In his 1839 State of the Union Address, President Martin Van Buren drew an important distinction between the failure of a financial system and the criminal conduct of an individual operating within that system. Van Buren acknowledged the dangers inherent in the banking system including the expansion of credit and issuance of more paper than they could immediately redeem, but the defalcation of a public officer was different. When an officer stole or privately used public money, Van Buren did not regard that misconduct as proof that custody by public officers was fundamentally unsound. Instead, to Van Buren, it demonstrated that an individual had violated his trust and that the laws had failed to provide adequate supervision and punishment. In Van Buren’s world, banks represented systemic risk, while a dishonest officer represented individual criminality. This distinction became essential to Van Buren’s defense of his proposed Independent Treasury.
The Independent Treasury
Following the destruction of the Second Bank of the United States, the federal government deposited its money in selected state banks. That arrangement broke down during the Panic of 1837 when banks across much of the country suspended specie payments. The government discovered that although it had money deposited in the banks, it could not necessarily withdraw that money in gold or silver when it was needed.
Van Buren believed the federal government should separate its finances from private banking institutions. As discussed in an earlier article, he presented Congress with three possible systems: establish another national bank, return federal deposits to state banks with modifications, or create an Independent Treasury operated through public officers. Van Buren proposed the third option. Government revenue would be collected, kept, transferred, and disbursed through federal officers and a system of federal treasuries and subtreasuries. Banks would no longer receive the profitable use of government deposits, and the government would no longer depend upon banks to meet its legal obligations.
The proposal encountered resistance from several directions. Whigs generally favored restoring a national bank. Some Democrats continued to support state banks, while others distrusted banks altogether but remained apprehensive about placing large amounts of money in the hands of individual officeholders. That last objection became much more serious when Congress learned what Samuel Swartwout had done.
The Swartwout Defalcation
Samuel Swartwout served as collector of customs at New York from 1829 until 1837. Because the New York Custom House collected more than half of the federal government’s customs revenue, Swartwout regularly controlled enormous amounts of public money. In 1838, Secretary of the Treasury Levi Woodbury reported that Swartwout’s accounts were more than $200,000 short. Further investigation placed the defalcation at more than $1 million.
As discussed in an earlier article on the Swartwout defalcation, Swartwout had apparently begun taking public money shortly after entering office and continued increasing the amount for more than seven years. His weekly reports nevertheless appeared regular, allowing the losses to remain concealed until after he had left office and departed for Europe. The scandal presented an obvious danger to Van Buren’s Independent Treasury proposal. If one collector could take more than $1 million while submitting apparently accurate reports, why should Congress entrust the government’s money to individual officeholders?
Van Buren’s answer was that Swartwout had operated under every recent method of keeping public money. His defalcation began while federal deposits were held in the Bank of the United States, continued throughout the state-bank deposit system, and ended only after the state banks suspended specie payments. Swartwout had therefore “broke through the restraints of every system.” His crime could not fairly be used as a test of the comparative safety of banks and public officers. In other words, the system had not stolen the money. Swartwout had.
Congress Considers Safeguarding the Public Money
Although S. 258 did not establish the Independent Treasury, it would have supplied many of the safeguards needed to defend custody by public officers. On January 30, 1839, Senator Silas Wright of New York introduced S. 258, a bill to secure public money in the hands of government officers and punish public defaulters. It required frequent reports from collectors, district attorneys, marshals, land-office officials, court clerks, and disbursing officers. Officials receiving those reports had to compare them for discrepancies, while naval officers, surveyors, registers, district attorneys, and marshals could inspect accounts and money. Suspicious conduct and unpaid balances were to be reported promptly to the president, and additional bonds could be required. Most importantly, an officer who made false returns, lent public money, or used it privately could be imprisoned for three to five years and fined an amount equal to the money involved.
The Senate rejected William Cabell Rives’s substitute but adopted Nathaniel Tallmadge’s amendment requiring deposited money to be credited to the United States treasurer. Henry Clay later sought to recommit the bill with similar instructions. That effort failed, and the Senate passed the bill 28–15. The House, however, did not enact it before Congress adjourned.
