CHAPTER IX THE UNITED STATES TREASURY GOVERNMENT stands in a double relation to modern systems of finance. In the first place, it must provide a uniRelations of form system of money; in the second place, it government must give attention to its own financial needs— to modern systems of must arrange for its own support. The first finance. we may call its money function; the second its fiscal function. In this study it is its money functions with which we have to deal, its fiscal relations belonging to the realm of public finance. With a primitive people, formal acts of Government may not be necessary to the choice or use of a common commodity as money; from mutual advantage a common practice may grow up; commodities which in their nature may be used as a common standard for the comparison of value (such as cattle or furs) may serve the purpose of exchange. But those substances which best lend themselves to the more exact judgment, necessary to broad and complex commercial Its monetary relations, have not the marks of individuality functions. and of quality stamped on them by nature such as are common to cattle, or furs, or wheat. The trader, therefore, may not so easily protect himself against deception and loss. For example: One of the characteristics that makes gold so serviceable as money is the high value imputed to small quantities of the metal; another is the exact uniformity of weight and quality that can be given to each piece. But these divisions and refinements are purely artificial; by nature they have not uniformity; they have no individual completeness as in the case of cattle or furs, and a few grains added to or taken from a piece of gold may so materially affect its value as to destroy the serviceability of a coin as a standard for judgment. Some common unit of weight and fineness is essential. The parties to an exchange, being controlled by mo1. Coinage. tives of gain, could not be relied on to give character to coin; the Government—the agency of the peo ple devoted to general as opposed to private welfare—must give the metal official stamp, which will stand as a guarantee and protect the people against the wiles and arts of individual traders. money. Reference has already been made to the advantages to be gained from the adoption of a single standard or unit for judgments of value in exchange. This advantage would suggest the use of a single material for 2. Providing for a complex money. But a single material does not serve system of well all of the uses of money. The necessity for carrying about and transferring such quantities of money material as will be of great value suggests the use of a "precious" metal for the larger transactions. Materials which would best serve in this capacity, however, would require such minute subdivisions for small transactions and "change" as to be wholly impractical. Thus gold serves well the main purpose-transfers of larger value than $2.50. But the pieces representing smaller values would easily be lost, and are inconvenient in use. Silver does not serve well for large exchanges because it would encumber the trader; but it is convenient and more practical than gold for transfers ranging in value from 10 cents to $2. Below this, however, silver is not a convenient money. The subdivisions necessary for smaller "change" make it impracticable, and some such metal as nickel has superior advantages until the minimum of 2 or 3 cents is reached, when a still baser" metal is found to be more 6 convenient. Bronze may be subdivided to represent values of fractions of a cent, but would be too heavy for transactions of larger amount. There is economy, therefore, in a variety of metals in the money system. 3. Mainte nance of a standard. The practical question to the nation, and to the commercial world at large, is, How can the advantages of a single standard (or a definite unit for the judgment of value) be preserved, and at the same time the unquestionable economy of variety in our system of money? Long and bitter experience has driven men to the conclusion that there is only one solution, viz., the establishment of a unit, or standard, in a more precious metal, and a system of redemption of all other forms of money used, at a fixed ratio. The adoption of such a system, however, makes necessary a redemption agency, and this can be established and maintained only by act of Government. Redemption, however, has the effect of reducing all moneys other than the standard to forms of credit. They constitute in themselves promises to pay a definite amount of standard money according to the ratio stamped on their faces. If, for example, silver dollars are made redeemable in gold whenever a silver dollar shall be presented at a redemption agency, then every time a silver dollar is put into circulation the Government has put out, with this silver dollar, its promise to pay to bearer $1 in gold on demand; the possessor of the silver dollar holds a credit obligation on the Government for the payment of $1 in gold coin of the United By redemption of infe rior coins. States stamped on silver instead of having the promise written on paper. As a credit instrument, the advantage of having the promise to pay stamped on the silver coin instead of paper is this: that it adds to the promise of the Government a collateral security equal to the value of the silver used, and on redemption of the promise the Government has this collateral for use again; this increases the assets of the Government held as the means of meeting promises to pay gold. The gold price of silver coin increases the ability of the Government to get gold with which to meet these promises. But the use of credit money does not logically stop with redeemable coin. If a system of money is developed whereby coins become promises of the Government to pay gold, what is there to prevent it from writing these promises on paper and passing that in payment? There is no reason at all, provided the Government at all times keeps in condition to meet these promises; and if it does not, then silver dollars or copper coins would depreBy redemption of paper ciate as well. Government credit stands upon money. no different footing than private credit. The value of the promise depends on the judgment of the individual receiving it as to the ability of the Government to fulfil its obligations. In our system, paper money is nothing more or less than a demand obligation on the Government to pay gold on call; there must be gold available, however, so that no doubt will be entertained on this score. The only manner in which Government credit differs from private credit lies in the different methods which may be employed by the Government to obtain gold with which to pay, and this applies as well to its redeemable coin as to its paper. The machinery with which a government must equip itself to perform its monetary functions embraces three distinct plants: (1) A mint for giving official stamp and guarantee to its coin. (2) A reTreasury. demption agency for safe keeping of the reserve, and for the free interchange of the several forms of money used, as the one or the other may be considered more desirable. (3) A revenue department by means of which necessary funds may be procured to keep the reserve intact. In our own Government all three are combined in the Department of the Treasury. The Independent Treasury may be said to be the key to our whole system of finance. The United States History of the Independent Treasury. In this respect our monetary system is somewhat unique -enough so to warrant an account of the conditions leading to its establishment. Before the panic of 1837 and the financial depression which followed, the government had made various incorporated banks the depositories of its moneys as well as its disbursing agent. Moreover, the banks depended on these moneys for the maintenance of their system of credit money. The first Bank of the United States was chartered in 1791, and continued in operation twenty years. In 1816 a second bank was organized by the Government of the United States under a twenty-year charter. During forty years of this period (1789–1837), therefore, the Government had a bank of its own creation. At three different intervals, covering in all a period of eight years, it had to depend on State banks. The State institutions, however, were so far from the direct control of the central Government that the currency and finances of the country were left in a state of uncertainty which paralyzed industry, and seriously handicapped private as well as public transactions. The charter of the second National Bank expired in 1836, the crisis of 1837 proved fatal to State banks, and with their failure the whole system of public and private finance was involved. The Government lost through its depositories $28,101,644.91. The losses of the people through uncertainty of credit and the fluctuation of their money standard was many times greater than that of the Government. There was a general demand for a change. Van Buren had just come into office when this financial calamity occurred. In national politics he and his party represented State and local interests as opposed to central functions; they were adverse to the chartering of a third Bank of the United States. To meet the public demand for a sound and stable currency, and at the same time not to antagonize State institutions and local interests, an Independent Treasury was proposed. After three years of political contro |