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61ST CONGRESS {

2d Session

j

SENATE

f DOCUMENT

I

N o . 587

NATIONAL MONETARY COMMISSION

The Independent Treasury of the
United States and Its Relations
to the Banks of the Country

BY

DAVID K I N L E Y , P H . D . , LL. D .
University of Illinois

Washington : Government Printing Office : 1910




NATIONAL MONETARY COMMISSION.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B . VREELAND, New York, Vice-Chairman.
J U L I U S C. BURROWS, Michigan.

JOHN W. W E E K S , Massachusetts.

E U G E N E H A L E , Maine.

ROBERT W. BONYNGE, Colorado.

PHILANDER C. K N O X , Pennsylvania.

SYLVESTER C. SMITH, California.

THEODORE E. BURTON, Ohio.

LEMUEL P. PADGETT, Tennessee.

H E N R Y M. T E L L E R , Colorado.

GEORGE F\ BURGESS, Texas.

HERNANDO D. MONEY, Mississippi.

ARSENE P . P U J O , Louisiana.

JOSEPH W. BAILEY, Texas.

ARTHUR B. SHELTON, Secretary.




A. PIATT ANDREW, Special Assistant to Commission.

NOTE.
This monograph is a revision and continuation of the
work of the present writer, published by Crowell & Co.,
New York, in 1893, under the title "The Independent
Treasury of the United States/' The main purpose of
the essay, when first written, was not so much to trace
the history of the United States Treasury in great detail
as to state its influence as a receiver and disburser of
money upon the money market and business interests of
the country. That purpose has been held in view in the
revision, although a few details have been added to the
historical part.
For kindly help in furnishing materials necessary for
bringing the discussion down to date I am indebted to the
First Assistant Secretary of the Treasury, the Treasurer
of the United States, and the assistant treasurers in New
York and Chicago.




DAVID KINLEY.

3




CONTENTS.
Page.

CHAPTER I. The banks and the Treasury to 1833
Procedure previous to the establishment of the
Second United States Bank
The Second United States Bank
II. The state banks as depositaries
The removal of the public deposits and the specie
circular
Proposal of the independent treasury by Van
Buren
Repeal of the subtreasury law
Final establishment of independent treasury
I I I . Development of the independent treasury
The provisions of the law
The independent treasury during the Mexican war.
Defects shown in early years of operation
Early influence on the money market and renewal
of connection with banks
IV. The organization and work of the independent treasury.
Provisions for keeping the public money
Banking functions of the independent treasury . . .
V. The reaction toward closer relations with the banks . . .
The period of fiat paper money
A decade of vacillating policy after resumption . . .
The abandonment of the policy of independence . .
Security for deposits of public money
Operations of the independent treasury under the
policy of reaction
VI. The influence of the ordinary operation of the independent treasury system on business
The different periods of subtreasury action
The reaction of the subtreasury system on the
banks
General conclusions concerning the influence of
the independent treasury system
Factors which have modified the influence of the
independent treasury
VII. Treasury relief in crises, through 1857
Methods of relief
.
*
Operation in 1853 and 1857




5

7
7
16
26
26
33
41
46
53
53
60
64
69
84
84
96
in
in
117
125
132
137
147
147
152
187
197
208
208
218

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Monetary

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CHAPTER V I I I . Treasury relief in crises, 1873-1890
The panic of 1873
The crisis of 1884
The stringency of 1890
I X . Treasury relief in t h e crisis of 1893, and the breakdown of treasury independence
The panic of 1893
Bond sales, 1894-1898
X. Treasury relief in the panic of 1907
X I . Conclusions as to treasury relief in crises
General conclusions
Relief by bond purchases
Relief by deposits in banks
Limitations of subtreasury relief in crises
X I I . The independent treasury as a fiscal agent
In the Mexican war
In the civil war
In refunding operations
The loans of 1893-1896
The Spanish war loan
Conclusions
X I I I . Proposals for replacement of the subtreasury system
Conditions to be met
Classification of proposals
XIV. Summary

225
225
236
236
245
245
250
255
268
268
272
278
281
291
291
294
304
311
313
315
317
317
322
323

APPENDICES.
1. References
2. Subtreasury law with amendments
3. Treasury Department circular on the issue and redemption of currency
4. Treasury Department circular on public moneys and official
checks of disbursing officers
5. Treasury Department circular on assembling of disbursing officers'
checks, etc




6

331
334
357
359
364

THE INDEPENDENT TREASURY OF
THE UNITED STATES AND ITS RELATIONS TO THE BANKS OF THE
COUNTRY.
CHAPTER I . — T H E BANKS AND THE TREASURY TO

1833.

PROCEDURE PREVIOUS TO THE ESTABLISHMENT OF THE
SECOND UNITED STATES BANK.

The policy of the Federal Government with reference
to keeping public money and dealing with banks has not
been consistent. It shows alternate attempts at the use
of banks and independent management. Roughly speaking, our practice in this matter, since the adoption of the
Constitution, may be divided into six periods. During
the first two years—that is, until the establishment of
the First United States Bank—the officers of the Government followed the practice pursued under the confederation, of utilizing the banks and also leaving public money
in the hands of collectors until it was needed. From 1791
to 1811 the First United States Bank and its branches
were the principal depositaries.** The third period, from
1811 to 1817, was the first era of the use of state banks as
the term is commonly understood. From 1817 to 1833
the Second United States Bank was the principal agency
of the Treasury. From 1833 to l 8 46 was the second era
a This word is spelled both depositories and depositaries. The latter is
preferable, and is used in this monograph, except in quotations. Of late
years the reports of the Treasury Department use it almost uniformly.




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Monetary

Commission

of the state banks as government depositaries and agents.
There was, indeed, a year within this period, from June,
1840, to August, 1841, the period of the first establishment of the independent treasury, during which the Government was supposed to keep its own money. From
1846 to the present time the so-called independent treasury, or the subtreasury system, has been in operation.
Under the terms of the law establishing the independent
treasury the Government was expected to keep its own
money and to have no connection with the banking institutions of the country. But the sixty years during which
the law has been in operation show the same attitude of
inconsistency as to the use of banks found in the preceding sixty years. That is to say, there are times within
this period when the treasury officers, interpreting the
law strictly, have kept away from the supposed evil influence of the banks; while there are other times in which
the opposite spirit has been shown, and the use of banks
has been resorted to so far as the law would allow, if not,
indeed, beyond what, in the opinion of many, was legally
proper.
For example, from the time of its establishment down
to the civil war the law was pretty strictly interpreted.
The fiscal necessities of the Government in the civil war
forced a closer connection between the banks and the
Treasury, and the law establishing our present national
banking system recognized the necessity of this by making
these banks government depositaries of internal revenue.
Since the civil war the pressure of business interests and
the differing policies of successive Secretaries of the Treasury have given us varying periods of large and small use




8

Independent

Treasury of the United States

of the banks by the Treasury, until of late our policy has
seemed to be to have a Treasury as little independent of
the banks as possible under the law.
The first attempts at independent holding and management of the public money were due to circumstances not
connected with either public or official hostility to banks.
This feeling came later. During the confederation, and
for a short time afterwards, circumstances did not make
a large use of banks by the Government necessary. The
attention of the people had been occupied with other matters. The West was very young, commercial development was not great, and it is was customary for other governments to handle their fiscal affairs through the banks.
Our officers, therefore, had followed the traditional methods, and no public opinion had been formulated to influence them on the matter.
But the feeling against banks, the popular distrust of the
4
' money power," showed itself early in our history, and
has continued with varying intensity until the present
time. There is in this country a widespread feeling of
dislike of banks of issue. Many people think that the
privilege of issue is a government function and yields such
large returns that private individuals and corporations
should not be permitted to enjoy it. Our agricultural
classes, especially, seem to think that our national banks
deprive the people at large of something that rightly
belongs to them. At various times farmers' alliances and
other agricultural associations have adopted resolutions
in favor of the abolition of national banks, or of depriving
them of the privilege of note issue. This feeling of prejudice is part and parcel of the general antipathy to r x n o p -




9

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Commission

oly and the fear that the interests of the people will be
subjected to the control of wealth.
Previous to the adoption of the Constitution no place
was provided by law for the keeping of public money. It
was left in charge of a committee of Congress, and they
used the Bank of North America at Philadelphia as a
depositary and fiscal agent, sometimes left the money with
the collectors and sometimes made use of the loan offices.
The Treasury was established by act of Congress September 2, 1789. This act gave it a legal but not a physical
existence. The law made it the duty of the Treasurer to
receive, keep, and disburse the money of the United
States. As a matter of fact, the collectors of customs,
commissioners of revenue, and selected banks became the
custodians of the government money. The collectors kept
the money until they could deposit it in some bank designated by the Treasurer, or until it was drawn on or called
for by the Treasury Department. At this time the banks
used as depositaries were the Bank of North America,
which had been in use from the time of the Confederation,
and the banks of Massachusetts, New York, and Maryland.
This practice was continued for the next two years, until,
under the influence of Alexander Hamilton, a charter was
granted to the First United States Bank.
It was in the third session of the First Congress that
events began so to shape themselves as to point to a national
bank as a part of our governmental machinery. In this
session provision was made for the payment of the debts
of the States which had been assumed by the General
Government. The hostility of the antifederalists toward
the adoption of the Constitution was turned largely against




10

Independent

Treasury of the United States

the assumption of these debts and, later, against the
measures of the Government to provide for their payment.
In his report on a national bank, Hamilton emphasized
the utility of such an institution. He expressed the opinion that " a national bank is an institution of primary
importance to prosperous administration of the finances,
and would be of the greatest utility in the operations connected with the support of the public credit/' Provisions
for the establishment of the bank were finally approved
substantially as proposed by Hamilton, and a charter was
granted in 1791 to run for twenty years. Although the
law did not so specify, Hamilton apparently thought its
intent was that the bank should be used as a depositary
of public money and as a fiscal agent of the Government. °
Indeed, there was no legislation giving directions to the
Treasurer concerning the keeping of public money before
the time of the charter of the Second Bank of the United
States. Undoubtedly it was one of his purposes, in seeking the establishment of the bank, to promote his own
plans for strengthening the credit of the Federal Government. Moreover, as we know, Hamilton's ideas were
colored largely by European experience and a central
bank was in his mind a normal part of the fiscal machinery.
Accordingly, Hamilton used the United States Bank
and its branches from the start. The branches were at
Boston, New York, Washington, Newport, Charleston,
Savannah, and New Orleans. He was not able to break
away from the use of the state banks at once, and con«See his letter to an officer of the Bank of New York.
Works [Ed. by Hamilton, J. C], V: 486.




11

Hamilton's

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Monetary Commission

tinued to use them until 1794, gradually reducing the
number. In 1794 only one state bank was in use. a
The United States Bank and its branches were utilized
until the expiration of its charter in 1811. Hamilton was
successful in eliminating the state banks as the principal
custodians of the public money, and the people of the
country seem to have acquiesced. This may mean that
the people shared his views as to the desirability of utilizing
the United States Bank; more likely, however, it means
simply that there was no public interest in the matter.
At any rate, there was no public agitation of the subject.
1
'This method of keeping the public money evidently
worked satisfactorily, since for a number of years no
Member of Congress seems to have thought it necessary
to inquire by resolution in regard to the safe-keeping of
the public funds. In 1801 a committee of the House,
appointed to examine the state of the Treasury, dismissed
the whole subject of keeping the money in a single sentence, by saying: 'All moneys received by the Treasurer
are deposited by him in the Bank of the United States and
other banks/ I t is evident from this that the system
gave general satisfaction." 6
Gradually, however, the use of the state banks again
increased, very likely because the branches of the Bank
of the United States were not sufficiently numerous or not
located in all places where government collections and
disbursements were necessary. Possibly the cause may
have been the political character of the state banks; for
a American State Papers, Finance, I: 283.
& Phillips, J. B.: Methods of Keeping the Public Money of the United
States, Publ. Mich. Pol. Sci. Assoc, IV: 3: 6.




12

Independent

Treasury of the United States

we know that attempts were made to establish banks,
not for legitimate banking, but for political influence.
Bven as late as 1859, the bank commissioners of Maine,
in their annual report, say that the history of banking
legislation in that State shows that charters were not
always, if generally, granted on evidence of public need
or the legitimate business wants of the place in which
they were to be located.0 Whatever the cause, the use
of state banks gradually extended. In 1806 Gallatin
reported that, besides the Bank of the United States and
its branches, five state banks were used as depositaries.6
In 1811 twenty-two such banks were used and, in 1816,
ninety-four.c In 1809 Congress passed a law requiring
disbursing officers of the Government to keep the public
money in their charge in banks selected by the President.
There was no loss of public money through the use of
state banks as depositaries during this period, but some
embarrassment was caused by the use of state-bank notes.
As is well known, these were not accepted at par in places
remote from the bank of issue; and, indeed, were not
accepted without discount among the banks themselves.
The experience of the public at large in this respect seems
not to have shown them the difficulties of an alliance with
the banks, even though the latter discharged their services
as mere depositaries without defalcation.
While things were running smoothly, during the period
of active operation of the United States Bank, people
0 See Report of t h e Bank Commissioners of the State of Maine, 1859.
Also Sumner, W. G.. Andrew Jackson, 228; and Gallatin's Writings
[Ed. by Henry Adams], 1:129.
t American State Papers Finance, I I . 216.
<• Ibid., 11:517 and 131.




13

National

Monetary Commission

forgot, as they usually do, the real causes of the smooth
working of the fiscal machinery. The notion that the
Government can do things as well as private corporations,
especially in banking matters, and the belief that many
things should be done through direct Government agency,
gradually created a prejudice against the use of the bank
and its branches by the Government.
The question of rechartering the bank came up in Congress in 1810, and was supported by Secretary Gallatin.
His reasons for supporting the proposal were that the
bank had kept the public money safely, transferred it to
the various centers of disbursement, and had been a successful fiscal agent of the Government in placing loans
and in collecting the revenues. On account of the lateness of the session, no action was taken and application
for a renewal of the charter was made again in the following year. But the state banks had become relatively
numerous and powerful. The policy of giving bank charters to representatives of the dominant party in order to
tie them to the administration, so eloquently urged by
Jefferson, was too successful. They became masters of
the situation, so that tinder pressure from them a renewal
of the charter was refused, in spite of the fact that the
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 smaller banks.'' a Undoubtedly it was this restraining influence that produced
hostility sufficient to prevent the passage of the law.
The First United States Bank, therefore, rapidly wound
up its affairs and the Government was confronted with
a Sumner, W. G.: History of American Currency, 63.




Independent

Treasury of the United States

the necessity of finding other agents to do its fiscal business. For, as we have remarked, the United States Treasury, by the law creating it, had a legal, but no physical
existence. Consequently it became necessary again to
use state, or local, banks. This necessity came upon the
Government at a time when smoothness in financial administration was to be of greater importance than at any
previous time since the adoption of the Constitution.
For the country was on the verge of war. The experience of the next four years taught the opponents of the
United States Bank that, whatever demerits characterized the old system, the state banks with their political
pull and selfish interests were by no means able to render
the public service required.
From 1811 to 1817, then, the Government perforce used
state banks as its depositaries and fiscal agents. There
was a boom in the establishment of state banks immediately after the United States Bank wound up its affairs.
No security was required by the Government for its
deposits, but the banks submitted weekly and monthly
statements of accounts to the Secretary of the Treasury.
Under the agreement entered into between the banks and
the Treasurer, the banks were required to receive to the
credit of the Government such payments as individuals
offered them for the Treasury. Drafts on the banks
which did not have sufficient funds to make the necessary
payments were met by a supply of bills on the principal
cities. Banks were required to pay treasury, war, and
navy warrants, or drafts by the United States Treasurer,
and to make their payments in specie if so demanded by




15

National

Monetary

Commission

the holder.0 The difficulties of administration, however,
especially in transferring money, were very great. It
sometimes took months for banks to get the money
required by a draft from one city to another. Consequently it was necessary for the Government to give
notice of its drafts for considerable periods in advance of
making them.
As already remarked, a "bank boom" followed the
dissolution of the United States Bank, which led to a
large increase in the number of state banks. 6 From 1811
to 1814, 120 banks were established. These banks were
established in places where they weremot needed and every
effort was made to circulate their notes at a sufficient
distance from home to prevent their early return. The
usual results followed. Specie disappeared from circulation, and suspensions became numerous, especially in the
West and South. In the fall of 1814 all the banks south
of New England suspended payments. Nearly 100 of
these had been fiduciaries of the Government and carried
down with them about $9,000,000 of government funds.
In order to meet its expenses, the Treasury contracted
loans which were placed at between 80 and 90 and paid
for in bank notes depreciated from 10 to 20 per cent. The
confidence of the people in this method of keeping of its
money received a rude shock.
THE SECOND UNITED STATES BANK.
The lesson of the four years of the war period was heeded
and when application was made for a charter for a second
a American State Papers, Finance, II: 520.
& Crawford in American State Papers, Finance, III: 494.




16

Independent

Treasury of the United States

United States bank, the request met with but little opposition. Even Henry Clay, who in 1811 had opposed the
bank, now supported the measure as necessary under
existing conditions. Accordingly, on April 10, 1816, the
bank act was passed.
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
Government a bonus of $1,500,000; it was to be the
depositary of public moneys, and was required to disburse
them, free of charge, in any part of the country. Five
of the 25 directors were to be appointed by the President.
The charter was, as before, for twenty years.
The bank was to begin business January 1,1817. The
conditions under which it started, however, were unfavorable. Specie payments were suspended, the country had just
gone through a great commercial crisis, the state banks
were hostile because they were to be deprived of the use
of United States deposits, and the field of operation of
the bank was as yet untried.
At the time of the opening of the Second United States
Bank 89 state banks were used as depositaries, and the
Treasurer had many bank notes on special deposit which
were uncurrent and irredeemable.
The Secretary of the Treasury did not transfer the public deposits immediately from the state banks to the new
bank of the United States. Indeed, Secretary Crawford
had definitely promised not to withdraw any part of the
public money before July 1, 1817, provided the banks
would resume specie payments by the last week of the
419690—10




2

17

National

Monetary Commission

preceding February. Although the proposition was not
accepted by the banks, the Secretary was not able to
withdraw the deposits. Later, the banks agreed to resume
payments toward the end of February on condition that
the government deposits would not be transferred before
July, and on condition also that the United States Bank
would not draw on its balances in the state banks until it
had discounts aggregating something like six millions
in the principal cities of the country. 0 The favorable
condition of foreign trade in the winter of 1816-17 helped
the banks in their efforts to bring about resumption.
Instead of establishing independent offices of discount
and deposit in different parts of the country, although
under the charter they were authorized to do so if they
saw fit, the officers of the bank, in conjunction with the
Secretary of the Treasury, arranged a plan to conduct the
treasury business through the bank, its branches, and
state banks selected by the United States Bank for the
purpose and approved by the Secretary. After the
arrangements were perfected, the direct relationship of
the Treasury with the state banks holding public deposits
ceased, and the relationship continued only through the
United States Bank.
Under the new arrangements, receipts for public money
must show the source of the money, and weekly statements of each depositary bank must be made which
would correspond strictly with these receipts. All receipts must give the amounts, which must be entered
by the banks to the credit of the United States Bank for
the use of the Treasurer, and all treasury drafts were to be




a

American State Papers, Finance, III: 231.
18

Independent

Treasury of the United States

drawn on the United States Bank. The treasury drafts,
however, had to show the office of discount or deposit,
or the state bank at which they were to be paid. Monthly
reports were required from all depositaries.
It was obvious from this arrangement that, although
the law establishing the United States Bank aimed to
separate the Treasury from the state banks, it did not
succeed. Treasury operations made depositaries necessary
in all parts of the country, and as it was impossible to
establish independent offices, state banks had to be used.
During the first two years of its existence, the management of the bank was far from satisfactory. It aggravated
the troubles of the financial situation instead of relieving them. Specie payments were nominally resumed in
1817, but the insidious canker of inflation had eaten its
way into the arteries of business, and in the crisis of 1819
came another suspension, that lasted for two years. " I n
the first two years of its existence the great bank was
carried to the verge of bankruptcy by as bad banking as
was ever known. 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 currency out of the distress produced
by the war, it plunged the country into the commercial
crisis of 1819, which caused a general liquidation, lasting
four or five years. * * * It is almost incredible that
the legislation of any civilized country could have opened
the chance for such abuses of credit, banking, and cur-




19

National

Monetary

Commission

rency as then existed." 0 On April i, 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 following statement of its
condition:
Specie
Notes
Due other banks
Due Government
Due Barings

$26, 745. 28
6, 000, 000. 00
79, 125. 99
500, 000.00
900, 000. 00

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, and $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 measures 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." 6
After the recovery a period of several years of prosperity followed, and the management of the bank was
thoroughly reorganized and sound. From this time on
until the great "bank war" its affairs seem to have been
conducted with a view to performing its duty to the
Government as well as to its individual stockholders,
and it rendered such aid to the public, directly and ino Sumner, W. G.; Andrew Jackson, American Statesmen Series, 233.
& Sumner, W. G.: History of American Currency, 78.




20

Independent

Treasury of the United States

directly, as entitled it to respect and fair treatment on
the part of the servants of the people.
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:0 But it will be
well for our present purpose, to recall its main features,
because it was really the first step in the immediate
sequence of events that led to the establishment of the
independent treasury.
As already said, the ten years following the revulsion
of 1819-1825 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.
Matters between the Treasury and the banks seem to
have gone very smoothly. State banks in larger or smaller
number were used throughout the period, as many as 15
being employed between 1830 and 1833. There had
been some loss,5 indeed, during the period of action of
the United States Bank, but not through the transactions of that institution. The question of the continuance of the bank was not under discussion. In fact,
scarcely any mention of the subject was made until President Jackson referred to it in his message of December,
1829. In this message he reopened the question of the
o For a general survey of the whole matter see von Hoist, H.: Constitutional History of the United States, II; Schurz, Carl: Henry Clay
(American Statesmen Series); Sumner, W. G.: Andrew Jackson (Ibid);
Benton, Thos. H.: Thirty Years' View; Bolles, A. S.: Financial History
of the United States; Young, A. W.: American Statesman; Story, J..
Commentaries on the Constitution, III: xxv; Lalor, J. J.: Cyclopedia of
Political Science, bibliography and article on Bank Controversy.
& Executive Documents, No. 10, 26th Cong., 1st sess.




21

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Commission

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.
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. Although his effort to prove
mismanagement was a failure, yet certain occurrences
lent color to his charges. The principal of these were the
disagreement that arose between Secretary Ingham of
the Treasury and Mr. Biddle, president of the bank, concerning the management of the branch bank at Portsmouth, N. H.; the delay of three months in paying
$5,000,000 of 3 per cent government stock which fell due
in July, 1832; the refusal to pay drafts on the branch
banks except at the branches themselves; and the alleged
interference of the bank in the presidential campaign of
1832.

Moreover, there were many points of bad management,
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 committee 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 erorrs, but they were not




22

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Treasury of the United States

beyond remedy, and that they formed a reasonable
ground for such hostility as was displayed is untrue.
Speaking merely from the point of view of sound bank
management, in the list of charges made since Jackson
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.'' a
And it may fairly be questioned, even though we deny
the legitimacy of the point, whether the President's hostility was not a powerful force in driving the institution
into the 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-defense, were ever devoted to
the uses of political partisanship. It is hardly correct
to say that the bank made a panic in 1834, f° r 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, however, the bank
forgot that it was more than a private institution; that
one of the purposes of its existence was the service of the
Government, and that in its capacity of fiscal agent it
owed the country a duty and a service with which its
private interests should not have been allowed to interfere. Yet even here, while it can not 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.
o Sumner, W. G.: Andrew Jackson (American Statesmen Series), 267.




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Through 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
Government; it collected its 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 preventive of its occurrence. It may justly be charged
with sins of 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 peopled
money ceased before it leaped over the precipice of ruin
on which it for a long time stood, and over which it
finally plunged. In its management there were forces at
work that, if it had been let alone, would probably have
finally brought its ruin. But they could have been checked
if the Government had been friendly instead 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 arrangements for 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




24

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Treasury of the United States

the new corporation 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 an institution that could
do such things had sunk far below the plane of strict
business honor. In fact, the affairs of the bank were at
this time very dishonestly managed. No means now
seemed too corrupt for it to use in the accomplishment of
its purposes, 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 1837. 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 $1,000,000 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 President
Jackson in 1833 w a s the voluntary use of a system which
would necessarily have come into operation at the expiration of the bank charter. For a few years, as we have
seen, the system was used without legislative sanction,
and its compulsory employment, caused by the downfall
of the United States Bank, was the next step toward the
policy of an independent treasury. To trace the history
of this step and its influence in the evolution of the subtreasury will be our effort in the next chapter.




25

CHAPTER I I . — T H E STATE BANKS AS DEPOSITARIES.
THE REMOVAL OF THE PUBUC DEPOSITS AND THE SPECIE
CIRCULAR.

There appeared to be no reason for thinking that the
local banks would be more faithful to their trust if 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" that he regarded
the plan of using the banks as depositaries as a temporary
expedient, and looked to the ultimate separation of the
Government from all banks. But if the President
contemplated this separation, he must have seen that
its accomplishment was impossible.
In September, 1833, Mr. Roger B. Taney, who had been
appointed Secretary of the Treasury to carry out the
President's policy with reference to the bank, ordered
the collectors of revenue to cease depositing in the bank
of the United States and to employ designated state banks
for that purpose.6 Secretary Taney's alleged reasons for
this action were, briefly, that public opinion was against
the bank; that it would be better to withdraw the deposits
gradually than to do it suddenly when the bank charter
expired; that the bank had brought about a bad condition
of the market and oppressed the state banks by taking
away their specie. Strictly speaking, the government




«Cf. Thirty Years' View, I: 553.
&Ex. Docs. 23d Cong., 1st sess., No. 2: 33.
26

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deposits were not " removed" from the United States
Bank. 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 depositaries began again
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 t h e government money whenever the deposits
should exceed one-half the bank capital paid in. In
addition, the Government reserved the right to demand
security whenever it was though advisable, even if the
deposits did not exceed the sum mentioned. The banks
further agreed to perform for the Government all the
services formerly rendered by the bank of the United
States, to render weekly reports, and to submit to examinations when the Secretary thought necessary.
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 Government was to make regulations which should secure
the safety of its deposits and to provide a circulation of




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Commission

state bank notes to replace the $35,000,000 a soon to be
withdrawn by the national bank.
In his report, submitted 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 indicate 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.
The use of the state banks selected by Secretary Taney
continued, therefore, until the middle of 1836, when
Congress passed an act embodying the recommendations
made by Mr. Taney two or three years before, authorizing the Secretary of the Treasury to select state banks
as depositaries. He was required to find one in each
State and Territory. Certain stipulations were made as
to the conditions of receipt and disbursement of the
public money and concerning the redemption of the
banks' own currency, together with proper requirements
as to regular statements of the condition of the banks. 6
The banks which could not pay specie were to be dropped
from the list of depositaries. The bill finally passed was
identical with that which had been defeated in the Senate
two years before.
In consequence of this act the number of depositaries
increased steadily. Political influence in currency mat-




« Young, A. W.: American Statesman, 666.
& U. S. Revised Statutes, V: 52
28

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States

ters was at that time so powerful that the Secretary was
not able to adhere strictly to the provisions of the law.
More money was left on deposit in some banks than the
law permitted, there was delay in honoring drafts, the
provision forbidding the use of banks which had in circulation notes below $5 was not strictly enforced, and
in other matters the law was departed from.
A circular letter of the Treasury Department to the
deposit banks, September 26, 1833, said: "The deposits
of public money will enable you to afford increased
facilities to commerce and to extend your accommodations to individuals." It also recommended " merchants
engaged in foreign trade" as the most deserving recipients of extended credit. 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, in the minds of the supporters of
the administration, such use of them by the national
bank had constituted one of the chief grievances against
it. 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 t o $!27>397>i85, and discounts and loans
from $200,451,214 to $525,115,702.° There was a large
surplus in the Treasury, and the deposits in the banks
were therefore excessive. They were tacitly assured that
the Government would not draw on its balances, and
a Sumner, W. G.: History of American Currency, 123. Bolles, A. S.:
Financial History of the United States, II: 346.




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Commission

these were therefore left for their use in speculation.
Previous to the issue of the specie circular in 1836 bank
notes were received by the land office, and being deposited in the banks became again the basis of discounts to
land speculators.
Signs of a coming storm had been gathering for a considerable time. Imports had swollen 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 only time in the history of
the country in excess of the customs receipts. *The large
importations were in this case an 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 inflation. It was by means of these increased
sales that the Government was enabled to get rid of its
debt and found itself the possessor of the surplus of
millions that were distributed, or " deposited,'' among the
States in 1837.
But, as usual, these signs of a coming storm were unheeded 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, it burst,
scattering ruin in all directions. Nearly all the banks
failed.
The catastrophe was probably hastened by several
acts of the Executive, which received severe condemnation
at the time, but must in our better light meet with ap-




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States

proval and commendation in spite of their immediate
effects. By order of the Secretary of the Treasury the
receipt, after September 30, 1835, of bank notes of a denomination less than $5 had been prohibited. In the following year their payment to public officers or creditors
was prohibited, and no notes less than $10 were to be
received or paid by the Government after July 4, 1836.
Moreover, the deposit banks were ordered to make onefifth of every payment which did not exceed $500 in gold,
if so desired by the creditor. They were also requested
to cease issuing notes below the denomination of $5 by
July 4, 1836, and below $10 by March 3, 1837. The purpose of these regulations was " t o 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 denominations chosen there is no more efficacious
method of replacing specie with paper, or vice v^-sa, than
the prohibition of such coins or notes of the assigned
4enominations as are in common use.
These orders of the Treasury Department were supplemented with-the famous "specie circular" issued July 11,
1836, which raised public excitement to a higher pitch
probably than any 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 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




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Commission

measure was that $10,000,000 of paper on its way to the
land office was arrested by this circular." Between August 16 and December 15 exceptions were to be made in
cases of purchases not greater than 320 acres. After the
15th of December the operation of the order was unconditional.
This famous "circular" pricked the bubble of inflation.
It is unfair to say that the responsibility for the panic that
followed must be laid at the door of these orders. The
panic was the result of the tremendous 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 speculative monopoly and of making the
losses of the Government 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."°
Another measure that had a large influence in precipitating the crisis was the law for the deposit of the surplus
revenue among the States. b Speaking of this, Schurz says :c
"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
a Jackson's Message, 24th Cong., 2d sess.
6 Bourne, E. G.: The Distribution of the Surplus Revenue in 1837.
c Henry Clay, II:i2i.




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the country, without much regard to the requirements of
legitimate business. The regulations imposed upon the
deposit banks by the new law, especially the provision
that the public deposits in no one bank should exceed
three-fourths of its paid-up capital, led in some cases to
an equally arbitrary 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
larger scale. On January 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 business or speculation. Withdrawing it from the banks meant, therefore, withdrawing it from the business men or speculators
who had borrowed it. The funds so withdrawn were
made for some time unavailable/'
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 lawfully 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
action by Congress was therefore needed.
PROPOSAL OF THE INDEPENDENT TREASURY BY VAN BUREN.

President Van Buren summoned an extra session for
September 4, 1837. In his message the President recalled
the history of the various methods of keeping the public
41969 0 —10




3

33

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Commission

money, and remarked that, although advocates of the use
of national and state banks were still to be found, " i t 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 operations of the Government from those of individuals or corporations.'' Van Buren himself argued against the reestablishment 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 overissue and depreciation, an assertion
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 Government's business to regulate domestic exchange, 0 and
therefore advocated the entire separation of the Government from the banks, proposing that it collect, keep, and
disburse 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 transfer were constantly being lessened. This was a recommendation of the independent or constitutional treasury,
as it was called by its friends, or the subtreasury, as its
opponents named it. The system was, in fact, virtually in
operation already; for, under the circumstances, it had
become necessary for the Government to discontinue the
use of state banks as depositaries and to revert to the
older method of leaving the money with the receivers and
collectors, on whom drafts were directly made. The Govo Contrast the statement of Secretary Shaw in 1907.
Report, 1906, p. 40.




34

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Independent

Treasury of the United States

ernment deposits, of course, could not be withdrawn
immediately from the banks, and therefore the administration was much hampered. Late in 1837 Congress
passed an act authorizing the Secretary to withdraw the
deposits, but he was obliged under-the circumstances to
be somewhat indulgent. a Secretary Woodbury informed
Congress in his report, that although on the suspension of
specie payments six banks had been retained as depositaries, 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 enlargement and adaptation of this
method, which he was employing on his own responsibility, or a new organization of commissioners and receiversgeneral, " t o gather the collections 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
suggesting plans of relief and future action. Congress was
deluged with memorials and petitions suggesting plans of
one kind and another. Some had points of merit, but
most were chacterized by that sublime indifference to
history, experience, and economic principles that is a
marked feature of the empiric schemes of which, in all
such crises, political charlatanism and ignorance are
prolific.6
The schemes actually considered in Congress were three:
The revival of a national bank; the revival, or continuance,
a U. S. Stats. L , V : 206.
&For an interesting specimen see Sen. Doc. No. 6, 25th Cong., 1st sess.




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Monetary

Commission

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,
has 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 forward as the measure of
the administration by Senator Silas Wright, a of New
York, who had been a stanch and consistent supporter
of the Jacksonian financial policy. The bill now proposed
was entitled a bill "imposing additional 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 subtreasury, as it was variously
called.
The measure was keenly debated, the specie clause,
requiring public dues to be paid in specie, 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 Government. It was
argued that convertible state bank notes should be received
for government dues; that the adoption of the independent
system would render the public money insecure; that it
would open the way to favoritism 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, moreoGillet,R. H . : Life and Times of Silas Wright, I : lxiv, and elsewhere.




36

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Treasury of the United States

over, 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 habitsof the
people. Webster characterized the bill as a backward
step, from dependence on 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 the 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." 0
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
necessary, 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, that the independent
treasury system would be more plain and simple in its
arrangements, and truer to the spirit of the Constitution.
The bill succeeded in passing the Senate, but met with
defeat in the House, being laid on the table by a vote of
120 to 107. The contest over it showed the Whigs
ranged in defense of the use of state banks, which they
<*Speech on the subtreasury, delivered in the Senate March 12, 1838.




37

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Commission

formerly opposed, and the friends of the administration
supporting the measure which but lately they had condemned. During the three months that elapsed before
the first regular session of the Twenty-fifth Congress
began, the measure apparently did not 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
defense of the plan was set forth by William M. Gouge in
a pamphlet a which deserves consideration as the best
exposition of the aims and hopes of the promoters of the
system.
Gouge estimated the number of depositaries that would
be necessary for the transaction of the business of the
Treasury at 36, their locations to be those of the banks
formerly used for the purpose. He thought that the
expense would be less than that of the banks, probably
aggregating not more than $101,600. "So plain would
be the accounts/' he goes on to say, " t h a t we might
choose for chief bookkeepers of these subtreasuries the
disciples 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 containing a statement of his expenditures.''
The probabilities of loss, Gouge declared, would be less
with independent depositaries than with banks; for there
would be less loss from fire, since the deposits would be
in specie; less from peculation, because the accounts
a An Inquiry into the Expediency of Dispensing with Bank Agency and
Bank Paper in the Fiscal Concerns of the United States, Philadelphia,
1837:56.
38




Independent

Treasury of the United States

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 were 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.
In 1838 the practice of leaving the public money with
the collecting officers was pretty general ,a yet some state
banks continued to be employed. Where suitable banks
could be found, the Secretary used them as depositaries,
under the terms of the act of January 23, 1836. If a
bank could not comply with the requirements of that law,
the public money was sometimes left with it as a special
deposit. But by far the larger part of the public money
was kept, as has been remarked, in the hands of the
collectors and receivers. About four-fifths of the expenditures for the year, or nearly $20,000,000, were made by
drafts on collecting officers.5 That it was thus kept
proved fortunate when the banks collapsed again in 1839.
Their recovery from the panic of 1837 had been too rapid.
Of nearly 1,000 banks in the country, including branches,
« Finance Report, December 5, 1838.
& Cf. Remarks of President Van Buren, in his message, Dec. 2, 1839.




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Commission

343 suspended specie payments entirely in 1839, 56 went
out of business, and 62 resorted to partial suspension.
As before, the larger number of these was in the West
and South.
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 authors, but the arguments were mainly
political.
The subject was again brought up in the session of
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 17 in a total vote of 231. According to the
act, one-fourth of all government dues had to be paid
in specie after June 30, 1840, and an additional onefourth had to be so paid each successive year until the
whole should become thus payable.
Thus was at length established the system for which
Van Buren had risked his office. For the idea was
adopted by him as his own, and although he pushed it
perseveringly on to success, in the very achievement of
that success "it helped sink the originator." But the




40

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Treasury of the United States

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. 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.
REPEAL OF THE SUBTREASURY LAW.

The shortness of Harrison's administration prevented
any action on the subtreasury 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 message 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 national bank; the state-bank deposit
policy and the subtreasury 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




41

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Commission

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 subtreasury 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 as only
expressions of party fealty and not as intelligent opinions
based on careful consideration of the merits of the question. During the year since its establishment the subtreasury system had worked more smoothly than might
have been fairly expected. Secretary Ewing took occasion, in a report in July, 1840, to argue against the
system. He maintained that it exposed the government
funds to risk of loss; that it was cumbrous, expensive,
and inconvenient; that it tended to center disbursements in some eastern cities, especially New York; and
that it injured 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,
and that during the rest of the time the funds were administered by individual officers and agents.
The Secretary said that the losses under the state bank
system from 1811 to 1816 had been about $1,000,000\a
from 1833 to 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 transit Finance Reports, 1833 and 1837.




42

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mitting public money, so far as the banks were concerned.
The Secretary recommended the establishment of a bank,
for which he afterwards submitted a plan. 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 as much the result of circumstances as of the merits of the system; for the conditions
were, on the whole, favorable to success. However, the
subtreasury act was repealed August 13, 1841, thus necessitating a return to the use of state banks. The conditions made with the banks were in substance what Taney
had agreed on seven or eight years before. The banks
had become so much safer that there was general satisfaction, and the Secretary wrote, in response to a Senate
inquiry, that, in his opinion, the public money was safe
and that he had no reason to apprehend any loss.0
The truth of the matter is that the disasters of the
panic had produced a healthier mode of doing business,
both banking and mercantile, and public deposits were
therefore not made a basis of speculative mania such as
had culminated in the panic of seven years before. The
safety of the deposits was therefore no longer an issue, but
this was due to the improvement in banking morals and
knowledge.
A bill was immediately reported by Henry Clay for
the establishment of a bank. Clay 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




<*Sen. Doc. No. 88, 28th Cong., 2d sess.
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bank was curious. He vetoed Clay's bill, although it had
been passed by both Houses in the confident expectation
of his approval. He asked his Secretary 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 constitutional grounds that militated
equally against the proposal of Secretary Ewing, which he
had approved.
Yet it was fortunate, perhaps, that both the bills mentioned were defeated, for either of them would have been
likely to work great mischief. Some of the provisions of
E wing's proposed plan were as follows: The bank, which
must be in the District of Columbia, was to have a capital
of $30,000,000. It could establish branches in the different
States, but only with the consent of the States and under
their control. The government subscription of $6,000,000
was to be in "stock" created for the purpose, and the
States were to be allowed the privilege of subscribing in a
similar way. The bank was to perform the usual duties of
a fiscal agent of the Government, and all government debts
were to be discharged by checks payable in the notes of
the bank, which were also receivable for government dues.
Dividends were to be limited to 6 per cent, and all surplus above $2,000,000 was to go to the Government. The
bank could not incur a debt of over $20,000,000 more than
its deposits, or make loans to more than one and threefourths times its capital. Its specie reserve must be at
least one-third of its circulation. Its dealings were to be




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in coin, bullion, notes, and inland bills of exchange. 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 $3,000,000, for not more than six months.
As usual, the charter was to be for twenty years. In adopting the plan, Congress raised the dividend rate to 7 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
" promoters " 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. 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 wrere bad features. The limitation placed upon loans to the Government was a ridiculous
attempt to check the possible abuse of executive 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 experience and the judgment of
wise bankers.




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Monetary

THE FINAL ESTABLISHMENT

Commission
OF THE

INDEPENDENT

TREASURY.

During the next few years the subject was less discussed,
as it was supplanted in public attention by the questions
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 subtreasury, passing
by the state-bank system as already rejected by the
people and as unsafe on account of the failure of the
banks, and praising the old national-bank system. The
committee's opinion of the subtreasury is shown by the
following remarks: " I t s model may be found in the
imperial institutions of Darius, the King of Persia, and
its principles 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."
According to the committee, the exchequer plan in its
details was essentially the subtreasury with certain
banking functions added, and herein lay the main objection to the scheme. When the bill came before Congress
a remarkable amendment was submitted by one member. a
He proposed the issue of $100,000,000, bearing interest
for ten years at 2% 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,




o Horace Everett, of Vermont.
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Treasury of the United States

whose beneficent operations, combined with the blessings
of the land currency, would bring on a millenium of
prosperity of which later advocates of "coining all the
land of the country" never dreamed. The proposed
scheme is one of the most curious 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 1816. Many of the public
officials deposited in selected banks.
In his message at the opening session of the Twentyninth Congress, President Polk revived the matter and
urged the reestablishment of the subtreasury. Secretary
Walker came to the President's aid in his annual report
and brought forward anew the arguments so often presented
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
brought forward were pretty much the same as 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




47

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to note its points. The constitutional argument for the
subtreasury was based on the words of the Constitution
that "no money shall be drawn from the Treasury but
in consequence of appropriations made by law." This,
it was maintained, meant " a substantive treasury,
substantial treasurer, and a real treasurer." Again, the
First Congress, in establishing the Treasury Department,
declares that "it shall be the duty of the Treasurer to
receive 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 " k e e p " 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 " k e e p " 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 prevented "wild-cat" banking, would have saved
the financial good name of the country, and would have
made the subtreasury 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 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
obtaining loans, and the receipt of interest by the Government on its deposits. The first of these arguments, as




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to the safer keeping and transmission of the government
money, is patently weak. As Mr. Niles had remarked
years before, a Government is not worthy of its name if it
can not protect its own property. And if it can not protect its own property, 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 payment 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 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 Bankers'
Magazine a asserted: ''That scheme [the sub treasury] we
consider utterly impracticable and indefensible.'' Such
a law "can not be in force for six consecutive months,
nor will it be, in our opinion, strictly complied with for
forty-eight hours."
<*1:15 (1845-46).
41969 °— 1 o




4

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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, and the ship of state was
being guided by the political compeers and descendants
of Jackson and his policy, and public opinion was less
pronounced against the measure than it had been. Thus
it happened that the subtreasury was reestablished.
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
Jackson and carried on by Van Buren, and in his time




50

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Treasury of the United States

lasted "just long enough to prostrate the party which
brought it into being; which expired with the elevation
of the opposing party, was revived with the restoration
of 'the democracy/ and has since continued, through
changes of administration, undisturbed; having received
the general acquiescence of the popular will, if not the
positive approval of the public judgment." a
And so the divorce of bank and State, which had for a
time been "a mens a et thoro" nowr 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 banks the issue of notes was, indeed, fairly
well under government control. But that system of
issue 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. b
The State banking system had been well denominated
"wild-cat." Utterly irresponsible, and beyond control
in the strength of the doctrine of state supremacy, in its
evil and untenable form which was swept away by the
necessities of the Government in the civil war, these
banks were a veritable powder magazine by the explosion
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 justification
of the removal of the government finances to a sounder
a Young, A. W.: American Statesman, 739.
& Cf. Schurz, Carl: Henry Clay (American Statesmen Series), II: 48-50.




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and safer basis. Whatever may be the influence of its
operation nowr, the establishment of the subtreasury 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 operation.




53

CHAPTER

III.—DEVELOPMENT

OF

THE

INDEPENDENT

TREASURY.
THE PROVISIONS OF THE LAW.

