order, and was apparently accomplishing 
 all that its advocates had claimed for it. But since its 
 establishment the financial operations of the government
 
 5<S THE IXDEPENDENT TREASURY. 
 
 and the conditions of business had been favorable to its 
 success. At no time had there been in the Treasury any 
 large surplus, and there had been no crisis to cause finan- 
 cial distress. To be sure the Mexican war caused "a 
 squeeze " in the market, but there was no real disturb- 
 ance. Business had been, on the whole, good, and com- 
 merce had increased. Consequently there was little to 
 cause friction in the working of the new fiscal ma- 
 chinery. 
 
 These conditions made it possible for the Secretary of 
 the Treasury to write in 1855 that the Independent Treas- 
 ury was '" still eminently successful " in all its operations. 
 The transfers for disbursement for the fiscal year were 
 $39,407,674, made at a cost of $19,762, and the premi- 
 ums on the sale of treasury drafts amounted to $30,431. 
 The government was now engaged in the business of 
 banking and exchange. The receipts and expenditures 
 of the government for the year were all paid in gold and 
 silver, and were, according to the Secretary, without any 
 perceptible effect on currency or business. This last 
 remark was an implied admission of the possibility of an 
 unfavorable influence of the Sub-Treasury on business. 
 
 During the year 1854-55 the vaults at Washington had 
 been made safe, but those at other places remained in 
 pretty much the same condition. Gouge again made an 
 examination of them, but developed nothing new. The 
 only loss from robbery, he says, was in the previous year 
 at Pittsburg, and amounted to $10,000. 
 
 The system of transfer drafts recommended by Gouge 
 the year before had been adopted and had worked well. 
 He reported that further experience had strengthened his 
 opinion of the advantages of the system. 
 
 The existence of a surplus was, however, evidently a
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 59 
 
 source of anxiety to the well-wishers of the Independent 
 Treasury; for in his next report, December, 1856, the 
 Secretary of the Treasury takes occasion to explain its 
 action on the volume of money, as he regards it, and 
 attempts to show that the influence was beneficent. He 
 declared that "the Independent Treasury, when over- 
 trading takes place, gradually fills its vaults, withdraws 
 the deposits, and, pressing the banks, the merchants, and 
 the dealers, exercises that temperate and timely control 
 which serves to secure the fortunes of individuals and 
 preserve the general prosperity." This is virtually claim- 
 ing that, on a rising market, a reduction of the currency 
 moderates the rise of prices, preventing them from reach- 
 ing so high a point as they otherwise would. This claim 
 will be considered by and by, 1 but meantime it is suffi- 
 cient to note that the system was even already on the 
 defensive. Secretary Guthrie went on to say that the 
 Sub-Treasury may '" exercise a fatal control over the cur- 
 rency, the banks, and the trade of the country, and will 
 do so whenever the revenue shall greatly exceed the ex- 
 penditure." This was clear to the Secretary from his 
 own experience that year. There was a surplus, and 
 prices were rising. Therefore the Treasury Department 
 sought to give relief to the money market by that method 
 of forced debt payment with which we have since become 
 so familiar. '"There has been expended, since the 4th 
 of March, 1853, more than $45,525,000 in the redemp- 
 tion of the public debt. This debt has been presented, 
 from time to time, as the money accumulated in the 
 National Treasury and caused stringency in the money 
 market. If there had been no public debt, and no means 
 of disbursing this large sum and again giving it to the 
 
 1 Chap, vii., pp. 167, 211.
 
 60 THE INDEPENDENT TREASURY. 
 
 channels of commerce, the accumulated sum would have 
 acted fatally on the banks and on trade. The only rem- 
 edy would have been a reduction of the revenue, there 
 being no demand and no reason for increased expendi- 
 ture." 1 
 
 The Secretary asked Congress to increase the number 
 of depositories, so as to afford facilities for deposit to 
 all receiving and disbursing officers. According to his 
 report, the law had been carried out as far as practicable, 
 but some disbursing officers had ignored that part of it 
 which prohibited deposits in banks. 
 
 The amount of transfers during the year had amounted 
 to $38,088, 113.92, at a cost of $12,945.87 ; and the pre- 
 miums on the sale of treasury drafts had been $54,924. 16; 
 leaving $41,978.29 over the expenses of transfer. The 
 Secretary expressed the opinion that hereafter the trans- 
 fers of public money would be made without charge and 
 without risk. 
 
 In 1857, by an act of March 3, the law was amended so 
 as to require disbursing officers to deposit in some sub- 
 treasury. Up to this time many of them had continued 
 to use the banks for the safe keeping of the public money 
 in their charge, usually placing it in them as a special 
 deposit. After the amendment, the Secretary directed 
 the treasurers of the mints, of the depositories, and of 
 the sub-treasuries, to receive deposits of disbursing 
 officers, but not to honor drafts on them unless made in 
 favor of some person known to the treasurer. If for sums 
 of $20 or less the drafts might be drawn in favor of the 
 disbursing officer himself, or of bearer. Disbursing offi- 
 cers might also draw for money to pay the salaries of 
 employees, but they were required to furnish lists of such 
 
 1 Finance Report, 1856, p. 32.
 
 DEVELOPMENT OE INDEPENDENT TREASURY. 6 1 
 
 employees. Public depositaries were not required to 
 pay drafts made out to A.B. or order; but they might 
 pay to A. B. ox bearer. There were many obvious diffi- 
 culties in the way of strictly enforcing the amendment, 
 and it is probable that it was not widely observed to the 
 letter. The treasury report of 1858 pointed out, what 
 might have been easily foreseen, that there were some 
 conditions under which compliance with the law was 
 utterly impracticable. Sailors in a foreigr port, or on 
 a long cruise, could not be paid according to the law, 
 and pursers must carry money with them. Indian agents 
 could not pay so, neither could disbursing officers remote 
 from a depository; and disbursing agents of the army 
 would have some difficulty. Much additional labor and 
 expense were entailed by the act requiring the assistant 
 treasurers and depositaries to hold the money of disburs- 
 ing officers and pay it out in detail. According to Sec- 
 retary Cobb, the additional labor amounted to "one 
 hundred per cent." This labor increased as the govern- 
 ment revenues grew, and assumed enormous proportions 
 on the breaking out of the civil war. According to the 
 report of 1861, the amounts so deposited rose from eight 
 millions to one hundred and ninety millions of dollars. 
 
 The year 1857 witnessed a panic in the money market. 
 As the pinch grew more severe, the Secretary of the 
 Treasury sent to the various depositories silver change of 
 all denominations, and small gold from the mint, with 
 instructions to pay out the coin to applicants in exchange 
 for large coin. This furnishing of "change'' was a real 
 convenience, and it could not but have had a good edu- 
 cational effect by keeping specie in daily use among the 
 people. 
 
 Speaking of the amendment requiring disbursing offi-
 
 62 THE INDEPENDENT TREASURE. 
 
 cers to deposit in the government depositories, Secretary 
 Cobb said: "The present condition of money affairs is a 
 significant indication of the consequences that must have 
 been anticipated if this regulation had not been adopted, 
 and the public money advanced to disbursing officers had 
 continued to be deposited in banks and with bankers, 
 and had been used by them as a basis for increasing their 
 business and extending their circulation. Not only would 
 the contraction now going on, and the consequent embar- 
 rassment and distress of the commercial community, have 
 been much greater than it is, but the public moneys them- 
 selves would have been placed in imminent danger.'" In 
 fact, the situation was such that there would probably 
 have been a repetition of the events of 1837, and the 
 "divorce of bank and state" was justified by the danger 
 which it had evidently enabled the government to avoid. 
 In 1837 the failure of the banks caused the government 
 great embarrassment. In 1857 the banks had again 
 failed ; but the government, having its money in its own 
 hands, was able to pay its debts, and met every liability 
 without trouble. Said the Secretary of the Treasury : "It 
 has resorted to no expedient to meet the claims of its 
 creditors, but with promptness pays each one upon presen- 
 tation." It is not to be wondered at that such a showing 
 should wed the people to the system. Its practical suc- 
 cess in preserving the credit of the government, or at 
 least in making its financial operations easier, was an 
 object lesson that appealed to the popular mind. 
 
 Secretary Cobb claimed that the specie disbursements 
 of the government afforded relief to the money market. 
 This, doubtless, was true. Rut it could hardly be used 
 as an argument to show the benefits of the Independent 
 Treasury, unless it were also shown that its previous
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 63 
 
 absorption of this specie did not bring on or intensify 
 the monetary pressure. Certainly it could not now be 
 said that the system had prevented over-issue by the 
 banks, in face of the prostration of credit that had over- 
 taken them. Thus one of the claims of which most was 
 made in favor of the "Constitutional Treasury," that it 
 would check excessive issues of bank-notes, was shown 
 by the occurrences of 1857 to be less strong than had been 
 supposed. Even Mr. Howell Cobb, the Secretary of the 
 Treasury, ardent supporter as he was of the policy, was 
 compelled to admit that the anticipations of its friends 
 that it would so operate were true only "to a limited 
 extent." 
 
 Still he was so sure of the beneficial influence in this 
 direction of the independence of government fiscal opera- 
 tions that he recommended the State governments to 
 adopt the system. Ohio seems to have been the only 
 State that seriously contemplated doing so, but the act to 
 separate the State finances from the banks, after passing 
 the House, was voted down in the State Senate. 
 
 The collection and disbursement of the revenue went 
 on during the panic, according to the Secretary, without 
 "loss or embarrassment," and the sub-treasury system 
 was '' eminently successful." There was no loss from 
 faithless officers, the expense of its operation was small, 
 and it had, in the opinion of the government officers, no 
 bad effect on business. President Buchanan took the 
 same view as his Secretary of the beneficial operation 
 of the Sub-Treasury. In his annual message, Dec. 7, 
 1857, he said, "Thanks to the Independent Treasury, 
 the government has not suspended [specie] payments, as 
 it was compelled to do by the failure of the banks in 
 1837. It will continue to discharge its liabilities to the
 
 64 THE INDEPENDENT TREASURY. 
 
 people in gold and silver. Its disbursements in coin 
 pass into circulation and materially assist in restoring a 
 sound currency." 
 
 During the financial year 1858, bond purchases were 
 continued to the amount of nearly four millions of dol- 
 lars, and contributed somewhat to the mitigation of the 
 disasters of the revulsion. In view, however, of the fact 
 that the excess of exports of specie over imports for the 
 year amounted to over thirty-three million dollars, it is 
 clear that the influence of the amount "set free" from 
 the Treasury, on the whole volume of the currency, must 
 have been very insignificant. 
 
 After the country recovered from the effects of the 
 panic its progress was very rapid. From 1858 to 1861 
 the country was prosperous, and th 2 banks held a strong 
 specie reserve. The expenditure of the government for 
 three years exceeded the receipts by about ninety mil- 
 lions of dollars, and the deficit was met by loans. Under 
 an act of Dec. 23, 1857, over fifty-two million dollars of 
 treasury notes were issued. They were redeemable in 
 one year, bore interest ranging from three to six per 
 cent, and were sold at par. In June, 1858, bonds to the 
 amount of twenty million dollars, redeemable in fifteen 
 years, were sold at a premium. In June, i860, came seven 
 millions more, which also sold at a premium, though 
 a smaller one; and in December of the same year an 
 issue of ten million dollars of treasury notes was author- 
 ized. They sold at par. The needs of the government 
 under the stress of war necessitated the placing of several 
 more loans, both in bonds and treasury notes, all of 
 which, with one exception, were placed at, or above, par. 
 This is true even of the demand notes of 1861, although 
 it was only with some difficulty that the employees of the
 
 DEVELOPMENT OF IXDEPENDENT TREASURY. 65 
 
 government were persuaded to receive them. As yet the 
 government was true to its resolution to maintain itself 
 on the specie basis that formed the keystone of the inde- 
 pendent treasury system. However, under the act of July 
 17, 1861, Secretary Chase applied to the banks for a loan 
 of fifty million dollars in seven-thirty bonds, payable in 
 three years. The loans of the Mexican war had been 
 placed independently of the banks. The Treasury had 
 been its own broker. This solicitation of aid from the 
 banks was, therefore, the first step away from the prin- 
 ciple on which the independent treasury system had been 
 built. It was a little step. The banks were not yet 
 to handle the government receipts or to have the cus- 
 tody of its money. But it was a look backward to the 
 policy abandoned in 1846. The act, however, was a 
 necessity. The government needed gold, and the only 
 large accumulated stock of that metal was in the banks. 
 Their specie reserve amounted to about eighty-seven 
 million dollars, and they were strengthening their posi- 
 tion. In August the Secretary had a conference in New 
 York with representative bankers of New York, Phila- 
 delphia, and Boston, with reference to the requested 
 loan. The terms were agreed on, as mentioned ; the 
 government was provided with money, which, being ex- 
 pended in military operations, found its way back to the 
 banks and enabled them to make a further advance of 
 a similar amount soon afterwards. Between August 19 
 and Nov. 19, 1861, Secretary Chase borrowed over a 
 hundred and forty millions of dollars from the banks. 
 The specie held by them in August, the time of the first 
 loan, was forty-seven millions of dollars ; in December, 
 after most of the last loan had been paid, it had decreased 
 only by about five millions. The recuperative power of 
 the banks was thus clearly shown.
 
 66 THE INDEPEKDEXT TREASURE?. 
 
 But, while borrowing the gold of the banks, Mr. Chase 
 was also driving their notes from circulation by the issue 
 of treasury notes, and the bank-notes coming in for re- 
 demption created a new drain on the gold reserves of the 
 banks. The banks could furnish the Secretary with gold, 
 or they could sustain the credit of their notes. But they 
 could hardly be expected to do both. Accordingly they 
 urged the Secretary to cease the issue of the treasury notes 
 and to use bank-notes. The government refused to do so, 
 however, and in December, 1861, the banks suspended 
 specie payments. Had the Secretary withdrawn the 
 treasury notes and accepted the bank issues, it would 
 have been a departure from the Independent Treasury 
 act, so far as it prohibited connection with banks. But, 
 in all probability, the banks would not then have been 
 compelled to suspend, and the government could have 
 kept inviolate the spirit of the specie clause of that same 
 act. In avoiding Scylla Mr. Chase fell into Charybdis. 
 That the banks would have avoided suspension if the 
 government had accepted their notes is, of course, by no 
 means certain. It is possible, perhaps probable, that the 
 " briskness of business " caused by the war would soon 
 have induced the banks to over-issue, and specie payments 
 would have been suspended just the same. Certainly the 
 mere acceptance of the notes by the government, while it 
 would have greatly strengthened the credit of the banks, 
 could not have prevented their notes from depreciating, 
 unless at the same time the government could have con- 
 trolled and limited their issue. 
 
 It is not, indeed, true that the main responsibility for 
 the suspension of specie payments by the banks can fairly 
 be laid on the Independent Treasury, for the banks could 
 have refused to lend to the government, and so could have
 
 DEVELOPMENT OE EXDEPENDENT TREASURY. 6y 
 
 kept their gold for the redemption of their notes ; but if 
 they had done so, treasury notes would early have been 
 issued, in even greater numbers than they actually were, 
 and they would inevitably have increased beyond the 
 power of the government to keep them at par. The Inde- 
 pendent Treasury law permitted the issue of treasury 
 notes, and so far contributed towards the tendency to 
 suspension. But the real force making for suspension 
 was the policy of Congress and the Treasury Department 
 to try to meet the expenses of the war by loans with as 
 slight an increase of taxation as possible. The treasury 
 notes contemplated by the Independent Treasury law were 
 convertible, and to be issued for a short time. The 
 notes of the war period evidently violated the spirit of 
 the law, though keeping within its letter. There is rea- 
 son for thinking, however, that if the government had 
 used bank-notes instead of treasury notes, suspension 
 could have been postponed and perhaps avoided. 
 
 The suspension of specie payments by the banks was 
 necessarily followed, and that within a week, by a similar 
 action on the part of the government. On Jan. 6, 1862, 
 " it dishonored its own promises — it ceased paying 
 coin," and gold immediately went to a premium of two 
 per cent. Of the two evils, acceptance of bank-notes in 
 payment of government dues and the suspension of specie 
 payments, the first, of course, was infinitely the less. 
 The mistake of Secretary Chase was in thinking he could 
 avoid both. It is easy to criticise after an event, with 
 all the data at hand. It is far more difficult to act 
 under the stress of actual circumstances. Yet it does 
 seem that, even at the time, the possibility of getting on 
 without legal-tender notes might have been seen, and the 
 country kept on a specie basis.
 
 68 THE INDEPENDENT TREASURY. 
 
 Thus the most important provision of the Independent 
 Treasury act of 1846 was made of no effect. The gov- 
 ernment had been solicitous about keeping the public 
 money safe from banks and bankers that would not, or 
 could not, redeem their notes; but it turned itself to the 
 manufacture, by the hundred million, of "greenbacks," 
 which, by a legal-tender fiat, were forced on creditors in 
 payment of the hard-earned dollars they had loaned. 
 From this time on, then, certainly until the resumption of 
 specie payments, the sub-treasury law was a dead letter. 
 The act that cancelled it deprived, in many instances, 
 one of the parties to a contract of the protection of the 
 laws of his country; it was passed with much hesitation 
 and misgiving by the Congress responsible for it, and on 
 the recommendation of a Secretary of the Treasury who 
 afterwards, as Chief Justice of the Supreme Court of his 
 country, pronounced it unconstitutional. 
 
 Still, the abandonment of the system of "divorce of 
 bank and state " was not yet complete. The Sub- 
 Treasury remained in form. The legal-tender notes were 
 not receivable for customs dues because the government 
 had to have some specie, and there was now no way of 
 getting it as a current receipt except by making these 
 duties payable in gold. 
 
 We read nothing more in the treasury reports about the 
 sub-treasuries, beyond the mere official reports of their 
 transactions, until 1863. During that financial year, we 
 are told, the receipts and disbursements of the assistant 
 treasurers at San Francisco and St. Louis, and of the 
 designated depositories, especially at Baltimore, Cin- 
 cinnati, and Louisville, were "large beyond precedent." 
 Of course, this simply meant that government financial 
 matters had, in the conduct of the war, suddenly leaped
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 69 
 
 to gigantic proportions. The duties of the officers, the 
 Secretary assures us, were well performed. Meantime 
 the plan of paying government dues by means of transfer 
 checks on the assistant treasurers at New York, Phila- 
 delphia, Boston, and San Francisco had been adopted, 
 and Treasurer Spinner informs us in 1863 that the plan 
 had proved of signal "benefit to the public creditors, and 
 an essential aid to the business of the department." The 
 number of these checks had increased from 14S4 in the 
 financial year of 1861 to 30,526 in 1863. In the latter 
 year $159,864,954 were thus transferred. By the use of 
 these the necessity for the actual transfer of specie was 
 of course obviated. 
 
 The law establishing the present national banking 
 system, passed Feb. 25, 1863, x took two more steps 
 away from the act of 1846. The first was that which 
 allowed national banks, designated by the Secretary of 
 the Treasury, to be depositories of public moneys, except 
 receipts from customs, under regulations to be prescribed 
 by the Secretary of the Treasury. The reasons for prohibit- 
 ing the deposit of customs receipts in the banks were that 
 these were paid in coin, which the government needed, 
 and that the banks had suspended specie payments. The 
 banks might also, by this law, be employed as the 
 financial agents of the government. They were required 
 to give satisfactory security by the "deposit of United 
 States bonds and otherwise, for the safe keeping and 
 prompt payment of the public money deposited with 
 them." Postmasters in offices within counties having no 
 designated depositories, treasurers of mints, or assistant 
 treasurers, or the Treasurer of the United States, might 
 deposit in the national banks, at their own risk. This 
 
 1 Acts, 37th Cong., 3d sess., chap. 58.
 
 /O THE INDEPENDENT TREASURY. 
 
 was practically a reversal of the act of seven years before, 
 which required collecting and disbursing officers to use 
 the government depositories. The second step back- 
 wards, under the national banking law, consisted in giv- 
 ing a semi-legal-tender character to the notes issued by 
 banks formed under the new law. These notes were to 
 be received at par in all parts of the United States in all 
 payments to and by the government, except customs and 
 interest on the public debt respectively. 1 Had this same 
 use of the bank-notes been legalized two years before, 
 Secretary Chase's hands would not have been tied; even 
 the shadow of excuse for suspension would have been 
 taken from the banks, the "greenbacks and depreciation ? ' 
 could have been easily avoided, and the monetary history 
 of the past thirty years would doubtless have been a 
 brighter record. This provision of law was a complete 
 withdrawal from the position of 1846. 
 
 In this same year, 1863, to avoid the inconvenience of 
 handling the specie which was still in use for the pay- 
 ment of duties and interest on the public debt, the 
 deposit of gold coin and bullion with the Treasurer or 
 Sub-Treasurers, in sums of not less than twenty dollars, 
 was authorized; and certificates were to be issued for 
 these, in denominations of not less than twenty dollars, 
 and corresponding with the denominations of United 
 States notes. The metal had to be kept for the redemp- 
 tion of the certificates which were used in the payment of 
 interest and customs. Thus the use of the vaults of the 
 government was given free of charge to bankers, brokers, 
 and bullion dealers for the storage of their specie. 
 
 The suspension of specie payments had thrown gold 
 on the market as a commodity, and speculation in it soon 
 
 1 Section 20 of the Bank Act of 186-1.
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 71 
 
 became rife. The violent fluctuations in the value of 
 gold " reacted upon prices and turned the most legitimate 
 of business enterprises into a kind of gambling." The 
 principal causes of this unfortunate state of affairs were 
 bad legislation and the accumulation of gold in the 
 Treasury. The payments of coin received for customs 
 dues had exceeded the payments of interest on the public 
 debt until, in 1864, about fifty million dollars were stored 
 in the government vaults. To relieve the situation Con- 
 gress authorized the Secretary of the Treasury to sell the 
 surplus gold for other currency. He did so to the extent 
 of eleven million dollars, but the effect was only for a 
 clay. The fluctuations of the value of the metal continued 
 and were aggravated by the alternate accumulation and 
 sale of gold by the government. 
 
 By 1866 the organization of national banks was well 
 under way, and the system had proved a great conven- 
 ience. The Treasury report for 1866 says: "The employ- 
 ment of national banks as depositories of public moneys 
 and fiscal agents of the government has been a great aid 
 to the department in the placing of loans, and especially 
 to this office, in the collection of the revenues of the 
 government. They have within the three years ending 
 with the month of September, 1866, received moneys on 
 deposit to the credit of the United States as follows: — 
 
 On subscription to U. S. stocks .... Si, 1 16,151, 286 1 
 On account of internal revenue .... 599.936.712 
 
 From miscellaneous sources 37>443»637 
 
 Total collections I '753>53 1 >636 
 
 "They have paid, in various ways, and at points as 
 directed by this office, and without expense to the govern- 
 ment, during the same time, $1,722,554,656." 
 
 1 Cents omitted.
 
 J2 THE INDEPENDENT TREASURY. 
 
 Up to this time but two banks failed to meet all 
 the demands of the government upon them. During the 
 next few years the Sub-Treasury remained substantially 
 the same in its influence and mode of operations, the 
 extent of the latter adapting itself, of course, to the needs 
 of government business. 
 
 So close was now the connection between the banks and 
 the financial operations of the government that the "di- 
 vorce of bank and state " could no longer be said to exist. 
 Said the Commercial and Financial Chronicle of April 4, 
 1868: "The Treasury, so far from being severed from the 
 banks, may now at certain critical periods possess great 
 influence over them, and has had, for some weeks past, 
 almost despotic control over them, because it could at any 
 time take away their legal-tender reserves by sales of gold, 
 by sales of bonds, or by drawing down the balances in the 
 national bank depositories." 
 
 In 1873 the government undertook virtually to perform 
 the office of safe-depository for the banks by allowing 
 them to deposit legal-tender notes, and received in ex- 
 change certificates of deposit prepared at the expense of 
 the government. The deposits were withdrawable on 
 demand. This meant that the banks could use the Sub- 
 Treasury to keep them inTiotes of convenient denomina- 
 tions at public expense. 
 
 The banking work of the Treasury received an addi- 
 tional impulse in this year by the reissue of legal-tender 
 notes that had been once paid, but which Secretary Bout- 
 well brilliantly regarded as a "reserve " which he could 
 put out again to increase the currency and so relieve a 
 stringency. This was, however, but a trifling interfer- 
 ence with business relations compared with others that 
 had been made since the day when the country had cut
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 73 
 
 loose from the safe moorings of specie payments to which 
 she had been determinately tied in 1846. In 1873 came 
 the panic, and the scarcity of money was severely felt. 
 Had the country been on a specie basis the distress would 
 probably have been much less, perhaps scarcely felt. For 
 fifty million dollars of gold lay in the vaults of the Treas- 
 ury and sub-treasuries, but could not be used to relieve 
 the situation because the specie was not wanted to pay 
 private debts; for its use would have entailed a sacri- 
 fice equal to the amount of the premium on gold. Secre- 
 tary Boutwell's "reserve" was brought into requisition 
 again. In October, Secretary Richardson thought to 
 afford some relief by instructing the sub-treasury officers 
 to pay out silver coin to public creditors who wished it, 
 in sums not exceeding five dollars in any one payment. 
 But the Treasury held too few small coins to make an im- 
 pression of any importance on the situation by such a 
 step. 
 
 In June, 1878, the Secretary of the Treasury was author- 
 ized to make any mint superintendent, or the assayer of 
 any assay office, an assistant treasurer to receive gold coin 
 or bullion on deposit. 
 
 The next part of any importance played by the Sub- 
 Treasury system was at the time of the resumption of 
 specie payments in 1879. Secretary Sherman decided to 
 pay interest in coin at the New York sub-treasury only. 
 Other sub-treasury officers were to pay interest to all 
 who would accept legal-tender notes. The sub-treasury 
 at New York also became at this time a member of the 
 clearing house, "to a certain extent and for certain 
 purposes." The government agreed to collect its checks 
 through the clearing house, and the latter to receive the 
 balances due it at the counter of the sub-treasury, and
 
 74 THE INDEPENDENT TREASURY. 
 
 to accept legal-tender notes in payment of all government 
 drafts. Thus the connection of the government with the 
 banks became closer than ever. As the notes to be 
 redeemed were government notes, the gold necessary for 
 purposes of resumption was accumulated in the Treasury 
 vaults and not in the banks. But resumption could prob- 
 ably not have been successful without the aid of the 
 banks. The banks of New York City alone held forty 
 million dollars of the government paper, and the presen- 
 tation of these would have doubtless shipwrecked the 
 Treasury plans. But the banks held them back, thus 
 strengthening the government credit. Moreover, as far 
 the largest part of the drafts on the sub-treasury passed 
 through the clearing house, and as that organization had 
 agreed not to call for specie, the actual demand for coin 
 payments, when resumption began, was very small. 
 
 The independence of the government in financial opera- 
 tions could not well have been maintained under the 
 financial conditions into which the nation drifted during 
 the war. In fact, the national banks were avowedly 
 created for the purpose of aiding the government, and 
 their very establishment was thus an abandonment of the 
 principle of the sub-treasury act of 1846. Whether it 
 would have been possible to get on during the war with- 
 out the aid of the banks in the placing of loans, even if 
 the government finances had been differently conducted, 
 is a question the correct answer to which could hardly 
 be given in the affirmative. 
 
 But it was not only in loaning to the government, and 
 in aiding resumption, that the banks rendered valuable 
 services. The refunding operations that have from time 
 to time taken place would have been at least exceedingly 
 difficult without their aid. The amount of labor and
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 7$ 
 
 expense which they saved the government in these was 
 very great. But for the use of the banks as deposi- 
 tories the money paid for the bonds sold " would neces- 
 sarily have been placed in the Sub-Treasury to await 
 the maturity of the bonds called under the three months' 
 notice required by law." i At the end of April, 1879, the 
 banks had sold $389,944, 295 worth of bonds, which sum 
 would otherwise have gone into the Sub-Treasury vaults 
 to be paid out only as the called bonds matured. Thus 
 more than one-half the paper circulation of the country 
 would have been withdrawn from use, and the results 
 would have been disastrous. 
 
 The extent of the use of national banks by the govern- 
 ment since the time of resumption has varied largely, 
 according to the views of the administration. Before 
 that time it was mainly dependent on the amount of the 
 government fiscal operations. In 1866, as already related, 
 the banks collected for the government over a billion and 
 a half of dollars, and paid out a nearly equal amount. In 
 the following year they held government deposits to the 
 extent of twenty-six millions, more than was similarly 
 held by all the sub-treasuries and other depositories in 
 the country, leaving out that of New York. In the years 
 following 1870 the number of banks used by the govern- 
 ment, and their receipts and balances of public money, 
 were as follows: — 
 
 FISCAL YEAR. 
 
 NO. OF BANKS. 
 
 RECEIPTS. 
 
 BALANCE. 
 
 187O 
 
 148 
 
 $120,084,041 
 
 $8,483,549 
 
 187I 
 
 159 
 
 99.299,840 
 
 7,197.015 
 
 1872 
 
 163 
 
 106,104,855 
 
 7.777,873 
 
 1873 
 
 158 
 
 169,602,743 
 
 62,185,153 
 
 1874 
 
 154 
 
 91,108,846 
 
 7,790,292 
 
 1 Proc. Amer. Bankers' Assoc, iJ
 
 y6 THE INDEPENDENT TREASURY. 
 
 FISCAL YEAR. 
 
 NO. OF BANKS. 
 
 RECEIPTS. 
 
 BALANCE. 
 
 1875 
 
 145 
 
 98,228,249 
 
 11,914,004 
 
 1876 
 
 143 
 
 97,402,227 
 
 7,870.920 
 
 1877 
 
 145 
 
 106,470,261 
 
 7,555.776 
 
 1878 
 
 124 
 
 99,781,053 
 
 6,937.9! 6 
 
 1879 
 
 127 
 
 109.397,525 
 
 7,183,403 
 
 1880 
 
 131 
 
 "9,493> I 7i 
 
 7,999,953 
 
 l88l 
 
 130 
 
 131,820,002 
 
 8,933,55o 
 
 1882 
 
 134 
 
 143,261,541 
 
 9,610,432 
 
 1883 
 
 I40 
 
 145,974,256 
 
 10,030,698 
 
 1884 
 
 135 
 
 129,100,449 
 
 10,716,144 
 
 1885 
 
 132 
 
 119,056,058 
 
 10,985,141 
 
 1886 
 
 l6o 
 
 135,592,221 
 
 14,036,632 
 
 1887 
 
 200 
 
 128,482,769 
 
 19,190,076 
 
 1888 
 
 29O 
 
 132.591,946 
 
 54,913,489 
 
 1889 
 
 270 
 
 139,316,214 
 
 43-305,511 
 
 1890 
 
 205 
 
 147,761,566 
 
 26,994,464 
 
 1891 
 
 185 
 
 i52,3 8 9,837 
 
 22,900,329 
 
 In his report for 1885 Treasurer Jordan said that "a 
 more extended use of the banks as depositories would 
 result in a large saving to the government, and very 
 much lessen the chances of loss from peculation and 
 frauds in the conduct of the operations of the Treasury." 
 
 In 1880 an effort was made to secure the establishment 
 of a sub-treasury at Louisville, Ky. The petition was 
 refused, the Finance Committee of the Senate pointing 
 out that the only advantage that the establishment would 
 bring to Louisville would be to save its people the 
 expense of carrying coin to the nearest sub-treasury for 
 redemption and exchange, and that it would be cheaper 
 for the government to pay express charges on all these 
 shipments than it would be to maintain a sub-treasury. 
 The committee also said : "The public revenues are now 
 collected and disbursements made outside the sub- 
 treasury cities, with absolute security to the government, 
 through more than one hundred and sixty national bank
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 7 "J 
 
 depositories." In a letter on this matter to Mr. Mor- 
 rison, of the Ways and Means Committee, Treasurer 
 Jordan wrote that at least five of the existing sub-treasu- 
 ries could be dispensed with, and their functions be per- 
 formed by the banks with greater economy and less 
 risk. The offices he designated as useless were those 
 at St. Louis, Baltimore, Cincinnati, New Orleans, and 
 Chicago. 
 
 In 1879, as we have seen, the New York sub-treasury 
 became a member of the clearing-house. Soon after, the 
 associated banks * decided not to receive silver dollars 
 issued under the Bland law, except on special deposit. 
 In 1882 Congress passed a law in the interest of silver 
 money, which made it illegal for any national bank to 
 belong to a clearing-house association that observed such 
 a rule. The rule of the banks was withdrawn to avoid 
 the law, but the banks adhered to their policy in practice, 
 and the Sub-Treasury still continues a member of the 
 clearing-house. The banks have, however, shown more 
 willingness to accept the coin notes issued under the law 
 of July 14, 1890. 
 
 The advisability of a more extended use of the national 
 banks for fiscal purpose, perhaps their complete substitu- 
 tion for the Sub-Treasury system, is a topic that can be 
 more properly treated when examining the influence and 
 working of the Sub-Treasury. The opinions of the va- 
 rious Secretaries of the Treasury as to the advantages 
 of the existing system have been widely different. Secre- 
 tary Sherman, in 18S0, wrote that "under the existing 
 system by which the government practically holds and 
 disburses its own money, and that of its officers, the fiscal 
 operations are conducted without disturbance, embarrass- 
 
 l The members of the clearing-house.
 
 78 THE INDEPENDENT TREASURY. 
 
 ment, or favoritism, and with satisfaction to all con- 
 cerned." Still, he acknowledged the utility of the banks. 
 It was under Mr. Cleveland's administration, however, 
 that the most extended use of banks was made. In the 
 report on the petition for a sub-treasury at Louisville, 
 already mentioned, the Finance Committee agreed with 
 Treasurer Jordan in asserting that a reduction of the 
 number of sub-treasuries could be advantageously made. 
 
 In 1885 the intimate connection of the government with 
 the banks was shown very emphatically by the reliance 
 of the Treasury on the banks to extricate it from the 
 difficulty into which it was brought by the reduction of 
 its gold reserve. 
 
 Silver certificates had accummulated at money centres 
 on account of the dulness of business, and were largely 
 used in payments to the government. So fast did they 
 come in that anxiety was caused as to the ability of the 
 government to maintain gold payments. In March the 
 New York clearing-house, in order to relieve the Treas- 
 ury, offered to receive silver certificates in part settlement 
 of government balances due it. But even this was not 
 sufficient. By the last of May the government holdings 
 of gold had sunk to $115,810,533, including the green- 
 back reserve of $100,000,000. In July the banks of New 
 York agreed to purchase from the government from ten to 
 twenty million dollars' worth of subsidiary silver, and 
 to pay for it at par in gold. The difficulty passed away 
 after five millions of gold had been advanced to the 
 government. 1 
 
 1 The transaction was really a loan of gold by the banks to the govern- 
 ment, with the subsidiary silver as security, rather than a sale ; and the banks 
 soon afterwards got back their gold. There is some doubt as to whether the 
 transaction was really necessary, for gold began very soon to flow into the 
 treasury. For an excellent account of the difficulty and the means whereby it
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 79 
 
 In 1886 Mr. Jordan again declared that the arrange- 
 ments for collecting and disbursing the revenue were 
 defective, and recommended a larger use of the national 
 banks. 
 
 A bill was introduced ! in the House of Representatives 
 to reduce the amount of bonds required from national 
 bank depositories and so restore to the channels of busi- 
 ness the excessive accumulations of money in the Treas- 
 ury. The bill was never acted on, and nothing came of 
 Mr. Jordan's suggestion. 
 
 In pursuance, however, of this idea of a larger use of 
 national bank depositories, which animated the Treasury 
 management under Mr. Cleveland, the government depos- 
 its in banks were allowed to increase. On Jan. 1, 1887, 
 they were about twenty million dollars. In December 
 the amount was $52,199,917, and in April, 1888, it had 
 become $61,921,294. The purpose, of course, was to 
 restore to circulation the money taken therefrom in taxa- 
 tion by the government and locked up in the vaults of 
 the sub-treasuries, on the ground that its withdrawal 
 contracted the currency and so caused distress. The policy 
 was reversed, however, by Mr. Windom when he became 
 Secretary of the Treasury. In his report for the fiscal 
 year 1889 he condemns the use of the banks except for 
 the deposit of such sums as are necessary for the business 
 transactions of the government. Under his management 
 the bank deposits were reduced by October, 1889, to 
 $47,495,479, and he declared his intention of making a 
 further reduction of thirty million dollars. " The national 
 bank depositories have been, and are," he says, "useful 
 
 was tided over, see Taussig's " The Silver Situation in the United States," 
 Public, of the Amer. Econ. Assoc, vol. vii. no. 1, pp. 30-37. 
 1 Dec. 20, 1886 ; H. R. Bill No. 10,324, 49th Cong., 2d sess.
 
 80 THE INDEPENDENT TREASURY. 
 
 auxiliaries to the Sub-Treasury system, but the deposit of 
 public funds therewith to an amount largely in excess of 
 the needs of the public service is wholly unjustifiable. 
 Such a policy is contrary to the spirit of the act of Aug. 
 6, 1846, which contemplates a Sub-Treasury independent 
 of the banks." Whether or not Mr. Windom's opinion 
 of the benefits of the Sub-Treasury is correct, he was cer- 
 tainly justified in his wish and endeavor to observe the 
 law. His objections to the use of banks will receive 
 due consideration in another chapter. 
 
 Through all these years there occurred only two in- 
 stances of loss to the government from the use of national 
 bank depositories. Treasurer Hyatt wrote in 1887 : x 
 "The only losses suffered by the government on this ac- 
 count, since the present system was adopted, occurred 
 over twenty years ago. Under the present method of 
 Treasury supervision it is hardly possible for any losses 
 to occur. 
 
 "The early losses to the government were caused by the 
 failure of two banks, one in 1863 and one in 1864. 2 These 
 losses have been more than counterbalanced by the bene- 
 fit derived from the increased conveniences for collecting 
 and disbursing the revenues of the government, without 
 incurring any expense for transportation of funds to places 
 where money was needed for the payment of its cred- 
 itors." 
 
 An account of the operations of the Independent Treas- 
 ury system during the past ten or twelve years might 
 properly be given here. But it has operated since the 
 time of resumption under conditions entirely different 
 from those existing before, so that its history during the 
 
 1 See his report for that year, p. 27. 
 
 2 See the Finance Reports for these years.
 
 DEVELOPMENT OF INDEPENDENT TREASURY. 8 1 
 
 late years is the history of its influences rather than of its 
 further development, and can be more fittingly and satis- 
 factorily traced in the discussion of these, with a view to 
 determining whether they are good or evil. That will be 
 our effort in succeeding chapters.
 
 82 THE INDEPENDENT TREASURY. 
 
 CHAPTER IV. 
 
 THE ORGANIZATION AND WORK OF THE IN- 
 DEPENDENT TREASURY. 
 
 THE Independent Treasury, as at present organized, 
 consists of the Treasury offices at Washington, nine 
 sub-treasuries under the charge of assistant treasurers, 
 and a varying number of designated depositories. 
 
 The supervision of the Independent Treasury comes 
 under the charge of the chief of the division of pub- 
 lic moneys in the Treasury Department. Among other 
 duties, according to the rules of the Treasury, that 
 department must perform the following: — 
 
 "The supervision of the several Independent Treasury 
 offices, the designation of national bank and other depos- 
 itories, and the obtaining from them of proper securities. 
 
 " The directing of all public officers, except postmasters, 
 as to the deposit of the public moneys collected by 
 them. 
 
 "The issue and enforcement of regulations governing 
 Independent Treasury officers, and the several deposito- 
 ries and public disbursing officers, in the safe keeping 
 and disbursement of public moneys intrusted to them. 
 
 "The direction for special transfers of public moneys; 
 and generally all matters pertaining to the foregoing." 1 
 
 The places at which sub-treasuries are at present 
 
 1 From pamphlet on " The Organization of the Office of the Secretary of 
 the Treasury," pub. by Treas. Dep't., July, 1S84.
 
 ITS ORGANIZATION AND WORK. 
 
 83 
 
 located are Baltimore, Boston, Chicago, Cincinnati, New 
 Orleans, New York, Philadelphia, San Francisco, and 
 St. Louis. The relative importance of each is shown by 
 the amount of business done for the fiscal year 189 1 : — 
 
 Baltimore . 
 Boston . . 
 Chicago . . 
 Cincinnati . 
 New Orleans 
 New York . 
 Philadelphia 
 San Francisco 
 St. Louis 
 
 RECEIPTS. 
 
 $32,461,135 
 77,530,496 
 
 77.5S4.354 
 22,290,595 
 
 46,828,343 
 
 ,398,642,961 
 
 109,281,569 
 
 43.954,936 
 
 57,309,348 
 
 DISBURSEMENTS. 
 
 $3 2 .599,336 
 81,617,038 
 76,321,587 
 21,516,670 
 47,921,294 
 1,441,310,453 
 115,982,748 
 39,807,728 
 58,081,172 
 
 The following table shows the comparative growth of 
 the staff and expense of the sub-treasuries from 1849 to 
 1889 ■} — 
 
 1849. 
 
 1889. 
 
 OFFICERS 
 
 
 
 
 
 AND 
 
 SALARIES. 
 
 EMPLOYEES. 
 
 SALARIES. 
 
 
 CLERKS. 
 
 
 
 
 Baltimore 
 
 
 
 '4 
 
 $2I,600 
 
 Boston . . . 
 
 Chicago 
 
 Cincinnati 
 
 
 
 
 
 $3,400 
 
 23 
 18 
 12 
 
 36,9IO 
 25,900 
 16,560 
 
 New Orleans . 
 New York . . 
 Philadelphia . 
 San Francisco 
 
 
 
 
 2 
 
 6 
 
 1,400 
 9,IOO 
 1,400 
 
 12 
 
 IOO 
 24 
 15 
 
 l8,090 
 
 177,490 
 
 34,920 
 
 27,120 
 
 St. Louis . . 
 Charleston 
 
 
 
 
 2 
 
 3400 
 3.400 
 
 12 
 
 17,860 
 
 Totals .... 
 
 16 
 
 $21,900 
 
 23O 
 
 $376,450 
 
 1 The column " employees," in 18S9, includes all persons who have employ- 
 ment at the sub-treasuries, — officers, clerks, janitors, messengers, etc. ; the 
 corresponding column for 1S49 includes, as it reads, only officers and clerks. 
 The complete list of employees for that year was not conveniently accessible.
 
 84 THE INDEPENDENT TREASURY. 
 
 A law of March 2, 1853, fixed the compensation of the 
 officers of appointed depositories at one-half of one per 
 cent, on the first $100,000 received; one fourth of one per 
 cent, on the second equal amount; and one eighth of one 
 per cent, on all sums over $200,000. The depositary paid 
 his own rent out of the sum thus received. These provis- 
 ions were not, however, to apply to offices in which the 
 maximum compensation allowed by law was already re- 
 ceived. Nor could any officer receive a commission that 
 would make his total income greater than such maximum; 
 and the whole amount received by any one depositary 
 could not exceed $1,500. 
 
 The exigencies of the Civil War rendered an enlarge- 
 ment of the number of depositories necessary until the 
 national banks were established inconsiderable numbers. 
 Depositories have existed at one time or another in the 
 following places, in addition to the sub-treasuries men- 
 tioned in the table above: Buffalo, N.Y., Charlotte, 
 N. C. ; Dahlonega, Ga. ; Denver, Col. ; Dubuque, la. ; Jef- 
 fersonville, Ind. ; Little Rock, Ark. ; Louisville, Ky. ; 
 Mobile, Ala. ; Nashville, Tenn. ; Norfolk, Va. ; Pittsburg, 
 Pa. ; Richmond, Va. ; Santa Fe, N. M. ; Tallahassee, Fla. ; 
 and Wilmington, Del. Some of these were made assay 
 offices by the coinage law of 1873, and others were 
 dropped entirely. 
 
 The assistant treasurer and all officers authorized by 
 law to act as such are required to give bonds for the 
 faithful discharge of their duties, the amount to be fixed 
 by the Secretary of the Treasury, and the sureties to be 
 approved by the Solicitor of the Treasury. 1 
 
 Not only has the amount of work of the kind originally 
 
 1 U. S. Revised Statutes, § 3600.
 
 ITS ORGANIZATION AND WORK. 85 
 
 performed by the Sub-Treasury largely increased, but the 
 nature of the work itself has greatly changed. As origi- 
 nally conceived, the Sub-Treasury was, in its organization, 
 so simple that its accounts might possibly have been kept 
 in the simple manner ascribed to Gouge's " ingenious 
 cord-wainer." x Its duties were simply the receipt and 
 payment of public money, in coin and treasury notes. 
 The change is due, in general, to the growth of the scope 
 of government financial operations, and specifically to 
 those connected with, and consequent on, the Civil War; 
 and also to the monetary policy that the country has pur- 
 sued since. 
 
 The work of the sub-treasuries consists, in general, 
 in receiving and paying all public money, receiving 
 deposits of disbursing officers, and in issuing and re- 
 deeming, under proper regulations, all money of the 
 United States. Besides the nine assistant treasurers, 
 the superintendents of the mints at Carson City and Boise 
 City are required by law to perform the duties of assist- 
 ant treasurers. In addition to the sub-treasuries and 
 one or two designated depositories, the national banks 
 also are keepers of the public money. By the act estab- 
 lishing them provision was made for depositing the 
 receipts from internal revenue in these banks, and they 
 have been used by the government for that purpose ever 
 since. An effort was made in 1868 to rescind the pro- 
 vision of the law making them public depositories. On 
 Jan. 28 of that year a bill 2 passed the House of Repre- 
 sentatives prohibiting the depositing of public money in 
 banks in any cities or places in which there was a treas- 
 urer or an assistant treasurer, and prohibiting collectors 
 
 1 See above, p. 28. 
 
 2 H. R bill 450. See House Journal, 40th Cong., 25th sess., p. 265.
 
 86 THE INDEPENDENT TREASURY. 
 
 and disbursers of public money from depositing public 
 money in banks, if they were within fifty miles of a 
 sub-treasury. The bill failed, however, to become a 
 law. 
 
 The banks were to be allowed to hold public money 
 on providing security by the deposit of United States 
 bonds, or otherwise, under regulations prescribed by the 
 Secretary of the Treasury. The custom for a long time 
 was to allow the banks to hold public money up to ninety 
 per cent, of the par value of the bonds deposited as secu- 
 rity. But after the bonds rose so as to command high 
 premiums, it became unprofitable for the banks to deposit 
 them in advance as security for the public money, because 
 the money reached them only as it was collected in taxes, 
 and this was often too slow a process to be to their ad- 
 vantage. Moreover, the practice, in the earlier years of 
 the system, was for the Treasurer to draw against his 
 bank balances whenever funds were needed. " In conse- 
 quence the balances were not uniform, but fluctuated from 
 sixty per cent, to par of the face value of the security. 
 About October, 1886, the practice became quite general 
 to allow a fixed balance equal to ninety per cent, of the 
 face value of the United States four per cent, bonds, and 
 a somewhat smaller amount on four and one-half and 
 three per cent, bonds. This rule was changed in May, 
 1887, and a balance equal to par allowed on four per 
 cents. Later, in October, in view of the stringency of 
 the money market and the amount of surplus in the 
 Treasury, and as an inducement to banks to become 
 depositories, the rule was again changed, and a balance 
 was allowed equal to one hundred and ten per cent, of 
 the face value of four per cent, bonds, and par of the four 
 and one-half per cents, whenever a sufficient margin
 
 ITS ORGANIZATION AND WORK. 8/ 
 
 remained to cover the largest deposit likely to be received 
 in any one day." 1 
 
 Secretary Fairchild also increased the number of de- 
 pository banks at this time, and raised the limit of the 
 amount of money that could be held by any one bank 
 from one-half to one million dollars. - 
 
 When Secretary Windom received the Treasury port- 
 folio he changed the policy of his predecessor as to the 
 extent of the use of the national banks as depositories, 
 and the amount of money held by them has been steadily 
 reduced under the present administration. 
 
 Under the law, all collectors and receivers of public 
 money, in places where there is a sub-treasury or a 
 depository, are required to deposit their receipts in the 
 sub-treasury or depository at least once a week, and 
 may be ordered to do so oftener by the Secretary of the 
 Treasury. Marshals and district attorneys may pay their 
 receipts into any legal depository. Failure to comply 
 with the provisions of the law as to making deposits 
 renders the offender indictable for embezzlement. 
 
 Disbursing officers are required to deposit their money 
 in the same way as are collectors, and to draw on the 
 deposits only as it is necessary for the payment of lawful 
 debts. 
 
 Every depositary is required to keep the accounts of 
 any money belonging to the Post-Office Department sepa- 
 rate from his accounts of other public money received by 
 him. 
 
 The New York sub-treasury may be taken as a model 
 of all, and an account of its organization and work will 
 give an insight into the system. 
 
 1 Exec. Doc. No. 243, 50th Cong., 1st sess. (Secy. Fairchild in a letter 
 to the House of Representatives.) 
 
 - See Commercial and Financial Chronicle, Oct. 15, 1887.
 
 88 THE INDEPENDENT TREASURY. 
 
 The sources of its receipt of money are new currency 
 from Washington, deposits for transfer by the Treasury 
 Department to other points, customs, transfers of public 
 money from depository banks, sales of gold by the Assay 
 Off je, internal revenue, patent fees, the annual tax on 
 national banks, from postmasters for the account of the 
 Post-Office Department, deposits for the shipment of 
 silver coin, and deposits by individuals, banks, and firms, 
 for redemption and exchange. This last may be muti- 
 lated or worn money, or it may be money of one kind, in 
 good condition, deposited in exchange for another kind, 
 as greenbacks for gold, or vice versa. The Sub-Treasury 
 is a money-receiving, money-paying, and money-exchan- 
 ging establishment. 
 
 The sub-treasury at New York is divided into depart- 
 ments as follows: The receiving and the paying depart- 
 ments, the minor-coins department, the bonds department, 
 and the checks department. As a matter of fact, the 
 classification is in practice carried farther, so that there 
 may be distinguished the general receiving, and the gold- 
 receiving, departments ; the general paying, and the coin- 
 paying, departments ; the coupon division, the registered 
 interest division, the accounting and auditing division, 
 and the book-keeper's division. 
 
 The general receiving department is that into which 
 all money other than gold is paid. All notes paid in are 
 counted and sorted here, and counterfeits detected and 
 thrown out. National bank-notes as well as government 
 notes are received, for the government accepts them now 
 in payment of all dues except customs. 
 
 The "checks division" has charge of the receipt, pay- 
 ment, and issue of all checks. It is really a part of both 
 the receiving and the paying departments.
 
 ITS ORGANIZATION AND WORK. 89 
 
 The number of checks handled is very large. Prob- 
 ably at least two-thirds of the whole number of pensions 
 are paid in checks on New York, making a million and a 
 half, or more, checks annually from this source alone. 
 Besides these, the New York sub-treasury pays checks 
 of several hundred disbursing officers, paymasters, quar- 
 termasters, and others, who use in all nearly half a mil- 
 lion checks a year. 
 
 In the coins division a sub-division of labor is necessary 
 on account of the great number of coins that are received 
 of different denominations. Hence in the minor-coins 
 division there are clerks whose whole time is taken up 
 in receiving, counting, and sorting coins of only one or 
 two different denominations, as one-cent and five-cent 
 pieces. 
 
 The coupon and the registered interest divisions are, 
 of course, really divisions of the bonds department, and 
 their business is confined to dealing with the public 
 debt. 
 
 The accounting department is the one in which all 
 checks are finally gathered, classified, entered, and veri- 
 fied; and all accounts of disbursing officers are rendered 
 monthly. It may be noticed in this connection that the 
 accounts of the general Treasury are kept separate from 
 those of disbursing officers. In the work of this depart- 
 ment we find an explanation of a fact which we will have 
 occasion to notice later, that sometimes the reported 
 receipts and disbursements of the Sub-Treasury do not 
 correspond with the amounts of money actually received 
 or disbursed. For there are many transfer transactions 
 which appear only on the books. 1 For example, the 
 Treasurer transfers from the cash in the office, held on 
 
 1 For the form of a correct currency statement, see Appendix, p. iii.
 
 90 THE INDEPENDENT TREASURY. 
 
 account of the general Treasury, a million dollars, to be 
 placed to the credit of a pension agent, against which the 
 latter issues checks. On the books that is treated as a 
 payment from the general Treasury and a receipt by the 
 pension agent's account, although no money is actually 
 paid out until the pension agent's little checks begin to 
 come in. 
 
 The names of the other departments carry with them a 
 sufficient explanation of the work done in them. A brief 
 account of the mode and conditions of the issue and 
 redemption 1 of currency by the Sub-Treasury will be 
 interesting. 
 
 All United States notes, and all national bank notes, 
 that are unfit for redemption, are replaced with new notes 
 at the Treasury, or at a sub-treasury, free of charge ; 
 and United States notes are redeemed in gold, in sums 
 not less than fifty dollars, at the sub-treasuries in New 
 York and San Francisco; gold certificates are issued for 
 not less than twenty dollars on deposit of gold coin at 
 a sub-treasury; silver certificates are issued for silver 
 deposits, or for other, worn-out, certificates ; and treasury 
 notes of the law of 1890 are exchanged for silver bullion. 
 
 Silver dollars are exchanged at the Treasury or a sub- 
 treasury for silver certificates or silver bullion notes; 
 and fractional silver is issued in any amount desired in 
 exchange for government or bank notes. On the other 
 hand, fractional silver coin and minor coin may be de- 
 posited in sums of twenty dollars, or multiples of twenty, 
 and "lawful money" received in exchange. Standard 
 silver dollars are exchangeable for silver certificates 
 only. 
 
 1 For a full account of the rules at present governing the issue and redemp- 
 tion of currency, see Appendix, p. vii.
 
 ITS ORGANIZATION AND WORK. 9 1 
 
 Under the head of issue and redemption of currency 
 is included the transfer of money from one part of the 
 country to another. The transfer here spoken of must be 
 distinguished from the transfer of the government's own 
 money. This transfer relates to the money of individuals 
 or of banks deposited at some sub-treasury. Formerly 
 the banks themselves paid the full expense of shipping 
 money to the interior to meet the demand for ''moving 
 the crops." But after the Bland silver law went into 
 effect it was soon found that the silver dollars were 
 accumulating in the Treasury, instead of passing perma- 
 nently into circulation. To overcome this difficulty the 
 Secretary of the Treasury took advantage of the usual fall 
 movement of the currency to send silver to the interior, 
 and at the same time to increase the Treasury reserve of 
 gold. In September, 1880, he issued a circular author- 
 izing the delivery of silver certificates at sub-treasuries 
 in the interior, in exchange for gold deposited at the 
 sub-treasury in New York, and the government paid the 
 express charges. The order was rescinded in January, 
 1885, and the present system adopted instead. 
 
 In the crisis of 1890 a farther step was taken. To 
 relieve the money market at that time the Secretary of 
 the Treasury authorized the assistant treasurer at San 
 Francisco to receive deposits of funds from bankers who 
 desired to transfer them by telegraph to the assistant 
 treasurer at New York. The purpose was to enable those 
 having money in San Francisco, which was not needed 
 there, to transfer it for immediate use in New York. The 
 same privilege was promised to other places at which 
 there were sub-treasuries, if it proved of any service in 
 affording relief. The order was soon complained of, 
 however, by the San Francisco bankers, on the ground
 
 92 THE INDEPENDENT TREASURY. 
 
 that it diminished their available reserve. The amount 
 of transfers under the circular was over three million 
 dollars. The rules at present governing the transfer of 
 money for banks are given in full in the appendix. 
 
 There are many interesting points of detail that are 
 worth noticing. The visitor to the Treasury, or to a 
 sub-treasury, is always interested in seeing the provis- 
 ions for the safe keeping of the money on hand. It is 
 kept in vaults, or strong rooms, usually in the basement 
 of the building. There are five of these vaults in the 
 New York sub-treasury. Four of them are bright apart- 
 ments, well lighted by electricity, on the main floor 
 of the building, one on each side, and one under each of 
 the Pine Street side corners of the rotunda floor. These 
 "vaults" are simply large safes, or strong rooms, full of 
 steel drawers, and fitted with steel walls, ceilings, floors, 
 and doors. The fifth strong room may be accurately 
 termed a vault; it is the largest of the five and is situated 
 in the basement. "Just where all this money is stored, 
 on the site of the Sub-Treasury, once stood old Federal 
 Hall, where the first Congress of the United States met 
 when the future of this country was in the balance; and 
 in front of the Sub-Treasury building was George 
 Washington inaugurated as first President of the United 
 States." 1 
 
 Fitted into the walls of the vaults in which silver is 
 kept are iron boxes, or closets, of uniform size, each 
 large enough to hold one hundred bags of silver contain- 
 ing five thousand dollars apiece. As much as forty or 
 fifty million dollars of silver is sometimes collected in a 
 single vault. 
 
 The notes are stored in packages, each denomination 
 
 l New York Times, Nov. 9, 1S90.
 
