One of the most important features of the Independent Treasury Act was the special clause which required all payments of public dues and also all disbursements to be made in gold or silver coin or treasury notes, and all exchanges of funds to be made upon a gold and silver basis. This clause placed the country on a specie basis, and kept up a specie circulation which gave a sound basis to the whole country. All customs, the proceeds of the sale of public lands and other public dues were paid in gold, silver or treasury notes, and all disbursements for salaries of government officials, public improvements and expenses of the Mexican War were paid in the same. The Independent Treasury system had a beneficial effect by restraining the issues of state bank currency. Considerable difficulty was experienced in transferring funds from one depository or sub-treasury to another without the aid of the banks, necessitating the movement of the actual money in many instances, involving both expense and risk, but a system of drafts was adopted that worked well.

*Treasury notes were first Issued during the years 1812-13-14-15 as a means of carrying on the war against England. They were again issued during the panic period, 1837-1843, and again during the Mexican War, 1846-1847. They were usually in denominations of $100, payable to order, and bore interest.

Specie Clause

The Independent Treasury system seemed to meet every requirement. The Mexican War had been financed successfully by the government issuing $20,000,000 of interest-bearing treasury notes at par and contracting a $28,000,000 loan, its bonds commanding a premium. Business was good. Foreign commerce had increased and the fiscal machinery of the new system seemed to do its work with little friction. In his report of December, 1856, the Secretary of the Treasury 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." He thus believed that the Independent Treasury would act as a check on over trading and a balance wheel to our commercial prosperity - a prediction which has not been altogether verified by time and experience.

The great crisis in our history, which occurred in 1861, changed the executive officers of the government and placed at the helm a class of men who were the political descendants of the old Whig party, of which Webster and Clay were leaders. Lincoln and Chase were not so particular to maintain the complete separation of the Treasury from the banking system, and as the exigencies of a great war confronted them, they turned at once to the banks for loans. Between the panic of 1857 and the outbreak of the war the country had been prosperous, and the banks had accumulated a strong specie reserve, while the expenditures of the government during this time had exceeded the revenues and left the treasury empty, the deficit having been met by bond issues amounting to $90,000,000. The government needed gold and the banks had large quantities of it. Accordingly Secretary Chase in July, 1861, applied to the banks for a loan of $50,000,000. This was the first friendly act or overture made to the banks since the "divorce of bank and state" in 1846. It was the first step away from the principle on which the Independent Treasury was founded - the complete separation of the Treasury from the banking system of the country. Between August 19 and November 19, 1861, Secretary Chase borrowed over $140,000,000 from the banks.

Loaning their gold reserve to the government, the banks were unable to redeem their notes, and in December, 1861, were forced to suspend specie payment. Being sorely pressed for funds with which to carry on the war, the government had issued large volumes of "greenbacks," which by a legal provision were forced upon creditors. Not having a reserve sufficient to support its paper circulation, on January 6, 1862, the government also suspended specie payments. Thus the "specie clause," one of the most pronounced features of the Independent Treasury Act, was made of no effect. Next came the National Banking Act, by which the banking system of the country was linked to the Treasury Department, to be controlled by it. Banks were made depositories of public funds and authorized to act as financial agents of the government in receiving subscriptions to government loans and the collection of internal revenue taxes. So close was now the relation between the banks and the treasury that the law of 1846 had become practically a dead letter, and the very purposes for which the independent treasury system was established - separation from the banks and the maintenance of specie payments - were both abandoned owing to the stress of circumstances. By the same act which formed the national banks the state bank currency was driven out of circulation and the issues of the national bank notes were regulated and controlled by the treasury. These banks aided the Treasury in placing and carrying the immense loans necessary to maintain the armies and fleets in active service for four years. It would indeed have been very difficult if not impossible for the government to carry the war through to its close without the aid and co-operation of the banks.