The first section of the new law a defined the Treasury
thus:
" 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 fireproof vaults and
safes erected in said rooms for the keeping of said 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 provided 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 essentially modified the nature of the Treasury. It provides
"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 branch mints, all collectors
of tlie customs, all surveyors of the customs acting also
as collectors, all assistant treasurers, all receivers of public




a The act is given in full in Appendix 2.
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Commission

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 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, until 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 on them."
Sections 7 and 8 provide for the giving of bonds; section 9 provides for deposits by collectors; section 10, for
transfers by the Secretary of the Treasury; sections 11
and 12, for examinations of the condition of the subtreasuries and depositaries; section 13 provides means,
such as fireproof vaults, etc., for the safe-keeping of the
public funds; section 14, for the transfer of balances from
one depositary to another by the Secretary of the Treasury ;
section 15 directs the method of deposit by marshals,




54

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district attorneys, etc.; section 16 defines and provides
penalties for embezzlement, and for violations of the act;
and section 17, for temporary quarters. Sections 18 and
19 contain the provisions around which debate had raged
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 20 supplements the two previous
sections by requiring 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 completely accomplished the separation of bank and state.
It made the Government its own banker, even to the
furnishing of the paraphernalia of office rooms; and,
taken in connection with the law sanctioning the emission of Treasury notes, the subtreasury act virtually
made the Treasury a bank of issue.
The provision 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 good
reason why, even though the government financial operations were separated from the banks, the public money
might not have been kept in bank vaults as special
deposits.
The places selected for the establishment of subtreasuries were those in which the government operations




55

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Commission

were most considerable, and which were centers for the
collection of revenue from the country round about and
for the payment of public creditors. The establishment
of a subtreasury or depositary appears to have been
regarded as advantageous to a locality from a business
point of view, because it was thought to make trade
brisker through the concentration of larger amounts of
money. The selection of the localities was made, however, on the supposed needs of the public service; and,
as a matter of fact, the ground covered by the new subtreasuries and depositaries was substantially that formerly occupied by the banks through which the Government had done its business. At a later time the feeling
that the presence of a subtreasury is advantageous to
business led to an attempt to secure the establishment
of one at Louisville, but the request was refused by
Congress.0
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 banks had
vaults far safer than any place of deposit that could be
provided by most of the officers of the Government.
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 suitable accommodations for keeping it. To be sure section 13 did provide for fireproof




a See p. 80.

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Treasury of the United States

vaults, and section 17 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 conveyance, while every
citizen in his private affairs enjoyed the benefits of steam
navigation and railways." ° In a certain sense Everett
was right; but the remark seems to indicate that he misconceived the whole drift of the subtreasury 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 figure, was to issue
notes of its own. Every lover of sound 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 w e a r e told it was little, if




0 Bankers' Magazine, August, 1885.
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Commission

at all, observed by postmasters. a Notwithstanding the
imperfect manner in which the law was executed, the
clause was productive of great good. " 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, indeed,
and running chiefly from the public depositaries to the
banks and then returning. But it swelled to larger
dimensions." 6 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, 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 incident, but had no
right to complain of it; and as for the second, it was no
fault of the Government 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.
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 group of branches as
was developed under the Second United States Bank.
a

Young, A. W.: American Statesman, 847.
& Bolles, A. S.: Financial History of the United States, 1789-1860, 356.




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But having declared its purpose to pay specie, the Government was bound to do so at every agency, however
remote from a great business center. To refuse to do so,
or even to hesitate or delay, was to discredit itself.
The new system began its career under many difficulties. No appropriation was made for the salaries of
assistant treasurers, or for additional salaries for treasurers of the mint who were to assume new duties under
the law, or for the payment of any special examining
agents. Neither were any appropriations made for the
expense of transfers, nor " t o 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 department 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 to an untried system.
On the 25th of August, 1846, Secretary Walker issued
a circular to collectors, subtreasurers, and other officers,
directing them to make all government drafts payable to
order, not bearer. The drafts were to be transferable
only by special indorsement, and payable only at designated places. If a draft were payable at a place not more
than 50 miles from Washington, it must be presented for
payment within twenty days from the date of the draft;
if at a point distant between 50 and 100 miles, it must
be presented within forty days; between 100 and 200




59

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Commission

miles, within sixty days; between 200 and 400 miles,
within eighty days; and over 400 miles, within 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 disbursing officers or other government
agents was allowed, except for gold or silver. Because
of the specie clause, the Secretary directed that no payments be made in treasury drafts, even though a creditor
should prefer that mode of payments
THE

INDEPENDENT

TREASURY
WAR.

DURING

THE

MEXICAN

During the next two years the country had the Mexican war on its hands, and in 1847 the Government was
compelled to issue over $20,000,000 of treasury notes,
and to contract a $28,000,000 loan.6 But the notes were
issued at par, and the bonds commanded a premium.
Throughout the war specie payments were kept up, and
the treasury notes at no time fell more than one-half of
1 per cent below par in New York. In his report the
Secretary gives the subtreasury much of the credit for
the success of the financial operations of the war. "The
Constitutional Treasury," he says, "has been tried during
a period of war, when it was necessary to negotiate very
large loans, when our expenditures were being increased
and when transfers unprecedented in amount were
required to distant points for disbursement. During the
last eleven months the Government has received, transferred, and disbursed more specie than during the whole
a

Finance Report, 1846, Appendix H.
b Including the conversion of treasury notes.




60

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Treasury of the United States

_^
aggregate period of fifty-seven years preceding since the
adoption of the Constitution." * Over $24,000,000 of
specie were imported during the year, a net gain of more
than $22,000,000 of imports. This specie, the Secretary
maintained, would have been made the basis of a paper
inflation that would have produced a ruinous revulsion
in business,if it had been deposited in the banks. Gouge,
writing at the time, took the same view. The Secretary
wrote: "From this revulsion we have been saved by the
Constitutional 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, although 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 6
per cent stock and treasury notes were depreciated 25
per cent, payable in bank paper 20 per cent below par,
thus amounting to a loss of 45 cents upon every dollar in
the operations of the Government."
Although Secretary Walker's view of the beneficial
influence of the independent treasury may be regarded as
too favorable, we may readily admit that the credit of the
Government was upheld largely by the specie clause of the
law, 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.




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How far these results would have been accomplished—
and how far, therefore, they were due to the subtreasury—
if, while the Government was under the stress of the war,
trade had not assumed a tremendous bound, is 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 abolition of the corn laws in
England was attaining its full effect, and the revolutionary
disturbances in Europe in 1848 also tended to help American commerce. The balance of trade was settled largely
by imports of specie which remained in the country, thus
showing that it was satisfying a lasting need. The 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, very
likely the stress produced by the demand of the Government for it, would have strained the financial virtue of
Congress to the point of breaking or annulling the act.
Consequently the subtreasury can not be credited with the
whole of the good influence of the increase in 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 1812 and of 1846, should have reconciled the people to the new system.




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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 regime of the banks it had
been necessary to keep $4,000,000 in the treasury to supply
the mints with bullion for coinage, it was found under the
sub treasury system that $3,000,000 would do.
The experience of the first two years developed some
defects of detail in the system. In his report for 1848, Secretary Walker writes of losses from delay in shipping foreign
coin received in New York for customs dues to Philadelphia for recoinage. 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 beneficially, both in war and in
peace, must, in the main, be wise and salutary. "
A side light is thrown on the working of the subtreasury
system in a speech of Webster's, delivered in Faneuil
Hall, Boston, October 24, 1848." He asserted that on the
25th of the preceding August, the New York banks had
$5,800,000 in specie, and the New York subtreasury had
$1,400,000. On September 29, the banks had but
$4,600,000 and the subtreasury had $2,400,000, thus having absorbed $1,000,000 in a single month, with the evil
results of a scarcity of money and a curtailment of discounts. It must be remembered, however, that Webster
was making a political speech. It is not at all probable
that the specie lost by the banks was all gained by the
subtreasury. Money was moving westward at that season
of the year.
* Writings and speeches of Daniel Webster (National Edition) IV: 154.




63

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Monetary

Commission

DEFECTS SHOWN IN EARLY YEARS OF OPERATION.

In the following year (1849) other inconveniences
became manifest. According to the provisions of the law,
when a draft was issued to a disbursing officer he was
obliged to receive the whole amount of the payment, no
matter how large, in one sum, even though he was to use
it in making many separate small payments. Hence
these officers were compelled to assume custody of the
money and bear the burden of transferring it to the places
where it was due. In this way the money was exposed
to risk of loss or theft. Moreover, the actual c a r r i a ^ 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, questioned the expediency of
continuing the system. He proposed that disbursing
officers be allowed to deposit their drafts with an assistant
treasurer and draw on the deposit as they needed the
money. But, although the matter had been repeatedly
urged on its attention, nothing was done by Congress even
with reference to disbursing agents until 1857.
As to the transfer of the public funds, obviously one
way was to transfer specie by agents appointed for the
purpose. 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 the specie. This method




64

Independent

Treasury of the United States

had been used early in subtreasury history and became
common after 1850.
When Secretary Guthrie assumed office in 1853, he found
that "$475,000 was in the hands of agents under agreements 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."" The
Secretary abolished this method of making transfers and
effected them " b y the sale of treasury drafts at the points
where the money was needed for disbursements, as authorized by law, or by an actual transfer by an officer of the
department. " 6 Secretary Guthrie required the assistant
treasurers and officers of depositaries to receive the deposits
of disbursing agents, so as to render the use of banks
by these agents unnecessary. But not all collecting
officers adopted the practice, and the Treasury continued
to draw on them directly. It was well that the Secretary
held this opinion of the proper method of making transfers, for the use of bankers and brokers as agents was a
vicious makeshift. It opened the way widely to favoritism toward 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 abandonment of the
principle of the complete separation from banks, which
was the underlying principle of the Independent Treasury.
That this mode of transferring funds was much abused is
shown by the increase in the amount of transfers when
the method was used. When the transfers were made in
cash, they amounted, in New Orleans, to about $38,000 a
< Finance Report, 1853:13
*
41969 0 —10




5

65

&Ibid.

National

Monetary

Commission

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.° The evil
was corrected, however, in 1854, and the transfers were
thereafter made in money.
In May, 1854, Mr. William M. Gouge was appointed
special agent to examine the condition of the various subtreasuries and their operations. As has been already
mentioned, the system, at the time of its establishment,
was under great disadvantages from lack of proper buildings. In only a few of the places designated as the seats
of depositaries were such to be found. Gouge reported 5
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.'' Boston was the only place provided with suitable buildings for the subtreasury. Most of the buildings
actually used for the purpose were unsuitable, 0 being only
such as each agent could secure under his special circumstances; so that, as hitherto, the provisions for the safekeeping of the public money against fire and burglars
were totally inadequate. 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 recommended that the transfers of specie be
reduced to a minimum and supplemented by the^ use of
drafts on some specified subtreasury. These drafts, he
a

Gouge's Report. In Finance Report, 1854, Doc. No. 30.
& Ibid.
c For an interesting description of a United States depositary in a tavern,
see Finance Report, 1854:257.




66

Independent

Treasury of the United States

recommended, should be issued at any subtreasury on
deposit of the amount in specie at the issuing office. This
mode of transfer was essentially adopted afterwards.
The object of making these proposed drafts payable at a
particular depositary 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 subtreasury 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, not
only by its restrictive influence on note issues, but also by
keeping specie in circulation. For the banks are sustained, he 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 a
general suspension of specie payments, or facilitate their
restoration if suspension should occur. "The less Gov-




67

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Monetary

Commission

ernment 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 plausibility to the fifth, and showed
that there was a considerable amount of truth in the last.
For, notwithstanding its many imperfections, 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 and the conditions
of business had been favorable to its success. At no time
had there been in the Treasury any very large surplus, and
there had been no crisis to cause financial distress. To be
sure the Mexican war had caused a pressure in the market,
but there was no real disturbance. On the whole, business
had been good and commerce had increased. Consequently
there was little to cause friction in the working of the new
fiscal machinery.
These conditions made it possible for the Secretary of
the Treasury to write, in 1855, that the independent
treasury 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
premiums on the sale of Treasury drafts amounted to
$30,431. The receipts and expenditures of the Government for the year were all paid in gold and silver, and
according to the Secretary were without any perceptible
effect on currency or business.




68

Independent

Treasury of the United States

During t h e year 1854-55 t h e vaults a t Washington had
been m a d e safe, b u t those a t other places remained in
p r e t t y much the same condition. Gouge again made
an examination of them, b u t developed nothing new.
The only loss from robbery, he says, was in t h e previous
year a t Pittsburg, and amounted t o $10,000.
The system of transfer drafts recommended b y Gouge
the year before h a d been adopted and had worked well.
He reported t h a t further experience had strengthened his
opinion of the advantages of the system.
EARLY INFLUENCE ON THE MONEY MARKET AND RENEWAL
OF CONNECTION WITH BANKS.
Although in its administration t h e system was working
well, it had already begun to exert an influence on business
through t h e money market, which had attracted some
attention. About this time the California gold mines
began to have an influence on business b y making gold a
commodity for export. The excess of gold exports over
imports rose from a little less t h a n $3,000,000 in 1850 t o
$24,000,000 in 1851, t o $37,000,000 in 1852, and became
$34,000,000, $52,000,000, $41,000,000, and $56,000,000,
respectively, in the four following years. The large gold
production m u s t have had a tendency to make prices more
irregular t h a n they would otherwise have been. A t the
same time, t h e irregular action of t h e subtreasury was a
disturbing factor. I n 1853 t h e receipts of t h e Government
exceeded its expenditures, so t h a t there was a considerable
accumulation of money in t h e Treasury. To prevent any
stringency t h a t might be caused thereby t h e Secretary
issued a circular, on t h e 30th of July, offering t o b u y




69

National

Monetary

Commission

$5,000,000 worth of 6 per cent bonds. He secured them
by paying a premium of 21 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 $75,000,000 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 using specie, it could not be wholly driven from use.
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 subtreasuries was "as safe and secure as
that in the Treasury.''
Nevertheless, the existence of a surplus was evidently
a source of anxiety to the wellwishers of the independent
treasury. For in his next report, December, 1856, the
Secretary of the Treasury took occasion to explain its
action on the volume of money and attempted 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." Secretary Guthrie went on to say that the
subtreasury may ''exercise a fatal control over the currency, the banks, and the trade of the country, and will
do so whenever the revenue shall greatly exceed the
expenditure." This was clear to the Secretary from his
own experience that year. There was a surplus and prices
were rising. Therefore the Treasury had repeated its




70

Independent

Treasury of the United States

attempt to afford 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 redemption 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 channels of commerce, the accumulated sum
would have acted fatally on the banks and on trade. The
only remedy would have been a reduction of the revenue,
there being no demand and no reason for increased expenditure." 0
The amount of transfers during the year had amounted
to $38,088,113.92, at a cost of $12,945.87; and the premium
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 transfers of
public money would be made without charge and without
risk.
By an act of March 3, 1857, the law was amended so
as to require disbursing officers to deposit in some subtreasury. Up to this time many of them had continued
to use the banks for safe-keeping of the public money
in their charge, usually leaving it with them as a special
deposit. After the amendment, the Secretary directed
the treasurers of the mints, of the depositaries, and of
the subtreasuries to receive deposits of disbursing officers,
but not to honor drafts on them unless made in favor




0 Finance Report, 1856: 32.
7i

National

Monetary

Commission

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 to bearer. Disbursing
officers might also draw for money to pay the salaries
of employees, but they were required to furnish lists
of such employees. Public depositaries were not required
to pay drafts made out to A. B., or order; but they
might pay to A. B., or bearer. There were many obvious
difficulties in the way of the strict enforcement of 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 forseen, that
there were some conditions under which compliance with
the law was impracticable. Sailors in a foreign 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 depositary, 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 disbursing officers and pay it out in detail. According
to Secretary Cobb, the additional labor amounted to " 100
per cent." This labor increased as the government
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 $8,000,000
to $190,000,000.

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 depositaries silver change of all




72

Independent

Treasury of the United States

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 educational
effect by keeping specie in daily use among the people.
Writing of the effect of the amendment requiring disbursing officers to deposit in the government depositaries,
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 embarrassment and distress of the commercial
community have been much greater than it is, but the
public moneys themselves 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: " I t has resorted to no expedient to
meet the claims of its creditors, but with promptness
pays each one upon presentation. ,, It is not to be won-




o Finance Report, 1857.
73

National

Monetary

Commission

dered at that such a showing should wed people to tfte
system. Its practical success in preserving the credit
of the Government, or at least in making its financial
operations easier, was an object lesson that appealed to
the public.
Secretary Cobb's claim that the specie disbursements
of the Government afforded relief to the money market
was doubtless true. But this fact by itself does not
prove that the operations of the subtreasury system
were wholly beneficial. It must also be shown that its
previous 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 overissue by
the banks, in face of the prostration of credit that
had overtaken them. It is possible that the Treasury
absorption of money made place for the bank issues.
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 have less ground 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 " t o a limited extent.'* The
obvious explanation is that contraction of the circulation
by Treasury absorption is good only when the circulation
is redundant.
The collection and disbursement of the revenue went
on during the panic, according to the Secretary, without
"loss or embarrassment/' and the subtreasury system
was "eminently successful." There was no loss from




74

Independent

Treasury of the United

States

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 did his Secretary of the beneficial operation
of the subtreasury. In his annual message, December 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 people
in gold and silver. Its disbursements in coin pass into
circulation and materially assist in restoring a sound
currency. v
During the financial year, 1858, bond purchases were
continued to the amount of nearly $4,000,000, and contributed somewhat to the mitigation of the disasters of
the revulsion. However, in view of the fact that the excess
of exports of specie over imports for the year amounted
to over $33,000,000 it is clear that the influence produced
on the whole volume of currency by the amount set free
from the Treasury must have been very insignificant.
After the country recovered from the effects of the
panic its progress was very rapid. From 1858 to 1861 it
was prosperous, and the banks held a strong specie
reserve. The expenditure of the Government for three
years exceeded its receipts by about $90,000,000, and the
deficit was met by loans. Under an act of December 23,
1857, over $52,000,000 of treasury notes were issued.
They were redeemable in one year, bore interest ranging
from 3 to 6 per cent, and were sold at par. In June, 1858,
bonds to the amount of $20,000,000, redeemable in fifteen
years, were sold at a premium. In June, i860, came




75

National

Monetary

Commission

$7,000,000 more, which also sold at a premium, though a
smaller one; and in December of the same year an issue
of $10,000,000 of treasury notes was authorized. 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 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 independent treasury system. However, under the act of
July 17, 1861, Secretary Chase applied to the banks for a
loan of $50,000,000 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, another step away from the principle 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 custody 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 $87,000,000, and they were strengthening their position. In August the Secretary had a
conference in New York with representative bankers of
New York, Philadelphia, and Boston, with reference to
the requested loan. The Government was provided with




76

Independent

Treasury of the United States

money, which, being expended 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 November 19, 1861, Secretary
Chase borrowed more than $140,000,000 from the banks.
The specie held by them in August, the time of the first
loan, was $47,000,000; in December, after most of the last
loan had been paid, it had decreased only by about
$5,000,000. The recuperative power of the banks was
thus clearly shown.
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 redemption created a n e w 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 payment. Had the Secretary withdrawn the
treasury notes and accepted the bank issues, it would have
been a departure from the independent treasury law.
But possibly the banks would not then have been compelled to suspend, and the Government could have kept
the spirit of the specie clause of the law inviolate. 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




77

National

Monetary Commission

the banks to overissue, and specie payments might 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
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 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 independent-treasury law permitted the issue
of treasury notes, and so far contributed toward the tendency to suspension. But the real force making for suspension was the policy of Congress and the Treasury
Department in trying to meet the expenses of the war by
loans, with as slight an increase of taxation as possible.
The treasury notes contemplated by the independenttreasury 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 reason for thinking, however, that if the Government had used bank notes instead of treasury notes
suspension could have been postponed and perhaps
avoided.




78

Independent

Treasury of the United

States

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 January 6,
1862, "it dishonored its own promises—it ceased paying
coin," and gold immediately went to a premium of 2 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.
Thus the most important provision of the independenttreasury act of 1846 was made of no effect. The Government 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
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 subtreasury law was largely a dead letter.
Still, the abandonment of the system of " divorce of bank
and state" was not 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 subtreasuries beyond the mere official reports of their
transactions until 1863. During that financial year, we are
told, the receipts and disbursements of the assistant treas-




79

National

Monetary

Commission

urers at San Francisco and St. Louis, and of the designated depositaries, especially at Baltimore, Cincinnati, and
Louisville, were "large beyond precedent." Of course,
this simply meant that government financial matters had,
in the conduct of the war, suddenly leaped 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, Philadelphia, 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 form 1,484 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 obviated.
In 1880 an effort was made to extend the system by
the establishment of a subtreasury 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
subtreasury 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 subtreasury.
The following table a shows the extent of the use of
banks by the Government for the deposit of public money,




«Finance Report, 1906: 196.
80

Independent

Treasury of the United States

from the establishment of the Treasury Department until
the creation of the present national banking system.
Number
depositarybanks.

$28, 239-61

Dec. 31, 1789.

60, 613.14

Mar. 31, 1790.

155. 320.23
349. 670.23
570. 023.80
571. 699.00
679, 579-99
973. 905.75
751. 377-34
623, 1 3 3 6 1
420, 914-51
783. 212. 37
1,035. 973-09
561, 435-33
753. 661.69

June 30, 1790.
Sept. 30, 1790.
Dec. 31, 1790.
June 30, 1791 .
Sept. 30, 1791 •
Dec. 31, 1791Mar. 31, 1792 .
June 30, 1792 .
Sept. 30, 1792 .
Dec. 31, 1792 .
Mar. 31, 1793June 30, 1793 .
Dec. 31, 1793 •
Dec. 31:
1794
1795
1796
1797
1798
1799
1800
1801
1802
1803 •
1804 •
1805.
1806.
1807.
1808.
1809.
1810.
1811.
1812.
1813.
1814.
1815.
1816.
1817.
1818.
1819.

41969°—IO-




94
29

1,151, 9 2 4 . 1 7
5i6. 4 4 2 . 6 1
888, 9 9 5 4 2
1, 021,8 9 9 . 0 4
617, 4 5 1 . 4 3
2,161, 8 6 7 . 7 7
2,623, 3 H - 9 9
3,295. 3 9 1 . 0 0
5.020, 6 9 7 - 6 4
4.825, 8 1 1 . 6 0
4.037, 0 0 5 . 2 6
3.999. 3 8 8 . 9 9
4.538. 1 2 3 . 8 0
9,643, 8 5 0 . 0 7
9.941. 8 0 9 . 9 6
3.848, 0 5 6 . 7 8
2, 672,2 7 6 . 5 7
3.502, 3 0 5 . 8 0
3.862, 2 1 7 . 4 1
5.196, 5 4 2 . 0 0
1.727. 8 4 8 . 6 3
5
13, 106, 9 2 . 8 8
22,033, 5 1 9 . 1 9
14.989, 4 6 5 . 4 8
1,478, 5 2 6 . 7 4
3.079, 9 9 2 . 3 8

National

Monetary

Commission
Number
depositarybanks.

Date.

Dec. 31—Continued.
1820
1821
1822

58
55
58

1823
1824
1825
1826
1827

60
59
59
56
40
40
42
41
62
5o
44
91
54
43
27
11
19
26

1828
1829
1830
1831
1832
1833
1834
1835
1836
1837
1838
1839
1840
1841
1842
June 30:

30
34
43
49

1843
1844
1845
1846
1847
1848
1849
1850
1851
1852
1853
1854
1855
1856
1857
1858
1859
i860
1861
1862
1863




82

Balances.

198,461. 21
681,592. 24
193,690.68
43L353- 20
887,799.80
296,306.74
342,289.48
649,604.31
965,974.27
362,770.76
761,409.34
053.513-24
911,863.16
658,283.61
861,093.60
729.315.72
056,833.54
779.343-OI
364,887.61
992,319.44
290,532. 18
170.361.73
699.709- 09
10,525,267. 10
8,222.651.19
7,385,450.82
8,915.869.83

Independent

Treasury of the United States

"The Secretary of the Treasury determines the number
of such depositories, the amount of public money required
in each for the transaction of the public business, fixes the
amount of balances they may hold, and requires the banks
thus designated to give satisfactory security, by the deposit of United States bonds and otherwise, for the safekeeping and prompt payment of the public money deposited with them and for the faithful performance of their
duties as financial agents of the Government. The regular
depositories receive and disburse the public moneys, and
are required to pay interest at the rate of i per cent per
annum on the average monthly amount of public deposits
held in excess of the sum needed for the transaction of the
public business, while the special depositories hold only
the moneys transferred to them from the Treasury. They
pay interest at the same rate on the average monthly
amount of public deposits held." a




a

Finance Report, 1909, 142

83

CHAPTER IV.—THE ORGANIZATION AND WORK OF THE
INDEPENDENT TREASURY.
PROVISIONS FOR KEEPING THE PUBLIC MONEY.

The independent treasury, as at present organized, consists of the Treasury offices at Washington and nine subtreasuries under the charge of assistant treasurers. In
carrying on its monetary operations in 1908-9 the Government has also utilized a varying number of designated
depositaries, including the treasury of the Philippine
Islands, the American Colonial Bank of Porto Rico, the
Banco de la Habana, and the National Bank of Cuba.
The supervision of the independent treasury comes
under the charge of the chief of the division of public
moneys in the Treasury Department. Among other
duties, according to the rules of the Treasury, that division
must perform the following:
4
'The supervision of the several independent treasury
offices, the designation of national-bank and other depositaries, and the obtaining from them of proper securities.
"The directing of all public officers, except postmasters,
as to the deposit of public moneys collected by them.
"The issue and enforcement of regulations governing
independent treasury officers, and the several depositaries
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. " a
a The Organization of the Office of the Secretary of the Treasury, published
by Treasury Department, July, 1884. Department circulars describing
methods of issue and redemption of currency, treatment of disbursing
officers' checks, etc., are given in the appendix.




84

Independent

Treasury of the United States

The places at which subtreasuries are at present 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 1909.°
Receipts.
$102,815,135
156.504,725
398,002,896
66,392,568
54,464,360
1,802,315,952
313,687,394
90,846,461
140,776,861

Baltimore
Boston
Chicago
Cincinnati. . .
New Orleans.
New York. . .
Philadelphia.
San Francisco
St. Louis. . . .

Disbursements.
$102,565,652

157,312,586
385,817,865
63,452, i n
56.636,350
1,859,063,475
313,290,852
84,480,240
136,006,667

The following table shows the comparative growth of
the staff and expense of the subtreasuries from 1849 to
1909:
1849.
Officers and
clerks.
Baltimore
Boston
Charleston
Chicago

1909.

Salaries.

Employees.

Salaries.

24
2

2

$3.4oo
3,4oo

New York

6

St. Louis
San Francisco

2

1, 400
9, 100
1, 400
3.400

14

18,700

2

2

Total

$34,000

3i

45.7io

50
17
20
130

72,650
24,410
28,890
206,510

36

49,44o

30
18

40,540
30,420

356

532.570

Contingent expenses and salaries of special agents
amounted to $20,000 more in 1849, making the total ex-




a

Finance Report, 1909: 74
85

National

Monetary

Commission

penditure on the independent treasury at that time
$38,000.a At present, in addition to the expenses for
salaries and wages, $3,000 are appropriated for salaries
of special agents and expenses of examiners of subtreasuries and depositaries; $14,000 for paper for checks,
drafts, etc.; and $260,000 for contingent expenses in the
collection, safe-keeping, transfer and disbursement, and
for transportation of notes, bonds, and other securities.
These amounts added to that for salaries and wages give
us a grand total of $809,570 for the expenses of the independent treasury for the fiscal year 1909-10.5
A law of March 2, 1853, fixed the compensation of the
officers of appointed depositaries at one-half of 1 per cent
on the first $100,000 received; one-fourth of 1 per cent on
the second equal amount; and one-eighth of 1 per cent on
all sums over $200,000. The depositary paid his own
rent out of the sum thus received. These provisions were
not, however, to apply to offices in which the maximum
compensation allowed by law was already received. 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 enlargement
of the number of depositaries necessary until the national
banks were established in considerable numbers. Depositaries have existed at one time or another in the following
places, in addition to the subtreasuries mentioned in the
a Exec. Doc. No. 4, 31st Cong., 1st sess.
6 Estimates of appropriations, House Doc. 177, 61st Cong., 2d sess.,
48ft\, 395.




86

Independent

Treasury of the United States

table above: Buffalo, N. Y.; Charlotte, N. C.; Dahlonega,
Ga.; Denver, Colo.; Dubuque, Iowa; Jeffersonville, Ind.;
Little Rock, Ark.; Louisville, Ky.; Mobile, Ala.; Nashville, Tenn.; Norfolk, Va.; Pittsburg, Pa.; Richmond,
Va.; Santa Fe, N. Mex.; Tallahassee, Fla.; and Wilmington, Del. Some of these were made assay offices by
the coinage law of 1873 a n ( * 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. 0
Not only has the amount of work of the kind originally
performed by the subtreasury largely increased, but the
character of the work has greatly changed. As originally
conceived the subtreasury was, in its organization, so
simple that its accounts might possibly have been kept
in the simple manner ascribed to Gouge's " ingenious cordwainer." 6 Its duties were simply the receipt and payment of public money, in coin and treasury notes. Their
enlargement is due to the financial operations connected
with and consequent on the civil war; to the monetary
and banking policy of the country; and to the great
increase of government receipts and expenditures.
The work of the subtreasuries consists, in general, in
receiving and paying all public money, receiving deposits
of collecting and disbursing officers, and in issuing and
redeeming, under proper regulations, all money of the
United States. Besides the nine assistant treasurers
« U. S. Rev. Stats., 3600




& See above, p 38.

87

National

Monetary

Commission

appointed as such, the superintendents of the mints at
Carson City and Boise City are required by law to perform the duties of assistant treasurers. In addition to
the subtreasuries the national banks also are keepers of
the public money. By the act establishing 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 provision of the law making
them public depositaries. On January 2& of that year a
bill ° passed the House of Representatives prohibiting
the deposit of public money in banks in any cities or
places in which there was a treasurer or an assistant
treasurer, and prohibiting collectors and disbursers of
public money from depositing public money in banks if
they were within 50 miles of a subtreasury. 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
and 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 90 per cent
of the par value of the bonds deposited as security. 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 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 advantage.
Moreover, the practice in the earlier years of the system
< H. R. bill 450.
*




See House Journal, 40th Cong., 2nd sess., 265.
88

Independent

Treasury of the United States

was for the Treasurer to draw against his bank balances
whenever funds were needed. " I n consequence the balances were not uniform, but fluctuated from 60 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 90 per cent of the face value of the
United States 4 per cent bonds, and a somewhat smaller
amount on 4 K and 3 per cent bonds. This rule was
changed in May, 1887, and a balance equal to par allowed
on 4 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
depositaries, the rule was again changed and a balance
was allowed equal to n o per cent of the face value of 4
per cent bonds and par of the \y2 per cents whenever a
sufficient margin remained to cover the largest deposit
likely to be received in any one day." a
Secretary Fairchild also increased the number of
depositary 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.6
When Secretary Windom assumed the Treasury portfolio, he changed the policy of his predecessor as to the
extent of the use of the national banks as depositaries,
and the amount of money held by them was reduced.
Under the law and the regulations of the Treasury,
collectors and surveyors of customs, collectors of internal
revenue, and other receivers of public moneys who live
a

Ex. Doc. No. 243, 50th Cong., 1st sess. (Secretary Fairchild in a
letter to the House of Representatives.)
b Commercial and Financial Chronicle, October 15, 1887.




89

National

Monetary

Commission

in a town in which there is a subtreasury or a national
bank depositary are required to deposit their receipts
daily. Officers who are unable to do this on account
of their distance from a depositary are required to forward
their receipts when they reach the sum of $1,000, and
at the end of each month whether they reach this amount
or not. Attorneys, marshals, and court clerks of the
United States who have occasion to receive public money
are also required to deposit according to the regulations above mentioned. Disbursing officers are required
to deposit disbursing funds to their official credit, and
must deposit such moneys with a treasurer or assistant
treasurer or a national bank depository authorized by
the Secretary for that purpose. It will be noticed that
under the law disbursing officers may not place their
funds in national bank depositaries without special
permission of the Secretary of the Treasury. If neither
a subtreasury nor a national bank depositary is available,
the Secretary may, under the law, authorize disbursing
officers to keep their funds as he thinks best. Failure
to comply with the provisions of the law as to making
deposits renders the offender indictable for embezzlement. Depositaries are required to keep accounts of
post-office deposits separate from other accounts of public
money.
Disbursing clerks, agents of the executive department,
independent officers, and commissions are directed to
make their deposits on or before the 5th and 20th of
each month in the United States Treasury, and any cash
balances drawn to meet pay rolls which have not yet
been paid out are held until the next regular pay day, and




90

Independent

Treasury of the United States

after that they are therefore obliged to make payment
by check.
Circulars issued from time to time by the Treasury
Department give instructions concerning the proper
discharge of the various duties of assistant treasurers.
The sources of the receipts of a subtreasury are new
currency from Washington; deposits for transfer by
the Treasury Department to other points; customs;
transfers of public money from depositary banks; sales
of gold by the assay office; internal revenue; patent fees;
the annual tax on national banks; deposits of 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.
These last may be mutilated 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 subtreasury is a money-receiving, moneypaying, and money-exchanging establishment.
The subtreasury at New York is divided into departments, as follows: The receiving and the paying departments, the minor-coins department, the bonds department,
and the checks department. As a matter of fact the
classification is in practice carried further, so that there
may be distinguished the general receiving and the goldreceiving departments, the general paying and the coinpaying departments, the coupon division, the registered
interest division, the accounting and auditing division,
and the bookkeeper's division.
The general receiving department is that into which
all money other than gold is paid. All notes paid in




91

National

Monetary

Commission

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, payment, and issue of all checks. It is really a part of both
the receiving and the paying departments.
The number of checks handled is very large. Probably
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, quartermasters,
and others, who use in all nearly half a million checks
a year.
In the coins division a subdivision 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 i-cent and 5-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 verified; 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 department we find an explanation of a fact which we shall have




92

Independent

Treasury of the United States

occasion to note later, that sometimes the reported
receipts and disbursements of the subtreasury do not
correspond with the amounts of money actually received
or disbursed, for there are many transfer transactions
which appear only on the books. For example, the
Treasurer transfers from the cash in the office, held on
account of the General Treasury, $1,000,000, 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 checks begin to come in.
The names of the other departments carry with them a
sufficient explanation of the work done in them.
There are many interesting points of detail that are
worth noticing. The visitor to the Treasury, or to a subtreasury, is always interested in seeing the provisions 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
subtreasury. Four of them are bright apartments, 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
subtreasury, once stood old Federal Hall, where the first
Congress of the United States met when the future of




93

National

Monetary

Commission

this country was in the balance; and in front of the subtreasury building was George Washington inaugurated as
first President of the United States.'' a
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 ioo bags of silver containing
$5,000 apiece. As much as $40,000,000 or $50,000,000
of silver is sometimes collected in a single vault. The
notes are stored in packages, each denomination by
itself, and 1,000 notes to a package. This arrangement
is convenient both for storing and for counting.
There is a large portion of the money in the subtreasury
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 necessary 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 representatives.
The ordinary vaults, those which are in use every day,
are in the charge of a vault keeper, can not be entered
except in his presence, and even then only during business
hours, because most of the vaults are fitted with time
locks.
The accounts of the subtreasury are, of course, balanced every day, and a statement of the day's business is
forwarded to Washington.




o New York Times, November 9, 1890.

94

Independent Treasury of the United States
Not the least interesting work performed at the subtreasury is, to the casual visitor, the details of the redemption of currency. Mutilated currency usually reaches the
subtreasury 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 sometimes counterfeits. The clerks assort the bills as they are counted,
putting together those that are still fit for circulation.
The larger part of the mutilated money consists of bills
of small denominations, ones, twos, and fives 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 ioo bills
each, and are canceled 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 canceled bills are then ground to
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 ioo 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 200 and 300 counterfeit bills a month
are brought into the subtreasury. When a counterfeit is




95

National

Monetary

Commission

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 subtreasury clerks promptly detect them and throw
them out.
The precautions taken for preventing robbery are, of
course, great. The contrast between the defenses of the
New York subtreasury and those which Gouge so graphically described in 1854 ° 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.
BANKING

FUNCTIONS OF THE INDEPENDENT

TREASURY

SYSTEM.

The independence aimed at by the establishment of
the independent treasury was independence of the banks
of the country, first, as to the safe-keeping of the public
money; and, second, as to the steadiness of value of the
currency. To accomplish the first purpose the Govern-




<*See Finance Report, 1854.
96

Independent

Treasury of the United States

ment provided its own depositaries. To secure the
second it refused to receive bank notes, and, when the
civil war broke out, it issued its own notes. The Treasury
became, in a way, a bank of issue, and thereby opened
the way for as far-reaching and mischievous interference
with the money market as has ever been produced by
the alternate contractions and expansions of the currency
caused by its independence in the matter of deposits.
The evils of the attempt to have an independent government currency became evident when Secretary Chase
made his attempts to borrow the specie of the New York
banks in 1861 and 1862. The Government, under the
independent treasury law, was obliged to be independent
of the banks in the sense that it must not use their notes.
If, therefore, the Treasury was to get money to carry on
its now extensive operations it must use specie or issue
Treasury notes. Secretary Chase felt that he must actually
secure and put in the government vaults in the form of
specie the amounts of the loans made him by the New
York banks. But if he locked it up the banks could not
keep it as a reserve against their notes. It could not
be in both places at once. Therefore Secretary Chase's
policy involved a double contraction of the currency—
the withdrawal of the specie from the banks and the contraction of the bank-note circulation in consequence.
As we shall see when discussing the relation of the subtreasury to the management of loans, the banks could
not stand such a strain. The Secretary therefore maintained the independence of the Treasury in the matter
of currency by resorting to Treasury notes. This was a
41969 °—10




7

97

National

Monetary

Commission

kind of independence which was not specifically contemplated, although it was distinctly enough implied, by
the act of 1846.
After the country entered upon the policy of the use
of fiat paper it made several attempts to maintain its
independence of the banks in the currency it used. To
be sure, with the establishment of the present national
banking system, the Government acquiesced in the use
of notes issued under it, but was not content to let these
serve its purpose altogether. The use of irredeemable
paper continued until 1879, and the notes, though now
redeemable, are still in use. In addition, the Government
entered upon a curious career, in its silver policy in 1878
and 1890. The evils of the independence of the Treasury
as to the kind of currency it shall use were especially
evident in the period when the Treasury showed an excess
of expenditures over receipts and at the same time stress
in the money market and depression in business caused
a run upon it for the exchange of its independent money
for the specie with which the world is willing to settle its
debts. The most serious portion of the experience was,
of course, in the five years following 1890; although
students of the subject need not be told that evils of no
little magnitude had been caused in this way in the
preceding twenty years. The lessons of the experience
of the years from 1890 to 1895 were strong enough to
force us a few years later to adopt some reasonable measures of protection in the management of the Treasury as
a bank. To a full understanding of the independence of
the Treasury, therefore, it is necessary to give some attention to what may properly be called its banking functions.




98

Independent

Treasury of the United

States

The history of the independent treasury shows that for
long periods it has performed some of the functions of a
bank of deposit and issue. It has redeemed United
States notes since they came into use, and has for many
years undertaken the service of transferring funds from
one part of the country to another. Of late years, however, its banking activities have been greatly enlarged.
To the extent that it is required by law to receive
money on deposit, and to pay it, or to issue notes and redeem them on demand, it is engaged in a business which
can not be conducted without having ability to comply
promptly with its obligations. As Secretary Carlisle
wrote in 1893: 0 "Under existing legislation the Treasury
Department exercises to a larger extent than all the
other financial institutions of the country combined the
functions of a bank of issue * * *. While the laws
have imposed upon the Treasury Department all the
duties and responsibilities of a bank of issue, and to a certain extent the functions of a bank of deposit, they have
not conferred upon the Secretary any part of the discretionary powers usually possessed by the executive heads
of institutions engaged in conducting this character of
financial business." The subtreasuries act as banks of
deposit, issue, and redemption, and as agents for the
transfer of currency from one part of the country to
another. In addition to performing these services, the
New York subtreasury is also a storage warehouse or
depot for gold and silver bullion used in international
exchange to settle trade balances. If we were to enumerate the specific banking functions of the Treasury, they




< Finance Report, 1893: lxxiii.
*
99

National

Monetary

Commission

would be as follows: (i) It issues and redeems paper
money—United States and Treasury notes; (2) it exchanges various kinds of money for one another; (3) it
prepares and supervises the issue of, and redeems, national
bank notes; (4) it transfers money to move the crops;
(5) it supervises the division of the money of the country
into proper denominations so as to furnish the proper
supplies of large and small notes, respectively; (6) it acts
as a regulator of the rate of discount by contracting and
expanding the currency through its operations upon the
deposits in banks and in its own vaults; (7) it keeps
the gold reserve of the country.
A brief account of the mode and conditions of the issue
and redemption of currency by the subtreasury system
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 subtreasury, free of charge; and United States notes are
redeemed in gold, in sums not less than $50, at the subtreasuries in New York and San Francisco; gold certificates are issued for not less than $20 on deposit of gold
coin at a subtreasury; 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 subtreasury for silver certificates; 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 deposited in sums of $20, or multiples of twenty and "lawful money" received in




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exchange. Standard silver dollars are exchangeable for
silver certificates only.
Since the issue of the United States notes known as
greenbacks it has been the business of the Treasury to
receive or redeem and reissue these notes. They are
issued, to be sure, not on the basis of discount, as they
would be if the Treasury were a true bank, but in the
payment of other obligations. Moreover, their amount is
fixed. The extent to which these practices of redemption
and reissue are carried is scarcely realized by the majority
of our people. To go back only a few years, we find
that in 1897 the issue of United States paper currency
and certificates was $374,848,000 and the redemptions
$330,710,020. The Secretary of the Treasury, in his
report for the same year, adds that the presentation of
national-bank notes for redemption was so large as to
overtax the staff of employees who counted and sorted
them, so that it was necessary to secure some of the general
funds of the Treasury to meet the expenses. For the
years following 1897 the issues and redemptions of all
kinds of paper currency were as follows:
Issued.

Redeemed.

677,000

$338, 3 5 7 , 0 2 0

1899-

301, 276,000

309. 8 0 8 , 3 3 0

1900.

495. 5 4 5 . 0 0 0

1901.

407. 102,OOO

327, 2 5 7 . 4 2 4
358. 8 9 1 , 4 9 0

1902.

466, 9 0 8 , 0 0 0

408, 0 8 3 , 6 0 0

1903.

SSL 038,000

488, 5 5 8 , 2 2 0

1904.

650, 0 2 6 , 0 0 0

565, 3 4 0 , 3 0 0

1905.