 ITS ORGANIZATION AND WORK. 93 
 
 by itself, and one thousand notes to a package. This 
 arrangement is convenient both for storing and for 
 counting. 
 
 There is a large portion of the money in the sub- 
 treasury that is constantly on deposit; that is, is seldom 
 paid out. This is true of the larger part of the silver, 
 which is represented in circulation by certificates. This 
 money is kept in vaults sealed with the seals of the 
 assistant treasurer and of some representative of the 
 Treasurer of the United States. When it becomes neces- 
 sary to open one of these vaults, the seals must be broken 
 and the vault unlocked in the presence of both parties 
 interested, or in that of their duly appointed represent- 
 atives. 
 
 The ordinary vaults, those which are in use every day, 
 are in the charge of a vault-keeper, cannot be entered 
 except in his presence, and even then only during busi- 
 ness hours, because most of the vaults are fitted with 
 time locks. 
 
 The accounts of the sub-treasury are, of course, bal- 
 anced every day, and a statement of the day's business 
 is forwarded to Washington. 
 
 Not the least interesting work performed at the sub- 
 treasury is, to the casual visitor, the details of the 
 redemption of currency. Mutilated currency usually 
 reaches the sub-treasury in the form of deposits, or is 
 sent in for redemption by the banks, while very often 
 men come alone and make inquiry about doubtful bills. 
 The deposits contain new as well as old notes, and some- 
 times counterfeits. The clerks assort the bills as they 
 are counted, putting together those that are still fit for cir- 
 culation. The larger part of the mutilated money con- 
 sists of bills of small denomination, ones, twos, and fives
 
 94 THE INDEPENDENT TREASURY. 
 
 forming the heaviest contribution. The good bills are 
 sent over to the paying department for disbursement, 
 while the mutilated ones are tied up in packages of one 
 hundred bills each, and are cancelled by having a hole 
 of about the same diameter as that of a lead pencil 
 punched through them. The punched bills are then sent 
 on to Washington, where they are counted; they are then 
 split in halves lengthwise, and are recounted twice. If 
 the count is found to be correct, the cancelled bills are 
 then ground into pulp and so destroyed. 
 
 The clerks in the receiving department, besides culling 
 out the mutilated bills that come into the Treasury, are 
 on the constant lookout for counterfeits. So quick are 
 they in detecting spurious paper, that, although they may 
 be counting bills at the rate of one hundred a minute, the 
 momentary glance at a bill as it passes under their eyes 
 is sufficient to let them know whether it is good or bad. 
 On an average between two hundred and three hundred 
 counterfeit bills a month are brought into the sub-treasury. 
 When a counterfeit is found it is stamped with a steel 
 die that cuts the word " counterfeit " in large letters out 
 of the bill. Counterfeits are not, however, confined to 
 notes. There are counterfeit coins also. Filled coins 
 are the most dangerous of this class, especially filled 
 gold coins, as they are the most profitable. The coin, 
 in this case, has been cut open and a portion of the 
 gold taken out: it is then filled in with some base metal 
 which gives it approximately correct weight. These 
 coins circulate with the public, but the sub-treasury 
 clerks promptly detect them and throw them out. 
 
 The precautions taken for preventing robbery are, of 
 course, great. The contrast between the defences of the 
 New York sub-treasury and those which Gouge so graph-
 
 ITS ORGANIZATION AND WORK. 9$ 
 
 ically described in 1857 * is, in its degree and kind, of 
 the same general character as that between the state of 
 the progress of the country then and now. Iron shutters, 
 steel-barred doors, and a dozen or more armed watchmen 
 and detectives, furnish security to a mass of treasure 
 greater probably than the founders of the Independent 
 Treasury ever dreamed would be in its possession. 
 1 See p. 55.
 
 96 THE INDEPENDENT TREASURY. 
 
 CHAPTER V. 
 
 THE INDEPENDENT TREASURY AND THE 
 MANAGEMENT OF LOANS. 
 
 WRITING in 1853, Mr. Andrew D. Young speaks of 
 the Sub-Treasury as existing with the silent " ac- 
 quiescence of the popular will, if not the positive approval 
 of the public judgment." 1 
 
 It is inevitable that an institution established under 
 the auspices which witnessed the adoption of the Inde- 
 pendent Treasury should receive hostile criticism from 
 many quarters. Besides the many attacks made on polit- 
 ical grounds, in the turbulent party warfare which raged 
 in bitter violence through the years immediately preced- 
 ing its final establishment, it has from time to time ever 
 since been a mark for the shafts of many foes, who, from 
 motives interested or disinterested, have branded it as 
 an institution so baneful in its influence on the business 
 interests of the country that it ought to be abolished. 
 Opinions of this nature cannot now be suspected of being 
 based on mere political partisanship. Indeed, so far as 
 the question of the advantages of the system can now be 
 called a matter of party politics at all, it is one on which 
 the two great parties seem largely to have changed posi- 
 tions. The Sub-Treasury is, in its origin, a Democratic 
 institution. But to-day we find its benefits questioned 
 more by Democratic politicians and statesmen than by 
 ' See p. 58.
 
 THE MANAGEMENT OF LOANS. 97 
 
 those of Republican affiliations. In fact, some of the 
 latter seem to regard the Sub-Treasury as almost the only 
 fruit of Democratic power and legislation for which that 
 party can be commended. But others besides party ad- 
 herents have attacked the Sub-Treasury, and on grounds 
 altogther disinterested; on reasonable, scientific grounds 
 that command attention and compel the admission that 
 the question of its benefits is fairly open, and is to be 
 settled only by an examination of its influence on the 
 business of the country to-day, and under conditions very 
 different from those which prevailed at the time of its 
 establishment. Adverse judgments have been pronounced 
 on the system almost every year since its adoption. One 
 has already been quoted, that of the Bankers 1 Magazine. 
 It is to be noticed, however, that the position of that 
 magazine is different to-day. In the issues of October 
 and November, 1890, it mentioned the matter, saying 
 editorially in the former: "The remedy, proposed a 
 thousand times [for relieving stringencies in the money 
 market] is the abolition of the Sub-Treasury Depart- 
 ment, and the putting of the government deposits in 
 the banks. This, however, we believe would be no help 
 at all, for the banks, doubtless, would lend these de- 
 posits just as they do others, and, therefore, there would 
 be nothing left, especially for times of stringency. . . . 
 This remedy, therefore, has no merit whatever. What is 
 needed is a reserve somewhere, and for aught we see, the 
 government might just as well keep it as the banks.'' In 
 1856 Dr. Calvin Colton wrote: 1 '"This government in- 
 stitution, therefore, thus becomes an interfering power 
 with the banking operations of the country to disturb and 
 embarrass them. ... In this way all the contingent 
 
 1 " Public Economv for the I'nited States " A. S. Barnes, 1S53.
 
 98 THE INDEPENDENT TREASURY. 
 
 wealth of which the people of the United States may at 
 any time be deprived, by the operation of the Sub-Treas- 
 ury, in subverting the banking system of the country, 
 reducing the circulating medium when it is most wanted, 
 embarrassing trade, and circumventing commerce, is a 
 tax." 
 
 In 1867, Mr. J. S. Gibbons, in his "Public Debt of the 
 United States," 1 condemns the system in terms of still 
 greater severity. "The Independent Treasury," he says, 
 "aggravates every disadvantage of the public debt, in- 
 creases the expenses, gives no special security to the 
 custody of the funds, is a vast lever of political corrup- 
 tion, a perpetual threat over the markets, and a violation 
 of the first principles of economy." He further declares 
 the system to be a return to the primitive " strong-box " 
 method of more unsafe times, and asserts that it has 
 influence in increasing the burden of taxation. 
 
 The author of " Money, Trade, and Banking " 2 declares 
 the Sub-Treasury to be " the one obstacle that stands in 
 the way of a prompt withdrawal of all forms of govern- 
 ment demand notes." He further pronounces it a great 
 curse, as giving to the Secretary of the Treasury powers 
 that no man should have, making him lock up money 
 from circulation, an action which is illegal for the banks; 
 and as alternately inflating and contracting the currency, 
 and thus keeping the people in suspense; and, finally, 
 he declares that " the vicious Sub-Treasury system and 
 the government legal tender note system supplement and 
 support each other to the good of none and the injury of 
 all." Prof. J. Laurence Laughlin, of Chicago University, 
 is also a critic of the institution. In an excellent dis- 
 
 1 Chas. Scribner and Co.. 1867, p. 127. 
 
 2 J. H. Walker: see page 84.
 
 THE MANAGEMENT OF LOANS. 99 
 
 cussion of the subject in the North American Review for 
 December, 1883, he asserts that "the chief objection to 
 the Independent Treasury system of to-day is that it has 
 been outgrown by the country; that it is economically 
 wasteful in proportion to the magnitude of its dealings; 
 and that, by its effect on the reserves of the banks, it is 
 becoming dangerous to the banking and business public." 
 Still another quarter from which hostile shafts of criticism 
 have been hurled at the Sub-Treasury is that of the United 
 States Treasury itself. It has been wounded in the house 
 of its friends, and declared a nuisance by the representa- 
 tives of the party that gave it birth! As already noted, 
 under the administration of President Cleveland the 
 Treasury officials regarded its influence as evil. "The 
 causes which led to the adoption of the Sub-Treasury 
 system no longer exist. ... In 1846, when the present 
 system was adopted, there was a general feeling that the 
 government deposits were insecure, and that the character 
 of the State banks was such that they could not be prop- 
 erly selected to act as fiscal agents of the United States." x 
 Secretary Windom, on taking the Treasury portfolio, 
 thought it incumbent on him to vindicate the institution 
 which his party forefathers had opposed, by reversing the 
 policy of his immediate predecessor as to government 
 deposits in the national banks. 
 
 Other opponents could be mentioned, for there arc 
 many; but these are sufficient to arrest attention and 
 command an examination of the subject with a view to 
 determining whether their position is well taken. 
 
 The ground of attack has, however, changed. In the 
 early days of the Independent Treasury, one strong reason 
 assigned for denouncing it was the very purpose of its 
 
 l Doc. 1834 of Sen. Com. Repts. (on H. K. Bill 902), 49th Cong., 2d session.
 
 100 THE INDEPENDENT TREASURY. 
 
 establishment; namely, that it separated the government 
 entirely from private business. The basis of attack on 
 the institution now is that it is government interference 
 with the business of the country. If this change of base 
 on the part of the critics be justifiable, it must be due to 
 a change in the functions of the Sub-Treasury. The 
 changes which have taken place in the character of the 
 institution have been noticed in the preceding chapter. 
 Whether it is capable of doing well the work that now 
 falls to it, and in what way it influences the business 
 community, must now be our inquiry. 
 
 Government financial machinery should be capable of 
 * adaptation to the various sets of circumstances which a 
 government is at different times called on to pass through. 
 It should be such as will work with reasonable smooth- 
 ness, and without injurious influence, both in war and 
 in peace, in times of financial distress and in the periods 
 of ordinary business activity. Our examination, there- 
 fore, naturally falls into three parts: the operation of the 
 Independent Treasury during war, with the possibly con- 
 comitant regime of paper money; the influence of its action 
 on the business of the country in ordinary times, and its 
 workings in the stormy periods of financial life known as 
 crises and panics. Fortunately, from the scientific point 
 of view, the system has been in operation in each of these 
 different sets of circumstances. The experience of the 
 Civil War furnishes sufficient data for determining its 
 usefulness as a fiscal engine at such times; the succeed- 
 ing years will afford opportunity for testing the efficiency 
 of the system in great transactions of refunding the 
 public debt and resumption of specie payments; and its 
 working in the last few years must be the basis of our 
 judgment of its value in ordinary times and in crises.
 
 THE MANAGEMENT OF LOANS. 101 
 
 The Mexican war and the Civil War have both occurred 
 since the Independent Treasury became the established 
 medium for the collection and disbursement of the rev- 
 enue. But the two wars were so different in the magni- 
 tude of their operations, and, consequently, in their 
 demands on the resources of the country; the industrial 
 condition of the country itself was so different in the two 
 periods; and the scale of fiscal operations of the govern- 
 ment in the latter case was so much greater than in the 
 former; that the data of the two periods would, considered 
 by themselves, teach very different lessons. Yet, even in 
 the former, the Independent Treasury was found to cause 
 difficulty in placing loans. The first time that such a 
 difficulty was experienced was in 1846. In October of 
 that year Secretary Walker advertised for the exchange 
 of three million dollars of treasury notes at par for specie. 
 Very few responses were made, however. "The magni- 
 tude of the loan, the fluctuations below par of the previous 
 stocks and notes, the untried, and, to many, alarming re- 
 straining operation of the Constitutional Treasury, the 
 heavy expenditure of the war, and the requirements of all 
 payments from time to time in specie, were deemed by 
 many as insuperable obstacles to the negotiation of the 
 whole of the loan at or above par." The contractile influ- 
 ence of the Sub-Treasury was evident even at that early 
 day, and this, together with the refusal to accept any- 
 thing but specie, interfered with the placing of loans. 
 Yet, in the opinion of the Secretary of the Treasury, the 
 refusal of the government to receive or pay out anything 
 but specie in its transactions enhanced its credit and so 
 made its efforts to place loans more successful than they 
 would otherwise have been. This opinion was doubtless 
 to some extent correct.
 
 102 THE INDEPENDENT TREASURY. 
 
 It is the Civil War, rather than the Mexican, that 
 is typical of what the scale of operations of any future 
 war that we may engage in will probably be, and its 
 lessons are, therefore, correspondingly the more valuable. 
 Our main attention must consequently be given to it. 
 
 The struggle opened with the country in a good indus- 
 trial condition, but with a revenue altogether inadequate 
 to the prosecution of a great war, and with a system of 
 taxation which could not easily be so adjusted as to pro- 
 duce such a revenue. The government was thus com- 
 pelled to rely on its credit for immediate resources, and 
 the policy of carrying on the war largely by borrowing 
 was practically adopted. It was in the attempts to place 
 the large loans suddenly made necessary by the tremendous 
 increase in its expenses that the Treasury Department 
 first found the means at its disposal, in the machinery 
 of the Sub-Treasury, inadequate to perform the services 
 demanded by the exigencies of the new situation. 
 
 A complete separation from banks made it necessary 
 for the Treasury to be its own broker. It had to sell its 
 own bonds. It had succeeded in doing this with the 
 loans issued during the war with Mexico, and on several 
 occasions afterwards. But these operations were trifles 
 compared with the gigantic transactions which the Treas- 
 ury was called upon to undertake when confronted with 
 the financial problems of the Civil War. The amount 
 borrowed in the single year ending December, 1861, was 
 over three hundred millions of dollars, while the loans 
 contracted during the whole Mexican war summed up only 
 forty-nine millions of dollars. It was not easy for the 
 Treasury to constitute itself a broker's office on so large a 
 scale, and the process would have been too slow to meet 
 the needs of the financial situation.
 
 TEE MANAGEMENT OF LOANS. 103 
 
 Secretary Chase was early impressed with the fact 
 that "the safest, surest, and most beneficial plan would 
 be to engage the banking institutions of the three chief 
 commercial cities of the seaboard to advance the amounts 
 needed for disbursement. " x Accordingly, he conferred 
 with their representatives, and, on their agreeing to 
 advance the money he asked for, undertook "to issue 
 three years 7.30 bonds or treasury notes, bearing even 
 date with the subscription, and of equal amount; to 
 cause books of subscription to the National Loan to 
 be immediately opened ; to reimburse the advances of 
 the banks, as far as practicable, from this national 
 subscription; and to deliver to them 7.30 bonds, or 
 treasury notes, for the amount not thus reimbursed." 
 The object of turning to the banks was to secure the 
 needed money speedily; but the Secretary wished to 
 give the public an equal opportunity with the banks 
 to subscribe for the loan, while yet avoiding com- 
 petition with them in the disposal of the bonds. The 
 direct popular subscriptions amounted to a little more 
 than half the $50,000,000 advanced by the banks. The 
 second loan of $50,000,000 seems to have been advanced 
 wholly by the banks; and "as no reasonable prospect 
 appeared of obtaining terms equally advantageous by 
 advertisement, . . . the Secretary . . . arranged this 
 third loan also [of Nov. 16, 1861] with the associates," 2 
 that is, with the banks. Secretary Chase did attempt to 
 place loans directly, that is, to make the government its 
 own agent; and at the same time he tried to diffuse the 
 loans. One of the objects which, in his report for 1863, 
 he tells us he kept steadily in view, "in the creation of 
 debt by the negotiation of loans or otherwise," was "gen- 
 
 1 Finance Report, 1861, p. S. '- Ibid., p. 9.
 
 104 THE INDEPENDENT TREASURY. 
 
 eral distribution." The finance report for 1863 records 
 a certain amount of success in the attempt to place some 
 of the later loans by popular subscription. "The gen- 
 eral distribution of the debt into the hands of the greatest 
 possible number of holders," wrote Secretary Chase, 
 ". . . has been accomplished ... by arrangements to 
 popularize the loans by giving to the people everywhere 
 opportunities to subscribe for bonds. These subscrip- 
 tion arrangements have been especially useful and suc- 
 cessful. They have been adopted as yet with reference 
 to only two descriptions of bonds, — the two commonly 
 known as seven-thirties and five-twenties. . . . The plan 
 of distributing the seven-thirties was that of employing 
 a large number of agents in many places, and directing 
 their action from the Department. It worked well for 
 a time, but was soon found inadequate to the financial 
 necessities of the government. " Accordingly this plan 
 had to be abandoned, and the work intrusted to an 
 agent; that is, a banker or broker was employed. In 
 June, 1864, Secretary Fessenden, who had succeeded Mr. 
 Chase, found it necessary to get more money; accord- 
 ingly, he advertised a loan, which he was compelled 
 to withdraw within a few days, as the public would not 
 subscribe on the terms offered. He turned to the banks, 
 but they insisted on terms to which he would not agree, 
 and so he issued greenbacks. Thus from the begin- 
 ning of the war, as early as 1861, the Secretary had 
 been compelled to rely on the banks for aid, and his 
 report for 1862 gives full acknowledgment of their 
 assistance. 
 
 The final break-down of the government independence 
 of the banks in raising loans was emphasized by the 
 establishment of the national banks. In fact, the primary
 
 THE MANAGEMENT OF LOANS. 105 
 
 purpose of creating the national banking system was to 
 make a market for government bonds. Secretary Chase, 
 " in his report for 1862, said that among the advantages 
 which would arise from the establishment of a national 
 banking system would be the fact that the bonds of the 
 government would be required for banking purposes; a 
 steady market would be established and their negotiation 
 greatly facilitated; a uniformity of price for the bonds 
 would be maintained at a rate above that of funds of 
 equal credit, but not available as security for circula- 
 tion." 1 
 
 The causes which made it necessary for the government 
 to depend on the banks during the war are obvious 
 enough. In the first place, even if the government had 
 established a net-work of agencies over the country for 
 the purpose of receiving subscriptions to its loans, the 
 plan could not have been successful in meeting its finan- 
 cial needs. For the money was needed immediately. 
 The loans had to be placed quickly, and their collection 
 in driblets, so to speak, even if possible in course of time, 
 would not have filled the coffers of the Treasury with 
 sufficient rapidity for its needs. The vaults of the banks 
 were the only place where large amounts of money could 
 be immediately and directly obtained, because it was in 
 them only that sufficiently large amounts were already 
 collected. This necessity for rapidity in getting the 
 money would of itself suffice to render almost useless, at 
 the beginning of a war, a system of agencies for popular 
 subscription. 
 
 Still another explanation of the resort of the govern- 
 ment to the banks for loans is the fact that the arousing 
 of confidence is an essential element in the floating of a 
 
 1 Report of the Comptroller of the Currency, 1S79, p. 113.
 
 106 THE INDEPENDENT TREASURY. 
 
 loan, and for the government to have established confi- 
 dence directly in the minds of thousands of individuals 
 subscribers would have been, under the existing circum- 
 stances, a very difficult task. But when the banks showed 
 sufficient trust in the government to loan it their funds, 
 the establishment of public confidence received a power- 
 ful impulse. For the banks are institutions which are 
 supposed to know the trustworthiness of those to whom 
 they lend, and individual capitalists will follow where 
 they lead. 
 
 The lack of confidence in the government was manifest 
 on several occasions. "The prospect of negotiating a 
 loan in the ordinary way," the Secretary tells us in 1864, 
 " was by no means flattering, as the notice for a loan of 
 thirty-three millions, advertised on the twenty-fifth day 
 of June, had been withdrawn on the 2d of July. . . . The 
 Secretary thought it advisable to borrow . . . fifty millions 
 of dollars of the banks." 1 The negotiations fell through, 
 however, and the Secretary again advertised for a loan, 
 incurring considerable expense, and offering "liberal 
 inducements to stimulate the effort of corporations and 
 individuals to dispose of their notes." But the effort 
 was only partly successful. 
 
 The temporary partial success in 1863 of the attempt 
 to place loans by popular subscription may perhaps be 
 ascribed to the change that the government made at that 
 time in its financial policy for the management of the 
 war. The inadequacy of the loan policy was seen and 
 steps taken to increase the revenue from taxation. 2 
 
 1 Finance Report. 1864, p. 20. 
 
 - See H. C. Adams's " Public Debts," pp. 127-131. A table is given there 
 showing the course of the government credit during the war ; its uniformly 
 downward course was temporarily checked towards the end of 1863.
 
 THE MANAGEMENT OF LOANS. 107 
 
 The government may be dependent on banks and 
 bankers for the success of its financial measures, even 
 although it does not employ them as agents to sell its 
 bonds. The Secretary of the Treasury may be his own 
 broker, may be administratively independent of the banks, 
 and yet virtually dependent on them. For he may be 
 compelled to turn to them as the only available purchasers 
 of bonds, and if so, he must adjust the terms of his 
 loan more or less to their conditions. This happened in 
 the Civil War, and it was this necessity that led to the 
 national banking law, which was an effort to force the 
 banks to sustain the public credit. The law was a con- 
 fession of the inability of the government to get on with- 
 out the help of the banks. 
 
 The amount of bonds held by private citizens may be 
 fairly regarded as a measure of the success of the effort 
 to "diffuse" the loans by popular subscriptions. The 
 figures for the years immediately after the war are not 
 available; but there is no reason to think that the analy- 
 sis of the holdings of the public debt made in the cen- 
 sus of 1880 represents a state of affairs very different from 
 that which originally prevailed. Professor H. C. Adams 
 summarizes that investigation by saying, " It thus appears 
 that out of a total of over one billion of registered debt, 
 private citizens of the United States were proprietors of 
 the comparatively small sum of $417,538,850." 1 
 
 The dependence of the government on the banks during 
 the Civil War was, then, real, even in the instances in 
 which it acted as its own broker, because it had to turn 
 to the banks as customers for its issues of stock; but even 
 this amount of dependence was contrary to the spirit, 
 if not the letter, of the act of Aug. 6, 1846. For the 
 
 1 " Public Debts," p. 45.
 
 108 THE INDEPENDENT TREASURY. 
 
 whole tenor of the arguments of the advocates of the In- 
 dependent Treasury was that the government should have 
 nothing whatever to do with the banks. 
 
 The linking of the affairs of the government with those 
 of the banks may be shown to exist in other ways than in 
 mere dependence on them as customers, or as agents for 
 the sale of bonds; although, to be sure, this close connec- 
 tion can be fairly considered as only an incident of the 
 banking system which was adopted. Even if the govern- 
 ment had not sold any bonds to the banks, yet those insti- 
 tutions must have bought them from private holders, in 
 order to deposit them with the United States Treasurer 
 as security for their notes. This deposit, as is well 
 known, makes the government the guarantor of the bank 
 notes; and a connection of this kind is unquestionably 
 foreign to the purpose of the framers of the Independent 
 Treasury law. 
 
 Thus by the exigencies of the war the independence of 
 the government with reference to banks was set aside, 
 both formally and virtually, in the matter of negotiation 
 of loans: formally, in those instances in which the gov- 
 ernment employed them as its agents; and virtually, even 
 in those cases in which, though acting as its own agent 
 or broker, it still had to rely on the banks as the imme- 
 diate source of the money which it borrowed. 
 
 It may be said that the necessity for relying on the 
 banks as a source of loans was a mere consequence of the 
 conditions of the war and not a defect of the Independent 
 Treasury system. But it must be insisted in reply, first, 
 that these conditions are similar to those which we must 
 expect to recur if we should be unfortunate enough to be 
 involved in another great war; and second, that the lack 
 of adaptability of the fiscal system to these conditions
 
 THE MANAGE ME XT OF LOANS. 109 
 
 must, therefore, vitiate the system and render it unsuit- 
 able in a great war. 
 
 The use of the banks directly or indirectly, for floating 
 loans, was the first step in the abandonment of the prin- 
 ciple of fiscal independence adopted fifteen years before. 
 The second step followed necessarily, and consisted in 
 once more making the banks, to a certain extent, deposi- 
 tories of public money. Indeed, the circumstances of the 
 situation made them so by the very fact of their receiving 
 subscriptions to the government loans. And it was not 
 long before the general suspension of specie payments 
 cut away the foundation of the act of 1846, so far also 
 as it relates to the use of "hard money " in government 
 payments. For the suspension of specie payments by the 
 banks made a similar step a matter of necessity for the 
 government. The receipts from taxation were not large 
 enough to enable the Treasury to pay all its debts in coin, 
 and the banks were drained of their gold by their advances 
 to the government, which the Secretary of the Treasury 
 required should be in specie. As the Secretary could not 
 borrow fast enough to meet his needs, and as he could 
 not use bank-notes, government paper — the well-known 
 "greenbacks" — had to be resorted to. 
 
 The separation of the government from the banks could 
 not prevent a suspension of specie payments by the gov- 
 ernment, although the authors of the law of 1846 thought 
 it could. They made provision, indeed, for treasury 
 notes, but these were always to be equivalent to coin. 
 But with the greenbacks even the pretence of specie pay- 
 ments was soon abandoned, and there was a repetition of 
 the old lesson in monetary science, that not even the 
 power of a great government can keep its notes equivalent 
 to coin when they are issued in excess. Could the green-
 
 110 THE INDEPENDENT TREASURY. 
 
 backs have taken the place of the bank-notes in circula- 
 tion, instead of being added to them, the inflation and 
 depreciation would probably have been less; but owing 
 to existing laws, and to the state of public and Congres- 
 sional opinion, they could not do so, and hence they con- 
 stituted a clear addition to the circulating medium of the 
 country. 
 
 During the Civil War, then, the Independent Treasury 
 law was really inoperative. It was entirely so, practically, 
 except for the maintenance of specie payments in customs 
 receipts and in interest on the public debt; and it was 
 partly so even according to law, because it was deemed 
 necessary to suspend certain sections of the sub-treasury 
 act. 1 The very purposes for which the system was cre- 
 ated, separation from banks and maintenance of specie 
 payments, were both abandoned owing to a stress of cir- 
 cumstances at least some of which were brought about 
 by the very system that was created to obviate them, the 
 purpose of whose establishment was to render them im- 
 possible. 
 
 The experience of the Civil War would seem to show, 
 then, that, even if it be considered best for the public 
 Treasury to negotiate its loans directly with individual 
 subscribers, the machinery of the Sub-Treasury is entirely 
 inadequate to enable it to do so successfully under the 
 stress of a war, and that the system is not a guaranty, as 
 it was supposed by some of its authors to be, that the 
 government would, under all circumstances, be freed from 
 the evils of depreciated paper. 
 
 For the depositing and safe keeping of internal revenue 
 receipts also in time of war the sub-treasury system is 
 unwieldy, if not inadequate. The collection of the great 
 
 1 See Appendix p. ii. H.
 
 THE MANAGEMENT OF LOANS. Ill 
 
 receipts at such a time, by means of a complex and greatly 
 ramified system of taxation, from many different sources, 
 and from points often remote from a sub-treasury or a 
 United States depository, was found inconvenient and ex- 
 pensive, and also dangerous, because the money had 
 to be intrusted to inexperienced collectors often hastily 
 appointed. These difficulties were so strongly felt that 
 when the national banks were established they were made 
 depositories of money received in payment of internal 
 revenue taxes. The fiscal growth of the country was far 
 beyond the confines set for it by the Independent Treas- 
 ury act. The channels provided by the system were 
 neither sufficiently large nor sufficiently ramified to carry 
 the increased streams of revenue with the rapidity neces- 
 sary for the needs of government. The "boot" system 
 of single-entry book-keeping, which Mr. Gouge had in 
 1837 deemed sufficient for the fiscal business of the coun- 
 try, needed to be replaced with numerous chests, so to 
 speak, and with a system of double entry. 
 
 The only important service of the Independent Treas- 
 ury during the war and immediately afterwards was to 
 keep the supply of gold received in payment of customs 
 dues, wherewith to pay the interest on the public debt 
 during the period of paper inflation. In supplying the 
 needs of the government in this respect, the Independent 
 Treasury performed, of course, a real service. But this 
 service was rather an accident of the unsound financial 
 management of the war than a result of the nature of the 
 Independent Treasury. That is, if the financial manage- 
 ment of the war had been such as to render unnecessary 
 the use of a depreciated paper currency, there would have 
 been no call for this service from the Independent Treas- 
 ury. Moreover, in so far as it absorbed gold beyond
 
 112 THE INDEPENDENT TREASURY. 
 
 what the government required for such payments as had 
 to be made in specie, it promoted gold speculation, and 
 so caused injury to legitimate business. 
 
 As a fiscal engine in time of war, then, either for 
 the placing of loans or for the collection of revenue, the 
 system must be regarded as, on the whole, a failure. As 
 a matter of reason it could not have been expected to do 
 the work required in a war of great magnitude; and this 
 rational expectation has been confirmed by the experi- 
 ence of the Civil War. Under that stress the machinery 
 of the system was thrown aside, and the law establishing 
 it became, for a time at least, a dead letter. 
 
 More can be said, however, in favor of the Independent 
 Treasury as an engine for the performance of refunding 
 operations, although even for that purpose it is not wholly 
 efficient, at least for operations on so gigantic a scale as 
 that which, soon after the war, began to testify to the 
 growing credit of the government and the industrial devel- 
 opment of the country. Here, again, as in the placing 
 of loans and the collection of revenue, there is needed a 
 great net-work of agencies all over the country, and this 
 net-work can be well supplied only by the banks. Secre- 
 tary Sherman wrote in 1880 1 1 "Without the aid of the 
 national banks the unprecedented refunding operations of 
 last year would have been almost, if not quite, impos- 
 sible. " The need which the government would feel for 
 depending partly on the banks in measures of refunding, 
 is of a somewhat different kind from that which made 
 them indispensable in the financial operations of the war. 
 In selling bonds for refunding purposes, the Treasury 
 often can be, to advantage, its own broker. The experi- 
 ence of Secretary Sherman shows that the government 
 
 1 Letter to the Convention of American Bankers, 1880.
 
 THE MANAGEMENT OF LOANS. 113 
 
 itself could place bonds on the market at less expense 
 than if it sold them through syndicates of bankers. 
 " Previous to the summer of 1877 all operations in re- 
 funding were carried on by syndicates, the commission 
 allowed being the total amount 1 appropriated by the law 
 to cover the expense of conversion. . . . But when Sec- 
 retary Sherman took the Treasury portfolio, the plan of 
 placing bonds by syndicates was abandoned for sale upon 
 public advertisements, or, as it was termed, 'under circu- 
 lars.' This plan was followed for the entire amount of 
 four per cents, with the exception of about fifteen million 
 dollars, which were secured on a foreign contract. . . . 
 The success of the policy of sale by circulars maybe seen 
 from the following facts : The total sale of four per cent, 
 bonds amounted to $740,847,800; the cost of this sale, 
 according to the plan followed by the other Secretaries, 
 would have been $3,704,239; by the method adopted by 
 Mr. Sherman it was effected at a cost of $2,645,802.60. 
 The teaching of this experiment is . . . that in matters 
 of administration it is wise for the government to keep 
 itself independent of the agencies of the banks. Popular 
 enthusiasm brings banking support, but banking enthusi- 
 asm cannot arouse popular interest.'' 2 
 
 But could the national debt have been so easily and so 
 soon refunded at lower rates of interest if the national 
 banks had not furnished a ready-made market for the new 
 bonds as a basis for their circulation? There is, at least, 
 some doubt whether it could have been. The forced market 
 created by the banks for the bonds enhanced the credit 
 
 1 The usual rate allowed syndicates for placing loans during the war was 
 one per cent. In 1870 it was reduced to one half of one per cent. 
 
 2 H. C. Adams's " Public Debts," pp. 235-238. Although banking sup- 
 port may not arouse popular interest, it may inspire confidence.
 
 114 THE INDEPENDENT TREASURY. 
 
 of the government, and enabled it sooner to command 
 better terms for its loans. The difficulty experienced in 
 1 89 1, in the attempt to refund the three and one-half per 
 cent, bonds at one and one-half per cent, is an illustration 
 of the point under consideration. The banks refused to 
 exchange the bonds they held for others at less than two 
 per cent., and the Secretary had finally to adopt that rate. 
 If in so small an operation as this one was the Treasury 
 had to accede to the demands of the banks, certainly it 
 was much more dependent on them in the refunding 
 operations which were so large that, if the banks had not 
 had their own terms they would have presented their 
 bonds for payment and seriously embarrassed the govern- 
 ment. 
 
 Of course, if the refunding operations consisted in the 
 mere direct exchange of bonds between holders and the 
 government, — that is, if present holders were willing to 
 give up their stock in exchange for a new issue at a lower 
 rate of interest, — the transaction might be regarded as 
 one of mere book-keeping, and the government offices 
 could do the work without interfering with business. But 
 when, as was the usual method, new bonds must be sold 
 for cash to redeem the old ones, great injury might be 
 done, by contracting the currency, if the money paid in 
 for new bonds had to lie idle in the vaults of the Sub- 
 Treasury, to await the maturity of the bonds called in 
 under the three months' notice of redemption required by 
 law. This evil could be obviated under the independent 
 method of placing loans, only if money received for new 
 bonds were paid out for old ones as fast as it came in. 
 When, however, the bonds are placed through the banks 
 the money paid for them is not taken from the channels 
 of commerce at all for any considerable length of time.
 
 THE MANAGEMENT OF LOANS. 1 1 5 
 
 Moreover, here again, as in time of war, the large stock 
 of money is held by the banks, or can be most easily 
 brought out through regular banking channels. 
 
 As illustrations of the aid rendered by the banks and 
 bankers in refunding, we may cite some of the operations 
 between 1870 and 1879. ^ n August, 187 1, over sixty- 
 five million dollars' worth of five per cent, bonds were 
 subscribed for, "chiefly by the national banks." In the 
 same month, the firm of Jay Cooke & Co. contracted for 
 two hundred million dollars' worth of the same bonds. 
 In 1876-77, August Belmont & Co. purchased four and 
 one-half per cent, bonds to the amount of two hundred 
 million dollars. During the first four months of 1879, 
 $497,247,750 worth of four per cents were sold, one hun- 
 dred and twenty-one millions being taken by the First 
 National Bank of New York and associates, and the 
 remainder by other national banks. 1 It is needless to 
 mention the unprecedented operations in debt conversion 
 in still more recent years. In all of them the assistance 
 of the banks was indispensable. 
 
 Thus, again, during and after the Civil War, as after 
 the Revolutionary War and that of 18 12, the nation was 
 driven to avail itself of the aid of the banks. "The first 
 Bank of the United States absorbed nearly one-fifth of 
 the public debt in 1797. The second Bank of the United 
 States carried about the same proportion of the debt of 
 1816. When the Civil War closed, in April, 1865, the 
 newly organized national banks had aided the Treasury 
 in placing and carrying the immense loans required to 
 maintain the armies and fleets in active service for four 
 years, and held themselves government paper to the 
 amount of $390, 000, 000." 2 
 
 1 Report of the Comptroller of the Currency, 1S79. p. 108. 
 
 2 Richardson's " The National Banks," p. 112.
 
 Il6 THE INDEPENDENT TREASURY. 
 
 A break-down of the Sub-Treasury system at still an- 
 other point became manifest when the country came to 
 face the question of resumption of specie payments. The 
 facts show that if the Treasury had been left to its own 
 resources, — that is, if it had been "independent," — 
 resumption probably could not have taken place when it 
 did. 1 "In the resumption of specie payments, and in the 
 funding of the national debt, . . . the co-operation of the 
 national banks has been of essential service to the govern- 
 ment. The banks, in the aggregate, have constantly kept 
 on hand, as reserve, nearly one-fourth of the entire amount 
 of legal-tender notes outstanding, which, together with 
 the coin, is much in excess of the amount of the reserve 
 required by law." 2 The connection made with the banks 
 through the New York clearing-house practically relieved 
 the Treasury of the necessity of making coin payments 
 to any large extent, because the clearing-house agreed 
 to accept legal-tender notes in payment of all dues from 
 the government. Moreover, the banks, although holders 
 of more than one-third of the amount of government notes 
 outstanding, refrained from presenting them for redemp- 
 tion. 3 If the banks had demanded the redemption of 
 these notes, the attempt at resumption would have been 
 gravely imperilled. At this time again, as in the case of 
 the bonds sold to carry on the war, the banks were the 
 only source whence it was practicable to draw large sums: 
 they had large accumulations of gold, and were the 
 channels through which more could readily be obtained 
 by means of subscriptions. For " the inconvenience of 
 
 1 For an account of the operations of refunding and resumption, see Report 
 of the Secretary of the Treasury on !i Specie Resumption and Refunding of 
 the National Debt," Exec. Docs. 46th Cong., 2d sess., vol. xvii., 1879-S0. 
 
 2 Finance Report, 1879, p. 20. 
 
 3 Finance Report, 1S79, p. 114.
 
 THE MANAGEMENT OF LOANS. WJ 
 
 obtaining coin outside of the large cities forbade any 
 direct appeal to the great body of the people." 
 
 But in still another way was the aid of the banks ren- 
 dered, a way which made them an essential part of the 
 resumption machinery. They were the agents of the 
 government in negotiating the loans necessary to secure 
 gold for specie payments. As Secretary Sherman pointed 
 out in the letter mentioned before, 1 but for the use of the 
 banks as depositories the money received for bonds would 
 have been withdrawn from circulation for deposit in the 
 Treasury vaults, to await the maturity of the bonds called 
 in. The banks bought, during the first four months 
 of 1879, nearly five hundred million dollars' worth of 
 four per cent, bonds. The absorption by the Treasury 
 of all the money thus paid in would have contracted 
 the currency of the country over fifty per cent. Dis- 
 tress was caused by the gradual contraction that went 
 on for the five years preceding resumption, and raised an 
 outcry against the attempt to resume ; such a contraction 
 as would have taken place had all the money paid in for 
 the new bonds been kept in the Treasury, would undoubt- 
 edly have caused suffering sufficient to arouse against 
 resumption such opposition as would have rendered its 
 success at least problematical. The aid of the banks 
 here was absolutely indispensable. This view of the 
 case is not weakened by the fact, sometimes brought 
 forward to belittle the aid rendered by the banks at this 
 juncture, that, although for them to have sent in their 
 treasury notes for redemption would have been to destroy 
 the credit of the government, it would have involved 
 themselves also in ruin. For the dependence of their 
 safety on that of the government was a condition for 
 1 See p. 75.
 
 Il8 THE INDEPENDENT TREASURY. 
 
 which the government, and not the banks themselves, was 
 responsible. 
 
 As an agency for the fiscal operations during and 
 consequent on a great war, it is evident, then, that the 
 Independent Treasury can have but a limited scope, 
 namely, that of keeping the gold wherewith the gov- 
 ernment may make its specie payments. But it can 
 have even this limited scope only on the supposition that 
 the country is on a paper basis. To be sure, that is a 
 condition of affairs which has very frequently occurred in 
 countries carrying on great and prolonged wars ; but its 
 necessity, in the case of a wealthy country, like England 
 or our own, is by no means self-evident. It rather seems 
 possible for such nations to maintain specie payments 
 even under so great a stress as we endured in the Civil 
 War. 
 
 If better financial management in the case of future 
 wars should prevent a degeneration to the use of irre- 
 deemable paper, even the present restricted possibilities 
 for usefulness in war would be taken from the Independ- 
 ent Treasury. A state of war is, indeed, exceptional ; 
 and the fiscal machinery needed under its conditions 
 must, as a matter of course, be exceptional also. But the 
 unusualness should not lie so much in the nature of the 
 machinery as in the extent of its operations. The crea- 
 tion of a new system for the collection and disbursement 
 of revenue, difficult under any circumstances, is doubly 
 so under the strain of war, and should be unnecessary 
 then. If, as was the case in the Civil War, specie pay- 
 ments be suspended, and if the suspension continue after 
 the restoration of peace, the action of the Independent 
 Treasury, as already pointed out, 1 is to absorb gold. The 
 
 1 Page in,
 
 THE MANAGEMENT OF LOANS. II9 
 
 government, under such circumstances, receives the gold 
 in payment of duties, and as no one wants it to pay debts 
 that can be legally paid in depreciated paper, the gold 
 tends to accumulate. The result must be a tendency to 
 enhance the price of gold, or, what amounts to the same 
 thing, further to depreciate paper. This tendency, of 
 course, reacts on prices, and introduces an element of 
 uncertainty into business. But, in addition, such locking 
 up of gold causes speculation in gold itself, varying its 
 price more rapidly and largely than would probably other- 
 wise be the case. The operations of the New York Gold 
 Board furnish an illustration. With an excellent raison 
 d'etre, a legitimate field for its operations, it became at 
 times a tool which, assisted by foolish legislation, exerted 
 a baneful influence on the business of the country. All 
 these considerations, in connection with the fact that of 
 the four great wars in which the country has engaged, 
 beginning with the Revolution, in only one, and that the 
 least important financially, have we been able to do with- 
 out the aid of banks and bankers, demonstrate the inade- 
 quacy of the " independent " system of financiering for 
 war purposes.
 
 120 THE INDEPENDENT TREASURY. 
 
 CHAPTER VI. 1 
 
 THE INFLUENCE OF THE INDEPENDENT 
 TREASURY ON BUSINESS. 
 
 THE most important phase of the operation of the 
 Independent Treasury is its influence on the busi- 
 ness of the country in ordinary times. 
 
 In the investigation of this part of the subject it is 
 both desirable and necessary to confine our attention to 
 recent years. It is desirable, because, with the excep- 
 tion of about a decade following its establishment, the 
 last ten or twelve years are the only ones in which the 
 Sub-Treasury system has operated in a way that may be 
 called normal; that is, under conditions which have not 
 interfered with the working of its machinery. It is ne- 
 cessary, because the industrial and commercial character 
 of the present period of normal activity of the Independ- 
 ent Treasury is essentially different from that of its former 
 period; and also because the Sub-Treasury as it exists 
 to-day is a very different institution from what it was 
 forty years ago. 
 
 For many years after the adoption of the system, the 
 annual receipts and expenditures of the government were 
 approximately equal. At least there was no large surplus 
 to deal with, such as for many years past has been one of 
 the most prominent features of our national financiering. 
 
 1 The main part of this chapter was published in the Annals of the 
 American Academy, for September, 1S92.
 
 ITS INFLUENCE ON BUSINESS. 121 
 
 This is an important consideration. For the influence 
 exerted, on the amount of the circulating medium for 
 example, by a government which keeps its own money, 
 must be very different, under a policy of surplus finan- 
 ciering, from what would prevail under other conditions. 
 Moreover, for another considerable number of years, the 
 country was under a regime of paper money, issued under 
 circumstances that constituted a practical reversal of the 
 policy of complete "divorce of bank and state " which 
 was the central doctrine of the Independent Treasury 
 when first established; so that the Treasury is not now 
 " independent " even to the extent of keeping all its own 
 money. Again, whatever influence such a system would 
 have must have been largely increased, if not changed 
 in character, by the growth of the fiscal operations of the 
 government, by the industrial and commercial development 
 of the country, and especially by the tremendous growth of 
 credit which the last generation has witnessed. 
 
 When the system was established the receipts of the 
 government were about one million dollars a week. So 
 unimportant was the influence of the government opera- 
 tions for some years after 1846, that, in the words of Pro- 
 fessor Sumner, 1 "the bankers and merchants could afford 
 to laugh at the insignificance of the government on their 
 arena." 
 
 Now the Treasury " is the largest manipulator of money 
 in the country." Commerce has multiplied many times, 
 and there is a greater solidarity of business interests, due 
 to improved means of communication, and a correspond- 
 ingly greater sensitiveness. 
 
 Moreover, as already said, the functions of the Inde- 
 pendent Treasury have themselves changed, both in extent 
 
 1 " History of American Currency," p. 167.
 
 122 THE INDEPENDENT TREASURY. 
 
 and nature. "The duties of the sub-treasuries," said 
 Treasurer Jordan in 1886, "have changed since the pas- 
 sage of the laws authorizing the issue of the various kinds 
 of certificates of exchange, and redemption of the silver 
 coinage and paper currency of the country. Each sub- 
 treasury is now a bank of issue and redemption. Whether 
 such functions should be performed by these offices is a 
 grave question." ' 
 
 In addition to its intended duties of receiving and dis- 
 bursing government money, the Independent Treasury 
 now discharges the following functions also: First, it issues 
 notes, like a bank, and it protects these notes by keeping 
 a reserve whose ratio to the notes issued approximates 
 that usually kept by the banks; second, it receives de- 
 posits, and issues therefor certificates, which pass from 
 hand to hand as money, and it keeps a deposit from 
 which to cash the checks of disbursing officers; third, 
 the issue of government paper necessitates the duty of 
 redemption by the Treasury as by banks, redemption, 
 that is, in the sense of the exchange of one kind of money 
 for another; and it also acts as agent of the national 
 banks for the redemption of their notes; fourth, the Inde- 
 pendent Treasury transfers money for individuals from 
 one part of the country to another, free of charge or at 
 less cost than can be done, for example, by the banks ; 
 and, finally, it has by the law of July, 1890, been charged 
 with what is essentially the work of a silver bullion 
 broker. These powers of the Independent Treasury must 
 be borne in mind in seeking to determine the nature and 
 extent of its influence on the business of the country 
 to-day. 
 
 1 Treasurer Jordan, on proposed sub-treasury at Louisville. Senate Com- 
 mittee Report, No. 1834, vol. ii., second session, 49th Congress.
 
 ITS INFLUENCE ON BUSINESS. 1 23 
 
 It may seem, at first thought, that this influence might 
 be directly traced ; that prices and the rate of interest 
 might be shown to vary with the absorptions and dis- 
 bursements of money by the Treasury, and that thus there 
 might be shown to exist between business and the fiscal 
 machinery a connection so close as to amount to a demon- 
 stration of the influence of the latter. Unfortunately, 
 however, this cannot be done; for large amounts of 
 money may be withdrawn from circulation without any 
 apparent effect on the rate of interest, or on business. 
 This is possible, because under our currency system the 
 volume of money which constantly remains in our chan- 
 nels of industry is nearly a maximum ; that is, the amount 
 which is needed and used when business is most active. 
 This, again, occurs because our currency is inelastic; its 
 contractions and expansions are not to any great extent 
 in response to the needs of business; it is not self-adjust- 
 ing. Hence, when business is dull there is a large inac- 
 tive volume of money which may be withdrawn without 
 affecting the business situation. Accordingly, we find 
 that the amount of money in the vaults of the Treasury 
 increases sometimes when prices are rising, and some- 
 times when they are falling; on some occasions when the 
 rate of interest tends upwards, and on others when it 
 tends downwards; in some instances when business is 
 brisk, and in some when it is dull; at times when gold 
 is being exported, and at times when it is being imported. 
 In fact, these phenomena occur in all possible combina- 
 tions. 
 
 Still another reason why prices do not show response 
 to changes in the amount of money caused by Treasury 
 withdrawals and disbursements is found in the widely 
 extended use of credit. Credit instruments of one sort
 
 124 THE INDEPENDENT TREASURY. 
 
 and another perform a very large, perhaps the larger, part 
 of our exchanges. Prices will, therefore, depend more 
 on variations in the amount of credit than of the money 
 in circulation. 
 
 Moreover, the elements that enter into the determina- 
 tion of prices are so numerous, so variable, and sometimes 
 so obscure, that we cannot eliminate those which are not 
 material to the problem of finding the causes of variation 
 at a given time. The effect of any one of these numerous 
 elements may in one case be much greater than in another, 
 and yet it may not so appear because the other elements 
 have also varied in the mean time. Direct proof of the 
 effect of the Sub-Treasury on prices is, therefore, impos- 
 sible. The same is true of variations in the rate of 
 interest. So far as they are caused by the Independent 
 Treasury, they are due to the changes affected by it in 
 the amount of loanable capital. But usually no direct 
 connection can be positively shown, because variations 
 in the amount of loanable capital are not the only cause 
 of variations in the rate of interest. Loanable capital 
 may diminish while the rate of interest falls, 1 the effect 
 of the diminution of capital being more than offset by 
 other causes, which, however, are undetermined, and 
 cannot, therefore, be eliminated. The relations between 
 prices, rate of interest, loanable capital, and the opera- 
 tions of the Treasury, are, in fact, exactly such as could 
 be represented by a combination of forces acting at a 
 single point. We may, by observation, determine the 
 amount and direction of the resultant, but that will tell 
 us nothing of the individual forces. To see whither each 
 tends, we must imagine it acting alone, and infer the 
 
 1 Cf. E. B. Andrews's " An Honest Dollar," Publications of the American 
 Economic Association, vol. iv., no. 6, p. 8.
 
 ITS INFLUENCE ON BUSINESS. 1 25 
 
 results of its single action. This is one of the cases 
 which occur so often in social and economic investiga- 
 tions, whose limitations prevent a satisfactory application 
 of the inductive method, and make it necessary to rely 
 largely on deduction. We must begin by assuming, what 
 all admit, that prices and the rate of interest depend 
 partly on the amount of loanable capital, as represented 
 by the amount of money offered in the money market, and 
 partly also on the extent of the use of credit. We must, 
 then, first examine the phenomena of the Sub-Treasury 
 considered by themselves, and afterwards consider how 
 its influence is modified by other forces. 
 
 The influence of the Treasury on business is exerted 
 mainly through its action, direct or indirect, on the pur- 
 chasing medium of the country. If we disregard the 
 small number of transactions which take place by direct 
 barter, we may look on the purchasing medium of the 
 country as a compound of credit, including instruments 
 of credit, and money. It may be fairly assumed that at 
 any given moment this compound purchasing medium, 
 or the "money power," of the country is a definite quan- 
 tity, the amount needed to perform the exchanges that take 
 place. It may vary, owing to a change in the amount of 
 money, or of credit, or of both. Any external cause vary- 
 ing the total purchasing medium, by changing either the 
 volume of credit or the amount of money in circulation, 
 will tend to act on prices. The amount of the compound 
 purchasing medium required for transacting business being 
 definite at any selected time, if the volume of credit remain 
 constant, a sudden diminution of the amount of money in 
 a market will tend to lower prices, or at least to prevent 
 their rise. An increase in the amount of money would 
 have the opposite effect. After each variation in the
 
 126 THE INDEPENDENT TREASURY. 
 
 amount of money, prices would tend to settle to a new 
 level determined by the new volume of the compound 
 purchasing medium. 
 
 But because the volume of credit is, as a matter of 
 fact, expansible or contractible, part of the effect of a 
 variation of the quantity of the money element of the 
 compound purchasing medium would be to augment or to 
 diminish the volume of the credit element. For the more 
 money there is in circulation at a given moment the less 
 need there is of credit operations; and the less money, 
 the greater need. This is true, of course, on the suppo- 
 sition that the total compound purchasing medium is 
 exactly what is needed to do the business of the country 
 at the given time. And this supposition is a legitimate 
 one, so long, at least, as the country is on a specie basis. 
 
 If, then, we suppose, as we fairly may, that the rapidity 
 of circulation remains the same for a brief period, any 
 cause varying the amount of money in a country affects 
 business by acting on prices directly, through the change 
 in the quantity of money; or indirectly, through its influ- 
 ence in inducing a change in the volume of credit. Prices 
 would be affected even if we suppose, what in practice 
 could hardly be realized, that the expansion in the vol- 
 ume of credit equalled the diminution in that of money, 
 for the effect of credit on prices depends in part on its 
 extent. 
 
 Now, the action of the Independent Treasury is such as 
 to vary the amount of money in circulation. At one time 
 it absorbs, at another disburses, considerable sums. There 
 is nothing in the nature of the Sub-Treasury that makes 
 its receipts and payments necessarily concomitant with a 
 free and a stringent condition of the "money market," 
 respectively. Its action is, in the main, independent of
 
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 32 
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 29 
 
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 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 " 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ' gain or loss of New York Sub-Treasury, September,
 
 ITS INFLUENCE ON BUSINESS. I 27 
 
 either condition. That it must have a tendency to influ- 
 ence prices, depending on the extent of its absorption, 
 retention, and disbursement of money is, therefore, 
 clear. 
 
 For reasons already pointed out, it is difficult to show 
 directly the connection between the action of the Sub- 
 Treasury and variations in prices. The difficulty is still 
 further enhanced by the fact that the withdrawal of money 
 from circulation must continue some time before the con- 
 traction is shown in market quotations. But the evils of 
 contraction are felt long before they become manifest in 
 prices. 
 
 The table on pages 128 and 129 shows the net weekly 
 receipts and disbursements of the sub-treasury at New 
 York from September, 1890, through June, 1891. 1 
 
 In the ten months here represented there was a contin- 
 ual variation in the amount of money in the channels of 
 business, due to the ordinary operations of the sub- 
 treasury at New York. It poured out over thirty-four 
 millions of dollars, net, in September; withdrew nearly 
 eight millions in the following two months; let out over 
 six millions in December, and in the last four months of 
 the period made a net addition to the money afloat, by 
 its ordinary operations, of nearly twenty-six millions of 
 dollars. The changes are shown graphically in the dia- 
 gram opposite. All points below the line represent net 
 loss, and all above it net gain, for the sub-treasury. 
 Each square running horizontally represents two weeks, 
 and vertically one million dollars. 
 
 1 The figures were kindly furnished me by Mr. Maurice Muhleman, cashier 
 of the New York sub-treasury.
 
 1890. 
 
 RECEIPTS ] 
 
 DISBURSE- 
 MENTS 
 
 NET GAIN 
 
 NET LOSS 
 
 BALANCE 
 OF GAIN 
 
 BALANCE 
 OF LOSS 
 
 Sept. s 
 " 12 
 
 I4.I 
 16.8 
 
 14-3 
 19.6 
 
 — 
 
 # 2 
 2.S 
 
 — 
 
 — 
 
 " 19 
 
 '9-5 
 
 42.7 
 
 
 
 2 3- ' 
 
 — 
 
 
 
 " 26 
 
 17. 1 
 
 25.6 
 
 
 
 8-5 
 
 
 
 — 
 
 
 67.5 
 
 102.2 
 
 — 
 
 34- 6 
 
 — 
 
 34-6 
 
 Oct. 3 
 
 17-7 
 
 16.6 
 
 I.I 
 
 — 
 
 
 
 
 
 " 10 
 
 18.3 
 
 15.8 
 
 2-5 
 
 — 
 
 
 
 — 
 
 " 17 
 
 I4.8 
 
 14.0 
 
 7 
 
 — 
 
 
 
 — 
 
 " 24 
 
 13-9 
 
 12.5 
 
 1.4 
 
 — 
 
 
 
 — 
 
 " 3 1 
 
 15.9 
 
 14.8 
 
 1.2 
 
 — 
 
 
 
 — 
 
 
 80.6 
 
 73-7 
 
 6.9 
 
 — 
 
 6.9 
 
 — 
 
 Nov. 7 
 
 J --3 
 
 11. 1 
 
 1.2 
 
 — 
 
 
 
 
 
 " 14 
 
 137 
 
 14.6 
 
 — 
 
 ■9 
 
 
 
 — 
 
 " 21 
 " 28 
 
 14.6 
 
 1 1.0 
 
 14.5 
 10.6 
 
 .1 
 •4 
 
 — 
 
 — 
 
 — 
 
 
 51.6 
 
 50.8 
 
 17 
 
 •9 
 
 .8 
 
 — 
 
 Dec. 5 
 
 16.6 
 
 130 
 
 3-6 
 
 — 
 
 — 
 
 
 
 " 12 
 " 19 
 
 13-5 
 
 14.2 
 
 22.5 
 15.8 
 
 
 
 9.0 
 1.6 
 
 — 
 
 __ 
 
 " 26 
 
 12.7 
 
 13.8 
 
 — 
 
 1.1 
 
 — 
 
 — 
 
 " 31 
 
 9.2 
 
 7.2 
 
 2.0 
 
 — 
 
 — 
 
 — 
 
 1891. 
 
