money without the assistance of banks has several advantages. In the first place, the money is apt to be safe when the government keeps its own funds. It is true that in the first few years after 1846, when the system was adopted, the provisions of the various depositories were entirely inadequate for the safety of the public money, but that condition has long since passed away. At the present time the probability of loss by the government is practically zero.

By this system also, the money is always under the immediate control of the government. Its drafts can be met promptly. Being separated from the banks in its fiscal affairs, its operations are not apt to be handicapped by bank failures, as was the case in 1837. In the crisis of 1857, the government operations were not interfered with by the panic, and Secretary Cobb wrote that the independent-treasury system of keeping the public money had proved itself eminently successful. When the money is kept in the independent treasury, there is almost no likelihood of its being misappropriated, or illegitimately used in speculation. There is little probability of the government losing control of its funds from this cause, far less than there would be were the money kept in banks whose business it is to loan, and whose reckless extension of discounts might deprive the government of the control of its funds for a considerable period.

Again, by this method, a large surplus can be so managed, as not to encourage speculation. By keeping its surplus revenue in its own vaults, the government is able to prevent the rise of a speculative spirit, which would undoubtedly be encouraged were the surplus deposited in the banks. As long as the policy of surplus financiering is kept up, a reserve should be kept by the government for use in time of emergency. Speaking of putting the government deposits in banks, the Banker's Magazine says:1 "This, however, we believe would be no help. at all (for relieving stringencies), for the banks, doubtless, would lend these deposits just as they do others, and, therefore, there would be nothing left, especially for times of stringency. . . . This remedy, therefore, has no merit whatever. What is needed is a reserve somewhere, and for aught we see, the government might just as well keep it as the banks."

1 Banker's Magazine, November, 1890.

By this method there is little possibility of party discrimination or favoritism on the part of the officers. Few charges of this kind have ever been made against the independent treasury. It has been pointed out that the secretary has the power to contract or expand the circulation considerably, but during the fifty years that the system has been in operation, he has never been charged with using the power improperly. The publicity of the operations of the treasury, the immense responsibility imposed upon the treasurer and assistant treasurers, and the perpetuity of their bonds, would seem to render speculation on their part extremely improbable.

Aside from its inconvenience and expense, which have already been alluded to, the chief disadvantage of this fiscal policy is that it is likely to disturb the money market. Unless the government makes its payments with considerable frequency, the locking up of its funds in its vaults may result in a stringency. Especially is this true in times of a surplus.

When the policy of surplus financiering is pursued, it is difficult to keep the surplus in the channels of trade. The surplus revenue locked up in the vaults of the treasury is practically as much withdrawn from circulation as though it had been exported. When the surplus accumulations of the government become very large, as in 1888-89-90, they cause serious apprehension to the business interests of the country. In the last of these years, this apprehension, combined with the nervous condition of the money market, resulted in a panic which was somewhat relieved by the expenditure of the surplus in the purchase of bonds. In fact, the purchase of bonds has been the only method resorted to in times of crisis to put the surplus into the channels of trade, and it has been only partially successful. Its failure lies in the fact that it does not allow those who most need the money at such times to secure it.

89. The Methods of Municipalities. Dr. F. R. Clow gives the following account of the functions of the city officials who are concerned with the details of financial administration : 1

1 The Administration of City Finances in the United States. Reprinted with consent of the author and the American Economic Association.

I. THE TREASURY

When a corporation possesses any money, there must be some one to hold it. This person, in the cities of the United States, is almost universally known as the treasurer. In Baltimore he is called the "register," and in New York he is called the "chamberlain"; Albany and Troy also had chamberlains under their old charters. In the development of government the treasurer is among the first officers to be provided for. The Dongan charter of 1686 provided that the council of New York should elect a chamberlain or treasurer. The town board of Chicago, at its first meeting in 1833, elected a president and treasurer. In 1837, on the granting of the first charter, "the treasury was the first administrative department to be organized." Philadelphia did not have a regular treasurer before 1789; either the mayor or an alderman was appointed treasurer. However, the first ordinance passed under the charter of 1789 was "for ascertaining the duty and pay of the treasurer."