637. 5 4 0 , 0 0 0

623, 0 2 6 , 6 0 0

1906

629, 8 2 6 , 0 0 0

577, 4 4 S . 1 0 0

1907

698, 2 7 3 , 0 0 0

582, 9 0 2 , 0 0 0

1908

804. 3 2 6 , 0 0 0

665, 2 2 0 , 0 0 0

1909

764, 5 1 0 , 0 0 0

722, 3 9 5 . 0 0 0

$1,310,




IOI

National

Monetary

Commission

In the fiscal year 1908-9 the United States notes issued
and redeemed were $132,940,000. These redemptions
were, of course, largely exchanges of notes of one denomination for those of other denominations. The largest
number of exchanges is due to a demand for small denominations for circulation, on the one hand, and for large
denominations to be used by the subtreasury in the settlement of clearing-house balances, on the other. Gold
certificates were issued in the same year to the amount of
$294,710,000 and the redemption of these certificates
amounted to $261,892,000. Silver certificates were issued
to the amount of $336,860,000 and redeemed to the amount
of $326,796,000. Under existing conditions the annual
redemption of United States notes and treasury notes in
gold is, of course, relatively unimportant. In 1908-9
United States notes were redeemed in gold to the amount
of $19,984,536 and treasury notes of 1890 to the
amount of $31,405. We are not likely to have a repetition
of the " endless-chain " process of 1893. For several years
about that time the redemptions, of course, were very
large. They rose from a little under $6,000,000 in 1891
to $102,100,345 in 1893 and to more than $158,655,956
in 1896. After that the amount thus redeemed gradually
fell to $8,267,245 in 1903. Since that time it has increased
slowly, until in 1909 it was a little over $20,015,941.
These statements are sufficient to show the extent of the
business of the Treasury in the matter of issue and redemption.
The exchange of one kind of money for another is, of
course, included in what is called redemption in the
treasury reports. Redemption in the proper sense refers




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to the acceptance of notes in exchange for gold, and the
figures last given in the above paragraph are the ones that
have reference to this process in its true sense. The
Treasury has been obliged at times to make a distinct
effort to push certain kinds of money into circulation.
This has been notably true several times of the standard
silver dollars. Standard silver dollars presented at the
Treasury office for exchange during the fiscal year 1908-9
amounted to $23,488,604, which was a considerable
decrease over that of the preceding year. Subsidiary coin
is also redeemed by the Treasury to a considerable extent,
and the amount in the fiscal year ending June 30, 1909,
was over $56,000,000. One service which the Treasury
is rendering now is to retire the treasury notes of 1890 as
fast as silver dollars are coined.
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 Governments own
money. This transfer relates to the money of individuals
or of banks deposited at some subtreasury. 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 permanently
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 authorizing the




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delivery of silver certificates at subtreasuries in the interior in exchange for gold deposited at the subtreasury 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 further 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 subtreasuries, if it proved of any
service in affording relief. The order was soon complained of, however, by the San Francisco bankers, on
the ground that it diminished their available reserve.
The amount of transfers under the circular was over three
million dollars.
The regulations which cover the issue and redemption
of paper currency and the specie of the United States
give an adequate idea of the work of the subtreasuries
in the matter of issue and redemption. According to
these regulations, (1) new currency, is sent in return
for currency unfit for circulation, and for national-bank
notes and minor coin received for redemption. (2) Silver
certificates are issued also by assistant treasurers in
exchange for standard silver dollars. (3) Gold certifi-




°See p. 105 and Appendix 3.
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Treasury of the United States

cates are issued for gold coin. (4) Gold coin is paid out
by the treasurer or subtreasurers for gold certificates,
United States notes, and treasury notes of 1890. (5)
Standard silver dollars are sent by express at the expense
of the consignee in exchange for silver certificates or
treasury notes of 1890. Charging the expense to the
consignee is a departure from the old policy noted above
whereby the Government paid the express charges in
order to induce the banks in the interior to take silver
dollars and put them into circulation. (6) Subsidiary
silver coin is exchanged for United States notes or bank
notes, and it is sent from the nearest subtreasury at
the expense of the Government. If the consignee prefers to have the coin come by registered mail, it will be so
sent at his risk, but with postage registration free. (7)
Nickels and pennies are exchanged for United States
notes or bank notes, and sent by express on the same
terms as subsidiary silver coin. Both subsidiary silver
coin and notes may be obtained, however, by drafts sent
to the Treasurer or assistant treasurer in New York,
payable to the order of this officer. The transportation
charges on new silver or minor coin sent direct from the
mints must be paid by the consignee. (8) Gold is paid
out, of course, in the redemption of United States notes,
treasury notes of 1890, and gold certificates. Silver certificates are redeemable in silver dollars at the Treasury
or any subtreasury. National-bank notes are redeemed
at the United States Treasury only, and not at the subtreasuries.
Provisions are made for the redemption of overworn
currency, and careful instructions are given by the depart-




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Commission

ment as to the mode of packing and sending currency
for redemption and exchange. One of the latest circulars on the subject will be found in the appendix.
The national-bank notes redeemed during the fiscal year
1909 amounted to $461,522,202, and were 67.8 percent of
the average outstanding circulation for the year. The
amount redeemed varies considerably from year to year.
The words "money for moving the crops" have come
to be a familiar heading in the Treasury reports of the
United States. The service to be performed in this
connection is not only to furnish the proper amount of
small denominations of currency, but also to see to its
proper geographical or economic distribution. As has
been said, the method of transfer is for the banks in the
interior cities to call on their New York creditors to deposit
gold at the subtreasury and in exchange for this the
Secretary of the Treasury orders payment of the amount
to the creditor bank in the kinds of money called for at
the home bank. In the fiscal year ending June 30, 1909,
the subtreasury at New York received $10,250,000 in
gold coin and certificates during the months of April,
May, June, August, and September. The Treasurer
and assistant treasurers of the United States paid for
this deposit with $450,000 of United States notes to
banks in Washington, $9,500,000 to banks in San Francisco, and $300,000 to banks in New Orleans. "The
Treasury is called upon every year to provide small
denominations of paper to facilitate the movement of the
crops. A large part of this business is done by the
deposit of funds with the assistant treasurer in New
York, for which payment is made by the assistant




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Treasury of the United States

treasurers in New Orleans, St. Louis, or Chicago, respectively." a
The supply of notes of small denominations is of course
a matter of great importance. Notwithstanding the great
development of our bank-check system, what is needed
in the country districts during the spring and autumn
is a sufficient amount of currency. This must be of such
denominations as suits wage payments. Consequently
the United States Treasurer takes especial care to furnish
denominations of the proper amount. In the opinion
of the Treasurer, as expressed in his report for 1909,
there had been so considerable an increase in the volume
of small denominations of currency during the past few
years, and its distribution had become so much more general throughout the country, that the volume of requests
for money to assist in moving the crops during the fall of
that year was much less than formerly. According to the
same report, all denominations of ten dollars and less was
53.85 per cent of the total paper currency on October 1,
1909. This shows a small relative decrease, though, as
the Treasurer says, there has been an absolute increase.
We need not here expatiate upon the action of the
Treasury as a regulator of the rate of discount. The whole
story of its operations for nearly fifteen years, and especially for the past eight years, is a history of its attempts
to keep the money market steady and the rate of discount equable by alternate deposits and withdrawals
of the public money in the national banks, as well as by
the sale of bonds and other devices that we will discuss
later.




a

U. S. Treasurer's Report, 1900: 21.
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Monetary

Commission

The Treasury keeps the gold reserve of the country.
This function was assigned to it, by implication, by that
clause of the specie-resumption law which established the
gold reserve. But it is the act of March 14, 1900, which
specifically and in great detail fixes and describes the
banking functions of the Treasury, especially its duty to
keep the gold reserve of the country. By that act the
Treasury was divided into two departments, one of them
the ordinary fiscal department of the Government, and the
other the department of issue and redemption, virtually a
bank. Under the provisions of the law the Treasurer is
required to redeem in standard gold coin all United States
notes and Treasury notes of 1890. For this purpose the
Secretary of the Treasury is required to set apart a reserve
fund of $150,000,000 in gold coin and bullion. This fund
succeeds the old $100,000,000 reserve which had been
kept by the Secretary of the Treasury unc^er the implied
authority of the resumption act. This fund of $150,000,000 was made for redemption purposes only, as above
specified. Whenever the Treasurer redeems ^fiited States
notes he is required to use the notes which come into his
hands for purposes of restoring and maintaining the gold
reserve. Three methods are prescribed for doing this.
In the first place he may exchange the notes redeemed
for gold coin in the general fund of the Treasury. By the
second method he may accept deposits of gold coin at
any subtreasury or at the main office of the Treasury in
exchange for redeemed United States notes. Or, finally,
he may obtain gold for such notes. a If he finds that he
is not able by any one of these means to keep the gold




a

See sec. 3700, Rev. Stats.
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Independent

Treasury of the United States

reserve up to $100,000,000, he is required to sell bonds in
order to restore it to the maximum, $150,000,000. The
gold coin received from the sale of bonds first goes into
the general fund of the Treasury, and is then exchanged
for notes which have been redeemed and are held in the
department of issue and redemption. The Secretary is
given discretion to use notes which have thus come from
the department of issue and redemption to redeem United
States bonds, or for any " other lawful purpose the public
interests may require," excepting to meet deficiencies in
current revenue. Redeemed notes must therefore be
held in the reserve fund until exchanged for gold. The
reserve fund must be entirely of gold or gold and redeemed
notes and may not exceed the maximum already mentioned.
The Division of Issue and Redemption of the Treasury
Department, as has been remarked, has been assigned the
banking functions of the Treasury so far as relates to
issue and redemption of paper money. All records and
accounts relating to the issue and redemption of United
States notes, gold certificates, silver certificates, and currency certificates are now in charge of this division. It
keeps the gold coin held against outstanding gold certificates, United States notes against which currency certificates have been issued, and silver dollars representing
silver certificates, and is obliged to redeem notes and
certificates by the respective funds held against them.
These are known as the trust funds of the Treasury.
Under the law the Secretary may issue gold certificates
against deposits of gold coin in sums of not less than
twenty dollars. This right of issue, however, becomes




109

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Commission

inoperative when the gold in the reserve fund is below
$100,000,000

Another provision of the law indirectly made it the
duty of the Treasury Department to provide currency of
small denominations by prescribing the denominations
under which silver certificates may hereafter be issued.
There are other provisions, but these are the essential and
important ones for our purpose.
An examination of this law shows that it makes the
issue and redemption department of the Treasury a bank
of deposit and issue. Under the law the Treasury receives
deposits of gold and issues warrants or certificates against
them. It issues its own notes and holds the specie
reserve against them. It exchanges money of one kind
for other kinds. It performs exchange operations by a
transfer of currency. Under the national banking law it
virtually issues notes against a deposit of bonds without
reserve. All these services it performs at considerable
expense to the Government. In other countries the
banks perform most or all of them at their own expense.
In the function of issuing bank notes against bonds it is
virtually discounting the paper of the issuing banks without direct charge. All that is necessary to make the
Treasury a bank of discount is to permit it to accept
securities other thai* United States bonds against note
issues. If the law permitted it to accept commercial paper
from the banks and to give them additional circulation in
exchange, in times of crisis for example, it would be performing practically all the functions of a great central
government bank and have all the functions and power
necessary to " regulate the currency.''




no

CHAPTER

V.—THE

REACTION

TOWARD CLOSER

RELA-

TIONS WITH THE BANKS.
THE PERIOD OF FIAT PAPER

MONEY.

The history of the independent treasury since the creation of the national banks is a record of gradual departure
from independence, both in practice and in law. The
increasing revenues and disbursements of the Government and the irregularity of its fiscal operations have
produced interference with business to a larger extent
with the passage of the years. Efforts by the Treasury
to correct or prevent the consequent ill effects have
become much more frequent and brought the Government into closer relations with the banks. On some occasions, too, the necessities of the Treasury have compelled
it to rely on the help of the banks, and so brought them
together in their operations.
The law establishing the present national banking system, passed February 25, 1863,° 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 depositaries of public moneys, except receipts
from customs, under regulations to be prescribed by the
Secretary of the Treasury. The reason for prohibiting
the deposit of customs receipts in the banks was that
these were paid in coin, which the Government needed,
and the banks had suspended specie payments. They
were required to give security by the "deposit of United
« U. S. Stat. L., 37th Cong., 3d sess., p. 58, sec. 54; 38th Cong., 1st sess.,
p. 106, sec. 45.
in




National

Monetary

Commission

States bonds and otherwise for the safe-keeping and
prompt payment of the public money deposited with
them." Postmasters in counties which had no designated
depositaries, treasurers of mints, or assistant treasurers,
or the Treasurer of the United States, might deposit in
the national banks at their own risk. This was practically a reversal of the act of seven years before, which
required collecting and disbursing officers to use the government depositaries. The second step backward, under
the national banking law, consisted in giving a semi legaltender 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." Had this same use of the
banks' 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 succeeding forty years would doubtless have been a brighter
record. This provision of law was almost a complete
withdrawal from the position of 1846. The banks might
also, by this law, be employed as the financial agents of
the Government.
In this same year, 1863, to avoid the inconvenience of
handling specie for the payment of duties and of interest
on the public debt, the deposit of gold coin and bullion
with the Treasurer or subtreasurers, in sums of not less
than $20, was authorized; and certificates were issued for




« Section 20 of the bank act of 1863.
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Treasury of the United States

these, in denominations of not less than $20, and corresponding with the denominations of United States notes.
The metal had to be kept for the redemption 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
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 amount of coin received for customs dues had exceeded
the payments of interest on the public debt until, in 1864,
about $50,000,000 were stored in the government vaults.
To relieve the situation Congress authorized the Secretary
of the Treasury to sell the surplus gold for other currency.
He did so to the extent of $11,000,000, but the effect was
only for a day. The fluctuations of the value of the
metal continued and were aggravated by the alternate
accumulation and sale of gold by the Government.
In 1866 the organization of national banks was well
under way, and the system had proved a great convenience. The Treasury report for 1866 says: "The employment 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
41969°—10




8

113

National

Monetary

Commission

month of September, 1866, received moneys on deposit to
the credit of the United States as follows:
[Cents have been omitted.]

On subscription to United States stocks
On account of internal revenue
From miscellaneous sources
Total collections

$i, 116, 151, 286
599, 936, 712
37, 443, 637
1, 753, 531, 636

"They have paid in various ways, and at points as
directed by this office, and without expense to the Government, during the same time, $1,722,554,656."
So close was now the connection between the banks and
the financial operations of the Government that the
"divorce 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/' Yet the gap
still remaining between them, due to the fact that customs
receipts, which were in gold, could not be deposited in the
banks, gave Treasury operations a dangerous influence,
made more so because the country was on a fiat money
basis.
During the next few years the subtreasury 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.
In 1873 the Government undertook virtually to perform the office of safe depositary for the banks by allow-




114

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Treasury of the United States

ing them to deposit legal-tender notes in exchange for certificates of deposit prepared at the expense of the Government. The deposits were withdrawable on demand.
This meant that the banks could use the subtreasury to
keep them in notes of convenient denominations at public expense.
The banking work of the Treasury received an additional impulse in this year by the reissue of legal-tender
notes that had been once paid, but which Secretary Boutwell brilliantly regarded as a "reserve'' that he could
put out again to increase the currency and so relieve a
stringency. This was, however, but a trifling interference with business relations compared with others that
had been made since the day when the country had cut
loose from the safe moorings of specie payments to which
she had been definitely 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 there
lay in the vaults of the Treasury and subtreasuries
$50,000,000 of gold which 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 sacrifice equal to
the amount of the premium on gold. Secretary Boutwell's
"reserve'' was brought into requisition again. In October Secretary Richardson thought to afford some relief by
instructing the subtreasury officers to pay out silver coin
to public creditors who wished it in sums not exceeding
$5 in any one payment. But the Treasury held too few
small coins to make an impression of any importance on
the situation by such a step.




115

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Mon et ary

Commission

The next part of importance played by the subtreasury
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 subtreasury only. Other
subtreasury officers were to pay interest to all who would
accept legal-tender notes. The subtreasury at New York
also became at this time a member of the clearing house,
" t o a certain extent and for certain purposes.'7 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 subtreasury and to accept legaltender 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 probably not have
been successful without the aid of the banks. The banks
of New York City alone held $40,000,000 of government
paper, and the presentation of these doubtless would have
shipwrecked the Treasury plans. But the banks held
them back and so strengthened the government credit.
Moreover, so far the largest part of the drafts on the
subtreasury 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 operations 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




116

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Treasury of the United States

for the purpose of aiding the Government, and their very
establishment was an abandonment of the principle of
the subtreasury act of 1846. Whether it would have been
possible to get on during the war without the aid of the
banks in placing 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
expense which they saved the Government in these was
very great. But for the use of the banks as depositaries
the money paid for the bonds sold " would necessarily
have been placed in the subtreasury to await the maturity of the bonds called under the three months' notice
required by law." a At the end of April, 1879, the banks
had sold $389,944,295 worth of bonds, which sum would
otherwise have gone into the subtreasury vaults, to be
paid out only as the bonds matured or were called in.
Thus more than one-half the paper circulation of the country would have been withdrawn from use and the results
would have been disastrous.
A DECADE OF VACILLATING POLICY AFTER RESUMPTION.

Before the resumption of specie payments in 1879 the
extent of the use of national banks by the Government
was mainly dependent on the amount of the government
fiscal operations; since then it has varied mainly accord-




oProc. Amer. Bankers' Assoc, 1880.
117

National

Monetary

Commission

ing to the views of the Secretary of the Treasury or the
President.
In his report for 1885, Treasurer Conrad Jordan said
that " a more extended use of the banks as depositaries
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 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 accumulated at money centers
on account of the dullness 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 Treasury,
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 greenback 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
$5,000,000 of gold had been advanced. 0
a
The transaction was really a loan of gold by the banks to the Government, with the subsidiary silver as security, rather than a sale; and the
banks soon afterwards got back their gold. There is some doubt 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 was tided over, see Taussig's "The Silver Situation in the
United States," Publ. Amer. Econ. Assoc, vii: 1: 30-37.




118

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Treasury of the United States

In 1886 Mr. Jordan again declared that the arrangements for collecting and disbursing the revenue were
defective, and recommended a larger use of the national
banks. A bill was introduced a in the House of Representatives to reduce the amount of bonds required from
national bank depositaries and so restore to the channels
of business the excessive accumulations of money in the
Treasury. The bill was never acted on, and nothing came
of Mr. Jordan's suggestion.
In pursuance of the policy of a larger use of national
bank depositaries, which animated the treasury management during the Presidency of Mr. Cleveland, the government deposits in banks were allowed to increase. On
January 1, 1887, they were about $20,000,000. 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
taxation by the Government and locked up in the vaults
of the subtreasuries, 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 $30,000,000. "The national bank
depositaries have been, and are," he says, "useful auxiliaries to the subtreasury system, but the deposit of pubo Dec. 20, 1886; H. R. bill No. 10324, 49th Cong., 2d sess.




119

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Monetary

Commission

lie 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 August 6,
1846, which contemplates a subtreasury independent of
the banks," Whether or not Mr. Windom's opinion of
the benefits of the subtreasury is correct, he was certainly
justified in his wish and endeavor to observe the law.
Throughout these twenty-five or thirty years there occurred only two instances of loss to the Government from
the use of national bank depositaries. Treasurer Hyatt
wrote in his report for 1887: "The only losses suffered by
the Government on this account, 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 1864.0
These losses have been more than counterbalanced by
the benefit 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
creditors."
We have seen that according to the provisions of the
banking law the national banks were made the legal
depositaries of all public money excepting customs receipts. Of course the bulk of the deposits was, therefore,
internal-revenue receipts. Postmasters were at liberty
to deposit in banks on their own responsibility where
there were no government depositaries at hand.




a See the Finance Reports for these years.
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The significance of the word "deposit'' in connection
with placing public money in the banks should perhaps be
noted. The intent of the law was that the banks could
receive this money as it was collected by the proper
officers. The law did not give authority to any public
officer to transfer to the banks money already actually
deposited in the Treasury, subtreasury, or a government
depositary other than a bank, except to the credit of
disbursing officers for the payment of their drafts. There
was a change in the meaning assigned to the word "deposits" about 1903. Whereas depositing in the banks
originally meant permitting the accumulating revenues
to go into the banks from the hands of the collecting
officers, the Secretary in this year actually took money
from the Treasury and deposited it in the banks. This
gave a new significance to the word'' deposit." It is probable that the previous interpretation of the law was
due not so much to the actual prohibition of the transfer
of money from the Treasury to the banks as to the difficulty of distinguishing internal revenue from the proceeds
of customs in money once covered into the Treasury.
As only the former could be put into the banks, it would
have been unsafe to make any transfer when it was impossible to distinguish what part of the money came from
this source.
There was no change in the interpretation of the law
concerning the use of national banks as depositaries of
public money until about 1898, although, as we have
seen, Secretary Fairchild had allowed the public deposits
to increase, in conformity with the interpretation of the
law followed by his predecessors. Notwithstanding his




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explanations, his larger utilization of the banks raised a
good deal of criticism and protest. Under the administration of Secretary Gage, however, the volume of deposits increased pretty rapidly, and we have the first
clear evidence of the adoption by the Treasury Department of the policy of accumulating a volume of deposits
determined by the state of the money market. The machinery which had been used as a means of relieving stringencies was now to be made a continuous regulator of
the money market and the rate of discount.
In 1898 Secretary Gage prepaid interest and redeemed
bonds and so relieved the money market, while at the
same time he allowed the deposits in the banks to rise to
$95,000,000. The next year he increased them to
$111,000,000, nearly twice as much as the public had
criticised Secretary Fairchild for making only a few
years before. Secretary Fairchild had limited the
amount in any one bank to $1,000,000, but in the year
mentioned Secretary Gage allowed something over
$15,500,000 to accumulate on deposit in the National
City Bank at one time, and more than $4,500,000 in the
Hanover National Bank of the same city. Secretary
Gage did not, indeed, escape criticism for these increasing deposits, and he was accused of showing favoritism
to the banks just mentioned.^ In reply to a congressional inquiry on this point, however, he succeeded in
satisfying Congress that he had been impartial.
The law was amended by the act of June 6, 1900,6
authorizing the Secretary of the Treasury to designate
«See article " T h e Partial Responsibility of Secretaries G a g e and Shaw
for the Crisis of 1907," by A. P. Andrew, Bankers' Mag., 76: 493 fT.
& U. S. Stats. L., 56th Cong., 1st sess., 797 : 658.




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depositary banks in the Philippine Islands, Porto Rico,
and in Cuba, while occupied by the United States.
Whereas bank depositaries on the continent proper were
required by the old law to secure their deposits by " United
States bonds and otherwise/' the meaning of which we
shall presently discuss, these insular depositaries were
required to secure their deposits with United States
bonds only to an amount not less than the deposits.
One other point in the development of the use of banks
as depositaries is worthy of notice. According to an act
of March 3, 1901,** the Secretary is required to " distribute
the deposits herein provided for, so far as practicable,
equitably between different States and sections." This is
a reflection of the demand from banks in different sections
of the country that no special advantage shall be given to
any party or any bank by government deposits. There
is no sound reason for the provision. It is impossible for
anyone to say what is an equitable distribution. Moreover, what will be an equitable distribution in the sense of
affording profits to the depositary banks might be a very
vicious distribution from the point of view of the general
welfare. If we are to use depositary banks at all, the Secretary of the Treasury should be required to utilize them
in such a way as to promote the general interest, without
regard to sectional prejudice and demand. " When Secretary Cortelyou came into the Treasury he found himself
flooded with applications from national banks for deposits
of the public funds. * * * It is a difficult problem
to distribute deposits properly, and the head of the Treasury Department is under constant pressure. If there are




«U. S.Stat. L., 34:1290.
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Monetary

Commission

two national banks in a town and one gets a deposit of
public money, the other, in all probability, enlists the
influence of a Member of Congress or Senator to help it
get a deposit."®
The futility of the provision was shown in 1907 by the
fact that "the allotment of deposits to the banks selected
was made principally to relieve local needs for currency,
but it was observed that many of the banks had their
allotments placed with their correspondents in New York
City, influenced no doubt by the high rates of interest
prevailing there." 6
The Secretary certainly should not be subjected to any
such pressure. Either he should be left entirely free,
without any legal restriction, or some definite plan of
distribution should be provided for him. There is no
reason why the public money should be scattered all over
the country simply to accommodate banks which want to
increase their profits; yet it is difficult to devise a plan
that would be likely to meet general approval. It has
been suggested that the government money should be
kept in reserve cities.
In 1902 the act was further changed so that the treasurer of the Philippine Islands and banks in the islands
chartered by the United States, or any State thereof, which
had a capital of not less than $2,000,000, might be designated as depositaries by the Secretary of War and the
Secretary of the Treasury. According to this act, the
treasurer of the Philippine Islands was not required to




a

Boston Evening Transcript, May 6, 1907.
& Finance Report (Treasurer) 1908: 161.

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Treasury of the United States

deposit bonds as security, nor to give other security unless
required by the Secretary of War. a
THE ABANDONMENT OF THE POUCY OF INDEPENDENCE.

Much as Secretary Gage had done to establish a larger
use of the banks and to aid the money market, it was under
his successor, Secretary L. M. Shaw, that the policy of
continuous regulation of the money market became fully
developed. Here it is necessary only to narrate the successive steps by which the policy of the law of 1846 was
virtually abandoned. The operations which led to them
will be recounted later.
Secretary Shaw made a new departure in policy in two
respects: He accepted other than United States bonds as
security for public deposits, and told the banks that they
need not keep a reserve against them. This last provision,
of course, is open to serious criticism, for it made available
as a basis of new loans, or for an expansion of credit, about
$100,000,000 in the banks of New York alone. The Clearing House refused to avail itself of the privilege. However, the practice thus established by Mr. Shaw was legalized 6 by Congress in 1908.
On August 27, 1903, however, Mr. Shaw departed from
the policy of allowing public money simply to accumulate
in the banks, and announced his purpose to transfer money
from the Treasury to the banks in order to prevent or
relieve a stringency in the market. He then said that he
had about $38,000,000 to assist the banks if a panic came.
In 1907 what had actually become a practice was legala

\J. S. Stat. lf.f 57th Cong., 1st sess., 1369: 711.
&U. S. Stat. I,., 35:552.




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Commission

ized by the act of March 4,® amending the depositary section of the law by providing that banks might receive on
deposit the receipts from customs. It may fairly be said
that with the passage of this act, permitting the banks to
receive deposits of customs receipts, the last vestige of
compulsory independence of the United States Treasury
as the depositary of government revenue disappeared.
Under the old law the customs receipts, more than half of
the government revenue, could not so be used. Since the
public had become accustomed to expect the Secretary
of the Treasury to " ease the market," it seemed foolish to
continue to insist that half the revenues of the Government
should be unavailable to him for this purpose, while of
course the original reason for making an exception of the
customs revenues had in a sense disappeared. That
reason was to make sure that the receipts from the customs,
which had to be in gold, got into the hands of the Government rather than those of the banks. As circumstances
were in 1907, therefore, there was a good reason for making
this change in the law. Moreover, it was obviously one
of the steps toward the ultimate abolition of the independent treasury and the possible establishment of a central bank as the agent of the Government.
The amendment to the law in 1907 found the Treasury,
however, poorly equipped with the machinery necessary
to carry out its provisions. This remark applies, for example, to the receipt and custody of the securities required
from the banks. Moreover the enlargement of the government deposits in the banks emphasized the cumbera

U. S. Stat. L., 34:1290; 59th Cong., 2d sess., 2914.




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someness of the lawful method of getting the money out
of the banks and back into the Treasury. 0 The legal
method of making payments is by subtreasury drafts.
The Government can not check on its deposits in the
banks but must cover the money back into the subtreasury, a process which involves many complicated
formalities in the surrender of the securities deposited by
the banks. So many were the difficulties of carrying out
the depositary law, especially with the provision included
in the amendment of 1901 that the Secretary " should
distribute the deposits herein provided for, so far as practicable, equitably between the different States and sections," 5 that the Secretary of the Treasury, Mr. Cortelyou, appointed a commission to work out a systematic
plan relative to the deposits of public money. The commission included the United States Treasurer, the Director
of the Mint, the Comptroller of the Currency, one representative of the Division of Loans and Currency, and one from
the Division of Public Moneys.0 It seems that the commission had several meetings and discussed the subject
pretty thoroughly, but never made a formal report. An
avalanche of protests was received from banks all over the
country, which had, or wanted, public deposits, against
any plan which might deprive them of this source of gain.
In May, 1908, another amendment was made to the
law, whereby all regular national bank depositaries are
a Cf. Boston Evening Transcript, May 7, 1907, article on Government
Bank Deposits. Of course, in those places in which the subtreasury is a
member of the clearing house the difficulty is less.
& Act of March 3, 1901.
c
S e e "Cortelyou Plans Reform," Boston Evening Transcript, May 6,
1907.




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Commission

required to pay interest upon public deposits at the rate
of i per cent per annum on the average monthly amount
of the deposit. The rate of interest must be uniform
throughout the country. This last provision is bad, for it
makes no allowance for differences of rates in different
localities. The rate fixed is so low that very likely little
mischief will be done; but if the rate were higher, it might
easily happen that in some places a local stress would
make the local rate of discount lower than the interest to
be paid on the public deposits, and in other places higher.
Thus we see that the legislative provisions of recent years
emphasize the truth of what has been said in another
connection, that the only conditions under which the public money should be deposited are those of safety, convenience, and reasonable profit consistent therewith.
It appears therefore that recent legislation has virtually destroyed the distinction between the subtreasury
and the national banks as places for the depositing of public money. So far as appears on the face of the law, it
would be proper for the Secretary of the Treasury to deposit all receipts of the Government in the national banks.
If he had the authority to check against such deposits
instead of having to cover them back into the Treasury,
the use of the independent treasury for depositary purposes would pass away. It is not impossible that some
Secretary of the Treasury may take the view that it is not
forbidden to do this. If so, the policy of the independence of our Treasury, so far as concerns the safekeeping
of the public money, will have passed away.
The number of banks used as depositaries of public
money has largely increased in the past few years. Some




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of them are regular depositaries and some special or temporary. For example, on September 30, 1909, there were
207 regular and 974 special depositaries. 0 The use of the
latter first became large in the panic of 1907. The following table shows the number of depositary banks, and the
receipts and balances of bank deposits, from the beginning
of the national-banking system. 6

1864.
1865.
1866.
1867.
1868.
1869.
1870.
1871.
1872.
1873.
1874.
1875.
1876.
1877.
1878.
1879.
1880.
1881.
1882.
1883.
1884.
1885.
1886.
1887.
1888.
1889.
1890.
1891.
1892.
1893.
1894.
1895 •

Depositary
banks.

B o n d s t o secure deposits.

204
33o
382
385
37o
276
148

Date.

$30,009,750
32,707,500
38,177,500
39,i77.95o
38,5i7,95o
25,423,350
16,072,500

159
163 I
158 J

15.536,500
15,329,000
15,210,000

154 J
145
143
145
124
127 I
131
130
134
140
135
132
160
200
290
270
205
185
159
160

i5,39o, 200
i4,547,2oo I
14,578,000
i5,377,ooo
13,858,000
14,421,400
14, 777,000
15, 295,500
15,925,000
17, 116,000
17,060,000
17,607,000
19,659,900
26,485,500
56,128,000
45,222,000
29, 713,000
26,349,500
15,852,000
15, 247,000

155
160 I

14, 7 3 6 , 0 0 0
15, 2 7 8 , 0 0 0 I

Receipts.

$iS3.
987,
497,
351,
225,
105,
120,

395,io8.7i
564,639.14
566,676.42
737,083.83
244, 144. 75
160,573-67
084,041.79
99, 299,840.85
106, 104,855. 16
169, 602, 743-98
91,108,846.70
98, 228,249.53
97, 402,227.57
106, 470,261.22
99, 781,053.48
109, 397,525.67
119, 493, 171-94
131,820,002.20
143. 261,541. 41
145, 974, 256.86
129, 100, 449-35
119, 056,058.94
123, 592, 221. 68
128, 482,769.20
132, 591,946.77
139, 316, 214.49
147,761,566.81
152, 389,837.70
159, 380,415-47
166, 257,566. 29
147, 326,916. 13
169, 440, 435-46

B a l a n c e s e n d of
fiscal y e a r .

$39, 980,756.39
24, 066,186.19
34, 124,171.54
25,904, 930. 78
22, 779,797.62
8,597, 927.34
8,206, 180.34
6,919, 745-59
12,501, 595-o8
7,233, 55i-11
7,435, 966.69
11,562 679.52
7,520 194.76
7,299 999-28
46,928 268.56
208,033 840.24
7,77i, 233.90
8,704, 830.83
9,38i, 712.90
9,803, 381.79
10,488, 827.63
10,770, 579.96
13, 822,070.80
i8,975, 3*5-41
54,698 728.36
43.090, 75o.53
26,779, 703.32
21,399, 689.16
10,450, 130.01
526.00
9, 962,
10,423, 767.61
10,978, 505.80

o F i n a n c e R e p o r t , 1909:2346^.
& F i n a n c e R e p o r t , 23 2ff. Cf. t a b l e of d e p o s i t s for y e a r s p r e c e d i n g , o n p . 8 1 .

41969°




129

National
Date.

1896
1897

Monetary
Depositarybanks.

Bonds to secure deposits.

160
168
172

$16,928,000

357
442
448

1898

78,564,540

16,930,500
30,851,500
107,253,580
105,765,450

577
713
842

124, 718, 650

837
928

80, 404, 950

1.255
1,436

193, 2 4 4 , 0 5 2

1,414

Commission

152,852,020
112,902,550
95,575,725
180,459,419
8 1 , 244, 071

Receipts.

$181,705,917.74
1 4 9 , 3 0 6 , 6 4 9 . 29
207,178,119.61
283,276,222.20
303,903,655.56
313,373.160.38
281, 2 3 4 , 0 9 1 . 5 7
2 4 4 , 9 4 7 , 5 2 8 . 71
2 5 1 , 9 7 0 , 8 6 2 . 51
251,255,327.39
267,418,788.43
313,824, 771-09
293,869, 490.31
300,924,352.92

Balance end of
fiscal year.

$11,415, 474.42
12,162,158.05
33,843,700.81
70, 2 9 5 , 3 2 6 . 9 4
9 2 , 6 2 1 , 3 7 1 . 72
93,442,683.09
117,141,564.13
140, 0 0 1 , 0 1 6 . 7 0
104,459,638.45
64,803, 466.30
80, 7 3 1 , 0 5 8 . 0 5
1 6 6 , 8 0 3 , 9 5 1 . 96
1 4 7 , 6 9 2 , 0 3 6 . 79
60, 427, 525*69

The table given is compiled from tables 50, 52, and 54
in the report of the United States Treasurer for 1909
and corresponding tables in other reports. The balances
are those on deposit at the close of the fiscal year. It
should be noted, however, that these balances differ from
the balances given in Table 54 of the Treasurer's report
for 1909.°
A study of the columns giving the number of depositary
banks since 1864 shows, as has been already stated, a
a
The explanation of the difference, kindly given by the United States
Treasurer is as follows:
Table 54, on page 240 of the report, is an aggregated statement of ledger
balances, including the unavailable funds and the deposits in the treasury
of the Philippine Islands. The balances standing to the credit of the Treasurer of the United States with the depositaries, when brought together,
verify the amount stated in the table referred to, as follows:

In national-bank depositaries (p. 19)
In treasury of Philippine Islands (p. 19)
Unavailable balances in banks (p. 188)
Total
Less warrants outstanding (p. 19)

61, 599, 915. 41
1, 432, 027. 18

Balance as stated in Table 54 (p. 240)




$60, 427, 525. 69
957, 628. 34
214, 761. 38

130

60, 167, 888. 23

Independent

Treasury of the United States

very great variation, indicating the changeableness of
policy. In 1867 the number of depositary banks rose to
385; after this it fell rapidly to the low point of 127 in
1879. It should be noted, however, that the balance in
the latter case, although the number of banks was smaller,
was nearly nine times as much in the former-mentioned
year. From 1879 the number again increased to 290 on
June 30, 1888. The number again fell to 155 in 1894, a n d
then rose each year until in 1904 it became 842. The
following year the number fell to 837 and has steadily
increased since, the numbers for the four following years
being, respectively, 928, 1,255, J>436, and 1,414.
As to the total receipts in recent years, the sum in 1890
was $147,761,566; the amount increased every year with
two exceptions, 1894 a n ( i 1897, until it reached the high
total of $313,373,160 in 1901. It was less during each
of the following five years, but rose again in 1907 to
$313,824,771, fell to $293,869,490 in 1908, and became
$300,924,352 in the fiscal year of 1909.
The balances on hand in the depositary banks at the
close of the fiscal years also show great differences. The
balances are significant because they throw some light
on the policy of the department as to the amount of
money left in the control of the banks. The balance in
1893 w a s $9,962,000. It did not vary much for four
years, but took a sudden leap in 1898 to over $33,000,000.
In 1899 the balance at the close of the fiscal year was more
than double that of the preceding year and increased
steadily until in 1903 it was $140,000,000. In each of
the two following years there was a large decrease,
but in 1907 the balance rose again to the large sum of




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Commission

$167,000,000. I n 1908 it was $147,692,000 a n d on J u n e
30, 1909 it was $60,427,525.
The warrants paid b y t h e banks in 1890 were $20,548,812. They remained within a million or t w o of this figure
until 1902, and have since increased until in 1909 they
aggregated over $79,000,000.
As t o t h e a m o u n t transferred to t h e banks from t h e
Treasury, it never rose t o as high a figure as $100,000,000
before 1899, b u t in t h a t year it suddenly j u m p e d t o
$226,173,117 from $82,971,223. Two years later it h a d
fallen to $125,000,000. I n 1903 it became $201,000,000,
in 1906 $233,000,000, in 1907 $349,000,000, in 1908
$297,000,000, and in 1909 $192,000,000.
SECURITY FOR DEPOSITS OF PUBUC MONEY.
According t o t h e law passed April 2, 1864, providing
for t h e use of national banks as depositaries of government revenue, it was provided t h a t such deposits should
be secured by United States bonds and otherwise. T h e
necessity has never arisen for courts t o pass upon t h e
meaning of t h e words " a n d otherwise/' F r o m a s t u d y
of t h e debates of Congress it appears t h a t t h e words were
intended to mean a personal bond. T h e words were
inserted as an a m e n d m e n t t o t h e original bill b y Mr.
Hooper, of Massachusetts. On inquiry on t h e floor of
t h e House as t o t h e meaning intended b y t h e amendment, Mr. Hooper replied: " B y t h e present arrangement
or rules of t h e Department, t h e Secretary requires a personal bond in addition to a deposit of United States




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stock, and it was to cover that point that I offered the
amendment." a
It does not seem to have occurred to any Secretary of
the Treasury that the security to be accepted for a deposit
of public money in the banks could be other than United
States bonds until the time of Secretary Leslie M. Shaw.
He ruled that other kinds of securities might be accepted,
so that United States bonds might be released and become
the basis of new note issues. This was virtually making
the phrase "United States bo;nds and otherwise'' read
"United States bonds or otherwise."
The action of the Secretary aroused much discussion and
criticism, but was defended on the ground that the phrase
"United States bonds and otherwise" is verbally capable
of that interpretation. Against this opinion, however,
certain considerations must be set. These are:
i. The intention of the framers of the law clearly was
to restrict the bonds used to those of the United States.
This is evident from the remark of the mover of the amendment by which the words "and otherwise" were inserted
in the law.
2. The other interpretation reduces the phrase to absurdity. If "United States bonds and otherwise" means
a mixture of United States and other bonds, the Secretary
could accept as security for any amount of deposits two
United States bonds of the lowest denomination and let
the rest of the security be in the form of other bonds. If
it were the intention of Congress to permit this, the requirement of United States bonds at all is foolish.
a Congressional Globe, 38th Cong., I I : 1401.




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3. Every Secretary of the Treasury before Mr. Shaw
since the passage of the act under discussion has construed
the phrase in the sense intended by Congress. All have
uniformly refused to accept other bonds as security for
public deposits.
4. The intent of Congress may be inferred also from the
fact that it has always refused to amend the national banking law so as to permit the use of other than United States
bonds as security for note issues.**
How far we have broken away from our older practice
may be seen from a letter of the Secretary of the Treasury,
under date of February 27, 1908, transmitting a response
to the resolution of the House of Representatives as to
the number, capital, circulation, deposits, etc., of the
national banks. 6 The variety and character of the bonds
held by the different banks is remarkable. Besides United
States securities we find railway, municipal, county, and
state bonds.
The attitude of the present administration of the Treasury on the relation of the Government to the banks may
be gathered from these words of the Secretary: "The
tendency to affiliate the subtreasuries with the clearing
houses of their localities is, I think, clearly in the right
direction. There seems to be no good reason why the
receiving and paying work of the Government should not
be on the lines of the receiving and paying work of other
business organizations, and so far as the discretion lies with
the Secretary of the Treasury I shall consider with great
o> Cf. the proposals of Hon. M. A. Harter, of Ohio, in bill 5442, introduced
in Congress February 5, 1892.
6 House Ex. Docs., 714, 60th Cong., 1st sess.




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interest suggestions for the adjustment of the ordinary
paying and receiving business of the Government to the
convenience of the people.
" I even hope for, and I beg to suggest to the consideration of the Congress, a reconsideration of the methods
of the payment of customs duties so that these transactions may cease to be so very inconvenient and may conform themselves to the ordinary practices of business. The
spectacle should not be possible of a detail from the navy
carrying $30,000 in cash through the streets of New York
from the subtreasury to the custom-house to pay duties
on navy importations and of a return trip from the custom-house by the representatives of the collector back
to the subtreasury with this same money, all because the
collector of customs could not legally accept a check of
the Navy Department upon the subtreasury. 0
Under the pressure of a growing deficit, the present
Secretary was obliged in 1908-9 to recall a large part of
the government deposits from the banks. He says:
" In previous years it was deemed advisable to restore accumulating revenues in the Treasury to the channels of
trade by making direct deposits thereof in national banks;
consequently, with the growth in disbursements in later
years not equaled by the income, such deposits have been
gradually recalled to the Treasury as needed. The balance in depositary banks to the credit of the general fund
at the beginning of the last fiscal year was $149,004,924.
Calls for the return of deposits to the Treasury were made
as follows: July 2, 1908, $33,403,120; November 18, 1908,




a Finance Report, 1909:13-14.
135

National

Monetary

Commission

$4,864,750; January 11, 1909, $24,716,760; February 4,
1909, $28,478,000; and June 30, 1909, $24,954,900. The
total amount of these calls had not been paid by the close
of the fiscal year, but the balance in banks to the credit
of the general fund had been reduced to $60,427,525.69." °
From all this it appears that from being a passive
agent in not contracting the currency by simply allowing
the internal revenue to accumulate in specified national
banks, the Treasury has become an active, positive, agent
by making actual transfers of money once covered into
the Treasury. It has enlarged its power to deposit, and
has not only accepted a larger variety of securities, but
allowed a larger volume of deposits. We have seen it
first in a condition where the deposits simply accrued;
second, a condition in which not only were deposits
allowed to accrue, but money once in the treasury was
actually transferred; third, adding to the source of these
deposits by including customs as well as internal revenue;
fourth, increasing the number of depositary banks; fifth,
changing the character of securities, first by the Secretary of the Treasury, and then by law; sixth, increasing
the payment of government obligations by bank warrants. "Thus we see that in the sixty years of its existence, the independent treasury has become an institution
of a very different character from what its creators
intended. In 1846 it was a depositary of the public
moneys, intended to keep them safe from the manipulation of banks. In 1861 it established a permissible
but slight connection with the banks. In 1903 we find




< Finance Report, 1909: 34.
*
136

Independent

Treasury of the United States

the law interpreted so as to take the money actually
already in the Treasury for deposit in the banks, and from
then until now we see the independent treasury made
an active and dominating factor in determining the
volume of money in circulation, in other words, the
elasticity of the currency." 0
OPERATIONS OF THE INDEPENDENT TREASURY UNDER THE
POLICY OF REACTION.

The functions described as gradually added to the
independent treasury in the past ten years in the efforts
to neutralize its ill effects have become a regularly
recurring part of the Treasury operations. The cases
of interference due to the occurrence of crises will be
described in connection with that topic. A sketch of
the ordinary Treasury operations for the past few years
will bring out strongly the other services described.
For five or six years after 1890, as a result of the independence of the Treasury in creating its own circulating
medium for some years previously, the monetary affairs
of the country were so deranged that its independent
method of keeping the public money was of secondary
importance and interest. The alternate intake and
output of money from circulation continued, indeed, as
before. But their influence was lessened because of
deficits in revenue and the increasing use of depositary
banks. The operations connected with the currency can
be described more appropriately in discussing the panic
of 1893.
a

Publ. Amer. Econ. Assoc, 3d series, 9 : 1 : 204.




137

National

Monetary

Commission

With the advent of Secretary Gage into the Treasury
Department we find the beginning of a period of positive
reaction from the policy of independence and a definite
attempt toward closer affiliation with the banks. In
the matter of keeping the public money, Secretary Gage
inaugurated no new policy, but extended existing practices. In the matter of Treasury issues he stood for
further advance in the direction of sound currency, which
had been taken with the repeal of the silver purchase law.
His object was largely attained by the action of Congress
in passing the currency law of 1900.
To Mr. Gage's successor, Secretary Leslie M. Shaw, is
to be ascribed the wide departure from established policy
and practice, which, although afterwards sanctioned by
act of Congress, invited sharp criticism from business
men and students of financial affairs. With the stoppage
of constant inflation from silver coinage, with the recurrence of an "endless chain" redemption of greenbacks
prevented by the law of 1900, and with the return of a
surplus in the revenue of the Government, public attention was turned once more to the evils of the other phase
of the independence of the Treasury, that concerned with
the safe-keeping of the public money. The condition
of the bank reserves and the state of the money market
became matters of concern to the Secretary and started
him in the policy of closer union of bank and Treasury,
which, jnore than anything else, distinguishes his career
from that of any of his predecessors since the passage of
the act of August 5, 1846.
During the summer of 1902, the bank reserves, contrary
to custom, showed almost continuous decrease. The




138

Independent

Treasury of the United

States

Secretary of the Treasury consequently anticipated
trouble in the fall and prepared to meet it. He ordered
as many bank notes as could be engraved to be prepared
in advance, so that they would be ready for immediate
distribution on the call of the banks, and thereby avoid
the delay in issuing them to which the banks had been
previously subjected in times of sudden stringency and
increased demand for circulation. In order to induce
the banks to take out additional circulation the Secretary
about this time also offered to accept other bonds than
those of the United States as security for deposits.
A third preparatory move was the announcement that
the Secretary would anticipate the payment of interest
due in November on the public debt. He announced,
in the fourth place, an increase in the deposits of public
money in the banks, and finally gave out the information
that he would not put into liquidation banks which failed
to maintain reserves against public deposits. This was
granting permission to the banks so to interpret the law
requiring a reserve against their deposits as to exclude
public money from counting as deposits in the sense of
the law. This practice, which at this time was based
entirely upon what the Secretary supposed the law gave
him permission to do, was legalized six years later. The
Secretary of the Treasury seemed to believe that upon
him was placed the burden of regulating the money
market in the interests of what he regarded as the public
welfare.
In the following year, 1903, the Secretary, being of the
opinion that the deposits of current internal revenue and
miscellaneous receipts in the banks were insufficient to pre-




139

National

Monetary

Commission

vent the possibility of a serious stringency, took another
radical step. Of course, the daily or weekly receipt of the
proceeds of the internal revenue by the banks enabled
them to increase their discounts, and of this opportunity
they took advantage. The receipt of this public money,
therefore, did not necessarily put them in any stronger
position to withstand a shock. Accordingly the Secretary ordered the receipts from internal revenue and miscellaneous sources to be accumulated in a separate fund
"so as to be prepared in case of an emergency to grant
prompt relief by large deposits." a He was preparing to
transfer to the banks money already covered into the
Treasury. By the means thus far described, and also by
bond purchases, in the neighborhood of $27,000,000, were
" restored to the channels of trade " in the fall of 1903.
One new feature presented in the year 1904-5 was a decrease in the national revenue. The year closed with a
deficit of $23,000,000. Confronted with this deficit the
Secretary found it necessary to strengthen his position
by reducing the deposits with the banks. He withdrew
$50,000,000 in the summer, and from this and other
causes the surplus reserve of the New York banks fell to
less than $7,000,000. The benefits received by previous
actions were being offset by the present one.
In 1906 was announced Secretary Shaw's much criticised plan of depositing in banks against gold imports.
He is charged with showing partiality in this move to one
of the larger banks of New York City.6 The plan was to
a Finance Report, 1906,^8.
& A. Piatt Andrew: The Partial Responsibility of Secretaries Gage and
Shaw for the Crisis of 1907; Bankers' Magazine, 76:493.




