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Chapter 6 – Organizational Structure and Design
6-1
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
CHAPTER
6
ORGANIZATIONAL
STRUCTURE AND
DESIGN
LEARNING OUTCOMES
After reading this chapter students should be able to:
1. Describe 6 key elements in organizational design.
2. Identify the contingency factors that favor the mechanistic model or the organic model.
3. Compare and contrast traditional and contemporary organizational designs.
4. Discuss the design challenges faced by today’s organizations.
Opening Vignette – Volunteers Work
SUMMARY
As a business owner, it sounds like a dream come true – employees working for free! In this
introduction, the authors explore this novel concept from a manager’s perspective. Habitat for
Humanity has years of experience building homes with volunteers. The concept of free labor is
now being explored as volunteers who are passionate about a product or service, help answer
customer questions. While this sounds like a win-win (people who are knowledge experts
working for free), it has the potential to create a lot of problems for the organization.
Teaching Tips:
Have students explore the concept of management control and structure for this new type of
arrangement. Questions that might arise include:
How do you make sure people show up for ‘work?’
What if these volunteers make a mistake that puts the company at risk for a lawsuit?
What if they are rude to customers?

6-2
I. WHAT ARE THE SIX KEY ELEMENTS IN ORGANIZATIONAL DESIGN?
A. Introduction
1. Organization design decisions are typically made by senior managers.
2. Organization design applies to any type of organization.
3. Formulated by management writers such as Henri Fayol and Max Weber in the
early 1900s.
4. These principles still provide valuable insights into designing effective and efficient
organizations.
B. What Is Work Specialization?
1. Work specialization is dividing work activities into separate jobs tasks.
a) Individuals specialize in doing part of an activity.
b) Work specialization makes efficient use of the diversity of skills that workers
hold.
2. Some tasks require highly developed skills; others lower skill levels.
3. Excessive work specialization or human diseconomies, can lead to boredom,
fatigue, stress, low productivity, poor quality, increased absenteeism, and high
turnover. (See Exhibit 6-1.)
4. Today's view is that specialization is an important organizing mechanism for
employee efficiency, but it is important to recognize the economies work
specialization can provide as well as its limitations.
C. What Is Departmentalization?
1. Departmentalization is when common work activities are grouped back together
so work gets done in a coordinated and integrated way.
2. There are five common forms of departmentalization (see Exhibit 6-2).
a) Functional Groups - employees based on work performed (e.g., engineering,
accounting, information systems, human resources)
b) Product Groups - employees based on major product areas in the corporation
(e.g., women’s footwear, men’s footwear, and apparel and accessories)
c) Customer Groups - employees based on customers’ problems and needs
(e.g., wholesale, retail, government)
d) Geographic Groups - employees based on location served (e.g., North,
South, Midwest, East)
e) Process Groups - employees based on the basis of work or customer flow
(e.g., testing, payment)
3. With today's focus on the customer, many companies are using cross-functional
teams, which are teams made up of individuals from various departments and that
cross traditional departmental lines.

6-3
D. What are Authority and Responsibility?
1. The chain of command is the continuous line of authority that extends from upper
organizational levels to the lowest and clarifies who reports to whom.
2. An employee who has to report to two or more bosses might have to cope with
conflicting demands or priorities.
3. Authority refers to the rights inherent in a managerial position to give orders and
expect the orders to be obeyed.
4. Each management position has specific inherent rights that incumbents acquire
from the position’s rank or title.
a) Authority is related to one’s position and ignores personal characteristics.
5. When managers delegate authority, they must allocate commensurate
responsibility.
a) When employees are given rights, they assume a corresponding obligation to
perform and should be held accountable for that performance!
b) Allocating authority without responsibility creates opportunities for abuse.
c) No one should be held responsible for something over which he or she has no
authority.
6. What are the different types of authority relationships?
a) The early management writers distinguished between two forms of authority.
(1) Line authority entitles a manager to direct the work of an employee.
(a) It is the employer-employee authority relationship that extends from
top to bottom.
(b) See Exhibit 6-3.
(c) A line manager has the right to direct the work of employees and
make certain decisions without consulting anyone.
(d) Sometimes the term “line” is used to differentiate line managers from
staff managers.
(e) Line emphasizes managers whose organizational function contributes
directly to the achievement of organizational objectives (e.g.,
production and sales).
(2) Staff managers have staff authority (e.g., human resources and payroll).
(a) A manager’s function is classified as line or staff based on the
organization’s objectives.
(b) As organizations get larger and more complex, line managers find that
they do not have the time, expertise, or resources to get their jobs
done effectively.
(c) They create staff authority functions to support, assist, advise, and
generally reduce some of their informational burdens.
(d) Exhibit 6-4 illustrates line and staff authority.