Van Buren versus Whigs
Both Van Buren’s supporters and the opposing Whigs condemned Swartwout’s conduct. They both agreed that no officer should ever be allowed to steal public money. They disagreed over what Swartwout’s crime proved. To the Whigs, Swartwout demonstrated the fundamental danger of Van Buren’s Independent Treasury proposal. The Independent Treasury would remove federal money from banks and place it in the hands of politically appointed individuals. Reports, bonds, inspections, and criminal penalties might discourage dishonesty, but they could not remove the temptation created by allowing one person to control large amounts of money. A bank, particularly a national bank, offered institutional controls that no individual collector could provide. From the Whig perspective, Swartwout was not merely a bad officer, but a warning of what could happen when the government substituted individual custodians for established financial institutions.
Van Buren argued the reverse. Banks were not simply collections of occasional bad managers. They were part of a credit system that encouraged excessive lending, inflated the paper currency, transmitted financial pressure from one bank to another, and frequently ended in suspension. Even an honestly managed bank could be forced to stop payment because it could not immediately collect its loans while depositors and noteholders demanded specie. Those risks were inherent in banking. Punishing one banker would not eliminate them.
Van Buren maintained, however, that Swartwout’s crime was not inherent in public custody. It was a deliberate violation of duty by one officer. The remedy was to detect such violations earlier, remove the offending officer, recover the money, and punish the private use of public funds as a felony. This distinction explains why Van Buren insisted that Swartwout’s defalcation could not be used to compare the safety of the two systems. Swartwout had evaded the restraints of the Bank of the United States, the state-bank deposit system, and direct custody by public officers. A truly dishonest individual might defeat any system and Swartwout’s conduct proved the need for stronger laws, not the need to abandon the Independent Treasury.
To Van Buren, making the private use of public money a felony was crucial. Public accounting often treated a missing balance as a debt owed to the government. An officer might argue that he had merely borrowed the money, expected to replace it, or possessed claims against the government that should offset the amount charged against him. Van Buren wanted a clearly defined and stricter rule, where public money did not become an officer’s private capital simply because it temporarily passed through his hands. Van Buren wanted the unauthorized use itself to constitute the crime. Such a law would also help Van Buren defend the Independent Treasury politically. If another officer followed in Swartwout’s path, Van Buren could argue that the officer had committed a felony against the system rather than exposed a defect within it. The government could prosecute and imprison the individual without conceding that custody by public officers had failed.
Had Swartwout committed the same offense under a fully established Independent Treasury, we can imagine that Van Buren would have been prepared to place the responsibility entirely upon Swartwout. The president could have said that the Independent Treasury had not authorized the loss. Swartwout had falsified his accounts, violated his trust, and committed a crime. His punishment would vindicate the system rather than condemn it. This was the heart of Van Buren’s argument. Bank suspensions arose from the structure of the credit system. Public defalcations arose from individual dishonesty operating without adequate legal restraints. The former required separation from the banks. The latter required supervision, prosecution, and punishment.
That is why Van Buren shared these words in his 1839 State of the Union Address:
“The continued agitation of the question relative to the best mode of keeping and disbursing the public money still injuriously affects the business of the country. The suspension of specie payments in 1837 rendered the use of deposit banks as prescribed by the act of 1836 a source rather of embarrassment than aid, and of necessity placed the custody of most of the public money afterwards collected in charge of the public officers. The new securities for its safety which this required were a principal cause of my convening an extra session of Congress, but in consequence of a disagreement between the two Houses neither then nor at any subsequent period has there been any legislation on the subject. The effort made at the last session to obtain the authority of Congress to punish the use of public money for private purposes as a crime a measure attended under other governments with signal advantage--was also unsuccessful, from diversities of opinion in that body, notwithstanding the anxiety doubtless felt by it to afford every practicable security. The result of this is still to leave the custody of the public money without those safeguards which have been for several years earnestly desired by the Executive, and as the remedy is only to be found in the action of the Legislature it imposes on me the duty of again submitting to you the propriety of passing a law providing for the safe-keeping of the public moneys, and especially to ask that its use for private purposes by any officers intrusted with it may be declared to be a felony, punishable with penalties proportioned to the magnitude of the offense.