 66.2 
 
 72-3 
 
 5-6 
 
 11.7 
 
 — 
 
 6.1 
 
 Jan. 2 
 
 11. 1 
 
 8.9 
 
 2.2 
 
 — 
 
 — 
 
 
 
 " 9 
 
 14.2 
 
 15-5 
 
 — 
 
 '•3 
 
 — 
 
 — 
 
 " 16 
 
 15.0 
 
 17.2 
 
 — 
 
 2.1 
 
 — 
 
 — 
 
 " 23 
 
 17-5 
 
 17-7 
 
 — 
 
 .2 
 
 — 
 
 — 
 
 " 30 
 
 17. 1 
 
 12.4 
 
 4.8 
 
 — 
 
 — 
 
 — 
 
 
 74-9 
 
 71-7 
 
 6.9 
 
 3-6 
 
 3-3 
 
 — 
 
 Feb. 6 
 
 13.6 
 
 13.0 
 
 .6 
 
 — 
 
 — 
 
 — 
 
 " 13 
 
 16.9 
 
 134 
 
 3-5 
 
 — 
 
 — 
 
 — 
 
 " 20 
 
 '3-3 
 
 9.1 
 
 4.1 
 
 — 
 
 — 
 
 — 
 
 " 27 
 
 12. 1 
 
 9-5 
 
 2.6 
 
 — 
 
 — 
 
 — 
 
 
 55-9 
 
 45.0 
 
 10.8 
 
 — 
 
 10.8 
 
 — 
 
 Mar. 6 
 
 13-3 
 
 12.4 
 
 •9 
 
 — 
 
 — 
 
 — 
 
 " x 3 
 
 " 20 
 
 12.8 
 16.0 
 
 14.9 
 18.7 
 
 
 2.1 
 
 2.7 
 
 — 
 
 — 
 
 " 27 
 
 14-3 
 
 14.8 
 
 — 
 
 •5 
 
 — 
 
 — 
 
 
 56.4 
 
 60.S 
 
 •9 
 
 5-3 
 
 — 
 
 4.425 
 
 1 The figures are in millions of dollars.
 
 ITS INFLUENCE ON BUSINESS. 
 
 129 
 
 1891. 
 
 RECEIPTS 1 
 
 DISBURSE- 
 MENTS 
 
 NET GAIN 
 
 NET LOSS 
 
 BALANCE 
 OF GAIN 
 
 BALANCE 
 OF LOSS 
 
 Apr. 3 
 
 I4.6 
 
 I 5 .0 
 
 — 
 
 •4 
 
 — 
 
 — 
 
 " 10 
 
 20.3 
 
 22.2 
 
 
 
 1.9 
 
 
 
 # 
 
 " 17 
 
 177 
 
 197 
 
 
 
 2.0 
 
 
 
 
 " 24 
 
 I9.I 
 
 2O.4 
 
 
 
 i-3 
 
 
 
 
 
 
 71-7 
 
 77-3 
 
 — 
 
 5.6 
 
 
 
 5.6 
 
 Mav 1 
 
 177 
 
 17-5 
 
 .2 
 
 — 
 
 — 
 
 
 
 8 
 
 19-3 
 
 20.0 
 
 
 
 ■7 
 
 
 
 
 
 " is 
 
 " 22 
 
 23.2 
 36.1 
 
 23.8 
 36.8 
 
 — 
 
 .6 
 ■7 
 
 
 
 
 " 29 
 
 22.3 
 
 23-4 
 
 
 
 1.1 
 
 
 
 
 
 
 1 18.6 
 
 121. 5 
 
 .2 
 
 3-i 
 
 — 
 
 2.9 
 
 June 5 
 
 26.6 
 
 27.7 
 
 — 
 
 1.1 
 
 — 
 
 — 
 
 " 12 
 
 18.7 
 
 21.7 
 
 
 
 3-i 
 
 
 
 
 
 " 19 
 
 19.6 
 
 ^5-5 
 
 — 
 
 5-9 
 
 
 
 
 
 " 26 
 
 17-7 
 
 20.6 
 
 
 
 2.8 
 
 
 
 
 
 
 82.6 
 
 95-5 
 
 — 
 
 12.9 
 
 — 
 
 12-9 
 
 So great an irregularity as these figures show in the 
 supply of money cannot but have a tendency to render 
 prices also irregular. Of course the effect of the spas- 
 modic variation is felt first in speculation. But the influ- 
 ence of speculation on prices makes itself felt all through 
 business, if the variations are more than what may be 
 called momentary. Every business man who has out- 
 standing debts secured by bonds or stocks as collateral 
 has to provide additional security if his bonds or stocks 
 depreciate under the speculative influence. In order to 
 do so he may have to reduce his capital, or curtail his 
 expenses, or sell his goods at a loss; and the solidarity 
 of business interests is such that the injury to one 
 line of business will have a tendency to react unfavorably 
 on others, and so affect a large part of the community or 
 even of the country. 
 
 1 The figures are in millions of dollars.
 
 I30 THE INDEPENDENT TREASURY. 
 
 Of far greater importance, however, than the tendency to 
 influence prices by varying the supply of money directly, 
 is the action of the Independent Treasury system on 
 business by means of its influence on credit through the 
 medium of the bank reserves. It is not necessary to 
 enlarge on the magnitude and importance of credit op- 
 erations in the business world to-day. The extent of 
 their use is marvellous. According to the report of the 
 Comptroller of the Currency for 1889-90, it appears that 
 of the receipts of 3,364 national banks on July 1, 
 1890, 7.50 per cent, was in coin and paper money, and 
 92.50 per cent, in checks, drafts, bills of exchange, and 
 other instruments of credit. Corresponding figures for 
 Sept. 17, 1890, for 3,474 national banks, are 8.96 per 
 cent, in "cash," and 91.04 per cent, in "checks, drafts, 
 and other substitutes for money." In New York City, 
 the commercial centre of the country, on the last date 
 given above, only .07 of one per cent, of the total transac- 
 tions of forty-seven banks was in coin; 4.29 per cent, was 
 in coin certificates, government and bank notes; and 
 95.64 per cent, was in checks, drafts, and other substitutes 
 for money. Now, this extensive use of credit is perhaps 
 the most marked and important characteristic of the busi- 
 ness methods of our industrial era. Credit is the most 
 important means of business expansion and of industrial 
 growth. Its destruction would mean the ruin of indus- 
 trial development, the decrease of means of living, the 
 checking of population, the stagnation of social life; in 
 short, the stoppage of progress and the throwing back of 
 the world to a more primitive type of civilization. It is 
 the very life of modern society. Any cause that injures 
 it, weakens it, or temporarily suspends it, is an economic 
 and social evil. But the basis of credit in the business
 
 ITS INFLUENCE ON BUSINESS. I 3 I 
 
 community is the money that makes up the bank reserves. 
 "The whole case [of the influence of credit], it must be 
 observed, rests on the adequacy of tlie reserve, and the 
 reserve must be judged to be inadequate unless it be 
 sufficient not cnly to meet every demand made upon it, 
 but completely to eliminate all apprehensions on that 
 point. Confidence in the adequacy of the reserve is the 
 foundation of the vast superstructure of credit which is 
 raised upon it, and confidence cannot be impaired with- 
 out rudely shaking the sensitive fabic it supports." 1 The 
 bank reserves are, as it were, the base of an industrial 
 structure, each succeeding layer of which is larger than 
 the one below it, so that the business organization may 
 be represented as an inverted pyramid with a very small 
 base. 2 Such a system is evidently in a condition of 
 
 1 Address of Mr. Charles Gairdner. General Manager of the Union Bank 
 of Scotland, before the Institute of Scotch Bankers, quoted in Bradstreef 's< 
 December, 1890. 
 
 - This is excellently illustrated by Mr. Edward Atkinson in an able paper, 
 in Brads/reefs, Dec. 20, 1890, by means of the following diagram : — 
 
 AL 
 
 Bl 
 
 CL 
 
 E| 
 
 F 
 G 
 
 Rectangle A represents the approximate estimate of all trans- 
 actions in stocks, bonds, real estate, products and services, $130,000,000,000. 
 
 B represents that of all transactions on credit 117,000,000.000. 
 
 C '• '• '• '• dealings in products 50.000,000,000. 
 
 D " " " " annual production @ $200 per head 12,500,000,000. 
 
 E " '• •' " the circulating medium in country, 
 
 Dec. 2, 1890 1.500,000,000. 
 
 F represents that of the lawful money not in banks .... 1,000,000,000. 
 
 G " " " " " " in th; banks 300,000,000. 
 
 Of course the absolute accuracy of the figures is unimportant it the ratios 
 they beai to < ne another are correct; they refer to the United States.
 
 I32 THE INDEPENDENT TREASURY. 
 
 unstable equilibrium. But the industrial pyramid has a 
 certain self-adjusted proportion of the parts; so long as 
 the variations in the base are induced by, and therefore 
 correspond to, variations in the other mutually dependent 
 parts of the structure, the relative stability is unchanged. 
 In other words, so long as the bank reserve, which is the 
 base of the pyramid, adjusts itself to the legitimate de- 
 mands of the business community, so long is there equi- 
 librium, or no disturbance. But the slightest disturbance 
 of the base threatens the whole structure. Any diminu- 
 tion of the bank reserve, independent of a corresponding 
 decrease of credit, or any check on its expansion when the 
 needs of business require an enlargement of credit, inter- 
 feres with operations in every department of business 
 activity. In other words, so small, relatively, is the 
 bank reserve, that a comparatively slight change in its 
 amount will check the whole market. The banks in 
 reserve cities are required by law to keep a minimum 
 reserve of twenty-five per cent of their deposits in coin 
 and United States notes. This, then, represents the 
 danger line in fluctuations of the reserve. Even a mere 
 approach to it creates anxiety and distress in business. 
 
 The amount of the reserve varies, of course, with the 
 amount of the cash deposits, and also with the amount of 
 discounts or loans. For a borrower at a bank seldom cares 
 to withdraw the actual money. He borrows credit. The 
 amount of the loan is credited to him on the books of the 
 bank, and he draws on it as he needs it. No more money 
 comes into the bank by this transaction; no money at all 
 need pass from the bank to the borrower from the time of 
 the contraction of the debt even to that of its liquidation. 
 Yet the transaction is equivalent to an increase of depos- 
 its, and necessitates an increase of reserve. If the reserve
 
 ITS INFLUENCE ON BUSINESS. I 33 
 
 of the bank is already at the legal minimum, the bank 
 must get more money; if it cannot do so, it must con- 
 tract its loans, or at least refuse further discounts, thus 
 checking the market. Money which is withdrawn from 
 the banks must come out of the reserve, or cash actu- 
 ally on hand. But the money out of which the reserve 
 must be maintained, and from which all actual withdraw- 
 als and cash loans must come, is the cash deposits. The 
 "free" cash, that which the bank can pay out, is the 
 difference between the cash deposits and the minimum, or 
 legal, reserve. The amount against which the bank must 
 maintain a minimum reserve, however, is composed of the 
 cash deposits ///at credit deposits, or loans left by borrowers 
 in the bank. Evidently, therefore, the withdrawal of any 
 sum of money from the bank must diminish the free cash 
 and the reserve in a ratio larger than that which the 
 amount withdrawn bears to the total deposit account. 
 But if the amount withdrawn is kept in the current of busi- 
 ness where the banks can get at it, they, of course, can 
 strengthen their position again immediately, and possibly 
 could always keep well away from the danger line of a 
 minimum reserve. If, however, they cannot recover the 
 money let out, every withdrawal brings them nearer to 
 this line. Money withdrawn from the banks for export, 
 or for the payment of customs dues, is thereby put out of 
 the reach of the banks, for a time at least. In the former 
 case a firm applies to the bank for gold certificates, ex- 
 changes them at a sub-treasury for gold, and ships the 
 metal like any other commodity; only a turn in the tide 
 of international exchange can restore it to the country 
 and the banks. If the money is used to pay customs 
 dues it goes into the vaults of the Sub-Treasury. It is 
 here as much out of the reach of the banks as when it
 
 '54 
 
 THE INDEPENDENT TREASURY. 
 
 is exported; for it will appear again only when the gov- 
 ernment has payments to make, or becomes a purchaser 
 of its own bonds. If the payments of the government 
 were sufficiently frequent, or if, better still, they had a 
 resultant connection with the operations of the business 
 community, no distress would be felt. 
 
 The following table shows the changes in the holdings 
 of the New York Associated Banks for three months in 
 1890 due to the action of the Sub-Treasury and the inte- 
 rior movement of money, and also the changes in the 
 total reserve. 1 
 
 
 SUB-TREASURY 
 
 INTERIOR 
 
 NET 
 
 GAIN (X) 
 
 VARIATION 
 
 
 ACTION 
 
 MOVEMENT 
 
 OR 
 
 LOSS ( - ) 
 
 IN 
 
 RESERVE 
 
 Sept. 5, 1890 
 
 X 
 
 1 ,600. 2 
 
 ~ 3.239. 
 
 — 
 
 1,689. 
 
 — 
 
 52- 
 
 " 12, " 
 
 " 19. " 
 
 " 26, " 
 
 Oct. 3, " 
 
 X 
 X 
 X 
 X 
 
 2,600. 
 
 13,700. 
 
 18,500. 
 
 4,500. 
 
 - 3>3 l °- 
 
 - 4,411- 
 
 - 3,933- 
 
 - 5,7Si- 
 
 X 
 X 
 
 710. 
 
 9,289. 
 
 14,567. 
 
 I,28l. 
 
 X 
 X 
 X 
 
 3.193 
 
 6,895 
 
 16,384 
 
 1,020 
 
 
 " 10, " 
 
 " 17. " 
 " 24, " 
 
 - 
 
 2.IOO. 
 2,500. 
 
 2,300. 
 
 - 4,752- 
 
 - 3.468. 
 
 - 2,038. 
 
 - 
 
 6,852. 
 5.968. 
 4,338. 
 
 - 
 
 9,924 
 
 4.3 I I 
 
 964 
 
 
 " 3'. " 
 
 — 
 
 700. 
 
 — 2,290. 
 
 — 
 
 2,990. 
 
 X 
 
 207 
 
 
 Nov. 7, " 
 " 14. " 
 
 X 
 
 900. 
 
 200. 
 
 - 533- 
 x 1,129. 
 
 X 
 
 1.433- 
 I,329. 
 
 X 
 
 4.254 
 292 
 
 
 " 21, " 
 
 " 28, " 
 
 X 
 X 
 
 700. 
 
 300. 
 
 — 1,190. 
 
 - 5i4- 
 
 - 
 
 490. 
 214. 
 
 
 300 
 484 
 
 
 It is evident from the figures that there is no causal 
 connection between supplies of money from the Sub- 
 Treasury and the demand from the interior points of the 
 country, so that the drain on the banks by the interior 
 movement may or may not be relieved by supplies of 
 money from the Treasury. Sometimes the two move- 
 
 1 The table is compiled from the weekly returns of the Commercial and 
 Financial Chronicle. The X sign means gain to the banks, and the — sign 
 loss. 
 
 2 000 omitted throughout.
 
 ITS IXFLUEXCE ON BUSINESS. 135 
 
 merits are in the same direction, either towards or away 
 from the banks, and so intensify each other; and some- 
 times they partially neutralize each other. Through the 
 month of October the demand for money from the interior 
 continued active, but the banks were hindered in supply- 
 ing it by the steady absorptions of the Treasury. Through 
 September the demand was more than offset by the Sub- 
 Treasury disbursements, but not steadily. In November 
 the government payments partly offset and partly increased 
 the drain on the banks caused by the interior demand. 
 It would be rash to say that if the Sub-Treasury had not 
 existed the banks would have met the demands for money 
 more easily. Under ordinary circumstances, certainly 
 under ordinarily good management, they should be able 
 to anticipate the regular autumn draft. But in a period 
 of stringency like that which existed in the fall of 1890, 
 the case might be different. If there had been no Sub- 
 Treasury, and the banks had had the money held there, 
 they would of course have loaned it, and some of it, with- 
 out doubt, would have been difficult to call in when the 
 pinch came. The Sub-Treasury interposed a barrier to 
 free lending, and held the money for a time of greater 
 need. 
 
 The diminution of the bank reserves by the Sub-Treas- 
 ury diminishes the money basis of credit and thereby at 
 times makes credit more difficult to obtain; but at the 
 same time the withdrawal of money from circulation 
 necessitates a larger resort to credit in the attempt to pre- 
 vent the reduction of business transacted. That is, since 
 one part of the compound purchasing medium is dimin- 
 ished, the other must enlarge to maintain the same volume 
 of business. Thus the tendency of the action of the Sub- 
 Treasury is to diminish one basis of business activity —
 
 I36 THE INDEPENDENT TREASURY. 
 
 the money available for loans — and so to compel a resort 
 to the other basis — credit; while at the same time, and 
 by the same action, it reduces the opportunities for get- 
 ting credit. The result is a check on business expansion, 
 perhaps an actual reduction of business activity. 
 
 It has been said that if the government would pay its 
 debts so as to avoid having a surplus on hand the evil 
 effects of the Independent Treasury in alternately con- 
 tracting and expanding the currency would not occur. 
 This statement can hardly hold; it overlooks the charac- 
 teristic feature of the system, namely, its irregularity of 
 action. The receipts of the government flow into its 
 vaults in a continuous stream, while payments are peri- 
 odic. It receives money every day, but the bulk of its 
 payments is made every three months. It must gather 
 beforehand a. sufficient amount to meet its payments. That 
 means that for three months money is being withdrawn 
 from circulation, and that at the end of the quarter it is 
 thrown back into circulation and into the banks all, or 
 nearly all, at once. In this irregularity 1 of action on 
 
 1 As long ago as 1882, the Secretary of the Treasury, Mr. C. J. Folger, 
 emphasized this point, in his report for that year. He emphasizes too 
 strongly, perhaps, the power of "cliques" in the money market ; but these 
 certainly have been at times powerful for evil, and their power has been in- 
 creased, if not at times made possible, by the influence of the Independent 
 Treasury on the currency. Secretary Folger wrote : — 
 
 " From the inequality between daily large receipts and comparatively small 
 daily disbursements there comes an evil effect upon the business of the coun- 
 try. The collections by the government are taken out of the money market in 
 sums and at dates which have little or no agreement with the natural move- 
 ment of money, and are returned to it with the same inadaptation to commer- 
 cial or financial requirements. Occasionally the large disbursements of the 
 government have created a plethora of money ; more frequently its large and 
 continued withdrawals of money have caused such a scarcity of floating capital 
 as to check the proper movement of legitimate business. It is not only that 
 the amount in the Treasury is so much kept from the use of [the] commu-.
 
 ITS INFLUENCE OX BUSINESS. 1 37 
 
 the money market lies the harm of the system. If it be 
 said that the payments made by the government at the 
 end of every three months amount to a small sum com- 
 pared with the total circulating medium, and therefore 
 cannot have any important effect on business, the argu- 
 ment is conclusively answered by the evidence of experi- 
 ence. In the first place, it cannot be admitted that the 
 disbursements of the government are so insignificant as 
 the statement seems to assume. In one month they 
 may be small ; in another, large. If we observe the 
 gains and losses of money by the sub-treasury at New 
 York, for six months in 1890, we find that the net dis- 
 bursements varied from over thirty-four million dollars in 
 September to less than four in November. The former 
 sum is about one-third the usual reserve of the associated 
 banks of New York City, and it is through them that the 
 bulk of the payments is ultimately made. In the two 
 weeks from the T2th to the 26th of September, 1890, 
 the weeks which saw the heaviest government pay- 
 ments of the month, the cash holdings of the banks rose 
 from 92.4 millions of dollars to 115. 6 millions. This 
 increase of twenty-three millions was in spite of the ship- 
 ment of 8.3 millions to the interior. To assert that such 
 additions to loanable funds will not materially affect 
 business is to assume that, other things being equal, the 
 rate of interest in the money market will not vary with 
 
 nity; the fact becomes an incentive and an aid to men who for their own 
 ends conspire to keep from that use other large sums. . . . To-day there 
 are men so rich that by conspiring together, they can at will put and hold 
 hand on near as much money as government can lay hand to, save by the use 
 of its credit. The power thus had is used from time to time. It results 
 that sudden and violent contractions and expansions afflict the business com- 
 munity, and the government is an unwilling aider and abettor therein. It has 
 come about that the Treasury Department is looked to as a great, if not a 
 chief cause of recurring stringencies, and the Treasury is called to for relief."
 
 138 THE INDEPENDENT TREASURY. 
 
 the amount of money accessible to borrowers, and that 
 the banks will voluntarily keep idle in their vaults more 
 money than it is necessary for conservative banking. The 
 result of such increase in the money accessible to business 
 is a fall in the rate of interest on short loans, and at least 
 a tendency to a local inflation in prices. Mr. Edward 
 Atkinson asserts 1 that the removal of but ten per cent, 
 or thirty million dollars of lawful money, from bank re- 
 serves checked three billion dollars' worth of business 
 transactions. Even if not prepared to admit the accuracy 
 of this ratio, and although it is true that a given amount 
 of contraction will disturb business much less at one time 
 than at another, we must still admit that under some cir- 
 cumstances the effects of so large a contraction would be 
 very injurious. 
 
 In the summer months when business is dull, a large 
 amount of money may, as we shall see, be accumulated 
 in the Treasury, with no ill results, because it is 
 not needed then. " Contraction of the currency " is a 
 healthy occurrence when business is dull ; and in the 
 absence, under our banking system, of a sufficiently self- 
 regulating or ''elastic" currency, the action of the Inde- 
 pendent Treasury then, arbitrary though it be, is a good 
 thing. 
 
 But even the smaller output of four or five millions of 
 dollars may have an important influence on the market, 
 especially if the bank reserves are very near the legal 
 minimum; for contraction then, though apparently insig- 
 nificant in amount, "may produce a most violent reaction 
 in prices, disturbance in settlements, and disorder in 
 almost every part of the societary movement. " The fol- 
 lowing graphic description of some of the effects of a 
 
 1 Brad street's, Dec. 1890.
 
 ITS INFLUENCE ON BUSINESS. 1 39 
 
 sudden contraction will illustrate the importance of gov- 
 ernment action in a sensitive condition of the money 
 market : — 
 
 "Early in 1881 the business of the city of New York 
 was disturbed by the passage of an act of Congress which 
 alarmed the banking institutions. It matters not to the 
 present purpose whether their alarm was reasonable or 
 not; the point here to be considered is that it did in fact 
 result in a speedy deposit of several millions of legal 
 tenders with the Treasurer of the United States, in order 
 to provide for the retirement of national bank circulation, 
 and thus to secure the immediate surrender of the govern- 
 ment bonds deposited as security. Orders for such de- 
 posits of legal tender came by telegraph and mail from 
 banks in all parts of the country to their correspondents 
 in New York. These orders required that the money thus 
 to be deposited should be taken from the sums standing 
 to the credit of the country banks on the books of the 
 banks in New York, and forwarded with as little delay 
 as possible to the Treasurer of the United States. 
 
 " It afterwards appeared that the amount of legal tenders 
 thus deposited reached about seventeen million dollars 
 within one week. This was a sudden, but not very large, 
 contraction of the currency. The amount actually in use 
 at the time, including all kinds of money, was not far 
 from one billion one hundred million dollars, so that 
 about one and one-half per cent, of the entire circulation 
 was withdrawn at the chief centre of commerce. What 
 was the effect? Immediately the banks which had been 
 called upon to deposit money for the surrender of circu- 
 lation took the required amount from their reserves. But 
 at once, being required to make good those reserves, they 
 sent out notices demanding the payment of loans on call.
 
 I40 THE INDEPENDENT TREASURY. 
 
 The persons thus called upon unexpectedly to pay sums 
 which they had invested in securities rushed first to other 
 banks and to brokers, seeking to effect new loans. As 
 the cause was one which influenced at the same time the 
 action of most of the leading banks of the city, a contrac- 
 tion of loans had been rendered necessary with nearly all 
 the banks, and the apprehension of financial disaster had 
 also led others to call in loans, as a precautionary meas- 
 ure, and had rendered all less disposed to put out more 
 money on stock collaterals. As a consequence, in every 
 direction it was found that the supply of money available 
 for the purchase and carrying of stocks had suddenly 
 shrunk. The holders were forced to go into the market 
 to sell. . . . Accordingly, the market suddenly became 
 one in which all wanted to sell, but nobody wanted to 
 buy. . . . The inevitable consequence was a violent 
 reaction, and the decline in prices within about one week 
 was such that the aggregate market value of securities 
 handled in New York was reduced fully two hundred 
 million dollars. [Of course, this was aided by the panicky 
 fear of future evil.] 
 
 "On the other hand, an illustration of almost weekly 
 occurrence, during several years when the government 
 was rapidly reducing its indebtedness, will serve to show 
 the effect of an inflation of the currency. On certain 
 days each week, about twelve o'clock, messengers from 
 many establishments in Wall Street were waiting at the 
 Sub-Treasury. An official brought out and posted a 
 written notice, announcing that the government would 
 redeem on a certain date bonds amounting to ten million 
 dollars. . . . Within five minutes orders began to pour 
 into the exchange for the purchase of stocks. At the 
 same time those who had stocks to sell were warned by
 
 ITS INFLUENCE ON BUSINESS. 1 4! 
 
 their messengers to hold them at high prices. A sudden 
 upward rush in prices occurred." 1 
 
 In addition to the bad influence of the irregularity of 
 the working of the Independent Treasury, harm arises 
 also from the system in connection with the policy of 
 surplus financiering. By that policy a large amount of 
 money collected in excess of the expenses of the govern- 
 ment is in effect withdrawn permanently from circulation. 
 If the government has a surplus every month, a part of it, 
 at least, must be continuously in the possession of the 
 government. The effect is the same as if so much money 
 were withdrawn from circulation permanently. The result 
 must be that the country accommodates itself to this new 
 monetary basis by a temporary fall of prices, unless the 
 circulating medium is increasing under the influence of 
 additional coinage with sufficient rapidity to prevent the 
 fall. 
 
 Secretary Fairchild, writing of the surplus, 2 says: "The 
 government provides, at large annual cost . . . that there 
 may be a sufficient circulating medium in the hands of 
 our people. ... If we take into the Treasury large 
 amounts of these circulating media in excess of what we 
 pay out, there will soon not be money enough in the 
 hands of the people for the purposes of business; serious 
 derangement and disaster must follow, and a portion of 
 labor must cease until the very evils which this wrong 
 condition creates shall have worked a temporary cure by 
 so diminishing the consumption of food, clothing, fuel, 
 and luxuries by the taxation of which the revenues of the 
 government are raised, that taxes do not exceed the ex- 
 
 1 " American Securities,'' Wm, M. Grosvenor New York, 1885. pp. 
 216-220. 
 
 2 Report, 1S87.
 
 142 THE INDEPENDENT TREASURY. 
 
 penditures of government." Such a change in consump- 
 tion as Secretary Fairchild describes would happen only 
 in an extreme case; but it is the state of affairs which 
 the Independent Treasury and the surplus together tend 
 to bring about. To be sure, having a surplus is not an 
 essential evil of the Independent Treasury system. The 
 continual holding of a surplus by the government is a 
 policy, not a system. But if a surplus were by some 
 means kept in circulation, subject to the call of the gov- 
 ernment, the evils of hoarding, at least, would be avoided. 
 It is because it makes hoarding in the government vaults 
 possible that the Sub-Treasury system adds to the evils 
 of surplus financiering. 
 
 The operations which have been described are those 
 which would result under a system of government finan- 
 cial independence, with disbursements made at consider- 
 able intervals, and with no reference to the condition of 
 the money market or the demands of business. Such in 
 principle is the Independent Treasury system of the United 
 States. But the existence of the public debt and the 
 almost constant possession of a surplus revenue have, 
 under wise management by the various Secretaries of the 
 Treasury, made it possible to prevent the occurrence of 
 very serious disturbances from the influence of the system. 
 If this influence had been unchecked, there is no reason 
 to think that the results would have been less evil than 
 the opponents of the system prophesied at its inception. 
 But there have been forces at work that have lessened the 
 evils. The policy of the country in other lines, although 
 these have been followed without any reference to the 
 Independent Treasury, has been such as to prevent the 
 system from bearing what would be its legitimate fruits 
 if unchecked. The times of largest receipts from customs
 
 ITS INFLUENCE OX BUS IX ESS. 1 43 
 
 and of largest payments of interest and pensions, the 
 currency, the silver purchases, and the tariff, have all 
 modified the working of the system of fiscal independence 
 to a greater or less extent. It has happened that some 
 of these influences have prevented or lessened any evils 
 that the Sub-Treasury might have caused. 
 
 In the first place, the tariff and the Independent Treas- 
 ury have a certain connection. The receipts from customs 
 are prohibited by law from being deposited in the banks. 
 When, therefore, imports which are subject to taxation 
 are heavy, considerable money is locked up. This, of 
 course, if continued for a considerable period, and if dis- 
 bursements did not increase, would diminish the means 
 of paying duties, and might strongly affect the money 
 market and disarrange credit. According to Professor 
 Taussig, the tariff act of 1857 had in view the connection 
 between the tariff and the Sub-Treasury. He says: "The 
 tariff was passed with some hope that it would serve to 
 prevent the [impending] crisis. Money was accumulating 
 in the Treasury; and it was hoped that by reducing duties 
 the revenue would be diminished, money would be got 
 out of the Treasury, and the stringency, which was already 
 threatening, prevented." 1 
 
 The reduction of the tariff has often been recommended 
 as a means for preventing the withdrawal of money from 
 circulation. It is evident from our examination of the 
 subject, however, that the relief which would thus be 
 afforded would come solely from the abolition of a surplus 
 revenue. This would not do away with the irregularities 
 of action of the Sub-Treasury, which constitute the really 
 evil feature of the system. A surplus, if it were constant, 
 and fixed in amount, could be allowed for in business 
 
 1 '• Tariff History of the United States," p. 118.
 
 144 THE INDEPENDENT TREASURY. 
 
 transactions. Its creation would cause a temporary con- 
 traction of the currency, but the currency and business 
 would soon adjust themselves in harmony again, and busi- 
 ness would not be further disurbed so long as the surplus 
 did not change. The existence of a varying surplus is 
 most vicious. But the varying surplus is due to a vary- 
 ing revenue, and this in turn to the varying needs of the 
 government and the turns of business. The reduction of 
 the tariff so as to abolish the surplus, however desirable 
 for other reasons, would not do away with the evils caused 
 by the Independent Treasury, because it would not make 
 government receipts and expenditures any more regular. 
 
 The two institutions, tariff and Independent Treasury, 
 are to a certain extent antagonistic, in so far, at least, a% 
 the tariff is for the purpose of raising revenue. For by 
 locking up the customs receipts of one week, and thereby 
 reducing the money within reach for further payments, 
 the Sub-Treasury will tend to check an importation move- 
 ment sooner than it would cease if left to itself, and if 
 our currency varied with the needs of business. So far, 
 however, as the tariff is intended to check importation — 
 so far, that is, as it is purely protective — its purpose 
 harmonizes with the action of the Independent Treasury. 
 
 The working of the tariff may affect the Treasury 
 through the relation which the government holds to the 
 currency. The Treasury must always have on hand 
 enough gold to maintain payments in that metal; that is, 
 to insure the redemption of the United States notes and 
 the silver certificates. But if imports were largely to 
 exceed exports for a considerable time there might be a 
 drain on the gold in the Treasury that would make it 
 necessary for the officers of the government to take meas- 
 ures to replenish its stock of gold. This would "press "
 
 ITS INFLUENCE ON BUSINESS. 1 45 
 
 the banks and business, increase the scarcity of money, 
 raise the rate of interest and check discounts, tend to 
 depress prices, quicken exportation and check importa- 
 tion, and thus restore, on another level of prices, the 
 equilibrium of demand and supply in business. The 
 method taken to replenish the gold reserves of the gov- 
 ernment under such circumstances would depend partly 
 on the existence or non-existence of a current surplus. 
 In either case, of course, gold could be purchased. With 
 a surplus, silver certificates might be allowed to accumu- 
 late in the Treasury, as was done in 18S5. 1 This would 
 soon cause the receipts of the government to show a larger 
 proportion of gold, and so restore its reserve. If there 
 were no surplus the Treasury would have to buy gold. 
 Whichever policy were adopted, the time at which to pur- 
 sue and to relinquish it would be for the Secretary of the 
 Treasury to determine. His duty in such a case would 
 have a certain likeness to the action of the Directors of 
 the Bank of England in raising the rate of discount to 
 check the export of gold. The object of both is to pre- 
 vent the export of gold from going so far as to endanger 
 the safety of their loans. Such interference in this coun- 
 try is very rare, and together with the exaction of a pre- 
 mium on gold bars for exportation in 1890, is the only 
 means taken to prevent undue loss of gold. 
 
 The hardships caused by contraction of the currency 
 by the Sub-Treasury at a period of heavy importation 
 would be mitigated somewhat by the bonded warehouse 
 system, whereby goods may be kept in bond and the duty 
 paid at a later time. This system gives the money mar- 
 ket time to prepare for the demands to be made on it. 
 
 It is needless, of course, to point out that the evils of 
 
 1 See Taussig's " Silver Situation in the U. S. - ' Public, of the Amer. Econ. 
 Assoc, vol. vii. no. 1, pp. 31, ft.
 
 I46 THE INDEPENDENT TREASURY. 
 
 contraction caused by the absorbing action of the Sub- 
 Treasury, at a period of heavy importation, are followed 
 in due course by the evils of expansion. These latter 
 are likely to be less felt, however, than the former. For 
 the contraction takes place when money is in demand. 
 If the expansion take place at such a time it eases the 
 market; if at a time when business is dull, the money 
 simply enters the volume of inelastic currency which lies 
 inert in the channels of trade. 
 
 It has already been several times observed that there 
 is, strictly speaking, no causal connection between the 
 workings of the financial machinery of the government 
 and the demand of business for money. Yet, strangely 
 enough, the ill effects of the receipts and payments of the 
 government, in alternately contracting and enlarging the 
 amount of money available for business purposes, have 
 been modified, and to a certain extent diminished, by 
 our peculiar currency system. Bad as that system is in 
 some respects, it must be credited with some good in this 
 direction. The chief defect of our monetary system is 
 its inelasticity. The supply of money in the channels of 
 trade is that which is needed when business is brisk and 
 the demand for money is active and healthy. But there 
 is not what might be called an automatic method of con- 
 traction whereby the amount of money in circulation 
 quickly and easily becomes less when business becomes 
 dull for short periods. Our circulating medium is com- 
 posed of gold and silver coins and certificates, United 
 States notes, and national bank notes. The United States 
 notes, or greenbacks, are by law fixed in amount; the 
 silver, through its paper representatives, is, also by law, 
 continually increasing; the gold would ordinarily dimin- 
 ish only by export for investment or for the settlement of
 
 ITS INFLUENCE ON BUSINESS. 1 47 
 
 international balances, and is not, therefore, contractible 
 on the occasions under consideration ; and the national 
 bank notes grow less only by the slow and unimportant 
 means of redemption at Washington as they wear out. 1 
 There is, then, abundant provision for currency expan- 
 sion, but none for currency contraction. The only means 
 whereby this process can take place is through the absorp- 
 tion and locking up of money by the government. But this 
 mode is of course, as already shown, purely arbitrary. 
 Still, it sometimes happens that the government locks up 
 money at a time when there is a plethora in the market. 
 The process cannot then do much, if any, injury; in fact, 
 it may be a source of relief to the banks. The monetary 
 reservoir, so to speak, suffers less from loss through the 
 arbitrary government withdrawals, because it is always 
 kept at or near a maximum fulness. This inelasticity of 
 the currency implies a social loss, by keeping afloat at 
 times a larger amount of money than is necessary; but, 
 on the other hand, it lessens the severity of contraction 
 by the Treasury. 
 
 The times of the year when money is least needed, and 
 when it accumulates in the vaults of the banks, are, ap- 
 proximately, in January, the summer months, and towards 
 the end of October and the beginning of November. The 
 plethora of currency in the summer is due : (1) to the 
 semi-legal-tender character conferred on national bank 
 notes by the law, which compels every bank to receive 
 the notes of every other bank at par. The consequence 
 of this is that the notes of the country banks are not sent 
 home in the summer; (2) to that provision of the law 
 whereby deposits in reserve cities count as reserve both 
 
 1 Of course the final retirement of the national bank notes is not a phase of 
 the elasticity of the currency here intended.
 
 148 
 
 THE INDEPENDENT TREASURY. 
 
 for the reserve bank and for the country banks making 
 the deposits ; (3) to the payment of interest by the banks 
 on deposits subject to call. The diagrams pp. 149 and 150 
 show the course of the reserves more clearly. The figures 
 from which the curves are drawn are given in number iv. of 
 the Appendix. The first cut represents the monthly move- 
 ment of the surplus reserve of the New York Associated 
 banks for the years 1888, 1889, 1890, 1891; the second 
 shows the course of the average monthly surplus reserve 
 of these banks for the four years named. It is computed 
 by adding the figures for each month for the four years 
 and dividing by 4. 
 
 No one is benefited by the seasons of extreme ease; for 
 as money accumulates in New York only because it is 
 not wanted in the interior, the producing and mercantile 
 classes outside of New York get no benefit from the low 
 rates of discount which the accumulations produce. But 
 when a stringency occurs, on the other hand, it generally 
 affects all. The injury of the stringencies is not com- 
 pensated by the ease of the money market at the times of 
 great accumulation. 
 
 The following diagram shows the average course of the 
 monthly receipts from customs for the years 1888, 1889, 
 and 1891. The year 1890 is left out of account as being 
 somewhat anomalous. 
 
 
 
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 THE INDEPEXDENT TREASURY. 
 
 
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 The customs receipts rise, as the chart shows, from 
 May until September. This means, of course, that dur- 
 ing the intervening months the government is locking up 
 money and contracting the currency. This action must 
 at times have proved a relief to the banks, especially in 
 New York City, by withdrawing a part of the money 
 which would otherwise have lain idle in their vaults. 
 But, on the other hand, it must have tended to render 
 the banks less able to meet the usual fall demand for 
 money to ''move the crops." Indeed, in some years, as 
 1888 and 1889, "the crop movement and fall business
 
 ITS INFLUENCE ON BUSINESS. I 5 I 
 
 have depended wholly upon the elasticity government 
 disbursements have given the currency. . . . There was 
 a time when the Treasury accumulated the idle currency 
 in the summer months and disbursed it in the fall." 1 
 Hence it has been necessary at many times to rely on the 
 Treasury to supply the whole, or the greater part, of the 
 money needed to keep up the bank reserves when they 
 were being drained by the interior demand in the fall. 
 But for the Independent Treasury the autumnal drain 
 would all have fallen on the banks, and they were usually 
 not very well prepared to meet it. There seems, however, 
 no good reason for thinking that, as has sometimes been 
 said, the banks carelessly depleted their reserves by dis- 
 counting too freely in the summer months, and that they 
 were therefore unable to meet the drain in the fall. 
 If there had been no way except ordinary payments for 
 the Treasury to let out again the money it had absorbed, 
 evidently distress would have been caused. But two 
 channels were open for the outflow : in the first place, 
 the Treasury could purchase bonds, and this was the 
 usual policy in the autumn for some years; in the sec- 
 ond place, the accumulations of the government could 
 again be put within the reach of business by depositing 
 them in the banks. This policy has been followed, as 
 we have already seen, to a greater or less extent, accord- 
 ing to the views of the different Secretaries of the Treas- 
 ury. But as the premium on United States bonds has 
 risen, it has not been profitable for the banks to buy them 
 for deposit as security for government money committed 
 to their care. Moreover, as the only public money that 
 can legally be deposited in banks is that derived from 
 
 l N. Y. Commercial and Financial Chronicle^ February, 1S90. See Ap- 
 pendix, p. vi.
 
 152 THE INDEPENDENT TREASURY. 
 
 internal revenue, it is possible that, in some cases, the 
 receipts would come in so slowly that the banks would 
 lose from having to deposit bonds to a sufficient amount 
 in advance. 
 
 Still another preventive of stringency in the fall has 
 been found in the timely occurrence of the heavy govern- 
 ment payments for pensions and interest. Disbursements 
 for these purposes often swelled at times when they could 
 do great good. The pensions and the interest on the 
 four and one-half per cent, bonds of 1891 were payable in 
 March, June, September, and December, and were a 
 source of monetary relief that could be depended on. The 
 interest on the four per cents was paid in January, April, 
 July, and October. So far as the influence of these pay- 
 ments was concerned, that of October would continue 
 the relief afforded by the September payments. Now 
 that the four and one-half per cent, bonds have been 
 paid, there will be no further relief from these inter- 
 est payments in September. But since the redemption of 
 these bonds it has happened that the financial condition 
 of the government has changed. The receipts from 
 customs have fallen off owing to the high rates of the 
 McKinley tariff law, and the expenditures have largely 
 increased, thus reducing the surplus and making income 
 and outgo more nearly equal. The equalization of pay- 
 ments and receipts in the course of a year will not, how- 
 ever, as we have seen, prevent the financial operations 
 of the government from exerting an influence on the 
 money market. For it is still necessary for the Treasury 
 to accumulate in advance a sufficient amount of money to 
 make payments of interest and pensions quarterly. The 
 irregularities of its operations due to the public debt 
 will not, indeed, be so great as hitherto, yet they may
 
 ITS INFLUENCE ON BUSINESS. 
 
 153 
 
 be sufficient to cause occasional disturbance. The only 
 interest payments of importance are those on the four per 
 cent, bonds, due in January, April, July, and October of 
 each year. The January payments come at a time when 
 the demand for money is slackened, and so money accu- 
 mulates for a time in the banks, as is shown by the 
 increase in their reserves. The April disbursements 
 coincide usually with the demand for money for the spring 
 trade, and are thus a positive help to the market. The 
 outpour of July falls on a lethargic market and goes to 
 swell bank reserves already usually larger than the banks 
 desire at that season of the year. The October payment, 
 as we have already noted, is timely in meeting the usual 
 "fall demand." 1 
 
 l The average course of government disbursements for the four years, 1888, 
 1889, 1890, 1S91, is shown in the diagram herewith : — 
 
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 ILi 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 154- THE INDEPENDENT TREASURY. 
 
 The disbursements for pensions increased some eigh- 
 teen millions of dollars for the fiscal year 1891, and will 
 increase rapidly for some years to come. This increase 
 will work to keep up the irregular influence of government 
 financial operations in the money market, yet possibly to 
 a less extent than hitherto. For a new policy in the 
 payment of pensions has recently been adopted. Pay- 
 ment of pensions is made quarterly from each pension 
 agency, as heretofore, but not from all the agencies at 
 the same time. Payment is made from some agency 
 every month. The consequence is that payments of pen- 
 sions are distributed more equably through the year, and 
 therefore they will doubtless cause less disturbance in 
 the future. 
 
 In its connection with the currency the Independent 
 Treasury is the source of another danger. It is due partly 
 to the existence of the Sub-Treasury system that the 
 country has been forced into its present silver policy. 
 The sentiment which brought about the effort of the gov- 
 ernment to " maintain " silver could not have been so suc- 
 cessful but for the fact that the Treasury is the keeper and 
 disburser of its own money. If, for example, the trans- 
 actions of the government had been conducted through 
 a national bank, as formerly, public opinion would never 
 have permitted so long a period of irredeemable paper or 
 a forced issue of depreciated silver. For the gain from 
 them, whether real or imaginary, would have been, at 
 least partly, secured by the bank. But the issue of notes 
 by the government, and the forced issues of silver, receive 
 a certain support in popular opinion because the profits 
 accrue to the government. It would have been possible, 
 under a system that used banks as the issuing agents of the 
 government, to secure most of this advantage while avoid-
 
 ITS INFLUENCE ON BUSINESS. I 55 
 
 ing the incidental evils which the course pursued has 
 produced. It is not meant, of course, that the policy 
 actually pursued with reference to paper and silver would 
 have been impossible under a national bank; but it would 
 have been much less likely to be suggested or supported. 
 So long as the government maintains a "bank" of its 
 own, so long will its stockholders, the people, or a certain 
 section of them, insist on doing for profit a banking busi- 
 ness on the lines which, followed too far, inevitably bring 
 disaster. 
 
 Under the Independent Treasury system the govern- 
 ment must itself maintain the gold standard. But it can 
 do so only if its receipts are in gold to a sufficient degree. 
 Professor Taussig shows l that it was saved from forced 
 silver payments in 1885 only because the surplus revenue 
 enabled it to accumulate gold. Now that the surplus is 
 wiped out, this source of safety for the money standard is 
 weakened, and the difficulty of maintaining the standard 
 will increase. 
 
 In another way still, the surplus has prevented the 
 Independent Treasury from exerting the full effect which 
 it would otherwise have had. While the surplus is to a 
 certain extent chargeable with intensifying the contrac- 
 tions which the operation of the Treasury at times tends 
 to produce, it has also afforded a means of relief when the 
 acute stage of the demand for money has come. Without 
 the public debt and without a surplus to redeem it, the 
 Treasury could never have afforded the help in stringen- 
 cies which it has so often given. But this very cure of 
 the evils of contraction may be, to a certain extent, its 
 cause. A surplus can exist only because money is taken 
 
 l " The Silver Situation." Public, of the Amer. Econ. Assoc, vol. vii., 
 no. 1.
 
 156 THE INDEPENDENT TREASURY. 
 
 out of circulation and locked up for future use, a process 
 which means contraction. The evil effects of the sur- 
 plus policy in contracting the currency are in some degree 
 counteracted by the arbitrary enlargement of the circulat- 
 ing medium from the monthly additions of silver, and 
 from other new coinage. When disbursements come, how- 
 ever, inflation is rendered still greater by these additions. 
 
 If the currency of the country were wholly created by 
 commerce for its own needs, adapted entirely to those 
 needs, and possessing the elasticity which such a currency 
 would have, the action of the Independent Treasury would 
 be more clearly seen. In that case it would correspond 
 more exactly with the absorptions and disbursements, 
 diminutions and swellings, of the money in circulation, 
 for short periods of time. The new coinage made in 
 response to commercial demand, and the export and im- 
 port of gold and silver, would still have to be allowed 
 for; but the alternate issue and redemption of bank 
 notes, under such a currency system as we suppose, would 
 respond quicky to the variation in the demand caused by 
 the Sub-Treasury, and so would reflect its action much 
 more clearly. 
 
 In the few years just before the war, when the currency 
 was more elastic, the action of the Sub-Treasury on the 
 money in circulation must have been much more close 
 and direct. At that time, however, the financial operations 
 of the government were, comparatively, so small that the 
 amount of its alternate subtractions from, and addition 
 to, the money afloat could not have done much harm ; 
 and since the war, as has been shown, its influence has 
 been largely modified by causes many of which, though 
 they would be called bad if considered by themselves, 
 have, as it were, so considerably offset the evils of one
 
 ITS INFLUENCE ON BUSINESS. I 57 
 
 another as to produce a condition on the whole not very- 
 vicious. 
 
 Other causes which prevent the variations of the amount 
 ot money in the channels of commerce from correspond- 
 ing with those of the government cash holdings, and have 
 modified the influence of the Sub-Treasury, are the 
 monthly injection of silver, the changes in the national 
 bank circulation, and the exportation or importation of 
 gold; and even when allowance has been made for all 
 these, the effects of new coinage and of hoarding would 
 cloud the working of the system. The combined action 
 of the silver issues, and the movement of the national 
 bank notes, sometimes diminishes very much the contrac- 
 tion which government receipts would otherwise cause. 
 For example, during October, 1890, the gain by the Sub- 
 Treasury amounted to $5,154,374. But not this amount 
 was lost to commerce during that time. For during 
 the month silver certificates were issued to the amount 
 of $5,880,000, and national bank notes were retired to 
 the amount of $2,114,142. The net gain in currency 
 afloat from these last two movements was $3,765,858, 
 which, deducted from the Sub-Treasury withdrawals, 
 leaves the net loss of money afloat $1,388,516. If the 
 changes in the currency were responsive to the demands 
 of commerce, as they would be under a monetary system 
 purely commercial instead of partly political, as ours is, 
 the demand of business for money would still have been 
 unsupplied, 1 by just the amount of the Sub-Treasury with- 
 drawals ; under our system the occasions when money de- 
 mand and money supply are not in equilibrium are likely 
 to be much more numerous. At the time mentioned the 
 demand for money was active because imports were rising 
 
 1 On the basis of existing prices, of course.
 
 158 THE INDEPENDENT TREASURY. 
 
 to anticipate the operation of the McKinley tariff, and it 
 is altogether likely that the whole increase of money dur- 
 ing the month was needed, and would have been used, 
 had the Sub-Treasury not put it out of reach. 
 
 On the contrary, it is clear that under other conditions 
 — when, for instance the demand for money is slack — 
 the issue of silver to an amount greater than the national 
 bank notes retired is not needed, and the Treasury ab- 
 sorption relieves the plethora of currency. But which- 
 ever way the changes may work, there is no necessary 
 connection between the money demand, the money supply, 
 and the action of the Sub-Treasury ; that action is there- 
 fore just as likely to injure as to help the market for the 
 time being. 
 
 The Independent Treasury also enhances the difficulty 
 of the management of the public debt. The Secretary of 
 the Treasury must proceed carefully so as to prevent the 
 withdrawal of too much money for the accumulations from 
 which to pay interest and to purchase bonds for the sink- 
 ing fund. He must make his withdrawals and disburse- 
 ments as equable as possible. 
 
 The Independent Treasury, in connection with a sur- 
 plus revenue, is responsible for the policy of forced debt 
 payment. When the surplus grows large the Secretary 
 of the Treasury is compelled to get rid of some of it by 
 purchasing bonds, even though he must pay large pre- 
 miums to do so. In 1889, for example, the Secretary 
 received and disbursed nearly half a million dollars a day, 
 and so had to find and buy one or two millions of bonds a 
 week, in order not to withdraw a dangerous amount of cur- 
 rency from commerce. A possible result of such pur- 
 chases is to raise the price of the bonds so that it will 
 not pay the national banks to deposit them as security for
 
 ITS INFLUENCE ON BUSINESS. 1 59 
 
 circulation ; and the consequence would be a retirement 
 of bank notes and a contraction of the currency, or, at 
 least, a prevention of its expansion in a time of need. 
 
 The great cause of mischief in the Sub-Treasury system, 
 as has already been emphasized, is in the fact that while 
 the receipts of the government are daily, its payments 
 occur only at intervals. If these intervals could be short- 
 ened sufficiently, the harm done might be made to disap- 
 pear; if, for instance, the Treasury could pay its bills 
 weekly, or even monthly, its influence on the money 
 market would be far less. The chief items in the irregu- 
 larity of the treasury action are pensions, interest, and 
 purchases of bonds for the sinking fund. With regard to 
 pensions, a step has recently been taken in the right 
 direction by paying part of them each month; but the 
 great increase in the pension roll will neutralize, at least 
 in part, the benefit that the change would otherwise pro- 
 duce. The interest payments are still made quarterly, 
 and money must be gathered for the purpose, and also 
 for the purchase of bonds. As the debt grows less 
 the influence of these payments on the money market 
 will decrease. If Congress could be said to have a defi- 
 nite financial policy, so that the action of one session 
 could be looked on as indicative of its future course, we 
 might infer from recent legislation that the irregularities 
 due to debt payment will be less than hitherto. For the 
 late drift of events — the enlargement of appropriations 
 and the reduction of income by the McKinley tariff — 
 might then be regarded as foreshadowing a period of slow 
 debt reduction. This would preserve somewhat longer 
 our national banking system, and would enable the gov- 
 ernment, if so it chose, to make a larger use of these 
 banks as depositories, and the slower payment of the
 
 l6o THE INDEPENDENT TREASURY. 
 
 debt could be so adjusted as to cause less irregularity. 
 But no such dependence can be put on Congressional 
 action as to warrant an inference like this. 
 
 The causes which have modified the action of the Sub- 
 Treasury have prevented the monthly variations in the 
 net government holdings of cash from corresponding 
 necessarily with the gain or loss of money to business 
 from government operations. Hence, one set of changes 
 cannot always be learned from the other. The difference 
 between the two sets of changes is often increased by the 
 fact that the disbursements reported as being made in one 
 month may not appear until the following month. The 
 checks issued for pensions, for example, are some time 
 in returning through the banks to the Sub- Treasury for 
 payment. Meantime the money against them remains 
 still in the vaults of the Treasury. The effect of large 
 reported disbursements or absorptions may not appear, 
 therefore, for some little time after they are nominally 
 made. For example, in March, 1889, the decrease in the 
 Sub-Treasury holdings was $31575,519; the decrease in 
 depository bank holdings was $986,743 ; total, $4,562,262. 
 Yet according to the monthly statement, the receipts of 
 the Treasury were $31,014,000; and the disbursements, 
 $17,383,000. These figures make it appear that the 
 Treasury absorbed $9,139,000, whereas it actually had a 
 net loss of $4, 562, 262. 1 
 
 We see, then, that the evils which the Sub-Treasury 
 might naturally be expected to produce have been largely 
 neutralized by a series of lucky accidents, as it were; 
 for it can hardly be claimed that the various parts of our 
 financial system and policy have been framed with refer- 
 ence to one another so as to offset one another's ill effects 
 
 1 See also page S9.
 
 ITS INFLUENCE ON BUSINESS. l6l 
 
 and produce a system good on the whole. Several parts 
 of that system are bad, notably our currency and the Inde- 
 pendent Treasury, in some of its influences. Yet they have 
 to a certain extent corrected one another. We can hardly 
 expect, however, that the balancing of these influences 
 against one another can continue in the future, nor would 
 it be desirable that it should. It would be unscientific 
 and dangerous to rely on mere contingencies for the pre- 
 vention of financial evils, if we can see the defects in our 
 system and provide a remedy. 
 
 Irregularities of absorption and disbursement cannot 
 be prevented. They occur with all governments. It is 
 not practicable for the government to pay its bills with 
 sufficient frequency to prevent the locking up of consider- 
 able sums for periods long enough to affect the market, 
 especially when it is sensitive. This feature of temporary 
 withdrawals of money is inherent in the " independent ,; 
 system of government management of its own receipts. 
 and renders impossible the prevention of the evils which 
 arise from contractions and expansions of the currency 
 that are independent of the state of trade. Some method 
 of keeping the public money should therefore be sought 
 which will do away with these evils.
 
 1 62 THE INDEPENDENT TREASURY. 
 
 CHAPTER VII. 
 
 THE RELATION OF THE INDEPENDENT TREAS- 
 URY TO CRISES. 
 
 IT remains to trace the influence of the operation of the 
 Independent Treasury under the unusual conditions 
 of a monetary stringency or crisis. At such times, when 
 the crisis becomes acute, the business community is 
 accustomed to look to the Treasury for lrlief, and on sev- 
 eral occasions this relief has been obtained. When credit 
 has been strained to its utmost, and has been on the point 
 of breaking down, when the money basis of the industrial 
 pyramid has become too narrow and too weak to support 
 the great fabric reared upon it, then the accumulated 
 surplus of the government has been poured through the 
 doors of the Sub-Treasury, and has saved business from 
 a collapse. This is, of course, a real benefit, and it is 
 pointed to as an advantage of the system. 
 
 The policy of government action in times of commercial 
 distress is not new. Our people have long relied on 
 Washington for aid in such difficulties, and especially 
 since the "divorce of bank and state," which was pro- 
 claimed to be a necessary part of "government by the 
 people." "It has been the uniform policy of the govern- 
 ment, when possible, in all commercial crises from 1846 
 to the present time." 1 
 
 There are several ways in which the power of the gov- 
 
 1 Secretary Windom : Report, 1S90.
 
 ITS RELATION TO CRISES. 1 63 
 
 ernment has been, or may be, brought to bear in a crisis. 
 A government whose fiscal operations are independent of 
 banks may relieve a protracted stringency by requiring 
 dues to it to be paid in coin. Under the influence of such 
 a requirement specie will be drawn from hoards, or from 
 abroad, and the government can then put the metal in 
 circulation by means of its disbursements. At least a 
 part of the specie so disbursed will be likely to remain in 
 circulation. And even if it should not, its transitory cir- 
 culation will accomplish some good. 
 
 Again, the government may exercise a restraining 
 influence on the banks, retarding discounts and so check- 
 ing speculation, by absorbing for a time more money than 
 it disburses; it may cheapen domestic exchange by itself 
 doing a transfer business at low rates or even gratuitously, 
 thereby promoting the flow of money from places where 
 it is abundant to places where it is scarce: it may supply 
 money by anticipating payments of interest on its debt, 
 by adapting other payments to the condition of the market, 
 and by the purchase of bonds: it may deposit the public 
 money in banks, and allow the banks to use the deposits 
 as a basis for making loans; and, finally, it may offer to 
 increase the supply of currency by converting interest- 
 bearing bonds into non-interest-bearing treasury notes. 
 This last method has never been used in this country, 
 although something analogous to it was advocated in 
 
 1S73- 1 
 
 When the country was laboring under a suspension of 
 specie payments by the banks, under the administration 
 of President Van Buren, there is no doubt that by the 
 payment of its ordinary obligations in specie the govern- 
 ment exerted an influence in putting in motion a small 
 
 1 See Adams's "Public Debts." pp. 214. 215.
 
 1 64 THE INDEPENDENT TREASURY. 
 
 stream of the metals, which "gradually assumed larger 
 dimensions," and furnished a measure of relief. The 
 action of the government at this time was beneficial in 
 two ways: it relieved the stress, and, by its method of 
 doing this, promoted the restoration of specie payments. 
 
