The history of the Treasury Department is, in many ways, the story of America itself, an engaging tale of how a nation grows from the teetering first steps of self-governance to the bold strides of a world leader moving assuredly through an increasingly complex global society. As the third-born of the family of federal departments – but first out in the field — Treasury became an experiment in bureaucracy, born of inexperienced parents, raised by forefathers of broad imagination but unlearned in how best to manage a nation. But as both America and its Treasury matured in the first half of the 19th century, the department grew to become arguably the most important of all federal entities, eclipsing both State and War in the early triumvirate of departments, a wide-reaching organization that, with miraculous efficiency, cared for the country through an ever-expanding roster of bureaus, from the US. Customs Service in 1789 to the Bureau of Engraving and Printing in 1862, from the U.S. Mint in 1792 to the U.S. Secret Service in 1865, from the Internal Revenue Service in 1862 to the Office of the Comptroller of the Currency in 1863, from the Bureau of the Public Debt in 1940 and the U.S. Savings Bonds Division in 1945 to the Federal Law Enforcement Training Center in 1970 and the Bureau of Alcohol, Tobacco, and Firearms in 1973, from the Financial Management Service in 1974 and the Office of Thrift Supervision in 1989, down to the Financial Crimes Enforcement Network in 1990.
Two seismic occurrences in the history of the federal government would shake up the happy family of bureaus. In 1903, the Department of Commerce and Labor was created, and a number of long-time Treasury bureaus would be transferred to the new entity, including the Coast Survey, the Office of Standard Weights and Measures and the Bureau of Statistics. One hundred years later, in 2003, the Department of Homeland Security would be established, taking with it such Treasury stalwarts as the Customs Service, the Secret Service and the Federal Law Enforcement Training Center. But like the nation it served, Treasury carried on through the changes, caring for the nation in so many ways.
In the statistics of the Treasury Department resides the financial history of America, a wondrous account of the material progress of a nation from its beginning, from its dependent state as a main importer of goods to its dominant state as exporter to the world. In 1796, the nation exported products valued at $67 million; by 1866, America was exporting nearly $2 billion worth of goods – quite remarkable growth in a relatively short span. But the bureaus of the Treasury Department served the county in innumerable ways beyond financial. As Mary Clemmer Ames, Washington correspondent for the New York Independent wrote in her 1873 work Ten Years in Washington, “One might as well try to snatch up a city and portray it in a sitting, as even to outline the Treasury of the United States in a single chapter.”
On September 2, 1789, less than six months after the first Congress of the United States under the Constitution convened in New York City, the austere gathering created what would arguably be the most influential in the early trio of federal departments: The Department of the Treasury. It was not the first department created: that honor goes to the Department of State, created on July 21, 1789 as the Department of Foreign Affairs, its name changed just three months later. Nor was Treasury the second department formed: Congress created the War Department on August 7, 1789. But the Department of the Treasury would eclipse both in the early years of the nation as the most vital, most innovative, the most revered and reviled of all federal departments.
For President George Washington, filling the position of Secretary of the Treasury was a decision fraught with enormous consequences for the young nation. Virtually bankrupt, the country was staggering under a national debt of $54 million, in addition to another $25 million in state debt. Creditors both home and abroad questioned whether the new republican government could shake this burden that was threatening to sink the brave new democratic experiment. Much of the outstanding debt had already ceased to pay principal or interest, and was being traded for the pathetic sum of 15 cents on the dollar.
Washington knew that whoever stepped into this financial breach had to be a man of extraordinary intellect, politically persuasive but with a keen financial acumen. Reportedly, the president’s first choice for the position was Robert Morris, the wildly successful Philadelphia merchant, signer of the Declaration of Independence and the Constitution, whose personal dictum was “Life is too short to waste.” Morris was also known as the Financier of the Revolution, since he secured the loans that paid for the war that plunged the nation into debt. Morris declined the position, but instead suggested Washington’s former aide-de-camp, Alexander Hamilton. Washington had little idea that Hamilton was so respected in financial circles. He knew him to be an able military man, and a staunch proponent of the Constitution: as author of 51 of the 83 essays in The Federalist Papers, the influential apologia for the newly crafted Constitution, Hamilton had already proven his power in the political realm. But from his boyhood years in a St. Croix counting house, Hamilton had made financial theory an area of continuing study. Throughout the Revolution he carried with him two large, folio-sized volumes entitled The Universal Dictionary of Trade and Commerce, by the Scottish economist Malachy Postlethwayt. He made copious notes on the empty pages of military pay books about such varied subjects as foreign exchange and population growth. So when Washington approached Hamilton with an offer to become the first Secretary of the Treasury, he readily accepted.