6-4
E. What is Unity of Command?
1. The chain of command is the continuous line of authority that extends from upper
organizational levels to the lowest and clarifies who reports to whom.
2. An employee who has to report to two or more bosses might have to cope with
conflicting demands or priorities.
3. Therefore, the early management writers argued that an employee should have
only one superior (Unity of command)
4. If the chain of command had to be violated, early management writers always
explicitly designated that there be a clear separation of activities and a supervisor
responsible for each.
5. The unity of command concept was logical when organizations were
comparatively simple.
6. There are instances today when strict adherence to the unity of command creates
a degree of inflexibility that hinders an organization’s performance.
7. How does the contemporary view of authority and responsibility differ from the
historical view?
a) The early management writers assumed that the rights inherent in one’s
formal position in an organization were the sole source of influence.
b) This might have been true 30 or 60 years ago.
c) It is now recognized that you do not have to be a manager to have power, and
that power is not perfectly correlated with one’s level in the organization.
d) Authority is but one element in the larger concept of power.
8. How do authority and power differ?
a) Authority and power are frequently confused.
b) Authority is a right, the legitimacy of which is based on the authority figure’s
position in the organization.
(1) Authority goes with the job.
c) Power refers to an individual’s capacity to influence decisions.
(1) Authority is part of the larger concept of power.
(2) Exhibit 6-5 visually depicts the difference.
d) Power is a three-dimensional concept.
(1) It includes not only the functional and hierarchical dimensions but also
centrality.
(2) While authority is defined by one’s vertical position in the hierarchy, power is
made up of both one’s vertical position and one’s distance from the
organization’s power core, or center.
e) Think of the cone in Exhibit 6-5 as an organization.
(1) The closer you are to the power core, the more influence you have on
decisions.
(2) The existence of a power core is the only difference between A and B in
Exhibit 6-5.

6-5
f) The cone analogy explicitly acknowledges two facts:
(1) The higher one moves in an organization (an increase in authority), the closer
one moves to the power core.
(2) It is not necessary to have authority in order to wield power because one can
move horizontally inward toward the power core without moving up.
(a) Example, administrative assistants, “powerful” as gatekeepers with
little authority.
(3) Low-ranking employees with contacts in high places might be close to the
power core.
(4) So, too, are employees with scarce and important skills.
(a) The lowly production engineer with twenty years of experience might
be the only one in the firm who knows the inner workings of all the old
production machinery.
g) Power can come from different areas.
(1) John French and Bertram Raven have identified five sources, or bases, of
power.
(a) See Exhibit 6-6.
(b) Coercive power -based on fear; Reward power - based on the ability
to distribute something that others value; Legitimate power - based on
one’s position in the formal hierarchy; Expert power - based on one’s
expertise, special skill, or knowledge; Referent power -based on
identification with a person who has desirable resources.
F. What is Span of Control?
1. How many employees can a manager efficiently and effectively direct?
2. This question received a great deal of attention from early management writers.
3. There was no consensus on a specific number but early writers favored small
spans of less than six to maintain close control.
4. Level in the organization is a contingency variable.
a) Top managers need a smaller span than do middle managers, and middle
managers require a smaller span than do supervisors.
5. There is some change in theories about effective spans of control.
6. Many organizations are increasing their spans of control.
7. The span of control is increasingly being determined by contingency variables.
a) The more training and experience employees have, the less direct supervision
needed.
8. Other contingency variables should also be considered; similarity of employee
tasks, the task complexity, the physical proximity of employees, the degree of
standardization, the sophistication of the organization’s management information
system, the strength of the organization’s value system, the preferred managing
style of the manager, etc.

6-6
Right or Wrong
You hear it in the news every week, a hacker (or hackers) has gained access to personal data
of thousands of customers or employees. In the dilemma described here, a security hole in an
AT&T website allowed Goatse Security, a group of computer security experts, to retrieve the
email addresses for thousands of new iPad users. The head of Goatse Security pointed out
they were doing AT&T a favor by identifying the problem. On the other hand, the information
released by Goatse could have helped hackers break into AT&T’s website.
Questions for students to consider:
• Is there such a thing as “ethical hacking?”
• What ethical issues they see in the case?
• What are the implications for various stakeholders in this situation?
G. How Do Centralization and Decentralization Differ?
1. Centralization is a function of how much decision-making authority is pushed
down to lower levels in the organization.
2. Centralization-decentralization is a degree phenomenon.
3. By that, we mean that no organization is completely centralized or completely
decentralized.
4. Early management writers felt that centralization in an organization depended on
the situation.
a) Their objective was the optimum and efficient use of employees.
b) Traditional organizations were structured in a pyramid, with power and
authority concentrated near the top of the organization.
c) Given this structure, historically, centralized decisions were the most
prominent.
5. Organizations today are more complex and are responding to dynamic changes.
a) Many managers believe that decisions need to be made by those closest to
the problem.
6. Today, managers often choose the amount of centralization or decentralization
that will allow them to best implement their decisions and achieve organizational
goals.
7. One of the central themes of empowering employees was to delegate to them the
authority to make decisions on those things that affect their work.
a) That’s the issue of decentralization at work.
b) It doesn’t imply that senior management no longer makes decisions!
H. What is Formalization?
1. Formalization refers to how standardized an organization’s jobs are and the extent
to which employee behavior is guided by rules and procedures.

