discourage the ruinous extension of bank issues and bank credits, by which those results are generally supposed to be promoted, your utmost vigilance is required and relied on to carry this order into effect."

This circular was directed to receivers of public money and to the deposit banks.

The act of June 23, 1836, regulated the deposit of public money with the State banks, the deposits previous to that date having been made on the authority of a clause in Section sixteen of the act of April 10, 1816, creating the second Bank of the United States, specifying that the funds of the Federal Government were to be deposited in the Bank of the United States or its branches, "unless the Secretary of the Treasury shall 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 reason of such order or direction." Besides regulating deposits with the State banks the act of June, 1836, further provided that, as soon as a State bank selected as a Government depository failed or ceased to pay specie, it could no longer act as such depository. The removal of the deposits to the State banks and the issue of the specie circular were both acts of financial recklessness on the part of the President, and the circular had the effect of unduly precipitating the collapse of the wild speculation in which the handling of the public deposits by the State banks had resulted.

INCREASE IN THE NUMBER OF BANKS.

From 1834 to 1837 one hundred and ninety-four new banks were organized in the United States, as far as is shown by the very imperfect records of that period. Of these, sixty-two were in New England, fortytwo in five Middle States, seventy-two in nine Southern States, and eighteen in four Western States. There was during the same period an increase of $6,000,000 in the issues of the banks in the New England States, about fifty per cent.; of $14,000,000 in the issues of the banks in the Middle States, a similar percentage; of $34,000,000 in the issues of the banks in the Southern States, being over one hundred and thirty per cent.; and $6,800,000 in the issues of the banks of the Western States, being over one hundred per cent. The records from which these figures are taken give only such banks as reported to the Secretary of the Treasury, and do not include a large number of institutions of the description commonly known as "wild cat," that did not conceive they owed allegiance or deference to any authority whatever. The larger number of banks that paid specie and redeemed their notes on demand were in the Eastern and Middle States, and the larger number of non-specie paying banks, together with most of the wild-catters, were in the more primitive parts of the South and West-the West and South then, all of it, being east of the Missouri river. The effect of the specie circular on the circulating notes of all of these banks was

terrible, inasmuch as it at once caused a run for specie upon them. The wonder is that so large a number endured so long.

THE DISTRIBUTION OF THE SURPLUS REVENUES.

The law of June 23, 1836, also provided for the distribution of the surplus revenues of the Treasury on deposit January 1, 1837, in the State banks selected as depositories, among the several States, in four quarterly installments, viz., on January 1, April 1, July 1 and October 1, 1837.

This proposition had taken form gradually. The report of the Secretary of the Treasury, William H. Crawford, for 1816, and his reports and those of his successor, Richard Rush, for succeeding years up to 1827, had in the estimates made shown an available surplus of revenue over all expenditures of from two to six millions of dollars. This led to some discussion as to the best method of employing this surplus. Secretary Crawford, in 1816, suggested that it be used in internal improvements.

In 1827 the proposition to distribute the surplus was first made in Congress. A bill for the annual distribution of $5,000,000 for four years was introduced and laid on the table. On motion of Mr. Dickerson, of New Jersey, the author of the measure, it was taken up for discussion. He stated its principal object to be to provide the States with money for educational purposes and internal improvements. Congress adjourning soon after, it received but little attention.

Secretary of the Treasury Ingham, in his report to Congress in December, 1829, estimated that the revenues of the Government for that year would amount, including the balance on hand January 1, to $30,574,666, and the expenditures to $26,164,595, of which $9,841,011 was on account of principal, and $2,563,994 on account of interest on the public debt. He also estimated that the public revenues for the next five years would be such as to leave free for application to the payment of the public debt about twelve millions yearly. The amount of the public debt due or becoming due during the next five years was $48,522,869. The surplus after paying this indebtedness would be twelve millions. The Secretary did not favor a sudden change in the tariff, but recommended such gradual changes as would reduce the revenues to correspond with the existing expenditure. President Jackson, in his message of 1829, recommended the distribution of this anticipated surplus among the States, in the ratio of their representation, and if such a course was not constitutional, that the Constitution should be amended to permit it. The revenues, especially those from the sale of public lands, were greater rather than less than anticipated, and in his report for 1832 the Secretary of the Treasury was able to announce:

"After January 1, 1833, no part of the public debt, except the remaining fragments of the unfunded debt, of which only small portions are occasionally presented, will be redeemable before the following year, and though there will be in the Treas

ury during the year ample means to discharge the whole debt, they can be applied only to the purchase of stock at the market prices."

PAYMENT OF THE PUBLIC DEBT.

The whole public debt was virtually extinguished by January 1, 1835, on which date the balance of available funds in the Treasury was $5,586,232. It was estimated that for the year 1835 the receipts from all sources would be twenty millions; the actual receipts were $35,430,087, the receipts from the sale of the public lands during that year having greatly increased. In 1834 these receipts were only $4,857,600, but in 1835 they were $14,757,600. The receipts from the sales of public lands in 1834-35-36 were $44,492,281, the total receipts from this source from 1796 to 1834 being $44,595,000 only. The balance left in the Treasury at the beginning of the year 1833 was $2,011,777; in 1834, $11,702,905; in 1835, $8,892,868, and on January 1, 1836, $26,749,803. In view of this large balance and its probable increase by January 1, 1837, the provision for distribution of the surplus among the States was embodied in the act of June 23, 1836.

SUSPENSION OF SPECIE PAYMENTS BY THE BANKS.

