Independent Treasury

"Everyone's trying to get out of Washington, and we're the only schmucks trying to get in."
--Julius Levinson (Independence Day)

After Andrew Jackson dismantled the second Bank of the United States in 1833, he transferred federal funds to various state banks. Concerned about the influence of these government funds on banking practices, and about the safety of those funds, the Van Buren administration proposed a system of independent treasuries that would be separated from the banks.

The Independent Treasury Act was passed in 1840 but was repealed by a Whig dominated Congress a year later. Whigs favored the "American System", which included a preference for central banking. They wanted to create a third central bank but were shot down by President John Tyler.

After Democrat James Polk took office in 1844 the independent treasury idea was resurrected. The Act of August, 1846 operationalized the concept. The Treasury and various sub-treasuries warehoused and payed out all of its funds independent of the banking system. All payments by and to the government were to be made in gold and silver.

Thus began the most stable period in US monetary history. A key reason for this is that federal funds could not be used by private banks to pyramid credit creation. Moreover, there was a reduced market for political favor between bureaucrats and bankers.

The Mexican War, fought between 1846 and 1848, was the only war in US history not funded by inflating the currency. This was so because there was no central bank convenient for money printing, and the federal government respected its obligation to collect and pay only in specie.

Dismantling of the independent treasury configuration began under the Lincoln administration. National banks were chartered, and the federal government began printing 'greenbacks' to appropriate resources for the Civil War effort.

After the Civil War, the national banking system began robbing Treasury of its independence. Federal government involvement in banking once again grew--culminated by the establishment of a new central bank, the Federal Reserve, in 1913. By 1920, all sub-treasuries were shut down.

The independent treasury, and the golden age of money and banking in the US, was over.