English banks raise interest rates and reduce credit, sending shock waves through the cotton market that initiate a six-year depression.

On October 12, 1837, the issuance of $10,000,000 in Treasury notes is authorized. On May 21, 1838 Congress rescinds the Specie Circular. On July 28, 1841, a bill reestablishing a national bank passes in the Senate by a vote of 26 to 23. On August 6, 1841, the bank bill is approved in the House of Representatives, 128 to 97. On August 13, 1841, The Independent Treasury Act of 1840 is repealed. On August 16, 1841, President Tyler vetoes the bank bill. On August 19, the U.S. Senate fails to override Tyler's veto. On August 23, 1841, by a vote of 125 to 94, the House of Representatives passes a second bank bill providing for the establishment of a national bank under another name. 

On September 3, 1841, The U.S. Senate approves, 27 to 22 the second bank bill. On September 4, 1841, Congress passes the Distribution Preemption Act, which allows settlers to purchase ("preempt") up to 160 acres of public land at $1.25 an acre. In addition, it provides for the distribution of the revenues from land sales among the states. However, the act also stipulates, that distribution will be suspended if the tariff rate exceeds 20 per cent. (A tariff increase in 1842 voids this section of the act.) On September 9, 1841, the second bill to reestablish a national bank is vetoed by President Tyler. The next day this veto is sustained in the Senate. On September 11, 1841, all the members of the Cabinet except Webster, resign because of President Tyler's veto of the bank bills. On September 13, the President makes new Cabinet appointments.

Second Annual Message

During the term of John Tyler while in office as President, April 4, 1841 to March 4, 1845.

Washington, December 6, 1842

To The Senate and House of Representatives of the United States:

Volume: IV Pages: 204-209 (extract) "Between the years 1833 and 1838 additions were made to bank capital and bank issues, in the form of notes designed for circulation, to an extent enormously great. The question seemed to be not how the best currency could be provided, but in what manner the greatest amount of bank paper could be put in circulation. Thus a vast amount of what was called money, since for the time being it answered the purposes of money, was thrown upon the country, an over-issue which was attended, as a necessary consequence, by an extravagant increase of the prices of all articles of property, the spread of a speculative mania all over the country, and has finally ended in a general indebtedness on the part of States and individuals, the prostration of public and private credit, a depreciation in the market value of real and personal estate, and has left large districts of country almost entirely without any circulating medium. 

In view of the fact that in 1830 the whole bank-note circulation within the United States amounted to but $61,323,898, according to the Treasury statements, and that an addition had been made thereto of the enormous sum of $88,000,000 in seven years (the circulation on the 1st of January, 1837, being stated at $149,185,890), aided by the great facilities afforded in obtaining loans from European capitalists, who were seized with the same speculative mania which prevailed in the United States, and the large importations of funds from abroad, the result of stock sales and loans, no one can be surprised at the apparent but unsubstantial state of prosperity which everywhere prevailed over the land; and as little cause of surprise should be felt at the present prostration of everything and the ruin which has befallen so many of our fellow-citizens in the sudden withdrawal from circulation of so large an amount of bank issues since 1837,exceeding, as is believed, the amount added to the paper currency for a similar period antecedent to 1837.

It ceases to be a matter of astonishment that such extensive shipwreck should have been made of private fortunes or that difficulties should exist in meeting their engagements on the part of the debtor States; apart from which, if there be taken into account the immense losses sustained in the dishonor of numerous banks, it is less a matter of surprise that insolvency should have visited many of our fellow citizens than that so many should have escaped the blighting influences of the times.

In the solemn conviction of these truths and with an ardent desire to meet the pressing necessities of the country, I felt it to be my duty to cause to be submitted to you at the commencement of your last session the plan of an exchequer, the whole power and duty of maintaining which in purity and vigor was to be exercised by the representatives of the people and the States, and therefore virtually by the people themselves. It was proposed to place it under the control and direction of a Treasury board to consist of three commissioners, whose duty it should be to see that the law of its creation was faithfully executed and that the great end of supplying a paper medium of exchange at all times convertible into gold and silver should be attained. 

The board thus constituted was given as much permanency as could be imparted to it without endangering the proper share of much responsibility which should attach to all public agents. In order to insure all the advantages of a well-matured experience, the commissioners were to hold their offices for the respective periods of two, four, and six years, thereby securing at all times in the management of the exchequer the services of two men of experience; and to place them in a condition to exercise perfect independence of mind and action it was provided that their removal should only take place for actual incapacity or infidelity to the trust, and to be followed by the President with an exposition of the causes of such removal, should it occur.