The amount of the surplus the law required to be so distributed turned out to be $37,468,859, and each quarterly installment was therefore $9,367,214.98. The banks holding the Government funds numbered eighty-eight of the 788 State banks then in the country. The total net deposits of all the State banks was about $128,000,000; of these more than seventy millions were held by the eighty-eight pet banks; and of this last sum thirty-seven millions had, by order of Congress, to be repaid in nine months. The pet banks included most of the strong banks in the country, and their failure or suspension meant failure or suspension to the others. The chief part of the cash in their hands consisted of the notes of other banks, of different exchange value, according as they were issued by banks in different sections of the United States. All of these notes were discredited more or less by the specie circular; nevertheless the depositories were required to pay the public moneys in specie or its equivalent. The first installment was paid by the banks in specie or its equivalent; the second, also, in bills of specie paying banks. This was on April 1; but in May the pressure on the banks for the redemption of their notes in specie became so great that, with the exception of five or six institutions, they all suspended payment. The depository banks struggled on, however, and were permitted to pay the third installment in the bank notes they had that the States were willing to receive. The specie circular, by creating a fictitious demand for coin at a time when the banks were using a very large amount of currency in order to pay their obligations to the Government so suddenly called for, was no doubt very largely the cause of this suspension and the subsequent panic. The banks in the West and

Southwest became discredited by this suspension to a greater extent than the Eastern banks; and, inasmuch as in making its payments the Treasury drew on the latter first, there were soon no funds in the possession of the Treasury, except those in the banks of the West and Southwest. Inasmuch as the public creditors would not receive drafts on these discredited banks in payment of the debt of the Government to them, and as the revenues from the public lands had fallen off on account of the specie circular, the Treasury was, in the autumn of 1837, very close upon bankruptcy. In order to avoid this an extra session of Congress was called by President Van Buren, to meet in September, 1837, when an issue of ten millions of dollars in Treasury notes was authorized for the exigency. Mr. Benton, one of the strongest advocates of the specie circular, and the bitter opponent of all paper money devices, said that nothing but the fact that the Government must otherwise stop for want of funds would induce him to vote for paper money in time of peace.

INDEPENDENT TREASURY SYSTEM PROPOSED.

President Van Buren, in his message at the opening of the session, declared that both National and State banks had now been tried as the custodians of the public moneys, and had been found wanting, and recommended legislation by which the Government might take the charge of its own funds; in other words, he suggested what is known as the Independent Treasury System, by which the moneys, as collected, are left in the hands of the Treasurer and Assistant Treasurers and the mint, until needed, the fidelity of the several officers being secured by bonds. A bill was introduced by Silas Wright, of New York, and passed by the Senate, but was tabled in the House.

The issue of the $10,000,000 of Treasury notes did not much relieve the situation, and the Government, with $28,000,000 deposited with the States and at least $4,600,000 more owed to it by the banks, was still on the verge of bankruptcy. The money with the States represented the first three installments of surplus which were paid over on January 1, April 1 and July 1, 1837. The failure to obtain any part of the amounts due from many of the banks had plainly made it impossible to pay the fourth installment, and Congress had, at the extra session in September, passed an act postponing the payment thereof; and not only this, but had further provided that the three payments already made to the States, ostensibly in the form of a deposit to be returned by the States when wanted by the Federal Treasury, should remain with the States until called for by act of Congress. This, in effect, put it out of the power of the Secretary of the Treasury to recall them. The $4,600,000 in the banks was equally unavailable.

In May, 1838, therefore, to avoid the complete suspension of payments at the Treasury Department, the President, advising Congress that there were only $216,000 of available funds on hand, again recom

mended the issue of Treasury notes to the extent found necessary. The limit, however, was to be the amount of the Treasury notes of the previous law (October, 1837) already redeemed and cancelled. Congress acceded, and it required an issue of $5,000,000 Treasury notes within one month, to relieve the necessities of the Government. The President had, in the meantime, been very firm in not permitting any but the notes of specie-paying banks to be received for dues to the Government, and the result was that many of the suspended banks found it for their interest to resume specie payments. The Treasury notes of this period were looked upon as a temporary loan, to take the place of the amount of suspended bank debt to the Government, and it was claimed by the Secretary of the Treasury, Levi Woodbury, that the amount outstanding never exceeded this suspended debt.

INDEPENDENT TREASURY ACT PASSED.

Notwithstanding the failure of Congress to pass the Independent Treasury bill in 1837, Mr. Van Buren was persevering; the bill was again introduced in December, 1839, and finally became a law on July 4, 1840. Under it, vaults and safes were provided in the Treasury at Washington, and sub-Treasuries were instituted with proper accommodations at New York, Boston, Charleston and St. Louis. The mints and branch mints were also made places of deposit. Proper bonds were required of the officials connected with the various Treasuries and places of deposit. An important part of the law was the provision that after June 30, 1843, all payments to or by the United States should be in gold and silver exclusively. It has been said this change was not calculated to inflict injury on the State banks then existing, nor was it until the specie-receiving and paying clause went into effect. To understand the attack made on this act, resulting in its repeal, August 13, 1841, about thirteen months after its first passage, the fact must be given full weight that the banks perceived that when the exclusive specie-paying and receiving clause went into effect it would cause continually an abnormally large redemption of their notes, and thereby lessen their profits on circulation, on account of the larger reserves of specie they would have to keep in their vaults. When customs or taxes or the price for public lands had to be paid, it was plain that the holders of bank notes would demand specie for them. Most of the State banks were used to the old ways, and did not take any more kindly to being forced to pay specie by the United States Treasury than they had to being made to redeem their notes by the Bank of the United States. In fact, the rule of the latter was found to be more bearable, in that the Bank of the United States was managed and its policy directed by men who understood banking finance, who were themselves responsible to a power above them, and feared for their own sakes to be too merciless in requiring redemptions. The Treasury was managed with arbitrary force for political purposes, and was only