140

Independent

Treasury of the United States

make deposits in any bank that would import gold equal
to the amount of gold engaged, the deposits to be returned
when the gold arrived. In this way, he tells us, approximately $50,000,000 of gold were brought from abroad.
It is said that permission to do this was given to the
National City Bank of New York two weeks before public
announcement of the policy was made. In his report for
1906, Secretary Shaw defends the policy on the ground
that it had caused the importation of gold without expense to the Government and with great benefit, although
without profit, to the banks. This is a matter about
which there is room for a difference of opinion.
This was regarded by many people as an extraordinary
action. A somewhat similar proposal was made to the
Secretary of the Treasury in 1873. It is interesting to
compare his action with that of Secretary Shaw as contrasting the different views of the two men as to the scope
of their discretion in their interpretation of the law. In
September, 1873, the New York Produce Exchange asked
the Secretary of the Treasury " t h a t currency be immediately issued to banks or bankers, upon satisfactory evidence that gold has been placed upon special deposit in
the bank of England, by their correspondents in London,
to the credit of the United States, to be used solely in
purchasing commercial bills of exchange.'' The Secretary
replied:
" If your object is to induce the Treasury Department
to loan United States notes to banks in New York upon
the pledge and deposit in London of gold, it is asking the
Secretary of the Treasury to loan the money of the United




141

National

Monetary

Commission

States upon collateral security for which there is no authority in law. If the Secretary of the Treasury can loan
notes upon a pledge of coin he can loan them upon a
pledge of other property in his discretion, as he has recently been requested to do, which would be an extraordinary power as well as a most dangerous business to engage in, and which my judgment would deter me from
undertaking, as the Secretary of the Treasury, even if by
any stretch of construction I might not find it absolutely
prohibited by law." a
Another remarkable operation for which Secretary Shaw
was responsible in 1906, was the reduction of deposits of
public money secured by other than United States bonds,
and an increase of deposits secured by United States
bonds, in order to make the latter bonds scarce and push
up the price to furnish a better market for the sale of the
new Panama bonds. Under the circumstances, the Panama bonds sold at 1.0436 as against a market price^of
1.0325 for 2 per cent nineteen-year consols. To quote the
Secretary's own words: " I n other words, a market for
government bonds was created which stimulated their
price.'' 6 We may doubt whether the cause assigned for the
rise in the price of bonds at the time is the true one. But
even if not, one is amazed at the opportunity for manipulation of the market afforded by this mode of procedure. It
was virtually an attempt to corner the market for existing
United States bonds in order to get a higher price for the
new debt.
The fall of 1906 brought the expected stringency, and
the Secretary took new steps in the application of his
a Finance Report, 1873, X I I I .




& Finance Report, 1906: 40.
142

Independent

Treasury of the United States

policy to care for the business interests of the country.
He again made deposits against gold imports to the
amount of fifty millions; he accepted other than United
States bonds as security for deposits of public money,
to the amount of $18,000,000, on the same condition
as before, that the extra circulation based on the released bonds be taken out by the banks and be retired
not later than the following spring or summer. He was
looking forward to a contraction of the currency at a
time when he thought it ought to be contracted, just as
he was providing for its expansion at the season when
he thought that necessary.
But the limits of the Secretary's beneficent policy were
not yet reached. Not content with keeping, or trying
to keep, the money market of our own country in stable
equilibrium, he felt it incumbent upon himself to do
what he could to help the rest of the world on the same
matter. He declared that no government operations
in this country should be permitted to interfere with
prosperity either at home or abroad,® and then went on as
follows: "The Treasury now holds (November 20) in
its own vaults a working balance of $78,000,000, as much
as can possibly be spared of which will be deposited if
business conditions require it, though it become necessary to pay current expenses of the Government with
checks on depositary banks. 6 The money of the country
belongs to the people, and Treasury operations must be
o Finance Report, 1906 : 40.
& The authority for so doing, it is alleged, is found in the general powers
of t h e Secretary and t h e Treasurer. In the writer's opinion this assumed
authority is inferred, r a t h e r t h a n specific, like t h e authority assumed by
Secretary Shaw to transfer money from a subtreasury to a bank.




H3

National

Monetary

Commission

made subordinate to the business interests of the country."*1* This is remarkable language for an officer sworn
to uphold the law. Such an interpretation of the law
would give to the officer in question discretion of more
far-reaching consequence to the welfare of the business
interests of the country than most of us would care to
intrust to one man. But the Secretary of the Treasury
had the courage of his convictions, and insisted in his
report that it would be better squarely to put such responsibility upon the Secretary. 6 His views can best
be given in his own words. He realized, as he remarked,
that "the Treasury has always been a bloody angle of
criticism of the administration/' and felt it necessary to
explain and defend the steps he had taken and his own
general policy. "The Government quarantines against
yellow fever; it spends millions to protect the people
against unwholesome food; it inspects banks in the interests of depositors; it has thought of every means to
safeguard the people against disaster of various kinds.
* * * Believing it to be the duty of the Government
also to protect the people against financial panics, which,
in this country, have caused more mental and more physical suffering than all the plagues known to man * * *
the Secretary of the Treasury undertook the task of making some slight provision for the inevitable." After
paying his compliments to the people who write articles
without studying actual conditions, and giving a graphic
description of the blockade of traffic in the fall, through
lack of adequate transportation facilities, he tells us that
« Finance Report, 1906 : 40.




& Finance Report, 1906 : 49.

144

Independent

Treasury of the United States

he deemed it wise to relieve the blockade by importing
gold. It was for this reason that he made deposits
against importation, as already described. But it is
not necessary to expatiate upon the radical character
of the policy of the Secretary at this time. Suffice it to
say that evidently he acted for what he thought the best
business interests of the country in broadening the interpretation of the scope of the Secretary's duties in connection with the money market. It is worthy of notice that
some of the precedents which he established were so
strongly approved by the business interests he favored
that later they were adopted into law.
The year 1906 showed a surplus of $25,669,322 on
June 30, as contrasted with a deficit of $23,004,228 for
the preceding fiscal year. Accordingly " national-bank
depositaries were utilized during the fiscal year as a
medium through which the excessive accumulation of
money in the Treasury was restored to the channels of
trade."
On March 4, 1907, Mr. Cortelyou became Secretary of
the Treasury. He came into his office at a difficult time,
and it is not surprising that he followed in the steps of
his predecessors. Indeed, it is doubtful whether, under
the conditions that prevailed, he could have done otherwise. The policy of the Treasury Department had been
fixed, and conditions of business were such that a
departure from that policy would have made matters
worse; hence, whether or not the incoming Secretary
believed in the established policy, his hands were tied.
Accordingly, he followed his immediate predecessors in
41969 0 —10




10

145

National

Monetary

Commission

increasing the bank-deposit accounts because of a stringency that arose from depreciation in the money market.
He accepted railroad bonds as security; he anticipated
interest payments; and he redeemed bonds. All these
measures, however, failed to relieve the situation sufficiently, in his opinion. On August 23 he announced his
plan of depositing the public money each week for five
successive weeks, and declared that he would not give
out any information as to the amount or distribution of
these deposits. Under this deposit policy the aggregate
of public money in the banks by October reached the
great sum of $176,000,000. Within three days the Secretary deposited more than $31,000,000 in the New York
banks alone, and the total deposits throughout the country rose first to $209,000,000 and later to $242,000,000.
The features and the effects of these measures are considered in the discussion of the panic of IQ07.




146

CHAPTER V I . — T H E INFLUENCE OF THE ORDINARY OPERATIONS

OF THE

INDEPENDENT

TREASURY SYSTEM

ON

BUSINESS.
THE DIFFERENT PERIODS OF SUBTREASURY ACTION.

The most important phase of the operation of the independent treasury is its influence on the business of the
country in ordinary times. During the early years of the
operation of the system the annual receipts and expenditures of the Government were small compared with what
they have been in recent years and, moreover, were approximately equal. As the outgo virtually equaled the
income and was fairly equable in its flow, there appeared
but little of the evil of the disturbance of the money market
due to the irregular locking up and disbursement of the
medium of circulation. There was no great surplus such
as for a good many years since has been a permanent feature in the financial operations of the country. This is an
important consideration. When the system was established the receipts of the Government were about
$1,000,000 a week. So unimportant was the influence of
the fiscal operations of the Government for some years
after 1846 that, as Professor Sumner remarks, 0 "the
bankers and merchants could afford to laugh at the insignificance of the government on their arena." To-day,
however, conditions are very different. The Treasury is
the greatest single handler of money in the country, and




o History of American Currency: 167.
147

National

Monetary Commission

its annual revenue frequently runs much beyond its
expenditure.
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
may be very different under a policy of surplus financiering from what would prevail when income and outgo are
nearly equal. Certainly there would be an element in the
situation due to the possible prolonged withdrawal of
money from circulation in the one case which would not
exist in the other.
For another considerable period of the existence of the
subtreasury system the country was under a regime of
fiat paper money, issued under circumstances which practically involved a departure from the doctrine of complete
divorce of bank and state, of the advantages of which so
much was said at the time when the subtreasury system
was established. During this period gold was not part of
the money of exchange of the country, nor, indeed, of the
bank reserves. Yet the law of the land required it to be
collected in payment of customs dues and, therefore,
caused its accumulation at times in the vaults of the subtreasury. The result was the establishment of a current
of disturbances in the gold market independent of any
influence which the system may have been exerting at
the same time on the currency of the country. During
this period there were, therefore, two possible areas of disturbance of business through subtreasury action, one
exerted through its operations on gold and the other
through its operations on the paper currency.




148

Independent

Treasury of the United States

Therefore, although during both the period of the
civil war and the period of paper inflation that followed it,
the Government was obliged to depart from its policy of
the complete separation of its operations from those of
the banks of the country, by using them as depositaries
and also as fiscal agents, nevertheless it would be difficult
to trace the influences due exclusively or principally to the
independence of the Treasury in its relation to the banks,
because of the disturbing causes due to the war and the
currency system.
Moreover, whatever the influence of such a system, it
must have been largely increased, if not changed in character, by the mere growth in magnitude of the fiscal operations of the Government, as well as by the rapid industrial
and commercial development of the country, and especially by the tremendous growth of credit which the past
generation has witnessed. Commerce has multiplied
many times and there is a far greater solidarity of business
interests, due to improved means of communication, business reorganization, consolidation of capital and development of corporate organization. Consequently, in a way,
business is much more sensitive to disturbing influences,
although at the same time its power to withstand serious
shocks has also increased.
For a period of twelve or fifteen years following the
resumption of specie payments, we find the independent
treasury system operating in a way that enables us to
study its effects with the smallest number of entangling
influences. During this period the independence of the
Treasury continued as it had been modified by the national-




149

National

Monetary Commission

bank act at the beginning of the civil war. Its evils were
not so constantly felt nor so clearly understood as to produce a positive policy of constructive amendment of the
subtreasury law, such as has been followed in the past ten
years. I t operated, therefore, during the decade or more
following 1880, with less active interference on the part of
the Secretaries of the Treasury than at any time since.
During this period, therefore, its operation is more easily
studied.
During the past ten or fifteen years, on the other hand,
in consequence of the realization, on the part of Secretaries of the Treasury and business men, of the evil influences
of the subtreasury system on business, there has grown
up a policy of active interference on the part of the Treasury Department. To prevent these evils succeeding Secretaries have deliberately set themselves at work to counteract and even to anticipate the effect of subtreasury action.
This action, therefore, is not so clearly traced in the statistical registers of business as it would have been in the
absence of such interference.
In other words, the sixty years of existence of the independent treasury system is pretty clearly divisible into
five periods, in only two of which, the first and fourth, has
it operated under normal conditions; and in the first of
these two its operations were not sufficiently extensive to
teach us many lessons. Briefly stated, these periods are:
(1) A period of quiescence, during the first fifteen years of
its life; (2) the period of the civil war, when a departure
from independence was made; (3) the period of fiat paper
money, extending to 1879; (4) a second period of quiescence, with increasing government revenue and rapidly




150

Independent

Treasury of the United States

enlarging business, extending down to the early nineties;
(5) the period of active interference by the Secretaries of
the Treasury to prevent the injurious influence of subtreasury activities under a policy of surplus financiering.
Moreover, as we have already seen, the functions of the
independent treasury have themselves changed, both in
extent and character. In addition to its intended duties
of receiving and disbursing Government money, the independent treasury has for years performed some of the functions of a bank of deposit and issue. " The duties of the
subtreasuries," said Treasurer Jordan in 1886, "have
changed since the passage 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.
Bach subtreasury is now a bank of issue and redemption.
Whether such functions should be performed by these
offices is a grave question." a These activities, extending
as they do far beyond the scope of the subtreasury system
as first established, make its influence on business different
from what it would be if these duties were not performed.
It may seem, at first thought, that the influence of the
independent treasury on business might be directly traced;
that prices and the rate of interest might be shown to vary
with the absorptions and disbursements 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 demonstration of the influence
of the latter. Unfortunately, however, this can not be
done. For large amounts of money may be withdrawn
a Treasurer Jordan, on proposed subtreasury at Louisville. Senate
Com. Rept., No. 1834, 49th Cong., 2d sess., II.
n




151

National

Monetary

Commission

from circulation without any apparent effect on the rate
of interest, or on business; and the effects of changes in the
circulation are modified by the widely extended use of
credit. Credit instruments of one sort and another perform a very large, perhaps the larger, part of our exchanges.
Price changes, therefore, depend more directly on variations
in the amount of credit than of the money in circulation.
Moreover, the elements that enter into the determination
of prices are so numerous, so variable, and sometime so
obscure, that we can not eliminate those which are not
material to the problem of finding the causes of variation at
a given time. Direct proof of the effect of subtreasury
action on prices is, therefore, impossible. 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 effected by it in the amount of loanable ftmds.
But usually no direct connection can be positively shown,
because variations in the amount of loanable capital are
not the only cause of variation in the rate of interest.
THE REACTION OF THE SUBTREASURY SYSTEM ON THE BANKS.

The influence of the independent treasury on business is
exerted mainly through its action, direct or indirect, on
the volume and character of the purchasing medium of the
country. The independent treasury at one time absorbs,
at another disburses, considerable sums. There is nothing
in its organization that makes its receipts and payments
necessarily concomitant with a free and stringent condition of the money market respectively. Its action is,
in the main, independent of either condition. That it
must have a tendency to influence prices, depending on




152

Independent

Treasury of the United States

the extent of its absorption, retention, and disbursement
of money is, therefore, clear.
A series of tables and diagrams are presented below,
representing the receipts and disbursements of the New
York subtreasury, the amounts to and from the clearinghouse banks in New York City, customs receipts of the
Government, etc., for dififerent periods. Table i gives the
receipts and disbursements of the New York subtreasury
from September, 1890, through June, 1891.
T A B L E I .—Receipts and disbursements of the New York subtreasury,
ber, 18go, to June, 1891, inclusive.

Septem-

[Expressed in millions of dollars.]

Week ending—

Receipts.

Disbursements.

Net gain.

Net loss.

Balance
of gain.

Balance
of loss.

1890.

Sept. s

14. 1
16.8
195

0. 2

17. 1

67.5

10

17
24
3i

Month . .

16.6
IS-8
14. 0

2.5

12.s

1. 4

14.8

1. 2

80.6

73-7

6.9

12.3

Oct. 3

102. 2

17. 7
18.3
14.8
13-9
15-9

19
26

14-3
19. 6
42. 7
25. 6

11. 1

1. 2

. 1

2.8
23- 1

8.5
34-6

34. 6

1. 1

•7

14

13- 7

21

14. 6

28

11. 0

14. 6
14.S
10. 6

Si.6

50.8

i-7

3-6

3-6

6.9

Month . .

16.6
19

13.s
14.2

26

12. 7

•4

13.0
22.5
IS-8
13.8

57.o

•9

65.1

12

Month . .




9

.8

9.0
1.6

153

11. 7

8.1

National

Monetary

Commission

TABLE I.—Receipts and disbursements of the New York subtreasury,
ber, 1890, to June, 1801, inclusive—Continued.
Week ending— Receipts.

Disbursements.

Net gain.

Septem-

4. 2

Net loss.

Balance
of gain.

Balance
of loss.

1891.

Jan. 2

20.3

16. r

9

14.2

15-5

1.3

16

iS-o
17-5

17. 2

2. 1

17. 1

12.4

4.8

84. 1

78.9

8 . 9

13. 6

130

.6

16. 9

13- 4

3-5

13-3

9- 1

4. 1

12. 1

9-5

2.6

55-9

45-o

10.8

13-3

12.4

12.8

14-3

14.9
18.7
14.8

56. 4

60.8

14. 6

iS-o

23

Month . .
Feb. 6
13

27

Month . .

13

16.0
27

Apr. 3

. 2

17.7

3-6

5-3

10.8

• 9
2. 1

2-7
•5
•9

5-3

4

425

• 4

20. 3

22. 2

1.9

17

17- 7

19. 7

2. 0

24

19- 1

20. 4

1-3

71. 7

77-3

17. 7

17-5

8

5-6

5-6

. 2

19-3

20. 0

.7

23. 2

23.8

.6

36.1

36.8

•7

22.3

23-4

1. 1

118.6

121. s

26.6

27. 7

1. 1

18.7

21. 7

3- 1

19

19. 6

25-5

5-9

26

17.7

20. 6

2.8

82.6

95-5

12. 9

15

29

June s




. 2

154

3- 1

2-9

12. 9

$

SEPT.
12 19

2b

3

10

OCT.
17 2*h 31

t

NOV.
19 2 I

28

5

12

0£C.
19 2b

JAN.

9

/6

23

30

/3

res.
10

27

/3

MAR.
20

27

10

9

2

/
0

/

z
3
f
S
6
7
a

/o

//

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/5
/6
/7

[

J-U

1

ta
19
20
zi
22
23
2*




1?IG. i.—Course of the net weekly balance, gain or loss, of the New York subtreasury. September, 1890, to Jnue, 1891.
41969 0 —10.

(To face page 155.)

APR.
17

29

6

MA?
IS 2 2

29

S

JUH£.
12 19

n

Independent

Treasury of the United States

In the ten months here represented there was a continual variation of the amount of money in the channels
of business, due to the ordinary operations of the subtreasury at New York. It poured out over $34,000,000,
net, in September; withdrew nearly $8,000,000 in the
following two months; let out over $8,000,000 in December, and in the last four months of the period made a net
addition to the money afloat of nearly $26,000,000. The
changes are shown graphically in figure 1. All points
below the line represent net loss and all above it net gain
for the subtreasury. Each square running horizontally
represents two weeks, and vertically, $1,000,000.
Table 2 gives data, which are presented graphically
in figure 2, showing the net weekly balance of gain or
loss of the New York subtreasury from September, 1899,
to August, 1900.®
The striking fact again shown by the table and diagram is the sharp variations in the balances of receipts
and disbursements. The important thing, of course,
from the point of view of disturbance of the market is
the suddenness and extent of the changes in the balance.
We see that the high points in the excess of receipts
were about the first or second week of September, December, March, May, June, and August, while the excess
of disbursements over receipts, shown by the low points
of the curve, are toward the end of December, January,
March, May, June, and August. The changes are very
sudden.
If we look at the returns by months, it appears that
during eight of the twelve the subtreasury receipts
« These figures and those in the next table were kindly furnished me by
the assistant treasurer at New York.




155

National

Monetary

Commission

exceeded disbursements; while the opposite was true in
January, April, July, and August. The excess of receipts
over disbursements for the year was $64,136,000. This
meant a contraction of the currency to that extent
except so far as offset by government deposits in banks
or by bond purchases. Whether this contraction had
any influence in producing the low scale of prices 0 for
domestic goods, which led to the tremendous exports of
1900, would be an interesting study. Such a contraction
might induce a reduction of loans to an extent between
$200,000,000 and $300,000,000.
T A B L E 2.—Receipts and disbursements of the New York subtreasury,
ber i , 189Q, to August siy 1900.

Septem-

IBxpressed in thousands of dollars.]
Receipts.

Disbursements.

Net gain.

29

30,252
35,924
33,975
34,977
34,049

27,181
30, 107
26,744
3L4I7
28,879

Oct. 6

30,664

26, 556
26,212
22, 669
2 1 , 233

Net loss. Balance of
gain.

3,071
5,817
7, 231
3,56o
5, 170

Week ending—

1899.
Sept. 1
8
15

24,849

24,849

27,703
20
27

27, 676
21,985

Month . .

17

Month . .




i,49i
5,007
752

n,358

ii,358
21,931
i9,77o
22,351
25,624

24

4, 108

18,466
16, 032

3,465
3,738

22,463

1, 112

24,939

685

7,888

1, 1 1 2

a Compared with European prices.

156

6, 776

Balance of
loss.

Independent

Treasury of the United States

T A B L B 2.—Receipts and disbursements of the New Yorh subtreasury,
ber i, 1809, to August j J ,

Week ending—

Receipts.

Disbursements.

Septem-

1900—Continued.

Net gain.

Balance
of gain.

Net loss.

Balance
of loss.

1809s.
20,S38
25,804
23,6oi
24, 465
15,672

8
15
22

29

22,082

17, 7 i 4
19,365
27, 749
17, 127

1,544
8, 090
4, 236
3,284
1,455
12,326

6,043

6,283

1900.

17,642
23,472
28,879
22, 789

Jan. 5
19
26

19,621
25,882
28,458
25,636

i,979
2, 4 1 0
421

2,847
421

7, 236

=
Feb. 2

25, OO3
24,866
20,133

9
16
23

20,022

23, 449
21,810
19,099
16,966

i,554
3,056
1,034
3,056
8, 700

Mar. 2
9
16
23
30

25,283
23,062
20,886
19,876
l8,742

19,828
i6,399
19,259
19,993

21,921
24, 929
26,262
22, 631

13
20

27

117

23, 2 0 1

4,459
4,576

24, 212

ir,109
3 2 , 117
34,592
26,228
21, 913

27,554
26,994
26,290
24, 667

4,563
7,598

!
62

2,754

;

157

11,109

i

Month . .




9, 169

3,5io
4, 590
1, 428
1,581

24, 4 3 i
29, 519
27, 690

Month . .

18
25

8, 700

5,455
6,663
1, 627

13,745
Apr. 6

6,815

National

Monetary

T A B L E 2.—Receipts and disbursements
ber J , 1899, to August

Week ending—

Receipts.

Disbursements.

18,884
24,495
36,019
28,790
21,343

19,843
23,664
27, 209
28,003
21,005

Commission

of the New York
31,

subtreasury,

Septem-

1900—Continued.

Net gain.

Net loss.

Balance
of gain.

Balance
of loss.

1900.
8
15
22
29

27

17,878
26,586
27,529
22,539

787
338
10,766

i
July 6

959

831
8,810

21, 230
27,355
25,902
23,804

17
31

27, i i 7
42, 760
40,245
21,638
20,041

28,Ol6
32, 862
38, 244

9,807

3,352
769
1, 627
1, 265
1, 627

Aug. 3

959

5,386

3,759

899

9,898
2, 001

27, 733
26,073

6,095
6, 032
11,899

12, 127

228

Figure 2 presents the same facts graphically and brings
out very strikingly not only the extent but the sharpness
of the changes.
The third table shows the changes in the reserves of the
associated banks of New York City for the period covered
by the preceding table and furnishes the means of comparing the relation of subtreasury receipts and disbursements to reserve losses and gains. The tables are compiled from the reports of the Commercial and Financial
Chronicle.




158




SCPT.
OCT.
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AVG
I 8 (5 22 29 6 13 2027 3 10 (7 2* / 8 IS 22 2<7 5 12 /? 26 2 9 /& 23 2 ? /6 23 30 6 H 20 27 H II IS IS I 6 IS 22 VI i 13 20 27 3 10 I7 2H3I

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1

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FIG. 2.—Course of the net weekly balance of gain or loss of the New York subtreasury, September, 1899, t o August 1900.

National

Monetary

Commission

TABLE) 3.—Changes in reserve of New York Associated Banks, September r,
1899, to August 31, 1900.
[Expressed in thousands of dollars.]
Week ending—

Subtreasury
action.

Interior
movement.

Net gain ( + ) Variation in
or loss ( —).
reserve.

1899.
Sept. 1
8

—
—
—
—

Month

3,000
4,500
3,100
2,000
1, 000

6,387
9.656
7.875
5.273
3.293

— 5.272
— 10,571

-2.403
— 1, 612

~ 3.903

— 2,133

— 2,112

— 1,019

-3.374

— 1.374

— 1,822

— 2, 022

— i,379
— 88

— 2,056
-1.793
928
+ 1,466

- 4.056
- 4.393
+ 207
+ 7.966

—
+
+

4,819
5,217
486
7,244

184
- 3 . 272
+ 5.389
-1,318
+ 3. 191

+
—
+
—
—

+
—
—
+
+

4,415
2,675
970
3.572
697

+
+
+
+

+
+
+
+

-3,387
-5.156
-4.775
—3.273
— 2, 293

-

— 5.947
— 2,510

— 4,546

— 13, 600

Oct. 6

—
—
+
—

27
Month

1,500
500
2,000
200

— 200
— 2,000

— 2,600
+ 1.135
+ 6,500

17

+ 3.035
Dec. 1
8

+ 3.3oo
— 3,200

- 3,95o
- i.45o
— 4,600
Month

3,n6
6,472
1,439
2,768
1,409

— 9,900

1900.

3.043
6,788
n . 371
9,769

+ 2,816
+ 5 033
+ 11,536
+ 8,844

+ 4,913
+ 2,533

0
0

— 1, 029

+ 5,413
+ 1.833
— 2,629

+ 5.441
+ 1,744
— 2,324

0
0

-

0
0

Jan. 5

-

-

-

3,35o

— 400
+ 3.300
+ 2,300

26

+

16
23
Month




1.850
0
0

+ 1 1 1

Feb. 2

6,393
7,188
8,071
7.469

— 4,000

160

845

3.045

2,875

Independent

Treasury of the United

States

TABLE 3.—Changes in reserve of New York Associated Banks, September i,
1899, to August 31, igoo—Continued.
Subtreasury
action.

Week ending—

Interior
movement.

Net gain ( + )
or loss (—).

1900.

Mar. 2
9
16
23

— 6,000
— 6,000
— 4,000
— 1,200
+

30

1,300

-

4,648
9.826

+
+

5.051
951
2,826

+
+
+
+

6,113
3.452
5.639
6,631

+3.065
+ 3 . 192
+ 2,964
+ 2,685
+ 1,554

+
+
+
—

2,865
92
1,636
685
1,246

+
+
+
+

+
+
+
+

3.657
1.591
1,007
3.213

+
—
-h
•+•

5.991
3.619
7,612
2,918
4,831

+ 1.352
-3.826
— 1,051
+ 2,151
+ 1, 526

-15.900

Month....

+

3.000

+

Month

+ 2,113

5.900

+

13
20
27

4,000

+

Apr. 6

1,500

— 2, 448
+ 2,639
+ 5, 131

+ 14. 400

May 4

2, 900
2, 000

11

18
25 •

765
300

Month....

5.965

June 1
8

200
3.100
4, 600
2, 000
2, 800

15
22
29

Month....

-12,700

July 6

+
+
—
+

2,000
100
1,500
100

Aug. 3

+

2,800

10

—

5.100

13
20
27

Month

17

— 10, 000
- - 1,500
t

31

- - 2, 200
+

Month....




1,657
I.49I
2,507
3, 113

700

24

419690—10

+3.483
+ 4,035
+ 2,745
+ 4.387

-

11

3.500

161

+ 3 , I9i
+ 1,481
+ 2,388
+ 1,418
+ 2,631

National

Monetary

Commission

It will be seen from the table that the reserves of the
banks fell through September and October; that they
rose from the middle of December to the middle of February; fell until the end of March; and at<he end of March
increased until early in June, during which month they
fell and then increased through the summer. During
these months the action of the subtreasury was against
the bank reserves in September and October; aided them
somewhat in November and January; drew them down
again in the two following months as well as in May, June,
and the following August.
Comparing Tables 2 and 3 it appears that in September,
1899, the net gain of the New York subtreasury was
$25,000,000 and the loss of the banks due to subtreasury
action nearly $14,000,000. Besides the loss to the bank
reserves by subtreasury action there was, therefore, a
loss of $11,000,000 or $12,000,000 to the general circulation. Even in the month of November, when the banks
gained from the subtreasury, the balance of gain to the
subtreasury itself, which was nearly $7,000,000, shows a
contraction of the general circulation to the extent of
nearly $4,000,000. Other comparisons are unnecessary.
The changes of reserve due to the action of the subtreasury alone are represented graphically in figure 3.
Table 4, with its accompanying diagram, gives the
weekly receipts and disbursements of the New York subtreasury from April, 1907, to March, 1908. This was a
period of violent disturbance in the money market and in
business generally. Indeed, it was the severest crisis
through which the country has passed since 1893. The
rapid variations in the receipts and disbursements of the




162

5? i




SEPT.
OCT.
NOV.
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DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
I 8 IS 21 2<? 5 U i*t 26 2 <t It, 23 2 < lb 23 30 6 13 2017 * II 18 25 I 8 IS 22 2<1 6 / 3 20 27 3 10 17 ZH 3t
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FIG. 3.—Course of changes in reserve of Nev/ York Associated Banks, from subtreasury operations, September i, 1899, to August 31, 1900.

National

Monetary

Commission

subtreasury, as shown by the diagram, which presents the
net balance of gain or loss each week, reflect the great
uncertainty of the money market and the close relation of
treasury operations and bank reserves, and through them
upon loans and discounts and upon business.
In the week beginning April 5, from an excess of receipts
of nearly $6,000,000 there was a fall to an excess of dis* bursements of more than $3,000 000. This excess of disbursements was changed to a net gain of receipts of nearly
$3,000,000 two weeks later; which, three weeks afterwards
became again an excess of disbursements of nearly
$2,000,000. The next two weeks saw a gain in receipts, so
that by the 7th of June there was a net excess of receipts
over disbursements to the extent of nearly $7,000,000.
Similar violent changes are shown from week to week
throughout the year. The most striking occurred in the two
weeks between the 5th and 19th of July, and the two weeks
between October 18 and November 1. In the first two
weeks we see a change from a balance of disbursements
over expenses of between $6,000,000 and $7,000,000 to an
excess of receipts over disbursements in the following week
to the extent of nearly $12,000,000, with an immediate
fall through the next week to an excess of disbursements
over receipts amounting to more than $7,000,000. The
change in October was even greater. It was in this period
that the most active and radical measures ever taken to
counteract the evils of subtreasury influence on the money
market were put into operation by the Secretary of the
Treasury.




164

Independent

Treasury of the United States

TABLE 4.—Receipts and disbursements of New York subtreasury, April 5,
J907, to March 27, 1008.
[Expressed in thousands of dollars.]

Week ending—

April

1907.
5

Receipts.

43,144
28,153
30,929
31,682

Disbursements.

Net gain.

37,46o

3 , 200
622

3i,55i
29,068

2, 614
8,298

33,i4o
M a y 10
M a y 17

28,868
25,930
26, 630
25,417

31,429
27,867
27,805
26,817
22, 951

Month . .

J u n e 21

26,914
27,630
28,485
37,003

Month . .
35,343
37,o57
34,576
33,8n

32,380
28,063
27,995
30,467
29,637

3 1 , 026
28, 176
2 9 , 800
27,474
28,492

Month . .

August

9

A u g u s t 30

September

6..

22,988
28, 032

September 20. .

27,958

September 27. .

30,371




2. .d.66
2, 062

24,358
29,721
3 0 , 716
27,49o

2,116

6,707
1, 157
4, 227
3,687
15,778
6,528
11,911
7,463
4,43i
18,422

6, 511

1,354
113
1,805
2,993
1,145
5,492

September 13 . .

Month..

1,875
187

11,911

Month . .

4,476

1, 001

15,778
28,815
48,968
27,113
29,380

July 5
J u l y 12
J u l y 19
J u l y 26

3,822

1, 711

5,178
33,621
28,787
3 2 , 712
40,690

J u n e 14

Balance of
gain.

Balance of
loss.

5.684

3i,353

Net loss.

1,918

3,574

i,37o
1,689
2,758
2,881
2,881

165

5,817

2,936

National

Monetary

Commission

TABLE 4.—Receipts and disbursements of New York subtreasury, April 5,
iooy, to March 27, igo8—Continued.
Week ending— Receipts.

1907.
October 4 . . . .
October n
October 18
October 25

30,237
29,715
30,437
56,264

Disbursements.

Net gain.

Net loss.

29,503
30,860
33,212
74,792

Balance of Balance of
gain.
loss.

734
1, 145
2,775
18,528
23,182

November 1 ..
November 8 . .
November 15 . .

59,035
47,683
55,3oo
42,318
44,166

49, 264
47,549
52, 702
37, 292
46,030

Month . .
December 6 . . .
December 13
December 2 7 . . .

41,374
30,375
38,828
25,252

Month . .
1908.
January 3 . . . .
January 1 0 . . . .
January 1 7 . . . .
January 2 4 . . . .
January 3 1 . . . .

9,77i
134 |
2,598
5,026
1,864
1,864

17,529
37,49o
33,76o
37,i57
23,475

30,559
33, 130
47, 620
45,073
46,885

3,385
1, 671
i,777

36,081
30,668
44, 228
30, 198

372
1,573
5,574
5,386
3,9o6
16,711

3 2 , 010

March 27




6,579

31,621

Month . .

March 13

850
i,342

36,931
37,649

1,423

3,615

6,579
33,577
35,072
33,953
39,765

35,69o
33,048
36,996
36,194

3, 947

7,332

16,711

February 7. . .
February 14. . .
February 2 1 . . .
February 28. . .

15,665

3,884

3,385
30,931
34, 703
53,194
30,359
50, 79i

23,182

2,964

2,113

2, 024

|

3,043

3,57i
5,595

166

5,156

439

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l / v vM
U I /\
1 1 MM/
M Mr \
Kn M M M
m
M
11

l

1
1

13
I*
IS
16
/7
13

/*

1 1 1 1 1 1 1 1 i 1 1 i 11 1 1 1 i 1 1 1 1 1 1 1 1 1 i 1 1 1 11 1 1 1

1 M i l J [ | | | | | | | | | | 1 M i l 1 1 1 1 1 11 M 1 11 11 11 1 I I 1 1 1. 1 11 M
F I G . 4.—Net weekly balance of gain or loss of the New York subtreasury from April, 1907, t o March, 1908.

419690—10.




(To face page 166.)

Independent

Treasury of the United States

Table 5 with accompanying diagram, shows the changes
in the New York Bank reserves for the same period. Perhaps these figures can not be fully relied upon because of
the bookkeeping artifices said to have been resorted to by
some banks, in the panic, in order to show a proper relation
between reserves and deposits. Still they probably show
the general tendency correctly.
TABLE 5.—Changes in the reserves of the clearing-house banks of New York
City, April 5, 1907, to March 31, 1908.
[Expressed in thousands of dollars.]

Week ending—

Subtreasury
action.

Interior
movement.

+ 13.600
+ 4,5oo
+ 4,400
494

+
535
- 1.317
992
- 2,141

+
+
+
-

+
+
+
+

1.913
1.529
4,598
2,436
3,105

47i
+ 6,598
+ 4.336
+ 2,105

+
+
-f
+

1.516
2,710
2,277
3,463

-

1,723

-

711

-

7,037

-

6,855

+
+
+
+

2,162
5,896
3,172
4,291

+
—
+
+

1,162
3.104
4,672
7. 791

—
+
+
+

5.026
4.076
2,769
5.866

Net gain or
loss.

Variation in
reserve.

1907.
Apr. 5

26
Month
May 3
17
24
31

14.135
3.183
3.408
2,635

+ io,534
+ 7.649
+ 2,477
+
147

+ 22, 006
+
—
+
+
—

900
2,000
2,000
1,900
1,000

— 1,013

—
+
+
+

1,918
2,384
3,407
5.851
982

-

9.065
2,683

+ 4.800
June 7
14

— 6,400
— 6,900

21

— 4, 000
— 10, 500

28

— 4,884
— 4,190

— 27, 800
July 5

— 1,000

12

— 9,000

19
26

+




1,500

+ 3,5oo
— 5.000

167

National

Monetary

Commission

TABLE 5.—Changes in the reserves of the clearing-house banks of New
City, April 5, 1907, to March JI,
1908.—Continued.
Subtreasury
action.

Week ending—

1907.

Net gain or
loss.

Variation in
reserve.

1
+ 1,000
+ 1,000
— 2, 000
— 2,000
— 2,500

16
23

Interior
movement.

York

Month

+ 2,733 1
— 1,291 1

+ 3,733

+ I,221

— 779
— 6,087
— 961

- 4,087
+ i,539

—

291

—
—
—
—
—

903
5,312
2,828
2,086
1,652

4,500

Sept. 6

+ 1,000
+ 2,500
+ 3,200
+ 1,000

27

Month

+

934

— 1,412
— 1,609

— 4,495

+ 1.934
+ 1,088
+ 1,501
- 3.495

- 1,427

- 4,926
- 3,885
394
+ 4,680

— 7.621

— 656
+ 6,443

-

— 30,602

— 862
+ 4.529
— 3.216

+ 7,7oo

Oct. 4

— 1,000
+ 1,000
+ 4,000
+ 21, OOO

18

Month

-

3,926
4,885
4,394

- 16, 3 2 0

— 12, 901

+ 25, 000
+
+
+
+
+

8

Month

9.500
15,000
15, 000
13, 000
15,900

— 17,023
— 17, 406
— 22, 616

-17,337
-io,577

7,523

— 2,400

- 7.6i6
— 4.337
+ 5.323

— 4,313
— 1, 136
— 2,808
+ 1,980

+ 68,400
+
+
+
+

Dec. 6

17.300
6,700
7,100
6,511

— 9,024
— 6,800
— 5,200
— 2,169

+ 8,276

+ 4,342

+
+
+
+

4,671
4,113
6,507
9.439

+
+
+
+
+

+
+
+
+
+

8,046
18,390
26,186
23, 674
6,296

— 100
+ 1,900

•+37.611
1908.

Jan. 3
17
24




+ 1,000
— 1,000

+3,500
+ 1,500
+ 3,250
+ 8,250

168

+
+
+
+
+

5,458
13,375
12,295
20,584
17,069

6,458
12,375
15,795
22, 084
20, 326




APtt.
MAY
«/<«*£
<*JLY
AUO.
SCPT.
OCT.
fifOy.
0€C.
JAN.
«».
MAR.
5" a It 21 3 10 17 19 31 7 19 21 28 S IZ 19 26 2 9 /<> 23 30 6 13 20 27 9 It 18 ZS I 8 IS 22 29 i 13 20 27 3 10 17 29 31 7 14 Zl ZB6 /* 20 27

A
1
4
M
M/

\

/ Y

i i

1

"

M

M
h M M 1M
M M

i

/
/
/
i

1

M I
M
1
M
A
Mry\\\i
r N
k \ /
I M M M4
i
\ \V/
Y
I
M
I
I
hf

\\\rl

\
\
\\\\A

NA
\ M
i W\ M
Y 1
M
\\ \ \ A 1
MMr/\
M
1 \ I
M
!
i
l
»

1
M

M
l

r

—•

•

I

M

i
I
r MM
Mu
1
\ M
A 1
\
\ \RAA\
I 1
\ /1 N /
I\
M M / WW
1V
Y M • hf Ml \
I
M /\ / \
/\ i
1/ \\\\\
T W
1
1

FIG. S.—Changes in reserve of New York clearing-house banks from subtreasury operations, April 1907, to March, 1908/

r

"j

National

Monetary

Commission

T A B L E 5.—Changes in the reserves of the clearing-house banks of New
City, April 5, 1907, to March 31,
1908—Continued.
Subtreasury
action.

Interior
movement.

Net gain or
loss.

+ 1,000

+ 4.411

— 1,000

Week ending—

+ 4,3o8
+ 3,562
+ 2,949

+ 5.4ii
+ 3,308
+ 9,573

York

Variation in
reserve.

1908.

Feb.

7

+ 6, o n
28

— 5.000

Month
Mar.

+
500
- 5.931
+ 3.000
— 3, o n

+
+
+

+ 2,893
— 439
+ 9,322
+ 4,178

+ 1,011

6

— 2,051

-io,974
— 251
+ 5,114
+ 2,127

+
+
+
+

3,358
3.079
4,645
5,066

3,858
2,852
7,645
2,055

- 5.431

These tables furnish a basis for a comparison similar to
that made between Tables 2 and 3. In the month of April
the bank reserves gained over $22,000,000 from subtreasury operations, yet the subtreasury itself showed a
balance of gain of more than $4,000,000, thus showing
that it was contracting the circulation, even though it was
directly aiding the banks. The same is true of the
month of May. In June, however, while the banks lost
nearly $28,000,000 through subtreasury action, the subtreasury net gain was nearly $16,000,000. Part of its
total gain, therefore, went into general circulation. In
July the net loss of the bank reserves through subtreasury action was $5,000,000, yet the subtreasury itself
had a net loss of $6,500,000. This shows a great increase
of the circulation at a time when it was least needed.
Doubtless the plethora of currency had much to do in
promoting the speculation which preceded the panic in




170

Independent

Treasury of the United States

the fall. It is not necessary to compare the tables more
in detail. They again show that no dependence can be put
by the banks on the action of the subtreasury. The data
of Table 5 are presented graphically in the diagram and
reveal the course of procedure more clearly to the eye.
For the sake of showing that the irregularity of action
is not peculiar to the New York subtreasury, Table 6 and
Diagram 6 are inserted to show the course of the receipts
and disbursements of the subtreasury at Chicago for the
seven months from September, 1907, through March, 1908.




171

T A B L E 6.—Receipts and disbursements of the Chicago suhtreasury for seven months.,a
Receipts.

Disbursements.

$5,521,429
6,282,169
5,158,520
7,040,541

Week ending—

$5,610,546
6,519,416
6,092,034
7,109,655

Net gain.

Net loss.

B a l a n c e of
gain.

B a l a n c e of
loss.

1907.
Sept.

7
14
28

$89,117
237,247
933,514
69,114

Month
Oct.

1,328,992

5

8, 849, 424
5,860,607
5,860,841
8,830,134

ix,946,612
14, 734, 100
10,673,226
8,823,177
10, H 4 , 9 3 4

26

8,068,617
8,267,070
7,468,533
9,330,869

I5,754,5i8
16,866,872
1 6 , 9 3 3 , 146
7,840,526
9,497,5i6

Month

Month
Dec.




7

$780,807
2,406,463
i,607,692
5oo,735
780,807

16
23 ,

8,977,001
8,826,030

9,251,679
8,670,873

4,514,890

3, 734,,083

3,807,906
2, 132, 772
6, 2 5 9 , 9 2 0
982,651
617,418
1, 6 0 0 , 0 6 9

'

$1,328,992

12, 200, 598

10,600,529

274,678
155,157

3

8 , 0 6 4 , 217
28

5,571,888

8,008,873
4, 4 6 1 , 6 4 0

Month

55.344
1, n o , 248
1,320,749

ft.
274, 6 7 8

$1,046,071

1908.

Jan. 4

5,693,655

18

11,005,623
13,866,904
10, 752, i n

25

4 , 8 9 0 , 198
11, 067,013
i6,9i4,354
10,258,715

Month
Feb.