6-7
2. Early management writers expected organizations to be fairly formalized, as
formalization went hand-in-hand with bureaucratic-style organizations.
3. Today, organizations rely less on strict rules and standardization to guide and
regulate employee behavior.
Teaching Notes
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
II. WHAT CONTINGENCY VARIABLES AFFECT STRUCTURAL CHOICE?
A. Introduction
1. The most appropriate structure to use will depend on contingency factors.
2. The more popular contingency variables are strategy, size, technology, and
environment.
B. How Is a Mechanistic Organization Different from an Organic Organization?
1. Exhibit 6-7 describes two organizational forms.
2. The mechanistic organization (or bureaucracy) was the natural result of combining
the six elements of structure.
a) The chain-of-command principle ensured the existence of a formal hierarchy
of authority.
b) Keeping the span of control small created tall, impersonal structures.
(1) Top management increasingly imposed rules and regulations.
c) The high degree of work specialization created simple, routine, and
standardized jobs.
d) Departmentalization increased impersonality and the need for multiple layers
of management.
3. The organic form is a highly adaptive form that is a direct contrast to the
mechanistic one.
a) The organic organization’s loose structure allows it to change rapidly as needs
require.
(1) Employees tend to be professionals who are technically proficient and trained
to handle diverse problems.
(2) They need very few formal rules and little direct supervision.
b) The organic organization is low in centralization.
4. When each of these two models is appropriate depends on several contingency
variables.
C. How Does Strategy Affect Structure?
1. An organization’s structure should facilitate goal achievement.
a) Strategy and structure should be closely linked.

6-8
b) Example, if the organization focuses on providing certain services—police
protection in a community—its structure will be one that promotes
standardized and efficient services.
c) Example, if an organization is attempting to employ a growth strategy by
entering into global markets, it will need a structure that is flexible, fluid, and
readily adaptable to the environment.
2. Accordingly, organizational structure should follow strategy. If management
makes a significant change in strategy, it needs to modify its structure as well.
3. The first important research on the strategy-structure relationship was Alfred
Chandler’s study of close to 100 large U.S. companies.
4. After tracing the development of these organizations over fifty years and compiling
extensive case histories, Chandler concluded that changes in corporate strategy
precede and lead to changes in an organization’s structure.
a) Organizations usually begin with a single product or line.
b) The simplicity of the strategy requires only a simple form of structure to
execute it.
c) Decisions can be centralized and complexity and formalization will be low.
d) As organizations grow, their strategies become more ambitious and elaborate.
5. Research has generally confirmed the strategy-structure relationship.
a) Organizations pursuing a differentiation strategy must innovate to survive.
(1) An organic organization matches best with this strategy because it is flexible
and maximizes adaptability.
b) A cost-leadership strategy seeks stability and efficiency.
(1) Stability and efficiency help to produce low-cost goods and services and can
best be achieved with a mechanistic organization.
D. How Does Size Affect Structure?
1. There is historical evidence that an organization’s size significantly affects its
structure.
2. Large organizations—employing 2,000 or more employees—tend to have more
work specialization, horizontal and vertical differentiation, and rules and
regulations than do small organizations.
3. The relationship is not linear; the impact of size becomes less important as an
organization expands.
a) Example, once an organization has around 2,000 employees, it is already
fairly mechanistic—an additional 500 employees will not have much effect.
b) Adding 500 employees to an organization that has only 300 members is likely
to result in a shift toward a more mechanistic structure.
E. How Does Technology Affect Structure?
1. Every organization uses some form of technology to convert its inputs into
outputs.

6-9
2. To attain its objectives, the organization uses equipment, materials, knowledge,
and experienced individuals and puts them together into certain types and
patterns of activities.
a) Example, workers at Whirlpool build washers, dryers, and other home
appliances on a standardized assembly line.
b) Example, employees at Kinko’s produce custom jobs for individual customers.
c) Example, employees at Bayer AG in Pakistan work on a continuous flow
production line for manufacturing its pharmaceuticals.
From the Past to the Present
Joan Woodward (British scholar) found that distinct relationships exist between size of
production runs and the structure of the firm. The effectiveness of organizations was related to
“fit” between technology and structure. Most studies focused on the processes or methods that
transform inputs into outputs and how they differ by their degree of routine.
Three categories, representing three distinct technologies, had increasing levels of complexity
and sophistication. Unit production described the production of items in units or small batches.
Mass production described large batch manufacturing. The most technically complex group,
process production, included continuous-process production. The more routine the technology,
the more standardized and mechanistic the structure can be. Organizations with more non-
routine technology are more likely to have organic structures. See Exhibit 6-8.
F. How Does Environment Affect Structure?
1. Mechanistic organizations are most effective in stable environments.
2. Organic organizations are best matched with dynamic and uncertain
environments.
3. The environment-structure relationship is why so many managers have
restructured their organizations to be lean, fast, and flexible.
4. Global competition, accelerated product innovation, knowledge management, and
increased demands from customers for higher quality and faster deliveries are
examples of dynamic environmental forces.
5. Mechanistic organizations tend to be ill-equipped to respond to rapid
environmental change.
Teaching Notes
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
III. WHAT ARE SOME COMMON ORGANIZATIONAL DESIGNS?
A. The main designs are simple, functional and divisional.
1. See Exhibit 6-9.
B. What Is a Simple Structure?
1. Most organizations start as an entrepreneurial venture with a simple structure.

