The president's primary concern was for the safety of government funds entrusted to state banks. When Congress convened, his opponents would demand new safeguards and, if none were forthcoming, would undoubtedly move to dismantle the entire deposit system, leaving the door open for recharter of a national bank. To foreclose this possibility, Van Buren advocated a separation of government funds from state banks and control of these monies by designated federal agents.
The advantages of a separation of bank and state were several. By removing its funds from state banks, the federal government would avoid association with institutions instrumental in bringing on the panic. 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. While economically feasible, this plan contained numerous political pitfalls. Even though requiring a minimum of enabling legislation, an independent treasury, or subtreasury, as it would soon be known, carried an implicit criticism of state banks. According to one proponent, these institutions would henceforth be "left to their fate." Furthermore, as Silas Wright warned, the divorce of bank and state would make the president vulnerable to charges that he wanted to "extend executive patronage and power." Although disappointed by the waverings of state leaders, Van Buren realized that he needed their support to succeed in the special session of Congress that convened on 4 September 1837.
In recommending the creation of an independent treasury, the president invoked Jeffersonian rhetoric in an attempt to disguise the radical aspects of his program. He cautiously explained the origins of the panic, being careful not to blame state banks for the collapse. "All communities are apt to look to government for too much," the president told the special session. "If, therefore, I refrain from suggesting to Congress any specific plan for regulating the exchanges of the country, relieving mercantile embarrassments, or interfering with the ordinary operations of foreign or domestic commerce, it is from a conviction that such measures are not within the constitutional province of the General Government." But the government was obliged to safeguard its own funds. It was in this context that Van Buren recommended an independent treasury. In so doing, he was careful to point out that such a program required no increase in government patronage.
Although cautious and couched in familiar terms, the president's proposals constituted a radical departure from the premise upon which the Democratic party was built. As a loose and often factious coalition of state interests, the Jacksonian alliance functioned smoothly so long as state leaders could interpret federal policy to suit their own interests. Van Buren's proposal for an independent treasury contained no encouragement for state initiative. Quite the contrary, the president placed the needs of the federal government ahead of those of the states. He reversed the delicate balance of political priorities that he had struggled so long to maintain. No matter how careful his wording, how respectful his tone, the president had created a dilemma from which there would be no easy escape.
The Congress that listened respectfully to Van Buren's message was fully under Democratic control. The president's supporters had majorities on all twenty-two standing committees in the Senate and on eighteen of thirty committees in the House, where they had only a sixteen-vote advantage. Democrats enjoyed a two-to-one majority on the crucial committees in both houses that would consider the president's financial proposals. In a normal congressional session, such organization would have given the Democrats firm control of the legislative process. But these were extraordinary circumstances. Conservative Democrats, deeply committed to state banks, threatened to rebel on the subtreasury issue.
This revolt fed on disagreements between the president and his state supporters. Governor William Marcy of New York, once a loyal member of the Regency, refused to endorse Van Buren's special session proposals, despite the pleadings of the attorney general, who made a special visit to Albany. In an angry exchange with Butler, Marcy came right to the heart of the party's dilemma. He asked "if the men at Washington expected that I was to proclaim a divorce between the government of the state and the banks." Butler said no. In that case, Marcy continued, "what sort of supporters of Mr. V. B. shall we be if we repudiate his doctrines as applicable to the states?" To this pointed question, there was no reply. In Virginia, Thomas Ritchie remained outspoken in his criticism of an independent treasury and his defense of the state-bank deposit system.
Despite the growing influence of the conservative cause, the president's legislative spokesmen pushed ahead with their relief proposals. Wright and Cambreleng were able to secure passage of bills postponing the final distribution of surplus revenue, establishing a schedule for recovery of government deposits, granting leniency in the collection of customhouse bonds, and authorizing an issue of Treasury notes to cover government expenses. In both houses, Democrats united to enact these measures after a minimum of debate.
Democratic unity evaporated during the debates on an independent treasury. Pennsylvania's James Buchanan claimed that the president's proposal was perfectly consonant with Jeffersonian principles of limited government. Silas Wright echoed these sentiments. The new voices were those of conservative Democrats who urged reform, not abandonment, of the state banks. Borrowing rhetoric from the Whigs, they charged the president with seeking to enlarge executive patronage and wield new power by the act of collecting and storing revenue. Despite these strong criticisms, Wright's leadership prevailed and the Democrats, on 3 October 1837, secured Senate approval for creation of an independent treasury by the narrow margin of twenty-five to twenty-three.