1 3 , 4 9 6 , 161
9,748,788
7,827,968

21
29

6, 6 2 7 , 706
7, 8 6 2 , 201

n , 4 6 5 , 401
9,530,424
6, o n , 043
6,590,005
6,581,174

Month
9,211,226

14

9,379,195




493,396
3,108,840

7,060,799
7,503,938

7,395,866
8,458,908
8,213,108
7,898,030

1,811,987

2,030,760
218,364
1,816,925
37, 7oi
1, 2 8 1 , 0 2 7
5,384,777

Mar. 7

Month

61,390
3.047,450

1, 2 9 6 , 8 5 3

1
8
15

28

803,457

5,384,777

1,815,360
920,287
1, 1 5 2 , 3 0 9
394,092
2, 7 3 5 , 6 4 7

1, 5 4 6 , 401

1,189,246

o The figures were kindly furnished by the assistant treasurer at Chicago.

Co

5




7

IH

Zl

Z8

S

IZ

If

H

Z

9

16

26

30

7

I*

Zl

26

*

It

16

25

f

1

\

/

? /

6

7r

z

0

I

/

"
\

\

1
1

/

\

«J

o
Q

\ /
\/
/

fc*

\

IS

ZZ

1
\

]

1

29

/

\

'

\1

/

\
\ /
\ /

\
\

\
5

\
9

5

—-rr.

r

FIG. 6.—Net weekly balance of gain or loss of Chicago subtreasury, September. 1907, to March, 1908.

7

f<+ Zl

/ \

A
\
\
/

j r

26

Independent

Treasury of the United States

The data given show a balance of loss to the subtreasury
account through the months of September, October,
November, and January, and a gain in December, February, and March. Of course the influence of any subtreasury other than that of New York City depends largely on
the action of that institution. Hence the figures for Chicago must be considered in their relation to those for New
York for the same period. The returns are traced in the
diagram following.
To avoid irregularities incidental to the peculiarities
of single years, and to show that the lack of coincidence
between operations of the independent treasury and the
banks are not merely occasional, a series of tables follows.
Table 7 shows the average monthly surplus reserve of the
New York banks for the four years, 1888-1892. The
table shows that the reserves are high in January, February, and through the four summer months, May, June,
July, and August. In March, April, and the last four
months of the year they fall considerably. Figure 7 presents the data graphically.
T A B L E 7.—Average monthly surplus reserve of New York

banks.a

[Expressed in thousands of dollars.]
Average
for four
years.

1888.

January. . .
February. .
March
April
May
June
July
August
September.
October. . .
November.
December. .

1889.

18,676

15,784

8,971

18,036

16,506

14,865

5,855

16,935

15,367
13,540

10,014

7, 192

2,253

9.543

7, 250

12,463

8,247

1,638

5,824

24,506

14,423

3, 0 0 2

5.974

27,840

9,6i8

6, 172

12,939

27.651

6,498

5,496

17,052

27,590

5.044

3.530

i6,479

12,742

4,044

5,172

7,411

13,612

i, 113

3.169

9,500

7.043
11,976
14,127
14,174
13,161
7,342
6,849
6, 169
8, 272

1890.

1891.

11,384

1, 172

962

11,161

8, 122

2, 187

3,815

16,961

o The table is compiled from returns in the Financial Chronicle and the New York
Journal of Commerce.
175




National

Monetary Commission
MflLlQNS

Of DOLLARS

/

J

,/
\

#.

/ ;
\

*

I

4

X
/
«

\

i
i
i

\

\

\

x,

x

X
•

i

x»

\

/

V

\

\
<

• »
/
ir i

/
1

/

-»"*

. - - - "
n

\

1

1

'

\

0

I

/
1 *

^

*

/
*

\

\

\

1
I
i

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1
J
1
1

/

00 Cb
s.
1
L . i

»
>

•
Hi.




_

/

X

176

1
1

i

1

\

I'f ...

II

1
1
1

1

Co £
0 Q» Oft
> 4) Oft

X
mV.,.,

-

Independent

Treasury of the United States

Table 8, in three sections, shows the changes in the
reserve of the clearing-house banks of the city of New
York on account of the action of the subtreasury, as
well as the drain of money to the interior for the three
periods: From September 5 to November 28, 1890; from
February 4 to December 30, 1898; and from January 5
to December 31, 1906.
T A B L E 8.—Changes in the holdings of the New
to the action of the subtreasury

York

associated banks due

and the interior movement of money, and

also the changes in the total reserve.0,
A. FROM SEPTEMBER 5 TO NOVEMBER 28, 1890.
[Expressed in thousands of dollars.]
Subtreasury
action.

Week ending-

Sept. 5 .

+ 1,600
+ 2,600
+ 13, 700
+ 18, 500

12 .
19 .
26 .

Oct. 3 .

+ 4,Soo

10.

— 2,100
— 2,500
— 2,300
—
700
—
900
+
200
+
700
+
300

17.
24.
31 •

Nov.

7.
14.
21.

Interior
movement.
-3,289
—3,3io
—4,411
-3,933
-5,78i
-4>752
-3,468
-2,038
— 2, 290
- 533
+ 1, 129
— 1, 190
-

514

Net gain ( + ) Variation in
or loss ( —).
reserve.
- 1,689
-

710

+

9,289

+
+
-

14,567
1,281
6,852
5,968
4,338
2,990
i,433
1,329
490
214

52
- 3,193
+ 6,895
+l
16,384

+

020
924
311
964
207
254
292
300
484

B. FROM F E B R U A R Y 4 TO DECEMBER 30, 18

Mar.

+3, i n

+ 2,511

+

2,008

— 3,000
— 4, 000
+
800

+ 2, 245
— 1,321
- 4 , 140
- 2 , 145
+ 2, 800

-

1, 131
6,779
5,066

-

7,934

+ 6,714
+ 7»4oo

— 2, 097
— 1, 172

- 1.555
- 3,42i
- 7, 140
- 6,145
+ 3,600
+ 4,617
+ 6,228

— 600
— 3,800
— 2,100

Feb. 4 .

35.
418.
35.

737
+ 3,513
+ 5,160

o The tables are compiled from the weekly returns of the Commercial and Financial
Chronicle. The ( + ) sign means gain to the banks, and the ( —) sign loss.
419690—IO




12

177

National

Monetary

Commission

T A B L E 8.—Changes in the holdings of the New York
to the action of the subtreasury and the interior
also the changes in the total

associated banks

movement

of money,

reserve—Continued.

B. FROM FEBRUARY 4 TO DECEMBER 30, 1898—Continued.

Week ending-

Apr.

1
8
IS
22

29
May 6.
13.
20.
27.
June 3
10
17
24
July 1.
8.

Subtreasury
action.

+ 5,600
+ n , 500
+ S.Soo
— 1,506
+ 11, 500
+ 4,000
4- 4, 600
+ 3, 200
, 200
, 200

100

-5,095
-8,323
-3,5M
— 527
— 4, 609
- 1 , 717
+ 865
+ 3,444
+ 4, 755
+ 3,312
+3,813
+ 4,388
+ 4, 152
+ 4,875

5.700

+ 3, 222

1,300

806
1, 0 0 0

—

IS.

— 10, 0 0 0

22.

— 14, 0 0 0

29.
Aug. s
12
19
26
Sept. 2.
9.
16.

Interior
movement.

—

3.000

—

2,500

—

7,300

—

6,000

—

9, 0 0 0

— 7,5oo

+
+
+
+
+
+
+

2,813
2, 709
3,554
1,903
4, 446
2,415
2,584

30.
7.

14.
21.
28.
Nov. 4.
10.
18.
Dec.

—

4, 0 0 0

+
+
+

5,800
4,5oo
6,500

+

7, 0 0 0

4- 4, 0 0 0
+

2, 2 5 0

—

1,000

+

1,400

25 ^
2

—

500

—

1,800

9
16

—

1,600

—

200

33
30

+

500

—

2,000




178

— 1, 662
+ 2,889
— 2, 472
-1,771
+ I.3IO
+ 3 , 269
+ i,3ii
+ 1,855
+ 2, 093
+ 1,806
+ 2,844
+ i,336
+ 662
+ 1,184
+ 3,934

505
3, 177
1,986
2,033
6,891
2,283
465
644
955
512
113
194
152

+
-

4,975
2,478
7,i87

- 11, 291

+
-

554
597
2,854
,585
, 416
, 067
,837

-

1, 162

— 1, 251

500

+
+

— 1,567
+ 1, 163

+

Oct.

— 11, 0 0 0

Net gain ( + )
or loss ( —).

,251

+ 8,689
+ 2,028
+ 4, 729
+ 8,310
+ 7, 269
+ 3,56i

+
+

+
+
+

855
,493
, 306
,044
264
462
,684
,934

du
an

Independent

Treasury of the United States

TABLE 8.—Changes in the holdings of the New York associated banks due
to the action of the suhtreasury and the interior movement of money, and
also the changes in the total reserve—Continued.
C. F R O M J A N U A R Y 5 T O D E C E M B E R 3 1 , 1906.

Week ending-

Jan.

s

Subtreasury
action.

3,000

+

4,000

26

+

7,000

2

—

6,000

9
16
Mar.

4,200

+

19

Feb

—

12

—

2,000

—

3-900

23
2
9
16

23
30
Apr. 6

—

1,500

—

3.900

+
+
+

2, 0 0 0

—

1,216

—

1,000

, 000

500

Interior
movement.

+ 5,351
+ 6,960
+ 6,170
+ 4.74o
+ 4.685
+ 2,349
+ 1,880
+ 3.494
+ 2,838
—
+
+
—
—
+

351
2,253
1,788
2,777
5,300
3,676
4,150

13

+ 3.7oo

20

+ 10, 0 0 0

—

27
4

+

6,000

— 20, 5 7 0

+ 31, 000

— 20, 9 1 4

11

+

7, 0 0 0

—

18
25
J u n e 1.
8.

+
+
+

3. 0 0 0

—

1,649

3. 0 0 0

—

2,177

IS-

May

2,841

, 400

+

806

2, 4 0 0

+

1,113

3.000

—

223

2, 5 0 0

+

1,552

29.

+
+
+

. 500

+

3,241

6

—

3.500

+

130

13

—

1,000

+

2,181

20

—

6,000

+

4,642

27

+

2,500

+

8,722

+

5.191

—

1,819

22.

July

3

—

2,500

10

Aug.

—

1,600

17

1,500

—

3.000

31

Sept.

+

24

—

7

—

1,900
3.500

14

+ 14, 000

21

+

2,000

28

—

1,000




~

5,325

—

2,517

—

2, 5 6 2

—

6,235
2,070

—

4, 5 6 0

—

179

—

4,539

Net gain ( + )
or loss ( —)

+

I.151

+ 9.96o
+ 10, 170
+ 11, 7 4 0
-

1. 3 1 5

+

349

—

2,020

+

1.994

—

1,062

+

649

+

4,253

+

2,288

—

3.993

—

6,300

+
+
—
+
+
+
+
+
+
+
+
+
+
+

7.376
5.850
I4.570
10,086
4.159
I.351
823
5,206
3.513
2,777
4.052
5.741
3.37o
1, 181

-

I.3S8

-t-11, 222

+

2,691

- 3,419
- 3.825
- 5,517
— 4,462
- 9.735
+ ii,93o
— 2,560
- 5,539

National

Monetary

Commis s ioi

T A B L E 8.—Changes in the holdings of the New York associated banks du

to the action of the subtreasury and the interior movement of money', an
also the changes in the total reserve—Continued.
C. FROM JANUARY 5 TO DECEMBER 31, 1906—Continued.
Week ending-

Oct. 5
12
19
26

Nov. 2

Subtreasury
action.
4+
+
+

6,000
1, 236
3.500
i , 000

—

Interior
movement.
— 3.439
~ 5.392
— 8,279
— 7.495

2,500

—

2. 232

9
16

•+• i, 0 0 0

—

2,801

—

1,000

+

3.015

23
30

—

1,100

+

2,156

—

3.000

—

1.315

Dec. 7

—

2,500

—

1,4ii

14
21
28

—

1,000

+

4.5II

+

3.600

+

2,101

—
533
— 3.879

Net gain ( + ) Variation in
or loss ( —).
reserve.
+

2,561

-

4.156

- 4.779
- 6,495
- 4,732
- 1,801
+ 2,015
+ 1,056

+
+
+

4.315
3,9ii
3.5ii
3,067
5.98o

- 3,79
+ 8,46
- 3,93
- 7,43'
- 7,34
- 8,83
+ 2,8r
+ 2, 90;
- 2, 78:
- 12, 26(
+
+

I, 22*
6,12:

+ 4.501

It appears from this table also that the months in which
the banks usually gain largely from the subtreasury do not
always correspond with the months when it is necessary for
them to have the largest reserves. The times of the year
when money is least needed, or when it accumulates in the
vaults of the banks, are approximately January, the
summer months, and the period toward the end of October
and the beginning of November.
The accompanying Figure 8 shows the facts graphically.
Table 9, with accompanying diagram in two sections, is
presented to show the average monthly surplus reserve of
the New York clearing house banks for six years, 19041909. The amount of surplus reserve given in the table
for each month is the average of the weekly reserve for
that month. The diagram ga represents the course of the
reserve through the whole period, while gb is constructed




180

no9
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*

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o o uj <c «*i s 2:
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>- 3 $ o

^ * * ^
> >

Uj

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Q

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S5
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to

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i i i i i 1 1 1 1 i 1 1 i 1 i 1 1 i 1 1 i i * i 1 i i 1 i i 1 1 i i i i 1 i i i i i i 111 if 1 I j I I i 1 j I i j i I i i j i j I i I i i i
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1 1 1 11 1 1 1 1 1 1-11 1 11 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
F I G . 9A.—Average surplus reserve in New York clearing-house banks, 1904-1909.
0

41969 —10. (To face page 181.)




JAN.
s tz /9 n z

^
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S£fiT.
OCT
4UHt
AP*.
JULY
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f6 za z 9 ih 23 30 6 / i 20 ZT 1 /A /£ 25" 1 6 4S ZZ 29 <> 13 20 Z7 «J /0 ; r 2 « 3/ 7 f9 Zl Z& S IZ 11 2i

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FIG. 8.—Changes in the holdings of New York associated banks due to subtreasury action at three periods: September 5 to November 28, 1890; February 4 to December 30, 18^8;
January 5 to December 31.1906.

419690—10. (To face page 180.)




Independent

Treasury of the United States

from the averages of the monthly figures for the six years.
Therefore it may be regarded as a fair presentation of the
usual course of the surplus reserve under conditions such
as prevailed in those years.
T A B L E 9.—The

average monthly surplus reserve 0} New
house banks,
1904-iooo.a

York

clearing

[Expressed in thousands of dollars.]
1906.
January... .
February...
March
April
May
June
July
August. . . .
September.
October.. . .
November..
December..

Average.

1908.

19,722

21,695

11,468

10,703

13,568

25,464

17, 103

25,469

13,682

6, 9 9 6

6,180

32,588

11,814

16,121

28,664

7,325

5,766

5,356

34,503

14,230

15,974

29,064

10,962

7,236

14,836

48,228

11.333

20,277

19.562

13,781

8,904

10,618

59,047

15,671

21,264

6,282

56,348

22,221

23,227

44,657

9,545
13,879

8,804
14,394

6,520

52,748

33,923

27,687

S7.S07

10,836

8,446

8,652

60,886

22,091

28,069

35,386

5,528

4,736

7,085

52,973

9,8i9

19,255

16, 631

9,877

8,580

4,313

34,987

10,016

14, 0 6 7

9,244

2,999

2,077

12,276

2, 746

339

36,161

N o , 304

29,555

7,683

209

6

16,001

8,890

969

34,558

< Figures compiled from the Commercial and Financial Chronicle.
*
& Deficit.

The table emphasizes the well-known fact that the
bank reserves are likely to increase in midsummer and be
lowest in spring and fall. The figure 9A further shows
that the surplus reserve reached its lowest points in May
and December of 1904; March, November, and December
of 1905; March and December of 1906; March, June, and
November of 1907; July and December of 1908; and
April and November of 1909. The period from the late
autumn of 1904 until the time of the panic of 1907 was a
time of comparative stability. Section B of the diagram,
as remarked, brings out the course of the average reserve,
according to the preceding data.




181

National

Monetary

Commission

Perhaps enough has been said to justify the statement
that evil results from a lack of correspondence of government receipts and disbursements with bank needs and
seasons of ease. The evidence may be strengthened,
however, by a glance at the course of government receipts
and disbursements by months. In order to bring this
out, Tables 10 and n have been prepared. Section A of
Table 10 shows the monthly government receipts from
JAN.

FEB.

AM ft.

API*,

UAY

JUNE

JULY

AUG.

SCPT.

OCT.

NOV.

0

FIG. 9B.—Monthly movement of the average surplus reserve of the New York associated banks
for six years, 1904-1909, inclusive.

customs only, for the three years 1888, 1889, and 1891,
with the average for each month. Section B of the same
table gives the total ordinary receipts of the Government
by months for the years 1908 and 1909, with the average
for each month. Table 11A shows the disbursements for
the three years with the average for each month, and 1 iB
gives the disbursements by months for 1908 and 1909,
corresponding with Section B of Table 10. The figures




182

Independent

Treasury of the United States

for the year 1890 have been left out because they were
somewhat anomalous.
An inspection of the table of receipts shows that they
rise through the summer. This means, of course, that
during these months the Treasury is locking up money
and contracting the currency. Doubtless the banks must
have found relief at times from this situation, for the
Treasury absorptions have withdrawn part of the money
which would otherwise have lain idle in their vaults. On
the other hand, it may at times have weakened them in
their efforts to prepare for the autumn demand for money
to move the crops. Indeed, there have been years, of
which 1890, 1902, and 1903 are, perhaps, good illustrations, in which the necessary ease to the money market
has come entirely from government disbursements. One
may say that provision for " moving the crops " has become
a regular part of the banking business of the Treasury.
T A B L E 10.—Receipts of the Government from customs, by months.0

[Expressed in millions of dollars.]

1891.

January. . .
February..
March....
April
May
June
July
August. . . .
September.
October. . .
November.
December.

Average.
20. 7
18.2

17.4
16.6
14.9
16.6
18.0
19. 6
16.9
17. a
14-9
15-5
a The figures are from the Commercial and Financial Chronicle.




183

National

Monetary

Commission

Ordinary receipts of the Government, by months, for 1908 and
B.
[Expressed in millions of dollars.]
1908.
January. .
February.
March. . . .
April
May
June
July
August. . .
September
October. .
November.
December.

1909.

49.4
48.3
44-6
43-9
42.7
53-5
52. 2
453

48.3
49-3
48.0
So.3

TABI,E 11.—Government disbursements,

47-5
46.7
53-4
52. 1

53-3
56.9
57-6
Si-1
52-3
57-2
Si-7
56.9

by months.

A. 1888-1891.
[Expressed in millions of dollars.]

1888.

January. .
February.
March....
April
May
June
July
August. . .
September
October. .
November
December.




1889.

26.6
33-8
17. o
22. 5
24.4
13.8
42. o
38.3
16.5
28.6
25.3
25.9

21. 9

199
15-5
249
27.S
16.6
36. 1
22. 2

19.s
32. 6
36.6

15.s

I84

1890.

27.9
25.1
17.5
29.9
27. 2
149
38.1
339
337
38.0
42. 6
21. 9

1891.

24. o

3i-7
31.s
25-3
29.8
359
39- 7
20. 7

23.9
319
27.9
31.8

igoo.

Independent
JAN.

FSB,

MAR.

Treasury of the United States
APn.

MAY

J<JN£

JUVf

AUO.

St

fit.

OCT.

NOV.

0€C.

if

20

*
Q

A

IK

F I G . IOA.—Course of average receipts of the Government from customs for 1888, 1889, 1891.

<JAN.
*6|

PEQ

MAR.

APR.

MAY

JUNE

JULY

AUG.

HPT.

OCT.

NOV.

S$

I

© SZ

3 50

m
H8
HI

FIG. IOB.—Average course of Government receipts, by months, 1908-1909.




185

0£C.

National

Monetary

TABI,E II.—Government disbursements, by

Commission
months—Continued

B . 1908-1909.
1908.

Average.

January. .
February.
March....
April
May
June
July
August. . .
September
October. .
November
December.

A study of Table 11, showing the disbursements of the
Government, gives us the same kind of information. In
Section A the disbursements have been large in October,
November, and December, and small in March, April,
May, and June. In both sections of the table July is the
month when most money was disbursed.
The plethora of currency in the summer is due (1) to
the fact that any national bank which receives on deposit
notes of another bank may pay them out again in the
ordinary course of business, in consequence of which the
notes of the country banks are not sent home in the summer; (2) to that provision of the law whereby the deposits
in reserve cities count as reserve both for the reserve
banks and for the country banks making the deposits;
(3) to the payment of interest by the banks on deposits
subject to call. No one is benefited by seasons of extreme
ease; for, as the money accumulates in New York when it
is not wanted in the interior, the producing mercantile
classes outside of New York get no benefit from the low




186

Independent

Treasury of the United

States

rate of discount which the accumulations produce.
When a stringency occurs, on the other hand, all parts of
the country are likely to be affected. The injury of crises
is not compensated by the ease of the money market at
the times of great accumulation. Figures 11 A and 11 B
show the data of the corresponding tables graphically.
There have been times when the autumnal drain would
all have fallen on the banks but for the subtreasury.
Two channels were open for the Government to put out
its accumulated surplus: The purchase of bonds, which
was the usual policy in the autumn for some years before
1890, and making deposits of public money in the banks.
With a rising premium on United States bonds, the banks
did not always find it profitable to buy them in order to
secure government deposits. Relaxation, in recent years,
of the law requiring security to be in United States bonds
only, together with the provision that customs receipts
also may now be deposited in banks, has changed the
situation altogether, so that depositing in the banks is
now the usual policy. With the changes in the law and
in practice, when the Government has a surplus, bond
purchases to relieve the market or to "move the crops"
will be less necessary.
GENERAL CONCLUSIONS CONCERNING THE INFLUENCE OF
THE INDEPENDENT TREASURY SYSTEM.

The two important and striking facts brought out by
study of these tables and diagrams are the irregularity of
the operations of the subtreasury in absorbing and disbursing currency and, therefore, in contracting and




187

National
JAN.

FfB,

MAP

Monetary
APR.

MAY

JUNE

Commission
JULY

AUG.

SEPT.

OCT.

NOV. OEC

F I G . IIA.—Average course of Government disbursements, by months, 1888-1892.
JAN,

FEB,

MAR,

APR,

MAY

JUNE

JULY

AUO. SEPT.

OCT.

NW

7$

ro
<0

o
Q

SS

SO

96
FIG. I I B . — A v e r a g e course of Government disbursements, by months, 1908-1909.




188

OEC.

Independent

Treasury of the United States

expanding the currency and the bank reserves; and, second, the lack of correspondence between the periods
between subtreasury disbursements and the needs of the
banks as well as between subtreasury absorptions and
periods of ease on the part of the banks.
It is evident that there is no necessary connection
between subtreasury supply and bank need. Sometimes
the two movements are in the same direction and sometimes in opposite directions. There is no certainty that
the subtreasury movement, whether it coincides with or
antagonizes the demand for money from the interior, is
in the best direction at any particular time. But we
must remember that the subtreasury has often been of
great advantage. It is entirely possible that without it
the banks might have experienced at times greater difficulty than they did. But the public has a right to insist
that the management of banks shall be good enough to
enable them to meet all demands upon them. If the
banks had not been accustomed so long to rely upon the
subtreasury for relief, they might be better able themselves to take measures to meet the regular autumnal
drain.
So great an irregularity as the data show can not but
have a tendency to make prices irregular too. The effect
of the spasmodic variations shows itself first in the price
of securities, and some people are inclined to take the
view that fluctuations in the market for securities are
matters that concern speculators only and need not cause
anxiety to the people at large. This, however, is too narrow a view of the situation. Whatever criticism may
fairly be made against the merely speculative element of




189

National

Mon

etary

Commission

the securities market, it yet is true that the fluctuations of
that market have an important and far-reaching influence
on the ordinary business of the country. Manufacturers
and merchants are interested in the price of securities,
although they do not speculate in them. The business
man with a surplus of money in a dull season finds it to
his advantage to invest it in good securities. When his
business becomes brisk again he borrows at his bank and
may pledge his securities as collateral. If from any cause
the price of his bonds or stocks fluctuates violently he may
suffer a loss and may be obliged to provide additional
security and thereby strain his resources when he needs
them most. Under some conditions the business man
who has borrowed may be compelled to reduce his capital
or lessen his expenses or sell his goods at a loss. Moreover, we must not forget that the speculation which is so
much and so properly criticised may be stimulated, if not
caused, by an inopportune disbursement from the subtreasury itself.
For, as we have already remarked, the influence of the
treasury absorptions and disbursements of money on
prices is not a direct one. It shows itself through alternate
enlargement and lessening of the bank reserves, with consequent changes in the rate of discount. As is well understood, a vast volume of business transactions is based
on credit; that is to say, the funds for them are borrowed
bank deposits resting directly upon the cash reserves of
the banks. It is hardly necessary to lay emphasis on the
volume of transactions settled with credit documents
supported in one way or another by this reserve. The




190

Independent

Treasury of the United States

volume of loans and discounts in the national banks
alone, on March 29, 1910, was $5,432,093,194. This great
volume of credit transactions rested on a reserve of
$661,799,771 in specie and $173,095,815 in legal-tender
notes. But this statement does not present the situation completely. The bank reserves of the city of New
York and of the other central reserve cities include part
of the reserves of banks in other places. Under the
national banking law, as is well known, banks in places
other than reserve cities are permitted to count as part of
their reserve some of their deposits with their correspondent banks in the reserve cities. But the banks in the
reserve cities discount on the basis of these deposits. It
is evident, therefore, that the reserves of the banks in the
central reserve cities support not only the discounts of
these banks themselves, but, in large measure, the discounts of the country banks also. But the situation is
even more delicate than the facts thus far would show.
In practice, not only the national banks outside of the
reserve cities, but also other banking institutions, follow
this practice of keeping part of their reserves with banks
in reserve cities. Doubtless there are many banking
institutions which keep practically the whole of their
reserves in the reserve city banks. Consequently, the
reserves of the banks in these cities, particularly in New
York, is, in a real sense, the reserve of all the banks of
the country. It is clear, therefore, when we consider
the vast superstructure of credit that rests upon the
reserves, that any influence exerted upon the reserves
in the central reserve cities is likely to have far-reaching




191

National

Monetary

Commission

immediate consequences upon the business of the
country.
The safety and value of the whole credit system depends
upon the maintenance of an adequate reserve. The
reserve is not adequate unless it is large enough not only
to meet all demands upon it but to remove all apprehension that it may not be able so to do. Unless confidence
in this respect can be established in the minds of the
public, the whole credit system is impaired. Any diminution of the bank reserve, without a corresponding decrease
of credit, or any check on its expansion when the needs
of business require an enlargement of credit, interferes
with operations in every line of business activity. In
other words, so small relatively is the bank reserve that
a comparatively slight change in its amount may check
the whole market. The banks in reserve cities are
required by law to keep a minimum reserve of 25 per
cent of their deposits in coin and United States notes.
This, then, represents the danger line in fluctuations of
reserve. Even an approach to it creates anxiety and
distress in business.
The amount of reserve necessary depends partly upon
the amount of cash deposits, but more upon the volume
of discounts. 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 to that of its liquidation. Yet




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the transaction is equivalent to an increase of deposits,
and necessitates an increase of reserve. If the reserve of
the bank is already at the legal minimum, the bank must
get more money; if it can not do so, it must contract its
loans or refuse further discounts, thus checking the
market. Money which is drawn from the banks must
come out of the reserve or cash actually on hand. The
withdrawal of any sum of money from the banks diminishes
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 business, where
the banks can get at it, they can strengthen their position
again immediately. If, however, they can not recover the
money let out, every withdrawal brings them nearer to
the danger line of the legal minimum reserve. Money
withdrawn from the banks for export, or to be locked up
in the subtreasury, is put out of reach of the banks for a
time at least.
The banks of the central reserve cities are subjected
each year to periodical drains from the interior to sow in
the spring and to move the crops in the fall. Between
times they ordinarily have high surplus reserves and the
discount rate is low. Under a good currency and banking system the banks would not be subjected to a
strain on their reserves at the times when the demand
from the interior is heavy; nor to an influx from the
subtreasury at times when money is returning from the
interior. That they do undergo these experiences, however, the data in the tables and diagrams presented show
very fully.
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13

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The diminution of the bank reserves by the subtreasury
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 prevent the
reduction of business transacted. That is, since one part
of the purchasing medium is diminished, the other must
enlarge to maintain the same volume of business. Thus
the tendency of the action of the subtreasury is to diminish
one basis of business activity—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 basis for granting credit. The result is a
check on business expansion, perhaps an actual reduction
of business activity.
It is sometimes 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 contracting and expanding the currency would not occur. This
statement is hardly correct, because it overlooks the
characteristic feature of the system, which is its irregularity of action. The receipts of the Government flow into
its vaults in a continuous stream, while payments are
periodic. 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,




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or nearly all, at once. In this irregularity a of action on
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 compared with the total circulating medium, and therefore
can not have any important effect on business, the argument is conclusively answered by the evidence of experience. It can not be admitted that the disbursements of
the Government are so insignificant as the statement
seems to assume. To assert that such changes in the
available amount of loanable funds as Treasury operations
°> As long ago as 1882, the Secretary of the Treasury, Mr. C. J. Folger,
emphasized this point, in his report for t h a t year. He emphasizes too
strongly, perhaps, the power of " c l i q u e s " in the money market; but these
certainly have been at times powerful for evil, and their power has been
increased, if not at times made possible, by the influence of the independent
treasury on the currency. Secretary Folger wrote:
" F r o m the inequality between daily large receipts and comparatively
small daily disbursements there comes an evil effect upon the business of
the country. 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 movement of money, and are returned to it with the same
inadaptation to commercial 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. I t is not only that the amount in the Treasury is so
much kept from the use of [the] community; the fact becomes an incentive
and an aid to men who for their own ends conspire to keep from t h a t use
other large sums * * *. To-day there are men so rich that by conspiring
together, they can at will p u t 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. I t results that sudden and violent
contractions and expansions afflict the business community, and the
Government is an unwilling aider and abettor therein. I t 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."
Similar remarks have been made by other Secretaries.




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Monetary

Commission

cause 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 the amount accessible to borrowers, and that the banks will voluntarily keep idle in
their vaults more money than is necessary for conservative
banking.
But, to repeat what has already been said, even a small
change in the amount of money available for reserves
may have an important influence on the market, especially
if bank reserves are very near the legal minimum; for
contraction then, though apparently insignificant in
amount, may produce a most violent reaction in prices,
disturbance in settlements, and disorder in almost every
part of business activity.
Some years ago the banks of the country took alarm,
whether reasonably or not, at some proposed congressional legislation which, in their judgment, would affect
the value of United States bonds. Banks generally took
measures immediately to recall the bonds deposited with
the Treasurer of the United States as security for their
circulating notes. To do so they drew on their New
York balances for legal-tender notes and ordered them
sent to the Treasurer at once. The amount of legal tenders thus withdrawn from the bank reserves in New York
City in one week was about $17,000,000, out of a total
circulation of all kinds aggregating nearly $1,100,000,000.
The demand caused a sudden contraction of the discounts
of the New York banks, followed by a fall in the price of
securities, which had to be sacrificed by borrowers who
could not replace their loans. The result was a loss of




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fully $200,000,000 in the aggregate value of securities in
the New York market within the week.0
In addition to the bad influence of the irregularity of
the working of the independent treasury, harm arises
from the system in connection also with the pdlicy of surplus financiering. By that policy a large amount of
money collected in excess of the expenses of the Government is, in effect, withdrawn 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. To be sure, to have a surplus is not a feature 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 Government, the
evils of hoarding, at least, would be avoided. It is
because it makes hoarding in the government vaults possible that the subtreasury system adds to the evils of
surplus financiering.
FACTORS WHICH HAVE MODIFIED THE INFLUENCE OF THE
INDEPENDENT TREASURY.

The operations which have been described are those
which would result under a system of government fiscal
< See W M. Grosvenor, American Securities, 2i6fF.
*




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Commission

independence, with disbursements made at considerable
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 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 subtreasury might have
caused.
In the first place, the tariff and the independent treasury have had a certain connection. Until 1907 receipts
from customs could not, according to law, be deposited
in the banks. When, therefore, imports which are subject to taxation were heavy, considerable money was
locked up. This, of course, if continued for a consider-




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able period, and if disbursements did not increase, would
diminish the means of paying duties, and might strongly
affect the money market and disarrange credit.
The two institutions, tariff and independent treasury,
are to a certain extent antagonistic, in so far, at least, as
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 subtreasury will tend to check an importation movement sooner than it would cease 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.
It has already been observed several times that there
is, strictly speaking, no casual 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 contraction whereby the amount of money in circulation
quickly and easily becomes less when business becomes




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dull for short periods. Our circulating medium is composed 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 gold would ordinarily diminish only by export for
investment or for the settlement of international balances,
and is not, therefore, contractible on the occasions under
consideration; and the national-bank notes which of late
years have considerably increased in volume, grow less
only by slow redemption as they wear out,° or banks retire
them. There is, then, abundant provision for currency
expansion, but little for currency contraction. The principal m£ans whereby this process can take place is through
the absorption and locking up of money by the Government. Although this mode is purely arbitrary, it sometimes happens that the Government locks up money at a
time when there is a plethora in the market. The process
can not then do much, if any, injury; in fact, it may be a
source of relief to the banks. The 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.
Between 1880 and 1890 another preventive of stringency in the fall was found in the proper timing of the
heavy payments of pensions and interest. Disbursements
for these purposes often swelled at times when they could
do great good. The pensions and the interest on the 4 K
per cent bonds of 1891 were payable in March, June, Sepa Of course the final retirement of the national bank-notes is not a phase
of the elasticity of the currency here intended.




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Treasury of the United States

tember, and December, and were a source of monetary
relief that could be depended on. The interest on the 4
per cents was paid in January, April, July, and October.
So far as the influence of these payments was concerned,
that of October would continue the relief afforded by the
September payments. When the 4 ^ per cent bonds had
been paid there was, of course, no further relief from these
interest payments in September. But after the redemption of these bonds it happened that the financial condition
of the Government changed. The receipts from customs
fell off owing to the high rates of the McKinley tariff law,
and the expenditures largely increased, thus reducing the
surplus and making income and outgo more nearly equal.
The equalization of payments and receipts in the course
of a year, however, as we have seen, did not prevent the
financial operations of the Government from exerting an
influence on the money market. For it was still necessary
for the Treasury to accumulate in advance a sufficient
arftount of money to make payments of interest and pensions quarterly. The irregularities of its operations due to
the public debt were not, indeed, as great as before, yet
they were sufficient to cause occasional disturbance. The
only interest payments of importance were those on the
4 per cent bonds, due in January, April, July, and October
of each year. The January payments came at a time when
the demand for money slackened, and so money accumulated for a time in the banks, as shown by the increase in
their reserves. The April disbursements coincided usually with the demand for money for the spring trade, and
thus were a help to the market. The outpour of July fell
on a lethargic market and went to swell bank reserves




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Commission

already usually larger than the banks desire at that season
of the year. The October payment, as we have already
noted, was timely in meeting the usual "fall demand.''
But this aid was merely a temporary and incidental matter, and had no relation either to permanent fiscal policy,
a correct currency system, or sound banking.
A surplus revenue 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 contractions which the operation of the Treasury at times tends to produce, it also
afforded a means of relief when the acute stage of the
demand for money came. Without the public debt and
without a surplus to redeem it, the Treasury could not have
afforded the help in stringencies which it has so often
given. But this very cure of the evils of contraction may
be, to a certain extent, its cause. For a surplus can exist
only because money is taken out of circulation and locked
up for future use, a process which means contraction..
If the bank currency of the country were wholly created
by commerce for its own needs, adapted entirely to those
needs, and possessing the elasticity which a currency
should have, the action of the independent treasury would
be more clearly seen. The new coinage made in response
to commercial demand, and the export and import 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 quickly
to the variation in the demand caused by the subtreasury,
and so would reflect its action much more clearly.




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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 sinking
fund. He must make his withdrawals and disbursements
as equable as possible.
The independent treasury, in connection with a surplus
revenue, has been responsible for a policy of forced debt
payment. When the surplus has grown large the Secretary of the Treasury has been compelled to get rid of some
of it by purchasing bonds, even though he had to pay large
premiums to do so. This policy has long been followed,
especially on the occurrence of the autumn stringencies.
The principal occasions will be mentioned in discussing the
relation of the independent treasury to crises. One result
of such purchases is to raise the price of the bonds so that
it may not pay the banks to deposit them as security for
circulation; and the consequence not infrequently is a
retirement of bank notes and a contraction of the currency, or a prevention of its expansion when needed.
The causes which have modified the action of the subtreasury have prevented the monthly variations in the net
government holdings of cash from corresponding necessarily with the gains or loss of money to business from
government operations. Hence, one set of changes can
not 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




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checks issued for pensions, for example, are some time in
returning through the banks to the subtreasury 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.
We see, then, that the evils which the subtreasury might
have been expected to produce have often been neutralized by 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 reference to one another so
as to offset one another's ill effects and produce a system
good on the whole. Irregularities of absorption and
disbursement can not 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 considerable 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.
It may be said that recent legislation whereby the government receipts from customs may be deposited in the
banks, in addition to the internal-revenue receipts, sufficiently restores to circulation the money received in
taxes, and that the abolition of the independent treasury
system is not now necessary. If the Secretary of the
Treasury takes full advantage of his discretion in this




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respect, the evil of Treasury independence would be much
lessened, but not wholly removed. For, at present, the
Secretary must withdraw his deposits and put the money
in a subtreasury in order to use it to pay the creditors of
the Government. If, instead of being required to do so, he
were permitted to receive checks whenever tendered, and
to check against his accounts with the banks, the conditions would be still farther improved.
In defense of the subtreasury system it has been said
that there must be a source of supply of specie somewhere in the country, and the Government might as well
keep it as the banks. a To the first half of this statement
no one can object. This reserve of specie is provided
for in different countries in different ways. Of course, in
all cases the banks provide some of it. Some countries
prefer to have a large part of it in active circulation. It
has been said that the metallic currency of Great Britain
is a reservoir from which the banks are able to replenish their resources to a considerable extent in times of
stringency.
Our people pursue the opposite course; we prefer paper
money and checks to so great an extent that we have no
reserve of this kind when a pinch comes. "If by means
of checks and post-office savings banks and small notes
and all such methods we diminish the reserve gold circulation in the hands of the people, then we lose security in
critical times and we find ourselves in the situation of
having our whole coinage system rest on nothing but




& Bankers' Magazine, November, 1890.

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Co mmis s ion

paper/' a We subject ourselves to this danger. For that
reason it is more necessary to provide a store of specie in
the banks.
To the second part of the remark, that the supply of
gold may as well be kept by the Government as the
banks, objection may be made, because there is no relation between the amount that the Government keeps and
the amount needed by business. The amount which the
Government keeps depends upon its revenue. If the
revenue falls off the amount of specie diminishes, unless
the Government deliberately makes its Treasury to a
greater or less degree a bank of issue. Indeed, no Government can properly keep the specie reserve of a country
unless it does this. Moreover, the Government reserve is
uncertain, not only in amount, but in time of collection
and in disbursement. As we have seen in our study of
the subtreasury operations, an independent government
reserve may be lacking when it is most needed, and abundant when it is unnecessary. The proper agents to provide the reserve are the banks. They do a commercial
business and can protect the specie reserve by changing
the rate of discount, a course which is not open to the
Government at all.
When the power to receive checks and to check against
bank deposits is conferred on the Secretary, then, indeed,
the repeal of the independent treasury law will hardly be
necessary. For the various amendments, made in recent
years, which permit the use of the banks for practically
a
Remark of Doctor Arendt, Rept. of National Monetary Com., German
Bank Inquiry of 1908 (stenographic report); Doc. 407, 61st Cong., 2d
sess., p. 531.




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States

all the business of the Government, have already virtually
abolished the system. It has been repealed piecemeal.
The fact that it has been so repealed, that step by step
the separation of the Treasury and the banks has been
done away with by special legislation, is the best of evidence that this separation was felt to be injurious to the
business of the country. The formal repeal of the law
now would be largely perfunctory.




207

CHAPTER VII.—TREASURY R E U E F IN CRISES THROUGH

1857.
METHODS OF R E U E F .

It has become a habit for the business community to
rely on the Treasury for assistance in times of financial
stringency. The practice of the Government to furnish
relief began early in the history of the independent treasury and has been its uniform policy, " when possible, in all
commercial crises from 1846 to the present time." a The
methods by which relief to the money market has been
afforded have been, in general, the same on all such occasions; but the extent of the assistance, the seriousness of
the crisis, and the condition of the revenue and the public
debt at different times, make it desirable to study the
period since the adoption of the present national banking
system by itself. But we must first consider the methods
by which the Treasury can give such assistance.
There are several ways in which the power of the Government has been, or may be, brought to bear in a crisis.
In the first place, under some circumstances, 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 is likely to be drawn from hoards, or from
abroad, and the Government puts the metal into circulation by its disbursements. Part of the specie so disbursed
is likely to remain in circulation; and even if it should not,
its transitory circulation will accomplish some good.
«Cf. Secretary Windom: Finance Report, 1890.




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Again, the Government may exercise a restraining influence on the banks, retarding discounts and so checking
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 interestbearing bonds into noninterest-bearing treasury notes.
This last method has never been used in this country,
although something analogous to it was advocated in
1873.0
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 the payment of its ordinary obligations in specie enabled the
Government to put in motion a small 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 established
at this time, yet it virtually existed; for in the suspension
in 1837 only six banks maintained specie payments and so
<*See Adams, H. C , "Public Debts," 214-215.
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Commission

continued to be government depositaries. Since 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.®
The panic of 1837 was hastened and intensified, in this
country, by the great inflation of the currency which was
produced by the large number of state banks that sprang
up immediately after the downfall of the Second United
States Bank. The bank paper in circulation increased
from $82,000,000 in January, 1835, to $108,000,000 in
January, 1836, and to $120,000,000 in the following December. Within the same period the per capita circulation grew from $7 to nearly $10. The specie in the banks
rose only $2,000,000 in the meantime, and that in circulation increased from $18,000,000 to $28,000,000. 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 depreciated.
So great was the burden of dishonest credit that resumption would have been exceedingly difficult for 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 circulation, part of which
was within reach of the banks and undoubtedly made
their task of resumption easier.
The second mode in which the independent treasury
may exert a beneficent influence in a crisis, is by exercising
a restraining influence on the banks. The theory of this




a Finance Report, 1837.
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States

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 retarded. Of course,
any effect of this kind can be produced only if the current
receipts of the Government exceed its expenditures, that
is, if a surplus is accumulating. There is no doubt that
under proper conditions the influence exerted by the subtreasury in this way would be beneficial. If the Government were absorbing money at a time when business was
entering on a stage of speculation that was forcing up
prices, evidently there would be two sources of drain on
the bank reserves: that caused by speculative borrowers,
and that caused by locking up money in the Treasury.
The operation of the latter would prevent the former from
going as far as it otherwise would do; for it would diminish
the bank reserves, raise the rate of discount, and make
borrowing more difficult. The result would be a diminution 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 restraining influence of government withdrawals
of money is what Secretary Guthrie had in mind when,
in his report for 1855-56, he wrote: "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 tem-




« Finance Report, 1854, 15.

