Government in the United States, National, State and Local

by James Wilford Garner

Deposit of United States Funds.—The taxes collected by the national government, together with its other funds, are kept partly in the treasury and partly in the nine subtreasuries located at Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, Philadelphia, St. Louis, and San Francisco. In addition the secretary of the treasury is authorized to designate national banks as depositories and to deposit certain of the funds therein. In times of financial stringency or threatened crises, this authority may be used by the secretary to relieve the money market, by distributing the public funds among the depositories.

Federal Appropriations and Expenditures.—Having studied the sources of federal revenues, we come now to the subject of expenditures. Revenue bills are prepared, as we have seen, by the ways and means committee of the house of representatives. At first the appropriations of Congress were embodied in a single bill prepared by the committee on appropriations, but as the operations of the government expanded, the appropriations came to be embodied in a number of bills, sixteen in 1920, prepared by nine different committees. The committee on appropriations was responsible only for the half dozen more general appropriation bills, while other committees prepared the the bills appropriating large amounts for the army, navy, diplomatic service, post office, Department of Agriculture, District of Columbia, Indian service, and improvement of rivers and harbors. In 1921, however, the committee on appropriations was enlarged and again entrusted with the preparation of all the various appropriation bills, the house thus returning to the earlier system of a single committee responsible for all expenditures.

The growth of national expenditures has been rapid. The appropriations for 1916 reached the unprecedented amount of $1,637,583,682; those for the period of the war (1917-1918), $32,427,000,000, including $9,000,000,000 loaned to European allies. In 1921, the appropriations were reduced to about $5,500,000,000.

The National Debt.—Whenever the revenues of the government are insufficient to pay its expenses recourse must be had to increased taxes or loans. In time of peace the ordinary revenues ought to be sufficient to meet expenses, but when extraordinary expenses must be incurred as is the case when war breaks out, or foreign territory is purchased, or some great public work is to be constructed such as the digging of the Panama Canal, the government must have recourse to the borrowing power. The Constitution of the United States expressly confers upon Congress the power to borrow money on the credit of the United States, and no limitations whatever are placed on the exercise of the power, such as are generally imposed on state legislatures by the state constitutions.

United States Bonds.—The usual mode by which the government borrows money is by the issue of its bonds, obligations similar in most respects to promissory notes made by individuals. A government bond is simply a promise to pay a certain sum at a particular time and with interest at a certain rate. The bonds issued by the United States government are of two kinds: "registered" and "coupon" bonds. A registered bond is made out to the person who purchases it; a record is kept of it at the treasury department, and when it is transferred to another person the record must be changed so as to show the new owner.

The advantage of such a bond is that if it is accidentally destroyed or lost the owner suffers no loss. The chief disadvantage is the difficulty in transferring it. A coupon bond is one which has interest coupons attached to it, which may be clipped off and presented to the treasury for payment as the interest becomes due. The government keeps no record of the owner and it may be transferred as any other personal property. If a coupon bond is lost or destroyed, however, the owner cannot collect the amount of the bond. United States bonds are issued in various denominations and for periods of time which vary widely. Usually bonds are sold to the highest bidder, but occasionally they are disposed of by negotiation with capitalists on the best terms that can be secured. During President Cleveland's administration $262,000,000 of bonds were sold to New York capitalists in this way.

Rate of Interest.—The rate of interest which United States bonds pay has varied from time to time. The Revolutionary War debt bore six per cent, and so did most of the civil war bonds. After the Civil War, however, the rate at which the government was able to borrow steadily declined, largely because of the desire of national banks to secure United States bonds (page 232). The rate of interest on bonds now outstanding ranges from two to five per cent.

Growth of the National Debt.—When the Constitution went into effect, the national debt, including the war debts of the states which were assumed by the national government, amounted to about $127,000,000; but by 1836 the debt was extinguished and there was a surplus in the treasury which was distributed among the states. The enormous expenses of the Civil War, however, had to be met largely by loans, and at the close of the conflict (1866) the interest-bearing debt was more than $2,000,000,000. During the next twenty years the debt was reduced to about $600,000,000, but this amount was increased between 1895 and 1899 to about $945,000,000 on account of bond issues to replenish the gold reserve and to meet a portion of the expenses of the war with Spain. On June 30, 1915, the interest-bearing debt stood at $969,759,090. In 1917-19 five bond issues aggregating more than $21,000,000,000 were made on account of the war with Germany.

In addition there is also a non-interest-bearing debt of $389,407,800, of which $346,681,016 consists of treasury notes issued during the Civil War, and popularly known as "greenbacks" from their color. The national interest-bearing debt of the United States on June 30, 1921, amounted to about $24,000,000,000. The total debt of England is now about $40,000,000,000, that of France about $46,000,000,000, and that of Germany over $30,000,000,000.

The Monetary System.—The coining of money is now regarded everywhere as a proper if not a necessary function of government. Under the Articles of Confederation, this power was possessed by the states as well as by Congress, though in fact it was exercised by neither. The framers of the Constitution decided that the most effective way of securing a uniform system of money would be to place the whole matter under the control of the national government, and so Congress alone was given the power of coinage. At the same time, remembering how the states had before 1789 flooded the country with paper money which in some instances had become worthless, the framers of the Constitution wisely decided to prohibit them from issuing bills of credit, that is, paper designed to circulate as money. Likewise they were forbidden to make anything but gold and silver coin a legal tender in the payment of debts.