The Subtreasury and Specie Crisis of 1838: Daniel Webster Predicts That the President Van Buren’s Subtreasury Bill Will Not Pass: He rightly assumes New York banks will resume specie payments in May and that Massachusetts should wait and follow

A fascinating letter and assessment of the great issue of the day

Under a system of specie payments, it is required by law or custom that money in the form of bank notes or government paper money issues, be redeemed at par and upon request of the issuing bank or the Treasury in metallic coin. And that meant gold or silver. The temporary suspension of specie payments was a general feature of 19th century specie standards. Banks would unilaterally refuse to redeem their outstanding notes in specie at the legal par, creating a dual monetary system-currency and deposits not interchangeable at a fixed rate. The years 1830–1837 saw solid economic development as well as feverish speculation in land in the U.S. This eventually led to the panic of 1837 and a nationwide suspension of specie payments.

In 1837, President Van Buren’s primary concern was for the safety of government funds entrusted to state banks. When Congress reconvened, he was worried that opponents would demand new safeguards and, if none were forthcoming, would undoubtedly move to dismantle the deposit system, leaving the door open for recharter of a national bank. Van Buren and Democrats opposed a national bank and Whigs like Daniel Webster favored it. Van Buren advocated a separation of government funds from state banks and control of these monies by designated federal agents. The government would collect, store, and disburse public revenue through Treasury agents and postal employees and not be open to the charge that these funds were the basis for unchecked speculation. Even though requiring a minimum of enabling legislation, an independent treasury, or subtreasury, as it would be known, carried an implicit criticism of state banks. According to one proponent, these institutions would henceforth be ""left to their fate."" Democrats, on October 3, 1837, secured Senate approval for creation of an independent treasury by the narrow margin of twenty-five to twenty-three. By opposing an independent treasury as a radical experiment, conservatives claimed to be the true champions of states' rights and limited government. Their obstructionist strategy proved successful. On October 14, 1837, by a vote of 120 to 107, the House postponed consideration of the independent treasury.

A new subtreasury system was proposed in 1838. Not until early February did the Senate begin debate on it, only to be interrupted by an oratorical fight between John C. Calhoun and his arch-rival, Henry Clay. Finally, on March 26, 1838, the Senate approved the independent-treasury bill by twenty-seven to twenty-five. But In May 1838, New York banks resumed specie payments, a lead followed by others, thereby increasing anti-subtreasury momentum. Whigs promised to restore financial order and were successful with the electorate. The House failed to pass the bill, and it was not until 1840 that it became law. It lasted just one year before the Whigs repealed it.

Here is Daniel Webster’s take on the status of the bill and resumption of specie payments in the midst of the controversy. Autograph letter signed, New York, April 9, 1838, to Mr. Marett, likely Philip Marett, the Boston banker, marked “Private”. The Hamer mentioned was Thomas Hamer of Ohio, the man who nominated Ulysses S. Grant to be a cadet at West Point. “I have expressed the opinion, which you have heard ascribed to me, respecting the consequences of passing the Sub-Treasury Bill. But the bill will not pass, in any form. I regard that as being now certain. Mr. Hamer’s demonstration is conclusive upon that. He is the first man of his party in the House of Representatives. I have known for some time that he has been disgusted, & I have expected an outbreak.

“You will see that Pa. & all South against resumption at present. I see too that Boston is similar & suppose that the rest of New England is not unanimous for it. Under these circumstances it would be wise to pledge Massachusetts to resume in May at all events, I very much doubt. I suppose N.Y. will resume. Why not leave to New England to follow, if she finds she can, or as soon as she can.

“My impression is that the industry of Massachusetts cannot bear any further curtailment of the currency. I certainly therefore should not be in favor of resumption if the consequence would be to press the mercantile interest still harder. Even a short time may enlighten us on the question. There is some evidence that Georgia is relenting in its hostility. Mr. Hamer’s motion is one proof. Another is that the Collector here, it is now said, receives payment of bonds by checks on the banks.

“On the whole, since there cannot be unanimity, and as every week may change appearances, I incline to think the course for Massachusetts is to show her favorable to resumption at the earliest safe moment, but not to bind herself to resume in May. You may show this to Mr. Hubbard but I should not wish its existence to be known to anybody else.”

An interesting assessment of the status of what was the great political issue of the day.