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Monetary

Commission

perate and timely control, which seems to secure the fortunes of individuals and preserve the general prosperity."
While 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 and make the crisis more acute, is a possibility that must be recognized and its conditions defined.
On the face of the matter, it would seem that the simplest 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 has been 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. But there
are certain objections to such a mode of affording help
to business when it is distressed.
Under our present usury law, banks which receive such
deposits can not raise their rate of discount above the
legal rate in the State in which the bank is located, except
in New York where call loans above $5,000 are exempted.
Therefore, the banks can not, 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
help which the banks could give with the public money
deposited with them would be limited by the extent to
which they can raise the rate of discount, supposing the
law were not evaded. The demand for loans at 6 or 7
per cent, the usual legal limits, would be very large, and




212

Independent

Treasury of the United States

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
might be unable to borrow, even though they could and
would have paid a higher rate of interest than the law
allowed, by outbidding those who were not really in dire
need of the money. These remarks apply to all loans
throughout the country excepting, of course, those made
by banks in New York on call in amounts of $5,000 or
more.
Furnishing relief to the money market by depositing
the public money in banks can not, then, be very serviceable, under existing conditions, outside of New York,
unless by evasion of the law. As a matter of fact, this
is what is actually done. Hence this policy of the Treasury condones and encourages evasion of the law. True,
the law is an unwise one. But the fact hardly justifies the
Government in aiding the evasion of one of its own
statutes.
The other methods mentioned as being at the command
of the Treasury for influencing the money market are
rather methods of direct relief than methods of prevention, palliative rather than deterrent. They partake,
indeed, of both characteristics; for aid in transfers, the
timing of interest and other payments, and the purchase
of bonds, may be utilized in anticipating commercial
distress. Until comparatively recent years, however,
they have rather been measures of relief when the storm
was on.
By the timing of payments is meant simply that a certain latitude is observed in paying public debts. There




213

National

Monetary

Commission

are generally some debts the payment of which can legitimately be hastened or deferred for a short period. The
plan in practice has consisted in throwing the payments
of one month into the month following. For example,
in the latter part of November, 1889, the Secretary of the
Treasury issued a large number of transfer checks so late
in the month that they could not well be returned for
payment until December.0 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 Treasury for the purpose of assisting the money market they
have frequently taken the form of prepayments of interest
on the public debt. Such prepayments have done some
good at times, but for affording relief in a large way they
can not 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," 6 It is unfortunate
that the Government should be compelled to resort to
such paltry practices because of defective fiscal machinery.
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.
The practice of transferring money for individuals and
firms was originally adopted by the Government, not for
a

See New York Commercial and Financial Chronicle, January 5, 1890:4.
& Commercial and Financial Chronicle, September 17, 1887.




214

Independent

Treasury of the United States

the purpose of providing a better distribution of currency,
in order to aid the market, but simply as a measure to
force silver into circulation. In 1880 the Government
offered to pay silver dollars or certificates free of charge
at interior points where there was a subtreasury or United
States depositary, in exchange for gold paid in at the subtreasury in New York. a 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
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
$3,000,000 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
a

See Taussig, F. W., "TheSilver Situation/' Public. Amer. Econ. Assoc,

vii: 1 (1892).




215

National

Monetary

Commission

general in its severity, has a center, or a few centers, of
greatest intensity. This was doubtless the case in the
winter of 1890. It was in New York City that distress
was most severe, and relief 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 can not be
commended. For unless the amount of money transferred, free of charge, to the community suffering from a
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 exchange
on the place where the stringency existed, and make the
terms harder for borrowers. In short, the practice is a
violation of the oft-quoted principle of good banking, that
in a crisis 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 subtreasury of




216

Independent

Treasury of the United States

money needed to restore the currency to its normal volume/ 1 complete relief by the method of currency transfer
would be impossible, 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 deposit of public money in the banks for the purpose of relieving a stringency is a method of assistance
which could not lawfully be employed in the period we
are now considering. It came into use after the resumption of specie payments, and was resorted to in some
degree in the twenty following years, but always under
considerable criticism. From about 1901 the practice became more usual and reached its fullest development in
the panic of 1907. Its advantages and disadvantages
will be discussed, therefore, in connection with the study
of the later period.
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 the influence of this means
of assistance would be materially diminished. On the
o That is, the amount needed for the current volume of commercial
transactions.




217

National

Monetary

Commission

other hand, the policy of surplus financiering, if there were
no independent treasury, would not by itself be a sufficient
condition 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.
OPERATIONS IN 1853 AND 1857.

As already remarked, the policy of giving relief in a
stringency 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 was urged to expend the surplus 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. To counteract the effect of this contraction the Secretary deposited gold in the mint with
which to purchase 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,a did not equal the receipts. A large surplus
accumulated in the Treasury, and became a cause of alarm
in commercial and financial circles. It was hoped that
the accumulation in the Treasury would exercise a beneficial restraint upon importations and speculative credit




a Of 1843.
218

Independent

Treasury of the United States

enterprises, 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 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
coinage for gold bullion." a Some $5,000,000 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." 6
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
Treasury. 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 December 1, $5,000,000 of
the loans of 1847 and 1848, at a premium of 21 per cent
and interest from the 1st of July. On the 22d of August
he enlarged his bid by offering to purchase $2,000,000 of
the loans due in 1856 and 1862 at a premium of 8 ^ per
cent and of 16 per cent, respectively. "The result,"
wrote the Secretary, "has been satisfactory." The
purchase of bonds was continued through the year.
o Finance Report, 1853.




219

& Ibid.

National

Monetary

Commission

The following figures show the specie in the banks and
subtreasury at New York in the fall of 1853 to the nearest
thousand: °
Bank
loans.
August 6 . . . .
September 3 .
October 1. . . .
November 12 .
December 10.
December 3 1 .

$97,9oo
9L74I
90,150
82,882
86,709
90,162

Circulation.

Deposits.

9.522

$60,995
57.503
57.969

9,288

56,201

9, 076

57.838
58,964

$9,5io
9.554

8, 927

Bank
specie.

Specie
in subtreasury.

$9.746

$8,406

11,268
1 1 , 232
12,824
12,494
11,058

9,079
9, 726
6, 147
3,800

The coin in all the subtreasuries and depositaries 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
Subtreasury increased through August and September,
it did so less rapidly than before, and the banks were
benefited.
It would seem from the figures that the disbursements
of the subtreasury helped to increase the specie holdings
of the banks in November and December, and enabled
them to get into a somewhat stronger position toward
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
is thus recorded by the Bankers' Magazine: 6 "Owing
partly to the notice of the Treasury Department the
government 6 per cent loans of 1867-68 have advanced
from i2o>£to 122, and the 5 percents from 108]/2 to 109."
The next important instance of government relief to
the market was in 1857. "The crisis of 1857 was an unuo The figures are from the Bankers' Magazine.




& September, 1853.

Independent

Treasury of the United States

sually simple case of activity, speculation, overbanking,
panic, and depression." a
The symptoms of the coming distress were seen early
in the year, and to avert disaster, if possible, Secretary
Cobb began the purchase 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 $8,000,000 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 August 1 to December 5 amounting to over $34,000,000. In the meantime their specie
more than doubled, and their notes in circulation decreased over $2,000,000.
The following table shows the state of affairs for 1857,
to the nearest thousand: b
Specie in
New York
subtreasury.
January 3 . . .
February 7 . .
March 7.

$11,430
13,618
IS,189
IS,175
14, 408

April 11
May 2

June 6
July 3
August 1. . . .
September 5 .
October 3 . . .
November 7 .
December 5..

12, 431
10,317
12,162
11,678

7,748
5,408
3,986

Specie in
New York
banks.
85ii,i72
11,144
11,707
10,884
12, 100
13,135
12,837
12,918
10,228
11,400
16,492
26,070

Loans of
New York
banks.
$109,149
112,877
i n , 900
US,374
114,409
H5,338
115,044
120,597
112,221

105,935
95,866
96,526

a Taussig: " History of the United States Tariff," p. 118.
&The figures are from the Bankers' Magazine, April, 1857.




Circulation
of New York
banks.
$8,602
8,426
8,465
8,787
9, 006
8,838
8, 901
8,662
8,673
7.9i6
6,434
6,555

National

Monetary Commission

Between the ist of August and the first week in December the banks gained a little more than $13,000,000 of
specie, while the subtreasury lost about $8,000,000, 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. I t thus appears that a large
part of the increased strength of the banks came from the
proceeds of the purchases of bonds by the Government.
The Secretary of the Treasury continued 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 subtreasury over $21,000,000.° " 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 $9,000,000
beyond the extravagant years 1855-56." There is no
doubt that the strain in the money market was increased
by the accumulations of the Government at this time.
In so far as these accumulations restrained the discounts
which the banks made for purposes of speculation, their
influence must have been t o prevent t h e tide of Specula-




te See Bankers' Magazine, March, 1857.
222

Independent

Treasury of the United States

tion from rising as high as it otherwise would have done, or
to bring on the inevitable crash sooner than it would have
come of itself. Whatever influence of this nature the
absorptions of the subtreasury 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 subtreasury at a " fearful" rate was a
good thing so long as the business which caused it was
based on overspeculation, because the accumulation was
constantly 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. Discounting too far in advance of a panic will not prevent it,
but rather make it more certain by furnishing fuel, so to
speak, on which speculation can feed further. 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.
Although the purchases of bonds did not furnish as
much relief as they would have done if they had been held
back until later, yet they certainly accomplished 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.




223

National

Monetary

Commission

One wholly good result of the existence of the independent treasury at this time was the maintenance of
specie payments by the Government. Had the public
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 beginning of the panic of 1837. Comparing the situation in 1857
with that in 1837, the Secretary of the Treasury wrote: 0
"The most remarkable feature distinguishing the two
periods has reference to the effect upon the commercial
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 Government.
In 1837 the demand of the Government for its funds with
which to meet its obligations weakened the banks or crippled their resources and added to the general 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 condition 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' Magazine of
April, 1857: " I n 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 117K P e r cent."




a

Finance Report, 1857.
224

CHAPTER VIII.—TREASURY R E L I E F IN CRISES, 1873

?°

1890.
THE PANIC OF

1873.

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 truly inconvertible in 1873,
indeed, as it was in the other years mentioned, although
it could be exchanged for government notes or greenbacks. For the Government itself was on a depreciated
paper basis. Therefore, it could not promote resumption
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 12 per cent—the amount of its premium in
paper—it was not wanted." a The Government was able,
however, to lend from its stored-up surplus of the legaltender currency. Under the national banking law the
receipts from internal revenue, as they were collected,
could be deposited in the national banks. But this mode
of assistance was at the time of comparatively small
importance. There were legal tenders in the Treasury,
but they could not be transferred to the banks, although
an effort was made to induce the Secretary to do so.6
« Upton: "Money in Politics," 139.
41969 0 —10




15

225

b

See chapter xi.

National

Monetary

Commission

The proceeds of purchases of bonds, however, could be
deposited in the banks, along with internal-revenue
receipts, and in the early period of the stringency the
legal-tender reserves were increased somewhat by this
process.
Like the panic of 1857 that of 1873 w a s world-wide.
In this country it was largely the result of the too rapid
transmutation of circulating capital into fixed capital
during the few years preceding, under the impetus of a
fever of industrial speculation. These years were also
years of extensive railroad building. Over 4,000 miles
were built in 1873 alone. During the last two months of
1872 the money market was much depressed, the lowest
discount rate being 7 per cent. In the middle of the
following January the rate sank a little, but soon rose
and continued very high until May. 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
destruction, of credit.
The forerunner of the coming disaster was a severe
money stringency in the fall of 1872, to the occurrence of
which the unwise management of the Treasury doubtless
contributed. The monthly currency balance of the Treasury averaged fourteen and one-half millions in 1871, and
twelve and a half in 1872. The Secretary lessened the
money afloat by selling gold to a greater extent than he




226

Independent

Treasury of the United States

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.° He bought silver, which did not circulate,
with gold, which did circulate; Secretary Boutwell, on the
other hand, sold noncurrent gold for current greenbacks.
So far as this process did not occur in the spring and fall,
the seasons at which the interior demand for money is
most active, it was not very objectionable under the circumstances which prevailed at the time. For the years
1871, 1872, and 1873 were years of too great speculation,
and it is very probable that the absorptions of the Treasury restricted the ability of the banks to loan, and so
retarded speculation. 6 But the management of the
Treasury was not dictated by conscious adherence to a
policy of restriction of speculation. Consequently, what
little influence for good the independent treasury may
have had in this way, in the three years under consideration, must be regarded as, on the whole, accidental.
The current of speculation was too strong, however, to
be stopped by any restrictive influence 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 $5,000,000 of gold, and
deposited the proceeds in designated banks. Then, without previous notice, he bought $5,000,000 worth of fivetwenty bonds, so that $10,000,000 of currency were, by the
two transactions, made available for business. The bank
reserves immediately rose, and the banks enlarged their
a

See p. 219.
& Cf. the New York Independent, January 9, 1873.




227

Monetary article.

National

Monetary

discounts.
banks:

Following are the figures

Commission
a

for the New York

Loans and
discounts.
October 5
October 12
October 19
October 26

Specie in
banks.

$269,8io, 300
268,298,300
270,557,600
274,925,000

$9,943,9oo
12, 217, 800
12,625,500
10,795,3oo

Legal tenders.

$41,915,7oo
45, 759,400
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 6 per cent in currency to 7 per cent in gold,
with commissions additional in some cases, fell to a range
of from. 3 or 4 to 7 per cent in currency, and the market
for such loans became easy, with an average rate of from 5
to 6 per cent.
There was a great difference, however, between the
extent of the relief that came to stockbrokers and that
experienced by commercial borrowers. The easy rates
accommodated the brokers, but the best indorsed sixtyday commercial paper could hardly be discounted for less
than 10 per cent. " It thus appears," said the Chronicle,6
" t h a t 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 those
who had money feared to put it where they could not
instantly call it back at need. As shown at this time,
there is ground for thinking that when a stringency or a
a The New York Commercial and Financial Chronicle, October 19, 1872:
& Ibid., p. 517.




228

Independent

Treasury of the United States

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 those in commercial enterprises 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 Treasury 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 subtreasury about $3,500,000, despite the remonstrances of
the mercantile community. 0 The result was that loans
on government securities ran up to 7 per cent in gold,
while borrowers on other stock collateral were obliged to
pay from one-sixteenth to one-quarter per cent per day
for their loans. b
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 of the year 1873 f° r the
s a m e i n j u d i c i o u s c o u r s e w a s followed.

N o definite, c o n -

's See the Bankers' Magazine, January, 1873, and the New York Independent, January 2, 1873.
& Ibid.




229

National

Monetary

Commission

sistent, and continuous policy was adopted for guiding the
relations of the Treasury to the business community.
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 legaltender 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
$20,000,000. On the 17th of September the New York
Warehouse and Security Company failed, and the
business community was thrown into a state of anxiety.
Secretary Richardson took no steps to ease the situation.
On the 18th the crash of credit came with the suspension of
Jay Cooke & Co. Still the Government took no action,
though failure followed failure, until the 19th. Then it
was determined to buy $10,000,000 of five-twenty bonds
at par in gold on Saturday, the 20th, over the counter of
the New York subtreasury. Owing to defective clerical facilities only a little more than $2,500,000 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 subtreasury, at a price not higher than
par in gold. On Monday, the 22d, over $3,000,000 were
accordingly paid out in legal tenders for bonds, and
over $5,500,000 for legal-tender certificates. Next day
$3,000,000 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 $24,000,000




230

Independent

Treasury of the United States

of currency for bonds and certificates. During the week
the Secretary had bought $12,000,000 of bonds from the
savings 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. During the week when the Treasury was
buying bonds they lost eleven millions of greenbacks;
their reserve ran down from $38,000,000 on the 6th of
September to $12,000,000 on the 27th, and their deposits
decreased some $50,000,000.° The figures are:
Date.

September 6
S e p t e m b e r 13
S e p t e m b e r 20

Loans.

$288,883,000
288, 374, 200
284,536,200
278, 4 2 1 , 7 0 0

Specie.
$23,095,
20, 767,
20, 442,
18, 844,

Legal tenders.
200
000
300
600

Deposits.

$44, 729,300
38, 679,900
36, 717, 200
34,307,900

$220,390,300
212,772,700
207,317,500
198,040,100

The figures of the condition of the banks for the ten
weeks after September 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
$13,000,000, "when it became evident that the amount
offering for purchase was increasing to an extent beyond
o Report of Comptroller of the Currency, 1876; 177 and 251.




231

National

Monetary

Commission

the power of the Treasury to accept, and the purchasing
was closed. * * * The currency 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 7 per cent in gold, on the
18th of the month, to 1% 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 quotable rate. These
facts show that the provisions of the Treasury to mitigate
the pressure did not inspire confidence, 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.0 " P a r t 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 greenbacks
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




a

October 4, 1873, 447.
232

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Treasury of the United States

help the general situation. There was a time during the
panic when, perhaps, it was advisable for the savings
banks to increase their stock of greenbacks; but it was
not absolutely necessary, because they could have protected themselves from a sudden run by taking advantage
of the clause in their charters permitting them to require
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
of them by the mercantile community. By this action
the efforts of the Government were so far nullified.
As to 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 & Co., 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 & Co., the current of suspicion and
distrust was altogether 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 $10,000,000 of clearing-




233

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Monetary

Commission

house certificates, the feeling of panic did not disappear,
and it was thought necessary, two days later, to permit
the use of $10,000,000 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
announced his intention of buying bonds. There was
general disappointment at the narrow scope of his measures. It was felt that more liberal disbursements should
have been provided 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
Secretary was very limited.
It may be questioned, indeed, 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 community 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 counteracted by the
fact that the public knew just about how far the Secretary




234

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Treasury of the United States

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 clearinghouse certificates became necessary on the next Monday.
It is 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 Government
to cope with the situation.
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 2 per cent., a loss
altogether too small to prevent those who could have
gotten 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 ba,nks.
Finally, it is worthy of note that, in spite of all efforts,
the panic of 1873 ran its course. It can not properly be
said to have been checked. The reason is obvious; what
was needed was a reestablishment 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.




235

National

Monetary
THE CRISIS OF

Commission
1884.

The crisis of 1884 was largely a disturbance of the
market for securities. This was the culmination of the
period of prosperity which had marked the recovery from
the panic of 1873. There had been a decline in prices for
some three years and a good deal of speculation in railroad securities. The failure of certain banks and brokers
in May brought on the panic. Distress was felt, of course,
throughout the country; but, as remarked above, this
crisis was rather a panic in the market for securities, especially in the principal cities. The Secretary resorted to
some of the usual devices, especially the prepayment of
some of the debt which was soon to mature. The crisis
presents no features of unusual interest.
THE STRINGENCY OF 1890.

The next important general crisis was that of the autumn
of 1890. Various causes had been at work promoting
speculation in various parts of the world for some time
before. In this country the prospective action of the
McKinley tariff had brought about a large increase of
imports for speculative holding, and the payment of
duties, immediate and prospective, threatened to lock up
so great an amount of money as to cause a stringency.
Moreover, there was much speculation based on the prospect of inflation, which, it was supposed, would soon be
produced by new legislation concerning silver. These
sanguine hopes were doomed to disappointment, however.
"The silver bill was passed, and the Treasury let out
enormous amounts of cash. But the effects were not as




236

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Treasury of the United States

expected. The supplies of currency had only a temporary effect in easing money. Silver certificates a 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
can not arrest the tendency of natural laws, and that something more than a flood of currency is needed to secure
permanent ease in the money market." b In this dubious
state of the public mind the failure of the Barings in England occurred in November, 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 unsatisfactorily."
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 system, so that,
notwithstanding the unusually large disbursements of the
Government, they were compelled to resort to the use of
clearing-house certificates in the settlement of their balances. As usual^the aid of the Secretary of the Treasury
was 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
a

For bar silver on deposit.
& New York Commercial and Financial Chronicle, November 15, 1890.




237

National

Monetary

Commission

circulars issued in that month the aggregate purchases of
4 per cent and 4 ^ per cent bonds amounted to $10,358,950.
As this disbursement was " inadequate to meet existing
conditions," a circular of August 19 announced that \%
per cent bonds would be redeemed, with interest, through
May, 1891. On August 21, $20,000,000 of these bonds
were called for, on condition of the prepayment, after September 1, 1890, of all interest on them to September, 1891.
Twenty millions more were called for on August 30; and
on September 6 the prepayment of interest to the following July was offered to holders of 4 percents and (afterwards) of "currency sixes;" and, finally, on the 13th of
September, some $17,000,000 more of 4 percents were
redeemed. The transactions are tabulated thus: 0
Bonds redeemed.
Under circular of—
July 19, 1890
August 19, 1890. . .
August 21, 1890. . .
August 30, 1890 . . .
September 6, 1890.
September 13, 1890

$17,324,850
560,050

Disbursements.

(a)
17,071, 150

$21,225,989.46
581,138.12
20,964,868.42
19,518, 176.83
12,009,951.50
21,617,673.77

73,694,850

95,917,798.10

20,060,700
18,678,100

a Interest prepaid.

In addition to the heavy payments for bonds the
Treasury made large disbursements for other purposes
also, during the month of September, and its net available
balance was reduced, by the end of October, to a little
over $2,000,000, not including fractional currency and the
national bank redemption fund. The tremendous amount




0 Finance Report, 1890.
238

Independent

Treasury of the United States

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. The net gain of currency to commerce, calculated from the monthly reports of the Treasury 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. 0 The output of the Treasury in August
and September was reflected in an enlargement of the New
a

The figures for September, according to the Chronicle, were as follows:
Net holdings of the United States

Treasury.
September i.
$185,837,581

Gold coin and bullion. . .
Silver coin and bullion. . .
Treasury notes, act 1890 .
Legal-tender notes
National bank notes
Fractional silver

October i.
$147,981, 732
6,590,212
962,500

15,749,535
2, 233,100
10,573,710
5,063,227
22,077,629
241,534,782

Loss by subtreasury and gain to commerce
Silver bullion certificates issued during
month
National bank notes retired

5,775.290
4, 620, 511
20,768,255
186,698,500

$54, 836, 282
the
$4, 460, 000
1, 408, 433
3,051,567

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 4 K p e r cent bonds, and $17,625,600 of 4 percents 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
$70,000,000.




239

National

Monetary

Commission

York bank reserves, as shown in the following table, 0 in
the face, too, of a drain of money to the interior:
Loans.

$406,139,500
402,163,900
397.672,300
392,546,400
394,978,100
393,160,100
392,631,600
394,029,100

August 9
A u g u s t 16 .
A u g u s t 23 . . . .
August 3 0 . . . .
September 6 .
S e p t e m b e r 13 .
September 20.
September 2 7 .

Specie.

$73»496,ooo
70,843,200
68,621,100
69.595.6oo
70,216,700
67, 8 4 2 , 300
76,417,200
93.397.3oo

Legal tenders.

$29,766,300
28,378,100
26,254,200
26,155,100
25,482,000
24.663,500
22,983,700
22, 3 8 7 , 800

Deposits.

$407,905,200
399,5o8,100
389,553.100
385,149,500
388,399,300
3 8 8 , 2 5 0 , 900
389,982,800
406,838,800

The rates on call loans ranged through August and
September as follows:b
August 4
August 11
August 18
August 25
September
September
September
September

8-4
25- 8
16- 6
12-2
3-12
c
3- 6
^2-6
2-6

6
13
20
27

The rate of discount on call loans fell after the Treasury
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
a

The figures are from the Financial Chronicle.
& The Bankers' Magazine,
c One-half of 1 per cent a day commission,
d One-fourth of 1 per cent a day commission.




240

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Treasury of the United States

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:
Specie.
November
November
November
November
November

i.
8.
15
22
29

$399, 79i,9oo
398,855,700
393,277,9oo
387, 297, 200
384,548, 100

$77,671, 700
74,486,600
73.995,4oo
73,191,200
71,658,500

Legal tenders.
$22,ior,400
21, 0 3 2 , 5 0 0
21, 8 1 6 , 0 0 0
22, 319, 800

23,368,400

Deposits.
$396, 284,500
392,253,400
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: a
Discount on—
Date.

Commercial
paper.
7-8
7-8
7-8
8-9

November 3
November 10

Call loans.
6- 4
186-15
186- 6
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 Secretary Windom was not able to do much. By a Treasury
a Figures from the Bankers' Magazine.
41969 0 —ic




-16

241

National

Monetary

Commission

circular of October 9, a standing offer was made to redeem
any 4^2 per cent bonds, offered at par, with interest to
maturity. Nearly $6,000,000° worth were redeemed in
October; but these bonds were not presented during the
crisis in sufficient amount to prevent the accumulation oi.
a surplus in the Treasury. Accordingly, Secretary Windom issued a circular inviting proposals for the sale of
$5,000,000 of 4 per cent bonds, redemption to be made
daily beginning with December 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 enlarged volume of business. But the bank reserves soon decreased again by the
movement of currency to the interior. 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 distrust; and when failure of confidence
in the market occurred, the efforts of the Government
proved of little avail.




a $5,846,150.

242

Independent

Treasury of the United States

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 exception of one
week. The loss to the banks from this drain aggregated
$33,272,000, for September and October. The figuresa
in detail are:
September 5
September 12
September 19
September 26
October 3
October 10
October 17
October 24
October 31

$3, 289,000
3, 310,000
4,411,000
3, 933,000
5, 781, 000
4, 752, 000
3,468,000
2,038,000
2, 290, 000

The main cause of the failure to ease the market in the
later stage of the crisis was hoarding, which, at this time,
as in 1873, prevented 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 monetary situation/' said the Financial Chronicle,6
" is the unaccountable disappearance of the currency issues
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 November 1 only $99,773,100 of
different kinds of currency, against a total of $95,750,700 on
August 30." The returns of the banks in the interior of
a

From the Financial Chronicle.




243

& November, 1892.

National

Monetary

Commission

the country showed that the money was not in their vaults,
and we are forced to conclude, therefore, that it was
hoarded. a The inference is supported by the fact that in
the first week of the new year the banks showed an increase
of reserve, although they lost money both to the interior
and to the subtreasury. b
a
I t 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.
& The reserve increased from $103,237,500 on December 26 to $105,234,900 on January 3, a gain of almost $2,000,000. The net loss of the
banks to the subtreasury for the week was $100,000 and to the interior
$1,500,000.




244

CHAPTER
1893,

IX.—TREASURY
AND

TH

3

REUEF

BREAKDOWN

IN THE

CRISIS OF

OF TREASURY

INDE-

PENDENCE.
THE PANIC OF

1893.

In the panics of 1873, 1884, and 1890 the Treasury had
been looked to for assistance to the money market. In
the panic of 1893 conditions were reversed and the
Treasury was obliged to rely upon the banks for aid. It
is true that bonds were issued by the Government in this
crisis, but they were issued rather for the purpose of
meeting a deficit in the revenue than for easing the
money market. The latter was a secondary purpose.
For at the other times mentioned there was a surplus in
the Treasury. In 1893 the revenue had fallen off so that
the Treasury was confronted with a deficit. Moreover,
the Treasury was at the mercy of the public in the matter
of the loss of its gold. A heavy demand for the redemption of notes in gold began in December, 1892, and continued to the close of the fiscal year. More than ten
times as many United States notes were redeemed in the
fiscal year 1893 a s i*1 the preceding year, and more
than fifteen times as many treasury notes of 1890.
In another respect, also, the situation was different
from that at previous times. Our currency legislation,
always vicious from the time of the civil war, was peculiarly so in the early nineties. In 1890 the silver-purchase act was put upon the statute books, whereby the
Secretary of the Treasury was required to purchase




245

National

Monetary

Commission

4,500,000 ounces of silver each month, or so much of
that amount as should be offered. The law had previously required the purchase of between $2,000,000 and
$4,000,000 worth of silver bullion per month, to be paid
for in legal-tender notes. Under this law the treasury
notes increased for the next two years about $50,000,000
annually. The amount of silver and its representatives
in the country's circulation had risen from 8.9 per cent
in 1882 to 28.9 per cent in 1892. Nearly the entire
increase in the currency in twelve years was in silver. 0
The inflation of the currency, with other forces then at
work, soon brought the country to the verge of disaster.
The great surplus revenues of the later eighties had
been used in redeeming bonds. As early as 1887, with
increasing revenue, the bonds which the Treasurer could
purchase at par were exhausted and redemptions at a
premium were begun. Within a year the Treasury held
an amount of money in its cash surplus equal to nearly
one-fourth the total outside circulation. In that year
the Secretary purchased more than $50,000,000 worth of
4 per cent bonds at premiums ranging between 23 and
29, and also $33,000,000 of 4 ^ percents at a premium of
between 6 and 9 per cent. Indeed, within four years,
from 1888 to 1892, the Government expended about
$235,000,000 for bond redemption above the amount
which was expended for purchases for the sinking fund.
One consequence of this policy was to reduce the number and raise the price of the bonds available as a basis
of national-bank circulation, and consequently the circula-




a

Bankers' Magazine, February, 1893, 573.
246

Independent

Treasury of the United States

tion of the national banks began to decrease. In 1892,
however, the replacement of the surplus with a deficit
led to the abandonment of bond purchases, thus checking
the retirement of national bank notes. At the same
time the silver legal-tender issues were rapidly increasing.
These processes gradually produced an inflated currency.
As usual, gold began to be exported, as much as $70,000,000 going abroad in the first six months of 1891. Among
other occurrences, the gold reserve rapidly fell during
the latter half of the year. In the first six months of
the following year, 1892, $41,500,000 of gold went abroad,
followed by the export of from $2,000,000 to $7,000,000
a week through the months of July and August. As
early as May of this year the gold reserve, whose minimum was the traditional $100,000,000, fell to $114,000,000. The gold receipts of the Treasury from customs payments had rapidly diminished, for the silver
paper had driven it out of the country, so that more and
more legal tender appeared in the bank reserves and in
the receipts of the Government. In the aggregate the
bank reserves were largely changed. For many years
the banks had supplied practically all the gold needed
for export; now their reserves consisted so largely of
legal-tender paper that they were obliged to turn this
into the Treasury for gold, to satisfy their customers
who needed the metal to send abroad. At the same time
the gold receipts of the Treasury itself were falling off.
The extent to which this process was going on is strikingly shown by the fact that, while in the twenty-two
years following 1879 only $34,000,000 of United States




247

National

Monetary

Commission

legal-tender notes had been presented to the Treasury for
redemption, 0 in the last month of 1892 and the first
month of 1893 the Treasury was called upon to supply
more than $25,000,000 in gold, in return for legal tenders,
for the purpose of export. At the end of the latter
month the gold reserve had fallen to $io8,ooo,ooo.5
So acute did the situation become that the Secretary
of the Treasury requested the New York banks to supply
gold in exchange for legal tenders, and they did so to
the extent of nearly $8,ooo,ooo.c In the two following
months the banks gave up about $25,000,000 more,
while almost the same amount was taken out of the
Treasury by the redemption of legal tenders for export.
In April the reserve fell to the legal minimum, and for
the first time the issue of gold certificates ceased.
When Secretary Carlisle took up the Treasury portfolio, succeeding Mr. Foster, in March, the gold reserve
stood at $100,982,410, and the other money in the
Treasury amounted to $25,000,000.^ Public apprehension as to the decrease in the gold reserve was becoming
acute. The Treasury was in the position of a bank
which had issued more notes than it had reserves to
redeem. The situation was made more difficult by a
statement from the Secretary of the Treasury in April,
which raised doubt in the public mind as to the continuance of the policy of redeeming silver notes with
gold, and it was necessary for President Cleveland to
reassure the public on this point.
^

a Finance Report, 1893, 13.
b Ibid, 12 and 96.
c Commercial and Financial Chronicle, February 11, 1893.
< Finance Report, 1893, 96.
*




248

Independent

Treasury of the United States

Increased congressional appropriations had destroyed
the surplus and left the Treasury with a deficit for ordinary expenses. Moreover, its income, as has been
remarked, was very largely in paper. The deficit drove
the Secretary to draw on the gold reserve to meet ordinary expenses. Thus there was a double drain upon
the reserve, to meet current expense and to redeem
legal tenders. By February the crash had come in the
business world with the bankruptcy of the Philadelphia
and Reading Railway Company on the 26th of the month.
The failure of the National Cordage Company followed
in May, the public began to hoard, and the banks began
to totter. The severest panic came in midsummer.
The banks had liquidated their balances heavily in
June and July and the reserve of the New York banks
decreased more than $40,000,000. Call loans went to
74, and money could not be borrowed on time at all.
The banks were forced to resort to the use of clearinghouse certificates and some of them refused to cash
the checks of their own depositors. During the year
about 578 banks, trust and mortgage companies throughout the country failed, 158 of them being national banks.
On account of its deficit, the Treasury was unable to aid
the banks, and as a bank of issue it was not strong
enough to maintain its own credit.
The breakdown of credit made the importation of
gold impossible for a time, and in August a premium
appeared not only on the metal, but on currency. This
in turn made importation possible, and the tide began
to turn. Meantime Congress met in special session
in August, and the public demanded the repeal of the




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silver purchase act. This was done, and the reassuring
effect on the public mind, together with some importation of gold to take advantage of the premium, in a
measure restored confidence. After the crisis had passed
the hoarded currency came into circulation again, gold
began to appear in government receipts, and the reserve
rose in August to a little over $103,000,000. By October
it had fallen again, however, to $81,501,385.° This was
due mainly to the deficit in revenue.
In December the reserve was $80,000,000;b in January of the following year it had fallen below $68,ooo,ooo.c
BOND SALES, 1894 TO 1898.
It was necessary, therefore, to resort to a bond issue
and $50,000,000 of 5 per cent bonds were offered to the
public at the price of 117.223, which was equivalent to a
3 per cent bond at par. The loan was not subscribed for
by the public, and a few days before the time for closing
the books the banks were appealed to, as they had been
before, and they took up the issue, the banks of New York
City alone taking 80 per cent of them. The sale netted
the Treasury $58,660,000 of gold; but of this amount the
Treasury had itself supplied $24,000,000 in the redemption of greenbacks, so that by the sale of bonds it made a
net gain of only $34,000,000. Still the reserve rose to
$107,000,000 in the first week in March, but exportation
of gold began the following month, the " endless chain " of
redemption of legal tenders again was put in motion, and
the reserve fell, in August, to $52,189,500.** Again the
a

c

Finance Report, 1893: lxxiii.
& Finance Report, 1894:55.




250

Finance Report, 1894: lxviii.
d Finance Report, 1894: lxix.

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Treasury of the United States

banks were appealed to for gold in exchange for notes
and surrendered $15,000,000. Another bond sale was resorted to in November, and again was a failure in replenishing the gold supply of the Treasury, because most of
the gold used in the purchase of the bonds was obtained,
either in the beginning or later, from the Treasury itself
in exchange for legal tenders.
"The first loan of 1894 had failed of its purpose within
ten months; the second had failed within ten weeks, and,
outside the loan market, no recourse was left to the Government." 0
In January, 1895, the "endless chain" was again operating, and the Treasury lost in exchange for legal tenders
$45,000,000 in gold. The following month the reserve fell
to $41,340,181 and throughout the month fell off in the
neighborhood of $2,000,000 a day.
In the face of these conditions it became imperative for
the Government to take some measures to save itself not
only from bankruptcy, but from the utter destruction of
its credit. The banks of the country had supplied all the
gold they could spare. The state of credit and foreign
trade made importation of the yellow metal out of the
question. After tying its fortunes to those of the banks
and nearly wrecking their credit with its own, until they
could no longer respond to the stimulus of public opinion
by supplying gold, the Government turned to the international bankers. Thoroughly convinced that the situation was desperate and that no usual remedy would avail,
President Cleveland made arrangements with the famous
bond syndicate of 1895 to P u ^ the Government out of its
a

Noyes, A. D., Forty Years of American Finance: 232.




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difficulties. An arrangement was made with J. P. Morgan
& Co., and H. P. Belmont & Co., whereby they should
take $50,000,000 of 4 per cent thirty-year bonds at \o\%.
The terms of the loan were severe. Yet it must be conceded that the risk which the purchasers ran of failing in
their attempt to supply the Treasury with gold was so
great that they were justified in making hard terms.
The policy of the country whose credit they were seeking
to save was "hostile to them and their attempt. The
syndicate agreed to supply at least half of the gold to be
paid for bonds from Europe, and further agreed not to
withdraw gold from the Treasury nor, so far as they could
prevent it, to permit others to do so, for the purchase of
these bonds. In accordance with their agreement, the
syndicate delivered 300,000 ounces of gold each month for
the next six months. In consequence the gold reserve
rose until, in July, it was $107,571,230. The first effort
of the syndicate was successful, because a speculative
fever happened to break out in England which caused a
demand for United States securities. Their purchase of
course promoted the importation of gold. Later speculation became active among ourselves. As a consequence
there was a rise in the price of our securities which led
foreign holders to sell what they had bought a little while
before, and thereby reversed the conditions of the gold
market. This result was furthered also by the foreign
exchange rate which had been fixed by the syndicate, for
nonbanking corporations and individuals could go into
the foreign exchange market and sell drafts below the
syndicate's figure. They covered these drafts by drawing
gold from the Treasury with legal tenders.




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During the five months following July $65,000,000 of
gold were thus withdrawn, and the reserve fell to
$63,000,000 in Decembers The syndicate was unable to
control the situation toward the end of its contract, but
did what it could to aid the Treasury by exchanging gold
for notes. It was found necessary in January of the
following year, 1896, to go into the money market again.
The Secretary offered for sale the large sum of $100,000,000
4 per cent bonds to be paid for in gold. The loan proved
popular, 4,640 individual bids being received, aggregating
$568,000,000. It was high time, for in February the gold
reserve reached the low point of $44,563,493. The proceeds of the loan raised it in the following month to
$128,713,709, and the crisis was passed. There was no
further trouble for the next two or three years, and the
reserve reached the great sum of $245,000,000 by the middle of 1898.
The lesson of these extremely trying times, for our
purpose, is significant. We have seen the Treasury
aiding the banks in the other crises described; here the
Treasury was dependent, upon the banks. Its difficulties
arose partly from the insufficiency of the current revenue
and partly from the fact that it was engaged in note
issue. The insufficiency of the revenue made it necessary
for the Secretary of the Treasury, illegally as some
thought, to draw on the gold reserve for ordinary expenses.
At the same time he needed the gold to redeem legal
tenders. They were forced upon him for redemption
because their number was so largely increased under
the operation of the silver-purchase act. Since the only




a

Treasury Report, 1895: 51.
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Commission

ways at the command of the Government for obtaining
gold are in receipts of revenues or by borrowing, as
soon as the revenues fell off, resort was had to the latter
method. It is to be noticed, however, that in trying to
place its loans the Treasury found it impossible to disassociate itself from the banks. Several times it was
obliged to take the humiliating position of appealing to
the banks to favor it with an exchange of gold for notes.
At other times it was obliged to act through the banks
in placing its loans. At the time of greatest distress and
hardship it was forced to appeal to a group of bankers
outside the usual circle of its dealings, not merely to
place its bonds, but to furnish it with revenue to save its
credit.
We see, therefore, that in this crisis the Treasury
disturbed the money market, not, however, in the usual
way by pouring in its surplus revenue, but by drawing
on the reserves of the banks at a time when the banks
themselves sorely needed them, making drafts upon the
banks necessary by the Government's own vicious
policy. As a banking institution the Treasury was a
failure.
In conclusion, we may say that in the crisis of 1893
the Treasury failed (1) to maintain its own credit; (2) to
keep the gold reserve intact; (3) to protect itself against
attacks of money brokers; (4) to place its own loans
directly. Incidentally, attention might be called not
inappropriately to the mischief done by Secretary Carlisle's ill-advised personal views and statements of policy.
It is an illustration of the danger of leaving the domination of the money market so largely in the hands of the
Secretary.




254

CHAPTER X.—TREASURY R E U E F IN THE PANIC OF

1907.

The next important disturbance of the money market
was the panic of 1907. Following the slight disturbance
of 1903, there sprung up in 1905-6 a world-wide speculation and inflation of credit. The year 1906 saw panics in
Egypt, Japan, Hamburg, and Chile, before the storm broke
upon ourselves. It is not the purpose of this essay to
write a financial history of the time and, therefore, it is
not necessary to give a history of the panic. Our present
concern is with the relation of the Treasury to crises.
Accordingly, we pass over very rapidly and lightly the
details of the panic.
While cautious observers had earlier seen signs of a coming storm in the midst of general confidence, the public at
large saw but little out of the way until the failure of one
of the large iron manufacturing houses of the country, in
the month of June, with liabilities of $8,000,000. A few
weeks afterwards two New York City loans which were
offered on the market failed, showing that the investing
public was exceedingly cautious and that credit was
strained. In the early fall the New York City street
railway combination went into the hands of a receiver,
as, a little later, did the Westinghouse Electric Company.
During the process of credit inflation which went on for
a year or two before 1907, an occurrence had taken place
in banking circles which was fraught with great danger.
This was the organization of chain banking, as it has been
called. Some men interested in speculation in industrial
and mining securities obtained control of one bank. With




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Commission

the stock of this in their possession they borrowed upon it
as collateral and with the proceeds of the loan bought
stock of another bank. They repeated this process until
six or more banks were under their control. The funds of
these banks were of course used for the promotion of industrial speculation in which those in control of them were
interested. This use of commercial banks, it may be said,
is the most vicious feature of our recent American banking
practice. The confidence of the public in banking management has been more severely shaken, perhaps, by the
practice of using commercial banks, not for commercial
purposes, but for the promotion of industrial and financial
enterprises, than by any other evil in our banking practice.
In due time one of these chain banks found itself in
difficulty in meeting its obligations, under its condition of
expanded discounts. Therefore it applied to the clearing
house for help. Of course, this event, which occurred on
October 16, aroused uneasiness. On the 21st of the same
month the great failure of the Knickerbocker Trust Company occurred, with liabilities of $35,000,000 owing to
17,000 depositors. In a few days the Lincoln Trust Company and the Trust Company of North America were also
in trouble and the feeling of public uneasiness became a
panic.
When Mr. George B. Cortelyou became Secretary of the
Treasury in March, 1907, he soon became aware that the
money market was unsettled and he was duly called upon
to interfere with Treasury reserves for the relief of the
market. In the latter part of August the Secretary offered
to make weekly deposits in the national banks "with a
view of facilitating the movement of the crops in various




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sections of the country." At the end of July the national
banks had $156,990,204 of the public money. Beginning,
therefore, on August 28 and continuing until October 14,
the Secretary's plan of making weekly deposits was followed until a total of about $28,000,000 had been allotted
to banks in each of the forty-six States, in the Territories,
and in the District of Columbia. "Every endeavor was
made, from information and requests at hand, so to distribute this fund that it would meet the actual needs in
sections where the business activity was at a maximum
and currency was most urgently required. ,,a
On the 24th of October a panic broke upon the stock
exchange and the rate on demand loans rose to 125.
Through the efforts of individual financiers, the banks of
the city, which naturally were holding tightly to their funds,
decided to release $25,000,000. On the 26th the clearinghouse banks resorted to the familiar device of issuing loan
certificates, with the result that cash payments were practically suspended. Meantime the interior banks were
calling for their balances, and the net loss of the New York
banks on this account, between October 26 and December
7, was $106,921,700.
During the ten days from October 21 to 31 the Treasury
transferred to the national banks of the city $37,597,000,
which the banks immediately advanced to the trust
companies to meet the run on them. In order to aid the
banks in meeting the demand of the interior for currency,
the Treasury Department in three days furnished the
a
Response of t h e Secretary of t h e Treasury calling for certain information in regard to Treasury operations, etc., S. Doc. 208, 60th Cong.,
1 st sess.

41969 0 —10




17

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Commission

New York banks about $36,000,000 in small bills. " As
the stringency progressed the Treasurer gave relief in
every important locality where assistance seemed to be
required." 0 Meantime hoarding set in to such an extent
that it is estimated that in the neighborhood of
$296,000,000 disappeared from circulation during the
panic. To meet the difficulties, besides the usual clearinghouse certificates, emergency currency was issued by the
clearing-house banks and by individual manufacturers
and corporations. So severe became the crisis that there
even was a demand, which, strange to say, received some
support from respectable quarters, for a Government issue
of fiat money, so accustomed had the money market
become to relying upon the Treasury. By the middle
of November the Treasury had deposited in the banks
all the money it could spare; indeed, it had reduced
its working surplus to about $5,000,000. Meantime,
as the Secretary tells us, 6 considerable difficulty was
experienced in bringing from the subtreasuries to the
New York office money actually collected and the public
revenue was falling off.
Further to relieve the situation, therefore, Secretary
Cortelyou notified the national banks that they might
substitute " bonds suitable for savings-banks investments
for government bonds which were held as securities
against public deposits." 6 The Secretary's purpose in
doing this was the same as that of Secretary Shaw in
resorting to the same device four years previously. He
a Response of the Secretary of t h e Treasury calling for certain information in regard to Treasury operations, etc., S. Doc. 208, 60th Cong.,
1 st sess., 7.
&Ibid., 10.
258




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Treasury of the United States

wished to increase the volume of United States bonds
available for circulation. Under this stimulus the circulation of the national banks increased by December 31,
1907, to $83,012,153. Still the difficulty of obtaining
bonds and the awkward machinery of administration in
issuing national-bank notes had the usual result of making
the increase of circulation virtually ineffective until after
the need for it had passed away. The volume of nationalbank currency increased by $24,000,000 between October
15 and November 15, but at the close of the year, as we
have seen, it had risen much more. The circulation continued to increase, however, although the demand for it
no longer existed, until, about the middle of January, it
became $695,927,806.
Of course the usual effect on the price of bonds followed.
The increased demand drove up the 2 per cent bonds as
high as n o , and even at that price the amount available
was regarded as too small. Accordingly the Secretary
thought it necessary to adopt additional means to relieve
the situation, and on November 17 he offered a loan of
$50,000,000 in Panama Canal bonds under authority of the
act of June 28, 1902, and $100,000,000 of 3 per cent certificates of indebtedness under the act of June 30, 1898.
Of the bonds only $24,631,980 were taken by the public
and $15,436,500 of the loan certificates. It is a little
difficult to understand the reason for this action unless
the Secretary hoped to sell the bonds and securities to
people who were hoarding money. Of course the purchase of these securities by the banks, or by people who
were not hoarding, simply reduced the circulation and
would have made the situation worse. In order to avoid




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this, however, the Secretary transferred part of the
purchase money to the banks. Therefore, with one hand
he was withdrawing money from circulation in payment
of his bonds and with the other was restoring it by depositing it in the banks. The banks which purchased these
securities were allowed to retain 90 per cent of the purchase price of the Panama bonds as a deposit and 75
per cent of that of the certificates.
In addition to these positive means of assistance undertaken by the Secretary of the Treasury, the Comptroller
of the Currency, fearing that a revelation of their condition
would add to the panic in a measure, however, postponed
the call on the national banks for a report in November.
This action operated favorably, because the banks were
putting themselves in shape to meet the call. The delay
made them more cautious in making discounts and lowering their reserves. Evidence that this was the case is
found in a statement of the Secretary himself that " t h e
fact that a call had been made and a report submitted
contributed another favorable factor to the situation
immediately afterwards by enabling the banks to release
a part of this accumulated cash to meet the pressing needs
of their clients, with the knowledge that they would probably be able fully to reinstate their reserves before another
call was made by the comptroller." 0
But the tide had turned before the latter measures of
the Secretary were taken. Early in December, therefore,
the Secretary called upon the banks to return part of the
a
Response of the Secretary of the Treasury calling for certain information in regard to Treasury operations, etc., S. Doc. 208, 60th Cong.,
1st sess., 12.