In the House, Cambreleng lost control of the debate, allowing South Carolina's Francis Pickens to speak on behalf of an independent treasury only to launch into a diatribe against northern capitalism and its war on slavery. Such emotionalism proved infectious. When Cambreleng made his long-awaited defense of the president's proposal, he lashed out against all banks, arguing that an independent treasury "would be a steady and salutary check, in preventing the excess and unwarrantable issues" of these institutions. Cambreleng concluded with a bold declaration: "We fear not the results of this experiment."
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 14 October 1837, by a vote of 120 to 107, the House postponed consideration of an independent treasury. The circumstances surrounding this critical vote added to the president's disappointment. John Clark, a congressman from Van Buren's home state, introduced the motion to postpone, reminding his colleagues that even the Albany Argus had failed to endorse an independent treasury.
As soon as the special session adjourned, Van Buren tried to allay fears created by the angry congressional debates. Secretary of the Treasury Woodbury wrote to friends in the New York financial community, asking how the administration could make clear that it did not intend to suppress banks or introduce a metallic currency. All the replies sounded the same disturbing theme. "The divorce of Bank and State is a Manifesto from the highest authority in the country," wrote one New York banker, "proclaiming that the State Banks are unsafe as depositories." Whatever gains Van Buren made by such private inquiries were immediately undercut by a series of devastating editorials in the Washington Globe denouncing the conservatives and striking at banks in general. This harangue occurred shortly before the fall elections in New York, where Whigs gained sixty-seven seats in the state assembly, thereby establishing a clear majority and destroying a pillar of Regency power.
Although alarmed by the defeat in New York, Van Buren continued to concentrate on what he perceived as a crisis for the federal government alone. In December 1837 he again proposed the subtreasury system, this time adding a special deposit feature to please the conservatives. The president's calm and deliberate message drew praise from all segments of the party but could not overcome the emotionalism generated by the panic.
No sooner had Democrats organized themselves in Congress than a heated sectional debate ensued, caused by John C. Calhoun's introduction of six pro-slavery resolutions. Van Buren appreciated Calhoun's support for the subtreasury bill at the special session but was not about to let the South Carolina senator disrupt Democratic unity. The president remained firm in his commitment to Jeffersonian principles as they applied to all state issues, including slavery. In accord with this philosophy, Van Buren's Senate supporters modified the resolutions so that the final wording enjoined the government against interfering with states' rights, whereas Calhoun wanted a pledge of federal protection for slavery. Not until early February 1838 did the Senate begin debate on the subtreasury system, only to be interrupted a second time by an oratorical fight between John C. Calhoun and his archrival, Henry Clay. Finally, on 26 March 1838, the Senate approved the independent-treasury bill by twenty-seven to twenty-five.
The narrow margin of victory did not augur well for deliberations in the House. Conservatives picked up support with each delay and took further encouragement from spring elections in Virginia. For the first time in more than a decade, the Richmond junto faced the prospect of an opposing party in control of the state legislature. In May 1838, Congress repealed the Specie Circular of 1836 and New York banks resumed specie payments, thereby increasing conservative momentum. Van Buren realized that the resumption damaged chances for House approval of an independent treasury, but he continued to press the measure as the only alternative to a national bank. Indeed, Nicholas Biddle wrote to a member of Van Buren's cabinet claiming that his bank was ready to resume its role as exclusive depository for government funds. "Its whole machinery can be re-mounted in twenty-four hours," Biddle claimed.
Cambreleng pushed for passage of the subtreasury bill in mid-June, and this time maintained tight control of debate. He prevented key Democrats from abstaining as they had at the special session and added strength from South Carolina without allowing any of Calhoun's followers to raise the question of slavery. Although highly disciplined, House Democrats could not overcome the results of electoral losses in New York and Virginia. Where once these two state machines had worked closely with members of their congressional delegations, the Whig triumphs made state Democrats reluctant to speak out against their banks and eager to avoid a definite stand on an independent treasury. Once again their wavering had a telling impact: on 25 June 1838, by a vote of 125 to 111, the House defeated the bill.