6-10
2. There is low departmentalization, wide spans of control, authority centralized in a
single person, and little formalization.
3. The simple structure is most widely used in smaller businesses.
4. The strengths of the simple structure are that it is fast, flexible, and inexpensive to
maintain, and accountability is clear.
5. Major weaknesses.
a) It is effective only in small organizations.
b) It becomes increasingly inadequate as an organization grows; its few policies
or rules to guide operations and its high centralization result in information
overload at the top.
c) As size increases, decision making becomes slower and can eventually stop.
d) It is risky since everything depends on one person.
C. What is the functional structure?
1. Many organizations do not remain simple structures because structural
contingency factors dictate it.
2. As the number of employees rises, informal work rules of the simple structure give
way to more formal rules.
3. Rules and regulations are implemented; departments are created, and levels of
management are added to coordinate the activities of departmental people.
4. At this point, a bureaucracy is formed.
5. Two of the most popular bureaucratic design options are called the functional and
divisional structures.
6. Why do companies implement functional structures?
a) The functional structure merely expands the functional orientation.
b) The strength of the functional structure lies in work specialization.
(1) Economies of scale, minimizes duplication of personnel and equipment,
makes employees comfortable and satisfied.
c) The weakness of the functional structure is that the organization frequently
loses sight of its best interests in the pursuit of functional goals.
D. What is the divisional structure?
1. An organization design made up of self-contained units or divisions.
2. Health care giant Johnson & Johnson, for example, has three divisions:
pharmaceuticals, medical devices and diagnostics, and consumer products.
3. The chief advantage of the divisional structure is that it focuses on results.
a) Division managers have full responsibility for a product or service.
b) It also frees the headquarters from concern with day-to-day operating details.
4. The major disadvantage is duplication of activities and resources.
a) The duplication of functions increases the organization’s costs and reduces
efficiency.

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6-11
E. What Contemporary Organizational Designs Can Managers Use?
1. See Exhibit 6-10 for the three contemporary organization designs.
a) Team structure is when the entire organization consists of work groups or
teams.
b) Team members have the authority to make decisions that affect them,
because there is no rigid chain of command.
c) Companies such as Amazon, Boeing, Hewlett-Packard, Louis Vuitton,
Motorola, and Xerox extensively use employee teams to improve productivity.
d) In these teams, Employees must be trained to work on teams, receive cross-
functional skills training, and be compensated accordingly.
2. The matrix structure assigns specialists from different functional departments to
work on projects led by a project manager.
a) Exhibit 6-11 illustrates the matrix structure of a firm.
b) The unique characteristic of the matrix is that employees in this structure have
at least two bosses, a dual chain of command: their functional departmental
manager and their product or project managers.
c) Project managers have authority over the functional members who are part of
that manager’s team.
d) Authority is shared between the two managers.
(1) Typically, the project manager is given authority over project employees
relative to the project’s goals.
(2) Decisions such as promotions, salary recommendations, and annual reviews
remain the functional manager’s responsibility.
e) To work effectively, project and functional managers must communicate and
coordinate.
f) The primary strength of the matrix is that it can facilitate coordination of a
multiple set of complex and interdependent projects while still retaining the
economies that result from keeping functional specialists grouped together.
g) The major disadvantages of the matrix are in the confusion it creates and its
propensity to foster power struggles.
3. Project structure - is when employees continuously work on projects.
a) Tends to be more flexible
b) The major advantage of that is that employees can be deployed rapidly to
respond to environmental changes.
c) The two major disadvantages of the project structure are the complexity of
assigning people to projects and the inevitable task and personality conflicts
that arise.
F. What is a Boundaryless Organization?
1. A boundaryless organization, coined by former GE CEO, Jack Welch, is not
defined or limited by boundaries or categories imposed by traditional structures.

6-12
2. It blurs the historical boundaries surrounding an organization by increasing its
interdependence with its environment.
3. There are two types of boundaries:
a) Internal—the horizontal ones imposed by work specialization and
departmentalization and the vertical ones that separate employees into
organizational levels and hierarchies.
b) External—the boundaries that separate the organization from its customers,
suppliers, and other stakeholders.
4. A virtual organization consists of a small core of full-time employees and outside
specialists temporarily hired as needed to work on projects.
5. A network organization - is one that uses its own employees to do some work
activities and networks of outside suppliers to provide other needed product
components or work processes. Also called a modular organization by
manufacturing firms.
Technology and the Manager’s Job - The Changing World of Work
It is almost cliché to say that technology has had a dramatic impact on how people work. Mobile
communication and technology has allowed organizations to stay connected. Hand-held
devices, cellular phones, webcams, etc. allow employees to work virtually. Information
technology continues to grow and become an integral part of the way business is conducted.
However, one challenges caused by some the high level of integrated technology is security.
Software and other disabling devices have helped in this arena and many companies are
developing creative applications for their workforce.
Questions for students to consider:
• What technology has changed in your lifetime?
• In what ways has technology made your life better?
• In what ways has technology had a negative impact?
• What do students see as the next big challenge in integrating technology and work? In our
personal lives?
IV. WHAT ARE TODAY'S ORGANIZATIONAL DESIGN CHALLENGES?
A. How Do You Keep Employees Connected?
1. Choosing a design that will best support and facilitate employees doing their work
efficiently and effectively, creates challenges.
2. A major structural design challenge for managers is finding a way to keep widely
dispersed and mobile employees connected to the organization.
B. How Do Global Differences Affect Organizational Structure?
1. Researchers have concluded that the structures and strategies of organizations
worldwide are similar, “while the behavior within them is maintaining its cultural
uniqueness.”
2. When designing or changing structure, managers may need to think about the
cultural implications of certain design elements, such as rules and bureaucratic
mechanisms.