260

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money deposited with them. In that month $6,000,000
were returned, and toward the end of January $10,000,000
more were called in.
Of course during the occurrence of these events the gold
movement had contributed not a little to the ultimate
solution of the difficulties. Toward the end of October
gold began to come from Europe, and by the end of November more than $100,000,000 of the metal had been
received. All of this, together with about $25,000,000
additional, went from the New York banks to other parts
of the country.
In explaining his active interference with the situation,
the Secretary tells us a that he was influenced by the belief
that it was advisable to take a strong and resolute step
which would convince the public, both at home and
abroad, that the Government was thoroughly alive to the
situation and determined to give its aid in every possible
legal and proper form. This is a plain intimation that the
public and the banks, as well as the government officers
themselves, have reached a point where they regard the
Treasury Department as a proper and necessary safety
valve in monetary stringencies. The fact that the Treasury had a surplus made it possible for the Secretary to
intervene with more success than was the case in 1893.
At that time, as we have seen, the Treasury with a deficit
in the revenue was appealing to the banks to save it. In
this case it was intervening to save the banks, as was
supposed. The lesson of 1893, that the banks were able
a
Response of t h e Secretary of the Treasury calling for certain information in regard to Treasury operations, etc., S. Doc. 208, 60th Cong.,
1 st sess.




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to take care not only of themselves, but of the Treasury
also, seems not to have made any impression either on the
public or on government officers. The Secretary himself
was of the opinion that the offer of Panama bonds and
Treasury certificates restored confidence. The facts seem
to be that the corner had been turned and confidence
restored before these measures were taken.
Secretary Cortelyou was subjected to much the same
criticism for issuing these bonds as Secretary Carlisle had
been fourteen years before, though with much better
reason. With a nominal cash balance in the neighborhood of $200,000,000, it seems difficult to believe that the
Treasury was justified in issuing one-year certificates
which, by the law permitting them, could be put out only
when necessary to meet the expenses of the Treasury. To
take the other view, is to admit that government funds on
deposit in the banks were not available; but this is a confession of insolvency on the part of the banks. The fact
is that the Treasury did not need the money to be obtained
from the sale of loan certificates. In any case, even if
the most favorable view be taken, and it be held that the
Secretary's construction of the law was correct, we must
admit that it is a power of extreme danger that is thus
conferred upon him.
Before passing from this subject attention may well be
called to the method of allotment of the new issues of
securities. The 2 per cent bonds are much sought after
by the national banks as a basis for note issue; consequently the award of the loan was limited in the first
instance to national banks in order to encourage them to




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do this. The Secretary took the position that he could
have limited the whole award to this class of bidders if he
so chose. In order, therefore, to promote additional note
issue and check withdrawals by individual depositors from
the banks to pay for the securities, it was decided, as has
been said, to make the allotment first to national banks,
in the case of the Panama bonds, and to make no awards
to individuals in excess of $10,000.
On December 7, public deposits aggregating $222,352,252
were distributed in different parts of the country as follows : In New York City, 26.8 per cent of their capital and
surplus; in New England and the eastern and middle
western banks, including New York, a little more than
15 per cent; and in the banks of the Southern and Western
Pacific States, about 18 per cent. These percentages, be
it noted, are the percentages of deposits of public money
to capital and surplus. Putting the matter in another
way, the banks of the New England States on December
7, 1907, held $13,358,544, which was 8 per cent of their
capital and surplus. The banks of the Eastern States
held $110,793,758, or 18.3 per cent of their capital and
surplus. Those of the Southern States had $31,813,914,
or 16.8 per cent of their capital and surplus. In the Middle
Western States the banks had $47,047,800, or 13.7 per
cent of their capital and surplus. The Western States
had $11,790,864, and those of the Pacific coast had
$16,939,419, the former being 14.7 and the latter 24.3 per
cent of capital and surplus. The total number of banks
holding deposits at this time was 1,421. The Secretary
made a specific effort to make a geographical distribution




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''equitably." In doing so, however, he did not ignore
the particular trade movements which in certain sections
of the country created special demands for currency.
In this panic we find for the first time a deliberate and
general application of the section of the law of March 4,
1907, providing that the Secretary of the Treasury, in
depositing public money in the banks, shall make the
distribution as equitable as possible. As has been pointed
out in another connection, the meaning of this term is
difficult to determine. The only considerations which
should govern the Secretary in depositing public funds
in national banks are convenience and safety. The
claims of political friends, geographical distribution, and
other similar reasons should have no influence whatever.
It is conceivable that the interests of the country would
be best subserved, under some conditions, by depositing
the whole available ainount of public money in the banks
of a single place. It is a well-known fact that money
gravitates to money centers. From the small places, the
outposts of the business world, it simply returns to the
business centers. It saves time and expense, to say nothing of other advantages, to put it in the centers in the
first place. In other words, in carrying out this provision
of the law, the Secretary of the Treasury is virtually made
the judge of the need for the money supply in different
sections of the country as based upon their location, their
industrial condition, and the particular trade movements
at the time. This is a tremendous responsibility. The
law, moreover, subjects him to great political and sectional pressure and exposes the interests of the country
at such times to influences that can be only injurious.




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Indeed, so keenly did Secretary Cortelyou feel the difficulties, that he appointed a commission in April, 1907,
to consider the whole matter of dealing with public deposits .a In commenting on the matter the Secretary tells
us that the policy of gradual distribution of funds to
places where they were most needed, which was inaugurated
in the spring of the year and carried through the summer,
was continued by the banks in October. He adds: " I t
then became necessary to mass the funds in large amounts
where they would be most effective, and the figures of
the Government show that from the financial centers they
were distributed almost automatically to the points most
seriously threatened.'' This remark is simply saying in
another way that all that is necessary in making government deposits to secure the most effective distribution is
to put them in the banks in the financial centers.
The Secretary also attempted to "broaden the basis upon
which public deposits might be made" by adding to the
list of acceptable bonds some new ones. State, railway,
and municipal bonds, within the provisions of the savings
banks laws of Massachusetts and New York were accepted
as security at 90 per cent of their market value. These
became scarce in October, and the Secretary accepted
bonds which came within the laws of Connecticut and
New Jersey. In addition, he accepted, as he says, a few
bonds not strictly coming in either of these classes, but
of good market value. Deposits were made against these
to 75 per cent of their market value. Here, again, we
have a discretion which opens up the possibility of great




a

See p. 127.

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danger from possible pressure on the Secretary to accept
bonds for security. It should be added that when the
market price of the bonds accepted was above par they
were accepted for only 90 per cent of their par value.
It is easier to deposit public money in the banks without causing disturbance, in such times as we have
described, than it is to get it back again without causing further disturbance. The only method whereby
money once deposited in the banks can be recovered
is by its actual transfer. The Treasury may not check
against its account with the banks. The recall of public
deposits means, therefore, a reduction of the reserve
and a possible contraction of discounts. The Secretary,
therefore, must exercise considerable caution in recalling his deposits. On the whole the Secretary managed
his part of the work very well. Of course in a crisis
money accumulates in the banks, discount rates fall, and
it is less difficult to recall deposits than it otherwise
would be.
The manipulation of the money market by the Treasury
has gone so far that the Secretary seems obliged now
to exercise guardianship over the money market, not
only in times of crises, but at other times. He feels
that he must relieve the money market by depositing
the public money in the banks in the fall to meet the
autumnal drain from the interior, and taking it out after
that drain has passed.
All these are matters of great responsibility, and most
of the Secretaries in the past twenty years have felt the
responsibility very heavily. Their feeling is very well




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put by ex-Secretary Cortelyou in a report to the Senate
already referred to:
1
' I n every measure taken the Secretary felt that he
was bound, under our existing fiscal and monetary system, to have regard not simply to the operations of the
Treasury, but to their effect upon the financial condition of the country. The present head of the department
has not assumed this obligation willingly and would
be glad to be relieved of it at least in part by suitable
legislation, but under a fiscal and monetary system
which results in large accumulations of actual currency
in the Treasury at times when it may be most needed in
the markets, and which affords inadequate means of
adapting the circulation to the demands of business, it
would, in his opinion, be a narrow view of his functions
which should limit him to keeping his own balance sheet
favorable, while ignoring the effect of Treasury operations
upon the condition of the country. If recent events
should lead to intelligent legislation, tending to adapt
the movement of currency more nearly automatically
to the requirements of business, it would be a source of
gratification to the Secretary and would greatly diminish
the sense of responsibility which must weigh heavily
upon any occupant of the office under conditions such
as those of the recent crisis/' a These are wise words.
a

Response of the Secretary of the Treasury calling for certain information in regard to Treasury operations, etc., S. Doc. 208, 60th Cong.,
1 st sess., 32.




267

CHAPTER XI.—CONCLUSIONS

AS TO TREASURY

RELIEF

IN CRISES.
GENERAL CONCLUSIONS.

As shown by the history of the periods of great business disturbance which we have briefly sketched, the
effects of the utilization of the independent treasury to
afford relief to the money market, evidently depend on
the character of the crisis, the methods of relief adopted,
and the wisdom shown in applying it. We have seen the
system producing stringency when ° ease in the market
was needed for legitimate business, and also when a
speculation was rife and had its course checked by the
sub treasury absorptions. We have seen that the output
of money to relieve a distressed market may result in promoting speculation,6 or in yielding some needed help to
business men,6 or partly or altogether neutralized by
hoarding c from lack of public confidence in the immediate
future of business. This variety of action clearly shows
that the independent-treasury system does not have such
an automatic connection, so to speak, with business, as
to make its operation responsive to the exigencies of the
mercantile community. So far as the history we have
examined shows, the independent treasury has been useful in monetary stringencies and crisis, when its absorptions have coincided with a rise of prices caused by speculation, because it then retarded speculation; and when its
disbursements have coincided with a demand for money
«In 1857.




6 In 1853, 1890, and 1902.

268

c

In 1873, 1890, and 1907.

Independent

Treasury of the United States

for a legitimate temporary expansion of business its action
has been beneficial. When it has disbursed during speculation, or absorbed during a healthy business expansion,
it has done mischief. It has failed altogether when credit
was suspended, and has sometimes made the situation
worse by promoting hoarding.
Of the various methods mentioned whereby the independent treasury has had, or may have, a calming influence
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 by locking up money opportunely; the redemption of the public debt, including the purchase of bonds
and the prepayment of interest; and depositing the public
money in the banks. The first of these processes retards
speculation, and, if used at all, should be applied on a
rising speculative market. The other two methods are
measures of relief when the stress is on.
To begin with, objection is sometimes made that all
government interference in the money market is out of
place. But while laissez-faire as a doctrine is more or less
discredited, in the absence of any better principle, government interference must justify itself in each new field it
enters. Experience, both in England and in this country,
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 establish a case
for future interference under similar conditions.
The danger of relying on the Government for aid in
times of monetary distress lies less in the promotion of
speculation, or in the diminution of caution in the usual




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conduct of business, than in the possibility that the action
of the Government will be pushed by public clamor, or
by pressure from banking interests, to a point where it
may be more injurious than inaction would have been.
That this danger is not merely fanciful is shown by the
experience of 1873 and 1890, and, perhaps, 1907. In the
first of these years " 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 to pay " at
once" the $20,000,000 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 suggested by them." a In 1890
some people demanded the use of the $100,000,000 of gold
kept for redemption of the greenbacks. In 1893 and
1907, there were voices heard for the issue of more government paper.
To be most effective, the help of the Government must
in every case be timely, certain, and sufficient completely
to remove the danger. But it is not always so. In the
panic of 1873 the support of the public purse was 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
a Finance Report for 1873.




Also Upton's " Money in Politics," 140.
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been b y earlier action. In 1907, too, after t h e surplus
was deposited in t h e banks, t h e Treasury could afford
no more relief.
Of course, it is t r u e t h a t some one or some group of
men must use their judgment to determine whether a t a
particular time stringency in t h e money m a r k e t should
be anticipated, or relief should be furnished when t h e
crisis is on. While no candid student of our Treasury
can have other t h a n praise for t h e good judgment which,
on the whole, has been shown b y successive secretaries in
their relations t o t h e money market, nevertheless, t h e
Secretary of t h e Treasury is not t h e proper person t o
determine these points. He is not in immediate touch
with business m a t t e r s . He m u s t get his information of
t h e situation largely a t second h a n d from bankers and
others. H e is likely to be less experienced in judging of
such m a t t e r s t h a n men whose business it is constantly to
watch them and care for them.
T h e success of t h e effort of t h e Government t o relieve
a panic depends, then, largely on t h e good judgment of
t h e officers of the Government. The first important
method of relief consists in w h a t Secretary Guthrie called
" restraining t h e b a n k s . " T h a t is, the sub treasury locks
up government receipts from circulation. If this takes
place a t a time when business is slack, reserves large, and
discount rates low, it will very likely be of assistance
to the banks a n d t h e money market. As we have seen,
however, t h e fatal defect of t h e sub treasury action is
t h a t there is no correspondence between its o u t p u t and
intake on t h e one hand, and t h e periods of stress and ease
of t h e banks on t h e other. If t h e independent treasury




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were by its nature and organization a suitable means of
relief it should be available in every crisis. To be so
its accumulations of money should depend, in some measure, upon the conditions which make money dear. But
this is not the case. It accumulates and disburses independently of the state of the money market. While it
presses the banks, to use an old term, it is never pressed
by them in turn. That is, its action can never be
restrained by them. Its vaults may not be full when
its help is needed most, as was the case in 1873, 1890,
and 1893.
RELIEF BY BOND PURCHASES.

The objections to the relief of the money market by
the purchase of bonds are these:
1. The fact that the timeliness of the relief thus offered is uncertain.
2. The loss due to the purchase of the bonds at a
premium before they are due.
3. The loss due to the curtailment of bank circulation
by lessening the amount of the bonds available for security of note issue.
4. The loss that arises from forcing up the market
price.
5. The possibility of cornering the treasury.
The purchase of bonds for the relief of the market
depends, like the depositing of public money in banks,
on the judgment of the Secretary of the Treasury. If
he purchases at the right time the transaction does
good. If he purchases at proper prices the transaction
may do good. Aside from the danger of untimeHness of
relief in purchase of bonds from bad judgment on the




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part of the Secretary, there is also danger that the money
thus disbursed is paid out on too easy terms. The purchase of bonds at the market rate, or the full repayment
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 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% sufficiently 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 large 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
41969 0 —10




18

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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 i t can not be fairly assumed
that the money left with the people would all "fructify"
at the rate of 6 per cent; and secondly, because 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 nonemployment 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 taxation.
Such a transfer will involve a social loss, especially 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 September 13 of that year, $17,071,150 of 4 per cent bonds
were redeemed at a cost of $21,617,673.77, which represents 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




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been kept by the Government, and put out at interest at
4 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 payment 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 the bonds were due, it would in the meantime 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 meantime 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 seventeen
years' annuity of $682,846, at 4 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.^ Moreover, all such computations are, at best, only guesses.
aThe transaction mentioned was equivalent to buying bonds at par,
a t about 2.1 per cent; evidently since the Government could not have
floated a new issue of bonds a t so low a rate as that, there must have
been a loss on the purchase actually made.




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The direct loss from the forced purchase of bonds at a
premium is not the only one to be considered. The purchase may do harm in addition by curtailing bank
circulation. " I t 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 transferred 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 banks after withdrawal."" 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 rates 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 6 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
\% percents to the Government had been very small, a
recovery took place. This may seem paradoxical, but the
theory was that it would lead the Government to extend
the offer to purchase bonds so as to include the 4 percents.
As this proved to be the case the very next day, the
aRept. Comptroller of the Currency, 1890, Cf. Ibid., 1888, p. 453.
6
September 24, 1887.




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market further advanced, and it has been quite strong
since."
"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
12 o'clock, messengers from many establishments in Wall
street were waiting at the subtreasury. An official
brought out and posted a written notice, announcing that
the Government would redeem on a certain date bonds
amounting to $10,000,000. * * * 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 their messengers to hold them at high
prices. A sudden upward rush in prices occurred."®
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, " ' s h o r t '
of the stock market and 'long' of government bonds,"
operated to force down railroad shares and force up government bonds. Of course the purpose was that the
"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
aGrosvenor, Wm. M., American Securities, 220.




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Commission

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. 0
R E L I E F BY DEPOSITS I N BANKS.

The other important method now available for anticipating a stringency in the market, or furnishing a relief
when the stringency has come, is to transfer the public
money from the Treasury to the banks. By depositing
is here meant, however, not the continuous, regular, deposit
of government funds, but the occasional transfer of them
to the banks from the subtreasuries, in order to strengthen
the banks or relieve them in distress. It is deposit for
the purpose of relief, therefore, that we are considering.
The objections which have been made to the method
of relieving the money market by the purchase of bonds,
apply in the main to the method of relief through bank
deposits. The whole process depends, of course, upon
the existence of a surplus and, like premature debt payment, is involved with the policy of surplus financiering.
If there is not a constant surplus the opportunity to give
relief will be purely accidental. The advantage, if any,
which comes, must depend upon the good judgment of
the Secretary. If he anticipates a stringency he must
show good judgment in the timeliness of his deposits.
If his action is too early it will promote speculation. If
it is too late he will fail to accomplish the good he aims at.
However, if the Treasury is to be looked to as the
proper source of relief in crises, the deposit of its receipts




0

See Bankers' Magazine, October, 1890.
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in the banks is the best method of accomplishing the purpose; but, under our system of banking, the present
practice concerning deposits is open to some serious
objections. We have a system of scattered banks whose
interests are likely to clash in times of difficulty. There
is some truth in the statement that has been often made
that in a crisis the banks of the country are likely to seek
their respective individual interests instead of uniting
their forces to overcome the difficulty. Of course this
statement is made with due regard to the cooperation of
the clearing-house banks in all money centers. There
certainly is lack of unity of purpose and action, and
therefore a certain waste or lack of full utilization of
power in time of distress. This is a consequence of our
system of independent banking.
To be most effective in affording relief to the strained
market government deposits should be placed in the
banks of the principal money centers, or possibly in the
principal money center. The provision of the present
law requiring an equitable distribution is vicious. It is
true, to be sure, that the law is so worded that the Secretary has large discretion, but he should not be limited by
any such condition. In times of stress the best place for
the money to be deposited, as has just been remarked, is
in the money centers. It is needed most there. It is in
these places that the credit pyramid has been built highest. It is in these in which credit payments fall off more
and money is more in demand for settlement when a
crisis comes. In these places the deposits should be put
both to enlarge reserves and to furnish the supply of
money needed for the unusual cash settlement. If ease




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is established in these centers, other places are not likely
to suffer.
If the deposits of public money are to be relied on as
a source of relief in times of trouble, they should not be
made at other times. That is to say, reliance upon the
Treasury for relief through the deposit of public money
in crises is unavailable if the Treasury deposits its receipts
currently with the banks, for obviously there will be no
surplus in the Treasury to deposit when trouble comes.
This happened in 1907. The surplus was all deposited
in the banks. The Treasury could do nothing more either
in the way of enlarging its deposits or of enlarging the
circulation by bond purchases. Hence the Secretary
resorted to the extraordinary plan of selling bonds, with
the expectation, apparently, that hoarded money would
be drawn out, or that the banks would buy them as a
basis of new circulation.
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 accomplishing
that purpose. Its aid is arbitrary in method, very likely
to be misdirected, generally insufficient as rendered, and
actually promotive of injury by stimulating 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 treasury can render is
measured by the amount of its disbursements, 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




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could otherwise render is diminished and counteracts to
a certain extent the good effect of the Treasury operations. Moreover, the good done by the subtreasury
expansions is less in a delicate condition of the market
than the evil done by its contractions, for contraction
of the currency then is quicker to produce distrust than
expansion is to restore confidence.
LIMITATIONS OF SUBTREASURY REUEF IN CRISES.

The limitations of the usefulness of the independent
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 relief. A short examination of the character of crises will bring out more clearly the limitations common to both the banks and the independent treasury.
If the disturbance is 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 surplus,
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




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a complete breakdown of the circulating medium, as in
1857, an independent treasury could, urider certain conditions, do much to ease the situation.
If, however, the crisis is an industrial one, an expansion
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 production elsewhere, or by
the too rapid transmutation of circulating 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 o n " 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, f° r example, the crash would not have
been avoided, but only postponed. 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 repaying the 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 industrial
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 pre-




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viously 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 disbursements, 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 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 reestablished. 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. a Indeed, at such times money
may be plentiful, as indicated 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." 6 A further outpour of
money would therefore prove useless. And, indeed, it is
extremely doubtful whether it is wise, in a so-called capia

Cf. Taussig's " T h e Silver Situation." Publ Amer. Econ. Assoc., vii;
1: 63.
& K- B. Andrew's " A n Honest Dollar." Ibid., iv : 6 : 8.




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tal a panic, to try to devise means whereby all the enterprises endangered by shaken credit may be reserved.
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 the unsound.
Finally, the questions must be considered whether the
independent treasury may not have an influence in
creating stringencies which it afterwards undertakes to
relieve, and at what period of a crisis its help is most
efficacious. As we have already seen, 6 Secretary Guthrie
praised the independent treasury in 1856, on the ground
that it exercises a restrictive influence on the banks when
"overtrading" takes place, and so preserves " t h e general
prosperity."
As the rise in prices under such circumstances is supposed to be due wholly or mainly to speculation, evidently any influence that opposes the speculative spirit
will retard, perhaps stop, 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 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 regarded as herein beneficial.' It not only diminishes the amount of money, but,
as it draws mostly from the banks, it at the same time
a A too rapid transmutation of circulating to fixed capital.
& See p. 70.




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diminishes their power to lend. Hence it may exercise a
powerful restraining influence on speculation, because it
will arrest speculative extensions 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 immediately when the demand for loans
drives the reserve below a certain proportion, loans
become more difficult 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 making those advances which arrest the
tide at its turn and make it rush like a torrent afterwards." The independent treasury can exert such an
influence, however, only when its absorption of money
coincides with this stage of the stringency. A kind of
guaranty that such coincidence will occur is found in the
fact that, under the circumstances described, the export
of the metals generally implies import of commodities
and consequent payment 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 speculative
market. Exchange may be in favor of this country,




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prices may be rising, and yet there may be a drain of gold.
This was the case in 1890. Under such circumstances, 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 arbitrarily 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 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 culmination,
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




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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 example,
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 reduction 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 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 market has turned and prices
have adjusted themselves to a lower level, it can do little
or no good.




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It is very obvious, however, that, so far as monetary
stringencies and crises are caused by excessive stock speculation or intensified thereby, any efforts made by the
Treasurer to relieve the tension of the money market
simply condone this speculation, if indeed they do not
encourage its continuance and increase. This effect can
be traced in several instances in our history. For instance,
in 1901 occurred the agitation contingent upon the Northern Pacific corner. It was a time of great industrial and
financial speculation. This and the following year, 1902,
will be remembered as a time of general prolonged stringency, which became more acute toward the end of the
year. " It was essentially an artificial situation. * * *
Approximately there was locked up in connection with
syndicate operations not less than $400,000,000, while
during the upward march of securities and prices an enormous amount of borrowing occurred in speculative operations. At the time there appeared the customary withdrawal of funds by western and southern banks. * * *
The drain on New York was also larger in connection with
industrial functions. * * * Borrowing abroad was
also indulged in to excess. Owing to Wall street operations
associated banks were put into a bad position, loans rising
well above deposits and surplus reserves falling to an
uncomfortably low point. Call money reached its highest
point at 35 per cent, just half the top record of 1901; but
instead of being caused by a temporary panic in the street
there was a more lasting financial stringency that threatened to produce disaster in the stock market, making tight
money the cause rather than the effect. An abnormal




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situation such as that called for heroic measures or a disastrous panic would have resulted. Secretary Shaw was
equal to the occasion, however, and suggested two measures that were so unique as to arouse some criticism. The
most radical was the acceptance of other than government
bonds as security for public deposits. * * * It was
also provided that the associated banks were not required
to hold a reserve against public deposits. * * * The
former proposition was * * * criticised. * * * It
established a precedent for some less conservative officer.
The stock market avoided a severe panic." a
The above facts recited by a leading financial journal
show by another instance that it is possible for stock
speculators to force up the market, relying on the Treasury
disbursements when the pinch comes. Therefore,
Treasury regulation of the money market may promote
speculation and profit speculators. There is little reason
to doubt that public deposits in the banks have been made
at times the basis of a speculative fever. When the
stringency became acute, the Treasury was looked to to
save the situation on the ground of the public interest.
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 busie Dun's Review, 1903, 2:11
s
41969 0 —10




19

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ness its absorptive influence is wholly bad, but that in
the later stage of such a crisis its disbursements are promotive of good, unless mismanaged or too long delayed.
Hence we see that the coincidence of a particular phase,
or stage, of the progress of a crisis is necessary in order
that the influence of the subtreasury may be beneficial.
But such a coincidence is purely fortuitous, and this fact
deprives the system of all value as a scientific mode of
relief in crises.




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CHAPTER

XII.—THE

INDEPENDENT

TREASURY

AS A

FISCAL AGENT.
IN THE MEXICAN WAR.

Thus far we have examined the effects of the independence of the treasury system in its relation to business
in ordinary times and in crises. It remains to inquire
into the advantages of its independence when the Government finds it necessary to negotiate loans, especially
in a time of war.
The Mexican war, the civil war, and the war with
Spain have occurred since the adoption of the independent treasury system. The financing of the first of these
was comparatively easy and the necessary fiscal machinery
correspondingly simple. The country was prosperous,
the finances in good condition, and the war was short.
In this war, therefore, the subtreasury system appeared
to advantage. A net indebtedness of $49,000,000 was
created, all the loans being placed at par or above. The
subscriptions for one of the loans amounted to more than
three times the amount asked for, and were paid in specie.
Nevertheless some difficulty was experienced. In October, 1846, Secretary Walker advertised for the exchange
of $3,000,000 of treasury notes at par for specie, but
got only a few responses. Concerning the operations the
Secretary wrote: a "On the 22d October, 1846, the
department advertised for the exchange of $3,000,000 of
treasury notes at par for deposits of specie with the
a H. Ex. D o c , 30th Cong., 1st sess., 6 : 17.




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assistant treasurers. For a considerable time but very
few of such deposits were made, or treasury notes thus
taken; and from this long delay and continued reluctance upon the part of the community in taking these
treasury notes at par, although at any time after the
28th of January last they were convertible into the twentyyear 6 per cent stock at par, many of the notes heretofore
offered at par not having been taken at the date of my
advertisement of the 9th of February last, serious doubts
were entertained whether the whole of the new loan
could be taken at or above par. It had been usual heretofore with my predecessors, in advertising for loans, to
emit no sum to any individual under $25,000; but, with
a view to insure the largest possible subscription, and at
the best rates, and to diffuse the loan as far as practicable
throughout all classes of the community, bids were
authorized to be received by the advertisement as low as
the lowest denomination of treasury notes permitted by
law—namely, $50. It was the duty of the department
to accept noting but specie—being the first loan ever
negotiated in specie from the foundation of the Government down to that date, and the first loan, except that of
last fall, ever thus negotiated at or above par during a
period of war. The magnitude of the loan, the fluctuations below par of the previous stock and notes, the untried and, to many, alarming restraining operation of the
constitutional treasury, the heavy expenditures of the
war, and the requirement of all the 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. But, under the salutary provisions of the




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Treasury of the United States

constitutional treasury, the credit of the Government
was in truth enhanced by receiving and disbursing nothing but coin; thus placing all its transactions upon a
basis more sound and entitled to higher credit than when
it held no specie, had no money in its own possession,
and none even in the banks to pay its creditors but
bank paper."
The contracting influence of the subtreasury was
evident even at that early day, and this, together with
the refusal to accept anything 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. Doubtless this opinion was to some extent correct.
The Treasury succeeded, in its position of fiscal agent
of the Government, in placing loans, and under the conditions of that time the subtreasury system was a success.
But whatever good was accomplished by the independence of the Treasury, acting as its own fiscal agent, was
more or less offset by the result of its independence in
locking up the money with which the bonds were paid.
''By emissions of this kind [treasury notes] and his 'war
warrants' Secretary Walker supplied in some sense the
want of a national currency and relieved local banks of
deposit from the heavy strain which was made by the
metallic hoard the Government gathered under the new
subtreasury act." a Even so, there is good reason for
thinking that if our exports had not been so large at the
« Schouler, James, History of the United States, 4 : 541.




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Commission

time the loan of $23,000,000, authorized January 28,
1847, would not have been so successful. In the fiscal
year 1846-47 our imports of specie were $24,121,289. a
IN THE CIVIL WAR.

The civil war furnishes more adequate opportunities
than the Mexican for studying the effects of fiscal independence of banks. Its lessons are, therefore, more
valuable.
The struggle opened with the country in a good industrial 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 produce such a revenue. The Government was thus compelled 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 machinery of the subtreasury 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.
The financial operations of the Mexican war were trifles
compared with the transactions which the Treasury was
called upon to undertake when confronted with the civil
war. The amount borrowed in the single year ending December, 1861, was over $300,000,000, while the loans contracted during the whole Mexican war summed up only
a H. Ex. D o c , 30th Cong., ist sess., 6 : 1 2 .




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$49,000,000. 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.
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. " a Accordingly he conferred
with their representatives, and on their agreeing to advance
the money he asked for, undertook " t o issue three-year
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 competition 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 "b—that is, with the banks.
o Finance Report, 1861, p. 8.




& Finance Report, 1861, p. 9.
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Commission

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 ''general 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 general 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 subscription arrangements
have been especially useful and successful. They have
been adopted as yet with reference to only two descriptions of bonds—the two commonly known as seventhirties 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. Accordingly, 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




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greenbacks. Thus, from the beginning 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 breakdown of the government independence
of the banks in raising loans was emphasized by the establishment of the national banks. In fact, the primary
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
circulation." a
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 network of agencies over the country for the purpose of
receiving subscriptions to its loans, the plan could not
have been successful in meeting its financial 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
a

Report of the Comptroller of the Currency, 1879: 113.




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Monetary

Commission

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 Government to the banks for loans is the fact that the arousing
of confidence is an essential element in the floating of a
loan, and for the Government to have established confidence directly in the minds of thousands of individual
subscribers would have been, under the existing circumstances, 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 powerful 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
$33,000,000, advertised on the 25th day of June, had been
withdrawn on the 2d of July. * * * The Secretary
thought it advisable to borrow * * * $50,000,000
of the banks." a 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




o Finance Report, 1864, p. 20.
298

Independent

Treasury of the United States

dispose of their notes." But the effort was only partly
successful.
The partial success, in 1863, of the attempt to place
by popular subscription may perhaps be ascribed to
the change that the Government made at the 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."
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 confession of the inability of the Government to get on without 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 analysis of the
holdings of the public debt made in the census of 1880
a See H. C. Adams's "Public Debts," 127-131. A table is given there
showing the course of the government credit during the war; its uniformly
downward course was temporarily checked toward the end of 1863.




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ary

Commission

represents a state of affairs very different from that which
originally prevailed. Prof. H. C. Adams summarizes that
investigation by saying: " I t thus appears that out of a
total of over $1,000,000,000 of registered debt, private
citizens of the United States were proprietors of the
comparatively small sum of $417,538,850.®
The dependence of the Government on the banks during the civil war, then, was 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 August 6, 1846. For the
whole tenor of the arguments of the advocates of the independent 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 connection can be fairly considered as only an incident of the
banking system which was adopted. Even if the Government had not sold any bonds to the banks, those institutions 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.




a " Public Debts," p. 45.
300

Independent

Treasury of the United States

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 Government 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 immediate
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 vitiates the
system and renders it unsuitable in a great war.
The use of the banks, directly or indirectly, for floating
loans, was the first step in the abandonment of the principle of fiscal independence adopted fifteen years before.
The second step followed necessarily, and consisted in once
more making the banks, to a certain extent, depositaries
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




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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 Government, when it needed money in very large amounts,
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 payments was soon
abandoned. Could the greenbacks have taken the place
of the bank notes in circulation, 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 congressional opinion, they could not do so,
and hence they constituted 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 for 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 subtreasury
act, by making the national banks depositaries of public
money. The purposes for which the subtreasury system
was created, separation from banks and maintenance of




302

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Treasury of the United States

specie payments, were both abandoned, owing to a stress
of circumstances some of which, at least, were brought
about by the very system that was created to prevent
them.
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 subtreasury 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 subtreasury system is
unwieldy, if not inadequate. The collection of the great
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 subtreasury or a
United States depositary, was found inconvenient and
expensive, 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
depositaries of money received in payment of internalrevenue taxes. The fiscal growth of the country was far
beyond the confines set for it by the independent treasury
act. The channels provided by the system were neither
sufficiently large nor sufficiently ramified to carry the
increased streams of revenue with the rapidity necessary
for the needs of the Government.




3°3

National

Monetary

Commission

The only important service of the independent treasury
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 a real service. But this service was as much
an accident of the unsound financial management of the
war as a result of independence of the Treasury; that is,
if the financial management 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 treasury. Moreover, in so far as it
absorbed gold beyond 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.
IN REFUNDING OPERATIONS.

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 development of the country. Here, again, as in the placing
of loans and the collection of revenue, there is needed a
great network of agencies all over the country, and this
network can be well supplied only by the banks. Secretary Sherman wrote in 1880:0 "Without the aid of the
a Letter to the Convention of American Bankers, 1880.




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Treasury of the United States

national banks the unprecedented refunding operations
of last year would have been almost, if not quite, impossible."
The need which the Government felt for depending 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 experience of Secretary Sherman shows that the Government 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 refunding were carried on by syndicates,
the commission allowed being the total amount a appropriated by the law to cover the expense of conversion.
* * * But when Secretary 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 circulars.' This plan was followed for
the entire amount of 4 percents, with the exception of
about $15,000,000, which were secured on a foreign contract. * * * The success of the policy of sale by circulars may be seen from the following facts: The total
sale of 4 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
0 The usual rate allowed syndicates for placing loans during the war was
1 per cent. In 1870 it was reduced to one-half of 1 per cent.
419690—-10




20

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Monetary

Commission

for the Government to keep itself independent of the
agencies of the banks. Popular enthusiasm brings banking support, but banking enthusiasm can not arouse popular interest.'' a But that Secretary Sherman did not abandon the use of banks in his future operations is shown by
the fact that on the ist of August, 1878, he issued a circular in which he said: "All national banks are now invited to become financial agents of the Government and
depositaries of public moneys received on the sale of these
bonds upon complying with section 5153, Revised Statutes of the United States. All banks, bankers, postmasters, and other public officers, and all other persons, are
invited to aid in placing these bonds. They can make
their arrangements through national banks for the deposit
of the purchase money of the bonds." 6
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 of the Government, and enabled it sooner to command better terms for its loans. The difficulty experienced in 1891, in the attempt to refund the sH per cent
bonds at 1 % per cent, is an illustration of the point under
consideration. The banks refused to exchange the bonds
they held for others at less than 2 per cent, and the Secretary had finally to adopt that rate. If in so small an
fl
H. C. Adams's "Public Debts," 235-238. Although banking support
may not arouse popular interest, it may inspire confidence.
& Specie Resumption and Refunding of National Debt, H. Ex. Doc. 46th
Cong., 2d sess., No. 9: 356.
306




Independent

Treasury of the United States

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 Government.
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 bookkeeping, 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 subtreasury, 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.
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. I*1 August, 1871, over




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Commission

$65,000,000 worth of 5 per cent bonds were subscribed
for, " chiefly by the national banks." In the same
month the firm of Jay Cooke & Co. contracted for
$200,000,000 worth of the same bonds. In 1876-77
August Belmont & Co. purchased 4>£ per cent bonds to
the amount of $200,000,000. During the first four
months of 1879, $497>247>75° worth of 4 per cents were
sold, $121,000,000 being taken by the First National
Bank of New York and associates, and the remainder by
other national banks. a 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 1812, 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. " 6
A breakdown of the subtreasury system at still another
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
a Report of the Comptroller of the Currency, 1879, p. 108.
& Richardson, H. W., " T h e National Banks " p . 112.




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resources—that is, if it had been "independent"—
resumption probably could not have taken place when it
did. a " In the resumption of specie payments, and in the
funding of the national debt, * * * the cooperation
of the national banks has been of essential service to the
Government. 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." 6 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 redemption. 0 If the banks had
demanded the redemption of these notes, the attempt at
resumption would have been gravely imperiled. 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 obtaining coin outside of the
a For an account of the operations of refunding and resumption, see
Report of the Secretary of the Treasury on "Specie Resumption and
Refunding of the National Debt," H . Ex, Docs. 46th Cong., 2d sess., vol.
xvii, 1879-80.
& Finance Report, 1879, p. 20.
clbid., 1879, p. 114.




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large cities forbade any direct appeal to the great body of
the people.''
But in still another way was the aid of the banks rendered, 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 and the depositaries of the
money received from the sale of bonds. As Secretary
Sherman pointed out in the letter mentioned before,0
but for the use of the banks as depositaries 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 $500,000,000
worth of 4 per cent bonds. The absorption by the
Treasury of all the money thus paid in would have contracted the currency of the country over 50 per cent.
Distress 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 undoubtedly 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




0 See p. 304.

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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 which the Government, and not the banks themselves, was responsible.
THE LOANS OF 1893-1896.
Although the loans of 1893 and the three following
years were not war loans, they strengthen the conclusions reached from a study of the operations of the subtreasury system before that time. We have seen that in
the panic of 1893 the Treasury was not only unable to help
the banks, but even to help itself. The many difficulties
in which the country was plunged by the silver purchase
law, added to other mischievous features of our currency
system, conjoined with the fact that the receipts of the
Treasury for ordinary expenses showed a deficit, made it
impossible for the Secretary to lend any aid in the crisis.
The banks, as we have seen, were appealed to on several
occasions to exchange gold for notes. In 1894 it was
decided to place a loan of $50,000,000 of 5 per cent tenyear bonds. The situation was difficult. " Judged by
executive precedent and tradition, there was need, in the
face of this dubious situation, to promote negotiations
with the larger financial interests. That such solicitation is not only prudent business policy, but the legitimate
office of the national finance minister, has been tested in
nearly all issues of public loans, here and abroad, during
the century."" Secretary Carlisle, however, heeded the
a Noyes, A. D.: Forty Years of American Finance, 213.




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prejudice of his party against a relationship with the
banks, and therefore kept aloof from them. The banks
were not in a position to be interested in a new loan, and
therefore the loan did not take with the public. It became
evident, a few days before the time for closing the subscription books, that the loan would fail, and Mr. Carlisle
appealed to the New York banks to prevent this. A
syndicate of them immediately responded and took up
four-fifths of the entire issue. Thus we see that the
Treasury was unable independently to float its bonds,
under the circumstances that then obtained. Nor could
any other result have been expected. The country had
just passed through a crisis, money had been hoarded, and
confidence had been shaken. There was no ground for
patriotic enthusiasm, one of the conditions under which
a popular loan is likely to succeed, and every indication
pointed to the necessity of lending to banks and bankers.
The condition of the Treasury made it necessary to place a
further loan in November of the same year, to the amount
of $50,000,000. Mr. Carlisle had learned by experience
and again appealed to the banks. A syndicate was gotten
together which took up virtually the whole issue.
The same experience was passed through in 1895, when
the Belmont-Morgan syndicate was created to carry the
country through a crisis. As we have seen, they insisted
on a thirty-year 4 per cent bond as the price of their services. The amount sold was $62,315,400 and the amount
received by the Government therefrom was $65,116,214.
In January of the following year, it was necessary
to borrow once more, and a new 4 per cent loan of
$100,000,000, to be subscribed for in gold was offered to




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the public. It was to be a popular loan—that is, it was
offered for popular subscription. The country was well
on the road to business recovery; confidence had been in
large measure restored, and the loan was successful. Indeed, it was subscribed for nearly six times over. There
were 4,640 subscribers, and the amount of their subscriptions aggregated $568,000,000. The Secretary was able,
therefore, to place the loan on exceedingly advantageous
terms and selected bids which ranged from 110.5 to 120.
Yet it appears that many bids were made in behalf of the
banks, many more were made for the purpose of selling
immediately and getting any premium that might accrue,
and it was only a short time before virtually the whole
issue was owned by banks and bankers.
T H E SPANISH WAR LOAN.

In July, 1898, came the Spanish war loan. This is no
place to point out the financial mistakes that were made
in placing this loan. Its management, however, throws
a good deal of light on the relation of the independent
treasury to popular loans. By act of Congress the Government offered $200,000,000 3 per cent bonds at par.
The subscriptions were widely distributed and large in
number. According to the report of the Secretary, a there
were 320,000 subscribers who offered $1,500,000,000, or
more than seven times the amount of the loan. The loan
was therefore hailed as a tremendous success. Again
we must notice, however, that many of the bids were
made by individual representatives of banking houses
and a great many more were made by people who bought




« Treasury Report, 1898.
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to sell soon after and found their way into the hands of
banks, so that after three or four months the distribution
of the loan had materially changed. The popularity of
the loan, in the sense that it was a widely distributed
loan, was less in evidence, however, when we remember
that the subscribers for amounts of $500 or less of the
loan numbered 230,000 out of the whole 320,000. It is
significant, moreover, that the Secretary of the Treasury
had arranged with a New York banking syndicate beforehand to take up the bonds if the people did not subscribe
for them. The Assistant Secretary of the Treasury at the
time tells us that it was the guaranty of the syndicate of
banks which " p u t spirit into the loan from the first moment." a A loan can hardly be called popular in which
interest has to be stimulated by a syndicate guaranty and
a large speculative premium. The bonds were sold at par,
although there were bids for them as high as 105. This
can hardly be regarded as sound financiering. The expense of management was also much greater than if the
loan had been placed in the usual way through a banking
syndicate. It succeeded, moreover, because the war was
popular. We may therefore summarize the causes of its
success as the popularity of the Spanish war, the previous
arrangement with the syndicate, and the low price.
As a result of this review it is very evident that the
Treasury felt itself unable to manage the loan successfully,
for it appealed to the banks to boom it. The Government
lost the premium which it might have had, the method
of placing the loan added to the expense of management,




a The Forum, September, 1898.:

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States

and as a matter of fact the bonds soon got into the hands
of the banks, and the Government was obliged to leave
the money in the banks to prevent contraction of the
currency. From no point of view can any advantage be
found in the direct independent management of the loan
by the Treasury itself.
CONCLUSIONS.

As an agent 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 Government 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, is by no means self-evident.
It rather seems possible for such a nation 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 irredeemable paper, even the present restricted possibilities for
usefulness in war would be taken from the independent
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 creation of a new
system for the collection and disbursement of revenue,




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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 payments be suspended, and if the suspension continue after the restoration of peace, the independent treasury, as already pointed
out, absorbs gold. The 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 otherwise 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 without the aid of
banks and bankers, demonstrate the inadequacy of the
"independent" system of financiering for war purposes.




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CHAPTER XIII.—PROPOSALS FOR REPLACEMENT OF THE
SUBTREASURY SYSTEM.
CONDITIONS TO BE MET.