The resumption of specie payments and the failure of the president's program placed Democrats on the defensive in the fall elections. In New York, under the skillful leadership of Thurlow Weed, the Whigs developed a political organization as sophisticated and extensive as the Regency. Whig editors promised that their gubernatorial candidate, William H. Seward, would restore financial order. These well-orchestrated appeals prompted a huge voter turnout and a Whig victory that captured the legislature and placed Seward in the governor's mansion. Disconso-late, the Democrats blamed their loss on the panic and the federal government. In leaving office, Marcy concluded that "the election was conducted chiefly with reference to the policy of the federal government. If we had had nothing but our own policy to vindicate, I cannot bring myself to doubt that we should have had a different result."
The Whig triumph came as a bitter blow to Van Buren. The Albany-Richmond axis, once the backbone of the Jacksonian alliance, had been broken by the Whigs, who would remember the lesson well. In celebrating their stunning sweep of the Empire State, they were already looking ahead to the next presidential campaign. "Mr. Van Buren's chances for reelection may now be considered desperate," wrote one political observer.
Bowed but not broken, the president continued his efforts to refine his economic proposals. In his second annual message, on 3 December 1838, he argued that an independent treasury would eliminate the possibility of fraud such as the one that had recently occurred when Samuel Swartwout had absconded with over a million dollars in government revenue from the New York Customhouse. Van Buren's congressional opponents seized on this scandal to investigate the handling of Treasury funds. In a lengthy report in late February 1839, a special House committee concluded that Swartwout's defalcation had been aided by a Democratic fiscal policy that had discontinued "the use of banks as depositories."
Having consumed much of their energy on this investigation, Whigs moved for adjournment. Realizing that it would take months to clear the air, House Democrats agreed and abandoned efforts to pass the independent-treasury bill. This truncated session of Congress came to a close on 4 March 1839, the second anniversary of Van Buren's inauguration. The administration was hardly in a mood to celebrate. "We have at last got rid of Congress," wrote the secretary of the treasury, "and a most disreputable one in many respects it has been."
Before the fall elections could bring the president a more cooperative Congress, another financial crisis struck the country. The resumption of specie payments in 1838 triggered an expansion of credit and borrowing that in turn fed an inflationary economy. State governments again promoted internal improvements, often by borrowing from abroad to raise funds. Biddle's bank in Philadelphia, now under Pennsylvania charter, led this expansionist surge, only to be hard hit by sudden credit restrictions in England in 1839. In October 1839, the bank suspended specie payments; nearly half of the nation's 850 banks followed suit. The political consequences were immediate. The fall elections destroyed the conservative Democrats, especially in New York and Virginia, leaving Van Buren in control of a weakened but united party.
The president seized the advantage. In recommending an independent treasury to the new Congress, he abandoned the conciliatory language of the past. He blamed renewed financial failures on foreign investors and state banks, urging Congress to adopt measures to safeguard the country from further speculative crazes. For the first time, he urged that all government revenue be collected and disbursed in gold and silver. This provision, coupled with the proposed subtreasury system, would have "a salutary influence on the system of paper credit with which all banks are connected." Although careful to recognize that some banks were already "sound and well managed," Van Buren advocated the subtreasury system as a mechanism for reform and regulation of the nation's economy. He told supporters that he had taken "strong ground" that he hoped would break the congressional deadlock.
While the president was in a bold mood, his congressional managers were disorganized. Democrats retained control of the Senate, where they passed the subtreasury bill on 23 January by a vote of twenty-four to eighteen. Their margin in the House was so small that they had to await the outcome of six disputed elections before pressing Van Buren's program. In the meantime, the Whigs captured the powerful position of Speaker of the House and, with it, control of a majority of standing committees. Nearly three months elapsed before the House resolved the disputed elections, adding five seats to the Democratic total. Still, floor managers hesitated to close off debate, fearing that defeat of the subtreasury bill would destroy Van Buren's remaining chances for reelection.
The Whigs took advantage of delays to assail Democratic fiscal policy in speeches that were quickly converted into campaign circulars. Finally, on 30 June 1840, the Democrats closed debate and pushed for a vote. Van Buren won his long-awaited victory 124 to 107. At 3:00 P.M. on 3 July 1840, the president received the subtreasury bill. He decided to wait twenty-four hours before signing what the party would thereafter call a "second Declaration of Independence." The president was at last free from a measure that had become an obsession.