6-13
C. How Do You Build a Learning Organization?
1. Building a learning organization is a mindset in which the learning organization
has developed the capacity to continuously adapt and change because all
members take an active role in identifying and resolving work-related issues.
2. Employees are practicing knowledge management.
a) Continually acquiring and sharing new knowledge.
b) Willing to apply that knowledge in making decisions or performing their work.
3. According to some organizational design theorists, an organization’s ability to
learn and to apply that learning may be the only sustainable source of competitive
advantage.
See Exhibit 6-12 for characteristics of a learning organization.
a) Members share information and collaborate on work activities throughout the
entire organization.
b) Minimize or eliminate existing structural and physical boundaries.
(1) Employees are free to work together and to collaborate.
(2) Teams tend to be an important feature of the structural design.
(3) Managers serve as facilitators, supporters, and advocates.
c) For a learning organization to "learn" information is shared openly, in a timely
manner, and as accurately as possible.
d) Leadership creates a shared vision for the organization’s future and keeps
organizational members working toward that vision.
(1) Leaders should support and encourage the collaborative environment.
e) A learning organization’s culture is one in which everyone agrees on a shared
vision and everyone recognizes the inherent interrelationships among the
organization’s processes, activities, functions, and external environment.
f) There is a strong sense of community, caring for each other, and trust.
(1) Employees feel free to openly communicate, share, experiment, and learn
without fear of criticism or punishment.
g) Organizational culture is an important aspect of being a learning organization.
A learning organization’s culture is one in which everyone agrees on a shared
vision and everyone recognizes the inherent interrelationships among the
organization’s processes, activities, f functions, and external environment.
D. How Can Managers Design Efficient and Effective Flexible Work Arrangements?
1. As organizations adapt their structural designs to fit a diverse workforce, growing
competition, customer demands and new technology, we see more of them
adopting flexible working arrangements.
2. Such arrangements not only exploit the power of technology, but give organizations
the flexibility to deploy employees when and where needed.
3. Telecommuting is a work arrangement in which employees work at home and are
linked to the workplace by computer.

6-14
a) Telecommute provides the company a way to grow without having to incur any
additional fixed costs such as office buildings, equipment, or parking lots.
b) Some companies view the arrangement as a way to combat high gas prices
and to attract talented employees who want more freedom and control.
c) Some managers are reluctant to have their employees become “laptop hobos”
wasting time surfing the Internet or playing online games instead of working.
d) Employees often express a concerns about being isolated.
e) Managing the telecommuters then becomes a matter of keeping employees
feeling like they’re connected and engaged, a topic we delve into at the end of
the chapter as we look at today’s organizational design challenges.
4. Compressed workweek, which is a workweek where employees work longer hours
per day but fewer days per week.
a) Flextime (also known as flexible work hours), which is a scheduling system in
which employees are required to work a specific number of hours a week but
are free to vary those hours within certain limits.
b) Job sharing—the practice of having two or more people split a full-time job.
5. Contingent Workers are temporary, freelance, or contract workers whose
employment is contingent upon demand for their services.
a) As organizations eliminate full-time jobs through downsizing and other
organizational restructurings, they often rely on a contingent workforce to fill in
as needed.
b) One of the main issues businesses face with their contingent workers,
especially those who are independent contractors or freelancers, is classifying
who actually qualifies as one.
c) Another issue with contingent workers is the process for recruiting, screening,
and placing these contingent workers where their work skills and efforts are
needed.
d) As with full-time employees, it’s important that managers have a method of
establishing goals, schedules, and deadlines with the contingent employees
Teaching Notes
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6-15
REVIEW AND APPLICATIONS
CHAPTER SUMMARY
6.1 Describe six key elements in organizational design. The first element, work
specialization, refers to dividing work activities into separate job tasks. The second,
departmentalization, is how jobs are grouped together, which can be one of five types:
functional, product, customer, geographic, or process. The third— authority,
responsibility, and power—all have to do with getting work done in an organization.
Authority refers to the rights inherent in a managerial position to give orders and expect
those orders to be obeyed. Responsibility refers to the obligation to perform when
authority has been delegated. Power is the capacity of an individual to influence
decisions and is not the same as authority. The fourth, span of control, refers to the
number of employees a manager can efficiently and effectively manage. The fifth,
centralization and decentralization, deals with where the majority of decisions are
made—at upper organizational levels or pushed down to lower-level managers. The
sixth, formalization, describes how standardized an organization’s jobs are and the
extent to which employees’ behavior is guided by rules and procedures.
6.2 Identify the contingency factors that favor the mechanistic model or the organic
model. A mechanistic organizational design is quite bureaucratic whereas an organic
organizational design is more fluid and flexible. The strategy-determines structure factor
says that as organizational strategies move from single product to product
diversification, the structure will move from organic to mechanistic. As an organization’s
size increases, so does the need for a more mechanistic structure. The more non-
routine the technology, the more organic a structure should be. Finally, stable
environments are better matched with mechanistic structures, but dynamic ones fit better
with organic structures.
6.3 Compare and contrast traditional and contemporary organizational designs.
Traditional structural designs include simple, functional, and divisional. A simple
structure is one with low departmentalization, wide spans of control, authority centralized
in a single person, and little formalization. A functional structure is one that groups
similar or related occupational specialties together. A divisional structure is one made up
of separate business units or divisions. Contemporary structural designs include team-
based structures (the entire organization is made up of work teams); matrix and project
structures (where employees work on projects for short periods of time or continuously);
and boundaryless organizations (where the structural design is free of imposed
boundaries). A boundaryless organization can either be a virtual or a network
organization.
6.4 Discuss the design challenges faced by today’s organizations. One design
challenge lies in keeping employees connected, which can be accomplished through
using information technology. Another challenge is understanding the global differences
that affect organizational structure. Although structures and strategies of organizations
worldwide are similar, the behavior within them differs, which can influence certain
design elements. Another challenge is designing a structure around the mind-set of
being a learning organization. Finally, managers are looking for organizational designs
with efficient and effective flexible work arrangements. They’re using options such as
telecommuting, compressed workweeks, flextime, job sharing, and contingent workers.

