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ON THE PUBLIC MONEY.

DECEMBER, 1834.

TREASURY DEPARTMENT,

December 12, 1834.

In conformity with a suggestion made in the annual report from this department, the undersigned now proceeds to submit to Congress some further considerations on the present system of keeping and disbursing the public money.

It is one of his general duties to present annually a view of the condition of our finances. An essential part of that condition is the manner in which the revenue is kept, from the time it is collected until it is disbursed. Another of his duties is to digest and prepare plans for its management; and he is expressly required to "give information to the Legislature respecting all matters which shall appertain to his office."

Considering the unusual excitement that has attended the measures and discussions of the past year, connected with the above subjects, it would, probably, be deemed a neglect or an evasion of proper responsibility, if the undersigned did not submit full information concerning the places where our revenue is now deposited and kept; the principles on which the selection of them by this department is justified; the mode in which the existing system for the preservation and disbursement of the public money has been found to operate; and the advantages, or disadvantages, which are likely to result from a return to any former one, or from the adoption of any proposed improvements in the existing system. He will, therefore, proceed to the performance of this delicate and difficult task with an unfeigned distrust of his competency to treat those subjects in a manner becoming their great importance, but at the same time with a firm resolution to endeavor to discharge the duty, so far as in his power, with fearlessness, impartiality, and fidelity to the public. In regard to the places for keeping the funds of the United States, it is believed that, under our first organization of a common treasury, no such places were ever designated by law, unless sometimes the loan offices, and unless, for such funds as were wanted in the field, the military chests accompanying the army may be so considered. The residue of the funds is supposed to have generally been deposited for safe keeping, as the committee of Congress, when having charge of them, or the Treasury officers, when such had been created, were pleased to direct; and it is well known that by them banks were selected for this purpose as soon as any were incorporated in convenient places, under either State or Federal authority.

After the present constitution was adopted, the usage continued the same until 1809; no law having ever been previously passed, which required the deposites of public money to be made in the first United States or any State bank. But, from 1789 to 1791, it appears that the Bank of North America, in Pennsylvania, by which State as well as by Congress it had

been incorporated, continued to be employed by the officers of the Treasury under the direction of the Secretary, and in the exercise of his supposed legal power over this subject.

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The three Banks of Massachusetts, New York, and Maryland, incorporated in those States, under those respective names, were also in the same way next selected and used. After 1791, the former United States Bank was, by this department, voluntarily added to the number. In 1809, by the act of March 30th, the first express legislation took place as to the use of any banks whatsoever as places for the public deposites, and that extended only to the public moneys in the hands" of disbursing officers, and required them to be kept, "wherever practicable," in some "incorporated bank," and that bank to be selected or " designated for the purpose by the President of the United States." The deposites by collecting officers were left untouched, they having been already, as before named, usually placed in banks, and those banks selected, not by the Treasurer, or Congress, or the President, but by the Secretary of this department, or by his direction, under the power confided to him by acts of Congress, of supervising the finances and the doings of the subordinate officers in the Treasury. A committee of the House of Representatives, May 22, 1794, made a very able report on the condition of the Treasury, in which, on this point, they remark, that "the Treasurer, pursuant to general directions from the Sec retary of the Treasury, keeps the public moneys under his control in the several banks," &c. In February, 1811, before the charter of the old bank expired, but after its renewal had been refused, Mr. Gallatin, by his own act, and not by orders to the Treasurer, and without consulting Congress, then in session, proceeded to select other banks, incorporated by the several States, and to remove to them the deposites of the public money. As ap. pears in his report to the House of Representatives, January 8, 1812, he entered into arrangements with them, in many respects similar to those now in operation.

After this change, the usage and law on this subject continued unaltered till 1816, when it was provided in the charter of the present Bank of the United States, "that the deposites of the money of the United States, in places in which the said bank and branches thereof may be established, shall be made in said bank or branches thereof, unless the Secretary of the Treasury shall at any time otherwise order and direct; in which case, the Secretary of the Treasury shall immediately lay before Congress, if in session, and, if not, immediately after the commencement of the next session, the reasons for such order or direction."

Whether this was or was not intended to include the deposite of money in the hands of disbursing as well as collecting officers, all difficulty was avoided on that point by the President, in giving directions, as has lately been done, to have the same banks used by the former as were used by the latter class of officers.

In the discussions of 1814, which led to that charter and the above reservation, it was distinctly averred to be necessary that such a reservation or power should be retained, in order to insure to the Government some further control over the bank, in case of the adoption of the provision in the bill giving to the former only five out of twenty-five directors; because, in a case like that which has been witnessed during the past year, a distinguished advocate of the present charter, with the spirit almost of prophecy, declared," twenty directors would always

vote down the five proposed to be appointed by the Executive, if there should arise a contest between the Government and the bank. But there was another means of protecting the Government against the bank, more potent and certain than any such provisions: let the United States. retain the power over its deposites, and over the receipt of bank notes in payment of duties and debts to the Government, and it would possess a sufficient control over the bank."