 To be sure, the Independent Treasury was not estab- 
 lished at this time, yet it virtually existed; for on the 
 occurrence of the suspension in 1837 only six banks main- 
 tained specie payments and so continued to be government 
 depositories; and while the Secretary of the Treasury was 
 unable to find banks in which he could legally deposit, 
 he kept part of the public money on special deposit in 
 Washington, while the rest was left in the hands of the 
 collecting officers. 1 
 
 The panic of 1S37 was hastened and intensified, in 
 this country, by the great inflation of the currency 
 which occurred under the influence of the ''mushroom 
 crop " of banks that sprang up immediately after the 
 downfall of the United States Bank. The bank paper in 
 circulation increased from eighty-two million dollars in 
 January, 1835, t0 one hundred and eight million dollars 
 in January, 1836, and to one hundred and twenty million 
 dollars in the following December. Within the same 
 period the per capita circulation grew from seven dollars 
 to nearly ten dollars. The specie in the banks rose only 
 two millions in the meantime, and that in circulation 
 increased from eighteen to twenty-eight millions. Thus 
 the currency was almost entirely bank paper; and when 
 the bubble of speculation built on it burst, many of the 
 notes became worthless, and most of them very much de- 
 preciated. So great was the burden of dishonest credit 
 that resumption would have been exceedingly difficult for 
 
 1 Finance Report, 1837.
 
 ITS RELATION TO CRISES. 1 6$ 
 
 the banks had they been unaided. But the government 
 receipts and payments were by law required to be in 
 specie, or in treasury notes equivalent to specie, and a 
 steady stream of good money was thus kept in circu- 
 lation, part of which was within reach of the banks, 
 and undoubtedly made their task of resumption easier. 
 The specie drawn out by the government demand must 
 have come from hoards, or must have been imported, and 
 so formed a clear addition to the metallic currency afloat. 
 The government furnished a superior currency which com- 
 peted with the bank notes and to a certain extent restrained 
 them. 
 
 However, the conditions which prevailed at that time 
 were such as need not now be contemplated. A general 
 failure to redeem the bank notes of the country, so long 
 as there is no suspension of specie payments by the gov- 
 ernment, is now impossible, certainly in a time of peace; 
 and there are many reasons for doubting whether, under 
 modern industrial and commercial conditions, suspension 
 i3 necessary in a great and strong country like the United 
 States, even in a time of war. 
 
 At the time we are considering, the banks could pro- 
 mote speculation both by over-issues of notes in "cash" 
 loans, and by book-credit discounts. 1 It was with the 
 " cash " loaned by the banks that the specie of the govern- 
 ment came, so to speak, into competition for use, and so 
 tended to restrain it. But an over-issue 2 of notes could 
 
 1 That is, the banks made loans both in the form (if credit on their books, 
 and in the form of actual cash, so called. The latter consisted of the bank"s 
 own notes ; and, in many cases, banks extended their loans of this kind to 
 indefinite amounts, by issuing notes without regard to the amount of their 
 reserves. 
 
 ' The over-issue here meant is an issue unduly large in proportion to the 
 reserve. The issues of the old State banks were " over '"-issues, both iH this
 
 1 66 THE INDEPENDENT TREASURY. 
 
 not occur under our existing currency system, because 
 notes are not issued against deposits but against capital ; 
 and hence speculation cannot be promoted in that way. 
 Even if it could, no competition between government cur- 
 rency and bank currency, on the score of the greater 
 security of the former, could take place now, because the 
 bank notes are virtually government notes; therefore the 
 bank issues could not now be restrained by such a com- 
 petition. So far as the banks foster speculation under the 
 present law, they do it by book-credit discounts based on 
 their deposits, and the Independent Treasury can check 
 their operations only by absorbing the specie which would 
 otherwise go into their reserves. Consequently, whenever, 
 under present conditions, government disbursements of 
 specie are a source of relief in crises, they are so, not 
 because they bring specie into circulation to replace dis- 
 credited paper, but simply because they put back into 
 circulation what they have previously withdrawn, and so 
 restore the volume of currency to a correspondence with 
 the more active demand for money. The mode of relief 
 which came in 1837 from the government insisting on 
 receiving and disbursing only specie is, therefore, not 
 possible now. 
 
 sense and in the sense that they were more than enough to meet the need for 
 money for purposes of legitimate business. An over-issue in this latter sense 
 would be possible even under a system of notes secured by government bonds. 
 It could occur, for instance, if the amount of notes permitted to be issued were 
 considerably more than the par value of the bonds, or if the amount of issue 
 were equal to the par value of the bonds, and the bonds were greatly depre- 
 ciated. In either case there would be a wide margin of notes practically 
 unsecured, which, under favorable conditions therefor, might be forced into cir- 
 culation. This would constitute an " over-issue, r ' and would promote specula- 
 tion. But the actual restrictions of our banking law preclude the occurrence of 
 such conditions. Moreover, since the bank notes are redeemable by the gov- 
 ernment, and supported by the credit of the government, they are as good as 
 government notes themselves, and would not suffer from competition with 
 them.
 
 ITS RE L All OX TO CRISES. 1 67 
 
 The second mode in which the Independent Treasury 
 may exert a beneficent influence in a crisis is, as has just 
 been said, by exercising a restraining influence on the 
 banks. The theory of this action is that by absorbing 
 money the Treasury makes it harder for the banks to get, 
 and that they, in consequence, do not discount so freely. 
 Speculation, therefore, it is argued, is checked and the 
 crisis is so far retarded. Of course any effect of this kind 
 is produced only if the current receipts of the government 
 exceed its expenditures; that is, if a surplus is accumu- 
 lating. There is no doubt that under proper conditions the 
 influence exerted by the Sub-Treasury in this way would 
 be beneficial. If the government were absorbing money 
 at a time when business was entering on a stage of specu- 
 lation that was forcing up prices, evidently there would be 
 two sources of drain on the money market; namely, that 
 caused by speculative borrowers, and that caused by lock- 
 ing up money in the Treasury. The existence of the lat- 
 ter would prevent the former from going as far as it 
 otherwise would do ; for it would diminish the bank 
 reserves, and so raise the rate of discount, and make 
 borrowing more difficult. The result would be a dimi- 
 nution of loans to speculative buyers, which would cause 
 them to lessen their demand for the commodities in which 
 they were speculating, and so retard the inflation of 
 prices. Some such influence was exerted in 1854. The 
 bank circulation then was set at $204,689,209, and the 
 gold and silver in the country at $241,000,000.* The ten- 
 dency was for the bank paper to drive specie from circula- 
 tion; but the requirements of the government for specie 
 had a counteracting effect. The receipts of the Treasury 
 amounted to over seventy-five million dollars, in coin, 
 
 1 Finance Report, 1854, p. 15.
 
 1 68 THE INDEPENDENT TREASURY. 
 
 for the fiscal year 1854, and this had an influence that 
 "kept up the demand for coin, and prevented the bank 
 circulation from obtaining the mastery." When the 
 Independent Treasury works so as to produce such 
 results it is to be commended. This restraining influ- 
 ence on the banks is what Secretary Guthrie had in mind 
 when, in his report for 1855-56, he wrote: "The Inde- 
 pendent Treasury, when over-trading takes place, gradu- 
 ally fills its vaults, withdraws the deposits, and, pressing 
 the banks, the merchants and the dealers, exercises that 
 temperate and timely control, which seems to secure the 
 fortunes of individuals, and preserve the general pros- 
 perity." While, however, we may readily admit that the 
 action of the Independent Treasury sometimes produces 
 such results, yet whether it actually does so in any given 
 crisis is a question of fact to be proved; and that it might 
 operate in an opposite way, intensifying the distress, and 
 making the crisis more acute, is a possibility that must be 
 recognized and its conditions defined. What these con- 
 ditions are will appear when we examine the general 
 effects of the sale of bonds for the relief of the market. 
 
 On the face of the matter it would seem that perhaps 
 the simplest and most obvious way for the government to 
 give relief in a crisis, is for the Treasury to deposit its 
 money in the banks. This does not mean depositing in 
 ordinary times when business is quiet; that is a matter 
 which will be considered in another connection. The 
 deposits here meant are deposits of surplus revenue for 
 the express purpose of relieving the business community 
 in a financial storm. 
 
 There are certain objections to such a mode of afford- 
 ing help to business when it is distressed. In the first 
 place, the only deposits of considerable amount that can
 
 ITS RELATION TO CRISES. 1 69 
 
 be made in the banks, under the law, are receipts from 
 internal revenue; it is not the practice to transfer money 
 already in the Treasury or a Sub-Treasury for deposit in 
 the banks. Consequently the deposits would come into 
 the banks too slowly to be of much use in meeting a panic. 
 
 There is, however, a still more serious objection to the 
 deposit of the public money in banks for the purpose of 
 aiding an embarrassed market. Under our present usury 
 law no bank which received such deposits could raise its 
 rate of discount above the legal rate in the State in which 
 the bank is located. The banks could not, therefore, 
 unless by evasion of the law, apply the well-known rule 
 to discount in the face of a panic freely, indeed, but at a 
 rate of discount that rises, within certain limits, as the 
 stress increases. Hence the limit of help which the banks 
 could give with the public money deposited with them 
 would be the relief of a strain whose intensity would be 
 measured by that rate of discount, supposing the law were 
 not evaded. The demand for loans at six or seven per 
 cent., the usual legal limits, would be very large, and all 
 the money to loan would soon be absorbed, a large part 
 of it by those whose financial salvation did not depend 
 on getting it; while others who were on the brink of 
 ruin would be unable to borrow, even although they 
 could and would have paid a higher rate of interest, had 
 the law allowed, by outbidding those who were not really 
 in dire need of the money. If, on the other hand, the 
 banks charged higher rates, public opinion would not 
 tolerate at all the free use of the public money by them. 
 Furnishing relief to the money-market by depositing the 
 public money in banks cannot, then, be very serviceable, 
 under existing conditions. 
 
 The other methods mentioned as being at the command
 
 170 THE INDEPENDENT TREASURY. 
 
 of the Treasury for influencing the money market are rather 
 methods of direct relief than methods of prevention, palli- 
 ative rather than deterrent. They partake, indeed, of both 
 characteristics; for aid in transfers, the "timing" of in- 
 terest and other payments, and the purchase of bonds, may 
 be utilized in anticipating commercial distress. Gener- 
 ally, however, they have been measures of relief when the 
 storm was on. 
 
 By the timing of payments is meant simply that a cer- 
 tain latitude is observed in paying debts. There are 
 generally some debts the payment of which can legiti- 
 mately be hastened or deferred for a short period like 
 a few weeks. The plan in practice has consisted in 
 throwing the payments of one month into the month fol- 
 lowing. Thus in the latter part of November, 1889, 
 the Secretary of the Treasury 1 issued a large number of 
 transfer checks so late in the month that they could not 
 well be returned for payment until December. 2 But 
 December is a month in which money is usually in great 
 demand, and the throwing of the November disbursements 
 into December helped to keep the market more equable 
 than it would have been otherwise. 
 
 When disbursements have been hastened by the Treas- 
 ury for the purpose of assisting the money market they 
 have generally taken the form of prepayments of interest 
 on the public debt. Such prepayments have, at times, 
 done some good, but for affording relief to any great 
 extent they cannot be relied on. This plan "must always 
 be a lame method for relieving the government of its 
 surplus, unless the inducement offered is greater than 
 now, as it interferes with the free sale of bonds." 3 
 
 1 Mr. C. S. Fairchild. 
 
 2 See New York Commercial and Financial Chronicle, Jan. 5, 1890, p. 4. 
 8 Commercial and Financial Chronicle, Sept. 17, 1887.
 
 ITS RELATION TO CRISES. \Jl 
 
 It is unfortunate that the government should be com- 
 pelled to resort to such paltry practices in consequence 
 of defective financial machinery. The whole process of 
 "timing" payments is too artificial to be commended. 
 It ought not to be necessary. Government payments 
 should be made when they are due. Anticipation and 
 postponement are alike evil; the one is a wrong to the 
 people, the other, to the public creditors. This remark, 
 however, is of course applicable only to regular payments, 
 not to the purchase of bonds for the sinking fund, which 
 may be made at the fittest time. 
 
 The practice of transferring money for individuals and 
 firms was originally adopted by the government, not for 
 the purpose of providing a more even or proportionate 
 distribution of currency, in order to aid the market, but 
 simply as a measure for forcing silver into circulation. 
 In 1880 the government offered to pay silver dollars or 
 certificates free of charge at interior points where there 
 was a sub-treasury or United States depository, in 
 exchange for gold paid in at the sub-treasury in New 
 York. 1 But the practice was evidently available as a 
 means of distributing money to relieve a local stringency. 
 Advantage would be taken of the offer of the government 
 whenever the demand for money in the places to which 
 free transfers could be made was at least great enough to 
 cause exchange on these places to be at a premium at the 
 points whence the money was to come. 
 
 The rationale of the system of currency transfers is 
 found simply in the use by the government of its power 
 to facilitate exchange, in order to transfer funds rapidly 
 and at nominal cost from places where they are idle or 
 
 1 See Taussig's " The Silver Situation " (Publications of American Eco- 
 nomic Association, vol. vii. no. 1, 1892),
 
 172 THE INDEPENDENT TREASURY. 
 
 little needed to places where they are urgently needed. 
 The system was developed in the financial distress of 
 the winter of 1890-91, by the use of the telegraph to 
 make the transfers of money. In addition to the relief 
 afforded at that time by the actual transfer by telegraph 
 of some three millions of dollars from San Francisco to 
 New York, the situation was doubtless considerably eased 
 by the knowledge that similar action would, if necessary, 
 be taken at other points. 
 
 The method of government transfer has merit, especially 
 for moments of special acuteness of strain in the money 
 market, in those cases where a stringency, instead of 
 being general in its severity, has a centre, or a few cen- 
 tres, of greatest intensity, as was doubtless the case in 
 the winter of 1890. It was in New York City that distress 
 was most severe, and where relief was consequently most 
 needed. The effect, of course, is simply to relieve the 
 strain by making the distribution of money more equable. 
 But the very strength of the practice is also its source 
 of weakness. Aside from the fact that it trenches on 
 the legitimate business of the banks, it is objectionable 
 also because the relief afforded at one place is afforded 
 at the expense of other places; and its limit, of course, 
 is reached in the transfer of such funds only as will not 
 cause distress at the points whence the money is drawn. 
 As soon as the legal reserves of the banks there are 
 trenched on, or even threatened, the movement has 
 attained the limit of its benefit. The San Francisco 
 banks objected to the telegraphic transfers of 1890-91 on 
 this very ground, that they depleted their reserves. 
 
 Moreover, on general principles, the system cannot be 
 commended. For unless the amount of money trans- 
 ferred, free of charge, to the community suffering from a
 
 ITS RELATION TO CRISES. 1 73 
 
 stringency, were sufficient to supply all borrowers, there 
 would be danger of intensifying the distress. The free 
 transfer of money in such a case would demoralize ex- 
 change on the place where the stringency existed, and 
 make the terms harder for borrowers. In short, the prac- 
 tice is a violation of the oft-quoted principle of good 
 banking, that in a stringency, or crisis, or panic, money 
 enough for all necessary purposes should be offered for 
 loan, but on terms so hard that only those in real need 
 will seek to borrow. Finally, if the financial strain were 
 due to the locking up in the Sub-Treasury of money needed 
 to restore the currency to its normal volume, 1 complete re- 
 lief by the method of currency transfer would be impossi- 
 ble, because the transfers do not add to the volume of 
 money afloat; and the furnishing of only partial relief, 
 of help that stops short of the complete restoration 
 of confidence, may react in a distress more acute than 
 before. 
 
 The other mode of affording relief to a straitened 
 market is by the purchase of bonds with money which 
 has accumulated in the Treasury. Evidently if there is 
 no surplus no relief can be furnished in this way. It 
 is on the existence of the policy of surplus financiering, 
 as much as on the existence of the Independent Treasury, 
 that the efficacy of this mode of relief must depend. If 
 that policy were abandoned, aid could be rendered in this 
 way only from temporary surpluses that happened to 
 accumulate in hard times, and the scope of this influence 
 would be materially diminished. On the other hand, the 
 policy of surplus financiering, if there were no Independ- 
 ent Treasury, would not by itself be a sufficient condition 
 
 1 That is, the amount needed for the current volume of commercial transac- 
 tions.
 
 174 THE INDEPENDENT TREASURY. 
 
 for relief from the government; for the existence of a 
 surplus, if it were already deposited in the banks, would 
 not make it possible for the Treasury to help the money 
 market. It is the existence of a surplus in the vaults of 
 the Independent Treasury that confers on the government 
 the power of easing a panicky market. 
 
 As already said, the policy of giving relief in a strin- 
 gency by the purchase of bonds is not new. In 1853 
 there was considerable fear that the accumulation of 
 money in the Treasury would distress the market, and the 
 Secretary of the Treasury was urged to expend the sur- 
 plus which had accumulated. There was no panic, or 
 even crisis, but only "a stringency, or pressure for money. 
 Credit was not disturbed. The stringency was intensified 
 by a contraction of the currency due to the disappearance 
 of silver from circulation. Silver went out of use on 
 account of the fall in the value of gold caused by its dis- 
 covery in California. This result was aided by the new 
 coinage law, which undervalued gold. To counteract 
 the effect of this contraction the Secretary deposited 
 gold in the mint with which to purchase the silver. His 
 own account of the transaction is as follows: "The 
 daily payments at the treasury, in discharge of the 
 public liabilities and the redemption of said loan, 1 did 
 not equal the receipts. A large surplus accumulated 
 in the treasury, and became a cause of alarm in com- 
 mercial and financial circles. It was hoped that the 
 accumulation in the treasury would exercise a beneficial 
 restraint upon importations and speculative credit enter- 
 prises, and bring the business of the country into a safe 
 and wholesome condition; yet, under the apprehension 
 that a panic might arise from a too stringent operation of 
 
 1 Of 1843.
 
 ITS RELATION TO CRISES. 1 75 
 
 the treasury, it was determined to make advances to the 
 mint for the purchase of silver for the new coinage, and to 
 enable the mint to pay promptly and in advance of coin- 
 age for gold bullion." 1 Some five million dollars were 
 deposited in the mint to enable "the mint to give gold, 
 which circulated as money, for silver that was out of 
 circulation, because of the premium upon it; and for 
 gold bullion that could not circulate as money until 
 coined." 2 
 
 The relief afforded by this means was not sufficient to 
 make the money market easy, and the purchase of bonds 
 was resorted to. An arrangement was made with brokers 
 in New York and Philadelphia to purchase bonds at the 
 market price to be paid for on presentation at the Treas- 
 ury. Even this means failed to allay apprehension, 
 because the surplus still accumulated, and the Secretary 
 increased his offers. In a circular of July 30, 1853, he 
 undertook to redeem before Dec. 1, five million dollars of 
 the loans of 1847 an d 1848, at a premium of twenty-one 
 per cent, and interest from the 1st of July. On the 2 2d 
 of August he enlarged his bid and offered to purchase two 
 million dollars of the loans due in 1856 and 1862 at a 
 premium of eight and one-half per cent, and of sixteen 
 per cent. , respectively. " The result," wrote the Secretary, 
 "has been satisfactory." The purchase of bonds was 
 continued through the year. 
 
 The following figures show the specie in the banks and 
 sub-treasury at New York in the fall of 1853 to the 
 nearest thousand: 3 — 
 
 1 Finance Report, 1853. 
 
 2 Finance Report, 1853. 
 
 3 The figures are from the Bankers' Magazine.
 
 176 
 
 THE INDEPENDENT TREASURY. 
 
 
 BANK 
 LOANS. 
 
 CIRCULA- 
 TION. 
 
 DEPOSITS. 
 
 BANK 
 SPECIE. 
 
 SPECIE IN 
 SUB-TREAS. 
 
 Aug. 6 
 
 $97,900 
 
 $9,5IO 
 
 $60,995 
 
 $9,747 
 
 $8,046 
 
 Sept. 3 
 
 9L74I 
 
 9.554 
 
 57.503 
 
 11,268 
 
 9.079 
 
 Oct. 1 
 
 90,150 
 
 9.552 
 
 57.909 
 
 11,232 
 
 9,726 
 
 Nov. 12 
 
 82,882 
 
 9,288 
 
 56,201 
 
 12,824 
 
 6,147 
 
 Dec. 10 
 
 86,709 
 
 9,076 
 
 57338 
 
 12,494 
 
 
 Dec. 31 
 
 90,162 
 
 8,972 
 
 58,964 
 
 11,058 
 
 3,800 
 
 The coin in all the sub-treasuries and depositories at 
 the end of the year was $23,951,945. While, in spite of 
 the efforts of the Secretary, the specie in the New York 
 sub-treasury increased through August and September, 
 yet it did so less rapidly than before, and the banks were 
 benefited. 
 
 It would seem from the figures that the disbursements 
 of the Sub-Treasury helped to increase the specie hold- 
 ings of the banks in November and December, and enabled 
 them to get into a somewhat stronger position towards the 
 end of the year; but, coming when they did, they had 
 little or no effect in curtailing market operations. They 
 seem rather to have given speculation a somewhat freer 
 play. 
 
 One effect of the purchase of bonds by the government, 
 which we shall have occasion to consider later on, is thus 
 recorded by the Bankers' 1 Magazine : 1 " Owing partly to 
 the notice of the Treasury Department the government 
 six per cent, loans of 1867-68 have advanced from 120^ 
 to 122, and the five per cents from io8£ to 109." 
 
 The next important instance of government relief to 
 the market was in 1857. "The crisis of 1857 was an 
 
 1 September, 1853.
 
 ITS RELATION TO CRISES. 
 
 177 
 
 unusually simple case of activity, speculation, over- 
 banking, panic, and depression." 1 The symptoms of 
 the coming distress were seen early in the year, and to 
 avert disaster, if possible, Secretary Cobb began the pur- 
 chase of bonds, his purpose being, in his own words, to 
 afford "relief to the commercial and other interests of 
 the country, which were then struggling to ward off the 
 revulsion which finally came upon them." 
 
 In the summer months of 1857 the New York banks 
 increased their loans at a rapid rate, the average for June, 
 July, and August being over eight millions larger than 
 the average for the same months in 1856. The banks 
 followed this great expansion with a rapid contraction of 
 loans, the decrease from Aug. 1 to Dec. 5 amounting to 
 over thirty-four millions. In the mean time their specie 
 more than doubled, and their notes in circulation decreased 
 over two millions. 
 
 The following table shows the state of affairs for 1857, 
 to the nearest thousand : 2 
 
 Jan. 3 
 
 Feb. 7 
 Mar. 7 
 Apr. 11 
 May 2 
 June 6 
 
 J ul .v 3 
 Aug. 1 
 Sept. 5 
 Oct. 3 
 Nov. 7 
 Dec. 5 
 
 SPECIE IN N.Y. 
 SUB-TREAS. 
 
 $11,430 
 I3,6l8 
 15,189 
 
 15.175 
 14,408 
 12,431 
 10,317 
 I2,l62 
 11,678 
 
 7.748 
 
 5,408 
 
 3.986 
 
 SPECIE IN 
 N.Y. BANKS. 
 
 $11,172 
 11,144 
 11,707 
 IO,884 
 12,100 
 
 12,837 
 
 12,918 
 
 10,228 
 
 11,400 
 16,492 
 26,070 
 
 LOANS OF 
 N.Y. BANKS. 
 
 CIRCULATION 
 OF N.Y. BANKS. 
 
 5109,149 
 112,877 
 1 1 1 ,900 
 
 115.374 
 114,409 
 
 "5.338 
 115,044 
 120,597 
 112,221 
 
 105,935 
 95,866 
 96,526 
 
 ?8,6o2 
 8,426 
 8,465 
 8,787 
 9,006 
 8,838 
 8,901 
 8,662 
 8,673 
 7,916 
 6,434 
 6,555 
 
 1 Taussig : " History of the United States Tariff," p. 118. 
 
 2 The figures are from the Bankers' Magazine, April, 1857.
 
 178 THE INDEPENDENT TREASURY. 
 
 Between the 1st of August and the first week in 
 December the banks gained a little more than thirteen 
 millions of specie, while the Sub-Treasury lost about 
 eight millions, half of which was paid out in the purchase 
 of bonds. The net imports of gold at New York for the 
 same time were $1,745,000, which, with $8,812,000, from 
 California, made a net total of $10,557,000. A large 
 part of the increased strength of the banks thus appears 
 to have come from the proceeds of the purchases of bonds 
 by the government. The Secretary of the Treasury con- 
 tinued buying bonds as long as he could, and took the 
 ground that it might be wise to spend the whole of the 
 surplus in that way, so as to relieve the market, even if as 
 a result expenses would have to be met later by new loans. 
 
 The influence of the Independent Treasury in this crisis 
 was not all in one direction. During the years 1855, 
 1856, and 1857 the customs receipts were unusually large, 
 and the accumulation in government vaults tended to 
 increase. In March, 1857, the government held in the 
 various branches of the Sub-Treasury over twenty-one 
 millions of dollars. 1 "At New York the public funds are 
 accumulating at a fearful rate, by means of custom-house 
 duties, the latter being for the current fiscal year, thus 
 far, at the rate of nine millions beyond the extravagant 
 y«ars 1855-56." There is no doubt that the strain in the 
 monetary situation was increased by the accumulations 
 of the government at this time. And in so far as these 
 accumulations restrained the discounts which the banks 
 made for purposes of speculation, their influence must 
 have been to prevent the tide of speculation from rising 
 as high as it otherwise would have done, or to bring on 
 the inevitable crash sooner than it would have come of 
 
 1 See Bankers' Magazine, March, 1857.
 
 ITS RELATION TO CRISES. 1 79 
 
 itself. Whatever influence of this nature the absorptions 
 of the Sub-Treasury may have had at this time was partly 
 counteracted, however, by the early purchase of bonds. 
 The Secretary began to offer help too far in advance of 
 a real crisis, and thus held out hope to speculators that 
 they could rely on further aid. The accumulation of 
 funds in the Sub-Treasury at a 'Tearful" rate was a good 
 thing so long as the business which caused it was based 
 on over-speculation, because the accumulation was con- 
 stantly reducing the basis of that speculation. The 
 accumulation should have been permitted to go on until 
 the speculation lessened and the crisis was at hand. Dis- 
 counting too far in advance of a panic will not be likely 
 to prevent it, but rather to make it more certain by fur- 
 nishing fuel, so to speak, on which speculation can feed 
 further. So the too early disbursements from the Treasury 
 may intensify rather than mitigate financial distress. At 
 least, disbursements, if made too early, will fail to do as 
 much good as they would if made later. This was the 
 case with Secretary Cobb's early disbursements in 1857. 
 
 However, although the purchases of bonds then did not 
 furnish as much relief as they would have done if they 
 had been held back until later, yet they certainly accom- 
 plished much good. The specie paid out strengthened 
 the banks, as the figures show, and made the task of 
 resumption easier, and sooner possible; and if the banks 
 had not weakened themselves so much it is possible 
 that the government disbursements, especially if they had 
 been delayed a little longer, would have saved them from 
 suspension. 
 
 One wholly good result of the existence of the Inde- 
 pendent Treasury at this time was the maintenance of 
 specie payments by the government. Had the public
 
 180 THE INDEPENDENT TREASURY. 
 
 money been deposited in the banks, or had the receipt of 
 bank-notes for public dues been lawful, the Treasury 
 would have been as seriously embarrassed as at the begin- 
 ning of the panic of 1837. Comparing the situation in 
 1857 with that in 1837, the Secretary of the Treasury 
 wrote : a "The most remarkable feature distinguishing the 
 two periods has reference to the effect upon the commer- 
 cial and general business interest of the country produced 
 by the present operations of the Independent Treasury. It 
 is the relief which has been afforded to the money market 
 by the disbursements in specie of the General Govern- 
 ment. In 1837 tne demand of the Government for its 
 funds with which to meet its obligations weakened the 
 banks, or crippled their resources, and added to the gen- 
 eral panic and pressure. In 1857 the disbursements by 
 the Government of its funds which it kept in its own 
 vaults, supplied the banks with specie, strengthened their 
 hands, and would thus have enabled them to afford relief 
 when it was so much needed, if they had been in a con- 
 dition to do it." 
 
 It is worth noticing incidentally that the appearance 
 of the government on the market to buy bonds forced 
 their prices up once more. Said the Bankers' 1 Magazine 
 of April, 1857: "In government bonds the rates are 
 nominal, few being offered in the market, as the Secretary 
 of the Treasury is preparing to pay a premium of 16 per 
 cent, on the bonds due in 1867-68, with the accrued 
 interest of three months, equivalent in all to 117^ per 
 cent." 
 
 In the panic of 1873 we have to deal with conditions 
 different from those which prevailed in 1837 or in 1857. 
 The bank paper was as really inconvertible in 1873, 
 
 l Finance Report, 1857.
 
 ITS RELATION TO CRISES. l8l 
 
 indeed, as it was in the other years mentioned, although 
 it could be exchanged for government notes or green- 
 backs. For the government itself was on a " depreciated 
 paper basis." It could not, therefore, promote resump- 
 tion by its disbursements of specie and treasury notes, as 
 it did in 1837 and 1857. At the height of the panic there 
 lay in the vaults of the Treasury " $50, 000, 000 of gold 
 coin, which could lawfully have been paid out in exchange 
 for government obligations without embarrassing the 
 operations of the government; but as specie could not 
 be employed to pay private debts without a sacrifice at 
 once of about twelve per cent. — the amount of its pre- 
 mium in paper — it was not wanted." l 
 
 The government was, however, able to lend from ifs 
 stored-up surplus of the legal-tender currency in use at 
 the time. 
 
 The panic of 1873, like that of 1857, was world-wide. 
 In this country it was largely the result of the too rapid 
 transmutation of circulating capital into fixed capital dur- 
 ing the few years preceding. These years were an era of 
 extensive railroad building, and the immediate cause of 
 the crash in the money market was due to the fact that 
 some of the largest of these enterprises did not realize 
 profits quickly enough to pay the loans which had been 
 advanced on them. Credit was shaken, in consequence, 
 and panic resulted. The panic was not due, properly 
 speaking, to a lack of money, but to a lack, or destruc- 
 tion, of credit. 
 
 The forerunner of the coming disaster was the severe 
 money stringency which was felt in the fall of 1872, with 
 the occurrence of which the unwise management of the 
 Treasury doubtless had something to do. The monthly 
 
 1 Upton's " Money in Politics," p. 139.
 
 1 82 THE INDEPENDENT TREASURY. 
 
 currency balance of the Treasury averaged fourteen and 
 one-half millions in 187 1, and twelve and a half in 187 j. 
 The Secretary lessened the money afloat by selling gold 
 to a greater extent than he bought bonds; as the gold 
 could not circulate the net result was a loss of currency to 
 business. This course of action was the reverse of that 
 followed by Secretary Cobb in 1857. 1 He bought silver, 
 which did not circulate, with gold, which did circulate; 
 Secretary Boutwell, on the other hand, sold non-current 
 gold for current greenbacks. So far as this process did 
 not occur in the autumn, the time at which the legitimate 
 demand for money is most active, it was not very objec- 
 tionable under the circumstances which prevailed at that 
 time. For the years 187 1, 1872, and 1873 were years of 
 too great speculation, and the absorptions of the Treasury 
 restricted the ability of the banks to loan, and so must 
 have retarded speculation. 
 
 It seems reasonable to think that such was, in general, 
 the effect of the operations of the Independent Treasury 
 in those years. 2 But the management of the Treasury 
 was not dictated by a conscious adherence to a policy of 
 restriction of speculation. Consequently what little in- 
 fluence for good the Independent Treasury may have had 
 in this way, in the three years under consideration, must 
 be regarded as, in the main, accidental. 
 
 The current of speculation was too strong, however, to 
 be stopped by any restrictive action of the Sub-Treasury. 
 The stringency became severe in the fall of 1872, and the 
 Secretary was again called on to relieve the pressure. In 
 the first week of October he sold five million dollars of 
 gold, and deposited the proceeds in designated banks; 
 
 1 See p. 175. 
 
 2 Cf, the New York Independent, Jan. 9, 1873. Monetary article,
 
 ITS RELATION TO CRISES. 
 
 i83 
 
 then, without previous notice, he bought five million 
 dollars worth of five-twenty bonds, so that ten million dol- 
 lars of currency were, by the two transactions, made 
 available for business. The bank reserves immediately 
 rose, and the banks enlarged their discounts. Following 
 are the figures : for the New York banks : — 
 
 Oct. s- 
 
 Oct. 12. 
 
 Loans and discounts 
 Specie in banks 
 Legal tenders 
 
 $269,810,300 $268,298,300 
 9,943,900 12,217,800 
 
 41,915,700 45,759,400 
 
 Oct. 19. 
 
 Oct. 26. 
 
 $27 ,557> 6o ° ' $274,925,000 
 12,625,500 I 10,795,300 
 52,586,400 52,342,100 
 
 Under the influence of these changes in the condition 
 of the banks, call-loans, which on the 4th of October had 
 ranged from six per cent, in currency to seven per cent, in 
 gold, with commissions additional in some cases, fell to 
 a range of from three or four to seven per cent., in cur- 
 rency, and the market for such loans became "easy," 
 with an average rate of from five to six per cent. 
 
 It is to be noted, however, as an important fact, that 
 there was a great difference between the extent of the 
 relief that came to stock-brokers and to commercial bor- 
 rowers. The easy rates accommodated the brokers, but 
 the best indorsed sixty-day commercial paper could hardly 
 be discounted for less than ten per cent. " It thus ap- 
 pears," said the Financial Chronicle* "that the Treasury 
 operations have thus far chiefly benefited the borrowers 
 of Wall and Broad Streets more than the commercial 
 community." This fact would seem to show that credit 
 was already shaken, and that, therefore, those who had 
 money feared to put it where they could not instantly call 
 it back at need. It would seem from this experience that 
 
 1 From the New York Commercial and Financial Chronicle, Oct. 19, 
 1872, p. 519. 
 
 1 Oct. 19, 1872, p. 517.
 
 1 84 THE INDEPENDENT TREASURY. 
 
 when a stringency or a panic is brought on primarily by 
 a weakening of credit, and not primarily by a lack of 
 money, that is, when the stringency is the result, and not 
 the cause, of unsteadiness of credit, the disbursements 
 of the government for purposes of relief afford more help 
 to those engaged in speculation than to commercial enter- 
 prises properly so called. This fact limits very materially 
 the justification of government disbursements for relieving 
 the market under such circumstances. 
 
 Although, as we have seen, the Secretary of the Treas- 
 ury had shaped his policy in aid of the money market 
 early in October, he did not continue to do so for long. 
 The bulk of the money deposited in some of the banks in 
 October was withdrawn later on. During December, a 
 month when money is in demand, the banks lost to the 
 Sub-Treasury about three million five hundred thou- 
 sand dollars despite the remonstrances of the mercantile 
 community. 1 The result was that loans on government 
 securities ran up to seven per cent, in gold, while bor- 
 rowers on stock collateral were obliged to pay from one- 
 sixteenth to one-quarter per cent, per day for their loans. 2 
 
 It is clear that in 1872 the action of the Independent 
 Treasury, as managed by Secretary Boutwell, favored 
 speculation rather than legitimate business, by the ill- 
 timed contractions and expansions which the Secretary 
 caused, so that its influence must, on the whole, be set 
 down as evil. The same thing is true, on the whole, of 
 the year 1873; for the same injudicious course was fol- 
 lowed. No definite, consistent, and continuous policy 
 was adopted for guiding the relations of the Treasury 
 to the business community. 
 
 1 See the Bankers' Magazine, January, 1873, and the New York Indepen- 
 dent, Jan. 2, 1873. 
 
 2 Ibid.
 
 ITS RELATION TO CRISES. 1 85 
 
 The stringency of 1872 became the panic of 1873. The 
 money market was in an unsettled condition most of the 
 time through the first nine months of the year. The legal- 
 tender averages of the banks were lower than in 1872. 
 There was a stringency in April, discount rates ran up, 
 and a slight panicky feeling prevailed, especially on the 
 occurrence of the panics in Vienna and Berlin. Between 
 May and August the banks, responding to the speculative 
 demand for money, heedlessly expanded their loans some 
 twenty millions. On the 17th of September the New 
 York Warehouse and Security Company failed, and the 
 business community was thrown into a state of feverish 
 anxiety by the failure. Secretary Richardson took no 
 steps to ease the situation. On the 18th the crash of 
 credit came with the suspension of Jay Cooke and Com- 
 pany. Still the government took no action, though fail- 
 ure followed failure, until the 19th. Then it was 
 determined to buy ten million dollars of five-twenty 
 bonds at par in gold, on Saturday, the 20th, over the 
 counter of the New York sub-treasury. Owing to defec- 
 tive clerical facilities only a little more than two and a 
 half millions were purchased. Orders were then issued 
 by Secretary Richardson to purchase five-twenty bonds as 
 fast as offered in private sale, at the New York sub- 
 treasury, at a price not higher than par in gold. On 
 Monday, the 22d, over three million dollars were accord- 
 ingly paid out in legal tenders for bonds, and over five 
 and a half millions for legal-tender certificates. Next 
 day three million dollars more were put out for bonds, 
 and over a million for certificates. On Thursday, the 
 25th of September, the Treasury stopped buying, having 
 paid out over twenty-four million dollars of currency for 
 bonds and certificates. During the week, the Secretary
 
 1 86 
 
 THE INDEPENDENT TREASURY. 
 
 had bought twelve million dollars of bonds from the sav- 
 ings banks, and on the 29th he prepaid the November 
 interest. 
 
 These measures were practically all the help which the 
 Treasury rendered at this time; and while they were 
 doubtless of some avail, they were utterly futile as a stay 
 to the panic. None of the money disbursed went into the 
 banks. They lost, during the week when the Treasury 
 was buying bonds, eleven millions of greenbacks; their 
 reserve ran down from thirty-eight millions on the 6th of 
 September, to twelve millions on the 27th, and their 
 deposits decreased some fifty millions. 1 
 
 The figures are : — 
 
 Aug. 30. 
 Sept. 6. 
 
 " 13- 
 " 20. 
 
 $288,883,000 
 28S, 374,200 
 284,536,200 
 278,421,700 
 
 523,095,200 
 20,767,000 
 20,442,300 
 18,844,600 
 
 LEGAL 
 TENDERS. 
 
 $44,729,300 ;$220,390,300 
 
 38,679,900 I 212,772,700 
 
 36,717,200 I 207,317,500 
 
 34,307,900 I 198,040,100 
 
 The figures of the condition of the banks, for the ten 
 weeks after Sept. 20 are not available because reports 
 were not published during that time. 
 
 The success met by the government in its efforts to 
 allay the panic is thus shown to have been very small. 
 The Secretary of the Treasury himself evidently felt 
 this, if we may judge from the modest account of his 
 efforts given in his report. He tells us there that bonds 
 were purchased for the sinking fund to the amount of 
 about thirteen million dollars worth, "when it became 
 evident that the amount offering for purchase was increas- 
 ing to an extent beyond the power of the Treasury to 
 accept, and the purchasing was closed. . . . The cur- 
 
 1 See article in Lifpincott's Magazine, December, 1873.
 
 ITS RELATION TO CRISES. 1 87 
 
 rency paid out of the Treasury for bonds did much to 
 strengthen many savings banks, and to prevent a panic 
 among their numerous depositors, who began to be 
 alarmed ; and had there developed an extended run upon 
 those useful institutions, it would inevitably have caused 
 widespread disaster and distress. It also fortified other 
 banks, and checked the general alarm to some extent." 
 
 The futility of the efforts of the government to relieve 
 the distress was shown in the rates of discount also. The 
 rate on call loans went up from seven per cent, in gold, 
 on the 1 8th of the month, to one and one half per cent, a 
 day on the 20th, the day of the first government purchase 
 of bonds ; and two or three days later there was no quo- 
 table rate. These facts show that the provisions of the 
 Treasury to mitigate the pressure did not inspire confi- 
 dence, and so could not check the panic. For they prove 
 that the money disbursed by the government was hoarded. 
 Part of it went into the savings banks. " The savings 
 institutions of New York and Brooklyn hold about thirteen 
 millions of greenbacks," said the Financial Chronicle. 1 
 " Part of these notes have been drawn from our city banks, 
 but a large amount were obtained from the Treasury last 
 week in payment for United States bonds. These green- 
 backs are now lying idle in the vaults of the savings 
 banks ; and the question is, what ought to be done with 
 them." 
 
 It is not to be denied that the aid rendered the savings 
 banks was good and commendable. But this did not 
 help the general situation. There was a time during the 
 panic when it was, perhaps, advisable for the savings 
 banks to increase their stock of greenbacks ; but it was 
 not absolutely necessary, because they could have pro- 
 
 1 Oct. 4, 1873, p. 447.
 
 1 88 THE INDEPENDENT TREASURY. 
 
 tected themselves from a sudden run by taking advantage 
 of the clause in their charters permitting them to requi.^ 
 thirty days' notice of withdrawals. Moreover, the savings 
 banks kept their greenbacks in their vaults after the 
 danger to themselves had passed, and so prevented the 
 use of them by the mercantile community. By this action 
 the efforts of the government were so far nullified. 
 
 As for the reasons for the complete failure of the 
 Secretary of the Treasury to accomplish his purpose of 
 checking the panic, we must note, in the first place, that 
 his steps were not taken early enough. The government 
 did not move in the matter until the crash of credit 
 occurred, and the market had passed from the stage of 
 crisis to that of panic. The proper time for the purchase 
 of bonds was before that point; the latest time at which 
 it should have begun would have been in time to save 
 Jay Cooke and Company, if that had been possible. 
 That is, it seems that if the Secretary had sold his bonds 
 on Wednesday instead of Saturday, much greater good 
 might have been done; for if there was any time at 
 which confidence could have been restored by "easier 
 money," it was then. After the failure of Cooke and 
 Company the current of suspicion and distrust was alto- 
 gether too strong to be stopped by the limited aid which 
 the government could give. Even after the government 
 disbursements of the 20th were supplemented, on the 
 22d, by the use of ten million dollars of clearing-house 
 certificates, the feeling of panic did not disappear, and it 
 was thought necessary, two days later, to permit the use 
 of ten million more certificates. 
 
 The measures of the Secretary of the Treasury were 
 also insufficient for the situation at the time they were 
 taken. Indeed, this was felt when the Secretary first
 
 ITS RELATION TO CRISES. 1 89 
 
 announced his intention of buying bonds. There was 
 general disappointment at the narrow scope of his meas- 
 ures. It was felt that more liberal disbursements should 
 have been provided for, and that the government should 
 have stood ready to redeem not only the five-twenty bonds, 
 but any issue of its stock. It was announced later, to be 
 sure, that the Treasury would buy bonds indefinitely; but 
 that could be only nominally true, because, as the event 
 showed, the amount of money at the disposal of the Sec- 
 retary was very limited. 
 
 It may, indeed, be questioned whether the action of 
 the government at this time did not do more harm than 
 good. The money which it spent went, as has been 
 shown, into private hoards and into the savings banks, 
 and so furnished no relief to the market in general. It 
 was just as much out of the reach of the business com- 
 munity as it had been when it lay in the vaults of the 
 Treasury. But the public relied on the government; 
 they expected that its action would be a great help, and 
 the general tone of affairs immediately after the failure 
 of the measures of the government seems to show that 
 the reaction of disappointment induced more distrust and 
 added to the panic. Both in 1857 and 1873, then, the 
 ability of the government to allay the panic was counter- 
 acted by the fact that the public knew just about how 
 far the Secretary could go. He could offer only a limited 
 relief, which had little moral effect. 
 
 The insufficiency of the Treasury provisions became 
 evident on Saturday, the 20th, and the use of clearing- 
 house certificates became necessary on the next Monday. 
 It is at least questionable whether a resort to these would 
 have been necessary so early had the events of the 20th 
 not demonstrated the complete inability of the govern- 
 ment to cope with the situation.
 
 I90 THE INDEPENDENT TREASURY. 
 
 We have seen that money put out for bonds was hoarded 
 either by the savings banks or by individuals. This fact 
 implies that they did not get into the hands of those 
 whose need for help was pressing. The reason for this 
 lay in the fact that the government terms were not hard 
 enough. The bonds were paid for in legal tenders, while 
 they were redeemed at their par value in gold. The 
 difference between the premium on the bonds and the 
 premium on gold was less than two per cent., a loss 
 altogether too small to prevent those who could have 
 got on without the money from selling their bonds 
 and hoarding the proceeds. This is the true meaning of 
 the Secretary's remark that his disbursements aided many 
 savings banks. 
 
 Finally, it is worthy of note that, in spite of all efforts, 
 the panic of 1873 ran its course. It cannot properly be 
 said to have been checked. The reason is obvious : what 
 was needed was a re-establishment of confidence in the 
 enterprises which had been the primary source of distrust; 
 but no amount of money disbursed by the government 
 could produce this result. When the bridge across which 
 a man is walking with confidence breaks and precipitates 
 him into a torrent below and so throws his mind into a 
 state of panic, it is with great hesitation that he ventures 
 to cross again, on a temporary plank, however sound it 
 may seem. There seems reason to think that the panic 
 of 1873 was of such a nature that government disburse- 
 ments were not a remedy, but at best only a slight 
 palliative. This aspect of the case will be discussed 
 later on. 
 
 The next important crisis was that of the autumn of 
 1890. Various causes had been at work promoting spec- 
 ulation for some time before. In this country the pro-
 
 ITS tiELAT/ON TO CRISES. I9I 
 
 spective action of the McKinley tariff had brought about 
 a large increase of imports for speculative holding, and 
 the payment of duties, immediate and prospective, threat- 
 ened to lock up so great an amount of money as to cause 
 a stringency. Moreover, there was much speculation 
 based on the idea of inflation, which it was supposed would 
 soon be produced by legislation concerning silver. These 
 sanguine hopes were doomed to disappointment, how- 
 ever. "The Silver Bill was passed, and the Treasury let 
 out enormous amounts of cash. But the effects were not 
 as expected. The supplies of currency had only a tempo- 
 rary effect in easing money. Silver certificates 1 rose to 
 121 in August, but are now down to 103, notwithstanding 
 the heavy government purchases in the interval. Stock 
 exchange values, with great pertinacity, declined instead 
 of advancing, till finally this week the crisis came. Thus 
 once again has it been demonstrated that legislative edicts 
 cannot arrest the tendency of natural laws, and that some- 
 thing more than a flood of currency is needed to secure 
 permanent ease in the money market." 2 In this dubious 
 state of the public mind the failure of the Barings in 
 England occurred and for a time threatened to cause a 
 panic. The excitement calmed down, however, under 
 the prompt and efficient management of the failure by the 
 Bank of England. But while a panic was averted the 
 market continued very restricted, and business suffered 
 from the evils of a crisis. So great was the stringency 
 that " the banking and currency machinery of the country 
 was strained to its utmost and worked very unsatisfac- 
 torily." The lack of elasticity in our currency system 
 prevented the banks from affording the relief that could 
 reasonably have been expected from them under a better 
 
 1 For bar silver on deposit. 
 
 2 New York Commercial and Financial Chronicle, Nov. 15, 1S90.
 
 192 
 
 THE INDEPENDENT TREASURY. 
 
 system, so that, notwithstanding the unusually large dis- 
 bursements of the government, they were compelled to 
 resort to the use of clearing-house certificates in the 
 settlement of their balances. The aid of the Secretary 
 of the Treasury was, as usual, invoked, and he responded 
 with the purchase of bonds. In fact, Secretary Windom 
 had been buying bonds, so as to prevent a stringency in 
 the fall, as early as July. Under circulars issued in that 
 month the aggregate purchases of four per cent, and four 
 and one-half per cent, bonds amounted to $10,358,950. 
 As this disbursement was " inadequate to meet existing 
 conditions," a circular of Aug. 19 announced that four 
 and one-half per cent, bonds would be redeemed, with 
 interest, through May, 189 1. On Aug. 21, twenty mil- 
 lions of these bonds were called for, on condition of the 
 prepayment, after Sept. 1, 1890, of all interest on them 
 to September, 1891. Twenty millions more were called 
 for on Aug. 30; and on Sept. 6 the prepayment of inter- 
 est to the following July was offered to holders of four 
 per cents and (afterwards) of " currency sixes ; " and, 
 finally, on the 13th of September, some seventeen mil- 
 lions more of four per cents were redeemed. The trans- 
 actions are tabulated thus : ' — 
 
 
 BONDS REDEEMED. 
 
 DISBURSEMENTS. 
 
 Under circular of Julv 
 « .« « Au g 
 
 41 Ii « (I 
 U « II II 
 
 " " " Sept. 
 (i <i i> ii 
 
 19, 
 
 !9. 
 
 21, 
 13. 
 
 1890. 
 
 11 
 ii 
 
 $17,324,850 
 
 560,050 
 
 20,060,700 
 
 l8,678,IOO 
 
 (Int. prepaid) 
 17,071,150 
 
 $21,225,989.46 
 58l,I38.I2 
 20,964,868.42 
 19,518,176.83 
 12,009,951.50 
 21,617,67377 
 
 
 $73,694,850 
 
 i?9S»9 I 7.798-io 
 
 In addition to the heavy payments for bonds the Treas- 
 ury made large disbursements for other purposes also, 
 
 1 See Report of the Secretary of the Treasury for 1890.
 
 ITS RELATION TO CRISES. 1 93 
 
 during the month of September, and its net available 
 balance was reduced, by the end of October, to a little 
 over two million dollars, not including fractional currency 
 and the national bank redemption fund. The tremendous 
 amount of money reported as disbursed in the purchase 
 of bonds was further increased by the ordinary quarterly 
 payments in September, and especially by the very large 
 disbursements for pensions. 
 
 It must be borne in mind, however, that not all the 
 money reported as disbursed went into the channels of 
 business immediately. 1 The net gain of currency to com- 
 merce, calculated from the monthly reports of the Treas- 
 ury holdings of money, was, for August, $7,479,615, and 
 for September, $57,887,849, allowing for the gain from 
 silver bullion certificates, and for the decrease in national 
 bank circulation. 2 The output of the Treasury in August 
 
 1 See pp. 89, 160. 
 
 2 The figures for September, according to the Chronicle, were as follows : — 
 Net holdings of the United States Treasury. Sept. 1. Oct. 1. 
 
 Gold coin and bullion 3185,837,581 £147,0,81,732 
 
 Silver coin and bullion 1 5i749>535 6,590,212 
 
 Treasury notes, Act 1S90 2,233,100 962,500 
 
 Legal-tender notes 10,573,710 5)775> 2 90 
 
 National bank notes 5,063,227 4,620,511 
 
 Fractional silver 22,077,629 20,768,255 
 
 Total cash in Sub-Treasury $241, 534,782 #186,698, 500 
 
 Loss by Sub-Treasury and gain to commerce £54,836,282 
 
 Silver bullion certificates issued during the 
 
 month £4,460,000 
 
 National bank notes retired 1,408,433 
 
 3.05'. 567 
 
 Total net gain to commerce for the month £57,887,849 
 
 During the month over £10,000,000 were actually disbursed for pensions 
 at New York; £24,664,350 of 4A per cent, bonds, and £17,625,600 of 4 per 
 cents, were actually redeemed ; £4,524,190 were paid out in premiums on 
 bonds purchased, and £13,410,001 in interest payments; making a total of 
 seventy millions of dollars.
 
 194 
 
 THE INDEPENDENT TREASURY. 
 
 and September was reflected in an enlargement of the 
 New York bank reserves, as shown in the following table, 1 
 in the face, too, of a drain of money to the interior: — 
 
 
 LOANS. 
 
 SPECIE. 
 
 LEGAL TENDERS. 
 
 DEPOSITS. 
 
 Aug. g. 
 
 #406,139,500 
 
 #73,496,000 
 
 #29,766,300 
 
 #407,905,200 
 
 " 16. 
 
 402,163,900 
 
 70,843,200 
 
 28,378,100 
 
 399,508,100 
 
 ' *3- 
 
 397,672,300 
 
 68,621,100 
 
 26,254,200 
 
 389,553.«00 
 
 ' 3°- 
 
 392,546,400 
 
 69,595,600 
 
 26,155,100 
 
 385,149,500 
 
 Sept. 6. 
 
 394,978,100 
 
 70,216,700 
 
 25,482,000 
 
 388,399,300 
 
 '3- 
 
 393,160,100 
 
 67,842,300 
 
 24,663,500 
 
 388,250,900 
 
 ' 20. 
 
 392,631,600 
 
 76,417,200 
 
 22,983,700 
 
 389,982,800 
 
 ' *7- 
 
 394,029,100 
 
 93,397.300 
 
 22,387,800 
 
 406,838,800 
 
 The rates on call loans ranged through August and 
 September as follows: 2 - 
 
 AUG. 4. 
 
 AUG. II. 
 
 AUG. 18. 
 
 AUG. 25. 
 
 8-4 
 
 25-8 
 
 16-6 
 
 12 — 2 
 
 SEPT. 6. 
 
 SEPT. 13. 
 
 sbpt. 20. 
 
 SEPT. 27. 
 
 3-12 
 
 3-6+i per 
 cent, a day 
 commission. 
 
 2 — 6+£ com- 
 mission. 
 
 2-6 
 
 The rate of discount on call loans fell after the Treas- 
 ury disbursements, as seen from the table. The net 
 result of the operations of the Treasury was a decided 
 relief of the money market in September. There was, as 
 yet, no serious disturbance of credit ; the difficulty was 
 to get enough money to meet the suddenly increased 
 demand, and the government disbursements relieved the 
 pressure. 
 
 But the help afforded had only a temporary effect. 
 The stringency recurred in November; and its occurrence, 
 this time, was marked by a failure of confidence and the 
 
 1 The figures are from the New York Financial Chronicle. 
 
 2 The Bankers' Magazine.
 
 ITS RELATION TO CRISES. 
 
 195 
 
 appearance of distrust due to the announcement of some 
 important failures. The reserve of the New York banks 
 began to run down about the middle of October, and 
 continued to do so until the second week of December. 
 The figures for November are : — 
 
 
 LOANS. 
 
 SPECIE. 
 
 LEGAL TENDERS. 
 
 DEPOSITS. 
 
 Nov. 1. 
 " 8. 
 
 " "5- 
 
 " 22. 
 
 " 29- 
 
 $399.791.9°0 
 398.855.7OO 
 393,277,900 
 387,297,200 
 384,548,100 
 
 $77,671, 70O 
 74,486,600 
 73.995.400 
 73,191,200 
 
 71,658,500 
 
 $22,101,400 
 21,032,500 
 2I,8l6,000 
 22,319,800 
 23,368,400 
 
 $396,284,500 
 392. 2 53.400 
 
 386,574,800 
 381,685,000 
 378,578,200 
 
 The state of the money market for the same month is 
 shown by the rates of discount: ' — 
 
 DISCOUNT ON 
 
 NOV. 3. 
 
 NOV. IO. 
 
 NOV. 17. 
 
 NOV. 24. 
 
 Commercial paper . . 
 
 7-8 
 6-4 
 
 7-8 
 186-15 
 
 7-8 
 186-6 
 
 8-9 
 5-3 
 
 These figures show that the panic was in the stock 
 market, and not in business enterprises proper. 
 
 So great was the stringency brought on by failure of 
 confidence that the banks of New York, Philadelphia, 
 and Boston issued clearing-house certificates, and there 
 was a renewal of the call on the government for assistance. 
 But the available surplus of the Treasury had been so 
 heavily drawn on by previous disbursements that Secre- 
 tary Windom was not able to do much. By a Treasury 
 circular of Oct. 9, a standing offer was made to redeem 
 any four and one-half per cent, bonds, offered at par, with 
 interest to maturity. Nearly six million dollars' 2 worth 
 were redeemed in October; but these bonds were not 
 
 1 Figures from the Bankers' Magazine. 
 
 2 £5,846,150.
 
 I96 THE INDEPENDENT TREASURY. 
 
 presented during the crisis in sufficient amount to prevent 
 the accumulation of a surplus in the Treasury. Accord- 
 ingly Secretary Windom issued a circular inviting pro- 
 posals for the sale of five million dollars of four per cent 
 bonds, redemption to be made daily beginning with 
 Dec. 8. The worst of the crisis was over by this time, 
 however, and the only influence of these disbursements 
 was to facilitate settlements. 
 
 The verdict on the question of the success of the 
 operations of the Treasury to relieve the market in 1890 
 must be that it was on the whole unsuccessful. The very 
 heavy disbursements in September increased the bank 
 reserves and accomplished considerable good, because 
 the elements of distrust had not widely developed, and the 
 stress of the situation was due simply to the inadequacy 
 of the available supply of money to do a suddenly en- 
 larged volume of business. But the bank reserves soon 
 decreased again by the movement of currency to the inte- 
 rior. This movement, combined with the tendency to 
 export gold under the prevailing high rates of foreign 
 exchange, renewed anxiety in monetary circles. The 
 ability of the government to furnish help was known to 
 be small, and instability had been revealed in many 
 establishments. All these things together produced dis- 
 trust; and when failure of confidence in the market 
 occurred, the efforts of the government proved of little 
 avail. 
 