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approach of the expiration of the charter. But the charter had yet to
run about two and a half of the twenty years to which it was limited.
During the whole term the public deposits were to continue to be
made with the bank. It was clearly foreseen, at the commencement
of the term, as now, that it would expire, and yet congress neither
then nor since has ever thought proper to provide for the withdrawal
of the deposits prior to the expiration of the charter. Whence does
the secretary derive an authority to do what congress had never
done? Whence his power to abridge in effect the period of the
charter, and to limit it to seventeen and a half years, instead of
twenty? Was the urgency for the removal of the deposits so great,
that he could not wait sixty days, until the assembling of congress?
He admits that they were perfectly safe in the bank; that it promptly
met every demand upon it; and that it faithfully performed all its
duties. Why not, then, wait the arrival of congress? The last time the
house of representatives had spoken, among the very last acts of
the last session, that house had declared its full confidence in the
safety of the deposits. Why not wait until it could review the subject,
with all the new light which the secretary could throw upon it, and it
again proclaims its opinion? He comes into office on the twenty-third
of September, 1833, and in three days, with intuitive celerity, he
comprehends the whole of the operations of the complex
department of the treasury, perceives that the government, from its
origin, had been in uniform error, and denounces the opinions of all
his predecessors! And, hastening to rectify universal wrong, in
defiance and in contempt of the resolution of the house, he signs an
order for the removal of the deposits! It was of no consequence to
him, whether places of safety, in substitution of the bank of the
United States, could be obtained or not; without making the
essential precautionary arrangements, he commands the removal
almost instantly to be made.
Why, sir, if the secretary were right in contending that he alone
could order the removal, even he admits that congress has power to
provide for the security of the public money, in the new places to
which it might be transferred. If he did not deign to consult the

representatives of the people as to the propriety of the first step, did
not a decent respect to their authority and judgment exact from him
a delay, for the brief term of sixty days, that they might consider
what was fitting to be done? The truth is, that the secretary, by law,
has nothing to do with the care and safe-keeping of the public
money. As has been already shown, that duty is specifically assigned
by law to the treasurer of the United States. And, in assuming upon
himself the authority to provide other depositories than the bank of
the United States, he alike trampled upon the duties of the treasurer,
and what was due to congress. Can any one doubt the motive of this
precipitancy? Does anybody doubt, that it was to preclude the action
of congress, or to bring it under the influence of the executive veto?
Let the two houses, or either of them, perform their duty to the
country, and we shall hereafter see whether, in that respect, at least,
Mr. Secretary will not fail to consummate his purpose.
Second. The next reason assigned for this offensive proceeding,
is the reëlection of the present chief magistrate. The secretary says:
‘I have always regarded the result of the last election of president of the
United States, as the declaration of a majority of the people, that the charter
ought not to be renewed.’ * * * ‘Its voluntary application to congress for the
renewal of its charter four years before it expired, and upon the eve of the
election of president, was understood on all sides as bringing forward that
question for incidental decision at the then approaching election. It was
accordingly argued on both sides before the tribunal of the people, and their
verdict pronounced against the bank,’ and so forth.
What has the secretary to do with elections? Do they belong to
the financial concerns of his department? Why this constant
reference to the result of the last presidential election? Ought not
the president to be content with the triumphant issue of it? Did he
want still more vetoes? The winners ought to forbear making any
complaints, and be satisfied, whatever the losers may be. After an
election is fairly terminated, I have always thought that the best way
was to forget all the incidents of the preceding canvass, and
especially the manner in which votes had been cast. If one has been

successful, that ought to be sufficient for him; if defeated, regrets
are unavailing. Our fellow-citizens have a right freely to exercise
their elective franchise as they please, and no one, certainly no
candidate, has any right to complain about it.
But the argument of the secretary is, that the question of the
bank was fully submitted to the people, by the consent of all parties,
fully discussed before them, and their verdict pronounced against
the institution, in the reëlection of the president. His statement of
the case requires that we should examine carefully the various
messages of the president, to ascertain whether the bank question
was fairly and frankly, (to use a favorite expression of the president,)
submitted by him to the people of the United States. In his message
of 1829, the president says:
‘The charter of the bank of the United States expires in 1836, and its
stockholders will most probably apply for a renewal of their privileges. In order to
avoid the evils resulting from precipitancy in a measure involving such important
principles, and such deep pecuniary interests, I feel that I cannot, in justice to the
parties interested, too soon present it to the deliberate consideration of the
legislature and the people.’
The charter had then upwards of six years to run. Upon this
solemn invitation of the chief magistrate, two years afterwards, the
bank came forward with an application for renewal. Then it was
discovered that the application was premature. And the bank was
denounced for accepting the very invitation which had been formally
given. The president proceeds:
‘Both the constitutionality and the expediency of the bank are well questioned
by a large portion of our fellow-citizens.’
This message was a noncommittal. The president does not
announce clearly his own opinion, but states that of a large portion
of our fellow-citizens. Now we all know that a large and highly
respectable number of the people of the United States have always
entertained an opinion adverse to the bank on both grounds. The
president continues:

