list of duties which the Congress prescribed for the Treasury at that time, the most significant historically was to "prepare plans for the improvement and management of the revenue, and for the support of public credit. . . ." (1 Stat. 65).

The Congress retained as its prerogative, of course, the final judgment with respect to the nature and volume of revenues and expenditures of the Federal Government; and the support of the public credit predominantly depends upon Congressional policy in this area. Nevertheless, the Secretary of the Treasury has important responsibility for the support of the public credit as well as for the revenue system of the country in advising Congress on revenue measures and in executing by appropriate operations the policies which have been decided

upon.

From the earliest days of the Treasury, the Secretaries regularly have formulated and submitted to Congress programs for meeting the revenue needs of the Government. From the earliest days, when the revenues were derived mainly from import duties, the economic significance of provisions for the revenues was carefully weighed. The revenue programs prepared today reflect both the great economic development of the country and its changed position internationally. Formulation of these programs, touching as they do on so many aspects of economic life, requires detailed consideration of their impact on the various segments of the economy and their interrelationships.

The support of the public credit in 1789, as at the present time, required the successful management of the public debt. Only 19 days after the Treasury was established, the House of Representatives, "as a matter of high importance to the national honor and prosperity," directed the Secretary of the Treasury to prepare a plan for the payment of the debt. The ensuing report, Hamilton's first to Congress, was submitted on January 9, 1790, as his Report on Public Credit. In it, Hamilton stressed the importance of the function of supporting the public credit. He said it was an objective on which "materially depends . . . the individual and aggregate prosperity of the citizens of the United States. . . ." Ever since, support of the public credit has been the major objective of successive Secretaries of the Treasury, and properly so. Foreign experience throughout history has shown how closely connected the public credit is with social and economic stability. Many examples come to mind of nations whose whole social structure collapsed when the public credit failed. Clearly, the support of the public credit was the No. 1 objective entrusted to the Treasury by the Congress. Clearly, it was understood that this had economic implications of the greatest significance.

The financial history of the Federal Government shows that the successive Secretaries of the Treasury regularly prepared plans for financing the needs of the Government and for the management of the public debt. Amounts, terms, and conditions of loans were recommended by the Secretaries to Congress. Sometimes legislation authorizing the loans was more specific than at other times, depending upon: The circumstances, the allied issues involved, and the nature of the recommendations of the Secretaries of the Treasury.

In the twentieth century, the statutes were broadened to enlarge the authority of the Treasury in managing the public debt. As the

financing requirements to meet the needs of the country increased during World War I, Congress gave the Secretary of the Treasury substantial authority with respect to the several classes of obligations authorized to be issued. Since then, Congress has further expanded the powers of the Secretary of the Treasury to issue new types of public debt securities.

One of the early economic directives given the Secretary of the Treasury was the authority for Government purchases of public debt securities. At the beginning of 1790, one-seventh of the Federal and State debt was held by Europeans. At that time, Hamilton was disturbed by foreign speculation in the debt while it was below par. Since the country's great need was moneyed capital, he pointed out in his Report on Public Credit that the difference between the market price and par aggregated a sum which, if kept in the country, could have gone toward developing American agriculture, industry, and trade. Within the year, Congress recognized this and other economic implications of the debt. An Act approved August 12, 1790 (1 Stat. 186), authorized the purchase of public debt securities in order to reduce the debt, to benefit the creditors of the United States by raising the price of the securities, and to save money for the Government. Although not specified in the Act, it was understood that one purpose of this provision was the raising of the price of these securities to prevent their transfer to Europe at depreciated prices.

Later, for many years of the nineteenth century, the power of buying up Government securities was the chief means available to the Secretary of the Treasury to ease financial stringencies. When revenue surpluses or other causes threatened to tighten the money market unduly, public debt reduction returned funds to the banks.