 The principal cause of the failure of the September 
 disbursements to furnish more than temporary relief to 
 the market was the heavy movement of money to the 
 interior. There was a steady drain from that cause all 
 through the last four months of the year, with the excep- 
 tion of one week. The loss to the banks from this drain
 
 ITS RELATION TO CRISES. 
 
 197 
 
 aggregated $33,272,000, for September and October. The 
 figures ' in detail are : — 
 
 Sept. 5. 
 
 — $3,289,000 
 
 Oct. 3. 
 
 — $ =5,78 1, 000 
 
 " 12. 
 
 — 3,310,000 
 
 " 10. 
 
 — 4,752,000 
 
 " 19. 
 
 — 4,411,000 
 
 " 17- 
 
 — 3,468,000 
 
 " 26. 
 
 - 3-933.000 
 
 " 24. 
 
 — 2,038,000 
 
 
 
 " 3»- 
 
 — 2,290,000 
 
 The main cause of the failure to ease the market in 
 the later stage of the crisis was hoarding, due to the dis- 
 trust that developed, which, at this time as in 1873, pre- 
 vented the money paid out of the Treasury from going 
 into the banks where it would have been of service in 
 easing the market. " A conspicuous feature in the mon- 
 etary situation," said the Financial Chronicle* "is the 
 unaccountable disappearance of the currency isues made 
 during recent months. Taking September and October 
 together the official figures of the Treasury Department, 
 which are no doubt correct, show that the currency afloat 
 in the country, that is in circulation, increased during 
 these two months $62,934,675 net, and yet our New York 
 City banks held on Nov. 1 only $99,773, 100 of different 
 kinds of currency, against a total of $95,750,700 on Aug. 
 30." The returns of the banks in the interior of the 
 country showed that the money was not in their vaults, 
 and we are forced to conclude, therefore, that it was 
 hoarded. 8 The inference is supported by the fact that in 
 the first week of the new year the banks showed an 
 
 i From the Financial Chronicle. The minus sign indicates loss to the" 
 banks. 
 
 2 November, 1892. 
 
 3 It is possible that the money was in slow circulation, in the hands of 
 merchants who were increasing their stocks in anticipation of higher prices 
 under the new tariff law ; the effect on the money market would be the same. 
 Cf. remarks on the tariff and Sub-Treasury, p. 144.
 
 I98 THE INDEPENDENT TREASURY. 
 
 increase of reserve, although they lost money both to 
 the interior and to the Sub-Treasury. 1 
 
 The conclusions to be drawn as to the influence of the 
 operations of the Independent Treasury in crises, from 
 the four periods of great business disturbance which we 
 have briefly sketched, are various. We have seen the 
 system producing a stringency at a time 2 when ease in 
 the market was needed for legitimate business, and also 
 at a time 8 when speculation was rife and had its course 
 retarded, if not checked, by the Sub-Treasury absorptions. 
 We have seen that the output of money to relieve a dis- 
 tressed market may result in promoting speculation, 4 or 
 in yielding some needed help to business men, 6 or either 
 partly or altogether neutralized by hoarding 6 at a time 
 of lack of public confidence in the immediate future of 
 business. This variety of action is a conclusive proof, if 
 proof be needed, that there is not in the Independent 
 Treasury system such an automatic connection, so to 
 speak, with business, as to make the operation of the 
 Sub-Treasury responsive to the sudden exigencies of 
 the mercantile community in a way to act as a governor 
 of its irregularities. So far as the experience we have ex- 
 amined discloses, the Independent Treasury has been 
 useful in monetary stringencies and crises, if its absorp- 
 tions have coincided with a rise of prices caused by 
 speculation, because it then retards speculation; and 
 when its disbursements have coincided with a demand 
 for money for a legitimate temporary expansion of busi- 
 ness its action has been useful. When it has disbursed 
 
 1 The reserve increased from $103,237,500 on Dec. 26, to $105, 234,900 on 
 Jan. 3, a gain of almost two millions. The net loss of the banks to the Sub- 
 Treasury for the week was $100,000 and to the interior $1,500,000. 
 
 2 In 1857. 4 As in 1853. 6 As in 1873 and 1S90. 
 
 3 As in 1857. 5 i n ,853 and 1S90.
 
 ITS RELATION TO CRISES. 1 99 
 
 during speculation, or absorbed during a healthy business 
 expansion, it has done mischief. It has failed altogether 
 when credit was destroyed, and has at times made the 
 situation worse by promoting hoarding. 
 
 Of the various methods mentioned whereby the Inde- 
 pendent Treasury has had, or may have, a calming influ- 
 ence on a troubled market, three are of importance at 
 present : namely, the restraining influence on banks, which 
 Secretary Guthrie claimed the system exercises on a rising 
 market; the transfer of money; and the redemption of 
 the public debt, including therein the purchase of bonds 
 and the prepayment of interest. 
 
 Now, to begin with, all this is government interference l 
 in the money market; and while the "laissez-faire" doc- 
 trine is no longer to be regarded as an imperative or 
 invariable rule of action, yet in the absence of any other 
 principle to replace this, government interference must 
 justify itself in each new field it enters. There is no 
 inherent objection to its action, but it must prove its use- 
 fulness. Experience, both in England and in this coun- 
 
 1 Government interference is here discussed in its economic aspect only. 
 Of course, the political argument may be adduced also, but it would be out of 
 place in the text. The appearance of the Treasury as a regulator of the 
 money market was doubtless never contemplated by the framers of the Con 
 stitution, or of the act establishing the financial department of the govern- 
 ment. Still, it might come under the elastic cloak of " implied powers." 
 Moreover, it is but reasonable, from a political standpoint, to deprecate the 
 placing of so much power within reach of the party in office, through its ap- 
 pointed official, and also the delegation of so great a reponsibility to one man. 
 But such objections must find their force in the fact of maladministration 
 rather than in its possibility ; and it is one of the proudest records of American 
 financial history that no Secretary of the Treasury has ever deviated from the 
 path of strict integrity in the use of the tremendous power placed in his hands 
 through the Independent Treasury. Such mistakes as have been made have 
 been mistakes of judgment. Indeed, very few of the hundreds of officials who, 
 under the system, have had charge of public moneys, have proved unfaithful, 
 and the amount lost through their dishonesty has been small.
 
 200 THE INDEPENDENT TREASURY. 
 
 try, has shown that judicious action on the part of the 
 government may do much to prevent a panic, and success 
 in one instance is all that is logically necessary to estab- 
 lish a case for future "interference" under similar condi- 
 tions ; but this action, in order to be judicious, need 
 not consist only in redeeming the public debt under 
 pressure of the circumstances of a panic. Yet that is 
 practically the only method open to us, under our policy 
 of surplus financiering, with an Independent Treasury. 
 Consequently, our method must prove its superior useful- 
 ness or be condemned. 
 
 Moreover, that there is danger in the formation of the 
 habit of relying on the government for aid in times of 
 monetary distress, cannot be denied. That this danger 
 consists in the promotion of speculation or in the diminu- 
 tion of caution in the usual conduct of business, is not, 
 indeed, proved by the experience either of England or of 
 this country. Both governments have assisted the busi- 
 ness community when in distress, but there is no evidence 
 of any increase of unsoundness in business methods on 
 that account. 1 The danger lies in the possibility that in 
 a time of great distress the action of the government will 
 be pushed by public clamor to the point where its con- 
 tinued action will be an injury to its own credit, and 
 consequently, in the end, far more disastrous than its in- 
 action would have been. That this danger is not merely 
 fanciful is shown by the experience of 1873 and 1890. In 
 the former year "great pressure was brought to bear upon 
 the Treasury Department " to loan its notes on secured 
 clearing-house certificates as collateral, or to use the 
 money on hand in the purchase of exchange, or to issue 
 notes on the deposit of gold in the Bank of England, or 
 
 l For some remarks on this subject see appendix, p. —
 
 ITS RELATION TO CRISES. 201 
 
 to pay "at once " the twenty million loan of 1858, or to 
 deposit money at designated places to be used in the 
 purchase of exchange on New York. There were even 
 many persons "who insisted with great earnestness that it 
 was the duty of the Executive to disregard any and all 
 laws which stood in the way of affording the relief sug- 
 gested by them." 1 In 1890 some people demanded the 
 use of the one hundred million dollars of gold kept for 
 redemption of the greenbacks. The character of that 
 fund has been virtually changed from that of a special 
 reserve, for the purpose for which it was accumulated, to 
 that of an ordinary asset. It is not a very long step from 
 this position to that in which the "reserve " may be used 
 as an ordinary asset. If that step is ever taken, espe- 
 cially if it be in a time of panic, the distress will be 
 enhanced by the depreciation of the credit of the gov- 
 ernment, especially as represented by its notes. 
 
 To be most effective the help of the government 
 must in every case be timely, certain, and sufficient com- 
 pletely to remove the danger. But it is not always so. 
 Notably in the panic of 1873 was the support of the pub- 
 lic purse tardy, timid, and insufficient. The Secretary 
 of the Treasury did not undertake to purchase bonds until 
 the market had reached its breaking point, and the panicky 
 feeling could not be checked, as fully at least as it might 
 have been by earlier action. 
 
 The success of the effort of the government to relieve 
 a panic depends, then, largely on the good judgment of 
 the officers of the government. Whatever advantage there 
 is in it can hardly be ascribed to the Independent Treas- 
 ury system. That system is merely a condition precedent. 
 
 1 See Finance Report for 1S73. See also Upton's " Money in Politics," 
 p. 140.
 
 202 THE INDEPENDENT TREASURY. 
 
 The advantage of the system in this respect cannot, there- 
 fore, be urged against any other mode of action for the 
 purpose, the success of which depends on similar condi- 
 tions. Moreover, it may fairly be questioned whether 
 the failure, or the stopping short, of an attempt to antici- 
 pate or check a panic does not do more harm than could 
 be done by complete inaction. The "feeling" of the 
 money market is a very sensitive and mobile force, and it 
 gathers strength as it acts and reacts from hopefulness to 
 despondency. When it was discovered, for example, 
 that Secretary Richardson's means were exhausted, in 
 September, 1873, the reaction to panic was marked by a 
 noticeable fall in the prices of stocks. 
 
 Still again, if the Independent Treasury were by its 
 nature a suitable means of relief, it should be available 
 in every crisis. To be so, its accumulations of money 
 should have seme dependence on the conditions which 
 "make money dear." But this is not the case. Its action 
 in accumulation is altogether independent of the mone- 
 tary situation. It "presses" the banks; it is not pressed 
 by them. Its vaults may not be full when its aid is most 
 needed, as happened on the exhaustion of its funds in 
 1873 and 1890. 
 
 Another consideration that detracts from the possibility 
 for good of the Independent Treasury in a crisis is the 
 fact that, since the time, manner, and amount of its out- 
 put depends on the judgment of one man, the Secretary of 
 the Treasury, the money is very likely to be paid out on 
 too easy terms. The purchase of bonds at the market rate, 
 or the full prepayment of interest, makes the money too 
 easy to get. Under such terms the Treasury would need 
 an amount of money large enough to supply not only 
 those who were in real need of it, and ready to make a
 
 ITS RELATION TO CRISES. 203 
 
 large sacrifice to obtain it, but also those who might want 
 it, not for immediate use, but for hoarding. To obviate 
 this difficulty the bonds should be purchased at a suffi- 
 ciently large discount from the market value. But if, on 
 the other hand, the Secretary of the Treasury makes the 
 money hard to get, banks which need money and try to 
 obtain it by selling public securities are put in a more 
 difficult position, and their ability to aid in easing the 
 stringency is curtailed. This last consideration is of 
 great importance in view of the fact that the direct relief 
 afforded by government disbursements is measured by the 
 money paid out of the Treasury, whereas the same money 
 deposited in the banks would enable them to discount to 
 two or three times the amount, thus affording a larger 
 measure of relief. 
 
 Another objection that might be urged is the loss to 
 the people in the forced purchase of bonds at a high 
 premium. Secretary Fairchild, in his report for 1888, 
 writes: "Ninety-four millions of dollars of bonds have 
 been secured under this circular, and a premium paid for 
 the privilege of buying them of about $18, 000, 000; . . . 
 the saving in the total amount of interest which would 
 have been paid had the bonds been allowed to run to 
 maturity, is about $27,000,000. Had taxation been 
 reduced so as to leave this money with the people, and 
 if it is worth in their business 6 per cent, per annum, the 
 total value of the money to them during the term which 
 these bonds had to run would be about $83,000,000; thus, 
 there is a resulting loss to the people of $56,000,000 upon 
 this transaction alone." This is not strictly accurate. 
 It is impossible to state exactly the loss to the people on 
 such a transaction ; first, because it cannot be fairly 
 assumed that the money left with the people would all
 
 204 THE INDEPENDENT TREASURY. 
 
 "fructify" at the rate of six per cent. ; and, secondly, be- 
 cause the amount of money disbursed by the government 
 in purchasing bonds is, it may be reasonably assumed, 
 largely restored to the channels of business. The total 
 social loss, then, is composed of two elements: that 
 which arises from the non-employment of the money while 
 it is in the government vaults, and that which is caused 
 by the fact that, while the money is indeed returned to 
 business by the government payments, it is likely to reach 
 persons other than those from whom it was taken by tax- 
 ation. Such a transfer will involve a social loss, espe- 
 cially if those to whom the money is paid do not employ 
 it so productively as those from whom it was taken by 
 taxation. One of Secretary Windom's transactions in 
 1890 will serve as an illustration. Under the circular of 
 Sept. 13 of that year, $17,071,150 of four percent, bonds 
 were redeemed at a cost of $21,617,673.77, which repre- 
 sents a premium of 26.6 per cent. The reduction of 
 interest charge from the transaction was $682,846 per 
 annum. The bonds were due in 1907, and had, therefore 
 about seventeen years to run. The amount of the premium 
 paid was $4,546,523.77. If the $21,617,673 had been 
 kept by the government, and put out at interest at four 
 per cent., compounded annually, for seventeen years, 
 and the amount of the interest, $682,846, is paid every 
 year from the proceeds, the amount which the government 
 would have at the end of the seventeen years for the pay- 
 ment of the principal would be $25,927,322. This would 
 leave a surplus of $8,856,172, the present value of which 
 would be the loss to the government. That value is, of 
 course, the premium actually paid. 
 
 But it is hardly fair to assume that the government 
 would, or should, invest in this way. Another way to 
 look at the matter is this: If the government waited until
 
 ITS RELATION TO CRISES. 205 
 
 the bonds were due, it would in the mean time pay 
 $682,846 each year as interest; and at the end of the 
 seventeen years it would pay the par value of the bonds. 
 But in the mean time it would have the use of $682,846 
 for seventeen years, sixteen years, and so on, down to one 
 year. The gain or loss will be the difference between 
 the amount paid, and the present worth of a seven- 
 teen years' annuity of $682,846, at four per cent., 
 plus the present worth of the par value of the bonds. 
 From this standpoint, also, the loss was the amount of 
 the premium. It must be borne in mind that no one 
 of these amounts represents the social loss, or the loss 
 to the nation as a social unit. The loss spoken of 
 is the loss which the government, or the whole people 
 as a debtor, sustains to part of the people as creditor. 1 
 Moreover, all such computations are, at best, only 
 guesses. 
 
 The direct loss from the forced purchase of bonds at a 
 premium is not the only one to be considered. The pur- 
 chase may do harm in addition by curtailing bank circu- 
 lation. "It is difficult to estimate the full effect of bond 
 purchases by the Secretary of the Treasury upon the 
 volume of circulation of the national banks, for while 
 $24,117,400 of bonds were withdrawn and directly trans- 
 ferred for purchase, about $8,000,000 being substituted, 
 the total withdrawals amounted to more than $40,000,000; 
 but undoubtedly the larger part of the $16,000,000 not 
 withdrawn for transfer were either placed on the market 
 or were purchased by the Secretary directly from the 
 
 1 The transaction mentioned was equivalent to buying bonds at par, at 
 about 2.1 per cent. ; evidently since the government could not have floated a 
 new issue of bonds at so low a rate as that, there must have been a loss on 
 the purchase actually made.
 
 206 THE INDEPENDENT TREASURY. 
 
 banks after withdrawal. " 1 If the purchase of bonds forces 
 the price up it may be more profitable for the banks to 
 sell bonds, contract their issues, and take advantage of 
 prevailing high rate of discounts to enlarge their loans. 
 
 That the Treasury purchases of bonds may force their 
 price up there is no doubt. Speaking of a Treasury offer 
 to purchase bonds, in 1887, the Financial Chronicle 2 
 said: 
 
 " Early in the week when it was represented that there 
 would be no change in the Treasury policy prices sharply 
 declined, and at times the market verged close on a panic. 
 On Wednesday, after it was known that the offerings of 
 four and one-half per cents, to the government had been 
 very small, a recovery took place. This may seem para- 
 doxical, but the theory was that it would lead the govern- 
 ment to extend the offer to purchase bonds so as to include 
 the four per cents. As this proved to be the case the 
 very next day, the market further advanced, and it has 
 been quite strong since." 3 
 
 But even this is not the whole case. Under cover of 
 the excitement of a panic, influences may be set at work 
 to "corner the Treasury" and compel the Secretary to 
 purchase bonds. That is, public excitement, worked up 
 for the purpose, may exercise a coercive power. This 
 was undoubtedly one element in the crisis of 1890. Under 
 cover of the panic a combination of speculators, "'short ' 
 of the stock market and 'long' of government bonds," 
 operated to force down railroad shares and force up gov- 
 ernment bonds. Of course the purpose was that the 
 
 1 Rept. Comptroller of the Currency, 1890. Cf. Ibid. 1888, p, 453. 
 
 2 Sept. 24, 18S7. 
 
 3 See also pp. 176, 180.
 
 ITS RELATION TO CRISES. 20J 
 
 "shorts" might "cover'' at a profit, and that the others, 
 in the apprehension created, might compel the Secretary 
 of the Treasury to relieve the market and enable them to 
 sell their bonds. That there was some such combination 
 seems probable from the fact that, although the Treasury 
 purchased heavily up to the 17th of September, the bulk 
 of the money went outside of New York, but that all 
 paid out on that day — on the consummation of the plan 
 — remained in the city. 1 
 
 From the foregoing considerations it appears that the 
 use of the Independent Treasury for affording relief in 
 a panic by means of the money accumulated in the course 
 of its operations is not a satisfactory mode of accom- 
 plishing that purpose. Its aid is arbitrary in method, 
 very likely to be misdirected, generally insufficient as 
 rendered, and actually promotive of injury by stimulat- 
 ing speculation, and by making it more difficult for the 
 banks to replenish and keep intact their reserves. Even 
 when it is helpful, the aid which the Independent Treas- 
 ury can render is measured by the amount of its disburse- 
 ments, and the maximum effect of this aid must be lessened 
 by the easy conditions under which it is offered; or else, 
 if these conditions are made harder, the aid which the 
 banks could otherwise render is diminished, and counter- 
 acts to a certain extent the good effect of the Treasury 
 operations. Moreover, the good done by the Sub-Treas- 
 ury expansions is less in a delicate condition of the 
 market than the evil done by its contractions. For con- 
 traction of the currency is quicker to produce distrust 
 than expansion is to restore confidence. 
 
 The limitations of the usefulness of the Independent 
 
 1 See Banker's Magazine, Oct. 1890.
 
 208 THE INDEPENDENT TREASURY. 
 
 Treasury for the relief of business when distressed are, 
 then, very great. The helpfulness of an expansion of 
 the currency in calming the disturbance, whether by 
 the Treasury, or by banks, will depend in part on the 
 nature of the crisis and its degree of severity. The 
 Independent Treasury has all the limitations of banks in 
 an attempt to relieve a crisis, besides many of its own. 
 For even the banks are limited in such cases by the fact 
 that under certain circumstances something more than 
 an expansion of the currency is needed to give ease to 
 business. A short examination of the character of cri- 
 ses will bring out more clearly the limitations common to 
 both the banks and the Independent Treasury. If the 
 disturbance is in its origin due simply to a lack of money, 
 while business is in an otherwise healthy condition, an 
 expansion of the currency, whether by an increase of bank 
 discounts or notes, or by an outpour of a Treasury sur- 
 plus, will relieve the crisis and prevent a panic ; but if 
 the expansion is due to the Independent Treasury, this 
 result will be attained, as we have seen, with more or less 
 success, according to the skill of the Secretary of the 
 Treasury. Even if a crisis becomes a panic, and is 
 accompanied by a complete breakdown of the circulating 
 medium, as in 1857, an Independent Treasury could, 
 under certain conditions, do much to ease the situation. 
 But such a case, as has been already remarked, is not 
 now among the possibilites. 
 
 If, however, the crisis be an industrial one, an expan- 
 sion of the currency, whatever its source, can be of little 
 avail. A difficulty of this kind is due to a falling off of 
 demand for goods in some line, or lines, of production. 
 This lessening of demand may be caused either by some 
 change of custom or mode of life, or by cheaper pioduction
 
 ITS RELATION' TO CRISES. 2(X) 
 
 elsewhere, or by the too rapid transmutation of circulat- 
 ing capital into fixed capital. In this case the difficulty 
 is likely to be lasting, and any increase of the amount 
 of money afloat can have but little effect unless it is 
 great enough and prolonged enough to enable debtors to 
 "hold on" until the new fixed capital begins to make 
 a return on the investment. But this is usually a matter 
 of many months, or even years, and is too long a period 
 to be influenced by temporary inflations or contractions 
 of the currency. Hence, even if there had been money 
 enough in the Treasury to satisfy all demands for it in 
 that fatal third week of September, 1873, for example, 
 the crash would not have been avoided, but only post- 
 poned. It might not have been so great, for many of 
 the enterprises that had been undertaken proved sound 
 ultimately; but many others were incapable of repayngthe 
 outlay on them, at least for a long time, and some not 
 at all. These had to collapse. 
 
 The immediate cause of the culmination of an indus- 
 trial crisis into a panic is loss of confidence. This is also 
 the ultimate cause of commercial panics, and may be due 
 to some slight accident that throws suspicion on firms 
 previously supposed to be perfectly "sound," or to a wise 
 conclusion on the part of traders that speculation has gone 
 too far. Whatever its cause, a breakdown of confidence 
 puts a crisis beyond the influence of Treasury dis- 
 bursements, as we saw was the case in 1873. What is 
 needed at such a time is a restoration of confidence, and 
 confidence can be restored only by a period of quiet. 
 Time must be allowed for the events of the crisis to pass 
 from men's minds. "The track must be cleared of the 
 wreck. The places left vacant by the casualties of the 
 great crash must be filled by new men." The sting of
 
 2IO THE INDEPENDENT TREASURY. 
 
 failure must cease to be felt, the memory of dishonored 
 credit must be allowed to grow dim, new grounds of 
 confidence must be seen, sound conditions of business 
 must be re-established. With all of this the temporary 
 absorptions and disbursements of money by the Treasury 
 have nothing directly to do. There can be no restoration 
 of business, and no rehabilitation of prices, until credit 
 is restored. For prices are affected by the variations in 
 the compound purchasing medium of credit and money, 
 and credit is relatively the more important of the two. 1 
 Indeed, at such times money may be plentiful, as indi- 
 cated by the prevailing rates of discount. But "cheap 
 money does not necessarily mean active speculation and 
 high prices. We have had our lowest prices and most 
 stagnant markets when bank vaults were phenomenally 
 overloaded." 2 A further outpour of money would there- 
 fore prove useless. And, indeed, it is extremely doubtful 
 whether it is wise, in a so-called capital 3 panic, to try to 
 devise means whereby all the enterprises endangered by 
 shaken credit may be preserved. Many of them are of 
 such a character, that the interests of society will be better 
 served by their destruction. The difficulty is that their 
 undertakers usually involve others in their downfall, and 
 the saving of these others is a legitimate and desirable 
 object, even although its accomplishment involves some 
 support of undertakings that are unsound. 
 
 Finally, the questions must be considered whether the 
 Independent Treasury may not have an influence in cre- 
 ating stringencies which it afterwards undertakes to 
 
 i Cf. Taussig's "The Silver Situation." Public, of the Amer. Econ. 
 Assoc, vol. vii., no. I, p. 63. 
 
 2 E. B. Andrews's " An Honest Dollar. - ' Ibid., vol. iv.,no. 6, p. 8. 
 
 3 A too rapid transmutation of circulating to fixed capital.
 
 ITS RELATION TO CRISES. 211 
 
 relieve, and at what period of a crisis its help is most 
 efficacious. As we have already seen, 1 Secretary Guthrie 
 praised the Independent Treasury in 1856, on the 
 ground that it exercises a restrictive influence on the 
 banks when "over-trading" takes place, and so pre- 
 serves "the general prosperity." The restriction is an 
 indubitable fact. Is its result beneficial? The answer 
 can be obtained only by an analysis of the general con- 
 ditions of a crisis. The series of phenomena of a crisis, 
 of whatever class, may be ultimately due either to what 
 are known as speculative causes, or to any change in the 
 business situation which gives rise to an increased demand 
 for one or more commodities, or to a shortened supply of 
 them, and so arouses hopes of larger profits than usual. 
 The first class of conditions is sometimes known by Sec- 
 retary Guthrie's word, " over-trading." That happens 
 " when an impression prevails, whether well founded or 
 groundless, that the supply of one or more great articles 
 of commerce is likely to fall short of the ordinary con- 
 sumption. In such circumstances all persons connected 
 with those commodities desire to extend their operations. 
 The producers or importers desire to produce or import a 
 larger quantity; speculators desire to lay in a stock, in 
 order to profit by the expected rise of price, and holders of 
 the commodity desire additional advances, to enable them 
 to continue holding. All these classes are disposed to 
 make a more than ordinary use of their credit.". . . 
 "Thus a rise of price for which there were originally some 
 rational grounds, is often heightened by merely specula- 
 tive purposes, until it greatly exceeds what the original 
 grounds will justify." 2 Under this stimulated demand 
 
 1 See page 59. 
 
 2 Mill's Political Economy, Book III., chap. 24, § 2, and chap. 12, § 3.
 
 212 THE INDEPENDENT TREASURY. 
 
 prices advance still more, until the tide turns and the 
 collapse comes. This occurs when the holders of the 
 commodity are unable to borrow further, and so must sell 
 to meet their obligations. This time comes when the 
 banks feel the necessity of contracting their discounts, 
 a necessity that is hastened by the drain of the precious 
 metals which the rise in prices almost invariably causes. 
 In what way is this course of events influenced by the 
 action of the Independent Treasury ? As the rise in prices 
 is in this case supposed to be due wholly or mainly to 
 speculation, evidently any influence that opposes the 
 speculative spirit will retard, perhaps check, the rise of 
 prices, and may prevent their reaching a point of danger. 
 The retarding influence usually operative in such cases is 
 the export of the metals ; but any other cause tending 
 to contract the currency will have a similarly beneficial 
 effect. The absorption of money by the Independent 
 Treasury is such a cause, and may, therefore, be re- 
 garded as herein beneficial. It not only diminishes the 
 amount of money, but, as it draws mostly from the 
 banks, it at the same time diminishes their power to lend. 
 Hence it may exercise a powerful restraining influence 
 on speculation, because it will arrest speculative exten- 
 sions of credit at an earlier stage, with a less drain of 
 gold. As the amount of their own notes which banks have 
 to loan is limited, deposits are their chief means of 
 discount. Hence the rate of interest must rise imme- 
 diately when the demand for loans trenches on the de- 
 posits beyond a certain point, loans become more diffi- 
 cult to get, and speculation is checked. This process is 
 made to begin earlier if the Treasury is absorbing money 
 at the same time. Its restriction of the banks under 
 these circumstances " is a real impediment to their mak-
 
 ITS RELATION TO CRISES. 213 
 
 ing those advances which arrest the tide at its turn and 
 make it rush like a torrent afterwards." The Indepen- 
 dent Treasury can exert such an influence, however, only 
 when its absorption of money coincides with this stage 
 of the stringency. A certain guaranty that such coin- 
 cidence will occur is found in the fact that, under the 
 circumstances described, the export of the metals gener- 
 ally implies import of commodities and consequent pay- 
 ment of custom dues. But such coincidence can be 
 regarded as certain, only when the speculation affects 
 commodities which are imported subject to duty. Under 
 our inclusive tariff system such articles will generally be 
 thus affected, however ; and we may, therefore, regard the 
 effect of our Independent Treasury as usually beneficial 
 in this phase of the inflation of prices. 
 
 There are still other sets of conditions in a specula- 
 tive market. Exchange may be in favor of this country, 
 prices may be rising, and yet there may be a drain of 
 gold. This was the case in 1890. Under such circum- 
 stances, in so far as the gold we lose belongs to foreign 
 creditors, no action we can take will prevent our losing 
 it if its owners are in great need, as seems to have been 
 the case at the time mentioned. Its loss, of course, 
 may injure us by contracting the currency and obviously 
 any further contraction by the locking up of money in the 
 Treasury vaults must then be an additional injury. But 
 if the gold is going abroad, attracted by higher rates 
 of interest, as when the Bank of England by arbi- 
 trarily raising its rate of discount tends to raise the rate 
 generally in the kingdom, then the Treasury action will 
 tend to keep the gold here, by making it temporarily 
 scarcer. The export will not stop until the scarcity of 
 money here raises the rate of discount to a point where
 
 214 THE INDEPENDENT TREASURY. 
 
 the home rate, plus cost of carriage, will be about equal 
 to the foreign rate. But nothing is gained by this. 
 Money becomes scarcer just the same. What we would 
 have lost by export is locked up by the government. 
 
 When, however, speculation has attained its culmina- 
 tion, when the point of danger is reached, and a collapse 
 of prices is threatened, the situation is different. The 
 need is for free discounting at high rates; but the 
 amount of loans that the banks can give is limited, 
 because a large amount of money that would otherwise 
 be at their disposal is locked in the vaults of the 
 Treasury. Now the influence of the system is evil. The 
 evil is lessened, indeed, if the money is at once disbursed ; 
 but, as already pointed out, the money usually comes 
 out, if it comes at all, under conditions that lessen its 
 usefulness in calming a panic or relieving a stringency. 
 
 If, however, the monetary stress is caused not by an 
 advance of prices under the stimulus of speculation, but 
 by some cause withdrawing capital from the market, the 
 whole case is different. Such are times when, for ex- 
 ample, heavy foreign payments have to be made, or when 
 there is a rapid transmutation of circulating into fixed 
 capital. Such drafts are met either by the withdrawal of 
 deposits from the banks, or by the sale of property, as 
 securities, or by the contraction of loans. In any case, 
 the source of loans is curtailed, the rate of discount rises, 
 loans are made only on "prime " security, and "shaky " 
 houses go down, probably involving in their ruin some 
 that are virtually solvent. The cause of the evil in this 
 series of phenomena is the reducton of loanable funds. 
 Any influence contributing to that reduction intensifies 
 the evil. The locking up of money in the vaults of the 
 Independent Treasury is such an influence, and that
 
 ITS RELATION TO CRISES. 21 5 
 
 action is therefore bad. The results will come about if 
 the absorption by the Independent Treasury coincides 
 with the withdrawal of money from the market for any of 
 the purposes indicated. When the money comes out of 
 the Treasury again, if the need still exists for drafting it 
 for any of the objects mentioned, the disbursement will be 
 good, unless it is made in a way to encourage hoarding. 
 If, however, the disbursement is delayed until the mar- 
 ket has turned and prices have adjusted themselves to a 
 lower level, it can do little or no good. 
 
 The substance of this analysis, then, is that, so far as 
 crises are concerned, the Independent Treasury exercises 
 a beneficial influence only in the early stages of a crisis 
 caused by a speculative advance of prices; that in the 
 later stages of such an occurrence its influence is evil to 
 a greater or less degree, according as its receipts happen 
 to exceed or to be less than its disbursements ; that in a 
 stringency caused by a rapid but healthy increase of busi- 
 ness, its absorptive influence is wholly bad, but that in 
 the later stage of such a crisis its disbursements are pro- 
 motive of good, unless mismanaged or too long delayed. 
 
 Hence we see that the coincidence of a particular phase, 
 or stage, of the action of the Sub-Treasury with a particu- 
 lar phase, or stage, of the progress of a crisis, is neces- 
 sary in order that the influence of the Sub-Treasury may 
 be beneficial. But such a coincidence is purely fortuitous, 
 and this fact deprives the system of all value as a scien- 
 tific mode of relief in crises. 
 
 Moreover, whatever support for the continued existence 
 of the system is found in the aid it renders the commu- 
 nity when in financial distress, will soon be taken away. 
 It cannot be long before the public debt will be so re- 
 duced that any succor from the purchase of bonds by the
 
 216 THE INDEPENDENT TREASURY. 
 
 Treasury will be of but little avail. If the policy of 
 surplus financiering be continued after that, the only 
 apparent way in which the government will be able to 
 aid in a crisis will be by lending its money directly to 
 those who need it, or by depositing it in the banks. The 
 former policy is altogether out of the question. The 
 latter has already been a matter of discussion, and has 
 been tried to a certain extent. Its consideration must be 
 reserved for the next chapter.
 
 PROPOSALS FOR REPLACEMENT. 21 7 
 
 CHAPTER VIII. 
 
 PROPOSALS FOR THE REPLACEMENT OF THE INDEPENDENT 
 
 TREASURY. 
 
 The trend of our conclusions drawn from the working 
 of the Sub-Treasury system to-day is that the harm done 
 by it is greater than the good, which is the opposite 
 of what was true when the system was established. At 
 present the only important advantages of the system are 
 its occasional accidental restriction of the expansion of 
 bank loans under the influence of speculation, the cer- 
 tainty that the government can get its money for use 
 promptly without disturbing the market, and its occa- 
 sional assistance in stringencies and crises. But of even 
 these advantages the first and third are uncertain, and 
 the system is a continued source of disturbance to the 
 money market and the banks. 
 
 The independent treasury system is an excellent illus- 
 tration of two very important facts, for the consideration 
 of which it is worth while to make a short digression. 
 These are the practical, make-shift policy of English 
 and American administration, and what has been called 
 the relativity of institutions. When part of the machin- 
 ery of administration is found to work badly, or when 
 conditions arise which were not contemplated at the time 
 the administrative system was planned, the usual Anglo- 
 American way of meeting the difficulty is, not to create 
 a new system, but to patch and twist the old one to make 
 it do the new work or meet the new conditions. The
 
 2l8 THE IXDEPENDENT TREASURY. 
 
 result is often, from a scientific or systematic standpoint, 
 a grotesque aggregation of unrelated details, which, 
 however, is made to work with reasonable smoothness 
 in practice, by the adaptability and hard common-sense 
 of the race. Witness, for example, that bundle of 
 incongruities and political and administrative manikins 
 called the English Constitution. Or, as a less impor- 
 tant illustration, consider the heterogeneous organiza- 
 tion of our own Treasury department. The same method 
 obtains in our political life and our law. A defect in 
 either is not always remedied by reconstruction, but by an 
 addition to meet new requirements. 
 
 Two important practical results flow from this Anglo- 
 American mode of progress. One is that it prevents any 
 of those sudden overturning of institutions such as are 
 so common among the Latin races, for example. Revo- 
 lutions with us are gradual. The other consequence of 
 the custom, really a corollary of the former, is that gen- 
 eral schemes of reconstruction and reform are looked at 
 askance by our people. Consequently, proposals to 
 change any existing institution, if they are to receive 
 consideration, must not depart very widely from the sys- 
 tem already existing. Any proposed new plan must be 
 based as far as possible on that in vogue already, if it 
 is to meet with such general approval as will insure its 
 early adoption. This fact has an important bearing on 
 any proposal that may be made to amend our Independent 
 Treasury system. It is better to keep a system whose 
 evils we know, than to adopt an entirely new one, built 
 on an ideal plan, whose defects we can only guess. 
 
 There is really a deep philosophical reason for the 
 race custom we are discussing. Its immediate explana- 
 tion is, of course, the innate conservatism of the race.
 
 PROPOSALS FOR REPLACEMENT. 219 
 
 But it is really an unconscious adherence to the truth 
 contained in the doctrine of the relativity of institutions, 
 which is the topic of the second of the digressions men- 
 tioned. It is a recognition of the truth that every exist- 
 ing institution has served a purpose, has met a want, has 
 had a reason for its creation. The truth contained in 
 the doctrine of the relativity of institutions is simply 
 that at the time of adoption of a particular institution or 
 political method not all of the data were known or under- 
 stood for a scientific, that is, a universal and permanent, 
 solution of the problem on hand. It does not follow from 
 that doctrine, as is sometimes assumed, that old systems 
 and methods should be replaced with others entirely 
 new; or, as is also sometimes assumed, that no scientific, 
 that is, universal and permanent, system of politics and 
 economics is possible. Natural social, political, and 
 economic laws are not proved to have no existence 
 because thus far in the world's history there are many 
 departments of life in which no system has been found 
 that will serve all nations and ages. 
 
 A claim of this kind might be made in the case of any 
 science. Because, for instance, there is some truth in the 
 statement that "morality varies with the latitude,'' it 
 does not follow that there is no eternal, immutable law 
 of right and justice. 1 So in Sociology, the fact that so- 
 cial, political, and economic institutions have varied, 
 grown useless, and decayed, does not prove the impossi- 
 bility of a universal solution of the problems these insti- 
 tutions have tried to solve. We may yet hope that some 
 time there will be discovered, for instance, a scientific 
 law of banking and a universal and permanent solution 
 of the vexed paper-money question. 
 
 l Cf. Janet's " Theory of Morals," pp. 161 — 162, 309 ff.
 
 220 THE INDEPENDENT TREASURY. 
 
 The bearing which the subjects of these two digressions 
 have on the subject in hand is both close and important. 
 Any proposals looking towards the remedying of the evils 
 of the Independent Treasury system should have reference 
 to both of them. Such proposals should look therefore 
 rather towards a modification than a complete supplant- 
 ing of the system; should recognize the fact that the sub- 
 treasury system was created to meet a special need, which 
 still exists, although the development of the country has 
 given rise to other needs whose importance is only sec- 
 ondary to that which the Sub-Treasury was designed to 
 meet. 
 
 The primary purpose of the adoption of the Indepen- 
 dent Treasury was the safety of the public money. It is 
 unnecessary to recall in detail the 4 viciousness of the 
 banking system that prevailed at that time, for it is 
 familiar to all students of our financial history. To 
 have continued to intrust the public money to the banks, 
 as they were then constituted, would have been to invite 
 frequent embarrassment and often positive loss to the gov- 
 ernment. It may be said, indeed, that the deposits of 
 the nation would have been safe enough if the life of the 
 second United States bank had been prolonged, and that 
 the political strife that brought about its destruction was 
 the cause which made the creation of the Sub-Treasury 
 system necessary. It is true that up to a certain time the 
 public deposits in that bank were safe, and that the rea- 
 sons for its overthrow were political rather than economic. 
 But whatever view one may take of the political motives 
 and measures that caused its downfall, there is good 
 reason for thinking that its preservation as a semi-public 
 institution would have become impossible in any event; 
 and certainly there was no likelihood at all of permanent
 
 PROPOSALS FOR REPLACEMENT. 221 
 
 safety for the public deposits in the banks that succeeded 
 the national institution. Some means had therefore to 
 be devised to secure safety, and under the prevailing 
 public opinion no better means could have been found 
 than that which provides that the government should 
 keep its money in its own vaults. This plan had its pecu- 
 liar dangers, to be sure. It exposed the public money 
 to risk of loss from accident and from peculation at the 
 hands of the inexperienced officials who were necessary 
 under the new system. But there is no reason to think 
 that these were personally less honest than the officers 
 and employees of the banks ; and they were probably fewer 
 in number, and less exposed to the temptation of using 
 the public money for their personal ends, because they 
 had not the facilities for using it which were open to 
 those employed in the banks. 
 
 A second purpose of the establishment of the Independ- 
 ent Treasury was to furnish a safe currency. This was one 
 of the purposes for which the second national bank had 
 been chartered; and it was claimed, with some show of 
 reason, that the purpose had not been fulfilled by that 
 institution. After the fall of the national bank, there 
 was no method available for the provision of a safe cur- 
 rency, and for its regulation, except for the government 
 to undertake the matter itself. This plan, again, to be 
 sure, had objections peculiar to itself. Treasury notes as 
 well as bank notes would depreciate under certain cir- 
 cumstances, and the government could not on all occa- 
 sions make all its payments in specie. Yet under the 
 circumstances the government issues were incomparably 
 superior. 
 
 But in providing for the safety of the public funds and 
 for a safe currency, the Independent Treasury did not 
 provide, at least sufficiently, for elasticity in the circu-
 
 222 THE INDEPENDENT TREASURY. 
 
 lating medium; nor did it insure business against disturb- 
 ances due to the alternate and arbitrary contractions and 
 expansions of the currency which its operations caused. 
 These evils, indeed, were at that time of less moment, 
 because, as we have seen, the financial operations of the 
 government were not sufficiently large to do much harm. 
 To-day the situation is different. The need of elasticity 
 and the necessity for the prevention of disturbance by 
 the Treasury operations, have become of greater im- 
 portance as the business of the country has expanded. 
 While in 1846 the Treasury was comparatively isolated 
 from the business of the country, the influence of its 
 operations now is felt in every direction; there is scarcely 
 an industry in the country that is not more or less affected 
 by its operations. "The annual and daily transactions 
 of the Treasury have become so large, its financial opera- 
 tions and movements touch the interests of the people at 
 so many points, that great care should be taken to avoid 
 any unnecessary friction. As the country increases in 
 wealth and population, with the consequent increase of 
 its revenues and disbursements, it will be found impos- 
 sible to continue the system in its present form." 1 
 
 As the national debt is reduced, it becomes more 
 difficult so to adjust the purchase of bonds as to furnish 
 relief to the money market at times when it is strained. 
 "As these derangements happen almost invariably at the 
 time of the moving of the crops of the country, this state- 
 ment is equivalent to saying that every productive inter- 
 rest in the country must pay toll to foreign buyers through 
 the lower range of prices which obtain at such times, 
 because of the fact that our arrangements for collecting 
 
 1 Report U. S. Treasurer. 1SS6. pp. 67-68.
 
 PROPOSALS FOR REPLACEMENT. 223 
 
 and disbursing our revenue are so defective as to need an 
 artificial and violent remedy in order to place in active 
 circulation the moneys withdrawn from the business of 
 the country." l 
 
 Of course, safety for the public money is as necessary 
 now as it ever was; but it can be secured in other 
 ways. The public money on deposit in banks is in far 
 less danger of loss to-day than at any previous period of 
 our history. "The painful experiences of 1839-40, and 
 the active discussion of the principles of money and 
 banking which they called forth; the growth of a public 
 sentiment condemning an excess of paper issues, and the 
 formulation of precepts, more or less carefully observed 
 by bank managers ; a vast improvement in the commer- 
 cial morality of the country, due partly to education, and 
 even more to the development of manufactures which, to 
 a vastly greater degree than agriculture, rest on good 
 faith and commercial honesty; the shortening of the terms 
 of credit. — these causes [with others] served to place the 
 paper-money issues of the United States on an improved 
 basis between 1840 and i860.'' 2 General Walker might 
 also have added that these causes have rendered the 
 safety of deposits also more secure, and that the more 
 recent development of banking has been marked by even 
 a steadier and greater improvement in respect to the 
 safety of both issues and deposits. 
 
 Since the safety of the public money can be secured as 
 well in some other way as by the Independent Treasury; 
 and since that system under present conditions produces 
 effects that are of great injury to business, the question 
 naturally arises whether some method cannot be found 
 
 1 Report U. S. Treasurer, 1SS6. pp. 67-68. 
 
 2 F. A. Walker's " Political Economy,'' p. 443.
 
 224 THE INDEPENDENT TREASURY. 
 
 whereby the evils of the system can be largely or wholly 
 obviated, while yet its good points shall be conserved; 
 some method which shall continue the insurance of 
 safety, but shall provide for greater and more automatic 
 elasticity of the currency; shall put an end to the disturb- 
 ance of business by arbitrary absorptions and disburse- 
 ments, shall prevent the occurrence of stringencies in the 
 money market from government operations, but shall yet 
 furnish a means of affording relief in crises to as great 
 an extent, at least, as the Independent Treasury does 
 now. Safety is, of course, the prime requisite. Its loss 
 could not be offset by any other advantage that could be 
 secured. That the Treasury shall get its money when it 
 needs it, in full, freely and promptly, is the most impor- 
 tant consideration, and no proposal that does not provide 
 for that end should be considered for a moment. 
 
 The experience of other countries in such matters is 
 valuable and usually suggestive of improvements, and a 
 short account of the methods in use abroad for keeping 
 the public money will be helpful. 
 
 In England, as is well known, the money of the gov- 
 ernment is kept in the Bank of England. "As the 
 banker of the government the Bank of England manages 
 the payment of dividends on the national debt, the issue 
 and withdrawal of exchequer bills, treasury bonds, the 
 issue of all government loans, and the banking operations 
 connected with the Treasury, the government offices gen- 
 erally, the Indian government, and a large portion of 
 the monetary business of the colonial governments." * 
 
 1 Palgrave's " Dictionary of Political Economy." 
 
 The Bank of England transacts the whole business of government. " She 
 acts not onlv," says Adam Smith, "as an ordinary bank, but as a great engine 
 of state. She receives and pays the greater part of the annuities which are due
 
 PROPOSALS FOR REPLACEMENT. 225 
 
 As the public money is received from taxes it is paid 
 in on behalf of the government, to the account of the 
 exchequer, at the Bank of England or of Ireland. No 
 security is required from the bank for these deposits. 
 The government is on the same footing as other deposit- 
 ors. Hence there is no disturbance caused in the money 
 market by the variations in the volume of currency due 
 to government receipts and payments ; for the money in the 
 bank is practically in the channels of business, since 
 it is within each of the demands of business. 
 
 The English method of checking a panic is familiar. 
 As is well known, the paper circulation of the Bank of 
 England is limited to about ,£15, 000,000,* secured by 
 government stock, plus as much more as the bank may 
 choose to issue, provided only it has Pound for Pound of 
 bullion for every additional note. If in a time of panic 
 the pressure becomes so severe as nearly to drain the specie 
 of the bank, and so threatens to make a stoppage of dis- 
 count necessary, with the terrible loss that such a stop- 
 page would involve, the Ministry permits the bank to 
 issue notes in excess of the legal limit. This course was 
 necessary for the first time in the crisis of 1847. After 
 the resources of the bank were exhausted, the government 
 authorized it to issue at discretion, and the panic was im- 
 mediately stayed. The excess of notes issued was only 
 ,£400,000. The next suspension of the Bank Act was 
 in 1857. The resources of the bank at the close of 
 business on "the 12th of November of that year were 
 
 to the creditors of the public ; she circulates exchequer bills ; and she advances 
 to the government the usual amount of the land and malt taxes, which are fre- 
 quently not repaid till some years thereafter." — Encyc. Britan., qth ed., Art. 
 Banks. 
 
 1 £ l 4,47S> 000 -
 
 226 THE INDEPENDENT TREASURY. 
 
 £68,085 ^ n n °tes, £ 2 74>953 in gold, and £41,106 in 
 silver, being a total sum of £387, 144." : The bankers' 
 balances alone in the bank were £5,458,000. On the 
 evening of the 12th the government authorized the sus- 
 pension of the Bank Act, but fixed 10 per cent, as a 
 minimum rate of discount. Next morning the panic 
 passed away. £7,376,000 were issued in excess of the 
 statutory limit. The issue ran through November, thus 
 showing that the commercial pressure was prolonged after 
 the panic was broken. A suspension in 1S66 produced 
 similar quieting effects. 
 
 The conditions under which the suspension of the act 
 of 1844 is permitted are carefully restricted. All profits 
 from the extra issue of notes must be paid to the govern- 
 ment, and the minimum rate of discount must be kept at 
 10 per cent. But although the Bank of England "is the 
 chief depository of a government which maintains no 
 public treasury; [and although] it is charged with the 
 duty of keeping the registry of the public debt, and of 
 paying the interest thereon ; still it is a private corporation 
 of the familiar type, managed by its own officers, in whose 
 selection the government has no share, and whose re- 
 sponsibility is to their own stockholders alone." 2 
 
 The government never suffers any inconvenience from 
 delay in drawing its deposits; its drafts are always 
 promptly and fully met, and frequently it is accommo- 
 dated with advances from the bank in anticipation of rev- 
 enue. The English system has furnished for England the 
 safety and promptness of payment which are necessary for 
 the public money, and it avoids the disturbance of the 
 money market that is a consequence of our system. Its 
 
 1 MacLeod's " Theory and Practice of Banking," vol. ii., p. 356, 4th ed. 
 '•* Dunbar's "Theory and History of Banking,'' p. 1S4.
 
 Proposals for replacement. 227 
 
 provision for panics, though clumsy, has proved effective. 
 It is superior to our Treasury management of such occur- 
 rences, in that it is not dependent on the will of a single 
 man, but must have the approval both of the officers of the 
 bank and of the officials of the government; and as the 
 officers of the bank are in close touch with business inter- 
 ests they are better able to judge of the time when action 
 is necessary. The terms on which discount is offered are, 
 by the conditions of the suspension of the Bank Charter, 
 prevented from being too easy, and the bank can make 
 them as much more difficult than the government mini- 
 mum l as it chooses, because the law does not fix a maxi- 
 mum rate of discount. Moreover, the expansion of the 
 currency is temporary, lasting only long enough to restore 
 confidence; the amount of expansion depends wholly on 
 the demand, is caused by it, and contracts with it, so that 
 expansion beyond the need of the time is not possible, 
 while yet it can be made as great as the demand ; in short, 
 the amount of expansion and the demand for expansion 
 vary together, and the policy of a variable rate of dis- 
 count gives the bank control of the demand, within certain 
 limits. And finally, the profit from the transactions for 
 the relief of a panic goes to the public Treasury, whereas 
 under" our system the sale of bonds by the Secretary of 
 the Treasury is susceptible to the influence of speculators, 
 and makes it possible for them to gain from the purchases 
 of bonds by the government. 
 
 In France we find a different system still. The Bank 
 of France is an " institution subject to the control, and 
 mule subservient to the needs, of the government of the 
 day." " But the Treasury keeps a running account at the 
 
 1 Ten per cent. 
 
 2 Dunbar's " Theory and History of Banking," p. no.
 
 228 THE INDEPENDENT TREASURY. 
 
 bank, which is regulated by the same principles that 
 govern the accounts of individuals, and the Treasury is 
 allowed by law to borrow from the bank to the extent of 
 sixty millions of francs. 2 The revenue is collected by 
 government officers, or " Tresorerie Payeurs- Genera I" in 
 the different departments. The money received is first 
 employed to pay the expenses of the department, and 
 any excess is forwarded to the Treasury, in the form of 
 prime bank paper or of first-class commercial bills of ex- 
 change having not more than thirty days to run. The 
 payeurs-general are expected, however, to maintain de- 
 posits proportionate to the needs of their work. 
 
 When the local resources are insufficient to pay the 
 expenses of a department, the paymasters general 
 (payeurs-general) can either make payments by drafts on 
 the Treasury or on neighboring departments, or by open- 
 ing credit accounts with the branches of the Bank, or, 
 finally, by receiving funds from Paris. 
 
 The payeurs-general are forbidden to engage in banking 
 operations except in movements of funds which result in 
 facilitating the service of the Treasury. 
 
 Although the Bank of France is used by the govern- 
 ment for keeping the public money, it is not a fiscal 
 agent of the government, like the Bank of England. It 
 does not collect or disburse the revenues of the Treasury; 
 but it lends largely to the government in times of need, 
 and its credits have carried the government through many 
 trying exigencies. 
 
 Although this system must affect the amount of money 
 afloat by alternate absorptions and disbursements, it 
 probably does so to a less extent than our Sub-Treasury, 
 because the deposit of government balances in the banks 
 
 1 Block's " Dictionnaire de l'Administration.''
 
 PROPOSALS FOR REPLACEMENT. 22() 
 
 prevents large accumulations in the treasury. Moreover, 
 small variations in the circulating medium are of less 
 importance in France than in England or the United 
 States, because business is done to a much less extent by 
 credit. Cash transactions, that is, bear a much larger 
 proportion to the total volume of business than is the 
 case in this country or in England. There is no regu- 
 lar method for furnishing government assistance to the 
 business community in a panic. That is left to the 
 banks, except in very extraordinary cases in which politi- 
 cal causes have had an influence. In such cases the gov- 
 ernment has given a legal tender character to the notes 
 of the Bank of France, which enjoys a monopoly of issue, 
 by decreeing what is called the "cours force.''' But ordi- 
 narily, with the policy of a variable rate of discount, the 
 banks have been able to control crises. 
 
 Like the Bank of England, the Reichsbank of Ger- 
 many is in its organization a private institution; that is, 
 its stock is owned by private individuals. But the gov- 
 ernment has a power of control over it, and appoints the 
 board of directors, and shares in its profits. The bank 
 is "required to receive and make payments, and to con- 
 duct other financial operations for the Imperial Treas- 
 ury without compensation, and also to manage free of cost 
 the receipts and payments of the several states of the 
 Empire." 1 The German bank law is modelled largely on 
 the English. Its tendency is ultimately to concentrate 
 in the Reichsbank the whole power of issuing notes. 
 Meantime, that bank is allowed to issue its apportionment, 
 which at present amounts to 286,585,ooo 2 marks, not 
 secured by cash in hand. If any notes are issued above 
 
 1 Dunbar's " Theory and History of Banking,'' p. 190. 
 
 2 Ibid., p. 192.
 
 230 THE INDEPENDENT TREASURY. 
 
 the amount which the bank is allowed by law to put out 
 without special security, they must be secured by specie, 
 treasury notes, or the notes of other banks. Unless the 
 surplus notes are thus secured, a tax of five per cent, is 
 by law imposed on them. It is by taking advantage of 
 this law that provision is made for an expansion of the 
 currency on occasion of a severe monetary stringency or 
 a panic. The tax of five per cent, is so high as to make 
 extra issues unprofitable except at a time when the 
 demand for money is so great as to cause severe pressure 
 in the market. Hence the extra notes issued under 
 these conditions are quickly retired when the money 
 market resumes its normal condition. 
 
 In Germany every bank of issue is required, like our 
 national banks, to receive the notes of its sister institu- 
 tions at par; but it cannot pay them out again, unless 
 they are notes of the Reichsbank, except for redemption 
 or in payments to the bank that issued them. The bank 
 notes are not legal tender, and are not received for pub- 
 lic dues except under conditions which the government 
 may withdraw at any time. Every bank must redeem its 
 notes on presentation at its own counter, and also at an 
 agency in either Berlin or Frankfort. 
 
 In Germany we find, then, that the money raised by 
 taxation is not withdrawn from the channels of business, 
 but is at all times accessible by being deposited in the 
 Reichsbank and its branches. 
 
 In Germany, too, as in England, provision is made for 
 panics by an expansion of the bank-note issue. The 
 German provision is, however, much more satisfactory 
 than the English, because its machinery is set in motion 
 more automatically. When the demand for money raises 
 discount rates high enough, under the German system
 
 PROPOSALS FOR REPLACEMENT. 23 I 
 
 the extra supply comes forth of itself in the natural and 
 ordinary course of business. It is not necessary, as it is 
 in London, to wait for the decision of men even so expe- 
 rienced as the bank directors that the time has come for 
 a suspension of the Bank Act. The extra issue is not in 
 Germ my dependent on the judgment of any man or set 
 of men as to its necessity. The exhaustion of the ordi- 
 nary supply of money, and the readiness of borrowers to 
 pay a sufficiently high rate of interest for loans, is at once 
 the evidence of the necessity for expansion and the power 
 that induces it. The extra supply cannot come without 
 the strong demand; and the demand cannot exist, under 
 the laws of trade, without bringing a sufficient supply. 
 The movement is thus automatic. The only part of the 
 whole plan which depends on the judgment of those who 
 work it, is in the fixing of the rate of the tax on extra is- 
 sues. If this were put too high a monetary stringency 
 might have to become exceedingly severe before the bank 
 could issue notes over its legal limit without loss. But 
 there is very little room for error here, and five per cent, 
 per annum is a sufficiently low rate. 
 
 It is not necessary to describe the system of financial 
 administration of still other countries. Italy and Russia 
 have national banks in which the money of the govern- 
 ment is kept, and which aid the government in its finan- 
 cial operations. 
 
