The isolation of the Treasury contemplated by the act soon proved illusory, and little by little inroads have been made upon the principle. The spectacle of the Treasury coming to the 'relief of the money market' has become familiar. The `relief' thus afforded consists of placing in circu lation money which the law accumulates in the hands of the Government. Operating with a sur plus of revenue over expenditure. the Government balances may and do grow to such a size as to materially affect the volume of money in circu lation. This, then, is a Treasury reserve which may be unloosed when a stringency in the money market occurs, and the fact that the Secretary of the Treasury is called upon for such relief is evidence of the futility of attempting utterly to separate the Government's operations from all business affairs. The independent Treasury was not ten years old before the possible dangers of au accumulation of funds were perceived, and in 185:1 large redemptions (.1 bonds were made to avoid them. 111 the panie IS57 the Government escaped unscathed, and this added to the popu larity of the independent treasury system.
But with the fiscal necessities of t he Civil War the principle of isolation was broken down. The banks became essential to the support of the I:overtime/it. The Secretary of the Treasury se cured their aid in making the first loans of the war. Ile would not recognize their notes in the Government operations. hut soon brought forward his plans for transforming the banks into na tional institutions under Federal control. with power to issue notes of a kind which could be reeognized by the Government. When the na tional banking system was organized, in 1S63, the banks were allowed to become depositories of the public money, except the receipts from customs, under regulations established by the Treasury Department. Customs receipts, being in specie, were excluded from the funds eapable of being deposited. since banks were not then paying specie. These deposits in the banks arc secured by bonds deposited with the Treasury Depart ment. 'The extent to which the banks have been used as places of deposit has varied with the state of the Treasury and the nature of its operations. When loans have been made the money leas been paid in through banks and al lowed to remain there until expended. In the re funding operations of 1879 the banks sold nearly $400,000.000 worth of bonds, and held at one time (May. 1879) as nimdi as $279.544.645. On t he other hand. when the surplus has dwindled the amount of money so deposited has deereased, while in periods of an abundant surplus it has swollen in size. Ill October 1. 1902. the amount so deposited in banks was $126.102.430.
'file idea of the Independent Treasury Law was that the banks should not interfere with the Treasury. while in its practical administration, with the enormous growth of Government reve nue, the problem has been for the Treasury so to conduct its operations that it shall interfere as little as possible with the banks and the ordi nary course of business. In principle the Govern ment pays cash. demands cash. and keeps its funds in a strong box—a method of conducting business entirely at variance with the usual prac tice in mercantile life. The income and out go of the Government have not, moreover, the regularity \Odell frequently eharacterizes mer cantile affairs. Money aecinnulating in the
Treasury in anticipation of future payments is withdrawn from circulation. Such withdrawal may accentuate a stringency, while the subse quent payment may aggravate a plethora. As an offset to these disadvantages of the system, it has been contended that it equalizes conditions by permitting the Secretary of the Treasury to come to the 'relief' of the money market. This is a questionable advantage. The relief is con tingent upon a plethoric Treasury: it is. more over, largely in the discretion of one man, the Secretary of the Treasury. whose impulsiveness or eonservatism may materially affect the relief afforded. Finally. when determined upon. it is not always as speedy as desired. The Secretary of the Treasury can increase the money in circu lation (11 by additional deposits in banks, (2) by anticipating payments, (3) by redemption or purchase of the public debt. Of these methods the first is gradual, as no transfers can be made from the Treasury to the banks, the latter's holdings increasing only by deposit of internal revenue and other general receipts. Moreover, banks have been unable. even during periods of stringency, to apply for funds that. could legally be deposited with them, owing to the requirement that such funds were to be secured by deposit of national bond A—a requirement sometimes diffi cult to meet, because of the high price of such bonds. ply an order of the Secretary, dated October 4, 1902. banks are permitted. under cer tain conditions, to substitute specified State and municipal bonds for the national bonds hitherto required. It is hoped that in this way the Trt as ury will be able to give a larger measure of re lief than formerly. The second method applies chiefly to certain definite payments, like the in terest upon the public debt. The third is the most satisfactory, so long as there is outstanding a redeemable debt, but cannot be free from criti cism when the Government goes into the market to buy up its own bonds. Xloreover. with the debt limit of the United States growing less, and with a larger part of the debt held by banks as a security for deposits or currency. this resource is growing weaker. Since any sale of bonds by banks would diminish the circulation in other directions, it is only the bonds held by individuals whose sale to the Government would affect the volume of the eireulation. Hence the 'relief' which the Treasury can afford the monetary situation is spasmodic, irregular, and uncertain; it is very far from being a scientific automatic corrective of the excesses of the money market.
It is the opinion of those who have examined the matter in all its details that the inde pendent Treasury offers the Government no ad vantages which could not be secured by properly guarded contracts with the banks. Such con tracts would relieve the Government of the cus tody of its own surplus, and would not withdraw that surplus from the ordinary channels of trade. There is a growing feeling that our Treasury methods are antiquated. and should be replaced by methods more in harmony with business prin ciples. It has been pointed out that if others should follow the example of the Government, business would come to a standstill. See FINANCE: BANKS: BANKING. Consult Kinley. The 1 tle n( lle»1 Treasury System of the railed Slates (New York. 1893).