‘If such an institution is deemed essential to the fiscal operations of the
government, I submit to the wisdom of the legislature whether a national one,
founded upon the credit of the government, and its resources, might not be
devised.’
Here, again, the president, so far from expressing an explicit
opinion against all national banks, makes a hypothetical admission of
the utility of a bank, and distinctly intimates the practicability of
devising one on the basis of the credit and resources of the
government.
In his message of 1830, speaking of the bank, the president
says:
‘Nothing has occurred to lessen, in any degree, the dangers which many of
our citizens apprehend from that institution, as at present organized. In the spirit
of improvement and compromise, which distinguishes our country and its
institutions, it becomes us to inquire whether it be not possible to secure the
advantages afforded by the present bank through the agency of a bank of the
United States, so modified in its principles and structure, as to obviate
constitutional and other objections.’
Here, again, the president recites the apprehensions of ‘many of
our citizens,’ rather than avows his own opinion. He admits, indeed,
‘the advantages afforded by the present bank,’ but suggests an
inquiry whether it be possible, (of course doubting,) to secure them
by a bank differently constructed. And towards the conclusion of that
part of the message, his language fully justifies the implication, that
it was not to the bank itself, but to ‘its present form,’ that he
objected.
The message of 1831, when treating of the bank, was very brief.
The president says:
‘Entertaining the opinions heretofore expressed in relation to the bank of the
United States, as at present organized,’ (noncommittal once more: and what that
means, Mr. President, nobody better knows than you and I,) ‘I felt it my duty, in
my former messages, frankly to disclose them.’

Frank disclosures! Now, sir, I recollect perfectly well the
impressions made on my mind, and on those of other senators with
whom I conversed, immediately after the message was read. We
thought and said to each other, the president has left a door open to
pass out. It is not the bank; it is not any bank of the United States
to which he is opposed, but it is to the particular organization of the
existing bank. And we all concluded that, if amendments could be
made to the charter satisfactory to the president, he would approve
a bill for its renewal.
We come now to the famous message of July, 1832, negativing
the bill to recharter the bank. Here, it may be expected, we shall
certainly find clear opinions, unequivocally expressed. The president
cannot elude the question. He must now be perfectly frank. We shall
presently see. He says:
‘A bank of the United States is, in many respects, convenient to the
government, and useful to the people. Entertaining this opinion, and deeply
impressed with the belief that some of the powers and privileges possessed by the
existing bank, are unauthorized by the constitution.’ and so forth. * * * ‘I felt
it my duty, at an early period of my administration, to call the attention of
congress to the practicability of organizing an institution, combining all its
advantages, and obviating these objections. I sincerely regret, that in the act
before me I can perceive none of those modifications,’ and so forth. * * *
‘That a bank of the United States, competent to all the duties which may be
required by the government, might be so organized as not to infringe on our own
delegated powers, or the reserved rights of the states, I do not entertain a doubt.
Had the executive been called on to furnish the project of such an institution, the
duty would have been cheerfully performed.’
The message is principally employed in discussing the objections
which the president entertained to the particular provisions of the
charter, and not to the bank itself; such as the right of foreigners to
hold stock in it; its exemption from state taxation; its capacity to
hold real estate, and so forth, and so forth. Does the president, even
in this message, array himself in opposition to any bank of the
United States? Does he even oppose himself to the existing bank

under every organization of which it is susceptible? On the contrary,
does he not declare that he does not entertain a doubt that a bank
may be constitutionally organized? Does he not even rebuke
congress for not calling on him to furnish a project of a bank, which
he would have cheerfully supplied? Is it not fairly deducible, from the
message, that the charter of the present bank might have been so
amended as to have secured the president’s approbation to the
institution? So far was the message from being decisive against all
banks of the United States, or against the existing bank, under any
modification, that the president expressly declares that the question
was adjourned. He says:
‘A general discussion will now take place, eliciting new light, and settling
important principles; and a new congress, elected in the midst of such discussion,
and furnishing an equal representation of the people, according to the last census,
will bear to the capitol the verdict of public opinion, and I doubt not bring this
important question to a satisfactory result.’
This review of the various messages of the president,
conclusively evinces that they were far from expressing, frankly and
decisively, any opinions of the chief magistrate, except that he was
opposed to the amendments of the charter contained in the bill
submitted to him for its renewal, and that he required further
amendments. It demonstrates that he entertained no doubt that it
was practicable and desirable to establish a bank of the United
States; it justified the hope that he might be ultimately reconciled to
the continuation of the present bank, with suitable modifications;
and it expressly proclaimed that the whole subject was adjourned to
the new congress, to be assembled under the last census. If the
parts of the messages which I have cited, or other expressions, in
the same document, be doubtful, or susceptible of a different
interpretation, the review is sufficient for my purpose; which is, to
refute the argument, so confidently advanced, that the president’s
opinion, in opposition to the present or any other bank of the United
States, was frankly and fairly stated to the people, prior to the late
election, was fully understood, and finally decided by them.