It was proposed to establish subordinate boards in each of the States, under the same restrictions and limitations of the power of removal, which, with the central board, should receive, safely keep, and disburse the public moneys. An in order to furnish a sound paper medium of exchange the exchequer should retain of the revenues of the Government a sum not to exceed $5,000,000 in specie, to be set apart as required by its operations, and to pay the public creditor at his own option either in specie or Treasury notes of denominations not less than $5 nor exceeding $100, which notes should be redeemed at the several places of issue, and to be receivable at all times and everywhere in payment of Government dues, with a restraint upon such issue of bills that the same should not exceed the maximum of $15,000,000.

In order to guard against all the hazards incident to fluctuations in trade, the Secretary of the Treasury was invested with authority to issue $5,000,000 of Government stock, should the same at any time be regarded as necessary in order to place beyond hazard the prompt redemption of the bills which might be thrown into circulation; thus in fact making the issue of $15,000,000 of exchequer bills rest substantially on $10,000,000, and keeping in circulation never more than one and one-half dollars for every dollar in specie. When to this it is added that the bills are not only everywhere receivable in Government dues, but that the Government itself would be bound for their ultimate redemption, no rational doubt can exist that the paper which the exchequer would furnish would readily enter into general circulation and be maintained at all times at or above par with gold and silver, thereby realizing the great want of the age and fulfilling the wishes of the people.

Volume: IV Pages: 204-209 (extract) "In order to reimburse the Government the expenses of the plan, it was proposed to invest the exchequer with the limited authority to deal in bills of exchange (unless prohibited by the State in which an agency might be situated) having only thirty days to run and resting on a fair and bona fide basis. The legislative will on this point might be so plainly announced as to avoid all pretext for partiality or favoritism. It was furthermore proposed to invest this Treasury agent with authority to receive on deposit to a limited amount the specie funds of individuals and to grant certificates therefore to be redeemed on presentation, under the idea, which is believed to be well founded, that such certificates would come in aid of the exchequer bills in supplying a safe and ample paper circulation.

Or if in place of the contemplated dealings in exchange the exchequer should be authorized not only to exchange its bills for actual deposits of specie, but, for specie or its equivalent, to sell drafts, charging therefore a small but reasonable premium. I can not doubt but that the benefits of the law would be speedily manifested in the revival of the credit, trade, and business of the whole country. Entertaining this opinion, it becomes my duty to urge its adoption upon Congress by reference to the strongest considerations of the public interests, with such alterations in its details as Congress may in its wisdom see fit to make.

I am well aware that this proposed alteration and amendment of the laws establishing the Treasury Department has encountered various objections, and that among others it has been proclaimed a Government bank of fearful and dangerous import. It is proposed to confer upon it no extraordinary power. It purports to do no more than pay the debts of the Government with the redeemable paper of the Government, in which respect it accomplishes precisely what the Treasury does daily at this time in issuing to the public creditors the Treasury notes which under law it is authorized to issue. It has no resemblance to an ordinary bank, as it furnishes no profits to private stockholders and lends no capital to individuals. If it be objected to as a Government bank and the objection be available, then should all the laws in relation to the Treasury be repealed and the capacity of the Government to collect what is due to it or pay what it owes be abrogated.

This is the chief purpose of the proposed exchequer, and surely if in the accomplishment of a purpose so essential it affords a sound circulating medium to the country and facilities to trade it should be regarded as no slight recommendation of it to public consideration. Properly guarded by the provisions of law, it can run into no dangerous evil, nor can any abuse arise under it but such as the legislature itself will be answerable for if it be tolerated, since it is but the creature of the law and is susceptible at all times of modification, amendment, or repeal at the pleasure of Congress.

I know that it has been objected that the system would be liable to be abused by the Legislature, by whom alone it could be abused, in the party conflicts of the day; that such abuse would manifest itself in a change of the law which would authorize an excessive issue of paper for the purpose of inflating prices and winning popular favor. To that it may be answered that the ascription of such a motive to Congress is altogether gratuitous and inadmissible. The theory of our institutions would lead us to a different conclusion. But a perfect security against a proceeding so reckless would be found to exist in the very nature of things. 

The political party which should be so blind to the true interests of the country as to resort to such an expedient would inevitably meet with final overthrow in the fact that the moment the paper ceased to be convertible into specie or otherwise promptly redeemed it would become worthless, and would in the end dishonor the Government, involve the people in ruin and such political party in hopeless disgrace. At the same time, such a view involves the utter impossibility of furnishing any currency other than that of the precious metals; for if the Government itself can not forego the temptation of excessive paper issues what reliance can be placed in corporations upon whom the temptations of individual aggrandizement would most strongly operate? The people would have to blame none but themselves for any injury that might arise from a course so reckless, since their agents would be the wrongdoers and they the passive spectators.