2. Handling of Public Moneys

The early records indicate that from the very beginning of the Republic, the Secretary of the Treasury and the Congress had considerable understanding of the economic importance of the inflow and outflow of Treasury funds. In Hamilton's first Report on Public Credit, he suggested, "In order to keep up a due circulation of money" it would "be expedient that the interest of the debt should be paid quarter-yearly...." Congress provided for this in the Act of August 4, 1790 (1 Stat. 138). In 1793, in a report to Congress on loans, Hamilton stated that one reason for the timing of certain Government purchases of the public debt securities was "... that, during the winter, in this country, there is always a scarcity of money in the towns a circumstance calculated to damp the prices of stock [bonds]." In the years following, successive Secretaries of the Treasury were confronted from time to time with the effect on the economy of the flow of Treasury funds. For many years, however, they were hampered by weaknesses in the money and banking system, which made it difficult to meet the requirements of the rapid and uneven expansion of the country. There is no need to review here the history of the two Banks of the United States, of the State banks, of the structure of the national banking system, and of the Independent Treasury, established by an Act of 1846, the intent of which was to divorce the Treasury from both the money market and the banks.

There is evidence from early days, however, that Treasury officials were thinking about Treasury finance in relation to the money market

as a whole. Thus, in his annual Report for 1823, Secretary Crawford, in commenting on the Treasury surplus at that time, said

it is not deemed conducive to the general prosperity of the nation that so large an amount should be drawn from the hands of individuals, and suffered to lie inactive in the vaults of the banks. . . . Later, in his annual Report for 1856, Secretary Guthrie reported that "The independent treasury, when over-trading takes place, gradually fills its vaults, withdraws the [private] deposites, 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." In the following year, 1857, Secretary Cobb had occasion to use his powers in the opposite direction, supplying additional funds to the market by purchasing Government bonds from the public.

By the 1890's, there was general dissatisfaction with the banking and credit system; and Treasury Secretaries and other officials openly criticized the provisions of the Act establishing the Independent Treasury and suggested changes. Moreover, in a series of recurring financial crises, they tried certain new procedures, some of which Congress later confirmed by statute.

In 1898, Secretary Gage put into effect a policy of using Government deposits as a means of regulating continuously the condition of the money market. In his reply in January 1900 to a Congressional inquiry concerning certain aspects of this policy, Secretary Gage pointed out:

For more than half a century it has been the established policy of the Government to endeavor, wherever it may, to contribute toward the avoidance of commercial disaster. If Secretary Windom may be quoted as an authority, attention is called to the following extract from his annual report for 1890:

"The policy of affording 'relief to the money market,' now so much criticized in certain quarters is by no means a new thing. It has been the uniform policy of the Government, when possible, in all commercial crises from 1846 to the present time."

In summing up his reply to the inquiry, Secretary Gage stated in part:

The reason for utilizing national banks as depositaries for public moneys, as authorized by law, when the receipts of the Treasury were exceeding its expenditures, has been to avoid the disturbance to business which the withdrawal of large sums of money from active circulation to the Treasury vaults must inevitably cause. The policy thus pursued by me has been the established policy of the Government for many years, and a departure from it under certain conditions would certainly cause disastrous results.

During the incumbency of Secretary Shaw, from 1902 to 1907, the policy of using the Treasury powers to stabilize credit conditions was carried still further. He used Treasury funds to ease seasonal monetary strains and instituted a number of new regulations and procedures. Shaw came to the extreme conclusion in one of his Reports that in the power to deposit or withdraw Government funds "No central or Government bank in the world can so readily influence financial conditions throughout the world as can the Secretary of the Treasury under the authority with which he is now clothed."

This recognition of the Treasury's responsibility to handle its deposits most advantageously for the economy was a development which came with increasing knowledge and experience. The introduction of the Federal Reserve System in 1913 did not lessen the Treasury's

responsibility to handle the public moneys in a manner consistent with the best interests of the economy.

Subsequently-beginning in World War I-the Treasury, with the cooperation of the Federal Reserve System, developed techniques for handling Treasury accounts in commercial banks, which were designed to ease money market problems. In more recent years, the growth of Government expenditures beyond $50 billion annually and of Treasury deposits to $5 billion and more, has made the handling of Treasury funds more important than ever. The flow of huge amounts of Treasury receipts and expenditures inevitably affects the size and distribution of monetary reserves in the commercial banking system and has a far-reaching effect upon the private credit structure. Such matters are discussed in much greater length in the answer to Question 14.