 Although our own government formally separated it- 
 self from banks and banking by the establishment of 
 the Independent Treasury system, it was in a few years 
 driven by the course of events into a renewal of intimate 
 relations with them. The exigencies of the Civil War 
 compelled the government, as we have seen, to resort to 
 the banks for support; and the connection then re-estab-
 
 232 THE INDEPENDENT TREASURY. 
 
 lished has become more extensive and closer as the coun- 
 try has developed and the financial operations of the 
 government have assumed a larger scale. In the fiscal 
 year 1891 the number of national banks which held public 
 money on deposit was 213, but the policy of the present 
 administration has been to reduce the number. For 
 the past thirty years, then, the country has maintained a 
 bank connection alongside of the Sub-Treasury system. 
 It is desirable, in order to obviate the evils of the Inde- 
 pendent Treasury, that this use of banks be enlarged so 
 as practically to supplant the Sub-Treasury entirely. The 
 advantages that would result from doing so are very great. 
 The depository banks would furnish a ramified system of 
 receiving and disbursing points for money due to and 
 from the government, and thus would be a great conven- 
 ience to the government, to those who have taxes or other 
 public dues to pay, to the public creditors, and to dis- 
 bursing officers. Even now, without the banks the fric- 
 tion and difficulty that would occur in these transactions 
 would be intolerable; and no equivalent system of in- 
 dependent depositories could be established and main- 
 tained except at a cost to the government altogether in 
 excess of the benefits it would bring. The banks per- 
 form these duties cheaply because they are in the line, 
 so to speak, of regular banking business If complete 
 independence of the banks were insisted on by the gov- 
 ernment now, every patent-office fee, every internal 
 revenue tax, in short, every sum due the government, 
 would have to be remitted in money to a sub-treasury, 
 or depository, perhaps some hundreds of miles away. 
 
 Besides the great inconvenience that would ensue from 
 the use of independent depositories only, there might 
 possibly result in many places a disturbance in the
 
 PROPOSALS FOR REPLACEMENT. 233 
 
 local distribution of money which would be very in- 
 jurious. 
 
 The use of banks as many local centres of govern- 
 ment financial management obviates all these disadvan- 
 tages; and they furnish collecting and disbursing officers 
 with safe and convenient places to keep their money. 
 
 Finally, and most important, the use of the banks as 
 sole government depositories would do away with those 
 inequalities of strain in the money market which the 
 Independent Treasury sometimes causes. Money, the 
 great tool of exchange, and the main direct basis of 
 credit operations, would be left available more fully 
 than now, so far as the operations of the government are 
 concerned; and the friction caused by its arbitrary 
 absorptions and disbursements would be avoided. 
 
 There is nothing new in the proposal to use banks 
 for the deposit of the public money. As has just been 
 pointed out, the country has been gradually drifting to the 
 policy, and it has been advocated strongly by men of 
 various shades of political opinion, as well students of 
 finance as men in practical life. 1 
 
 It is both fortunate and unfortunate that any proposal to 
 use the banks of the country more largely for government 
 purposes arouses suspicion among a large number of our 
 people, and recalls to. them memories of the unfortunate 
 experiences of the government with the banks as they 
 were forty, fifty, or sixty years ago. It is fortunate 
 because it insures a careful scrutiny of any method pro- 
 posed for the revival of the connection between the 
 Treasury and the banks, and so will prevent hasty 
 action ; it is unfortunate, however, in the intensity of 
 suspicion and opposition which it arouses, because there 
 
 1 See pp. 96-98, and also various Finance Reports.
 
 234 THE INDEPENDENT TREASURY. 
 
 is danger that proposals for reform in this direction will 
 meet but scant favor. The feeling of opposition is 
 increased by the recollection of the political issues that 
 arose out of the connection between the government 
 and the Second Bank of the United States, and the fear 
 on the part of many that the banks might, if they ac- 
 quired any relations with the government, obtain politi- 
 cal power, to the detriment of the interests of the people. 
 
 But if any one thing in connection with this matter 
 has been settled by the drift of our past experience, it is 
 the impossibility of the acquirement of political influence 
 by the banks, as at present organized, from their mere 
 relation as government depositories. Of course a single 
 national bank, like the old United States Bank, or the 
 national banks of England and Germany, is not contem- 
 plated. Such an organization is impossible in the United 
 States now. We must discuss our banks as they are; 
 and they could not become a part of politics under exist- 
 ing conditions. For, as we have already observed, the 
 tone of the banking community is far higher than it was; 
 the spirit of our people is so hostile to corporate power that 
 collusion between the banks and the party in power would 
 not be tolerated; the banks are too numerous to admit of 
 a monopoly of government patronage, even if such a 
 monopoly were lawful, as it is not; their large number 
 would induce a rivalry that would prevent favoritism; 
 and, finally, and strongest reason of all, there would be 
 no temptation for any single bank to enter politics, even 
 if it could, for it would have nothing to gain by so doing, 
 and a combination of banks for that purpose would be 
 utterly impracticable. 
 
 One argument that has been advanced on political 
 grounds against the use of the banks, is that as it would
 
 PROPOSALS FOR REPLACEMENT. 235 
 
 be to their interest that the government should have 
 large surpluses to deposit, they would use their influence 
 to keep up taxation, and that they would therefore favor 
 "protected " interests. There are conceivable conditions 
 under which such a course would be possible, but they do 
 not exist in this country. If there were but one govern- 
 ment bank, so strong that it could coerce the government 
 or have a weighty influence in national legislation, the 
 result mentioned might occur. But such is not the 
 case with us, and our public opinion is too jealous of 
 banking corporations to make it safe for the banks to 
 try it. 
 
 The political issue finds no room for consideration, 
 then. The question of the reorganization of the financial 
 system of the government is not, and need not be, a 
 party question at all; for no changes that, under existing 
 conditions, would, or could, be made, could endanger in 
 the slightest degree the integrity of our political institu- 
 tions, or interfere with the prerogatives of any branch of 
 our government. 
 
 Nor, on the other hand, need we fear that, the existing 
 executive at any time could show favoritism towards one 
 or more banks at the expense of the others, as some 
 charged President Jackson and his Administration with 
 doing. For some simple legislative provision, as, for ex- 
 ample, giving all the national banks the right to bid 
 for public deposits, would do away with any possibility of 
 "pet banks." 
 
 In order to understand clearly the points at which im- 
 provements in the connection of the government with 
 the banks could be made so as to get rid of some of the 
 evils of the Sub-Treasury system, it is desirable to exam- 
 ine the conditions of that connection as it exists at present.
 
 236 THE INDEPENDENT TREASURY. 
 
 It was provided by the law 1 establishing the National 
 Banking system, that all national banks designated by 
 the Secretary of the Treasury for the purpose should be 
 depositories of public money, except receipts from cus- 
 toms. They may also be employed as financial agents 
 of the government, and are required to give satisfactory 
 security, by the deposit of government bonds "and other- 
 wise," for the safe-keeping of the public deposits and the 
 faithful performance of their duties as government agents. 
 They are also required by this law to receive the notes 
 of all other national banks at par. Any banker or broker 
 not an authorized depository, is liable to prosecution for 
 embezzlement, if he receives or in any way deals in the 
 public money. The public depositories are further re- 
 quired to forward all mutilated and worn notes to the 
 Comptroller of the Currency for redemption, and to assort 
 and forward the notes of banks that reduce or withdraw 
 their circulation. The notes of the national banks are 
 not received by the government for duties on imports, 
 and are not paid out by it for interest on the public debt. 
 The security required for deposits by the government is 
 within the discretion of the Secretary of the Treasury. 
 The bonds hitherto required as security have been bonds 
 of the United States, or bonds guaranteed by the United 
 States, such as the "Pacific currency sixes" or the "3.65 
 bonds" of the District of Columbia. The Secretary 
 could legally accept other security than United States 
 bonds if he chose, but the custom thus far has been not to 
 do so. The amount of bonds required to be deposited as 
 security is such as the| Secretary of the Treasury may deem 
 proper, but must be at least $50,000. The depositories 
 are required to make daily returns of their receipts of 
 
 1 See Appendix, II, H.
 
 PROPOSALS FOR REPLACEMENT. 237 
 
 public money to the Treasury Department, and if at any 
 time these receipts exceed the amount of bonds deposited 
 by the bank as security, additional bonds must be pro- 
 vided immediately, or the surplus of deposits over security 
 must be given up. 
 
 The amount of deposit allowed on bonds has varied 
 under different Secretaries of the Treasury. Until about 
 1885, or 1886, but few depository banks were allowed 
 fixed balances, because the practice was for the Treasurer 
 to draw upon his balance whenever he needed funds. At 
 about the time mentioned, however, the practice became 
 general to allow a fixed balance equal to ninety per cent, 
 of the United States four per cent, bonds, and a somewhat 
 smaller amount on the three per cents, and four and a half 
 per cents. Later the depository banks were allowed to 
 hold public money up to the par value of the bonds de- 
 posited as security, and in some cases even above the par 
 value. 1 
 
 It is clear from the conditions on which the depository 
 banks are allowed to hold the public money, that ultimate 
 loss is altogether out of the question so long as the con- 
 ditions are observed. The element of safety is abun- 
 dantly provided for, because, even if any bank should 
 fail to pay the deposits left with it, the bonds held by the 
 government as security could be cancelled or sold. Sale 
 would be necessary to prevent loss if the deposits allowed 
 exceeded the par value of the bonds held. And there 
 would be a possibility of some loss if between the time 
 of deposit and the failure to repay there occurred a fall in 
 the market price of bonds on which deposits were allowed 
 above par. But such a loss could not be experienced 
 
 1 See above, pp. S6-87.
 
 238 THE INDEPENDENT TREASURY. 
 
 except by the gross negligence or mismanagement of 
 government officers. 
 
 The present provisions for insuring the safety of the 
 public deposits are in marked contrast to those which 
 obtained under the bank deposit system of 1836-1846. 
 By the articles of agreement with the banks then, security 
 was taken for government deposits only if they exceeded 
 one-half the capital of the bank, or if the Secretary of the 
 Treasury deemed it at other times necessary. 
 
 Still other guaranties of safety for the public deposits 
 are that the number of depositories is larger now than it 
 was in 1846, and that the banks are stronger and have 
 larger capital. 
 
 But although ultimate loss is thus abundantly guarded 
 against, there are other objections that have been made 
 to the use of depository banks, which deserve considera- 
 tion. These objections were summarized by Secretary 
 Windom in his reports for 1889 and 1S90, in justify- 
 ing his reversal of the policy of his predecessor, who had 
 made large use of the banks for depositing the public 
 money in order to prevent contraction of the currency. 
 The objections as stated by Mr. Windom are as follows: 
 "The national bank depositories have been, and are, 
 useful auxiliaries to the Sub-Treasury system, but the 
 deposit of public funds therewith to an amount largely in 
 excess of the needs of the public service is wholly un- 
 justifiable. Such a policy is contrary to the spirit of the 
 act of August 6, 1846, which contemplates a Sub-Treasury 
 independent of the banks. 
 
 " It necessarily involves temptation to favoritism of the 
 most objectionable character. 
 
 " It makes the Treasury more or less dependent on the 
 banks, on account of the difficult and delicate task of
 
 PROPOSALS FOR REPLACEMENT. 239 
 
 withdrawing the deposits when wanted, without creating 
 serious disturbance of financial conditions. 
 
 " It involves the exercise of a most dangerous power by 
 the Secretary, whereby he may, if so disposed, expand or 
 contract the currency at will, and in the interest of cer- 
 tain favorites whom he may select. 
 
 '"It is grossly unjust to the government to grant the 
 free use of its money, while it pays to the very parties 
 thus favored four, and four and a half per cent interest 
 on its own bonds, which are pledged as security for the 
 money thus received. 
 
 "... It is manifestly unfair to the people to give the 
 banks the use of their money, while they are required 
 by the banks to pay from six to eight per cent interest 
 on it. 
 
 "Bad as these features of such a policy are, a more 
 serious objection is found in the difficulty and danger 
 encountered in the withdrawal of such excessive deposits. 
 Money thus deposited goes at once into the channels of 
 trade, and business is adjusted to the increased supply. 
 
 " A sudden or injudicious withdrawal would be felt far 
 more seriously by the large class of business borrowers 
 than by the banks. The latter are money-lenders, and 
 a stringency may only increase their rates and add to 
 their profits; while the former, having based their busi- 
 ness ventures upon the accommodations offered by the 
 banks, may be utterly ruined when such accommodations 
 are suddenly withdrawn." l 
 
 In his report for 1890 Secretary Windom advanced 
 the further objection to depositing the public money in 
 banks, that such deposits afford no relief for a sudden 
 emergency. 
 
 1 Finance Report. 1889, p. lxxxviii.
 
 24O THE INDEPENDENT TREASURY. 
 
 We will discuss first those of Mr. Windom's objections 
 which are either without good foundation, or can be easily 
 met by changes in the law. His first objection to the 
 use of banks by the government, that their employment is 
 contrary to the spirit of the Independent Treasury law, 
 is, undoubtedly, in a measure correct; and Mr. Windom 
 is to be praised for his conscientious adherence to what 
 he conceived to be the spirit of the law. An extension 
 of such conscientiousness would redound to the good of 
 the public service. But the act of August 6, 1846, had 
 been partly superseded by a section of the national bank 
 law, and the new law had been followed in some shape for 
 many years. It is difficult to see why greater importance 
 should be attached by the Secretary to the one law than 
 to the other. 
 
 Moreover, an extension among public officers of the 
 habit of interpreting the laws they are called on to ad- 
 minister, in a way which they conceive to be the spirit of 
 the law, would be an assumption of a dangerous prero- 
 gative, if the course of action which these officers declare 
 to be contrary to the spirit of the law is really permitted 
 by its wording. It is to be presumed that the legislature 
 expresses its will plainly and intelligibly. If it does 
 not, then, indeed, the administrators of the law must 
 enforce it as they understand it, subject to the interpre- 
 tation of the courts. 
 
 Finally, whatever force may lie in this objection of 
 Mr. Windom's to the use of national bank depositories 
 under present regulations could, of course, be made to 
 disappear by the enactment of a new law. 
 
 The objection that the use of the banks as depositories 
 involves temptation to favoritism is hardly worth consid- 
 ering, in view of the fact that the temptation has been
 
 PROPOSALS FOR REPLACEMENT. 24I 
 
 so successfully resisted in the past. That the use of the 
 banks, as the banks have been used in recent years, has 
 actually involved favoritism, there is no proof worthy of 
 consideration ; but even if there were, the fact would be 
 an objection to the existing conditions of the employment 
 of the banks, and not to the employment itself. And, as 
 was previously pointed out, this difficulty could be easily 
 overcome by some simple provision of law requiring pub- 
 lic competition for deposits. 
 
 It is true, as Mr. Windom says, that the use of the banks 
 gives the Secretary of the Treasury power to contract or 
 expand the currency at will, within limits, and that such 
 a power in the hands of an incompetent or partisan Sec- 
 retary is a source of danger to the business interests of 
 the country. But he has just as much power and oppor- 
 tunity to do this mischief through the purchase of bonds 
 with a surplus, as by depositing it in the banks. The 
 injudicious course of Secretary Boutwell in 1872 and 1873 
 is a case in point. He unwittingly played into the hands 
 of speculators, and by his ill-advised disbursements of 
 surplus money he probably disturbed the market at least 
 as much as he could have done by any misuse of the 
 bank depositories. We have seen abundant proof, in the 
 course of our investigations, that lack of judiciousness on 
 the part of the Secretary of the Treasury has many times 
 proved mischievous in periods of financial stringency. 
 The ^.Secretary, then, certainly has as much power for 
 mischief under the Independent Treasury system as he 
 would have under a system requiring the deposit of the 
 public money in banks. Whether he would have more 
 inclination to misuse his powers under the one system 
 than under the other need not be discussed; for no reason 
 appears why he should. Moreover, it would be possible,
 
 242 THE INDEPENDENT TREASURY. 
 
 under the system of using the banks as depositories, to 
 take away any power the Secretary may now have of 
 arbitrarily affecting the volume of circulating medium, 
 by requiring the public money to be deposited in banks 
 when, for example, it exceeded a certain sum, and 
 making the opportunity of securing part of the deposits 
 open to all national banks that would meet the require- 
 ments of the law. Under the sub-treasury system this 
 power cannot be taken from the Secretary, so long at 
 least as there is a surplus of receipts over expenditures. 
 This objection of Mr. Windom's to the use of banks has, 
 then, like the others thus far considered, no force what- 
 ever of importance. 
 
 There is reason, however, in the objection that it is 
 unjust to give the banks the free use of public money. 
 Such a use the banks have no right to, and do not, as a 
 matter of fact, ask for. All that they have any right to 
 is a reasonable remuneration for any extra trouble and 
 expense to which they may be put by being compelled 
 to perform the duties of government depositories. They 
 should be paid for services to the government as they are 
 paid for services to private persons. The return they 
 receive for performing duties of depositories or fiscal 
 agents may or may not be the mere right to a franchise ; 
 that is a question of detail to be determined by circum- 
 stances. On the other hand, banking corporations are 
 entitled to no favors from the government. If rightly 
 managed they need none and will ask for none ; and both 
 equity and the spirit of our people demand that they 
 should pay for whatever privileges they may be permitted 
 to enjoy. But the conditions on which the public money 
 shall be deposited in the banks is a matter of detail that 
 can be very easily so adjusted as to prevent the banks 
 from securing an undue advantage therefrom.
 
 PROPOSALS FOR REPLACEMEXT. 243 
 
 When we come to the consideration of the matter of 
 prompt payment of government drafts by the banks, we 
 meet with the first serious difficulty that Mr. Windom 
 brought up in his criticism of the bank deposit system. 
 ''The difficulty which the Department has encountered 
 during the past year in withdrawing a part of our pres- 
 ent bank deposits, even by the careful and conservative 
 methods adopted, and at times when there was no finan- 
 cial pressure, gives some conception of what those dif- 
 ficulties would be in making such withdrawals in time 
 of stringency and commercial distress. The experiences 
 of 1837 would be repeated, more or less, in every com- 
 mercial crisis.'' * Secretary Windom gives no details of 
 the difficulty to which he alludes here, but the remark 
 undoubtedly points to some delay in honoring drafts, 
 due to the difficulty experienced by some depositories in 
 calling in their loans to meet the drafts without disturb- 
 ing the money market. It is very possible that a bank, 
 however safe, and however conservatively managed, might 
 experience some embarrassment in meeting a sudden and 
 unexpected draft, if the government were one of its largest 
 depositors, and if the government deposits bore an undue 
 proportion to the total deposits. And that the failure of 
 a depository bank to respond promptly to a Treasury 
 draft might cause difficulty to the government is unde- 
 niable, and renders necessary some assurance of the 
 certainty of prompt payment. " It has chanced that, 
 singly, national bank depositories have failed to meet 
 the drafts of the government upon them, to its embarrass- 
 ment. Greatly more so would it be if all or many should 
 so fail together, and together should have in keeping, in 
 main, the assets of the government." 2 
 
 1 Windom, Report, 1S90, p. xliv. 
 
 2 Secretary C. J. Folger, Report, i8i!r*.
 
 244 THE INDEPENDENT TREASURY. 
 
 The withdrawal of public deposits from the banks is 
 likely, too, to have a disturbing effect on the money mar- 
 ket. On the 22d of November, 1889, there was a ru- 
 mor on Wall Street that Secretary Windom intended to 
 withdraw the government deposits from those banks which 
 had charged rates for money higher than the legal rate of 
 six per cent. In consequence of the rumor, and of the 
 anticipated difficulty of getting money, call loans rose to 
 twenty per cent. l 
 
 The difficulty of withdrawal would be much increased by 
 the occurrence of a crisis. Even with the more conserv- 
 ative banking methods which obtain to-day, there would 
 be some ground for fearing a recurrence of the experi- 
 ence of 1857. In that year "the effort of the government 
 to withdraw its deposits and get control of its funds was 
 felt as an additional blow aimed at the banks. Every 
 dollar which could thus be drawn from the vaults of the 
 banks diminished to that extent their ability to afford 
 relief to their customers. Their loans had to be con- 
 tracted, and the demand made by them upon their debt- 
 ors for settlement increased the pressure already felt in 
 the money market, and thereby added to the general panic 
 and want of confidence which are the usual attendants of 
 a monetary crisis." 2 
 
 It is undeniable that the government is in greater dan- 
 ger of embarrassment in meeting its obligations promptly 
 if its money is in the banks, than if the money is in its 
 own keeping. The provision for prompt payment is the 
 very difficulty to be overcome in the use of the banks, 
 and to say that the bank deposit system might cause em- 
 barrassment by lack of promptness is, therefore, only to 
 
 1 Commercial and Financial Chronicle. 
 - Finance Report, 1857, p. 20.
 
 PROPOSALS FOR REPLACEMENT. 245 
 
 state the problem to be solved; and in view of the possi- 
 bility of danger, the advocates of the use of banks must 
 propose some means that will insure promptness in hon- 
 oring drafts. For we cannot surrender the certainty of 
 promptness in payment, much less safety to the public 
 money, for the sake of less friction in the money market. 
 Here, then, is the root of the difficulty, — to avoid arbi- 
 trary variations in the amount of money afloat, through 
 the operations of the government, while yet securing 
 the safety of the public money and its prompt payment 
 on demand ; in other words, to retain safety and secure 
 elasticity. 
 
 It is to be noted, however, that the difficulty of insur- 
 ing prompt withdrawals of public deposits without greatly 
 disturbing the money market is due largely to the Inde- 
 pendent Treasury itself. It is well known that the money 
 taken out of the banks, or, what is the same thing, from 
 the channels of business, is, under our Sub-Treasury 
 system, likely to be locked up for a time in the govern- 
 ment vaults. Especially is this true when the revenues 
 of the government are greater than its expenses. This 
 fear of a contraction of the currency is, in part at least, 
 the cause of the disturbance which sends the rate of 
 discount up, as happened on the occasion we have men- 
 tioned, November, 18S9. 1 This difficulty would be at 
 least less likely to occur, and the disturbance would be 
 much less, if it were certain that the draft on the banks 
 were simply to be a transfer of money from one part of 
 the business community to another, as would be the case 
 if the government immediately paid out the money which 
 it withdrew. Hence the objection that the use of banks 
 causes disturbance of the money market when drafts are 
 
 l See above, p. 244.
 
 246 THE INDEPENDENT TREASURY. 
 
 made on the deposits they hold, militates, like most 
 of the others considered, not so much against the use of 
 banks as depositories, as against the present method 
 of using them, or against some of the conditions under 
 which they are used. 
 
 Still another real difficulty in the use of the banks as the 
 only public depositories, is that of providing against strin- 
 gencies, crises, and panics. A reserve is needed some- 
 where, as has been said, and, in the opinion of many, 
 the government might just as well keep it as the banks. 
 "A heavy surplus in the Treasury is the best backbone 
 the banks can have; commerce demands a strong reservoir 
 which the banks are not always able to supply; it gives 
 confidence in panics, and relief in times of stringency; a 
 depleted Treasury would mean over-strained banks." 1 It 
 has been correctly argued by some that the placing of the 
 government deposits in the banks would not prevent the 
 occurrence of monetary stringencies, and would not fur- 
 nish a remedy for them when they did occur. For the 
 banks would lend the deposits, and no reserve would be left 
 in this case, any more than there is in the banks when a 
 crisis occurs under present circumstances. Of course, the 
 most obvious reply to this criticism is that if the banks 
 are well managed they will always be prepared for a cri- 
 sis. But the fact remains that some banks are not always 
 well managed, and there is no reason to think that if the 
 public money were all intrusted to them, they would re- 
 gard themselves as any more responsible than they do now 
 for making the preparations necessary to meet a crisis. 
 And as long as some banks pursue vicious methods the 
 safety of all is more or less endangered thereby; for the 
 
 1 President Murray at meeting of American Bankers' Association, Octo- 
 ber, 1 888.
 
 PROPOSALS FOR REPLACEMENT. 247 
 
 competition for business must under such circumstances 
 tend to relax the strictness of the rules of sound bank- 
 ing. That the more carelessly conducted banks do, in 
 the opinion of sound bankers, bring on some such a con- 
 dition of affairs is proven by the necessity which the con- 
 servative banks of New York have several times been 
 under of pooling their reserves with the weaker banks for 
 the issue of clearing-house certificates. It has several 
 times occurred that the better banks have been forced to 
 this action because the downfall of the institutions whose 
 vicious banking had helped to demoralize the market 
 would have put the better banks themselves in jeopardy. 
 The vain attempts that have several times been made to 
 induce the New York City banks to pledge themselves 
 against such vicious practices as over-certification of 
 checks, and the payment of interest on balances, is proof 
 enough that there are some parts of our bank manage- 
 ment that need strengthening. It is unfortunate that, 
 while the great majority of our banks are conducted on 
 sound principles, and conservatively managed, it should 
 be possible for a few over-greedy-institutions to intro- 
 duce into the monetary world an element of danger. 
 None appreciate the evil of this state of affairs more 
 keenly than do conservative bankers, and none are more 
 severe in their condemnation of the practices that make 
 it possible. The possibility of its occurrence, however, 
 makes it necessary that in case the government should 
 intrust the banks with its deposits, some means should 
 be adopted to root out the censurable practices that are 
 a source of danger. 
 
 There is another possible difficulty which appertains 
 rather to the present conditions of the use of banks than 
 
 l See, for example, the report of the Clearing House Committee, iS;^.
 
 248 THE INDEPENDENT TREASURY. 
 
 to that use itself. The inelastic character of our paper 
 money tends, as we have seen, 1 to keep the volume of 
 currency in the channels of trade at the maximum needed 
 when business is brisk. Now, if the government deposited 
 all its receipts in the banks, these institutions would 
 have, in dull times, more money than they could profit- 
 ably use. This would drive them to seek opportunities 
 to loan, would make competition to discount even more 
 keen than it is, and might induce unhealthy speculation 
 by forcing down the rate of discount. Such speculation 
 would endanger deposits. It could not produce an infla- 
 tion from the issue of notes, as it did in 1837, unless the 
 rate of discount charged were high enough to offset the 
 premium on government bonds, and so induce deposits of 
 bonds for circulation. The inflation would, however, be 
 promoted by loans from the deposits ; but it would also be 
 limited by the law which forbids discounts to more than 
 double the paid-up capital. It would not be possible, 
 then, under the most adverse circumstances for specula- 
 tion to enlarge loans so disastrously as was the case in 
 1837, when the paper issue was based on deposits, and 
 that, too, at a rate which was not limited by a conserva- 
 tive percentage of reserve. The danger from speculation, 
 caused by the use of government deposits in dull times, 
 could not, therefore, be great. 
 
 Another disadvantage that would come from supplant- 
 ing the Independent Treasury with banks, as the banks 
 are at present regulated, arises from the fact that the 
 banks cannot, under the law, use to check crises the 
 power that is afforded by a variable rate of discount, ex- 
 cept up to the point which the law fixes as a maximum, 
 usually six per cent. This method of controlling crises 
 1 See p. 146.
 
 PROPOSALS FOR REPLACEMENT. 249 
 
 is, therefore, largely beyond their reach, and its absence 
 is only partly made up for by the common devices for 
 evading the usury laws. This, however, like several 
 other objections, amounts only to a criticism of the pres- 
 ent conditions governing the use of banks as public 
 depositories. 
 
 The conclusions of our consideration of the disadvan- 
 tages which would follow a larger use of banks, are that 
 the most important objections, the principal things that 
 must be provided against if the banks are to be more 
 fully utilized, are the possibility of failure to honor 
 drafts promptly, and the lack of any special provision for 
 crises. Provision should be made also for a greater 
 elasticity of the currency, for insuring the continued 
 safety of the public deposits, and for preventing the banks 
 from getting an undue share of profit from use of them. 
 
 But the question arises, — What kind of banks are best 
 suited for use as government depositories? Shall the 
 national banking system continue to be used? Or will 
 State institutions answer the purpose better? Or shall 
 some entirely new institution be created? Various an- 
 swers have been given to these questions. Some have 
 advocated simply an enlarged use of the national banks 
 under existing laws. But as the preceding examination 
 has disclosed, this would make no provision for insuring 
 prompt payment of government drafts, or for tiding over 
 stringencies in the money market. Various modifications 
 of our banking system have been proposed, the establish- 
 ment of which would insure greater elasticity to our cur- 
 rency than the arbitrary workings of the Independent 
 Treasury produce, while yet leaving that system in oper- 
 ation. Of course, the attainment of this end, though only 
 a partial cure, would be very beneficial.
 
 250 THE INDEPENDENT TREASURY. 
 
 As early as 187 1 a plan was proposed for the relief of 
 stringencies and crises, known as the "3.65 bond plan." 
 The proposal 1 was for the government to issue convertible 
 bonds at 3.65 per cent interest. These were to be 
 issued at par, and cashed at par on demand, and were to 
 be made usable for bank reserves. When the money 
 market became stringent these bonds "would go in for 
 cash, and on an easy money market they would flow out 
 again." The objections to this scheme are so great that 
 it is altogether unlikely that it could be adopted. The 
 arguments against the proposed issue are that it would be 
 a virtual inflation of the currency, would compel the gov- 
 ernment to pay interest on the bank reserves, and would 
 necessitate a change in our policy of debt payment. 
 
 In 1873 a scheme for securing elasticity was proposed 
 by the committee on banking and coinage in the House 
 of Representatives, the main features of which were as 
 follows: 2 first, that all legal restrictions on bank cur- 
 rency should cease; second, that bank-notes should be 
 promptly redeemed through an assorting-house in Wash- 
 ington, with a branch at New York, whereby the notes 
 should be sent home for redemption daily; third, that 
 each bank must deposit in the United States Treasury 
 a reserve of greenbacks equal to five per cent, of its out- 
 standing notes; and, fourth, that the banks should be 
 relieved from the obligation to keep fifteen or twenty-five 
 per cent, of reserve on their circulation. This last clause 
 was incorporated in the act of June 20, 1874, amending 
 the national banking law; but the bill, as a whole, did 
 not become a law. 
 
 1 For an account of the plan see Hunt's Merchants' Magazine, Year Book, 
 i87i,p. 224. 
 
 2 See the Commercial and Financial Chronicle , Dec. 13, 1873.
 
 PROPOSALS POP REPLACEMENT. 25 I 
 
 The Hon. John Jay Knox, Comptroller of the Currency 
 in 1876, and afterwards president of the National Bank 
 of the Republic, New York City, advocated a plan for a 
 permanent national bank circulation, 1 the provisions of 
 which would have promoted a greater elasticity if it had 
 been adopted. Its chief novel feature was a provision 
 that circulating notes should be secured, partly by de- 
 posit of bonds and bullion, and partly by a safety fund. 
 
 Still another scheme has been suggested, the direct 
 purpose of which is the partial removal of the injurious 
 influences of the Independent Treasury. It has been 
 proposed to deposit the money of the government in the 
 national banks in response to bids therefor from the 
 banks. 2 The Secretary of the Treasury, according to 
 the plan, would advertise for such bids, securing the publi- 
 cation of the rates of interest offered on the deposits by 
 different banks, the security offered, and the amount of 
 deposit wanted. The money would then be deposited 
 with the highest bidder. There are various objections 
 to such a plan. If the bank offering the best rates did 
 not want all the money the government desired to deposit, 
 it would be unfair to compel it to adhere to its rate for 
 the part assigned to it, while letting the rest go to other 
 bidders at lower rates. Moreover, the competition en- 
 gendered would act unfavorably when money was "dear," 
 by tending to influence the banks to offer higher rates than 
 they could really afford, and by tending to promote specu- 
 lation so as to secure returns to pay those higher rates. 
 Banks with large capital and surplus could, if caught in 
 difficulty, secure the deposits to the injury of smaller 
 banks, and an abnormal distribution of currency might 
 
 1 See H. R. Bill 5,iSo, 1st Session, 51st Congress, 16th Jan., 1890. 
 
 2 See Bankers' Magazine, July, 1891.
 
 252 THE INDEPENDENT TREASURY. 
 
 temporarily be caused. The special purpose of the plan 
 seems to be to provide for remuneration for the use of 
 public money. That is desirable, but it can be secured 
 in other ways that shall also secure other results of 
 greater importance. 
 
 The most systematic and exhaustive scheme that has 
 been proposed for replacing the Independent Treasury 
 system is made by the Hon. Conrad N. Jordan of New York 
 City, who was treasurer of the United States in 1885-86. 
 The important parts x of Mr. Jordan's plan are as follows : 
 He would have Congress establish an "Associated Na- 
 tional Bank" in New York City, the stock in which 
 should be held by the banks of the country, both State 
 and National, which should be the central depository of 
 the government, and on whose capital, together with that 
 of the subscribing banks, the deposits of the government 
 should be made a preferred lien. This bank should not 
 issue notes, according to Mr. Jordan, except in crises, 
 and then only when the rate of interest in New York City 
 reached eight per cent. The bank should pay all govern- 
 ment " interest, receiving such compensation therefor as 
 may be agreed on; shall register the debt of the United 
 States; [and] shall do a general banking business, ex- 
 cept that it shall not receive the deposits of persons or 
 firms other than banks or bankers." The Associated 
 Bank shall, under certain regulations, perform the re- 
 demption duties now performed in the office of the Comp- 
 troller of the currency. All government receipts in New 
 York City should be deposited in the Associated Bank, 
 and the receipts at all other points in the different na- 
 tional banks, under the direction of the Associated Bank, 
 and if any receives an excess of deposits over security 
 l See Appendix, p. xiv. forthe full text of Mr. Jordan's plan.
 
 PROPOSALS FOR REPLACEMENT. 253 
 
 provided, it must immediately forward the excess to 
 the Associated Bank. The Associated Bank, Mr. Jordan 
 thinks, should be further permitted, or empowered, to 
 have foreign accounts, and to transact a general exchange 
 business, and should keep fifty per cent, reserve on all 
 liabilities, twenty-five per centum of which might be in 
 "sight exchange on London, Paris, Amsterdam, Frank- 
 fort, or Berlin." Other provisions are for a variable rate 
 of discount at the discretion of the board of directors, for 
 the issue of small notes based on silver, and of notes to 
 replace national bank notes that failed to be redeemed, 
 and for securing a fair compensation to the government 
 for the privileges granted the bank. The national banks 
 should be allowed to extend their issues to any amount 
 on the deposit of coin and bullion. The Secretary of the 
 Treasury should, under this system, " be empowered to 
 issue Treasury warrants or bills at such rate of interest 
 as may be agreed upon from time to time, to meet any 
 sudden emergency, and be accountable to the House of 
 Representatives as to the necessity for such issue." 
 
 The ingenious plan thus briefly outlined, if put in oper- 
 ation, would undoubtedly go far towards remedying the 
 evils to which the Independent Treasury gives rise. The 
 security provided for the public deposits is of the same 
 kind as is demanded now, and is ample to insure their 
 ultimate safety; but no better provision is made than 
 now exists for preventing delay in meeting drafts of 
 the government. The provision that one-half the reserve 
 may be in "sight " foreign exchange, while an excellent 
 thing for giving the bank a certain control over the drain 
 of gold, would prove dangerous if the houses on which 
 the bills were drawn should be suffering from a crisis 
 too. Drafts on the Barings in the fall of 1890 would
 
 254 THE INDEPENDENT TREASURY. 
 
 not have strengthened confidence in New York at that 
 time. 
 
 There is ground, too, for objection to the issue of notes 
 by this bank in crises, because the currency would be an 
 unusual one, a new kind added to the numerous kinds 
 of paper already afloat, whereas the purpose of their 
 issue could be as well accomplished by a temporary en- 
 largement of the currency already in use. 
 
 Moreover, meritorious as the scheme of Mr. Jordan is, 
 there is ground for objecting to it because it proposes 
 the establishment of novel machinery for accomplishing 
 what can be done through agencies already established, 
 by making changes to adapt them to the new require- 
 ments. 
 
 The agencies that should be used for doing the work of 
 the Independent Treasury, to do away with its evils and 
 to render whatever advantages it has more uniform and 
 general, are the banks and the various clearing-houses. 
 These are institutions already established, and familiar 
 to the people, and they could be adapted to their pro- 
 posed new functions without great changes. They are 
 the most convenient means for keeping the public depos- 
 its, because they are the money reservoirs of business ; 
 and their use as depositories would prevent the tapping, 
 so to speak, of the streams of money that flow to and 
 from them. The public money would be at the call of 
 the government, and would yet be available in business 
 to a large extent. 
 
 The banks are the best agents for the management of 
 crises also. Under the existing arrangements the ques- 
 tion whether aid shall be extended to relieve a crisis or 
 avert a threatened panic is decided by the Secretary of 
 the Treasury. That is, the decision as to whether the
 
 PROPOSALS FOR REPLACEMENT. 255 
 
 state of the market is such as to foreshadow a panic and 
 necessitate such a course of action, depends on the judg- 
 ment of one man, who is not in direct touch with the 
 business situation, who is at a distance from the great 
 money market of the country, and for whom the duty of 
 making such a decision is, so to speak, incidental. In 
 order to be able to act intelligently at such a time the 
 Secretary of the Treasury must keep well informed on 
 the state of the money market, must judge correctly of the 
 necessity and the time for action, and must be able to 
 select the mode of disbursement best fitted to accomplish 
 the purpose of furnishing full and immediate relief. The 
 necessity of fulfilling these conditions " makes the will and 
 judgment of the Secretary of the Treasury at times a po- 
 tent factor in business." The time and conditions to dis- 
 count a panic can be better known to an individual who 
 is in close touch with the business community, or rather is 
 himself a part of that community; and they can be still 
 better known to a number of such individuals, or com- 
 binations of such individuals. The banks, in short, 
 constitute the best agents for the purpose. They have 
 the requisite knowledge, the necessary business relations, 
 and a sensitiveness to the state of business soundness 
 that no other individual or institution possesses. They 
 feel immediately any change in trade that indicates ab- 
 normal conditions. And, finally, they are the agents to 
 which the community naturally looks to regulate the 
 monetary situation in a crisis. It is one of their func- 
 tions, the performance of which is part of the normal 
 action of the business machinery of the community. The 
 action of the government in the relief of a crisis is. on 
 the other hand, an arbitrary action, one not automatically 
 responsive to the conditions it seeks to meet. Such an
 
 256 THE INDEPENDENT TREASURY. 
 
 action may, however, prevent much evil, and be the occa- 
 sion of much good ; but a continued resort to it can be 
 justified only if no other course is open that will produce 
 the same results, and at the same time be free from arbi- 
 trariness. 
 
 Hence, the government cannot be expected to exercise 
 so salutary a control over the flux and reflux of the money 
 market as can the banking institutions of the country, 
 if they are conducted on sound principles and with ordi- 
 nary business intelligence and integrity. To the banks, 
 therefore, should be intrusted the keeping of the public 
 money and the direct management of crises.
 
 REORGANIZATION OF THE BANKING SYSTEM 2$? 
 
 CHAPTER IX. 
 
 A REORGANIZATION OF THE BANKING SYSTEM 
 TO REPLACE THE INDEPENDENT TREASURY. 
 
 The opinion was expressed in the preceding chapter 
 that the banks and the clearing-houses are the proper in- 
 stitutions for keeping the government deposits and for 
 managing crises. The statement can be narrowed some- 
 what, so as to apply only to the national banks and the 
 clearing-houses. It is not necessary to discuss here the 
 comparative merits of National and State banks. But 
 only the national banks should be used, because they are 
 the only ones over which the national government can 
 exercise direct control. The national banking system has 
 faults, but it has served its purpose of furnishing a uniform 
 and safe currency so long that it ought to be preserved. 
 Its failure to make our currency elastic is due in part to 
 unwise regulations regarding the security and redemption 
 of notes, and to limitations on the use of the reserve ; but 
 more so to other, independent, features of our currency 
 system, especially the use of government notes, and out- 
 silver policy. But these are defects that can be remedied. 
 
 Any proposal for a more extended use of the national 
 banks as public depositories, and for enlarging their 
 functions as regulators of the currency, must, of course, 
 have in view the fact that in a few years more the system 
 will pass out of existence, and must, therefore, include
 
 258 THE INDEPENDENT TREASURY. 
 
 some suggestions for its perpetuation in some form. 
 The plan about to be outlined assumes that the national 
 banking system will be continued. There is really no 
 good reason why it should be allowed to disappear, for 
 the only condition affecting its existence which will soon 
 change is the extinction of the national debt. But it is 
 difficult to see what valid objection can be made to bas- 
 ing the circulation on other than government bonds. 
 The law permits the Secretary of the Treasury to accept 
 other than United States bonds as security for public de- 
 posits; if there are other bonds which in the opinion of 
 Congress are sufficiently secure for that purpose, it may 
 fairly be assumed that Congress should consider the same 
 kind of bonds a sufficient surety for bank issues. Rail- 
 roads or municipal bonds of high character would be a 
 safe basis for circulating notes, if their acceptance were 
 subject to such conditions 1 as were proposed by the Hon. 
 M. I). Harter of Ohio, in Congress, in the session of 1891- 
 92. These conditions are substantially, that the bonds 
 shall be gold bonds that have not fallen below par for 
 several years preceding their acceptance as security, are 
 secured by mortgage on road-bed and track, if they are 
 railroad bonds, the interest on which has never been de- 
 faulted and which are regularly listed on some important 
 stock exchange. If city bonds are accepted, the tax levy 
 of the municipality issuing them must not exceed two per 
 cent, per annum. Bonds of such character, with proper 
 regulations for replacing them if they depreciated, would 
 furnish ample security. Premising, then, that the national 
 banking system will be continued by some such provision 
 as this, it seems that the Independent Treasury, with its 
 bad influence on the money market, could be replaced with 
 
 1 Mr. Harter's proposals are given in full in Appendix, p. ix.
 
 REORGANIZATION OF 77//-: BANKING SYSTEM. 259 
 
 the banks as depositories, by modifying the banking laws 
 in accordance with the following suggestions: — 
 
 Provisions for Deposits. 
 
 1. Make the clearing-houses of the four or five most 
 important cities in different sections of the country agents 
 of the government in its relations with the banks, divid- 
 ing the country into departments, and putting one of 
 the clearing-houses at the head, for government busi- 
 ness, of all the banks in a department. 
 
 2. Require every national bank to become a member 
 of the clearing-house in its section or department. 
 
 3. Deposit all government money in the national banks, 
 with the exceptions noted below, and require all gov- 
 ernment receipts and payments to pass through these 
 banks, as far as possible, on these conditions: — 
 
 a. The bank seeking to become a government de- 
 pository shall deposit with its clearing-house, bonds 
 of the character required as security for circulation, of 
 such amount as in the discretion of the secretary may be 
 required, but never to be suffered to become less than 
 the par value of the amount of public money held by the 
 bank. 
 
 b. The clearing-house shall have the right to reject, 
 under general rules adopted by all the clearing-houses 
 and approved by the Secretary of the Treasury, any of 
 the bonds offered that it deems unsafe, and shall then 
 forward those deemed safe to the United States Treas- 
 urer at Washington. 
 
 c. On receipt of these bonds by the treasurer, the 
 bank shall, on the order of the treasurer, receive a de- 
 posit of public money from its clearing-house, if there
 
 260 THE INDEPENDENT TREASURY. 
 
 is a surplus there, or else by transfer from any department 
 where a surplus lies, and shall also be appointed a col- 
 lector and disburser of public money under proper regu- 
 lations. 
 
 d. All depository banks shall make daily reports to 
 their respective clearing-houses, and the clearing-houses 
 to the Secretary of the Treasury. 
 
 e. Any loss to the government from false returns or 
 from depreciation of the bonds deposited shall be made 
 good by the clearing-house ; that is, by the banks asso- 
 ciated therein, provided that the Secretary of the Treasury 
 notify the clearing-house of such depreciation within a 
 reasonable time after it occurs. 
 
 /. All drafts for government money shall be made di- 
 rectly on the banks. If any bank fails to pay a draft on 
 demand, the clearing-house shall pay it on demand, and 
 any other national bank may at its discretion do so, and 
 shall then be reimbursed, on presentation of the draft 
 with proof of its dishonor, for the principal, costs, and 
 interest, by the clearing-house of the department in 
 which the defaulting bank is situated. 
 
 g. If on any day a depository bank receives a surplus 
 of public money over the par value of its bonds depos- 
 ited, it shall immediately deposit more bonds, or shall 
 transfer the surplus on the order of the Secretary of the 
 Treasury to some other bank whose deposit of bonds ex- 
 ceeds in value its holdings of public money; or, if there 
 is no such bank in the department, the secretary shall 
 order the money to be transferred to the clearing-house, 
 there to be held as a special deposit, sealed under the 
 seal of some proper officer of the United States, to be 
 opened again only in his presence, on order of the Sec- 
 retary of the Treasury, for transfer to some bank, or to
 
 REORGANIZATION OF THE BANKING SYSTEM. 26l 
 
 some other clearing-house department, or to the United 
 States Treasury at Washington. 
 
 //. Transfers of surpluses may be made by the Sec- 
 retary of the Treasury from one clearing-house to an- 
 other for distribution among the depository banks, on 
 the deposit of bonds, as before provided. If there are 
 not enough government receipts to meet the demand for 
 deposits in any section, the Secretary of the Treasury 
 may make transfers to such as offer a premium for the 
 deposit, in addition to the usual security. 
 
 /. If a surplus of earnings remains after the payment 
 of an annual dividend of [six] 1 per cent, on capital, and 
 the assignment of the required quota to the surplus and 
 redemption funds, the government shall be credited with 
 part of said surplus in the ratio which its average monthly 
 deposits for the year have borne to the total cash 
 deposits. 
 
 4. All government money shall be deposited in the 
 banks in accordance with the foregoing provisions, ex- 
 cept the $100,000,000 of gold commonly known as the 
 "greenback reserve," and the gold and silver bullion 
 on deposit to secure coin and bullion certificates. 
 
 Provisions for Elasticity of the Currency. 
 
 1. Circulating notes should be issued on deposit at 
 Washington of such bonds as have already been de- 
 scribed, or of gold and bonds, and the amount of issue 
 should be the par value of the deposit. 
 
 2. In a crisis each bank should be allowed to expand 
 its issue of notes [twenty-five] per cent over the par value 
 of the security deposited, provided the bonds do not fall 
 
 1 The brackets are used to show that the amounts suggested are tentative.
 
 262 THE INDEPENDENT TREASURY. 
 
 below par on account of the crisis; and each bank should 
 also be allowed to deposit gold coin or bullion as a 
 basis for the further issue of notes in the same ratio, to 
 be held on special deposit at its clearing-house for the 
 purpose of redemption. In order to avoid delay in a 
 crisis each bank should at all times keep at its clearing- 
 house, on special deposit, a certain amount of extra 
 notes. These notes should be sealed away under the 
 seal of a United States inspector, and an account of them 
 should at all times be kept with the Treasurer of the 
 United States. 
 
 3. Permission to use these extra notes for the purpose of 
 the expansion just spoken of must be secured from the 
 Secretary of the Treasury, and the Secretary shall give 
 such permission under the following circumstances, and 
 then only: 
 
 a. He must have received from the clearing-house 
 notification of the necessary deposit. 
 
 b. The rate of discount on call loans in New York 
 City must have reached [eight] per cent. 
 
 4. All net profit over [one] per cent, accruing from 
 this extra issue of notes must be credited to the govern- 
 ment. 
 
 5. No bank shall discount below [eight] per cent, while 
 any notes of this extra issue are outstanding, and any 
 bank may offer a premium on such notes, in order to call 
 them in. If any of them are outstanding at the end 
 of one month, the bank may be required, at the discre- 
 tion of the Secretary of the Treasury, to deposit gold 
 coin or bullion to cover the excess, and at the end of two 
 months such deposit shall be required. 
 
 6. All the usury laws of the States should be repealed, 
 so far, at least, as they relate to short-time loans, and no
 
 REORGANIZATION OF THE BANKING SYSTEM. 263 
 
 national bank should be allowed to make discounts for 
 a longer time than [six months]. 
 
 7. The payment of interest on deposits should be 
 forbidden; and the law which allows deposits of country 
 banks in banks of reserve cities to count as part of the 
 reserve of both should be repealed. 
 
 8. Every national bank should be forbidden to pay 
 out the notes of any other, but should be compelled to 
 receive them at par and forward them to its clearing- 
 house for redemption. 
 
 9. Each bank should keep at its clearing-house a re- 
 demption fund equal to [five] per cent, of its circulation. 
 If any bank should fail to redeem a note of its own issue 
 on demand, the holder may seek its payment by either of 
 the methods provided for the payment of government 
 drafts, 1 and the defaulting bank shall immediately be put 
 into the hands of a receiver, and its affairs wound up. 
 
 10. A reserve of at least [twenty] per cent, of deposits 
 should always be kept on hand, except as follows: When 
 the discount rate on call-loans at any of the central cities 
 in which the clearing-houses are situated rises to [ten] 
 per cent., the reserve of any bank in that department may 
 be allowed to fall to [fifteen] per cent, of its total deposits. 
 
 11. In a crisis clearing-house certificates may be 
 issued subject to the regulations which now govern their 
 issue in New York City. 
 
 There is nothing in these proposals that involves a wide 
 departure from institutions and methods already familiar, 
 and they provide for the ultimate safety and the prompt 
 payment of the public deposits, for expansion of the cur- 
 rency in crises, for the prevention of congestion of 
 money at great centres, and for variation in the volume 
 of bank currency in response to business demands. 
 1 See Section f., p. 260.
 
 264 THE INDEPENDENT TREASURY. 
 
 No mention is made in them of " lawful money " other 
 than gold as a provision for reserve. It would be a 
 great precaution for future safety if the existing govern- 
 ment notes were retired and their place supplied by bank 
 currency. 1 In that event the banks should be taxed so 
 as to secure for the public as much as possible of the net 
 profit, allowing for trouble and expense, derived from 
 the issue of the notes. The currency of the country 
 would then be more elastic, because more purely com- 
 mercial. Under these circumstances the national bank 
 issues would doubtless be sufficient to meet all demands 
 for money, but there would be no objection to allowing 
 the State Banks again to become banks of issue, if it 
 were necessary. For their notes would not be likely to 
 attain, under the competition of the national banks, a 
 wide circulation; and under that competition would not 
 attain any circulation at all unless always redeemable at 
 par, provided denominations were not allowed smaller 
 than, say, twenty dollars. For these would not get 
 largely into the hands of ignorant people who might 
 hoard them and in so far diminish the demand for fre- 
 quent redemption which would make the banks careful. 
 But if the State banks were allowed to issue notes, other 
 restrictions than the limitation of notes to denominations 
 not less than twenty dollars should be imposed. They 
 should be required to keep a larger proportionate per- 
 centage of reserve against their deposits and issues than 
 the national banks would be required to keep against 
 their deposits. This could be accomplished by allowing 
 a certain minimum of issue for capital, and then taxing 
 the notes at a rapidly increasing rate as their ratio to 
 the reserve increased. 
 
 1 Of course United States notes, as at present regulated, are safe arid, very 
 convenient. The only danger is in a possible future over-issue,
 
 REORGANIZATION OF THE BANKING SYSTEM. 265 
 
 The putting of the above proposals into practice 
 would involve giving the clearing-houses the character of 
 branches of the Treasury Department. This division of 
 their work should be additional to their present functions, 
 and need not interfere with these at all. The government 
 division of each clearing-house should be under the im- 
 mediate management of some officer corresponding to 
 the present assistant treasurers. The central cities at 
 which these government clearing-houses should be lo- 
 cated might well be New York, Chicago, New Orleans, 
 and San Francisco. Perhaps it might be advisable to 
 add St. Louis and one other centre. 
 
 The use of the clearing-houses in this way would in- 
 volve a saving of a large part of the cost of the existing 
 sub-treasuries, and so reduce the expenses of the gov- 
 ernment. 
 
 The union of all the national banks in each section in 
 the manner proposed, would give them a unity of inter- 
 ests that would cause them to guard jealously against 
 vicious methods of business by any one bank. The 
 members of each clearing-house should be able by a 
 proper vote to coerce a bank that indulged in bad bank- 
 ing practices. 
 
 The provisions for the safety of the public deposits are 
 ample, for only bonds of first-class character would be 
 accepted, and only after receiving the approval of both 
 the clearing-house officers and the Secretary of the Treas- 
 ury. These officers would be likely to have a wider 
 acquaintance with the character of the bonds offered than 
 would the Secretary, and consequently their approval 
 would be a great safeguard. An additional one would 
 be found in the daily reports to both the clearing-house 
 and the Secretary. Moreover, the whole assets of the.
 
 266 THE INDEPENDENT TREASURY. 
 
 banks associated in the clearing-house would be behind 
 the government deposits as ultimate security. Loss 
 would be impossible. 
 
 Promptness of payment of government drafts would also 
 be abundantly secured. For the failure of the bank on 
 which the draft was drawn would necessitate only the 
 delay of presenting it to another bank, or, at farthest, to 
 the clearing-house. Payment under such circumstances 
 now must be delayed until after the sale of the bonds 
 deposited. 
 
 Moreover, the provisions for the deposit of public 
 money make the amount of such deposits at any time de- 
 pend entirely on the demand of the banks. Hence, when 
 there was an active demand for money, the government 
 money would flow from the clearing-houses, where it was 
 on special deposit, to the banks, where it would be ac- 
 cessible to business. 
 
 Still again, the provisions for transfers to meet demand 
 would afford a better distribution of the money than is 
 now the case. 
 
 As long as the government issues notes it should itself 
 keep the reserve on which they are based. Hence, the 
 "greenback reserve " should remain in the hands of the 
 government. Moreover the banks could not be allowed 
 to use it, and therefore would not want it. The govern- 
 ment should either protect its own notes or withdraw 
 them. These remarks apply to coin and bullion certifi- 
 cates also. 
 
 The provisions suggested for frequent redemption, and 
 for depriving the bank notes of their legal -tender charac- 
 ter in payments from any of the banks, would, together 
 with the prohibition of interest on deposits, accomplish a 
 threefold purpose. They would furnish an extra safe-
 
 REORGANIZATION OF THE BANKING SYSTEM. 267 
 
 guard for the notes, would keep the volume of notes al- 
 ways close to the demand for loans, and would prevent 
 a congestion of money at great money centres in dull 
 seasons. 
 
 In a crisis there would be three steps for the enlarge- 
 ment of the volume of currency, which would serve as 
 successive barriers to the rise of a feeling of panic from 
 a dearth of money. First, the banks could expand their 
 circulation to a considerable extent while yet having all 
 reasonable regard for the safety of the notes; second, 
 they could draw to a certain extent on their reserves ; 
 and, third, if necessary, clearing-house certificates could 
 be resorted to, as now. A smaller percentage of reserve 
 would be necessary for each bank because of the aboli- 
 tion of the law permitting the same money to count as 
 reserve for two banks in certain cases. The abolition of 
 this law would also tend to prevent congestion of money. 
 And the reserve should be available in a stringency; it 
 is of the very nature and purpose of a reserve that it 
 should be used to allay a feeling of alarm; and the fixing 
 of a hard and fast line, below which the banks may not 
 go, is a source of danger when the reserves fall to an 
 amount near the fixed line. Yet it would be undesirable 
 to remove the limit altogether. Hence it is suggested 
 that it be lowered in crises. 
 
 The extra notes issued during a crisis could not become 
 a source of inflation, because the provisions made would 
 insure their retirement within a short time; a bank would 
 have no object in depositing gold for the sake of keeping 
 out an equal amount of notes. 
 
 The repeal of the usury laws at least to the extent sug- 
 gested would give the banks a further control over the 
 market in crises from the use of a variable rate of dis-
 
 268 THE INDEPENDENT TREASURY. 
 
 count. This power would also serve to protect our gold 
 balance from exportation. 
 
 Provision is made also to prevent the banks from get- 
 ting too large a profit from any of the proposed new re- 
 lations. Of course they would not and could not be 
 expected to do the business of the government for nothing, 
 and if the incidental advantages that would flow from the 
 use of the government deposits did not suffice to pay 
 them for the trouble and expense of managing these de- 
 posits, they would have to get direct remuneration. All 
 that can be fairly asked is that they shall not receive an 
 undue advantage. The spirit of prejudice against the 
 banks as such is altogether unreasonable and indefen- 
 sible. 
 
 If the government should enter into some such relations 
 with the banks as have been outlined, many benefits 
 would accrue to it. It could rely on the banks for aid 
 in temporary deficits; it would have a ready means of 
 raising money quickly in a sudden emergency; it would 
 avoid much expense, and it could secure more convenient 
 arrangements for the collection and payment of its dues, 
 and so accommodate the public in their relations of tax- 
 payers and public creditors. 
 
 Finally, the adoption of this, or some similar plan, 
 would put an end to the injurious influence on the busi- 
 ness of the country which the action of the Independent 
 Treasury has so long exercised, and which increases as 
 the years pass by. The time has come for the adoption 
 of a more enlightened svsreno-
 
 APPENDIX. 
 
 WORKS CONSULTED. 
 
 Adams, H. C. Public Debts. 
 
 Andrews, E. B. An Honest Dollar. Am. Econ. Assoc. 
 Public. 
 
 Bancroft. Geo. Literary and Historical Miscellanies. 
 Bankers' .Magazine. 
 
 Bankers* Association, Proceedings of American. 
 Benton. Abridgment of Debates of Congress. 
 
 Twenty Years' View. 
 
 Block. Dictionnaire de V Administration. 
 
