Library of Congress

Library of Congress

By Ramon Vasconcellos

President James K . Polk ’ s first annual address to both houses of Congress on December 2 , 1845 echoed public concerns regarding the appropriate role ( if any ) of federal and state banks concerning government deposits and left lawmakers in little doubt as to where he stood on the issue . Opining that the framers of the Constitution viewed the US Treasury , not federal or state banks , as stewards of public funds , he commented , “ that when banking corporations have been the keepers of the public money … the Government can have no guaranty that it can command the use of its own money for public purposes .” In hopes of deterring banks in the future from acting as fiscal surrogates of government deposits , and potentially placing funds at risk , he proposed a “ constitutional treasury be created for the safekeeping of the public money .”

( Left ) Portrait of President John Tyler , ( Center ) Daguerreotype portrait of President James Polk and ( Right ) Painting by N . C . Wyeth of Salmon P . Chase conferring with Abraham Lincoln about the National Bank Act of 1863 .

The first attempt to devise what became known as the Independent Treasury System ( or Sub-Treasury ) commenced when President Martin Van Buren proposed the idea in 1837 . In its application ( as prescribed by Van Buren and proponents ), the Treasury would collect , hold and distribute all federal revenues . State banks which , prior to the decree , had increased the circulation of money and , allegedly , contributed to the Panic of 1837 , were disallowed from holding federal funds . Sub-Treasuries would serve as deposit institutions of the government under the supervision of the Treasury and could hold public monies . The Subs acted as units of the Treasury like that of a “ branch ” of a bank , only not privately owned . Supporters called this idea a “ divorce of bank and state ” and , although it became law in June of 1840 , the Independent Treasury System was repealed in 1841 . Van Buren ’ s inability to gain a second term — and lack of congressional support — doomed the institution as a going concern , albeit temporarily .

Though defunct by the end of his term in office , President Van Buren believed a stronger Treasury system , free of state bank involvement , contributed to a sound economy . Congress acted .

However , divisions among members of “ The Democracy ” ( the Democratic Party ’ s title at the time ) between conservatives who desired that state banks maintain control of deposits and reformers who supported the legislation , slowed progress . Quite vociferous in their support , the reform element of “ The Democracy ,” also known as the “ Loco Focos ,” advocated ceasing the ability of state banks to extend credit and the absence of paper money altogether . Their curious moniker derived from the fact that their views on banking were deemed “ radical .” 1

The Whig party — those in opposition to the Democrats in Congress — was of no help , since their leadership wanted to re-establish the Bank of the United States . Nevertheless , the bill for the Independent Treasury passed both houses in June 1840 , with Van Buren signing the act into law that July 4 . A New York Democratic member of Congress called its passage “ the second Declaration of Independence .” New York City revelers ( perhaps his constituents ) fired a 61-gun salute , one for each year since the Republic ’ s inception . The volleys , according to those in attendance , marked freedom from the “ money power .” Until its repeal in June

40 FINANCIAL HISTORY | Summer 2023 | www . MoAF . org