216 BANKING THEORIES IN UNITED STATES
United States Treasury,” urged Gouge. Nor should the banks
complain, for they themselves benefit by the system of keeping
the public money in special vaults. “If in their vaults, it would
lead to new inflations; if in the public depositories, more or less of
it will come to their aid in times of emergency.” ! Two secretaries
of the treasury in the next five years adopted Gouge’s view,
and Howell Cobb urged that the states adopt independent treasuries
for this reason.” Cobb’s report also shows that the doctrine
that the government should alleviate depressions and their attendant
unemployment by increased expenditure on public
works was not unknown. His attitude toward this, however,
was quite different, for he dismissed it with a homily on the limitations
of the proper functions of government, written in the best
vein of an Adam Smith? Bowen, writing ten years after the reestablishment
of the sub-treasury under Polk, criticized the system
on the ground that its operations tended to disturb the
money market by alternately withdrawing and restoring funds.
In connection with the reserve situation at New York, the
practice of paying interest on deposits, and in particular on the
1 Gouge, ‘“ Special Report on the Public Depositories,” in Finance Report of the
Secretary of the Treasury (Dec., 1854), p. 268. Edmund Dwight had said almost as
much in 1851: “The Progressing Expansion,” Hunt's Merchants’ Magazine (Aug.,
1851), XXV, 149.
® James Guthrie, Finance Report (Dec., 1856), p. 32; Howell Cobb, Finance
Report (Dec., 1857), pp. 21 fi., and Finance Report (Dec., 1858), p. 16. Guthrie
asserted: “The independent treasury, when over-trading takes place, gradually fills
its vaults, withdraws the deposits, and, pressing the banks, the merchants and the
dealers, exercises that temperate and timely control, which serves to secure the
fortunes of individuals, and preserve the general prosperity.” Guthrie admitted,
however, that it might tend to cause stringency in the money market when large
surpluses of revenue were accumulating.
3 Cobb, Finance Report (Dec., 1857), p. 12.
! Bowen, Principles of Political Economy (1856), pp. 364, 365. For a lengthy
discussion of the early influence of the independent treasury upon the banks and the
money market, see Kinley, Independent Treasury of the United States, pp. 69-83,
208-224. For the period since 1860, see ibid., pp. 225-281, and Sprague, History of
Crises Under the National Banking System.
The crisis of 1857 was probably aggravated by the accumulation of public funds
by means of custom-house receipts in 1855, 1856, and 1857. The Bankers’ Magazine
of March, 1857, spoke of this as taking place at a “fearful rate.” Later, as in 1853,
the Secretary of the Treasury sought to relieve the stringency by purchasing bonds.
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