Problems and Its Demise
Although the independent Treasury did restrict the reckless speculative expansion of credit, it also tended to create a new set of economic problems. In periods of prosperity, revenue surpluses accumulated in the Treasury, reducing hard money circulation, tightening credit, and restraining even legitimate expansion of trade and production. In periods of depression and panic, when banks suspended specie payments and hard money was hoarded, the government’s insistence on being paid in specie tended to aggravate economic difficulties by limiting the amount of specie available for private credit.
The most serious weaknesses in the system were revealed during the Civil War; under the pressures created by wartime expenditures, Congress passed the act of 1863 and act of 1864 creating national banks. Exceptions were made to the prohibition against depositing government funds in private banks, and in certain cases payments to the government could be made in national bank notes.
After the Civil War, the independent Treasury continued in modified form, as each administration tried to cope with its weaknesses in various ways. Secretary of the Treasury Leslie M. Shaw (1902–1907) made many innovations; he attempted to use Treasury funds to expand and contract the money supply according to the nation’s credit needs. The Panic of 1907, however, finally revealed the inability of the system to stabilize the money market; this led to the passage of the Federal Reserve Act in 1913, which allowed the Federal Reserve System to issue Federal Reserve Notes (the powers of coining money and regulating its value were retained by the U.S. Mint and the Congress, respectively). Government funds were gradually transferred from subtreasuries to district banks, and an act of Congress in 1920 mandated the closing of the last subtreasuries in the following year, thus bringing the Independent Treasury System to an end.
Read more about this topic: Independent Treasury
Famous quotes containing the words problems and and/or problems:
“Sustained unemployment not only denies parents the opportunity to meet the food, clothing, and shelter needs of their children but also denies them the sense of adequacy, belonging, and worth which being able to do so provides. This increases the likelihood of family problems and decreases the chances of many children to be adequately prepared for school.”
—James P. Comer (20th century)
“Wittgenstein imagined that the philosopher was like a therapist whose task was to put problems finally to rest, and to cure us of being bewitched by them. So we are told to stop, to shut off lines of inquiry, not to find things puzzling nor to seek explanations. This is intellectual suicide.”
—Simon Blackburn (b. 1944)