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PAYMENT OF DUTIES BY CHECKS.

THE COMMITTEE ON WAYS AND MEANS,

Wednesday, April 8, 1908. The committee met at 10.30 a. m. with Hon. S. E. Payne in the chair.

Present: The chairman and Messrs. Dalzell, Hill, Boutell, Needham, Calderhead, Gaines, Bonynge, Longworth, Clark, Cockran, Underwood, Granger, and 'Randěll.

RESOLUTION UNDER CONSIDERATION.

[H. C. Res. No. 15, by Mr. Hill, of Connecticut.] Resolved by the House of Representatives (the Senate concurring), That it is the sense of Congress that the Secretary of the Treasury should, in his discretion and under such regulations as he may prescribe, permit the receipt of certified checks of banks in payment of all public dues, the deposit of the same in depositary banks, and the drawing of checks against such depositary accounts by the disbursing officers in subtreasury cities as elsewhere.

STATEMENT OF MR. JAMES C. HALLOCK, OF BROOKLYN, N. Y.

[For additional statement filed by Mr. Hallock, see pp. 202–212.]

Mr. HALLOCK. A year ago, Mr. Chairman and gentlemen of the committee, the Baltimore clearing house made these recommendations to the Secretary of the Treasury:

SIR: Since the deposit of customs receipts in depositary banks is now authorized under the law of March 4, 1907, known as the Aldrich Act, we, the undersigned banks of Baltimore, Md., suggest and recommend:

1. The employment of certified checks drawn on city banks by importers in pay ment of customs duties.

2. The deposit of such checks in depositary banks here by the collector of customs to the credit of the Treasurer of the United States.

3. The drawing of checks on such deposits by the Treasurer or Assistant Treasurer of the United States in payment of public dues.

These recommendations were made on the 4th of April, 1907, and the matter has been before the Secretary ever since.

The contention was that existing law permits the Secretary to do all that he is requested to do here, but the gentlemen in the Department, who have had no experience with business conducted in this way, contended that there were legal objections, and those have been made. The matter is by no means a new one, and in a very few words I propose to take up the three points in these recommendations and to show how the Government has treated such subjects.

In the first place, take the matter of public deposits in banks. We can divide the history of such deposits from 1789, the beginning of the constitutional government, to date, into three distinct periods. In the first period it was a very simple operation, fully described

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in the history of the national loans prepared by the Treasury Department, which shows that whereas the Treasury Department was established by the act of September 2, 1789, and under that act Alexander Hamilton was appointed Secretary of the Treasury on September 11. The Secretary found himself with the responsibility of supporting the Government when there was absolutely not å cent in the Treasury of the United States. There was, of course, no time to obtain it in the ordinary way of collecting revenue, and he at once proceeded in the usual commercial way of raising money by a loan from a bank, and borrowed $20,000 from the Bank of New York on September 13, 1789, which is recorded in this history as “A loan agreed to be made by the Bank of New York to the Secretary of War, in pursuance of an appropriation made by an act of Congress of the 20th of August 1789.” This act provides:

That a sum not exceeding $20,000 arising from the duties on imports and tonnage shall be, and the same is hereby, appropriated to defraying the expenses of negotiating and treating with the Indian tribes.

Mr. DALZELL. What is the date of that?

Mr. HALLOCK. September 13, 1789, two days after the Secretary had been appointed, and while the appropriation was for Indian affairs, they used the money for the purpose of paying President Washington's salary and the salaries of the Senators and Representatives, and so on.

The CHAIRMAN. They had enough money for all purposes?

Mr. HALLOCK. This borrowing from the Bank of New York continued until they got some money in the proper way under their revenue system.

Mr. Hill. Was that money left on deposit in the bank where they borrowed it?

Mr. HALLOCK. The bank simply credited the Government with $20,000, which was checked against, and they received the notes of the Bank of New York or made their drafts to the order of public creditors.

The CHAIRMAN. They actually had no treasury to deposit the money in?

Mr. HALLOCK. That was part of the treasury after the money was credited to them there.

The CHAIRMAN. There were no vaults or anything of that kind ?
Mr. HALLOCK. No, sir.
Mr. Hill. How far did that period extend?

Mr. HALLOCK. It ran from 1789 to the passage of the subtreasury act on August 6, 1846.

Now, the way in which that deposit in the bank was treated is shown by the letters of Alexander Hamilton himself. He gave instructions to the collectors of customs that they were to receive the notes of the three banks then existing—the Bank of North America, in Philadelphia; the Bank of New York, and the Massachusetts Bank, in Boston. Then he made the following arrangement with the “Bank of Boston," as he called it, which I myself took from the original minutes of the Massachusetts Bank, for I went to Boston to obtain that information, and in which he expressed himself in this way:

The moneys deposited are to be carried to the credit of the Treasurer of the United States and are to be paid upon his drafts as they shall be presented; to cover which regular warrants shall from time to time issue.

This was the general characteristic of that period. There are other evidences.

For instance, a committee of the House in 1794 reported: The Treasurer has never any public money in his possession or custody which is not, in fact, deposited in banks.

Then in 1801 another House committee reported that, All moneys received by the Treasurer are deposited by him in the Bank of the United States and other banks.

I need not continue in that line, but it goes on up to the second period, which begins with the passage of the subtreasury act.

Now, the subtreasury act made it a felony to deposit a single dollar in a bank, an absolute felony, punishable by imprisonment of not less than six months nor more than ten years and a fine equal to the amount that was deposited, which was designated an embezzlement. That I call the second period, because nominally there were no deposits in banks. As a matter of fact, there were deposits in banks and the Secretary himself broke the law. He deposited as high as a million dollars, within a year after the passage of that act, in a bank to have it transferred from Boston to New Orleans, allowing

considerable time for the transmission of the money. Under the law the Secretary could have been punished and fined a million dollars, several million dollars, before he got through.

Mr. DaLZELL. How long does that period run?

Mr. HALLOCK. From August 6, 1846, to August 5, 1861. Nothing short of the civil war ever broke up that system. Then what occurred is very interesting. The subtreasury law was partially suspended by the act of August 5, 1861, passed, as you observe, only two weeks after the battle of Bull Run. But it was only suspended to the extent of permitting the Secretary of the Treasury to deposit in solvent specie-paying banks any moneys obtained on the loans then authorized. After that the Secretary had the power to use those deposits to any extent he pleased in payment of public dues. As a matter of fact, the deposits were not checked out. I can not blame the Secretary for it, perhaps, but the Department chose to demand specie from the banks of New York, Philadelphia, and Boston that had loaned the Government $150,000,000, in three lots of $50,000,000 each. The money was taken out of the banks of New York in bags of gold, and some of that gold was paid to the soldiers in the field as late as 1862, as I happened to learn. To have such public deposits in the banks of these three cities, then, was the first concession.

The second concession was the passage of the national currency act of February 25, 1863, which authorized the Secretary, in his discretion, to use as depositaries the national banking association formed under that act. That permitted him to deposit any public money, except receipts from customs. The next year (1864) that act was enlarged and made what is substantially the present section 5153 of the Revised Statutes, in regard to national banks as depositaries and financial agents of the Government. From that point we have no change until we get to 1901. Then that section was amended so as to permit the deposit of customs receipts in banks in Alaska, the Hawaiian Islands, and the other insular possessions of the United States. That was another concession. In 1907 all limitation was removed by the Aldrich Act, which permits the deposit of all customs receipts in banks. So, finally, we have this cycle running from 1789

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