These circumstances, added to known defects in the existing laws and unusual derangement in the general operations of trade, have during the last three years much increased the difficulties attendant on the collection, keeping, and disbursement of the revenue, and called forth corresponding exertions from those having them in charge. Happily these have been successful beyond expectation. Vast sums have been collected and disbursed by the several Departments with unexpected cheapness and ease, transfers have been readily made to every part of the Union, however distant, and defalcations have been far less than might have been anticipated from the absence of adequate legal restraints. Since the officers of the Treasury and Post-Office Departments were charged with the custody of most of the public moneys received by them there have been collected $66,000,000, and, excluding the case of the late collector at New York, the aggregate amount of losses sustained in the collection can not, it is believed, exceed $60,000. The defalcation of the late collector at that city, of the extent and circumstances of which Congress have been fully informed, ran through all the modes of keeping the public money that have been hitherto in use, and was distinguished by an aggravated disregard of duty that broke through the restraints of every system, and can not, therefore, be usefully referred to as a test of the comparative safety of either. Additional information will also be furnished by the report of the Secretary of the Treasury, in reply to a call made upon that officer by the House of Representatives at the last session requiring detailed information on the subject of defaults by public officers or agents under each Administration from 1789 to 1837. This document will be submitted to you in a few days. The general results (independent of the Post-Office, which is kept separately and will be stated by itself), so far as they bear upon this subject, are that the losses which have been and are likely to be sustained by any class of agents have been the greatest by banks, including, as required in the resolution, their depreciated paper received for public dues; that the next largest have been by disbursing officers, and the least by collectors and receivers. If the losses on duty bonds are included, they alone will be threefold those by both collectors and receivers. Our whole experience, therefore, furnishes the strongest evidence that the desired legislation of Congress is alone wanting to insure in those operations the highest degree of security and facility. Such also appears to have been the experience of other nations. From the results of inquiries made by the Secretary of the Treasury in regard to the practice among them I am enabled to state that in twenty-two out of twenty-seven foreign governments from which undoubted information has been obtained the public moneys are kept in charge of public officers. This concurrence of opinion in favor of that system is perhaps as great as exists on any question of internal administration.”
References
Van Buren, Martin. “Third Annual Message.” The American Presidency Project, edited by Gerhard Peters and John T. Woolley, 2 Dec. 1839, www.presidency.ucsb.edu/documents/third-annual-message-4. Accessed 25 Sept. 2026.
Wagner, Dennis. “1837 Martin Van Buren—Independent Treasury System and the New York State Elections.” State of the Union History, 21 Mar. 2024, www.stateoftheunionhistory.com/2024/03/1837-martin-van-buren-independent.html. Accessed 25 Sept. 2026.
Wagner, Dennis. “1838 Martin Van Buren—Defalcation of Samuel Swartwout.” State of the Union History, 23 Nov. 2024, www.stateoftheunionhistory.com/2024/11/1838-martin-van-buren-defalcation-of.html. Accessed 25 Sept. 2026.
Blair, Francis Preston, and John C. Rives, editors. The Congressional Globe. Vol. 7, 25th Cong., 3rd sess., 21 Feb. 1839, p. 197. UNT Digital Library, University of North Texas Libraries, digital.library.unt.edu/ark:/67531/metadc29275/m1/216/. Accessed 25 Sept. 2026.
Niles, William Ogden, editor. “Twenty-Fifth Congress: Third Session—Senate.” Niles’ National Register, vol. 55, 2 Feb. 1839, pp. 362–63. Google Books, books.google.com/books?id=wbERAAAAYAAJ&pg=PA362. Accessed 25 Sept. 2026.
Niles, William Ogden, editor. “Twenty-Fifth Congress: Third Session—Senate.” Niles’ National Register, vol. 55, 23 Feb. 1839, pp. 410, 416. Google Books, books.google.com/books?id=wbERAAAAYAAJ&pg=PA410. Accessed 25 Sept. 2026.
Robinson, Henry R. Price Current. 1838. Lithograph with watercolor, Library of Congress, www.loc.gov/pictures/item/2008661332/. Accessed 25 Sept. 2026.
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