Presented to Congress on September 11, 1789, and confirmed by the Senate the same day, Hamilton wasted no time in righting the nation’s financial woes. The following day he secured a $50,000 loan from the Bank of New York, which he had helped found. The day after that, he solicited a similar loan from the Bank of North America in Philadelphia. But Hamilton’s first steps toward national solvency were not fast enough for an impatient Congress. Only 10 days after his confirmation, the House of Representatives directed Hamilton to prepare a comprehensive report on the state of America’s public credit – and gave him a scant 110 days to produce the work. What Hamilton delivered to Congress – his seminal Report on Public Credit – presented not only a blueprint for the construction of a strong central Treasury, but offered a broad vision of what America’s fiscal policies should be. In the opening pages of his Report, Hamilton intoned that “the debt of the United States…was the price of liberty. The faith of America has been repeatedly pledged for it, and with solemnities that give peculiar force to the obligation.” He presented an argument for the honoring of debts on both economic and moral grounds: not to do so would bring international shame to a government reneging on its promises. And his vision for his department was one that not only oversaw the collection and disbursement of public revenue, that attended to the public debt, but served to promote the economic vitality of the nation.
In the short five years that Hamilton held office, he instituted an array of programs that still resonate throughout the federal government. He inherited a system of customs houses, collectors and import duties, and leveraged them to become the nation’s main source of income. He introduced excise taxes – sometimes, like the tax on liquor that sparked the Whiskey Rebellion in 1795, to disastrous effect. He created the plans for the First Bank of the United States, which, when opened in 1791, became the financial agent of the Department of the Treasury, serving as a depository for public funds and assisting the government in its transactions. He introduced plans for a United States Mint – although his political adversary, Thomas Jefferson, would wrest the mint away from Treasury, establishing it within the Department of State in 1792.
Hamilton grew Treasury into an enormous department, so much larger than its older siblings State and War combined. He installed lighthouses, beacons and buoys for the benefit of American shipping – and created the national network for their oversight. He established a fleet of cutters to intercept smugglers and customs scofflaws – the beginnings of the Coast Guard. He devised the nation’s first budget system, its first monetary system and unexpectedly gave rise to the two-party system in America, with political sides determined by whether people endorsed or opposed Hamilton’s bold programs.
Like them or not, Hamilton’s policies had a tonic effect on the country. Interest rates on the national debt plummeted from 6% to 4%, and foreign capital was streaming in to boost commercial and agricultural enterprises. Customs duties were filling the government’s coffers. And a phalanx of Treasury employees was deployed throughout the states, creating the first significant federal presence in cities and towns along the Atlantic and serving as living representatives of the people’s government at work.
Yet, after five years, the political wars waged in Congress over his financial programs and policies had begun to wear on Hamilton – as did his salary of $3,500 a year, a sum he believed paltry and much below his earning potential. But on the eve of his departure from the Department of the Treasury in January 1795, he gathered his strength to deliver one more stunning missive to Congress, one last report on government finances that charted a brave new course for the future. The national debt remained an overriding concern, with 55% of federal expenditures going to service it. But Hamilton laid out a program for extinguishing the public debt in 30 years. He called for the passage of new taxes and the permanence of old ones. He was only off by ten years; by 1835, the policies he helped to institute, and the Department of the Treasury that he built to carry them out, had worked to reduce the national debt to zero.
On January 31, 1795, Hamilton resigned as Secretary of the Treasury. But over the next centuries, the department that bore his indelible mark would grow in size and breadth and depth that even Hamilton himself could not foretell.