 Bolles. Financial History of the United States. 
 
 Bradstreet's. New York. 
 
 Colton. Public Economy. 
 
 Commercial and Financial Chronicle. New York. 
 
 Democratic Review. 
 
 Dunbar. Currency, Finance, and Banking. (Laws of U. S.) 
 
 Theory and History of Banking. 
 
 Ferris. Financial Economy of the United States. 
 Gibbons. United States Debt and Taxation. 
 Gilbart. History of Banking in America. 
 
 Gouge. An Inquiry into the Expediency of Dispensing with 
 Bank Agency and with Bank Paper in the Fiscal Concerns of 
 the United States. 
 
 Government Publications. Executive Documents : House 
 and Senate Documents and Reports ; Finance Reports ; Con- 
 gressional Record, etc. 
 
 269
 
 270 A Pr END IX. 
 
 Harper's Magazine, xliv. 481. 
 Hunt's Merchant's Magazine. 
 Independent, The New York. 
 Knox. United States Notes. 
 Lalor. Encyclopedia of Political Science. 
 Lamphere. United States Government. 
 Lippincott's Magazine, December, 1873. 
 Lodge. Life of Daniel Webster. 
 
 Marquardsen, H. Handbuch des Oeffentlichen Rechts der 
 Gegenwart. 
 
 McLeod. Principles and Practice of Banking. 
 
 Mill. Political Economy. 
 
 Niles 1 Register. 
 
 North American Review, cxxxvii. 552. 
 
 Palgrave. Dictionary of Political Economy. 
 
 Penn Monthly, July, 1882. 
 
 Plaindealer, The New York. 
 
 Pratt. Digest of the National Bank Act. 
 
 Manual of Banking Law. 
 
 Rhodes' Journal of Banking. 
 Richardson. The National Banks. 
 Sargent. Public Men and Events. 
 Schouler. History of the United States. 
 Statesman's Manual. 
 Story. Commentaries on the Constitution. 
 Sumner. Life of Jackson. 
 
 History of American Currency. 
 
 Swain. Life and Letters of Henry Clay. 
 Taussig. Tariff History of the United States. 
 
 The Silver Situation. Am. Econ. Assoc. Public. 
 
 Upton. Money in Politics. 
 
 United States Supreme Court Reports. 
 
 Von Holst. Constitutional History of the United States. 
 
 Walker, Francis A. Political Economy. 
 
 Money, Trade, and Industry. 
 
 Walker, J. H. Money, Trade, and Banking.
 
 APPENDIX. 271 
 
 II. 
 
 A. 
 
 SUB-TREASURY LAW, AND AMENDMENTS. 
 
 " An Act to provide for the better organization of the Treasury, 
 and for the collection, safe-keeping, transfer, and disburse- 
 ment of the public revenue." 
 
 " Whereas, by the fourth section of the act entitled ' An Act 
 to establish the Treasury Department,' approved September sec- 
 ond, seventeen hundred and eighty-nine, it was provided that it 
 should be the duty of the Treasurer to receive and keep the 
 moneys of the United States, and to disburse the same upon 
 warrants drawn by the Secretary of the Treasury, countersigned 
 by the Comptroller, and recorded by the Register, and not 
 otherwise ; and whereas it is found necessary to make further 
 provisions to enable the Treasurer the better to carry into effect 
 the intent of the said section, in relation to the receiving and dis- 
 bursing the moneys of the United States, Therefore : — 
 
 Sec. i . Be it enacted by Senate and House of Representatives 
 of the United States of America in Congress Assembled, That 
 the rooms prepared and provided in the new Treasury building 
 at the seat of Government for the use of the Treasurer of the 
 United States, his assistants and clerks, and occupied by them, 
 and also the fire-proof vaults and safes erected in said rooms for 
 the keeping of the public moneys in the possession and under 
 the immediate control of said Treasurer, and such other apart- 
 ments as are provided for by this act as places of deposit of the 
 public money, are hereby constituted, and declared to be, 
 the Treasury of the United States. And all moneys paid into
 
 272 APPENDIX. 
 
 the same shall be subject to the draft of the Treasurer, drawn 
 agreeably to appropriations made by law. 
 
 Sec. 2. And be it further enacted, That the mint of the 
 United States, in the city of Philadelphia, in the State of Penn- 
 sylvania, and the branch mint in the city of New Orleans, in the 
 State of Louisiana, and the vaults and safes thereof respectively, 
 shall be places of deposit and safe-keeping of the public moneys 
 at these points respectively ; and the treasurers of the said mint 
 and branch mint respectively, for the time being, shall be assist- 
 ant treasurers under the provisions of this act, and shall have 
 the custody and care of all public moneys deposited within the 
 same, and shall perform all the duties required to be performed 
 by them, in reference to the receipt, safe-keeping, transfer, and 
 disbursement of all such moneys, according to the provisions 
 hereinafter contained. 
 
 Sec. 3. And be it further enacted, That the rooms which were 
 directed to be prepared and provided within the custom-houses 
 in the city of New York, in the State of New York, and in the 
 city of Boston, in the State of Massachusetts, for the use of 
 receivers-general of public moneys, under the provisions of the 
 act entitled, "An Act to provide for the collection, safe-keep- 
 ing, transfer, and disbursement of the public revenue," approved 
 July fourth, eighteen hundred and forty, shall be for the use of 
 the assistant treasurers hereinafter directed to be appointed at 
 those places, respectively ; as shall be also the fire-proof vaults 
 and safes prepared and provided within said rooms for the keep- 
 ing of the public moneys collected and deposited with them, 
 respectively ; and the Assistant Treasurers from time to time 
 appointed at those points, shall have the custody and care of 
 the said rooms, vaults, and safes, respectively, and of all the 
 public moneys deposited within the same, and shall perform all 
 the duties required to be performed by them, in reference to the 
 receipt, safe-keeping, transfer, and disbursement of all such 
 moneys, according to the provisions of this act. 
 
 Sec. 4. And be it further enacted, That the offices, with suit- 
 able and convenient rooms, which were directed to be erected,
 
 APPENDIX. 273 
 
 prepared, and provided for the use of receivers-general of public 
 money, at the expense of the United States, at the city of 
 Charleston, in the State of South Carolina, and at the city of St. 
 Louis, in the State of Missouri, under the act entitled, " An 
 Act to provide for the collection, safe-keeping, transfer, and dis- 
 bursement of the public revenue,' 1 approved July fourth, eigh- 
 teen hundred and forty, shall be for the use of the assistant 
 treasurers hereinafter directed to be appointed at the places 
 above named ; as shall be also the fire-proof vaults and safes 
 erected within the said offices and rooms for the keeping of the 
 public money collected and deposited at those points, respect- 
 ively : and the said assistant treasurers from time to time ap- 
 pointed at those places, shall have the custody and care of the 
 said offices, vaults, and safes, erected, prepared, and provided 
 as aforesaid, and of all the public moneys deposited within the 
 same, and shall perform all the duties required to be performed 
 by them, in reference to the receipt, safe-keeping, transfer, and 
 disbursement of all such moneys, according to the provisions 
 hereinafter contained. 
 
 Sec. 5. And be it further enacted, That the President shall 
 nominate, and, by and with the advice and consent of the Sen- 
 ate, appoint four officers, to be denominated " assistant treas- 
 urers of the United States/" which said officers shall hold their 
 respective offices for the term of four years, unless sooner 
 removed therefrom ; one of which shall be located at the city of 
 Xew York, in the State of New York ; one other of which shall 
 be located at the city of Boston, in the State of Massachusetts ; 
 one other of which shall be located at the city of Charleston, in 
 the State of South Carolina; and one other at St. Louis, in the 
 State of Missouri ; and all of which said officers shall give bonds 
 to the United States, with security according to the provisions 
 hereinafter contained, for the faithful discharge of the duties of 
 their respective offices. 
 
 Sf.c. 6. And be it further enacted. That the Treasurer of 
 the United States, the Treasurer of the mint of the United 
 States, the treasurers, and those acting as such, of the various
 
 274 APPENDIX. 
 
 branch mints, all collectors of the customs, all surveyors of the 
 customs acting also as collectors, all assistant treasurers, all 
 receivers of public moneys at the several land offices, all post- 
 masters, and all public officers of whatsoever character be, and 
 they are hereby, required to keep safely, without loaning, using, 
 depositing in banks, or exchanging for other funds than as 
 allowed by this act, all the public money collected by them, or 
 otherwise at any time placed in their possession and custody, till 
 the same is ordered by the proper department or officer of the 
 Government, to be transferred or paid out ; and when such 
 orders for transfer or payment are received, faithfully and 
 promptly to make the same as directed, and to do and perform 
 all other duties as fiscal agents of the Government which may 
 be imposed by this or any other acts of Congress, or by any 
 regulation of the Treasury Department made in conformity to 
 law ; and, also, to do and perform all acts and duties required 
 by law, or by direction of any of the Executive Departments of 
 the Government, as agents for paying pensions, or for making 
 any other disbursements which either of the heads of those 
 Departments may be required by law to make, and which are of 
 a character to be made by the depositaries hereby constituted, 
 consistently with the official duties imposed upon them. 
 
 Sec. 7. And be it 'further enacted, That the Treasurer of the 
 United States, the Treasurer of the mint of the United States, 
 the Treasurer of the branch mint at New Orleans, and all the 
 assistant treasurers hereinbefore directed to be appointed, shall 
 respectively give bonds to the United States faithfully to discharge 
 the duties of their respective offices according to law and for 
 such amounts as shall be directed by the Secretary of the 
 Treasury, with sureties to the satisfaction of the Solicitor of 
 the Treasury; and shall, from time to time, renew, strengthen, 
 and increase their official bonds, as the. Secretary of the Treas- 
 ury may direct, any law in reference to any of the official bonds 
 of any of the said officers to the contrary notwithstanding. 
 
 Sec. 8. A /id be it further enacted, That it shall be the duty 
 of the Secretary of the Treasurv, at as early a date as possible
 
 APPENDIX. 2/5 
 
 after the passage of this act, to require the several depositaries 
 hereby constituted, and whose official bonds are not hereinbe- 
 fore provided for, to execute bonds, new and suitable in their 
 terms, to meet the new and increased duties imposed upon them 
 respectively, by this act, and with sureties, and in sums such as 
 shall seem reasonable and safe to the Solicitor of the Treasury ; 
 and, from time to time, to require such bonds to be renewed 
 and increased in amount, and strengthened by new sureties, to 
 meet any increasing responsibility which may grow out of accu- 
 mulations of money in the hands of the depositary, or out of 
 any other duty or responsibility arising under this or any other 
 law of Congress. 
 
 Sec. 9. And be it further enacted, That all collectors and 
 receivers of public money, of every character and description, 
 within the District of Columbia, shall, as frequently as they may 
 be directed by the Secretary of the Treasury or the Postmaster- 
 ( reneral so to do, pay over to the Treasurer of the United States, 
 at the Treasury, all the public moneys collected by them, or in 
 their hands ; that all such collectors and receivers of public 
 moneys within the cities of Philadelphia and New Orleans, shall, 
 upon the same direction, pay over to the Treasurers of the 
 mints in their respective cities, at the said mints, all public 
 moneys collected by them, or in their hands; and that all such 
 collectors and receivers of public moneys within the cities of 
 New York, Boston, Charleston, and St. Louis, shall, upon the 
 same direction, pay over to the assistant treasurers in their 
 respective cities, at their offices, respectively, all the public 
 moneys collected by them, or in their hands, to be safely kept 
 by the said respective depositaries until otherwise disposed of 
 according to law : and it shall be the duty of said Secretary and 
 Postmaster-General, respectively, to direct such payments by 
 the said collectors and receivers at all the said places at least as 
 often as one in each week, and as much more frequently, and in 
 all cases, as they in their discretion may think proper. 
 
 Sfx. 10. And be it further enacted, That it shall be lawful 
 for the Secretary of the Treasury to transfer the moneys in the
 
 2j6 APPENDIX. 
 
 hands of any depositary hereby constituted to the Treasury of 
 the United States, to be there safely kept, to the credit of the 
 Treasurer of the United States, according to the provisions of 
 this act, to any other depositary constituted by the same, at his 
 discretion, and as the safety of the public moneys and the con- 
 venience of the public service shall seem to him to require ; which 
 authority to transfer the moneys belonging to the Post-Office 
 Department is also hereby conferred upon the Postmaster-Gen- 
 eral so far as its exercise by him may be consistent with the pro- 
 visions of existing laws ; and every depositary constituted by 
 this act shall keep his account of the money paid to or deposited 
 with him, belonging to the Post-Office Department, separate and 
 distinct from the account kept by him of other public moneys so 
 paid or deposited. And for the purpose of payments on the 
 public account, it shall be lawful for the Treasurer of the United 
 States to draw upon any of the said depositaries, as he may 
 think most conducive to the public interests, or the convenience 
 of the public creditors, or both ; and each depositary so drawn 
 upon shall make returns to the Treasury and Post-Office De- 
 partments of all moneys received and paid by him at such times 
 and in such form as shall be directed by the Secretary of the 
 Treasury or the Postmaster-General. 
 
 Sec. ii. And be it further enacted, That the Secretary of 
 the Treasury shall be, and he is hereby authorized, to cause ex- 
 aminations to be made of the books, accounts, and money on 
 hand, of the several depositaries constituted by this act ; and for 
 that purpose to appoint special agents, as occasion may require, 
 with such compensation, not exceeding six dollars per day and 
 travelling expenses, as he may think reasonable, to be fixed and 
 declared at the time of each appointment. The agents selected 
 to make these examinations shall be instructed to examine as 
 well the book, accounts, and returns of the officer, as the money 
 on hand, and the manner of its being kept, to the end that uni- 
 formity and accuracy in the accounts, as well as safety to the 
 public moneys, may be secured thereby. 
 
 Sec. 12. And be it further enacted, That in addition to the
 
 APPENDIX. 277 
 
 examinations provided for in the last preceding section, and as 
 a further guard over the public moneys, it shall be the duty of 
 each naval officer and surveyor, as a check upon the assistant 
 treasurers, or the collectors of the customs, of their respective 
 districts ; of each register of a land office, as a check upon the 
 receiver of his land office; and of the director and superintend- 
 ent of each mint and branch mint, when separate officers, as a 
 check upon the treasurers respectively, of the said mints, or the 
 persons acting as such, at the close of each quarter of the year, 
 and as much more frequently as they shall be directed by the 
 Secretary of the Treasury to do so, to examine the books, ac- 
 counts, returns, and money on hand of the assistant treasurers, 
 collectors, receivers of land offices, treasurers of the mint, and 
 each branch mint, and persons acting as such ; and to make a 
 full, accurate, and faithful return to the Treasury Department of 
 their condition. 
 
 Sec. 13. And be it further enacted, That the said officers, 
 respectively, whose duty it is made by this act to receive, keep, 
 and disburse the public moneys, as the fiscal agents of the Gov- 
 ernment, may be allowed any necessary additional expense for 
 clerks, fire-proof chests or vaults, or other necessary expenses of 
 safe-keeping, transferring, and disbursing said moneys ; all such 
 expense of every character to be first expressly authorized by the 
 Secretary of the Treasury, whose directions upon all the above 
 subjects, by way of regulation and otherwise, so far as authorized 
 by law, are to be strictly followed by all the said officers : Pro- 
 vided, That the whole number of clerks to be appointed by vir- 
 tue of this section of this act shall not exceed ten ; and that the 
 aggregate compensations of the whole number shall not exceed 
 eight thousand dollars ; nor shall the compensation of any one 
 clerk so appointed exceed eight hundred dollars per annum. 
 
 Sec. 14. And be it further enacted, That the Secretary of the 
 Treasury may, at his discretion, transfer the balances remaining 
 with any of the present depositaries, to any other of the 
 present depositaries, as he may deem the safety of the pub- 
 lic money or the public convenience may require: Pro-
 
 278 APPENDIX. 
 
 vided, That nothing in this act shall be so construed as to 
 authorize the Secretary of the Treasury to transfer the balances 
 remaining with any of the present depositaries to the depositaries 
 constituted by this act, before the first day of January next. 
 And provided, That for the purpose of payments on public ac- 
 count, out of balances remaining with the present depositaries, 
 it shall be lawful for the Treasurer of the United States to draw 
 upon any of the said depositaries, as he may think most condu- 
 cive to the public interests, or to the convenience of public cred- 
 itors, or both. 
 
 Sec. 15. And be it further enacted, That all marshals, district 
 attorneys, and others having public money to pay to the United 
 States, and all patentees wishing to make payment for patents 
 to be issued, may pay all such moneys to the Treasurer of the 
 United States, to the treasurer of either of the mints in Phila- 
 delphia or New Orleans, to either of the other assistant treas- 
 urers, or to such other depositary constituted by this act as shall 
 be designated by the Secretary of the Treasury in other parts of 
 the United States, to receive such payments and give receipts or 
 certificates of deposit therefor. 
 
 Sec. 16. And be it further enacted, That all officers and 
 other persons charged by this act, or any other act, with the 
 safe-keeping, transfer, and disbursement of the public moneys, 
 other than those connected with the Post-Office Department, are 
 hereby required to keep an accurate entry of each sum received, 
 and each payment or transfer ; and that if any one of the said 
 officers or those connected with the Post-Office Department 
 shall convert to his own use in any way whatever, or shall use, 
 by way of investment in any kind of property or merchandise, 
 or shall loan, with or without interest, or shall desposit in any 
 bank, or shall exchange for other funds except as allowed by this 
 act, any portion of the public moneys intrusted to him for safe- 
 keeping, disbursement, transfer, or for any other purpose, every 
 such act shall be deemed and adjudged to be an embezzlement 
 of so much of the said moneys as shall be thus taken, converted, 
 invested, used, loaned, deposited, or exchanged, which is hereby
 
 APPENDIX. 279 
 
 declared to be a felony ; and any failure to pay over or to produce 
 the public moneys intrusted to such person shall be held and 
 taken to be prima facie evidence of such embezzlement, and if 
 any officer charged with the disbursements of public money shall 
 accept or receive, or transmit to the Treasury Department to be 
 allowed in his favor, any receipt or voucher from a creditor of 
 United States without having paid to such creditor in such funds 
 as the said officer may have received for disbursement, or such 
 funds as he may be authorized by this act to take in exchange, 
 the full amount specified in such receipt or voucher, every such 
 act shall be deemed to be a conversion by such officer to his own 
 use of the amount specified in such receipt or voucher ; and any 
 officer or agent of the United States, and all persons advising or 
 participating in such act, being convicted thereof before any 
 court of the United States of competent jurisdiction, shall be 
 sentenced to imprisonment for a term of not less than six months 
 nor more than ten years, and to a fine equal to the amount of the 
 money embezzled. And upon the trial of any indictment against 
 any person for embezzling public money under the provisions of 
 this act, it shall be sufficient evidence, for the purpose of show- 
 ing a balance against such person, to produce a transcript from 
 the books and proceedings of the Treasury, as required in civil 
 cases, under provisions of the act entitled, " An Act to provide 
 more effectually for the settlement of accounts between the 
 United States and receivers of public money," approved March 
 third, one thousand seven hundred and ninety seven ; and the 
 provisions of this act shall be so construed as to apply to all 
 persons charged with the safe-keeping, transfer, or disbursement 
 of the public money, whether sucli persons be indicted as re- 
 ceivers or depositaries of the same : and the refusal of such 
 person, whether in or out of office, to pay any draft, order, or 
 warrant, which may be drawn upon him by the proper officer of 
 the Treasury Department, for any public money in his hands 
 belonging to the United States, no matter in what capacity the 
 same may have been received or may be held, or to transfer or 
 disburse any such money promptly, upon the legal requirement
 
 28o APPENDIX. 
 
 of any authorized officer of the United States, shall bedeemed and 
 taken, upon the trial of any indictment against such person for 
 embezzlement, as prima facie evidence of such embezzlement. 
 
 Sec. 17. And be it further enacted, That until the rooms, 
 offices, vaults, and safes, directed by the first four sections of 
 this act to be constructed and prepared for the use of the Treas- 
 urer of the United States, the treasurers of the mints at Phila- 
 delphia and New Orleans, and the assistant treasurers at New 
 York, Boston, Charleston, and St. Louis, can be constructed 
 and prepared for use, it shall be the duty of the Secretary of the 
 Treasury to procure suitable rooms for offices for those officers 
 at their respective locations, and to contract for such use of 
 vaults and safes as may be required for the safe-keeping of the 
 public moneys in the charge and custody of those officers, re- 
 spectively t the expenses to be paid by the United States. 
 
 And whereas by the thirteenth section of the act entitled, 
 "An Act to regulate the collection of duties imposed by law on 
 the tonnage of ships or vessels, and on goods, wares, and mer- 
 chandises imported into the United States," approved July 
 thirty-one, seventeen hundred and eighty-nine, it was provided 
 that all fees and dues collected by virtue of that act should be 
 received in gold and silver coin only ; and whereas, also, by the 
 fifth section of the act approved May ten, eighteen hundred, 
 entitled, " An Act to amend the Act entitled, ' An Act providing 
 for the sale of the lands of the United States in the territory 
 north-west of the Ohio, and above the mouth of Kentucky 
 River,' " it was provided that payment for the said lands shall 
 be made by all purchasers in specie, or in evidences of the public 
 debt ; and whereas experience has proved that said provisions 
 ought to be revived and enforced, according to the true and wise 
 intent of the Constitution of the United States : — 
 
 Sec. 18. Be it further enacted, That on the first day of Janu- 
 ary, in the year one thousand eight hundred and forty-seven, 
 and thereafter, all duties, taxes, sales of public lands, debts, and 
 sums of money accruing or becoming due to the United States, 
 and also all sums due for postages, or otherwise, to the. General
 
 APPENDIX. 28 1 
 
 Post-Office Department, shall be paid in gold and silver coin 
 only, or in Treasury notes issued under the authority of the 
 United States : Provided, That the Secretary of the Treasury 
 shall publish, monthly, in two newspapers at the city of Wash- 
 ington, the amount of specie at the several places of deposit, 
 the amount of Treasury notes or drafts issued, and the amount 
 outstanding on the last day of each month. 
 
 Sec. 19. And be it further enacted. That on the first day of 
 April, one thousand eight hundred and forty-seven, and there- 
 after, every officer or agent engaged in making disbursements on 
 account of the United States, or of the General Post-Office, shall 
 make all payments in gold and silver coin or in Treasury notes, 
 if the creditor agree to receive said notes in payment ; and any 
 receiving or disbursing officer or agent who shall neglect, evade, 
 or violate, the provisions of this and the last preceding section 
 of this act, shall, by the Secretary of the Treasury, be immedi- 
 ately reported to the President of the United States, with the 
 facts of such neglect, evasion, or violation ; and also to Congress, 
 if in session, and if not in session, at the commencement of its 
 session next after the violation takes place. 
 
 Sec. 20. And be it further enacted, That no exchange of 
 funds shall be made by any disbursing officers or agents of the 
 Government, of any grade or denomination whatsoever, or con- 
 nected with any branch of the public service, other than an 
 exchange for gold and silver ; and every such disbursing officer, 
 when the means for his disbursements are furnished to him in 
 gold and silver, shall make his payments in the money so fur- 
 nished : or when those means are furnished to him in drafts, 
 shall cause those drafts to be presented at their place of pay- 
 ment, and properly paid, according to the law ; and shall make 
 his payments in the money so received for the drafts furnished, 
 unless, in either case, he can exchange the means in his hands 
 for gold and silver at par. And it shall be, and is hereby, made 
 the duty of the head of the proper department immediately to 
 suspend from duty any disbursing officer who shall violate the 
 provisions of this section, and forthwith to report the name of
 
 282 APPENDIX. 
 
 the officer or agent to the President, with the fact of the viola- 
 tion, and all the circumstances accompanying the same and 
 within the knowledge of the said Secretary, to the end that such 
 officer or agent may be promptly removed from office or restored 
 to his trust and the performance of his duties, as to the Presi- 
 dent may seem just and proper : Provided, however, That those 
 disbursing officers having at present credits in the banks, shall, 
 until the first day of January next, be allowed to check on the 
 same, allowing the public creditors to receive their pay from the 
 banks either in specie or bank notes. 
 
 Sec. 21. And it be further enacted, That it shall be the duty 
 of the Secretary of the Treasury to issue and publish regulations 
 to enforce the speedy presentation of all Government drafts for 
 payment at the place where payable, and to prescribe the time, 
 according to the different distances of the depositaries from the 
 seat of Government, within which all drafts upon them, respect- 
 ively, shall be presented for payment ; and in default of such 
 presentation, to direct any other mode and place of payment 
 which he may deem proper ; but in all these regulations and 
 directions it shall be the duty of the Secretary of the Treasury, 
 to guard as far as may be, against those drafts being used or 
 thrown into circulation as a paper currency, or medium of 
 exchange. And no officer of the United States shall, either 
 directly or indirectly, sell or dispose to any person or persons, 
 or corporations, whatsoever, for a premium, any Treasury note, 
 draft, warrant, or other public security, not his private property, 
 or sell or dispose of the avails or proceeds of such note, draft, 
 warrant, or security, in his hands for disbursement, without 
 making return of such premium, and accounting therefor by 
 charging the same in his accounts to the credit of the United 
 States ; and any officer violating this section shall be forthwith 
 dismissed from office. 
 
 Sec. 22. And be it further enacted, That the assistant 
 treasurers directed by this act to be appointed, shall receive, 
 respectively, the following salaries per annum, to be paid quar- 
 ter-yearly at the Treasury of the United States ; to wit : the
 
 APPENDIX. 283 
 
 Assistant Treasurer at New York shall be paid a salary of four 
 thousand dollars per annum ; the Assistant Treasurer at Boston 
 shall be paid a salary of two thousand five hundred dollaes per 
 annum ; the Assistant Treasurer at Charleston shall be paid a 
 salary of two thousand five hundred dollars per annum ; the 
 Assistant Treasurer at St. Louis shall be paid a salary of t\$p 
 thousand five hundred dollars per annum ; the Treasurer of 
 the mint at Philadelphia shall, in addition to his present salary, 
 receive five hundred dollars annually for the performance of the 
 duties imposed by this act ; the Treasurer of the branch mint at 
 New Orleans shall also receive five hundred dollars annually for 
 the additional duties created by this act ; and these salaries, 
 respectively, shall be in full for the services of the respective 
 officers, nor shall either of them be permitted to charge or 
 receive any commission, pay, or perquisite, for any official ser- 
 vice, of any character or description whatsoever ; and the 
 making of any such charge, or the receipt of any such compen- 
 sation, is hereby declared to be a misdemeanor, for which the 
 officer, convicted thereof before any court of the United States 
 of competent jurisdiction, shall be subject to punishment by fine 
 or imprisonment, or both, at the discretion of the court before 
 which the offence shall be tried. 
 
 Sec. 23. And it be further enacted, That there shall be, and 
 hereby is, appropriated to be paid out of any money in the 
 Treasury not otherwise appropriated, the sum of five thousand 
 dollars, to be expended, under the direction of the Secretary of 
 the Treasury, in such repairs or additions as may be necessarv 
 to put in good condition for use, with as little delay as may lie 
 consistent with the public interests, the offices, rooms, vaults, 
 and safes herein mentioned, and in the purchase of any neces- 
 sary additional furniture and fixtures, in the purchase of neces- 
 sary books and stationery, and in defraying any other incidental 
 expenses necessary to carry this act into effect. 
 
 Sec. 24. And be it further enacted, That all acts or parts of 
 acts which come in conflict with the provisions of this act be, 
 and the same are hereby, repealed. 
 
 Approved, August 6, 1846.
 
 284 APPENDIX. 
 
 B. 
 
 AMENDMENTS TO SUB-TREASURY ACT. 
 
 MARCH 3, 1857. 
 
 Sec. 1. Be it enacted, etc., That the act to provide for the 
 better organization of the Treasury, and for the collection, 
 safe-keeping, transfer, and disbursement of the public revenue, 
 approved August sixth, eighteen hundred and forty-six, be, and 
 the same is hereby so amended that each and every disbursing 
 officer or agent of the United States, having any money of the 
 United States intrusted to him for disbursement, shall be, and 
 he is hereby required to deposit the same with the Treasurer of 
 the United States, or with some one of the assistant treasurers 
 or public depositaries, and draw for the same only in favor of 
 the persons to whom payment is to be made in pursuance of law 
 and instructions ; except when payments are to be made in sums 
 under twenty dollars, in which cases such disbursing agent may 
 check in his own name, stating that it is to pay small claims. 
 
 Sec. 2. And be it further enacted, That the Treasurer of the 
 United States, assistant treasurers, and public depositaries shall 
 safely keep all moneys deposited by any disbursing officer or 
 disbursing agent of the United States, as well as any moneys 
 deposited by any receiver, collector, or other person which shall 
 be the moneys of, or due, or owing to the United States, and for 
 a failure so to do shall be held guilty of the crime of embezzle- 
 ment of said moneys, and subject to the punishment provided 
 for embezzlement in the act to which this is an amendment. 
 
 Sec. 3. And be it further enacted. That it shall be the duty 
 of each and every person who shall have moneys of the United 
 States in his hands or possession to pay the same to the Treas- 
 urer, the assistant treasurer, or a public depositary of the United 
 States, and take his receipt for the same, in duplicate, and for- 
 ward one of them forthwith to the Secretary of the Treasury, 
 and for a failure to make such deposit, when required by the
 
 APPENDIX. 285 
 
 Secretary of the Treasury, or any other department, or the 
 accounting officers of the Treasury, the person so failing shall 
 be held guilty of the crime of embezzlement, and subject to the 
 punishment for that offence provided in the act to which this is 
 an amendment. 
 
 DEPOSITORIES. 
 
 [SECTION 32I I OF REVISED STATUTES.] 
 
 The Secretary of the Treasury is authorized to designate one 
 or more depositories in each State, for the deposit and safe- 
 keeping of the money collected by virtue of the internal-revenue 
 laws ; and the receipt of the proper officer of such depository to 
 a collector for the money deposited by him shall be a sufficient 
 voucher for such collector in the settlement of his accounts at 
 the Treasury Department. 
 
 D. 
 
 DEPOSITS OF POSTMASTERS. 
 
 [SECTION 3847 OF REVISED STATUTES.] 
 
 Any postmaster, having public money belonging to the Gov- 
 ernment, at an office within a county where there are no desig- 
 nated depositaries, treasurers of mints, or Treasurer, or assistant 
 treasurers of the United States, may deposit the same at his own 
 risk and in his official capacity, in any national bank in the 
 town, city, or county where the said postmaster resides, etc.
 
 286 APPENDIX. 
 
 E. 
 
 TRANSFERS OF POST-OFFICE MONEY. 
 
 [SECTION 3641 OF REVISED STATUTES.] 
 
 The Postmaster-General may transfer money belonging to the 
 postal service between the Treasurer, assistant treasurers, and 
 designated depositaries, at his discretion, and as the safety of 
 the public money and the convenience of the service may 
 require. 
 
 F. 
 DISBURSING OFFICERS. 
 
 [SECTION 3620 OF THE REVISED STATUTES.] 
 
 It shall be the duty of every disbursing officer having any 
 public money intrusted to him for disbursement, to deposit the 
 same with the Treasurer or some one of the assistant treasurers 
 of the United States, and to draw for the same only as it may 
 be required for payments to be made by him in pursuance of 
 law [and draw for the same only in favor of the persons to 
 whom payment is made] ; and all transfers from the Treasurer 
 of the United States to a disbursing officer shall be by draft or 
 warrant on the Treasury or an assistant treasurer of the United 
 States. In places, however, where there is no treasurer or 
 assistant treasurer, the Secretary of the Treasury may, when 
 he deems it essential to the public interest, specially authorize in 
 writing the deposit of such public money in any other public 
 depository, or, in writing, authorize the same to be kept in any 
 other manner, and under such rules and regulations as he may 
 deem most safe and effectual to facilitate the payments to public 
 creditors.
 
 APPENDIX. 287 
 
 ACCOUNTS. 
 
 [SECTION 3622 OF THE REVISED STATUTES.] 
 
 Every officer or agent of the United States who receives pub- 
 lic money which he is not authorized to retain as salary, pay, or 
 emolument, shall render his accounts monthly. Such accounts, 
 with the vouchers necessary to the correct and prompt settle- 
 ment thereof, shall be sent by mail, or otherwise, to the Bureau 
 to which they pertain, within ten days after the expiration of 
 each successive month, and, after examination there, shall be 
 passed to the proper accounting officer of the Treasury for set- 
 tlement. Disbursing officers of the Navy shall, however, render 
 their accounts and vouchers direct to the proper accounting offi- 
 cer of the Treasury. In case of the non-receipt at the Treasury, 
 or proper Bureau, of any accounts within a reasonable and proper 
 time thereafter, the officer whose accounts are in default shall 
 be required to furnish satisfactory evidence of having complied 
 with the provisions of this section. The Secretary of the Treas- 
 ury may, if in his opinion the circumstances of the case justify 
 and require it, extend the time hereinbefore prescribed for the 
 rendition of accounts. Nothing herein contained shall, how- 
 ever, be construed to restrain the heads of any of the Depart- 
 ments from requiring such other returns or reports from the 
 officer or agent, subject to the control of such heads of [Depart- 
 ment] [Departments] as the public interest may require.
 
 288 APPENDIX. 
 
 H. 
 NATIONAL BANK DEPOSITORIES. 
 
 [SECTION 5153 OF REVISED STATUTES.] 
 
 All national banking associations, designated for that pur- 
 pose by the Secretary of the Treasury, shall be depositaries of 
 public money, except receipts from customs, under such regula- 
 tions as may be prescribed by the Secretary ; and they may also 
 be employed as financial agents of the Government ; and they 
 shall perform all such reasonable duties, as depositaries of pub- 
 lic moneys, and financial agents of the Government, as may be 
 required of them. The Secretary of the Treasury shall require 
 the associations thus designated to give satisfactory security, by 
 the deposit of United States bonds and otherwise, for the safe- 
 keeping and prompt payment of the public money deposited 
 with them, and for the faithful performance of their duties as 
 financial agents of the Government. And every association so 
 designated as receiver or depositary of the public money shall 
 take and receive at par all of the national currency bills, by what- 
 ever association issued, which have been paid into the Govern- 
 ment for internal revenue, or for loans or stocks.
 
 APPEXDIX. 
 
 289 
 
 III. 
 
 CORRECT CURRENCY STATEMENT. 
 
 The monthly currency statements issued by the Government 
 are misleading. They take no account of gold bullion held by 
 the Treasury, and they count as money in the Treasury both 
 coin and the certificates which represent it, as well as both cur- 
 rency certificates and the notes against which they are issued. 
 The erroneousness of the Government statement of the amount of 
 money in the Treasury appears from the table below. An 
 explicit account of the differences between the two statements, 
 with the reasons therefor, is given in the Commercial and Finan- 
 cial Chronicle of January 30, 1892 ; and the subject is discussed 
 in part in the report of the Treasurer of the United States for 
 1891, under the head of Treasury Notes of 1890. 
 
 Treasury Statement of the Amount of 
 
 Corrected Statement for the 
 
 Money in the Treasury, 
 
 Oct. 1, 1892. 
 
 Same Date. 
 
 
 Cold coin 
 
 $164,550,486 
 
 Net gold coin and 
 
 
 
 Standard silver dollars 
 
 • 356,173.732 
 
 bullion 
 
 $"9, 
 
 Subsidiary silver 
 
 12,551.498 
 
 Net silver coin and 
 
 
 
 Hold certificates ... 
 
 25,345,59° 
 
 bullion 
 
 
 -. x l",i-4 
 
 Silver certificates 
 
 2,619,477 
 
 
 
 
 Treasury notes of 1890 
 
 5,482,485 
 
 Treasury notes of 1890 
 
 
 5,482,485 
 
 United States Notes 
 
 24,077,858 
 
 United States notes . 
 
 
 6,787,858 
 
 Currency certificates (Act, June 
 
 
 
 
 
 8, 1872) .... 
 
 970,000 
 
 
 
 
 National bank notes 
 
 7,701,652 
 
 National bank notes . 
 
 
 7,701,652 
 
 
 
 Fractional silver 
 
 5 
 
 12,551,498 
 
 Total cash in Treasury . 
 
 $599,472, 778 
 
 54,759.126 
 
 Amt. in nat. bank depositories 
 
 
 
 
 15.496,513 
 
 Total government cash . 
 
 $599,472 778 
 
 $ 
 
 70.255,639
 
 290 
 
 APPENDIX. 
 
 IV. 
 
 AVERAGE MONTHLY SURPLUS OF NEW YORK 
 BANKS. 
 
 
 J888. 
 
 1 889. 
 
 1890. 
 
 1891. 
 
 Average for 
 Four Years. 
 
 January 
 
 18,676 
 
 15.7S4 
 
 8,971 
 
 18,036 
 
 15-367 
 
 February 
 
 16,506 
 
 14,865 
 
 5-855 
 
 i6,935 
 
 13-540 
 
 March 
 
 10,014 
 
 7,192 
 
 2,253 
 
 9,543 
 
 7,250 
 
 April 
 
 12,463 
 
 8,247 
 
 1,638 
 
 5,824 
 
 7,043 
 
 May 
 
 24,506 
 
 14,423 
 
 3,002 
 
 5-974 
 
 11,976 
 
 June 
 
 27,840 
 
 9,618 
 
 6,172 
 
 12,939 
 
 14,127 
 
 July 
 
 27,651 
 
 6,498 
 
 5,496 
 
 17,052 
 
 14,174 
 
 August 
 
 27,590 
 
 5-°44 
 
 3-53° 
 
 16,479 
 
 13,161 
 
 September 
 
 12,742 
 
 4,044 
 
 5,172 
 
 7,4n 
 
 7,342 
 
 October 
 
 13,612 
 
 1,113 
 
 3> l6 9 
 
 9,500 
 
 6,849 
 
 November 
 
 11,384 
 
 1,172 
 
 962 
 
 11,161 
 
 6,169 
 
 December 
 
 8,122 
 
 2,. 87 
 
 3,815 
 
 16,961 
 
 8,272 
 
 1 Three figures are omitted. The Table is compiled from returns in the Finan- 
 ial Chronicle and the New York Journal of Commerce.
 
 APPENDIX. 29I 
 
 V. 
 
 THE FRENCH INDEMNITY INCIDENT. 
 
 The history of the trouble that occurred between the Bank 
 and the Administration in the matter of the payment of the 
 French indemnity is as follows : — 
 
 By the treaty signed at Paris, July 4, 1831, and ratified in 
 Washington in the following February, the French Government 
 agreed to pay at Paris twenty-five millions of francs, in six annual 
 instalments, on the order of the United States, for distribution 
 among those entitled to it, in settlement of all claims against 
 France, by citizens of this country for injuries and losses sus- 
 tained during the Napoleonic wars, between 1800 and 1817. 
 Under this treaty Secretary McLane drew a bill on France, pay- 
 able to the cashier of the bank of the United States. The 
 amount was credited to the Government by the bank, and the 
 draft sent to Europe for collection. The amount credited was 
 not carried into the Treasury by warrant, and no part of it 
 was ever withdrawn. Payment of the draft was refused by the 
 French Treasury, because the treaty had not yet been ratified 
 by the Chambers. Hottinguer & Co. took the note up, for the 
 honor of the bank, and debited the bank with the amount plus 
 interest and costs. The bank immediately notified Secretary 
 McLane that it would hold him responsible for principal, inter- 
 est, costs, damages, and exchange. The claim for damages was 
 made under an old law of Maryland, 1 which was operative also 
 in the District of Columbia, by which fifteen per cent, damages 
 were allowed on foreign bills of exchange that went to protest. 
 On the advice of Attorney-General Taney, the claim for damages 
 
 1 Ch. 38, Acts 1785 ; see Dorsey'^ Maryland Statutes, i. 197.
 
 292 APPENDIX. 
 
 was disallowed. The bank then indemnified itself by withhold*- 
 ing part of the Government dividend, and suit was brought for 
 its recovery in the U. S. Circuit Court for the eastern district 
 of Pennsylvania. The verdict was for the Government, but the 
 case went to the Supreme Court on an exception. The judgment 
 of the court, delivered by Justice McLean, reversed the decision 
 of the Circuit Court, and remanded the case for a new trial. 
 Justice Catron dissented from the decision and Justice Wayne 
 concurred, but " not for the reasons given in the opinion of the 
 court." 1 The Government finally recovered the dividend with- 
 held. 
 
 The Finance Committee of the Senate in their report on the 
 bank, in the second session of the 23d Congress, indorsed the 
 action of the bank. 
 
 1 See 2d Howard, 711 ; 15 Curtis, 257, and 16 Curtis, 429.
 
 APPENDIX. 293 
 
 VI. 
 
 INFLUENCE OF SUB-TREASURY ON BANK 
 MANAGEMENT. 
 
 An opinion has been expressed in some quarters that reliance 
 of the banks on the Government disbursements to meet the fall 
 demand for money, has produced carelessness among the banks 
 in the matter of keeping up their reserves. For instance, the 
 New York Commercial and Financial Chronicle x says : — 
 
 " The time was when our banks provided beforehand for the fall trade, 
 and so trimmed their sails, if we may be permitted to use the expression, 
 through the summer months as to avert a storm, by preparing themselves for 
 the crop demand. Of late years they have looked to the Treasury wholly, and 
 have gone through the summer trenching on their reserves, regardless of any 
 increased drain sure to come later on." 
 
 It is a very difficult matter to prove that the Independent 
 Treasury has had this bad influence on bank management. 
 On the face of the matter it certainly seems a possible result of 
 the system: but an examination of the reserves of the associated 
 banks of New York for the summer months of several years 
 does not show such a depletion as the remarks of the Chronicle 
 might lead one to expect. Moreover, it must be remembered 
 that the summer is a dull season, and that the demand for loans 
 is slack. Hence, even if the banks should desire to do so, the 
 opportunity for the banks to deplete their reserves is lacking 
 them. Below are given the opinions of officers of several New- 
 York City banks on the remarks of the Chronicle. It will be 
 seen that the weight of opinion is against that of the Chronicle. 
 
 1. "It seems to me that the statement is not exact. . . . 
 Owing to the creation of money reserve centres in the West, and 
 1 Dec. 6, 1890.
 
 294 APPENDIX. 
 
 the deflection of deposits of banks from New York to these 
 centres, the accumulation of surplus funds has been less of late 
 years in New York, and hence the withdrawals to move the 
 crops have been smaller." — President Com. Exchange National 
 Bank, March, 1892. 
 
 2. " The idea that banks now, or of late years, have depended 
 on the Treasury for assistance, instead of preparing themselves 
 for the regular autumn demand for crop movements, is entirely 
 erroneous. 11 - — Cashier First National Bank, Marc/130, 1892. 
 
 3. " As far as we know, the banks of this city do not at any 
 time make their calculations relying on the Treasurer of the 
 United States for assistance in perfecting same, nor do we con- 
 sider they should, or that it would be wise to do so. 11 — Cashier 
 Importers' and Traders' National Bank, March 20, 1892. 
 
 4. "Each individual bank throughout the country, if fairly 
 managed, is in the habit of estimating its dealers 1 needs irrespec- 
 tive of Treasury conditions. . . . Extraordinary accumulations 
 in the Treasury, however, necessarily called for heroic rem- 
 edies. . . . Under such extraordinary conditions the ordinary 
 calculations on the part of bankers would not cover the case, 
 hence the seeming occasion for the accusation referred to, I 
 presume." — President Mercantile National Bank, March 30, 
 1892. 
 
 5. " We may be regarded as too conservative, . . . but we 
 have found it to our advantage to have our maturities in hand 
 about July and August, to meet the usual demand which occurs 
 at that season. We are pursuing that course to-day. 11 — Cashier 
 Merchants' 1 National Bank, March 30, 1892. 
 
 6. " We always prepare ourselves carefully for the fall demand 
 for money for the movement of the crops, . . . and keep our 
 loans and reserves well in hand throughout the summer for this 
 purpose. 11 — President National Park Bank, March 30, 1892. 
 
 7. " We did not transact our business on the lines mentioned. 1 
 Our policy was to strengthen ourselves with our own resources 
 for the demands that the crops might bring for money. I am 
 
 1 In the Chronicle.
 
 APPENDIX. 295 
 
 under the impression that such was also the policy of all of the 
 leading banks in this city.' 1 — President National Batik of the 
 Republic, March 30, 1892. 
 
 8. " We believe the statement to be partially true." — Cashier 
 National B roadway Bank, March 30, 1892. 
 
 9. •• I do not think the banks in this city have relied wholly 
 upon the Treasury to provide for demands which recur with the 
 regularity of seed-time and harvest. It has no doubt been their 
 custom to employ in call loans the money reserved for moving 
 the crops, and when the demand comes the borrower is depend- 
 ent upon the open market for the money to pay with.' 1 — Presi- 
 dent National Bank of Commacc. April 2, 1892. 
 
 10. " The policy of this bank (and which has been carried 
 out by its practice) has been to keep a very large surplus reserve, 
 and hence we have not relied upon the Treasury for the purpose 
 in question. Speaking for the banks as a whole. I think there 
 is some truth in the remarks of the Chronicle." — President 
 Chemical National Bank, April 2, 1892. 
 
 11. "While the paragraph J may be somewhat too sweeping 
 in its statements, it is. I think, true that the banks generallv 
 relied at the time referred to, more or less, upon relief from the 
 Treasury. . . . But, on the whole, I think there is no reason 
 to criticise the management of the banks as a body " [in this 
 respect] . — President Western National Bank, March 20, 1892. 
 
 12. " We are of the impression that the custom is quite general 
 among the banks of this city, to make due provision for the 
 fall demand for money.' 1 [The writer desires not to be quoted 
 in the matter.] 
 
 1 In the Chronicle.
 
 290 APPENDIX. 
 
 VII. 
 
 CIRCULAR.— ISSUE AND REDEMPTION OF 
 CURRENCY. 
 1891. 
 
 Department No. 144. 
 
 -= — - ; — -= r= .„ — T REASURV OF THE UNITED STATES. 
 
 Treasnrer's Office, m. 59. n - aMngtont D . c ., September «, .« 
 
 The following regulations govern the issue and redemption of 
 the paper currency and the gold, silver, and minor coins of the 
 United States, and the redemption of national bank notes by 
 the Treasurer of the United States : 
 
 I. — ISSUE OF UNITED STATES PAPER CURRENCY. 
 
 i. The Treasurer will forward new United States notes by 
 express, at the expense of the consignee, at Government con- 
 tract rates, or by registered mail, registration free, at the risk of 
 the consignee, in return for United States notes unfit for circu- 
 lation, national bank notes, fractional silver coin, or minor coin. 
 
 2. Gold certificates are issued upon a deposit of gold coin 
 with the Treasurer or an Assistant Treasurer, in denominations 
 of not less than $20. 
 
 3. Silver certificates are issued by the Treasurer or Assistant 
 Treasurers, upon a deposit of standard silver dollars, or in re- 
 turn for such certificates unfit for circulation forwarded for 
 redemption. 
 
 4. Treasury notes of 1890 are issued in payment of silver 
 bullion, purchased under the act of July 14, 1890, or in return 
 for such notes unfit for circulation forwarded for redemption. 
 
 II. — ISSUE OF GOLD COIN. 
 
 5. Gold coin is issued in redemption of United States notes, 
 in sums not less than $50, by the Assistant Treasurers in New 
 York and San Francisco.
 
 APPENDIX. 297 
 
 III. — ISSUE OF STANDARD SILVER DOLLARS AND FRACTIONAL 
 SILVER COIN. 
 
 6. Standard silver dollars are issued in redemption or ex- 
 change of silver certificates and Treasury notes of 1890, by the 
 Treasurer or Assistant Treasurers. 
 
 7. Upon the deposit of an equivalent sum in United States 
 currency or national bank notes with the Treasurer or any 
 Assistant Treasurer or national bank depositary, fractional silver 
 coin will be paid in any amount by the Treasurer or Assistant 
 Treasurers in the cities where their several offices are, or will be 
 sent by express, in sums of $200 or more, at the expense of the 
 Government, or by registered mail in packages of $50, registra- 
 tion free, from the most convenient Treasury office, to the order 
 of the depositor. For this purpose drafts may be sent to the 
 Treasurer or any Assistant Treasurer, payable in their respec- 
 tive cities. 
 
 IV. — ISSUE OF MINOR COIN. 
 
 8. Minor coin is issued under the following regulations of the 
 Director of the Mint : — 
 
 Five-cent nickel pieces and one-cent bronze pieces will be 
 forwarded in the order of application from the United States 
 Mint at Philadelphia, Pa., to points reached by express com- 
 panies, free of transportation charges, in sums of $20 or multi- 
 ples thereof, upon receipt and collection by the Superintendent 
 of that Mint of a draft on New York or Philadelphia, payable to 
 his order. To points not readied by express companies, and 
 where delivery under contract with the Government is thus im- 
 practicable, the above coin can, on the same terms, be sent by 
 registered mail at applicant's risk, registry fee on same to be 
 paid by the Government. Orders for transportation at risk 
 of applicant should express acceptance of the risk. 
 
 9. The Treasurer and Assistant Treasurers will pay out for 
 lawful money any minor coin not needed in the current business 
 of their offices.
 
 >93 APPENDIX. 
 
 V. — ISSUE OF THE TREASURER'S TRANSFER-CHECKS. 
 
 10. Subject to the convenience of the Treasury, the Treas- 
 urer will issue transfer-checks on the Assistant Treasurers, pay- 
 able to the order of the sender or his correspondent, for United 
 States notes unfit for circulation, or national bank notes sent to 
 the Treasurer for redemption, or for fractional silver coin or 
 minor coin sent in multiples of $20 to the Treasurer or Assist- 
 ant Treasurer. 
 
 VI. — REDEMPTION OF UNITED STATES PAPER CURRENCY. 
 
 11. United States notes, fractional currency notes, gold cer- 
 tificates, silver certificates, and Treasury notes of 1890, are 
 redeemable by the Treasurer, and when not mutilated so that 
 less than three-fifths of the original proportions remain [s] , by the 
 several Assistant Treasurers, at face value. United States 
 notes are redeemable in coin, in sums not less than $50, by the 
 Assistant Treasurers in New York and San Francisco. Silver 
 certificates are redeemable in standard dollars only, or exchange- 
 able for other silver certificates. 
 
 12. United States notes, fractional currency notes, gold cer- 
 tificates, silver certificates, and Treasury notes of 1890, when 
 mutilated so that less than three-fifths, but clearly more than 
 two-fifths, of the original proportions remain[s], are redeemable 
 by the Treasurer only, at one-half the face value of the whole 
 note or certificate. Fragments not clearly more than two-fifths 
 are not redeemed, unless accompanied by the evidence required 
 in paragraph 13. 
 
 13. Fragments less than three-fifths are redeemed at the face 
 value of the whole note when accompanied by an affidavit of 
 the owner or other persons having knowledge of the facts that 
 the missing portions have been totally destroyed. The affidavit 
 must state the cause and manner of the mutilation, and must be 
 sworn to and subscribed before an officer qualified to administer 
 oaths, who must affix his official seal thereto, and the character
 
 APPENDIX. 299 
 
 of the affiant must be certified to be good by such officer or 
 some other having an official seal. Signatures by mark [X] 
 must be witnessed by two persons who can write, and who 
 must give their places of residence. The Treasurer will exer- 
 cise such discretion under this regulation as may seem to him 
 needful to protect the United States from fraud. Fragments 
 not redeemable are rejected and returned. 
 
 VII. — REDEMPTION* OF NATIONAL BANK NOTES. 
 
 14. National bank notes are redeemable by the Treasurer in 
 sums of $1,000 or any multiple thereof. 
 
 15. Notes equalling or exceeding three-fifths of their original 
 proportions, and bearing the name of the bank and the signature 
 of one of its officers, are redeemable at their face value. 
 
 16. Notes of which less than three-fifths remains, or from 
 which both signatures are lacking, are not redeemed by the 
 Treasurer, but should be presented for redemption to the bank 
 of issue. Fragments less than three-fifths are accepted from 
 the bank of issue for face value by the Treasurer onlv when 
 accompanied by evidence, as required by paragraph 13, that the 
 missing portions have been totally destroyed. 
 
 17. Fragments redeemed by the bank of issue for less than 
 face value are accepted by the Treasurer only when their valua- 
 tion is equal to the face value of a note of some denomination 
 issued by the bank, or- some multiple thereof. The required 
 valuation may be made up of several "ragments of notes of the 
 same or different denominations. Fragments not clearly more 
 than two-fifths are acceptable only when accompanied by evi- 
 dence, as required by paragraph 13, that the missing portions 
 have been totally destroyed. 
 
 18. It having been decided that national bank notes stolen 
 when unsigned, and put in circulation with forged signatures, 
 are not obligatory promissory notes of the banks under Section 
 5182 of the Revised Statutes, they are not redeemed by the 
 Treasurer.
 
 ;oo atpe x nix. 
 
 VIII. — REDEMPTION OR EXCHANGE OF FRACTIONAL SILVER 
 COIN, MINOR COIN, AND STANDARD SILVER DOLLARS. 
 
 ig. Fractional silver coin and coins of copper, bronze, or 
 copper-nickel may be presented in sums or multiples of $20, 
 assorted by denominations in separate packages, to the Treas- 
 urer or an Assistant Treasurer for redemption or exchange into 
 lawful money, and standard silver dollars for exchange into sil- 
 ver certificates only. When forwarded by express, the charges 
 should be prepaid. 
 
 20. No foreign or mutilated silver coin will be redeemed. 
 Reduction by natural abrasion is not considered mutilation. 
 
 21. Minor coin that is so defaced as not to be readily identi- 
 fied, or that is punched or clipped, will not be redeemed or ex- 
 changed. Pieces that are stamped, bent, or twisted out of shape, 
 or otherwise imperfect, but showing no material loss of metal, 
 will be redeemed. 
 
 IX. — TRANSMISSION TO THE TREASURER. 
 
 22. United States notes, gold certificates, silver certificates, 
 Treasury notes of 1890, and national bank notes should be for- 
 warded in separate remittances. The notes should be assorted 
 by denominations and enclosed in paper straps, not more than 
 one hundred notes to each strap, and the straps should be marked 
 with the amount of their contents. Not more than eight thousand 
 notes should be put in one package. 
 
 23. An inventory, giving the amount of each denomination of 
 notes, the total amount in the package, the address of the party 
 sending, and the disposition to be made of the proceeds, should 
 be enclosed with each package, and a letter of advice sent by 
 mail. 
 
 24. The package, if it be sent by express, should be sealed 
 up in stout paper and addressed to the "Treasurer of the United 
 States, Washington, D. C." The wrapper should be plainly 
 marked with the owner's name and address, the amount and
 
 APPENDIX. 301 
 
 kind of currency enclosed, and, if the sender desires the benefit 
 of the Government contract, with the words, "Under Government 
 contract with the United States Express Company." 
 
 25. It is the duty of postmasters to register free of charge all 
 letters on which the postage has been fully prepaid, addressed 
 to the Treasurer, containing currency of the United States' for 
 redemption. It is recommended that all such letters be regis- 
 tered as a protection against loss. 
 
 26. Remittances of money by mail should be addressed to the 
 "Treasurer of the United States, Washington, D. C." Such 
 remittances and returns therefor by mail are invariably at the 
 risk of the owners. All communications to the Treasurer in 
 regard to packages lost in the mail are referred for investigation 
 to the Chief Post-Office Inspector. Post-Office Department, 
 Washington, D. C, to whom any subsequent inquiry on the 
 subject should be addressed. 
 
 X. — EXPRESS-CHARGES. 
 
 27. The Government contract with the United States Express 
 Company for the transportation of moneys and securities extends 
 to all points accessible through established express lines reached 
 by continuous railway communication, but does not embrace sea 
 or river transportation of any kind, and does not extend west- 
 ward beyond the Missouri River, but includes the States of 
 Missouri, Arkansas, and Texas. 
 
 28. The contract rates for the transportation of all kinds of 
 paper currency to or from Washington are — 
 
 Between Washington and points in the territory of the United 
 States Express Company and reached by it, 15 cents per $1,000; 
 sums of $500 or less, 10 cents. 
 
 Between Washington and points in the territory of another 
 express, excepting points in Texas and Arkansas, 50 cents per 
 $1,000 ; sums of $500 or less, 30 cents. 
 
 Between Washington and points in Texas and Arkansas, 75 
 cents per $1,000 ; sums of $500 or less, 50 cents.
 
 302 APPENDIX. 
 
 29. Express charges are paid by the Government, at contract 
 rates, on standard silver dollars sent by the Treasurer or Assist- 
 ant Treasurers in sums or multiples of $500, on fractional silver 
 coin in sums of $200 or more, on minor coin sent from the mint 
 at Philadelphia in sums or multiples of $20, and on national bank 
 notes sent to the Treasurer for redemption in sums or multiples 
 of $1,000. 
 