3. Managing Our Gold and Silver Reserves

The Treasury has always been designated as the custodian of all of the metallic reserves of the country's monetary system or, during the interval when the Federal Reserve Banks also owned and held gold, of a major portion of such reserves. The statutes over the years have generally laid down in broad directives what should be done consistent with the need for a sound currency and the maintenance of the public credit. One.of the major examples of this method of procedure was the gold parity provision in the Gold Standard Act of 1900 and the Act of May 12, 1933 (31 U. S. C. 314), that the gold dollar shall be the standard unit of value and all forms of money issued or coined by the United States shall be maintained at a parity with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity.

The Gold Reserve Act of 1934 (48 Stat. 337) gave the Treasury the custody and control of the country's gold reserves and gold transactions, within the framework of certain broad standards prescribed in the Act, as discussed in detail in the answer to Question 12. A number of acts have placed responsibilities on the Treasury regarding the country's silver stocks, including provision for purchases, coinage, sales to industry, and loans of silver for use in Government manufacturing functions.

4. International Finance

The policies and problems of external finance are inextricably interwoven with domestic financial policies and problems; and since the earliest days of the Republic, the Treasury has assumed a major role in formulating Executive decisions relative to American external financial relations. Since World War I, the economic responsibilities delegated by Congress to the Treasury in international areas have been of increasing diversity and importance. The character of these responsibilities has changed greatly from the early years of the Republic when the United States played a relatively small role in international trade and finance, up to the present time when this country has emerged as the most powerful economy in the world, and by far the world's leading creditor nation.

The Act of April 24, 1917 (40 Stat. 35), authorized the Secretary of the Treasury to establish credits in favor of the allied governments to be used for the procurement of war supplies in the United States. The spending activities of the foreign governments were coordinated

with our own procurement program by a commission established by the Secretary of the Treasury with the approval of the President. An Act of February 9, 1922 (42 Stat. 363), created the World War Foreign Debt Commission to negotiate refunding and conversion of these wartime obligations. The Secretary of the Treasury was Chairman of this Commission, and the President appointed as the other members the Secretary of State, the Secretary of Commerce, a member of the Senate, and a member of the House. The membership of the Commission was increased to eight by the Act of February 28, 1923 (42 Stat. 1325), which also continued the Secretary of the Treasury as Chairman.

During the first World War, the Treasury also handled the procurement of foreign currencies needed for our purposes; and a 1918 supplement to the Second Liberty Bond Act (40 Stat. 965, 966) authorized the Secretary of the Treasury to "make arrangements in or with foreign countries to stabilize the foreign exchanges and to obtain foreign currencies and credits in such currencies, and he may use any such credits and foreign currencies for the purpose of stabilizing or rectifying the foreign exchanges. ..

A series of administrative orders and legislative acts in 1933 and 1934, including the Gold Reserve Act, centralized the gold reserves in the Treasury and established an international gold bullion standard for the United States. The Gold Reserve Act of 1934, among other things, set up the Exchange Stabilization Fund; and under its authority, the Treasury has from time to time made agreements with foreign countries for stabilizing the exchange rate between the dollar and foreign currencies. In 1936 the Tripartite Accord between the United States, the United Kingdom, and France provided for close cooperation and consultation in exchange rate matters. Subsequently, other countries joined this Accord.

During the second World War, the Treasury again had an important role in formulating, establishing, and coordinating policies for financing the allied war effort through programs of financial assistance, transactions in gold and currencies, and supplementary agreements with the allied countries. The Treasury Department, through the Foreign Funds Control, administered the blocking measures which were established in 1940 under Section 5 (b) of the Trading with the Enemy Act (12 U. S. C. 95a) to protect the assets of countries in Europe that had been overrun by the Axis powers. Specific congressional approval was given to the basic Executive Order No. 8389 of April 10, 1940, and the regulations and rulings under it by the Joint Resolution of May 7, 1940 (54 Stat. 179). In 1941 these controls were extended to the assets of the Axis and of a number of neutral countries to prevent their use contrary to the national interests of the United States. Similar controls, administered by the Foreign Assets Control, were established in December 1950 over assets of communist China and North Korea.

Toward the close of the war, the Treasury began the preparation and negotiation of multilateral agreements designed to aid in the maintenance of exchange stability and the extension of credits needed for postwar reconstruction. These negotiations culminated in the United Nations Monetary and Financial Conference at Bretton Woods in 1944. This Conference drafted the Articles of Agreement for the International Monetary Fund and the International Bank for Recon