In early times the treasurer was appointed by the council, evidently in accordance with the disposition in the colonies to keep the purse in the hands of the representatives of the people. When the tendency to make all offices elective set in, the treasurer felt the full force of it; but the recent tendency to have officials appointed by the mayor has not included the treasurer. He is now nearly always elected by the popular vote; the exceptions noted are Bangor, Manchester, Baltimore, and several Massachusetts cities where he is appointed by the council, and Boston and New York, where he is appointed by the mayor.

The prevailing term of office of the treasurer, as of all state and local officers, is two years. In New England the cities generally retain the one-year term as they had it when their government centered in the annual town meeting; but in 1897, Boston and New Haven adopted the biennial term. The oneyear term also exists in Superior. Philadelphia and Camden have a three-year term; New York, Buffalo, and New Orleans have a four-year term.

The treasurer is uniformly required to give bonds for the faithful performance of his duties, as is often required of other officers; but in his case the bond is very heavy on account of

the large sums of money intrusted to him. The exact amount of the bond, however, seems to be largely a matter of chance or caprice, as it bears no fixed ratio, even approximate, to either the size of the city or the sums usually kept in the treasury.

Formerly the bond was a personal one; that is, it was made up by the friends, chiefly political, of the officers to be bonded, and their reliability had to be passed on by the council or some other officer of the city. But that method of securing the bond is inconvenient and disagreeable to all concerned, is open to great abuses, and is often found insecure. Now the bond is often provided by a surety company for a consideration, and the transaction is a purely business one all around. The business of corporate bonding is of very recent growth, though there is still great room for its extension, especially in the West and South. One who is intimately associated with it, estimated in 1898, that only one tenth of the surety business was carried by corporations. Since then the amount of it has increased about one half.

This development is having highly beneficial results. Real security is afforded where only an appearance of security existed before. But more valuable than this is the improvement in methods of administration, brought about in the same way as fire insurance companies occasion improvements in protection from fires. The officers of the surety companies know the elements of risk and of safety better than legislators or city officers; they proportion the rates somewhat according to the risk, and they refuse to give bond in any case unless certain conditions are complied with; they thus offer a definite pecuniary inducement for the introduction of the best methods of handling city funds.

The most important of these devices to secure safety of the city funds is the requirement that all money received be promptly deposited in banks and that payments be made by checks. This, when combined with a proper accounting system, renders it impossible for the treasurer to steal outright any considerable sum without the aid of the accounting officers or of the bank officials. In Grand Rapids, for example, the council selects a bank in the city to serve as a depository of the city funds. The. bank gives a bond for $500,000. It keeps its

account with the city in books provided by the city and open to the inspection of the treasurer, the comptroller, the city attorney, or any member of the council. It must also report monthly to the council stating the amount of money on deposit. The treasurer must deposit daily all money received by him. He receives duplicate receipts for deposits, filing one copy in his own office and the other with the comptroller. Money can be drawn from the depository only on a check signed by the clerk and the comptroller. The surety company requires daily reports of the receipts, the payments, and the amount on deposit. For the loss of money in the depository, the treasurer and his sureties are not held responsible.

In Manchester, to take another example, the treasurer's bond is $60,000. It was formerly personal and was furnished by persons connected with the bank that held the city deposits. In 1898 corporate bonding was introduced; now all the bonds. of the city officers are furnished by surety companies, and the cost is paid by the city.

This last feature- the saddling of the cost of the bond upon the city is frequently met with. The regular rate of the premium is 50 cents per $100 per annum. But keen competition between the companies has led to much cutting of rates. The average rate realized on the surety risks in 1900, as given by the Connecticut Insurance Report, was a trifle under 40 cents.

It is not usual to require bonds of banks that hold city deposits, but the numerous losses by failure of banks during the panic of 1893 led to an extension of the practice. The extreme measure of safety seems to be taken in Duluth; there the deposits are distributed among five banks in proportion to their capital, and no bank may receive deposits to exceed one half the amount of its bond.

A little over half of the cities receive interest on their deposits and the proportion is on the increase. Where no interest is received, the custody of the city funds is in danger of becoming one of the political spoils. When a Manchester bank furnished the treasurer's bond, that bank had the city deposits and paid no interest on them. If the treasurer is allowed to keep the money where he pleases, the interest goes into his pocket; in Minneapolis until recently, this was the way in which the treas