The power to remove the deposites from the bank, thus reserved to the Secretary of the Treasury in the charter, was exercised in repeated instances, to a limited extent, within the first three years after the reservation was made, as well as to a larger extent on a more recent occasion. But the power reserved to Congress in the charter, to withdraw from the notes of the bank the credit given by the Government's receipt of them in payment of all its dues, has never yet been exercised, though still possessed in full force, and originally intended as a legitimate weapon to counteract or punish any improper conduct on the part of the bank towards the Government. It is well known that, about the 1st of October, 1833, in the manner provided by the charter in the clause just quoted, a change in the places of deposite was made from the United States Bank and most of its branches to certain State banks, by the direction of the Secretary of the Treasury, and under the controlling power on this subject exercised by that officer from the first organization of this department; repeatedly recognised and approved by Congress, before 1816; and at that time expressly reserved to him by Congress in the charter to the present bank. In consequence of the above-named change in the place of deposite, the general accounts of the Treasurer and most of the public officers have, since last October, been gradually brought to a close with the United States Bank and most of its branches; and arrangements are in progress to dispense with the services of all of them, on general subjects, before the charter shall expire, and soon, if practicable without great inconvenience or expense to the public.

For certain special objects, such as the payment of the debt and of pensioners, (the last not construed to include the persons provided for by the acts of Congress of May, 1828, and of June, 1832,) the bank and all its branches have yet been retained as depositories and agents, under an impression that it had, by previous acts of Congress, a right to perform these duties, until relinquished by its own consent, or until the acts were repealed.

After the charter shall expire, no difficulty is anticipated in having any of these duties, which may then remain, discharged by State banks. But if any should occur, it will become necessary to devolve these duties on some responsible receiver or collector already in office, or on some safe agent not now in office, as has been the practice for years in this country in paying pensions at convenient places, near which there was no State bank or branch of the United States Bank, and as has long been the usage in some countries of Europe, by having the public revenue in certain districts chiefly received, kept, and transmitted through private agents and brokers. This kind of personal agency, however, is, in the opinion of the undersigned, to be avoided, in all practicable and safe cases, under our present system of selected banks; because it would render the system less convenient, less secure, and more complex, if not more expensive. Hence, it has not yet been resorted to.

But it was considered proper to mention this contingency, in order that its effects, if ever anticipated, may beforehand be duly weighed in the examination of the whole subject; and to add, that if this contingeney be extended to the whole establishment of State banks, as well as of the United States Bank, on the possibility that they may all cease to exist, or may refuse to receive and manage the public deposites, (however improbable the occurrence of such an event may be,) the fiscal operations of the Government could undoubtedly still proceed, through the personal agencies before mentioned. It is admitted, however, that it would be at some inconvenience, and some increase of expense, unless remedied in a manner that may hereafter be developed; and would not, in the opinion of this department, and in the present condition of things, be so eligible a system as the present one; because banks, though exposed to some dangers and evils, and though not believed to be necessary for the fiscal purposes of any Government, and much less of one in the present happy financial situation of ours, are frankly acknowledged to be, in many respects, a class of agents economical, convenient, and useful.

A document is annexed, giving, first, a schedule of such State banks, amounting to thirteen in number, as had previously to about the 1st of October, 1833, been selected and retained in connexion with the United States Bank; another list, of twenty-six in number, of such as were then, and have since been, selected under the general arrangements adopted for the chief deposite banks; and a third list, of three in number, of State banks, since selected for limited purposes, and with limited duties, like many of those before 1833. (A.)

Some of these selections, and the consequent changes in deposite, it will be seen, have been made since the last session of Congress. But as the reasons to justify the general removal of the public deposites from the United States Bank were assigned to Congress at the proper time by the proper officer, it is not deemed either necessary or pertinent to offer any new ones in justification of the changes made since, merely to complete the measures previously arranged, commenced, and vindicated.

But the power of removal being distinct from the reasons assigned for the act of removal, and having been exercised subsequently, wherever the new banks before named have, in suitable places, and in fulfilment of the system then adopted, and for the reasons then stated, been selected, it has been considered proper to suggest the usage and laws under which this power of removal or selection has been exercised by the Secretary of the Treasury on the last occasion, and probably on all previous ones. The same usage and laws will doubtless be considered a sufficient justification for a continuance of the exercise of the same power by this department, under a due sense of its duties and responsibilities, until Congress, the body conferring the power, becomes convinced that it is liable to be used for reasons not satisfactory, and should therefore be withdrawn, and either confided elsewhere, as, in the case of disbursing officers, it is now confided to the President, or be reserved to be used only by Congress itself, whenever a case arises in which it deems the exercise of such a power proper. The laws passed by Congress, and the fiscal regulations made in conformity to them, now in truth govern the whole subject. The money itself is rather in the virtual control of those laws and of Congress, the body making them, than in the control of any one