Independent Treasury

The Independent Treasury was a system for the retaining of government funds in the United States Treasury and its subtreasuries, independently of the national banking and financial systems. In one form or another, it existed from 1846 to 1921.

Creation of the system

In 1841, the Independent Treasury Act was passed. However, the following year the Whigs repealed the Act. The Whigs wanted to establish a new central bank, but were prevented by President Tyler who objected on constitutional grounds.

The Democrats won the election of 1844, and re-established the Independent Treasury System.

The Act of August 1846 provided that the public revenues be retained in the Treasury building and in sub-Treasuries in various cities. The Treasury was to pay out its own funds and be completely independent of the banking and financial system of the nation. All payments by and to the government, moreover, were to be made in specie. The separation of the Treasury from the banking system was never completed, however; the Treasury’s operations continued to influence the money market, as specie payments to and from the government affected the amount of hard money in circulation.

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...
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