There can be but three kinds of public currency first, gold and silver; second, the paper of State institutions; or, third, a representative of the precious metals provided by the General Government or under its authority. The sub-treasury system rejected the last in any form, and as it was believed that no reliance could be placed on the issues of local institutions for the purposes of general circulation it necessarily and unavoidably adopted specie as the exclusive currency for its own use; and this must ever be the case unless one of the other kinds be used.

The choice in the present state of public sentiment lies between an exclusive specie currency on the one hand and Government issues of some kind on the other. That these issues can not be made by a chartered institution is supposed to be conclusively settled. They must be made, then, directly by Government agents. For several years past they have been thus made in the form of Treasury notes, and have answered a valuable purpose. Their usefulness has been limited by their being transient and temporary; their ceasing to bear interest at given periods necessarily causes their speedy return and thus restricts their range of circulation, and being used only in the disbursements of Government they can not reach those points where they are most required. By rendering their use permanent, to the moderate extent already mentioned, by offering no inducement for their return and by exchanging them for coin and other values, they will constitute to a certain extent the general currency so much needed to maintain the internal trade of the country. And this the exchequer plan so far as it may operate in furnishing a currency.

Volume: IV Pages: 204-209 (extract) "I can not forego the occasion to urge its importance to the credit of the Government in a financial point of view. The great necessity of resorting to every proper and becoming expedient in order to place the Treasury on a footing of the highest respectability is entirely obvious. The credit of the Government may be regarded as the very soul of the Government itself, a principle of vitality without which all its movements are languid and all its operations embarrassed. In this spirit the Executive felt itself bound by the most imperative sense of duty to submit to Congress at its last session the propriety of making a specific pledge of the land fund as the basis for the negotiation of the loans authorized to be contracted.

I then thought that such an application of the public domain would without doubt have placed at the command of the Government ample funds to relieve the Treasury from the temporary embarrassments under which it labored. American credit has suffered a considerable shock in Europe from the large indebtedness of the States and the temporary inability of some of them to meet the interest on their debts. The utter and disastrous prostration of the United States Bank of Pennsylvania had contributed largely to increase the sentiment of distrust by reason of the loss and ruin sustained by the holders of its stock, a large portion of whom were foreigners and many of whom were alike ignorant of our political organization and of our actual responsibilities.

It was the anxious desire of the Executive that in the effort to negotiate the loan abroad the American negotiator might be able to point the money lender to the fund mortgaged for the redemption of the principal and interest of any loan he might contract, and thereby vindicate the Government from all suspicion of bad faith or inability to meet its engagements. Congress differed from the Executive in this view of the subject. It became, nevertheless, the duty of the Executive to resort to every expedient in its power to do so.

After a failure in the American market a citizen of high character and talent was sent to Europe, with no better success; and thus the mortifying spectacle has been presented of the inability of this Government to obtain a loan so small as not in the whole to amount to more than one-fourth of its ordinary annual income, at a time when the Governments of Europe, although involved in debt and with their subjects heavily burdened with taxation, readily obtained loans of any amount at a greatly reduced rate of interest. It would be unprofitable to look further into this anomalous state of things, but I can not conclude without adding that for a Government which has paid off its debts of two wars with the largest maritime power of Europe, and now owing a debt which is almost next to nothing when compared with its boundless resource, a Government the strongest in the world, because emanating from the popular will and firmly rooted in the affections of a great and free people, and whose fidelity to its engagements has never been questioned for such a Government to have tendered to the capitalists of other countries an opportunity for a small investment in its stock, and yet to have failed, implies either the most unfounded distrust in its good faith or a purpose to obtain which the course pursued is the most fatal which could have been adopted. It has now become obvious to all men that the Government must look to its own means for supplying its wants, and it is consoling to know that these means are altogether adequate for the object.

The exchequer, if adopted, will greatly aid in bringing about this result. Upon what I regard as a well-founded supposition that its bills would be readily sought for by the public creditors and that the issue would in a short time reach the maximum of $15,000,000, it is obvious that $10,000,000 would thereby be added to the available means of the Treasury without cost or charge. Nor can I fail to urge the great and beneficial effects which would be produced in aid of all the active pursuits of life. Its effects upon the solvent State banks, while it would force into liquidation those of an opposite character through its weekly settlements, would be highly beneficial; and with the advantages of a sound currency the restoration of confidence and credit would follow with a numerous train of blessings. My convictions are most strong that these benefits would flow from the adoption of this measure; but if the result should be adverse there is this security in connection with it---that the law creating it may be repealed at the pleasure of the Legislature without the slightest implication of its good faith.

JOHN TYLER

[END OF ARTICLE]