Financing an Enterprise

Banking In The United States. The United States Treasury.

As before related, President Jackson removed the government funds from the United States Bank in 1833, and placed them in various state banks, located in various parts of the country, on the plea that the bank was unsafe. This he did, not by actually removing the money, but by a process which resulted the same - depositing all fresh receipts of cash in the state banks and drawing all government warrants for payments of money against the balance in the United States Bank until that balance was exhausted. Prior to this time the government had kept its funds in its own banks, or those which it virtually controlled, with the exception of an interval of five years (1811-1816) between the expiration of the charter of the First and the formation of the Second United States Bank. These government banks had, during a period of nearly forty years (1789 to 1811 and 1816 to 1833) performed two highly useful and important functions in connection with the financial system of the country - they had acted as the fiscal agent of the government in collecting and disbursing the public revenues, and they had maintained a uniform standard of value in the money of the country. During the period (1811 to 1816) when there was no government bank as a "regulator of the currency" the people suffered severely through the uncertainty of credit and the effects of a depreciated and fluctuating currency. It was political strife that brought about the removal of these deposits, and not economic reasons. The state banks at that time were generally conducted with the utmost disregard for not only safe banking methods, but very frequently the principles of honesty as well. They were so far removed from the direct control of the government that the finances of the country, when dependent upon them, were left in a state of uncertainty and demoralization. To make matters worse the treasury department on September 26, 1833, followed up the transfer of its deposits by issuing a circular to the deposit banks in which occurred the following statement: "The deposits of public money will enable you to afford increased facilities to commerce, and to extend your accommodations to individuals." Acting upon the hint, the banks loaned out the government deposits, the era of speculation set in, the state banks inflated their currency with greater issues of bank notes, and things ran riot until the culmination was reached in the panic of 1837. Nearly all the banks failed. They held $32,000,000 of government deposits, a large portion of which was lost.

It then became apparent that the government must keep its money in its own vaults. Two attempts had been made at the policy of entrusting them to the state banks (1811-1816 and 1833-1837) and both had proven disastrous. Van Buren was the president. He was the political heir of General Jackson, and owed his election largely to the influence of the latter. Ac - cordingly he shared General Jackson's antagonism to a United States Bank, and was averse to chartering a third bank, and yet there was no means available for the safe keeping of the government funds or the establishment of a stable and uniform currency except for the government to undertake the matter itself. After several years of weary dissensions and wrangling in which the great leaders, Webster, Clay, Calhoun and others, participated, in speeches of the power and brilliancy which usually characterized these eminent orators, the independent treasury, sometimes called the sub-treasury system, was worked out, and in August, 1846, became a law. Thus was begun the policy of the independence of the government from the banking system of the country. The "divorce of bank and state" advocated by Jackson and urged by Van Buren had become a fact under Polk. Whatever objection there may be to the independent treasury system at the present time, its establishment in 1846 was probably the best way out of a difficult and perplexing situation.

The law begins by defining the treasury as follows: "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 and his assistants and clerks, and occupied by them, and •also the fire-proof vaults and safes erected in said rooms for the keeping of the public moneys in the possession and under the immediate control of said treasurer, and such other apartments as are provided for in this act as places of deposit of the public money, are hereby constituted, and declared to be, the treasury of the United States." Branches or sub-treasuries were provided for in the law, to be established in New York, Philadelphia, Boston, New Orleans, Charleston and St. Louis, each under the immediate direction of an assistant treasurer. The places selected for the location of sub-treasuries were cities in which the government was presumed to have extensive transactions, either as ports of foreign commerce, or, as in the case of St. Louis, a convenient point for the sale of the vast domain of government lands. These were the cities in which the government deposits had been kept, principally, in the state banks.

The Independent Treasury Act further provided "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 or custody." Thus the purpose of the act clearly was a complete separation of the government finances from the banking system of the country. Even though the sub-treasurers and collectors in various parts of the country may not at first have been provided with suitable vaults or safes for the safe keeping of the public money, nevertheless they were expressly prohibited from depositing in the banks. Taken in connection with the law authorizing the emission of treasury notes* as currency, the independent treasury and its branches became in effect a gigantic bank.