`Banks for the memory'

By

IF the federal government really wants to balance its budget, then it ought to go back to the Independent Treasury system it inaugurated in the mid-19th century. Wishing to avoid the accusation that official Washington was playing footsie with bankers, Congress in 1846 decided to put its money in big vaults around the country. Some congressmen like Daniel Webster thought the idea was hog- wash. ``The use of money,'' Webster said, ``is in the exchange. It is designed to circulate, not to be hoarded. . . . 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.'' Harvard University president Edward Everett concurred, contending that it was an ``attempt on the part of the Government to make use of ancient modes of travel and conveyance, while every citizen in his private affairs enjoyed the bene fits of steam navigation and railways.''

That the idea was grounded in ancient history was what made it attractive to the House Committee on Ways and Means: ``Its 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 the governments where banks do not exist, and are now found in perfect operation in the island of Cuba.''

Bankers' Magazine thought the system was ``utterly impracticable and indefensible'' and ``can not be in force for six consecutive months, nor will it be, in our opinion, strictly complied with for forty-eight hours.'' In truth, however, the Independent Treasury system lasted until 1920, when the Federal Reserve Act was fully implemented.

Recommended: Default

The strength of the plan was that the government knew each and every day how much money it had to spend. Federal agents would, quite literally, go out from the vaults into the land with money -- mostly gold and silver coin -- to pay debts. Because the dough weighed a ton, theft was unlikely, and the only recorded loss in the early years was $10,000 at Pittsburgh. And during the great panic of 1857 when numerous banks failed, the government had no problem paying its debts.

As time went by, Washington was forced to rely more on banks to serve as conduits for its collections and disbursements. But you could not knock the Independent Treasury's linkage with a solid federal budget: During the peacetime years from 1849 to 1900, the government was in surplus most of the time, with only eight recorded deficits.

Thomas V. DiBacco is a historian at the American University, Washington.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...