 30. On United States notes, gold certificates, silver certificates, 
 or Treasury notes of 1890, sent for redemption or for credit of 
 the five per cent, redemption fund, and on national bank notes 
 sent for redemption in other amounts than multiples of $1,000, 
 the charges, if not prepaid, are deducted from the proceeds at 
 contract rates. 
 
 3 1 . On United States notes, gold certificates, silver certificates, 
 or Treasury notes of 1890, returned for United States currency 
 or national bank notes redeemed, the charges are deducted at 
 contract rates. 
 
 32. On standard silver dollars, fractional silver coin, and minor 
 coin, sent for exchange or redemption the charges must be pre- 
 paid by the sender. 
 
 33. On transfers of funds from national bank depositaries, 
 under letters of instruction, the charges must be paid by the 
 depositaries. 
 
 34. The Treasurer has no control over rates exacted when 
 the charges are prepaid, or for transportation outside of the 
 territorial limits of the contract. 
 
 35. No charge is made for the amount of express-charges 
 enclosed with a remittance of even thousands of dollars, when 
 separately noted on the wrapper. Packages should always be 
 marked with the exact amount of the contents. 
 
 XI. — GENERAL INFORMATION. 
 
 36. Paper currency presented for redemption or exchange, or 
 for credit of the Treasurerat the offices of the Assistant Treasurers, 
 must be assorted by kinds, and enclosed in paper straps, the
 
 APPEXDIX. 303 
 
 straps not to contain more than one hundred notes each, and to 
 be plainly marked with the amount of the contents. 
 
 37. The act of June 30, 1876 (19 Statutes, 64), requires 
 " that all United States officers charged with the receipt or 
 disbursement of public moneys, and all officers of national 
 banks, shall stamp or write in plain letters the word ' counter- 
 feit, 1 'altered,' or ' worthless,' upon all fraudulent notes issued 
 in the form of and intended to circulate as money which shall 
 ht presented at their places of business; and if siith officers 
 shall wrongfully stamp any genuine note of the United States 
 or of the national banks, they shall, upon presentation, re- 
 deem such notes at the face value thereof.* 1 
 
 38. Counterfeit notes or coins found in remittances to this 
 office are returned to the sender cancelled, for the purpose of 
 enabling him to make reclamation ; and after such use they must 
 be returned to this office for transfer to the Secret-Service Divis- 
 ion of the Treasury Department. 
 
 39. In case of the loss or destruction of one of the Treasurer's 
 checks, and upon application for a duplicate, payment of the 
 original check is stopped, and the applicant is furnished with a 
 form of bond of indemnity, upon return of which, properly exe- 
 cuted, a duplicate is issued. 
 
 Compliance with the foregoing regulations is enjoined on all 
 officers of the Department, and observance of them will be 
 expected of all making remittances to this office. 
 
 E. H. Xebeker, 
 Treasurer U. S. 
 Approved : 
 
 A. B. Nettleton, 
 
 Acting Secretary of tlic Treasury.
 
 304 APPENDIX. 
 
 VIII. 
 
 CIRCULAR.— REGULATIONS FOR THE DEPOSIT 
 OF PUBLIC MONEYS. 
 
 18H8. Treasurv Department, 
 
 Depa rt iin n! So. 7. Office of the Secretary, 
 
 _JiViS10U Ul PUb.lC MOlieyS. Washington, B.C., January 12, iS38. 
 
 To Collectors ami Surveyors of Customs, Collectors of Internal 
 Revenue, Receivers of Public Moneys for Lands, Marshals, 
 Clerks of Courts, and all other Officers or Agents of the 
 United States engaged in collecting, depositing, or transmit- 
 ting Public Moneys : — 
 
 The following regulations, based upon specific provisions of 
 existing laws, for the violation of which penalties of a severe 
 character are provided, are hereby prescribed, and a strict com- 
 pliance therewith enjoined : — 
 
 COLLECTIONS. 
 
 Collectors and Surveyors of Customs, Collectors of Internal 
 Revenue, and Receivers of Public Moneys, living in the same 
 city or town with an Assistant Treasurer or Designated Deposi- 
 tary, must deposit their receipts at the close of each day. Offi- 
 cers at such a distance from a depository that daily deposits are 
 impracticable, must forward their receipts as often as they amount 
 to one thousand dollars, and at the end of each month without 
 regard to the amount then accumulated. 
 
 All collections must be deposited to the credit of the Treas- 
 urer of the United States, except moneys received by Collectors 
 of Internal Revenue from sales under Section 3460, Revised 
 Statutes of the United States, or from offers of compromises
 
 APPENDIX. 305 
 
 when received prior to the acceptance of the offer, which must be 
 deposited to the credit of the Secretary of the Treasury as here- 
 tofore. 
 
 District Attorneys, Marshals, and Clerks of Courts who re- 
 ceive public moneys accruing to the United States from fines, 
 penalties, and forfeitures, fees, costs (including costs in criminal 
 sui.s for violations of the postal laws), forfeitures of recogni- 
 zances, debts clue the United States, interest on such debts, sales 
 of public property, or from any other sources, will deposit the 
 same in accordance with the foregoing paragraphs, except monevs 
 accruing from customs (including navigation) and internal-reve- 
 nue cases, which should be paid to the Collector or Surveyor of 
 Customs or Collector of Internal Revenue of the district in which 
 the case arose, and moneys accruing from civil post-office suits, 
 a.ndf/ws in criminal cases for violation of the postal laws, which 
 should be deposited to the Treasurer's credit for the use of the 
 Post-Office Depart //lent. 
 
 The Department encourages the practice of a Deputy Collec- 
 tor or Agent depositing directly with a depositary in the name 
 of his principal, believing that greater economy and despatch will 
 thereby be attained. In such cases the depositor will take cer- 
 tificates of deposit in the name of the Collector or other officer 
 whose agent he is, or for whom he is acting, to whom the certi- 
 ficates should be forwarded for disposition as hereinafter pro- 
 vided. 
 
 DISBURSING FUNDS. 
 
 All moneys advanced from the Treasury to any officer or 
 agent of the Government for disbursement, or coming into his 
 hands, must be deposited to his official credit as such disbursing 
 officer or agent, and drawn upon only in his official capacity. 
 
 Deposits of such moneys may be made with the Treasurer, 
 an Assistant Treasurer, or any designated depositary of the 
 United States, if specially authorized by the Secretary of the 
 Treasury for that purpose under the provisions of Section 3620, 
 Revised Statutes of the United States, and not otherwise. In
 
 306 APPENDIX. 
 
 case no such special authority has been given to a convenient 
 depositary, application should be made to the Secretary of the 
 Treasury for such authorization. 
 
 CERTIFICATES OF DEPOSIT. 
 
 Hereafter the originals of all certificates of deposit for the 
 deposit of any and all public moneys, of every character and 
 description, except as stated in the next succeeding paragraph, 
 should be forwarded to the Secretary of the Treasury immedi- 
 ately upon their receipt by the depositors, who, before trans- 
 mitting them, should see that their amounts correspond with 
 the amounts actually deposited by them. 
 
 EXCEPTIONS. 
 
 Those issued to Disbursing Officers for disbursing funds 
 deposited to their official credit, subject to the payment of their 
 checks, and more properly called Disbursing Officers' receipts, 
 should be retained in their own possession ; those issued for the 
 transfer of funds from one Government depository to another, 
 and on account of silver coin, or the five percent. National Bank 
 Redemption Fund, should be forwarded to the Treasurer of 
 the United States ; and those issued for moneys deposited to 
 the credit of the Treasurer of the United States for use of the 
 Post -Office Department should be forwarded to the Third 
 Assistant Postmaster-General. 
 
 RECEIPTS. 
 
 Receipts given to district attorneys, marshals, or clerks for 
 moneys paid by them to Collectors and Surveyors of Customs, 
 should be sent to the Solicitor of the Treasury, and similar 
 receipts from Collectors of Internal Revenue should be sent to 
 the Commissioner of Internal Revenue. 
 
 Receipts given to an officer for deposits of his disbursing 
 funds to his own credit should be retained by him for his own 
 security as above stated.
 
 APPENDIX. 307 
 
 Reference is hereby made to Department's Circulars of April 
 3, 1879, relative to the transportation of public moneys by 
 express; August 24, 1876, relative to disbursing funds; No- 
 vember 28, 1879, ar, d June 2, 1882, relative to offers of com- 
 promise, and January 21, 1874, concerning the issue and 
 disposition of certificates. Also, to Sections 3216, 3218,3617, 
 3620, 3621, 3625, and 5481 to 5505, inclusive, of the Revised 
 Statutes of the United States. 
 
 This circular supersedes circular regulations for the deposit 
 of public moneys dated January 3, 1876. 
 
 C. S. Fairchild, 
 
 Secretary.
 
 308 APPENDIX. 
 
 IX. 
 
 PROPOSALS OF HON. MICHAEL A. HARTER OF 
 
 OHIO, AS TO THE CHARACTER OF BONDS 
 
 TO BE REQUIRED TO SECURE 
 
 CIRCULATION. 
 
 [AS REFORTED IN THE BOSTON HERALD OF JUNE 14, 1 892.] 
 
 That in addition to the United States bonds now required by 
 law to be deposited with the Treasurer of the United States 
 to secure the circulating notes of national banking associations, 
 the comptroller of the currency is hereby authorized and required 
 to accept registered bonds issued by any railroad corporation or 
 city in the United States and deposit the same with the Treas- 
 urer of the United States in behalf of any such association as 
 security for its circulating notes, subject to the following 
 restrictions : — 
 
 First. The principal and interest of all such bonds shall, in 
 expressed terms, be payable in gold coin of the United States. 
 
 Second. All such bonds must have been continuously listed 
 upon some regular stock exchange, located in a city of the 
 United States having a population of not less than 500,000, for 
 at least five years. 
 
 Third. No bond shall be accepted upon which payment of 
 interest has at any time been in default, or which at any time 
 within three years prior to the date of its offer for acceptance 
 has sold publicly upon any stock exchange where it was listed 
 for less than a hundred and five cents on the dollar of its face 
 value. 
 
 Fourth. No bond shall be accepted if the total tax levy of 
 the city issuing it exceeds two per cent, per annum.
 
 APPENDIX. 309 
 
 Fifth. Xo railroad bond, not regularly secured by mortgage 
 upon the roadbed and track, shall be accepted. 
 
 Sixth. No association shall be permitted to have more than 
 twenty per cent, of its bonds on deposit of the issue of any 
 one railroad corporation or city. 
 
 Seventh. Whenever any class of bonds on deposit has been 
 publicly sold below par for a period of thirty days upon any 
 stock exchange where listed, the comptroller shall require a 
 bond to be substituted which will in all respects meet the 
 requirements of this act. 
 
 Eighth. Whenever any railroad corporation which was pay- 
 ing dividends upon its stock when its bonds were accepted 1 >y 
 the comptroller ceases to pay dividends, the substitution of 
 other and proper bonds shall be required.
 
 3io 
 
 APPENDIX. 
 
 X. 
 
 MONTHLY GOVERNMENT RECEIPTS FROM CUS- 
 TOMS, IN MILLIONS OF DOLLARS. 1 
 
 
 iSSS. 
 
 1889. 
 
 1S91. 
 
 Average. 
 
 January 
 
 18.3 
 
 20.7 
 
 -3- 1 
 
 20.7 
 
 
 February 
 
 16.7 
 
 18.8 
 
 19.0 
 
 18.2 
 
 
 March 
 
 17.6 
 
 19.2 
 
 154 
 
 17.4 
 
 
 April 
 
 1 7.8 
 
 20.0 
 
 1 2. 1 
 
 16.6 
 
 
 May 
 
 1 5 .6 
 
 17.2 
 
 12.0 
 
 14.9 
 
 
 June 
 
 18.0 
 
 17.6 
 
 14.2 
 
 16.6 
 
 
 July 
 
 19-5 
 
 19.0 
 
 15-5 
 
 18.O 
 
 
 August 
 
 22.0 
 
 21.5 
 
 15.2 
 
 19.6 
 
 
 September 
 
 19.0 
 
 17.8 
 
 14.1 
 
 16.9 
 
 
 October 
 
 18.8 
 
 18.8 
 
 14.0 
 
 17.2 
 
 
 November 
 
 15-3 
 
 16.7 
 
 12.7 
 
 14.9 
 
 
 December 
 
 16.9 
 
 15.9 
 
 13.8 
 
 *5-5 
 
 
 1 The figures are from the Chronicle.
 
 APPENDIX. 
 
 3" 
 
 XL 
 
 GOVERNMENT DISBURSEMENTS FOR FOUR YEARS, 
 IN MILLIONS OF DOLLARS. 
 
 
 1888. 
 
 1S89. 
 
 1S90. 
 
 1 891. 
 
 Aver. for the 
 Four Years. 
 
 January 
 
 21.9 
 
 26.6 
 
 27.9 
 
 24.0 
 
 25.I 
 
 February 
 
 19.9 
 
 33-8 
 
 25.1 
 
 3*-7 
 
 27.6 
 
 March 
 
 15-5 
 
 17.0 
 
 '7-5 
 
 3 r -5 
 
 20.4 
 
 April 
 
 24.9 
 
 22.5 
 
 29.9 
 
 25-3 
 
 25-7 
 
 May 
 
 27-5 
 
 24.4 
 
 27.2 
 
 29.8 
 
 22.2 
 
 June 
 
 16.6 
 
 13.8 
 
 14.9 
 
 35-9 
 
 20-3 
 
 July 
 
 36.1 
 
 42.0 
 
 38.1 
 
 39-7 
 
 39-0 
 
 August 
 
 22.2 
 
 3S-3 
 
 33-9 
 
 20.7 
 
 28.8 
 
 September 
 
 19-5 
 
 16.5 
 
 33-7 
 
 23-9 
 
 234 
 
 October 
 
 32.6 
 
 28.6 
 
 3S.0 
 
 3*-9 
 
 32.S 
 
 November 
 
 36.6 
 
 25-3 
 
 42.6 
 
 27.9 
 
 33- 1 
 
 December 
 
 r 5-5 
 
 25.9 
 
 21.9 
 
 31.8 
 
 3 x -7
 
 312 APPENDIX. 
 
 XII. 
 
 ALLEGED REPEAL OF THE SUB-TREASURY LAW. 
 
 It has been claimed ' that the Sub-Treasury law was repealed, 
 incidentally, as it were, by a section of chapter 230 of the Acts 
 of the 41st Congress, second session, in the year 1870. This 
 chapter deals with patents, and its last clause enacts, " That the 
 acts and parts of acts set forth in the schedule of the acts cited, 
 hereto annexed, are hereby repealed, without reviving any acts or 
 parts of acts repealed by any of said acts, or by any clause or 
 provision therein," etc. Following this clause is the schedule 
 cited, containing the titles of 25 patent laws and eight copyright 
 laws. In the list of patent laws is the following: " August 6, 
 1846, chap. 90, vol. 9, page 59." This is the Independent 
 Treasury law. Just before the list of acts repealed, however, is 
 a statement that the repeal affects only those parts of them which 
 refer to patents. There appears no explanation, unless it may 
 have been a clerical error, why the Independent Treasury Act 
 should have been put among those that have to do with patents. 
 Of course, the provision that the repeal should apply to the acts 
 cited only in so far as they relate to patents, taken in connection 
 with the fact that the Independent Treasury law does not so 
 relate, deprives the repealing clause of any effect on that law. 
 
 1 See the New York Tribune, Sept. 23, 1873, p. t, 2d column.
 
 APPENDIX. 3 1 3 
 
 XIII. 
 
 CIRCULAR. — DEPARTMENT OF THE INTERIOR, 
 
 Bureau of Pensions, 
 Washington, D.C., April 2, 1891 
 
 On and after July I, 1891, pursuant to the act of Congress 
 approved March 3, 1891, and to the directions of the Secretary 
 of the Interior, quarterly payments of pensions will be made as 
 follows : — 
 
 Group 1 . — July 4, October 4, January 4, April 4. 
 
 Buffalo, N.Y. 
 Concord, N.H. 
 Chicago, 111. 
 
 Des Moines, Io. 
 Milwaukee, Wis. 
 Pittsburgh, Pa. 
 
 Group 2. — August 4, November 4, February 4, May 4. 
 
 New York, N.Y. 
 
 Indianapolis, Ind. 
 Knoxville, Tenn. 
 Louisville, Ky. 
 
 Philadelphia, Pa. 
 Topeka, Kan. 
 
 Group 3. — September 4, December 4, March 4, June 4. 
 
 Augusta, Me. 
 Boston, Mass. 
 Columbus, O. 
 
 Detroit, Mich. 
 San Francisco. Cal. 
 Washington, D.C. 
 
 Green B. Raum, 
 
 Commissioner.
 
 314 APPENDIX. 
 
 XIV. 
 AN ASSOCIATED NATIONAL BANK. 
 
 PLAN OF HON. C. N. JORDAN, EX-TREASURER OF THE UNITED 
 STATES, FOR REPLACING THE INDEPENDENT TREASURY. ' 
 
 [Address given before the Bankers'' Club of C/iieago, Dec, 1888.] 
 
 In presenting the scheme herewith submitted, permit me to 
 say that I can make no claim to originality ; but that, believ- 
 ing that experience is the best, — in fact, the only guide of the 
 Banker, — I have tried to adapt the main features of the banking 
 organizations known as the Banks of England, France, and 
 Germany, to the requirements of our political, governmental, 
 and geographical peculiarities as well as the financial past of 
 the country will permit. Besides suggesting the formation of 
 an Associated National Bank to take the place of the present 
 Sub-Treasury, I have also, in view of the almost certain de- 
 struction of the National Bank Currency within the next two 
 years, caused by the continuous issue of the silver certificates, 
 attempted to furnish a scheme for the preservation of the best 
 system of currency ever used by this or — I might almost say — 
 any other country. It is not essential to the creation of the 
 proposed Associated National Bank, but if the people desire 
 the cheapest form of currency in daily use yet known to any 
 commercial nation, to be perpetuated for their benefit, they "will 
 adopt some such scheme, in order to preserve the country from 
 the reverses and calamities of the past. 
 
 In proposing a scheme which shall do away with the Sub- 
 
 1 There are many points of resemblance between Mr. Jordan's plan and my own, 
 but mine was elaborated before I saw Mr. Jordan's proposals.
 
 APPENDIX. 3 I 5 
 
 Treasury, a great difficulty is to be met — which is, that a sim- 
 ple system cannot be devised, because of interstate jealousies, 
 and the violent and unfounded prejudices of our uneducated 
 people, against the National Banking System ; or rather agains 1 
 any banking system whatever. To discuss the baseless and 
 unwarranted character of these jealousies and prejudices, with 
 the causes, would need an essay, and you will, therefore, please 
 take for granted the arguments which might be used in prepar- 
 ing the ground in favor of the present proposition. I will first 
 state that which I think you will all grant — that the Sub-Treas- 
 ury is, has been and will continue to be, the greatest source of 
 financial danger in this country, and, like Carthage of old, must 
 be destroyed, in order that we may enjoy, as far as possible, 
 financial peace. 
 
 My proposition is that Congress shall cause to be established 
 an " Associated National Bank, 11 to be located in the city of 
 New York, and organized, as near as maybe, after the following 
 manner : — 
 
 The stock in this bank is to be taken by the banks of the 
 country, at 5 per cent, of the existing bank (both State, if they 
 choose to embrace the system, and National) capital, or capital 
 and surplus — either in the proportion of their capital to popu- 
 lation, or providing a specific sum (banks to be hereafter organ- 
 ized in the Southern States, or States poorly supplied at present 
 with banking facilities, may be permitted to come in on the same 
 terms — the surplus earnings, if any, equalized by rate at which 
 the stock is taken), a certain preference being given to banks 
 with reference to the amount of circulation issued by them in 
 proportion to their capital. This would give to-day a capital of 
 say $30,000,000. All deposits of the Government should be 
 made a preferred lien, the subscribing banks being liable for any 
 deficit to the extent of such deficit, ratably to stock owned. 
 This would give an additional security to the Government of say 
 $600,000,000 of banking capital, without reference to the existing 
 surplus of the banks. The capital of the bank should be limited 
 to forty millions of dollars, only to be increased from the actual
 
 3l6 APPENDIX. 
 
 preliminary subscription in the manner above provided, as to 
 new banks in sections of the country now poorly supplied with 
 banking capital. 
 
 This bank should have no right to issue currency except in 
 time of excessive demand ; such issue not to be made except 
 when the rate of interest in New York City equals or exceeds 
 8 per cent., the bank to hold its rate of interest at that per- 
 centage during the issuance of the notes, and while they are 
 outstanding; or, when issued under such circumstances, be 
 entitled to offer from time to time such a rate of premium as will 
 insure the quickest possible retirement of the notes issued by 
 reason of this proviso. 1 
 
 The bank shall receive all Government deposits, pay all Gov- 
 ernment interest, receiving such compensation therefor as ?nay 
 be agreed on ; shall register the debt of the United States ; shall 
 do a general banking business, except that it shall not receive 
 the deposits of persons or firms other than banks or bankers ; 
 will not be permitted to pay interests on deposits ; 2 may accept 
 trusts ; shall receive the deposits of the banks on account of the 
 5 per cent, redemption fund and " retiring circulation, failed, 
 and reducing funds ; " except that the sum of the " retiring cir- 
 culation fund, failed and reducing banks," shall be secured by 
 deposits of " unified legal-tender debt,'" hereafter to be described, 
 or Government bonds as at present ; these bonds, or any bonds 
 held as security for this class of deposits, to be released as lia- 
 bilities on these accounts are paid ; may receive deposits of 
 states, cities and municipal corporations, and pay their interest 
 in the manner provided for the General Government ; shall 
 or may discount for other banks mercantile paper, or bills of 
 
 1 The German provision upon this point defeats itself, as it provides no means for 
 early retirement of the notes issued during a time of stringency, and the penalty — 
 the payment of io per cent, to the GovernmetH — is too severe to induce an issue of 
 the notes. 
 
 2 The bank, except as regards foreign banks and bankers, should not receive the 
 accounts of o.her banks, except as provided, . . . the object to be attained being 
 the endorsement as far as possible by a New York bank of the notes discounted 
 by the Associated Bank.
 
 APPENDIX. 3 1 7 
 
 exchange drawn on existing values ; it may hold the deposits as 
 " special deposits" of other banks in the city of New York, in 
 order to serve as the holder of the Clearing House funds of the 
 respective banks ; the coin, or legal tenders, composing thes^ 
 funds shall not be included in its own reserve ; may keep and 
 open foreign accounts, being permitted (empowered) to make 
 such provision therefor as it may deem necessary in London, 
 Paris, Amsterdam, Berlin, Frankfort, and at such other points 
 as it may desire to transact a general exchange business, whether 
 in Europe or elsewhere ; upon the agencies thus established 
 (under satisfactory arrangements to be previously made) the 
 banks throughout the country could draw or keep accounts. It 
 shall keep 50 per cent, reserve on all liabilities, except the 
 "retiring, reducing, and failed" bank funds, which shall be 
 secured by deposits of bonds, as hereinafter provided ; 25 pjr 
 cent, of which reserve may be held in sight exchange on Lon- 
 don, Paris, Amsterdam, Frankfort, or Berlin ; it shall buy gold 
 bullion at a rate to be agreed upon, make advances on silver and 
 gold bullion, or gold and silver coins of other nations, at not to 
 exceed 98 per cent, of their actual bullion value. It shall also 
 act as the Redeeming Agent for the National Bank issues 
 throughout the country. 
 
 The same provisions as to redemption as are now contained 
 in the National Bank law shall apply to the notes issued under 
 the proposed act, as hereafter provided, except that the per- 
 centage required to be kept as a redemption fund shall be 
 deposited in the Associated Bank. The expense of printing, 
 circulation, and redemption, as well as of the National Currency 
 Bureau, which is to be transferred to New York, to be borne 
 by the national banks, as provided in the National Banking law, 
 the redemption being made in the city of New York. The 25 
 per cent, reserve banking clause to be stricken out as regards 
 other cities, excepting San Francisco. The banks shall be 
 exempt from tax on the circulation obtained under the proposed 
 act. The national banks shall have the further right to issue 
 notes upon special deposits with the Associated Bank (which
 
 3 18 APPENDIX. 
 
 can only be paid out for notes redeemed, and by check or veri- 
 fication of the Comptroller of the Currency) of standard gold 
 bullion, gold coin of full weight and standard fineness, such as 
 sovereigns, francs, marks, lire, or florins. 1 The small notes, 
 say ones, twos, fives, and tens, may be issued upon silver bull- 
 ion and silver coins not less than 900 fine, but bullion and coin 
 shall be rated at the value per ounce of 1,000 fine; and such 
 deposits of silver shall only be available for bills not larger than 
 $10, and shall be redeemable in silver, coin, or gold, at the 
 option of the banks. (The provision as to silver notes to be 
 subject to future action of the English or associated Govern- 
 ments.) 
 
 Its affairs shall be managed by a general manager, who shall 
 have had as a bank officer at least seven to ten years 1 experience, 
 to be nominated by the banks, and nomination approved by the 
 President, who shall serve until incapacitated, or be retired 
 after so many years' service, with pay proportional to length of 
 service, and who will be subject to immediate dismissal it dis- 
 honest, notoriously incapable, or speculative ; and a board of 
 directors of not less than twenty-one in number, of whom seven 
 shall be residents of the present reserve cities (or cities in 
 which clearing-houses may exist), as specified in the existing 
 National Bank Act. These directors shall serve for terms of 
 two, four, and six years, by classes. Fourteen of them shall be 
 elected from the city of New York, from among bank officers, 
 members of the clearing-house, and be presidents or cashiers, 
 who shall have served at least seven years as such officers. This 
 latter provision shall apply to the seven non-resident directors, 
 who shall be elected by the clearing-house banks in the re- 
 spective reserve cities, or such as have clearing-houses. The 
 Government shall have the right at all times to examine the 
 books of the bank, weekly reports of its condition shall be made, 
 and a semi-yearly audit and statement of account shall be made, 
 in the manner of the English banks, and by a committee ap- 
 
 1 This provision is intended to render unnecessary the recoining, at great loss, 
 which now takes place of foreign coin remit Led to this country.
 
 APPENDIX. 319 
 
 pointed by the banks outside of the city of New York. The 
 receipts from customs, etc., at New York City, shall be deposited 
 in the proposed bank, receivable and payable in coin, as now 
 provided by law, unless such mode of payment be waived by 
 the payer or receiver. The deposits of the Government at all 
 other points than at New York shall be deposited in the national 
 banks at the different points of deposit, which banks are to be 
 associated through their clearing-houses, which are to be given 
 the necessary legal functions, and which deposits are to be se- 
 cured by deposit of the securities provided by the proposed law ; 
 such deposits to be distributed/;-^ rata among the banks belong- 
 ing to the clearing-houses in proportion to the amount of securi- 
 ties severally deposited by them. Any excess of deposits made 
 over and above the bonds required of these banks as security 
 for deposits to be immediately remitted to the Associated Bank 
 at New York under the same penalties as now provided by law, 
 and under the supervision and at the risk of the associated clear- 
 ing-house banks, they being liable for all deficits which may 
 occur by reason of their neglect in requiring the proper amount 
 of security. The Associated Bank might serve as a clearing- 
 house for out-of-town checks, the clearing-houses of the different 
 cities receiving and paying for the items within a prescribed 
 territory. 
 
 The Sub-Treasuries in the different cities to be retained as to 
 form merely; their functions to be suspended for the term of 
 three years, unless otherwise provided by Congress ; but if 
 through actual losses and inconvenience experienced by the peo- 
 ple or Government in the transaction of daily business, it shall 
 then be demonstrated that the change of system has not been 
 
 1 The banks associated through their clearing-houses, which could be incorporated 
 for the purpose, giving each clearing-house (the capital in bonds being paid in by th^ 
 associated banks in each city) the power to receive and distribute Government 
 deposits, but no other banking power, to each member in proportion to amount of 
 bonds deposited by such member. The clearing-house could authorize the receipt of 
 Government deposits by banks within a certain distance from each city, taking from 
 such banks such security as the incorporated clearing-house thought proper, but 
 always at the risk of such clearing-house.
 
 320 APPENDIX. 
 
 successful, the Sub-Treasuries shall be revived, and the present 
 system be continued. 
 
 The Associated National Bank shall be exempt from all taxa- 
 tion, both state, city and national, but as compensation for such 
 exemption from local taxation shall be required to do all the 
 municipal financial business of the state and city, paying inter- 
 est, registering debt, etc. (The bank shall not be subject to 
 penalties for usury ; but the Board of Directors, by a two-thirds 
 vot^ to that effect, may increase or diminish the rate of interest 
 upon loans of ninety-day paper, or any less term, and shall not 
 be permitted to discount or loan for a longer period than ninety 
 days.) 1 Its directors may establish a " good service fund " for 
 the benefit of the clerks and officers of the bank, and may es- 
 tablish such extra compensation for terms of service in the bank 
 exceeding ten, fifteen, twenty, or twenty-five years, as may seem 
 proper to them. 
 
 In case of the failure of any of the banks, owners of the stock 
 of the Associated Bank at New York, the Associated Bank shall 
 pay for and retire such stock at par and the accumulated surplus 
 to the Comptroller of the Currency, and shall retain suchs tock 
 having the authority to issue it to any National Bank which may 
 be formed after the date of the passage of the proposed act, and 
 not provided for therein. If no such transaction takes place 
 within one year from the date of the purchase of the stock of 
 the failed bank, then such stock shall be cancelled, and shall no 
 longer be a part of the capital of the Associated Bank, at New 
 York. 
 
 The bank should not be permitted to make any dividend exceed- 
 ing 6 per cent,, upon the capital until the surplus equals 50 
 per cent, of its proposed capital ; it shall then declare six per 
 cent, upon the capital to the banks as stockholders, and three 
 percent, upon the surplus of say, $15,000,000 to the Govern- 
 
 1 The object of this proviso is that the same method of defending our specie reserves 
 may be practicable as is now used by the Ranks of France, Germany, and England 
 To-day, owing to our usury laws, we are without any defence against a rapid drain of 
 gold.
 
 APPENDIX. 321 
 
 merit, retaining all other surplus earnings until the surplus equals 
 the capital, when the earnings shall be divided in the following 
 manner: 6 per cent, to the banks as stockholders; 6 per 
 cent, to the Government upon the surplus — say $30,000,000 ; 
 and the total excess to the holders of the stock. The Govern- 
 ment would thus receive a fair compensation for the privileges 
 granted the bank. 
 
 The charter to run for the term of thirty years, unless abro- 
 gated by joint assent of the Government and the banks, and 
 subject to amendment at any time upon a similar basis. 
 
 Calling your attention to the statement as to the rapid dis- 
 appearance of the National Currency made in my preliminary 
 remarks, I further propose that the legal tenders, silver certificates 
 and gold certificates shall be retired, and in their place that a 
 2 per cent, bond be issued — except that the notes of all kinds 
 retired be converted into a legal tender issue, only to be used 
 under the circumstances to be pointed out hereafter. The con- 
 solidation thus effected would give, say $158,500,000 gold certifi- 
 cates, $240,600,000 silver certificates, and $346,700,000 legal 
 tenders ; in all, say $750,000,000 (including gold and silver 
 certificates in the Treasury), of National Bank Currency: the 
 notes only to be changed into their new form as the National 
 Bxnk Currency takes the place of such notes. This would free 
 for the Government $332,000,000 of gold, and $250,000,000 of 
 silver, say $582,000,000, which would be applied to the pay- 
 ment of the 4| per cents, say $180,000,000 ; the payment over 
 to the bank of, say $100,090,000 of the money due the banks 
 on account of " reducing, retiring, etc. v bank notes, they assent- 
 ing thereto. The balance carried by the Government hereafter 
 on its own account need not exceed $50,000,000 — total, say 
 $330,000,000. The excess, say $250,000,000, could be applied 
 to the purchase of the 4 per cent, bonds, of which there are 
 $680,000,000 outstanding. The Secretary should, however, be 
 empowered to issue Treasury warrants or bills at such rate of 
 interest as may be agreed upon from time to time, to meet any
 
 322 APPENDIX. 
 
 sudden emergency, and be accountable to the House of Repre- 
 sentatives as to the necessity for such issue. 
 
 If the system proposed should be adopted in its entirety, it 
 would save the nation $10,000,000 per annum. The issue of 
 the converted notes, or " unified national debt," would be made 
 should any national bank notes fail to be redeemed according to 
 the terms of issue, if not retired by the Associated National 
 Bank. The issue of small notes, say ones, twos, and fives — 
 you may add tens — by the banks, redeemable in silver, would 
 take up the silver paid into the bank by the Government, and 
 while no profit would be made on that part of the issue by the 
 banks, the profit would be made on the larger notes, if not taxed, 
 as they should not be. The useless carting to and fro of the 
 national bank notes would be saved, and the present costly 
 method of handling these notes be obviated. By providing that 
 the banks, upon deposit of coin and bullion, could extend their 
 issues to any amount, the transfer of coin from point to point 
 could be saved, with a corresponding reduction of the rate of 
 exchange to the people, thus guaranteeing an ample supply of 
 currency. By providing a reserve power of issue in the Associ- 
 ated Bank, so that if money become dear it could issue, say 
 $40,000,000 of notes in time of need, or such sum as might be 
 needed, which should be withdrawn as soon as the need ceased, 
 we can guard against excessive stringency at any time, and, by 
 providing for their return, excessive expansion. With these 
 notes, and those issued by the national banks, we would have a 
 flexible and automatic currency, protecting us against extremes 
 of either need or excessive issues of paper money. The extrav- 
 agant use of the public monevs would be repressed, if not 
 avoided, and, as I have said before, an annual expenditure of 
 $10,000,000 be saved to the country. I have not treated the 
 silver phase of the proposed scheme because I believe one of two 
 things will happen, — either we will be upon a silver basis before 
 this change could be effected, or England will be compelled to 
 come into an international scheme for an extended use of silver. 
 So believing, I think this country can buy without injury
 
 APPENDIX. 323 
 
 $24,000,000 of silver per annum, and take its chances as to its 
 ultimate appreciation ; one thing is certain, that if we fall to a 
 silver basis, the Government can pay its obligations with the 
 bullion so purchased at an apparent profit to itself — how it may 
 result as to the nation is another and greater question.
 
 INDEX. 
 
 Absorption of money by Sub-Treasury, 
 212. See also contraction and cur- 
 rency. 
 
 Accounts of Sub-Treasury, how kept, 93, 
 in. 
 
 Accumulation of currency, 147. 
 
 Adams, H. C, quoted, 113. 
 
 Administration, English and American, 
 217. 
 
 Advantages of bank depositories, 254, 267. 
 
 Advantage of Independent Treasury, 2 17, 
 220, 221. 
 
 Aid to Government from banks, 103-107, 
 113, 115, 117, 145. 
 
 Amount of money needed, 121, 125, 133. 
 
 Andrews, E. B., quoted, 210. 
 
 Arguments against Sub-Treasury, 25, 34, 
 43. 46, 5°. 6o . 2 38. 
 
 Assistant Treasurers, S3, 84. 
 
 Associated National Bank, proposal of 
 C. N. Jordan for, 252. 
 
 Atkinson, Edward, quoted, 131, foot-note ; 
 •37- 
 
 Bank, scheme of a, proposed by L. D. 
 Treackle, 24 ; by Secretary Evving, 
 32 ; by President Tyler, 34 ; by 
 Horace Everett, 35. 
 
 Associated National, by C. N. Jor- 
 dan, 252. 
 
 Of England, 213, 224. 
 
 Of France, 227. 
 
 Of Germany, 229. 
 
 Of Russia, 231. 
 
 Of Ireland, 225. 
 
 Of Italy, 231. 
 
 Of United States. First, 2 ; constitu- 
 tionality of, 11: aid of, in public 
 debt, 115; Second, chartered, 4; 
 management, 5, 6, 12, 13, 14; con- 
 stitutionality, 11, 36; services of, 13, 
 115,220,234; fall of, 15. 
 
 Reserves, and Sub-Treasury, 130, 
 133, 134; importance of, 131, 137; 
 amount of, 132; variations in, 132, 
 
 ' 34 ' '37- 
 Bank notes, receipt of, by public officers 
 prohibited, 20. 
 
 Hank notes, effect of Sub-Treasury on, 63. 
 Of country banks, 147. 
 Amount, 164. 
 Bank war, 6, 10, 13, 14. 
 Bankers' Magazine, views on Sub-Treas- 
 
 .ury. 37. 97- 
 Banking in U. S., 220, 223. 
 Banks, effect of Sub-Treasury on, 45, 46, 
 59, 163,167, ch. vi. 212. 
 New York, in 1S57, 177. 
 Of issue, feeling against, 8. 
 State, growth of, 19; as fiscal agents, 
 2, 15, ch. ii. 17, 18, 22, 36, 257, 264. 
 Losses from use of, 31, So. 
 Loans from, to Government, 65. 
 And taxation, 235. 
 Favoritism towards depository, 235. 
 In 1853, condition of, 176. 
 In 1S57, 177. 
 In 1873, x83, 186. 
 In 1890, 194, 195. 
 
 Effect of Government action on, 199. 
 Effect of bond purchases on circula- 
 tion of notes of, 205. 
 National, 69; services of, 71, 74, 75, 
 78, 113 ff., 155; as depositories, 69, 
 7 1 . 77, 79. 8 °. 8 5> 8 7, "'. 232, 236, 
 257 ff. ; reserves of, 130-134 ; aid 
 of, to Treasury, 78, 145, 155; secu- 
 rity required from, 86; and resump- 
 tion, 116; and Sub-Treasury, 151, 
 168. 
 Barings, failure of, 191, 253. 
 Belmont, August, & Co., 115. 
 Biddle, Nicholas, 11. 
 Bland Silver Law, 91. 
 Bonds, purchase of, 53, 59, 64, 173, 17=;, 
 178, 180, 185, 189, 190, 192, 196, 19 1, 
 202, 203, 205. 
 Price of, forced up by Government 
 
 purchases, 158, 176, 180, 206. 
 Method of placing, 103, 107, 114, 131. 
 Required from depositories, 86, 236. 
 Boutwell, Secretary, and panic of 1S73, 
 
 182, iS,. 
 Buchanan, President, on Sub-Treasury, 
 
 63- 
 Business, influence of Sub-Treasury on, 
 ch. vi. 123 ff. 
 
 3 2 5
 
 326 
 
 INDEX. 
 
 Call-loans. See also discount and interest, 
 
 183, 187, 194, 195. 
 Capital, loanable, and Sub-Treasury, 124. 
 Certificates, clearing-house, 188, 192, 195, 
 200. 
 Of deposit, 70, 90, 122. 
 Chase, Secretary, and the banks, 59, 103, 
 
 105. 
 Circulation, bank, effect of bond pur- 
 chases on, 205. 
 Increase in monetary, from Govern- 
 ment disbursements, 190, 198. 
 Of silver, 91. 
 Civil War and Sub-Treasury, 100, 102, 
 
 231- 
 Clay, Henry, views on Sub-Treasury, 
 
 ,32. 
 Clearing house, 254, 257, 259, 265. 
 Certificates of, 188, 192, 195, 200. 
 New York, 73, 116. 
 Cobb, Secretary, 177. 
 Coin in Sub-Treasuries, 1853, 176; 1857, 
 
 .78. 
 Collectors of public money, 87. 
 Colton, Calvin, on Sub-Treasury, 97. 
 Commercial panic, 209. 
 Commercial currency, 156. 
 Compensation of depositaries, 84. 
 Conditions of success in Government re- 
 lief of crises, 201. 
 Constitutionality of national bank, n, 36. 
 Constitutional Treasury. See Indepen- 
 dent Treasury. 
 Contraction of currency, 101, 114, 117, 123, 
 138, 139, M5. '5°, l6 7> 177. 214, 
 227, 239, 241. 
 Of bank loans, 177. 
 Cooke, Jay, & Co., 115, 185, 188. 
 " Cornering" the Treasury, 206. 
 Counterfeit money, treatment of, 94. 
 Credit, growth of, 121, 130. 
 Influence of, 123. 
 And Sub-Treasury, 130. 
 And prices, 210. 
 Crises, kinds of, 208 ff . 
 
 And Sub-Treasury, 135, 143, 151, 152, 
 
 212, ch. vii. See also panics. 
 Bond purchases in, 202. 
 Crisis, phenomena of a, 211. See panics. 
 Criticisms on Sub-Treasury, 25, 31, 34, 37, 
 
 43,g6ff. 
 Currency, issue and redemption of, 90 ff. 
 Monthly statement of, 89, 160, 193. 
 System of, in U. S. and Sub-Treasury, 
 
 146, 154. 156. 
 Interior movement of, 196. 
 Contraction and expansion, 101, no, 
 114, 119, 137, 138, 140, 146, 150, 
 164, 208, 210, 227, 230, 239, 241, 
 245, 261. 
 Transfers of, see transfers. 
 Customs, receipts from, 148. 
 
 Danger of government interference, 200. 
 Debt, public, and the Sub-Treasury, 98, 
 158. 
 Redemption of, 199. See bonds. 
 Defects of Independent Treasury, 112. 
 Dependence of Government on banks, 105 
 
 ff.,238. 
 Depositaries, 84, 87. See also deposi- 
 tories. 
 Depositories, U. S., advantages of secur- 
 ing, 43, 76- 
 National banks as, 69, 76, 77, 79, 80, 
 85, 109, in, 232, 236, 257 ff. See 
 Banks, National. 
 Locations of, 83. 
 Deposits, removal of, 17. 
 
 Government, in banks, 135, 168, 266. 
 Difficulty of withdrawal of, 239. 
 In Sub-Treasuries, 90, 122. 
 Surplus, 261. 
 Provisions for, 259. 
 Diffusion of loans, 103, 107. 
 Disadvantages of Sub-Treasury, 238. 
 Disbursements, Government, 128, 137, 
 
 152, 154, 192. 
 Disbursing officers, 87, 89. 
 Discount, variable rate of, 227, 248, 262. 
 Rates of, 183, 187, 194, 195. See 
 also Interest. 
 Discounting in panics, 173. 
 Distrust in panics, 183, 188, 190, 194, 196, 
 
 209. 
 Drafts, payment of Government, 47, 51, 
 
 56, 60, 69. 
 Duties of Sub-Treasuries, 122. See" work 
 of." 
 
 Elasticity of currency, 123, 156, 191, 221, 
 
 248, 250, 261. 
 Employees in Sub-Treasuries, number of, 
 
 83- 
 England, Bank of, 191, 200. 
 
 Method of keeping public money in, 
 224 ff . 
 English Constitution, 218. 
 Everett, Edward, on "specie-clause," 44. 
 Everett, Horace, plan for bank, 35. 
 Evils of depository banks, 246, 249. 
 
 Of Independent Treasury, 53, 96, 112, 
 123, 126, 129, 136, 141, 159. 
 Ewing, Secretary, on Sub-Treasury, 31. 
 
 Plan for bank, 32. 
 Exchange, foreign, 196, 213. 
 Exchequer, plan of, proposed by Presi- 
 dent Tyler, 34- 
 Expansion of currency, 146, 208, 210, 227, 
 230, 239, 241, 250, 261. 
 By banks, 165, 177. 
 Expense of Independent Treasury, 83. 
 Export of gold, 196, 213. 
 Extra issues of bank notes, 261.
 
 INDEX. 
 
 327 
 
 Failure to relieve crisis, 178, 182, 186, 
 
 igo, 196, 199, 201. 
 Fairchild, C. S., Secretary, quoted, 141, 
 
 203. 
 Favoritism of executive towards bank 
 
 depositories, 235, 238. 
 Fiscal system needed in war, 118. 
 Folger, C. J., Secretary, quoted, 136, 
 
 foot-note. 
 Forced debt payment, 15S. 
 France, bank of, 227. 
 
 Method of keeping public money in, 
 
 227. 
 French indemnity, n. 
 
 Germany, Reichsbank of, 229. 
 Gibbons, J. S., on Sub-Treasury, 9S. 
 Gold, effect of California discovery of, 
 
 53, '74- 
 
 Exports of, 146, 196, 213. 
 
 Imports of, 178. 
 
 Board, of New York, 119. 
 
 Reserve, 78, in, 145, 155. 
 
 Sales of, 182. 
 
 Speculation in, 70, m, 119. See 
 speculation. 
 
 Standard, 155. 
 Gordon, Sen., proposes Sub-Treasury, 25. 
 Gouge, Wm. M., on Sub-Treasury, 27, 
 
 " 48, 54 ff- 
 Government interference, 199. 
 
 Loans, 64 ff. 
 Greenback reserve, 201. 
 " Greenbacks." See U. S. notes. 
 Grosvenor, \V. M., quoted, 141. 
 Guthrie, Secretary, on Sub-Treasury, 52, 
 59, 211. 
 
 Hamilton, Alex., 2. 
 
 Harter, M. D., cm national banks, 258. 
 
 Hoarding, 187, 189, 190, 197, 198, 203. 
 
 Implied powers. See constitutionality of 
 
 U. S. bank, 199, note. 
 Imports, gold, 1S57, 178. 
 Independent Treasury recommended, 23, 
 25. 
 
 Arguments against, 25, 33, 34, 43 ff. 
 
 Arguments for, 26. 
 
 Bill for, defeated, 26 ; established, 29; 
 Secretary Ewing on, 31 ; repealed, 
 31; President Polk on, 35; Bank- 
 ers' Magazine on, 37; re-estab- 
 lished, 38; provisions of law, 41 
 ff. ; difficulties of, 46 ; in Mexican 
 War, 47 ; defects in law, 50, 51, 60. 
 
 Gouge's report on, 54 ff. ; 
 
 Break-down of, 66, 68, 69, 70, 78, 
 104, 109; 
 
 Spirit of, violated, 65. 
 
 Organization of, 82 ; expense of, 83 ; 
 duties, 122. 
 
 Independent Treasury (continued): 
 
 Effect of, on specie circulation, 49, 
 50; on prices, 53, 112, 123, 126; on 
 credit, 124, 130; on rate of interest, 
 123, 212; on currency, 126, 154; on 
 bonds, 158; on business, ch. vi. ; 
 on silver, 91, 154, 157. 
 Public debt and, 98. 
 Banks and, 151, 163. 
 Surplus and, 58, 136, 141, 155. 
 Resumption and, 73. 
 Refunding and, 74, 112. 
 Politics and, 96. 
 
 Crises and, ch. vii. 178, 182, 1S8 ff., 
 192 ff., 196, 198. See Crises and 
 Panics. 
 In war, 100 ff., 11S, 119, 231. 
 Defects of, 96 ff., 112, 129, 152, 159, 
 
 222, 23S, 245. 
 Limitations of, 201, 202, 207 ff., 210, 
 
 212. 
 Advantages of, 217, 220. 
 Reasons for adoption of, 220, 221. 
 Substitutes for, chaps, viii. and ix. 
 Inductive method, 125. 
 Industrial crisis, 20S. 
 Inflation, no, 119, 140, 164, 166, 191, 213 
 
 248, 267. 
 Influence of Independent Treasury in 
 
 crises, 151, 178, 200, 212, 213. 
 Instruments of credit, 130. 
 Interest, rate of, and Sub-Treasury, 123. 
 And prices, 123. 
 On balances, 263. 
 
 Prepayment of, on public debt, 170. 
 Rate of, 212. 
 Interference, Government, 199. 
 Interior, movement of money to, 135, 137, 
 
 196. 
 Internal revenue, no. 
 Interpretation of law by executive offi- 
 cers, 240. 
 Ireland, bank of, 225. 
 Irregularity of action of Independent 
 
 Treasury, 129, 136, 141, 152. 
 Italy, Bank of, 231. 
 
 Jackson, Andrew, popular feeling to- 
 wards, 9. 
 Attack on U. S. bank, n. 
 Financial ability of, 9, 10. 
 Opinion of state banks, 16. 
 Jordan, Treasurer, C. N., views on Sub- 
 Treasury, 76, 79. 
 Plan of, for an Associated National 
 Bank, 252. 
 
 Knox, J. J., plan of, to secure elasticity 
 of currency, 251. 
 
 Laissez-faire, 199. 
 Latin races, 218.
 
 328 
 
 INDEX. 
 
 Laughlin, J. L., on Sub-Treasury, 98. 
 Laws, economic and social, 219. 
 Limitations on Government relief of 
 panics, 189, 190, 198, 199, 201, 202, 
 207 ff. 
 Loans, placing, under Independent Treas- 
 ury, 101, 102 ff. 
 Bank, in New York, 1857, 177. 
 Of banks to Government, 65. 
 Locations of Sub-Treasuries, 83, 84. 
 Loss of public money, how to be made 
 good, 260. 
 From forced debt payment, 203. 
 From depository banks, 31, 80. 
 Louisville, Ky., proposed Sub-Treasury 
 at, 76, 122. 
 
 Management of banks, 247, 248. 
 Market, money, affected by Sub-Treasury, 
 167. 
 Relief of, 175, 178, 183, 184, 185, 187, 
 ff., 192 ff., 195, 201. 
 McKinley tariff (see ch. vi.), 191. 
 Mexican War, 47, 101. 
 Mill, J. S., quoted, 211. 
 Money, volume of, 123, 133, 147. 
 And prices, 125 ff., 141, 210. 
 Market, 167, 175, 178, 183, 184, 185, 
 
 187 ff., 192 ff., 195, 201. 
 Power, 125. 
 Morality, laws of, 219. 
 
 National banking law, 236. 
 National banking system, 257. 
 National banks, established, 69. 
 
 As depositories, 69, 71, 77, 79, 85, 87, 
 in, 231 ff., 236, 238, 246, 251, 254, 
 261. 
 And resumption, 74. 
 Service, to Government, 74, 78, 80. 
 Security for Government deposits in, 
 
 84, 223, 238, 265. 
 Reserves, 30, 34, 139, 150, 263. 
 And Sub-Treasury, 151, 212. 
 Redemption of notes of, 250. 
 New York banks and the Treasury, 65, 74. 
 New York Sub-Treasury, 50, 77, 87, 88, 
 
 128, 137. 
 New York Warehouse and Security Co., 
 failure of, 1S5. 
 
 Objections to Sub-Treasury, 238. 
 Organization of Independent Treasury, 
 ch. iv., 82. 
 Of New York Sub-Treasury, 88. 
 Over-trading, 59, 211. 
 
 Panics, 1837, 19 ff., 164. 
 1854, 176. 
 
 1857, 61, 176, 209, 225, 244. 
 1873, 180, 1S5 ff., 201, 209. 
 1890, 91, 172, 190 ff., 198, 206. 
 
 Panics, commercial, 209; how checked in 
 England, 225; Fiance, 229, Ger- 
 many, 230. 
 Plans for relief in, 250 ff., 267. 
 
 Payeurs-general, Tresorerie, 228 
 
 Pensions payments, 152, 154, 159. 
 
 Plans to remedy evils of Sub- Treasury, 
 chaps, viii., ix. 
 
 Plans for relief in panics, 250 ff., 2(9. 
 
 Political influence of banks, 234. 
 
 Politics and Independent Treasury, 96. 
 
 Polk, President, views on Sub-Treasury, 
 
 .35- 
 
 Premium, purchase of bonds at a, 203. 
 Prices, influence of Sub-Treasury on, 123, 
 130. 
 
 And rate of interest, 123. 
 
 And money, 125 ff., 138, 141, 210. 
 
 And credit, 210. 
 
 In panic, 210, 212. 
 Progress, Anglo-American mode of, 218. 
 Promptness of payment by Government 
 
 depositories, 243, 266. 
 Public moneys, 82, 88. 
 
 Safety of, 223, 265. 
 
 Use of, by banks, 239, 241. 
 
 Receipts of Sub-Treasury, 88, 121, 128. 
 Redemption of currency, 90, 93 ff., 122, 
 250, 
 
 Fund, 263. 
 
 Of public debt, 199. See bonds. 
 Refunding of the national debt, 74. 
 
 Influence of Sub-Treasury on, 112 ff. 
 Reichsbank of Germany, 229. 
 Relativity of institutions, 217, 219. 
 Relief in crises, 163 ff , 175, 176, 178, 183, 
 
 184, 187 ff., 192 ff., 195, 201, 261. 
 Reports of depositories, 260. 
 Reserve, greenback, 201. 
 
 Gold, 78, in, 134, 145, 201. 
 Needed in country, 246. 
 Reserves, bank, 130, 137, 147-149, 183, 
 
 185, 186, 194, 195, 263. 
 Restraint of bank issues, 174. See 
 
 "speculation." 
 Of speculation, 212. See also banks 
 and speculation. 
 Resumption of specie payments, 73, 116. 
 Revolution, 218. 
 Richardson, Secretary, 185, 202. 
 Russia, 231. 
 
 Safety of public money, 223, 238, 265. 
 San Francisco, telegraphic transfers from, 
 
 to New York, 91. 
 Savings banks in 1873, 187. 
 Schemes to replace Sub-Treasury, chaps. 
 
 viii., ix. 
 Schurz, Carl, quoted, 22. 
 Secretary of the Treasury, power of, 202, 
 
 239, 241.
 
 INDEX. 
 
 329 
 
 Security for Government deposits in na- 
 tional banks, 86. 
 Sherman, Secretary, views on Sub-Treas- 
 ury, 77. 
 
 On national banks, 112. 
 Silver, and the New York banks, 77. 
 
 And Sub-Treasury, 154- 
 
 Currency, 90, 91, 154, 157, 171, 174- 
 
 Price of, 191. 
 Society in the U. S., 1830-1850. 7. 
 Sources of Sub-Treasury receipts, SS. 
 Specie, in banks, 176, 183, 186. 
 
 In Sub-Treasuries, 76, 181, 195. 
 
 Circular, 20. 
 
 Clause of Sub-Treasury law, 25, 37, 
 38,44, 62. 
 
 Circulation and Sub- Treasury, 49, 50. 
 
 53- 
 Payments, 165, 179. 
 Speculation, 61, 129, 163, 165, 167, 178, 
 182, 198, 199, 211, 212, 214. 
 In gold, in. 
 Stock-market, panic in, 183, 187, 195. 
 Stringencies, caused by Independent 
 Treasury, 181, 194, 210. See also 
 crises and panics. 
 Storage of public money, 92. 
 Sub-Treasuries, specie in, 1853, 176; 1857, 
 178. 
 Advantages of locating, 43, 76. 
 New York Sub-Treasury, 87 ff. 
 Work of, S5. 
 
 Success in relieving crises, conditions, 
 of 209 ff. 
 Sumner, W. G., quoted, 121. 
 Supervision of Independent Treasury, 82. 
 Surplus earnings of depositories, 261. 
 And circulating medium, 121, 173. 
 Deposits, 260,261. 
 Distribution of, in 1837, 21. 
 Revenue and Sub-Treasury, 58, 136, 
 141, i43. '55.. 158, 173. 174, 246. 
 Suspension of specie payments by banks, 
 19, 61, 66. 
 By the Government, 67, 70, 109. 
 Syndicates, use of, by Government, 113. 
 
 Tariff, 143, 152, 213. 
 
 Taussig, F. W., quoted, 78, 143, 155, 176. 
 Taxation and Independent Treasury, 98. 
 Telegraphic transfers of money, 91. 
 
 " Three-sixty-five bond plan," 250. 
 " Timing " government payments, 170. 
 Transfer of public money, 52, 56, 60, 69, 
 82, 89, 91, 199, 261, 266. 
 Of private money, 91, 122, 171. 
 Treackle, Littleton D., proposal for bank, 
 
 24- 
 
 Treasury department, 206, 218. 
 
 Dependence of , on depository banks, 
 239. See Independent Treasury. 
 Tresorerie -pay eurs -general, 228. 
 Tyler, Pres., views on Sub-Treasury, 30. 
 
 Action concerning, 32. 
 
 Exchequer plan of, 34. 
 
 United States notes, 59, 104, 109, 122, 146. 
 Usury laws, 169, 262, 267. 
 
 Van Buren, President, 22. 
 
 Views on Sub-Treasury, 23. 
 Service of, 29. 
 Variations in Government cash, 160. 
 Vaults of Sub-Treasuries. See Sub- 
 Treasury law and Gouge's descrip- 
 tion, 92. 
 Volume of money, 123. 
 
 Walker, General F. A., quoted, 223. 
 Walker, J. H., criticism of Sub-Treasurv, 
 
 98. 
 Walker, Secretary, on Sub-Treasury, 35, 
 
 44, 48. 
 War, use of banks during, 115, 117. 
 Independent Treasury in, 118. 
 Civil, 231. 
 Mexican, 47, 101. 
 Webster, Daniel, on Sub-Treasury, 26, 50. 
 Windom, Secretary, objections of, to 
 national bank depositories, 79, 87, 
 99, 238 ff. 
 Bond purchases of, 204. 
 In crisis of 1890, 192. 
 Withdrawal of deposits, difficulty of, 239, 
 
 243 ff. 
 Woodbury, Levi, Secretary, 23. 
 Work of Sub-Treasuries, present, 85. 
 Wright, Silas, proposes Sub-Treasury, 25, 
 28. 
 
 Young, Andrew D., opinion of Sub- 
 Treasury, 38, 96.
 
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