so that the Secretary is obliged to forecast with precision three months ahead, and be certain that his surplus is sufficient for the call. Hence, even if the called bonds all came in when interest ceased, the specie must remain for a considerable time out of reach in the Government vaults. But, in point of fact, it is found that a considerable proportion of the bonds are not sent in when called and, therefore, specie to the full amount of the call cannot be sent forth. Payments for interest, or pensions, moreover, are at still longer intervals than those for matured bonds. But every day and week coin is withdrawn from reserves by importers to be turned over to the Government for customs duties, while the gates of the Treasury are only opened at considerable intervals. The bad effects are felt daily; the relief comes, perhaps, monthly or at longer periods. To show with what rapid and very exasperating jerks the system has worked, a table and a chart have been prepared which illustrate the actual operations for the last six months of 1882:

The movement of the line above O shows the flow of specie from the reserves of the banks into the Treasury and, below 0, the flow out of the Treasury back to the banks.

Moreover, since the return of specie from the Treasury is awaited with anxiety, all things depend on the intentions of the Secretary. The extent to which the finance minister of this country holds it in his power to ruin or extend credit is already a dangerous thing to contemplate. He is master of the monetary

situation. The irregular jerkings of the Treasury movements add fuel to speculation. If much specie has gone into the Treasury, speculators can withdraw more, and "squeeze the market." It is, therefore, possible for the Secretary to affect the money market, and thereby the fortunes of men, throughout the whole country. It is a power which ought never to be given to any man; and yet it is the highest evidence of the integrity and character of this official that he has never been suspected of such action, and that this argument against the present system is, of all, the least important.

The administration of our Treasury balances has great and serious defects. At present, it acts like a highway robber who shuts his fingers tightly around a man's throat until breathing is cut off, and then lets go until the victim has recovered sufficiently to give the ruffian the pleasure of repeating the process. He would be a very mild-tempered man, indeed, who simply arose and went on his way, remarking that such treatment is occasionally very inconvenient. The nature of the evil, however, does not seem to be clearly understood, for we are told that a reason for reducing taxation is the difficulty under which the Treasury labors of releasing its surplus funds. By this theory, the matter is to be settled, not by studying an improved system of fiscal administration, but by avoiding the issue through a removal of the special and temporary cause of the difficulty. This is not high statesmanship, but it is the position of our present Secretary of the Treasury in his report of December, 1882 (p. xxviii). After discussing the question, he says: "For these reasons I would not seek a release of the Treasury from this complication, in these modes [i. e., by depositing in banks]. The radical cure for the evil is in the reduction of taxation. The evil

comes from the likelihood of the Government holding from time to time a large surplus to be poured out in volume at uncertain and unforeseen times, and at times often inopportune for the business of the country. There could not be that surplus if the subjects of taxation were lessened."

The principle of this policy is exactly that of an employer who, once finding a clerk in the act of stealing money from his safe, good-naturedly refused to discharge him; but adopted the ingenious plan of reducing the extent of his business in order that no surplus might be left in his safe as a temptation to a poor fellow who was a trifle weak in his character. Common sense would suggest that this temporary expedient for freeing

the thief from temptation was dearly bought at the expense of reducing the volume of the employer's transactions, especially when he was heavily in debt and wanted to clear himself from this burden in a prosperous season. Surely this reasoning of the Secretary is most extraordinary. Taxation is supposed to be levied in proportion to the expenditures of the state, and not raised or lowered on account of the difficulties in fiscal administration by which the money is received or paid out.

Had no

The present Sub-Treasury system, moreover, is bad for another reason, founded wholly on fact. In May and June, 1881, about six hundred millions of five per cent. and six per cent. bonds fell due, and were extended at three and one-half per cent., on condition that they might be paid off whenever the revenues gave a surplus. And they have been rapidly paid; indeed, it is owing to the possibility of paying them off that the Secretary has been able to let out specie from his vaults in such amounts as have greatly lessened the evils of the present system. The ordinary payments for interest alone would have released but a fraction of the stream of specie daily flowing into the "bourne" from which no traveling specie ever easily returns. payments been made for bonds, there would have been an increased pressure put upon the bank reserves. It would have been like a continued stoppage of the breath; strangulation would have taken place in the financial organism; and if no help had come from abroad, or elsewhere, we should soon have had a body without breath, a financial corpse, i. e., a panic. But, if this would have happened had there been no bonds to be paid off in these last months, it is exactly what will happen in the near future, unless some change is made. If our present surplus continues, it is estimated that by June, 1886, all the bonds redeemable at the pleasure of the Government will have been paid. Then what? No other bonds, unfortunately, become due until 1891; so that in less than three years we ought not, forsooth, to have a surplus from revenues, because the specie will be withdrawn from business. In two or three years, then, the Sub-Treasury system will be as troublesome as ever, even if taxation is reduced. Or, to return to our illustration, the dishonest clerk will begin to filch again, if he is retained in his position.

Thus, as fully as the limits of this paper would permit, the history of the present system, its workings, and the evils attaching to it have been given, and it may well be asked now what

remedy is proposed? It is easy to destroy, not so easy to construct. In taking up this part of the question, it must be asked, first, what has financial experience in other countries to teach us? France keeps her balances in the Bank of France, and rather aims to correct than to interfere with the money market. England has no treasury, but collects and disburses all her funds through the Bank of England, without taking one shilling from the borrowing public. We have, it is true, no Bank of France or Bank of England, but we have in the national bank system the best the country ever enjoyed. By the act of 1864,* they are made possible depositaries, and are now used as such for that part of the Government revenues which is collected by internal taxation. The machinery for a reform, therefore, is already in existence, and suggested by the act of 1864. Yet the question of a remedy is to be settled, as in the case of a disease, by the explanation of the evils. It is not generally realized that, like the Bank of England, the Clearing House Association of New York is the center and pivot of the banking system of the country. The country and city banks keep a large part of their reserves in the New York banks, and, as every banker knows, this fact makes the latter the heart of the whole system; and naturally, too, for New York is the place where the largest exchanges of goods take place and where credits and loans are most demanded. To the condition of the reserves in the banks of New York every one now, as a fact, looks when it is desirable to mark the effect of shipments of specie abroad, or of withdrawals by the Treasury. Consequently, these banks must be parties to any arrangement by which the evils of such withdrawals may be avoided. It is the reserves of the New York banks which must be protected from sudden drains. They are, therefore, by the very facts of trade and banking in this country, marked out as the proper agents of the Government in the proposed fiscal reform. But, say objectors, the security of the Government funds becomes involved in that of these banks, and, in case of a commercial crisis, the Treasury would be unable to get at its funds and could not meet its daily demands. That this happened in the years after the panic of 1837-9, before the passage of the Sub-Treasury act, is true. Therefore, let the Government, if it should deposit with these banks, exact a security,—and for the present it would be

* Vide note, page 554.