The trend of the conclusions drawn from the working
of the subtreasury 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 advantages of the system are its occasional
accidental restriction of the expansion of bank loans under
the influence of speculation, the certainty that the Government can get its money for use promptly without disturbing the market, and its occasional 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 primary purpose of the adoption of the independent
treasury was the safety of the public money. 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
Government. 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 subtreasury
system necessary. It is true that up to a certain time the
public deposits in that bank were safe, and that the reasons




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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 semipublic institution
would have been impossible in any event; and certainly
there was no likelihood at all of permanent safety for the
public deposits in the banks that succeeded the national
institution. Therefore some means had 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 peculiar dangers, to be sure.
It exposed the public money to risk of loss from accident
and from peculation at the hands of 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 independent treasury was to furnish a safe currency to the Government. 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 currency 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




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notes as well as bank notes would depreciate under certain
circumstances, and the Government could not always make
all its payments in specie. When the country committed
itself to the policy of fiat paper money, it attempted to
preserve the independence of the Treasury at the expense
of the safety of the currency; and its entry into the field
of note issue made continued independence of the banks
impossible.
In providing for the safety of the public funds and, at
first, for a safe currency, the independent treasury did not
provide, at least sufficiently, for elasticity in the circulating
medium; nor did it insure business against disturbances
due to the alternate and arbitrary contractions and expansions of the currency which its operations caused. These
evils, indeed, were of less moment in its early days, 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 importance
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 operations 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




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and disbursements, it will be found impossible to continue
the system in its present form." 0
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 statement
is equivalent to saying that every productive interest 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 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." 6
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.
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 can not be found 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 disturbance of business
a Report U. S. Treasurer, 1886: 67-68.




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& Ibid.

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by arbitrary absorptions and disbursements; shall prevent
the occurrences 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, of course, is
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 important consideration, and no
proposal that does not provide for that end should be
considered for a moment.
But with safety and instantaneous availability secured,
there are some secondary advantages at which erery government should aim in its system of keeping the public
funds. The most important of these is, that the receipts
of the Government shall not be locked away from use in the
trade of the country. A second is that the system shall
be elastic enough to conform to changes in the fiscal policy
of the Government. For example, it must be able to prevent the evils that must follow from surplus financiering,
and be ready to furnish the means necessary for the Government to carry on its operations through periods of
deficits.
Again, whatever system prevails, any profits that come
from the use of the money of the Government on deposit
should accrue, in part at least, to the Government. The
method which prevailed for some years, of depositing
the money of the people in banks without interest, was
merely a means of permitting private interests to profit
at the expense of the people.
419690—10




21

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CLASSIFICATION OF PROPOSALS.

All the proposals that have been made for the replacement of the independent treasury may be roughly classified as follows:
i. Enlarge the present national bank depositary system by putting the receipts of the Government immediately into the banks when collected, without a deposit
of bonds as security, the banks to pay a reasonable rate
of interest to the Government on its balances, and the
government officers to check against accounts like other
depositors. Deposit in banks throughout the country,
as now; or only in reserve city banks.
2. Modify the first proposal by dividing the country into
clearing-house or bank depositary districts. Establish a
clearing house for each district, and enlarge the functions
of the clearing house so as to make it the agent for all the
banks of the district, with which the government officers
may deal directly. Under this system all government
moneys will be deposited with the clearing house or district
bank, which will be responsible to the Government, and
it may redeposit with the banks of its district under arrangements to be provided.
3. Establish a central bank independent of the Government and of existing banks, which shall be the depositary
and fiscal agent of the Government.
4. Establish a federated bank to include all national
banks. This, of course, is a form of central bank. Instead of being independent of the existing banks, it would
be a federation of them.
5. Make the Treasury itself a government bank by enlarging its present banking functions and giving the Secretary a staff of expert business and banking advisers.




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CHAPTER XIV.—SUMMARY.
(A) AS TO HISTORY.

Our study of the history and effects of the methods by
which the United States Government has kept the public
money may be briefly summarized as follows:
i. The policy of the Government has been changeable.
In the first few years after the adoption of the Constitution, before the subject attracted serious public attention,
there were no specific places for the custody of the public
money, and it was left largely in the hands of collecting
and disbursing officers.
2. During the existence of the first and second United
States Banks, that is from 1796 to 1811, and from 1816
to 1833, the date of the "removal of the deposits," the
public money was kept mainly in these institutions and
their branches. Nevertheless, even during these periods
some state banks were employed.
3. In the interim between the closing of the first United
States Bank and the opening of the second, the public
money was kept mainly in the state-chartered banks.
These banks were also used after the Government ceased
to employ the second United States Bank in 1833, and
also after the expiration of the charter of that bank until
the establishment of the independent treasury in 1846.
4. Beginning with 1847, immediately after the establishment of the independent treasury, the public money was
kept in the Treasury and sub treasuries, and no banks
were used until after the establishment of the present




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national banking system, in 1863. Since that time the
depositary banks have supplemented the use of the subtreasuries as places for the keeping of the public money.
5. In the past one hundred and twenty years, therefore,
there are only seventeen, 1847-1864, in which the Government did not use depositary banks for keeping the
public money.
6. The evidence therefore shows that there has been,
uniformly, a strong tendency for the Government,
throughout its history, to use banks.
7. The causes of this tendency are shown to have been
the greater convenience in the management of the public
money, the desire of the Secretary and the public that
government fiscal operations should interfere as little as
possible with the monetary circulation and with business
conditions, the necessities of the Government and pressure
from banking and other interests.
8. Under the influence and pressure described, first the
Secretary of the Treasury, and later Congress, have given
way, and virtually abandoned the policy of independence
in the keeping and management of public money which
was established by the act of August, 1846. Congress
authorized the use of national banks in which to deposit
receipts from internal revenue. With some vacillations,
the extent of the use of the banks as depositaries for these
receipts has steadily increased. By recent legislation
receipts from customs may also be deposited in the banks.
Under the first interpretation of the law permitting these
deposits, they could accrue only as the collecting officers
placed the money received by them in the banks and not




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from the transfer of government receipts once deposited
in the treasuries. By later practice the latter method of
deposit has also been adopted and is claimed by some to
be legal. Under present practice and legislation, therefore, the Secretary of the Treasury has a free hand to put
any and all receipts of public money in the depositary
banks. The independence of the Treasury depends
entirely upon the will of the Secretary.
9. A further departure from the policy of independence
is shown by the course of opinion and legislation concerning security for deposits. Under the law as passed, public
deposits were to be secured by United States bonds and
otherwise. This was understood to mean United States
bonds in addition to a personal bond. Eight years ago
the phrase was differently interpreted, and banks were
permitted to secure deposits on the basis of other than
United States bonds as security. The practice thus
established was legalized between two and three years
ago.
10. At first the banks which obtained public money on
deposit were expected to keep a reserve against it, as provided by the law of their being. Some seven or eight
years ago this practice was broken and the banks allowed
to hold public deposits without protecting them by a
reserve. The practice thus initiated was also later made
legal.
11. Finally, with all these changes, the amount of public
money deposited with the banks has steadily increased,
until at one time in recent years, only a comparatively
small working balance was kept in hand by the Treasury
itself.




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(B) AS TO OPERATION AND INFLUENCE.

Our study of the operation of the independent treasury
during the period of its independence, that is, during the
period of the smallest use of depositary banks since 1864,
has led us to the following conclusions:
1. The subtreasury system disturbs the money market
in ordinary times by its irregular intake and output of
money.
2. If the intake happens to occur on a rising speculative market it may do some good by restricting speculation.
3. If the intake happens to occur at a time when business
operations call for an easier market, the influence is likely
to be harmful.
4. Corresponding results flow from the relative times
of occurrence of the output.
5. These results occur when government receipts and
expenditures are approximately equal. Their influences
are intensified at times when government receipts for considerable periods exceed expenditures.
6. On the whole, the evil done by the independence of
the Treasury, both in ordinary times and in times of surplus financiering, exceeds the good.
7. In times of crises, or panic, the independent treasury
may aid the money market by depositing a surplus revenue
in the banks and thus restoring the money to circulation;
by prepaying interest on the public debt when business
needs a larger volume of currency, by "timing'' interest,
pension, and other payments; and by buying bonds.




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8. All of these methods do restore to circulation the
money collected in taxes. The first method is open to the
objection that pressure from the banks for a general distribution may defeat the purpose of the deposits, by preventing them from being made in sufficient measure where
they are most needed. The charge of favoritism has also
been made in the selection of banks. If such deposits
are to be made, there is no good reason for requiring
security; and there is also no good reason for not insisting
that the banks shall take such precaution in the way of
maintaining a proper reserve against these deposits as
they do in the case of other deposits. Moreover, if deposits
are to be made in banks, the Secretary of the Treasury
should be allowed to check against them instead of being
compelled to use the present compressed method of withdrawal.
9. The prepayment of interest and the "timing" of
other payments are too trivial to be worthy of a great
government. Resort to such practices should not be necessary. Moreover, the proper time for the Government,
like any other debtor, to pay interest is when it is due.
10. Attempts made to relieve the money market by
buying bonds are open to the objection that there is a loss
involved in prepaying the debt. The Government should
not have a revenue larger than it needs. Apparent saving
of interest is at the expense of the productive employment of capital by individuals and corporations.
11. All the modes of relieving the money market are
open to the three general objections*that the process puts
too great power in the hands of the Secretary; that how-




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Commission

ever well he discharges his responsibility, he is likely to
make mistakes which will make the situation worse; and
that any such interference must be, from its nature, arbitrary.
12. Objections may be made against the independent
treasury in the fiscal operations of the Government in time
of war. Although by means of the system the Treasury
succeeded in placing its loans during the Mexican war, it
failed to do so in the civil war. It also failed during the
time following 1890, although this was not a period of war.
It succeeded, in a way, in placing the Spanish war loan
directly, but ventured to make the experiment only after
securing the assurance of the banks that they would sustain it. In all important loan negotiations in the past
fifty years the Treasury has been obliged, in one way or
another, to rely upon the banks for aid.
13. The main advantage claimed for the direct placing
of loans by the independent treasury is that the loans
are more widely distributed or more popular. Experience
shows that this is not the case. Even though the loan
be widely distributed at first, the securities soon become
concentrated in the hands of a few holders, principally the
banks. There is reason to think, too, that in time of war
a loan can be placed at less expense through banks and
banking syndicates.
ADVANTAGES OF THE INDEPENDENT TREASURY.

' i. The money may be regarded as absolutely safe.
Experience shows, however, that defalcations and thefts
may occur under the system.




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2. The system has had the support of popular opinion.
This support arises from the fact that the system worked
well for some time after it was established, thus forming
a striking contrast with the evil operation of the state
bank depositaries. Moreoever, there is a popular distrust of banks, especially large ones.
3. The absorptions and disbursements of money by the
Government do good when they happen to coincide with
the needs of the money market.
PROPOSALS FOR REPLACEMENT.

i. The deposit of all government receipts in the national
banks at the places of collection, the Secretary to check
against these deposits as he needs the money. Whether
this would remove the evils of the irregular action of the
subtreasury system would depend mainly upon the way
in which the banks were managed. Unless they assumed
the responsibility of making proper provision for the
seasonal demands for money, no great advantage would be
gained. Moreover their exclusive use would not altogether
do away with alternate pressure and relaxation in the
money market due to the government operations. For
the Government must collect its revenue and make its
payments. At times when its income is heavy, its deposits
would be heavy and cause great temporary withdrawals
of money from circulation. The condition of the London
money market in the latter part of April, 1910, illustrates
this. There was unsteadiness in the market in anticipation of the withdrawal of a large amount of money to pay
the income tax. "Nearly $120,000,000 were due on this




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account. The money will go into the Bank of England, of
course, but it can not be let out excepting in the ordinary
course of business. These large payments will occasion a
large sale of securities with a depreciation of their price." 0
2. The bank district, or clearing-house district, system.
This has the advantage of not being too centralized and,
therefore, possibly less objectionable to the public. It
amounts virtually to a central cooperative banking association, the controlling board being the representatives
of the clearing-house districts elected by the banks of the
districts. The autonomy of the individual banks would not
be interfered with, nor would it be necessary to interfere
with the issue of notes by the individual banks.
3. An independent central bank, located in the country's
money center.
4. A federated bank or a bank of banks.




a

Daily paper.

330

APPENDICES.
i.

REFERENCES.
ADAMS, H. C : Public Debts.

New York, 1887.

AMERICAN STATE P A P E R S : Finance.

ANDREW, A. PIATT: T h e Partial Responsibility of Secretaries Gage and
Shaw for the crisis of 1907. Bankers' Mag., 76 : 493.
: The United States Treasury and the Money Market. Publ. Amer.
Econ. Assoc, 3d ser. 9 : 1 : 218.
: The Treasury and the Banks under Secretary Shaw. Quarterly
Journal of Economics, 21 : 519-568.
BANCROFT, GEORGE: Literary and Historical Miscellanies.
B A N K E R S ' MAGAZINE.

New York.

BANKERS' ASSOCIATION, Proceedings of American. New York.
BENTON, THOS. H . : Abridgment of Debates of Congress from 1789 to 1856.
16 v. New York, 1857-1861.
: Thirty Years' View; or A History of the Working of the American
Government for Thirty Years, from 1820 to 1850. New York, 18541856.
BOLLES, A. S.: Financial History of t h e United States. 2d ed. New
York, 1884-1886.
BOURNE, E. G.: History of the Surplus Revenue of 1837. New York, 1885.
BRADSTREET'S.

New York.

BURGESS, JOHN W.: The Middle Period, 1817-1858. New York, 1897.
CALHOUN, JOHN C : Works of, ed. by R. K. Cralte, Columbia, S. C. and
New York, 1853-1857.
CATTERAL, R. C. H.: The Second Bank of the United States. Chicago, 1903.
CLAY, H E N R Y : Works of; ed. by Calvin Colton, 7 v. New York, 1897.
CLEVELAND, F . A.: The Bank and the Treasury. New York, 1905.
COLTON, C. C : Public Economy for the United States. New York, 1853.
CONANT, C. A.: A History of Modern Banks of Issue. New York, 1897.
COMMERCIAL AND FINANCIAL CHRONICLE.

DEMOCRATIC R E V I E W , X V I I .

New York.

New York.

DEWEY, D. R.: The Financial History of the United States. New York,
3d ed., 1907.
DUANE, W. J . : Narrative and Correspondence concerning the Removal of
the Deposits and Occurrences connected therewith. Philadelphia,
1838.




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Commission

DUNBAR, C. F . : Laws of the United States relating to Currency, Finance,
and Banking from 1789 t o 1891. Boston, 1891.
: Chapters on the Theory and History of Banking. 2d ed. New
York, 1904.
DUNN'S WEEKLY REVIEW.

New York.

AEGIS, T H E . Students' Paper, University of Wisconsin. Report of Debate
on Independent Treasury. March 8, 1895.
F E R R I S , J . A.: Financial Economy of the United States. San Francisco,
New York, 1867.
FORUM, T H E .

New York.

GALLATIN, ALBERT: Writings of; ed. by Henry Adams, Philadelphia, 1879.
GAUSS, H . C.: The American Government. New York, 1908.
GIBBONS, J. S.: Public Debt of the United States. New York, 1867.
GILBART, J. W.: History of Banking in America. London, 1837.
GILLETT, R. H . : Life and Times of Silas Wright. Albany, 1874.
GOUGE, W. M.: An Inquiry into the Expediency of Dispensing with Bank
Agency and with Bank Paper in t h e Fiscal Concerns of t h e United
States. Philadelphia, 1837.
GOVERNMENT PUBLICATIONS: Executive Documents; House a n d Senate
Documents and Reports; Finance Reports; Congressional Record, etc.
GROSVENOR, W. M.: American Securities. New York, 1885.
HAMILTON, ALEXANDER, W O R K S O F : E d . b y J . C. Hamilton, New York,

1850-51. Also ed. by Henry Cabot Lodge, 9 v., New York, 1885-86.
HAMMOND, J. D.: Life and Times of Silas Wright. Syracuse, 1852.
H A R P E R ' S MAGAZINE, New York, xliv. 481.

HOCK, CARL F . VON: Die Finanzen der Vereinigten Staaten, Stuttgart,
1867.
HOLST, H . VON: Constitutional History of t h e United States. Chicago,
1877-1892.
H U N T ' S MERCHANT'S MAGAZINE.

New York.

INDEPENDENT, T H E . New York, 1872-3.
JUGLAR, C : A Brief History of Panics in the United States. Ed. b y DeC.
W. Thomas. New York, 1893.
KINLEY, DAVID: T h e Independent Treasury of the United States. New
York, 1893.
: The Relation of the United States Treasury to the Money Market.
Publ. Amer. Econ. Assoc, 3d ser. 9:1:199.
KNOX, J. J . : United States Notes. 3d ed. New York, 1894.
LALOR, J . J . : Cyclopedia of Political Science, etc. Chicago, 1882-1884.
LAMPHERE, G. N . : United States Government. Philadelphia, 1880.
LAUCK, W. J . : Causes of the Panic of 1893. New York, 1907.
LAUGHLIN, J. LAURENCE: See North American Review as quoted.
LIPPINCOTT'S MAGAZINE.

Philadelphia, December, 1873.

LODGE, H . C.: Life of Daniel Webster. Boston, 1883 and 1899.
MACKENZIE, W. L . : Life and Times of Martin Van Buren. Boston, 1846.




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MUHLEMAN, M. A.: Monetary and Banking Systems.
NILES, H E Z E K I A H : Weekly Register, 1811-1848.
N O R T H AMERICAN R E V I E W .

New York, 1908.

New York, 137: 552-564.

No YES, A. D . : Forty Years of American Finance, New York. 1909.
P E N N MONTHLY MAGAZINE.

Philadelphia, July, 1882.

P H I L U P S , J. B . : Methods of Keeping t h e Public Money of the United
States. Publ. Mich. Pol. Sci. Assoc. 4 : 3 .
PRATT, A. S. & SONS : Digest of t h e National Bank Act. Washington,
1870.
: Pratts' Digest. Washington, 1908.
RAGUET, CONDY: A Treatise on Currency and Banking. Philadelphia,
1839.
RHODES JOURNAL OF BANKING. (NOW combined with Bankers' Magazine.)
RICHARDSON, H. W.: The National Banks. New York, 1880.
SARGENT, NATHAN: Public Men and Events. Philadelphia, 1875.
SCHURZ, CARL: The Life of Henry Clay. Boston, 1887.
SHEPARD, K. M.: Martin Van Buren. Boston, 1888.
STORY, J O S E P H : Commentaries on the Constitution. Boston, 1873.
SUMNER, W. G.: Andrew Jackson, n t h ed. New York, 1888.
: History of American Currency. New York, 1876.
: History of Banking in the United States. New York, 1896.
TAUSSIG, F . W.: The Tariff History of the United States. 4th ed. New
York, 1898.
: T h e Silver Situation in the United States. Am. Econ. Assoc.
Public. 7 : 1 . New York, 1893.
UPTON, J. K . : Money in Politics. Boston, 1884.
U N I T E D STATES S U P R E M E COURT R E P O R T S .

WALKER, FRANCIS A.: Political Economy. New York, 1883.
: Money, Trade, and Industry. New York, 1889.
WALKER, J. H . : Money, Trade, and Banking. Boston, 1894.
WEBSTER, D A N I E L : Writings and Speeches. Boston, 1903.
WIRTH, M. W. G.: Geschichte der Handelskrisen. Frankfurt, 1890.
W O R L D ' S CONGRESS O P BANKERS AND FINANCIERS.

YOUNG, A. W.: American Statesman.




333

Chicago, 1893.

1856. New ed. 1888.

2.

SUBTREASURY LAW AND AMENDMENTS.
AN ACT To provide for the better organization of the Treasury, and for
the collection, safe-keeping, transfer, and disbursement of the public
revenue.

Whereas by the fourth section of the act entitled "An
act to establish the Treasury Department," approved
September second, 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 disbursing
the moneys of the United States. Therefore:
SECTION I . Be it enacted by the 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 fireproof
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 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 the same shall be subject to the draft of the Treasurer,
drawn agreeably to appropriations made by law.




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SEC. 2. And be it further enacted, That the mint of the
United States, in the city of Philadelphia, in the State of
Pennsylvania, 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 assistant 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-keeping, 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 jfireproof
vaults and safes prepared and provided within said rooms
for the keeping 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




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within the same, and shall perform all the duties required
to be performed by them in reference to the receipt, safekeeping, transfer, and disbursement of all such moneys, according to the provisions of this act.
SEC. 4. And be it further enacted, That the officers, with
suitable and convenient rooms, which were directed to be
erected, prepared, and provided for the use of receiversgeneral 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, safekeeping, 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 the places above named; as
shall be also the fireproof vaults and safes erected within
the said offices and rooms for the keeping of the public
money collected and deposited at those points, respectively;
and the said assistant treasurers from time to time appointed 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 Senate, appoint four officers, to be denominated
"assistant treasurers of the United States," which said
officers shall hold their respective offices for the term of




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four years, unless sooner removed therefrom; one of which
shall be located at the city of New 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.
SEC. 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 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 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
41969 0 —10




22

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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 Treasury may
direct, any law in reference to any of the official bonds of
any of the said officers to the contrary notwithstanding.
SEC. 8. And be it further enacted, That it shall be the
duty of the Secretary of the Treasury, at as early a date as
possible after the passage of this act, to require the several
depositaries hereby constituted, and whose official bonds
are not hereinbefore 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 accumula-




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tions 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-General 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 once in each week^
and as much more frequently, and in all cases, as they in
their discretion may think proper.
SEC. 10. And be it further enacted, That it shall be lawful
for the Secretary of the Treasury to transfer the moneys
in the hands of any depositary hereby constituted to the
Treasury of the United States, to be there safely kept, to




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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 convenience 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-General
so far as its exercise by him may be consistent with the
provisions 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
Department 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. I I . And be it further enacted, That the Secretary of
the Treasury shall be, and he is hereby, authorized to cause
examinations 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 traveling expenses, as he
may think reasonable, to be fixed and declared at the
time of each appointment. The agents selected to make




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these examinations shall be instructed to examine as well
the books, accounts, and returns of the officer, as the money
on hand, and the manner of its being kept, to the end that
uniformity 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
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 superintendent 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, accounts, 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 Government, may be allowed any necessary additional expense for clerks, fireproof 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




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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: Provided, That the whole number of clerks to be appointed by
virtue 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 public money or the public convenience may require :
Provided, 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 account, 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 conducive to the
public interests, or to the convenience of public creditors,
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 Philadelphia or New Orleans, to




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either of the other assistant treasurers, 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. I6. 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 deposit 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 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 the United States without having paid to
such creditor in such funds as the said officer may have




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received for disbursement, or such funds as he may be
authorized by this act to take in exchange, the full amount
specified in this 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 showing 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, seventeen 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 such persons be indicted as receivers 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




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States

promptly, upon the legal requirement of any authorized
officer of the United States, shall be deemed and taken,
upon the trial of any indictment against such person for
embezzlement, as prima facie evidence, of such embezzlement
SEC. 17. Andheit 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
Treasurer of the United States, the treasurers of the mints
at Philadelphia 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, respectively, 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 merchandises imported into the United States,"
approved July thirty-one, seventeen hundred and eightynine, 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 northwest of the Ohio and above the mouth of Kentucky River/ ''
it was provided that payment for the said lands shall be




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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. I 8. Be it further enacted, That on the first day of
January, in the year one thousand eight hundred and fortyseven, 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 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 Washington, 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 thereafter, 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 immediately 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,




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Treasury of the United States

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 connected 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 furnished; or when those
means are furnished to him in drafts, shall cause those
drafts to be presented at their place of payment, 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 the officer
or agent to the President, with the fact of the violation,
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 President 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.




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SBC. 21. And be it 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, respectively, 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 quarter-yearly at the Treasury of the United
States, to wit: The assistant treasurer at New York shall
be paid a salary of four thousand dollars per annum; the




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Treasury of the United States

assistant treasurer a t Boston shall be paid a salary of
two thousand five hundred dollars per a n n u m ; t h e assista n t treasurer a t Charleston shall be paid a salary of two
thousand five hundred dollars per a n n u m ; t h e assistant
treasurer a t St. Louis shall be paid a salary of two thousand five hundred dollars per a n n u m ; t h e treasurer of the
mint a t Philadelphia shall, in addition to his present salary,
receive five hundred dollars annually for t h e performance
of the duties imposed by this act; the treasurer of the
branch mint a t New Orleans shall also receive five hundred dollars annually for t h e additional duties created b y
this act; and these salaries, respectively, shall be in full
for t h e services of t h e respective officers, nor shall either
of t h e m be permitted to charge or receive any commission, pay, or perquisite for any official service of any
character or description whatsoever; and t h e making of
any such charge, or the receipt of any such compensation,
is hereby declared to be a misdemeanor, for which the
officer, convicted thereof before any court of t h e United
States of competent jurisdiction, shall be subject t o punishment b y fine or imprisonment, or both, a t t h e discretion of t h e court before which t h e offense shall be tried.
SBC. 23. And be it further enacted, T h a t there shall be,
and hereby is, appropriated, t o be paid out of any money
in t h e Treasury not otherwise appropriated, the sum of
five thousand dollars, to be expended, under t h e direction of t h e Secretary of t h e Treasury, in such repairs or
additions as m a y be necessary to p u t in good condition
for use, with as little delay as m a y be consistent with t h e
public interests, t h e offices, rooms, vaults, and safes herein




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Commission

mentioned, and in the purchase of any necessary additional furniture and fixtures, in the purchase of necessary
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.
AMENDMENTS TO SUBTREASURY ACT.
(March 3, 1857.)

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 disSECTION I .




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Treasury of the United States

bursing 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 embezzlement 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 Treasurer, the assistant treasurer, or a public
depositary of the United States, and take his receipt for
the same, in duplicate, and forward one of them forthwith to the Secretary of the Treasury, and for a failure
to make such deposit, when required by the 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 offense provided in the act to
which this is an amendment.
DEPOSITARIES.
(Section 3211 of the Revised Statutes.)

The Secretary of the Treasury is authorized to designate
one or more depositaries in each State for the deposit
and safe-keeping of the money collected by virtue of the
internal-revenue laws; and the receipts of the proper
officers of such depositary 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.




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DEPOSIT OF POSTMASTERS.
(Section 3847 of t h e Revised Statutes.)

Any postmaster, having public money belonging to the
Government, at an office within a county where there are
no designated 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. [The remainder of the
section forbids taking interest, etc.]
TRANSFERS OF POST-OFFICE MONEY.
(Section 3641 of the 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.
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




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Treasury of the United States

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 depositary, 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.
ACCOUNTS.
(Section 3622 of the Revised Statutes.)

Every officer or agent of the United States who receives
public 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 settlement 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 settlement. Disbursing officers of the navy shall, however, render their
accounts and vouchers direct to the proper accounting
officer of the Treasury. In case of the nonreceipt 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 Treasury 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
41969 0 —10




23

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M onet ary

Commission

shall, however, be construed to restrain the heads of any
of the departments from requiring such other returns or
reports from the officer or agent, subject to the control
of such heads of departments as the public interest may
require.
NATIONAL BANK DEPOSITARIES.
(Section 5153 of the Revised Statutes, act June 3, 1864, as amended
March 3, 1901, and March 4, 1907.)

All national banking associations, designated for that
purpose by the Secretary of the Treasury, shall be depositaries of public money, under such regulations 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 public money 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: Provided, That the Secretary
shall, on or before the first January of each year, make a
public statement of the securities required during that
year for such deposits. 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 whatever association issued, which have been paid
into the Government for internal revenue, or for loans
or stocks: Provided, That the Secretary of the Treasury
shall distribute the deposits herein provided for, as far as




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Treasury of the United States

practicable, equitably between the different States and
sections.
I N T E R E S T ON PUBLIC DEPOSITS.
(Act May 30, 1908.)

That all national banking associations designated as
regular depositaries of public money shall pay upon all
special and additional deposits made by the Secretary of
the Treasury in such depositaries, and all such associations
designated as temporary depositaries of public money
shall pay upon all sums of public money deposited in such
associations interest at such rate as the Secretary of the
Treasury may prescribe, not less, however, than one per
centum per annum upon the average monthly amount
of such deposits: Provided, however, That nothing contained in this act shall be construed to change or modify
the obligation of any association or any of its officers for
the safe-keeping of public money: Provided further, That
the rate of interest charged upon such deposits shall be
equal and uniform throughout the United States.
PENALTY FOR UNAUTHORIZED DEPOSIT OF PUBLIC MONEY.
(Act June 14, 1866, 14 Stat. L., 64.)

Every disbursing officer of the United States who deposits any public money intrusted to him in any place or
in any manner except as authorized by law, or converts to
his own use in any way whatever, or loans with or without
interest, or for any purpose not prescribed by law withdraws from the Treasurer or any assistant treasurer, or any
authorized depositary, or for any purpose not prescribed
by law transfers or applies any portion of the public money
intrusted to him, is, in every such act, deemed guilty of




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Monetary Commission

an embezzlement of the money so deposited, converted,
loaned, withdrawn, transferred, or applied; and shall be
punished by imprisonment with hard labor for a term not
less than one year nor more than ten years, or by afineof
not more than the amount embezzled or less than one
thousand dollars, or by both such fine and imprisonment.
PENALTY FOR UNAUTHORIZED RECEIPT OR USE OF PUBLIC
MONEY.
(Act June 14, 1866, 14 Stat. L., 65, as amended February 3, 1879.)

Every banker, broker, or other person not an authorized
depositary of public moneys, who knowingly receives from
any disbursing officer, or collector of internal revenue, or
other agent of the United States, any public money on deposit, or by way of loan or accommodation, with or without interest, or otherwise than in payment of a debt
against the United States, or who uses, transfers, converts, appropriates, or applies any portion of the public
money for any purpose not prescribed by law, and every
president, cashier, teller, director, or other officer of any
bank or banking association, who violates any of the provisions of this section, is guilty of an act of embezzlement
of the public money so deposited, loaned, transferred,
used, converted, appropriated, or applied, and shall be
punished as prescribed in section fifty-four hundred and
eighty-eight.




356

3ISSUE AND REDEMPTION OF CURRENCY.
TREASURY DEPARTMENT,
OFFICE TREASURER OF THE UNITED STATES,

December 6, 1909.
Department Circular No. 66.)
Treasurer's Office, No. 79. )
The following regulations govern the issue and redemption of the paper currency and the gold, silver, and minor
coin of the United States and the redemption of nationalbank notes by the Treasurer of the United States:
1. ISSUE OF UNITED STATES PAPER CURRENCY.

1. New United States currency is sent in return for
United States currency unfit for circulation, nationalbank notes, subsidiary silver coin, or minor coin received
for redemption.
2. Silver certificates are issued by the Treasurer or any
assistant treasurer upon a deposit of standard silver
dollars.
3. Gold certificates are issued by the Treasurer or any
assistant treasurer upon a deposit of gold coin.
II. ISSUE OF GOLD COIN.

4. Gold coin is issued in redemption of gold certificates,
United States notes, and Treasury notes of 1890, by the
Treasurer or any assistant treasurer.




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III. ISSUE OF STANDARD SILVER DOLLARS AND SUBSIDIARY
SILVER COIN.

5. Standard silver dollars are issued by the Treasurer
or any assistant treasurer in redemption of silver certificates or Treasury notes of 1890, and will be sent by express at the expense of the consignee.
6. Subsidiary silver coin is issued upon a deposit of
United States currency or national-bank notes with the
Treasurer or any assistant treasurer or national-bank
depositary, and the coin will be sent by express from the
nearest subtreasury at the expense of the Government
for transportation, or by registered mail at the risk of the
consignee, postage and registration free. Subsidiary
silver coin is also issued for drafts sent to the Treasurer
of the United States in Washington or the assistant treasurer in New York, payable in their respective cities to the
order of the officer to whom sent. Drafts on New York
must be collectible through the clearing house, and should
be drawn to the order of the assistant treasurer of the
United States, New York, and mailed directly to that
officer.




358

4PUBLIC

MONEYS AND OFFICIAL CHECKS OF UNITED
STATES DISBURSING OFFICERS.
TREASURY DEPARTMENT,
OFFICE OF THE SECRETARY,

December 7,1906.
Department Circular No. 102.)
Division of Public Moneys. J
In accordance with the provisions of the above sections,
any public money advanced to disbursing officers of the
United States must be deposited immediately to their respective credits, with either the United States Treasurer,
some assistant treasurer, or by special direction of the
Secretary of the Treasury, with a national-bank depositary
nearest or most convenient, except—
1. Any disbursing officer of the War Department, specially authorized by the Secretary of War, when stationed
on the extreme frontier or at places far remote from such
depositaries, may keep, at his own risk, such moneys as
may be intrusted to him for disbursement.
2. Any officer receiving money remitted to him upon
specific estimates may disburse it accordingly, without
waiting to place it in a depositary, provided the payments
are due and he prefers this method to that of drawing
checks.
Any checks drawn by a disbursing officer upon moneys
thus deposited must be in favor of the party, by name, to
whom the payment is to be made, and payable to " order,"




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with these exceptions: (i) To make payments of amounts
not exceeding $20; (2) to make payments at a distance
from a depositary; and (3) to make payments of fixed salaries due at a certain period; in either of which cases any
disbursing officer may draw his check in favor of himself,
or " order," for such amount as may be necessary for such
payment, but in the first and last named cases the check
must be drawn not more than two days before the payments become due.
Any disbursing officer or agent drawing checks on
moneys deposited to his official credit must state on the
face or back of each check the object or purpose to which
the avails are to be applied, except upon checks issued in
payment of individual pensions, the special form of such
checks indicating sufficiently the character of disbursement. If the object or purpose for which any check of a
public disbursing officer is drawn is not stated thereon, as
required, or if any reason exists for suspecting fraud, the
office or bank on which such check is drawn will refuse its
payment.
Such statement may be made in brief form, but must
clearly indicate the object of the expenditure, as, for instance, "pay," " pay roll," or " payment of troops/' adding
the fort or station, "purchase of subsistence/' or other
supplies; "on account of construction," mentioning the
fortification or other public work for which the payment is
made; "payments under $20," etc.
Any check drawn by a United States disbursing officer
payable to himself, or "order," " t o make payments of
amounts not exceeding $20 each," under the provisions of




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this circular must bear indorsed thereon the names of the
persons to whom the amount drawn is to be paid, or be
accompanied by a list or schedule, made a part of the
check, containing the same information.
The object or purpose to which the avails are to be applied in case of any check drawn by a disbursing officer of
the army for an amount to be retained in his possession by
authority of the Secretary of War, given under the provisions of this circular, or by any disbursing officer given
such special authority by the Secretary of the Treasury,
under the provisions of section 3620, Revised Statutes of
the United States, must be clearly indicated by a statement on the check that it is to obtain cash to hold in personal possession, and date of authority given so to hold
funds. Checks will not be returned to the drawer after
their payment, but will be retained by the depositary, arranged separately by officers and consecutively by number
and date convenient for ready reference, as they are liable
to be called for by the department at any time as evidence
of proper payment. The depositary will furnish each disbursing officer with a detailed monthly statement of his
account.
All disbursing clerks and agents of the executive
departments, independent offices, and commissions, and
offices under and part of the executive departments
located in the District of Columbia, to prevent carrying
unnecessary balances of cash, are directed to deposit,
on or before the 5th and 20th of each month, with the
Treasurer of the United States, to their official credit
subject to check, any and all balances of cash drawn




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to meet pay rolls and remaining in their hands; and
thereafter, until the next regular pay day, to make payments appropriate to be made by check and not in cash.
Deposits to the credit of the Treasurer of the United
States on account of repayment of disbursing funds must
be made with the office or bank in which such funds are
to the credit of the disbursing officer. Disbursing officers
are not authorized to transfer funds standing to their
credit with one depositary to their credit with another
depositary; sucji transfers will be made by the Secretary
of the Treasury upon the requests of the heads of the
departments under which the officers are serving.
No allowance will be made to any disbursing officer
for expenses charged for collecting money on checks.
Whenever any disbursing officer of the United States
shall cease to act in that capacity he will at once inform
the Secretary of the Treasury whether he has any public
funds to his credit in any office or bank, and, if so, what
checks, if any, he has drawn against the same, which
are still outstanding and unpaid. Until satisfactory
information of this character shall have been furnished,
the whole amount of such moneys will be held to meet
the payment of his checks properly payable therefrom.
In case of the death, resignation, or removal of any
disbursing officer, checks previously drawn by him will
be paid from the funds to his credit, unless such checks
have been drawn more than four months before their
presentation, or reasons exist for suspecting fraud. Any
check previously drawn by him and not presented for
payment within four months of its date will not be paid




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until its correctness shall have been attested by the
Comptroller of the Treasury or his chief clerk.
Every disbursing officer, when opening his first account,
before issuing any checks will furnish the depositary
on whom checks are drawn with his official signature,
duly verified by some officer whose signature is known
to the depositary.




363

5THE

ASSEMBLING

OF

DISBURSING

OFFICERS '

CHECKS

AND VOUCHERS AND THE VERIFICATION OF THEIR
BALANCES IN THE OFFICES OF THE AUDITORS OF THE
TREASURY DEPARTMENT.
JULY 29,

1907.

1907, Department Circular No. 52.
To disbursing officers:
1. The practice of requiring public creditors to receipt
for moneys in advance of actual payment will be discontinued after September 30, 1907. No payments after
said date shall be evidenced by a receipt, except where
receipts are required either by law or contract, unless
such payments are made in cash, that is, currency.
2. After September 30, 1907, no receipt for moneys paid
by disbursing officers' checks shall be required or taken
by disbursing officers except where receipts are required
either by law or contract. Disbursing officers will note
on vouchers for check payments the date, number, name
of payee, and amount of the check and the name of the
depositary on whom drawn.
3. All vouchers for payment by disbursing officers,
except those required by law to be verified by affidavit,
and the expense accounts of the civilian officers, employees,
and agents of the Government, which shall be verified by
affidavit as heretofore, shall be certified by the claimant
as correct and just, except that vouchers for personal
compensation for services rendered under the personal
supervision of some administrative officer and so certified
by him, need not be certified by the claimant, provided




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the voucher describes specifically the position, the rate of
compensation, and the period covered.
4. Disbursing officers shall identify their official checks
with the vouchers upon which they are issued in payment
by noting on each check the number or other necessary
description of the voucher. (See also paragraph 9.)
5. Disbursing officers shall make cash payments only
in cases authorized by Treasury Department Circular No.
102, dated December 7, 1906, and then in only those cases
where the payment is made by the disbursing officer in
person, or by his deputy, and the exchange of money and
the receipt therefor is simultaneous.
6. When payments are made in cash, that is, currency,
they must be evidenced by a statement of such fact in
the receipt and in substantially the following form (except
upon pay rolls which shall embody instructions calculated
to insure the receipt thereof only under the conditions
laid down in the form given in this paragraph):
" Received from
in person, or by his deputy,
and in cash, the sum of . . . . dollars and
cents, in
full payment of voucher No
, account
"
7. Unless required by law, vouchers shall not be taken
in exact duplicate, triplicate, etc. Only one copy of a
voucher, the original, shall contain signed certifications,
approvals, and receipts. As many copies, in memorandum form, duly authenticated if desired, may be taken
as administrative requirements demand.
Each officer or agent required by law to render accounts
for public moneys and having such public moneys on
deposit to his official credit shall, as soon after September
30, 1907, as practicable, forward to the Auditor of the




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Treasury Department by whom his accounts are settled
a certified statement of his checks, giving number, date,
and amount of each, for each open depositary account
outstanding and unpaid at the close of business September
30, 1907. Such statements will not thereafter be required.
9. On and after October 1, 1907, all disbursing officers
who, for any reason (e. g., separate bonds, etc.), are required to render separate and distinct accounts to the
Auditors of the Treasury Department, shall keep separate
and distinct accounts of their funds in the Government
depositaries, and shall unmistakably designate such several depositary accounts on their vouchers, requisitions,
deposits, and accounts current.
10. Disbursing officers keeping and rendering to the
Auditors of the Treasury Department separate and distinct accounts shall, as sooh as practicable after the receipt of depositary statements for the month of September, 1907, designate to such depositaries the amounts of
their balances, which shall be severally credited to the
separate and distinct accounts herein provided for, and
accompany such designation with a copy of each list of
outstanding and unpaid checks required to be forwarded
to the several Auditors of the Treasury Department by
paragraph 8 of this circular.
11. When partial payments are made on account of
salaries or wages and claim for credit for the same is deferred until completed payment for the period has been
made, the amounts of such partial payments constitute a
part of the acknowledged balance, and the total of such
amounts, together with the facts, shall be set out in the
analysis of balance provided by the standard form pre-




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scribed by the Treasury Department Circular No. 46,
dated May 24, 1906.
12. The balances acknowledged by disbursing officers
and their analyses thereof must actually represent the
state of their business at the close of the last day for which
the accounts are rendered. They must so order their business that they may, when called upon so to do, close their
accounts and analyze their acknowledged balances.
13. All transactions coming within the time covered
by an account shall be reported therein. No payments
or collections not actually made during the period of an
account shall be included therein. The provisions of this
paragraph do not apply to partial payments of salaries or
wages which are provided for by paragraph 11 hereof.
14. If disbursing officers do not for any reason receive
from their depositaries the monthly statements required
to be rendered to them by paragraph 16 of this circular
in time for them to analyze their balances in the manner
contemplated by the standard form of account current
prescribed by Treasury Department Circular No. 46
dated May 24, 1906, they shall not delay the rendition of
their accounts so as to make them delinquent, but shall
compute their net balances from their check stubs and
state that such balances are so computed, together with
a report of the cause of their failure to compute such balances in the prescribed manner.
15. Each officer disbursing in part by cash and drawing
his official checks to obtain cash to make payments shall
render with his account current a subsidiary cash account,
the balance of which should agree to be reconciled with his
cash as shown by his analysis of balance with his account
current.




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Monetary Commission

To the Treasurer and assistant treasurers of the United
States and designated depositaries:
16. The Treasurer of the United States, each assistant
treasurer of the United States, and each designated depositary (herein elsewhere collectively termed "depositaries") shall render monthly statements to officers having public funds on deposit to their official credit.
17. Depositaries shall also render statements t o officers
having public funds on deposit to their official credit upon
request of said officers to enable them to close their
accounts, and to inspecting and administrative officers
upon their request when engaged in the duly authorized
inspection of accounts.
18. Depositaries shall keep separate accounts with and
render separate statements to officers, as required by paragraphs 16 and 17 hereof, corresponding to the accounts rendered by such officers to the several auditors of the Treasury Department. (See pars. 9 and 10.) Checks drawn
prior to October 1, 1907, shall be charged to the account
indicated by the list of outstanding checks required to be
furnished depositaries by paragraph 10 of the circular.
Checks so drawn, that is, prior to October 1, 1907, and
paid after September 30, 1907, shall be included in current depositary statements, b u t the paid checks will be
retained by depositaries as provided by Treasury Department Circular No. 102, dated December 7, 1906.
19. The statements provided for by paragraphs 16 and
17 hereof shall show a full and true account, including the
date, number, and amount of each check paid, and the




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Treasury of the United States

date and amount of each item placed to the officers' official credit during the period of such statement.
20. The said statements shall always be rendered to
officers in time for them to use the information contained
therein in analyzing their balances in the manner provided by the standard account current form prescribed
by Treasury Department Circular No. 46, dated May 24,
1906. Depositaries will so order their business that they
will be enabled to comply with the provisions of this paragraph.
21. Depositaries will forward to the Secretary of the
Treasury (Division of Public Moneys) a copy of each statement rendered to officers having public funds on deposit
to their official credit.
22. Beginning with the month of October, 1907, the
copies of statements herein required to be forwarded to
the Secretary of the Treasury (Division of Public Moneys)
shall be accompanied by the paid checks scheduled therein,
except checks drawn prior to October 1, 1907, which will
be retained by the depositary as provided in paragraph 18
hereof.
23. The copies of statements and paid checks shall be
forwarded, as herein provided, to the Secretary of the
Treasury (Division of Public Moneys), together with a
list of balances standing to the official credit of disbursing
and other officers of the United States.
24. To prevent fraud or the misuse of paid checks the
depositaries will immediately, upon the payment of a
check, mark, stamp, or otherwise plainly indicate thereon
the fact of its payment.
419690-—10




24

369

National

Monetary

Commission

To the Division of Public Moneys:
25. The Division of Public Moneys shall, upon receipt
of the list of balances standing to the official credit of disbursing and other officers of the United States, accompanied by the individual monthly depositary statements
and paid checks required to be forwarded by paragraphs
21, 22, and 23, check the individual balances shown by
the individual monthly statements against the list of balances, and promptly transmit the individual monthly
statements and the paid checks to the Auditor of the
Treasury Department charged with the settlement of the
account to which they pertain.




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