Accordingly, in the canvass which ensued, it was boldly asserted
by the partisans of the president, that he was not opposed to a bank
of the United States, nor to the existing bank with proper
amendments. They maintained, at least, wherever those friendly to
a national bank were in the majority, that the reëlection would be
followed by a recharter of the bank, with proper amendments. They
dwelt, it is true, with great earnestness, upon his objections to the
pernicious influence of foreigners in holding stock in it; but they
nevertheless contended that these objections would be cured, if he
was reëlected, and the bank sustained. I appeal to the whole
senate, to my colleagues, to the people of Kentucky, and especially
to the citizens of the city of Louisville, for the correctness of this
statement.
After all this, was it anticipated by the people of the United
States, that, in the reëlection of the president, they were deciding
against an institution of such vital importance? Could they have
imagined, that, after an express adjournment of the whole matter to
a new congress, by the president himself, he would have prejudged
the action of this new congress, and pronounced that a question,
expressly by himself referred to its authority, was previously settled
by the people? He claimed no such result in his message,
immediately after the reëlection; although in it he denounced the
bank as an unsafe depository of the public money, and invited
congress to investigate its condition. The president, then, and the
secretary of the treasury, are without all color of justification for their
assertions, that the question of bank or no bank was fully and fairly
submitted to the people, and a decision pronounced against it by
them.
Sir, I am surprised and alarmed at the new source of executive
power, which is found in the result of a presidential election. I had
supposed that the constitution and the laws were the sole source of
executive authority; that the constitution could only be amended in
the mode which it has itself prescribed; that the issue of a
presidential election, was merely to place the chief magistrate in the

post assigned to him; and that he had neither more nor less power,
in consequence of the election, than the constitution defines and
delegates. But it seems that if, prior to an election, certain opinions,
no matter how ambiguously put forth by a candidate, are known to
the people, these loose opinions, in virtue of the election,
incorporate themselves with the constitution, and afterwards are to
be regarded and expounded as parts of the instrument.
Third. The public money ought not, the secretary thinks, to
remain in the bank until the last moment of the existence of the
charter. But that was not the question which he had to decide on the
twenty-sixth of September last. The real question then was, could he
not wait sixty days for the meeting of congress? There were many
last moments, nearly two years and a half, between the twenty-sixth
of September and the day of the expiration of the charter. But why
not let the public money remain in the bank until the last day of the
charter? It is a part of the charter, that it shall so remain; and
congress having so ordered it, the secretary ought to have
acquiesced in the will of congress, unless the exigency had arisen on
which alone it was supposed his power over the deposits would be
exercised. The secretary is greatly mistaken, in believing that the
bank will be less secure in the last hours of its existence than
previously. It will then be collecting its resources, with a view to the
immediate payment of its notes, and the ultimate division among the
stockholders of their capital; and at no period of its existence will it
be so strong and able to pay all demands upon it. As to the
depreciation in the value of its notes in the interior, at that time,
why, sir, is the secretary possessed of the least knowledge of the
course of the trade of the interior, and especially of the western
states? If he had any, he could not have made such a suggestion.
When the bank itself is not drawing, its notes form the best medium
of remittance from the interior to the Atlantic capitals. They are
sought after by merchants and traders with avidity, are never below
par, and in the absence of bank drafts may command a premium.
This will continue to be the case as long as the charter endures, and
especially during the last moments of its existence, when its ability

will be unquestionable, Philadelphia being the place of the
redemption; whilst the notes themselves will be received in all the
large cities in payment of duties.
Fourth. The secretary asserts, that ‘it is well understood that the
superior credit heretofore enjoyed by the notes of the bank of the
United States, was not founded on any particular confidence in its
management or solidity. It was occasioned altogether by the
agreement on behalf of the public, in the act of incorporation, to
receive them in all payments to the United States.’ I have rarely seen
any state paper characterized by so little gravity, dignity, and
circumspection, as the report displays. The secretary is perfectly
reckless in his assertions of matters of fact, and culpably loose in his
reasoning. Can he believe the assertion which he has made? Can he
believe, for example, that if the notes of the bank of the Metropolis
were made receivable in all payments to the government, they
would ever acquire, at home and abroad, the credit and confidence
which are attached to those of the bank of the United States? If he
had stated that the faculty mentioned, was one of the elements of
the great credit of those notes, the statement would have been true;
but who can agree with him, that it is the sole cause? The credit of
the bank of the United States results from the large amount of its
capital; from the great ability and integrity with which it has been
administered; from the participation of the government in its affairs;
from its advantageous location; from its being the place of deposit of
the public moneys, and its notes being receivable in all payments to
the government; and from its being emphatically the bank of the
United States. This latter circumstance arranges it with the bank of
England, France, Amsterdam, Genoa, and so forth.
Fifth. The expansion and contraction of the accommodations of
the bank to its individual customers, are held up by the secretary, in
bold relief, as evidences of misconduct, which justified his
withdrawal of the deposits. He represents the bank as endeavoring
to operate on the public, by alternate bribery and oppression, with
the same object in both cases, of influencing the election, or the

administration of the president. Why this perpetual reference of all
the operations of the institution to the executive? Why does the
executive think of nothing but itself? It is I! It is I! It is I, that is
meant! appears to be the constant exclamation. Christianity and
charity enjoin us never to ascribe a bad motive if we can suppose a
good one. The bank is a moneyed corporation, whose profits result
from its business; if that be extensive, it makes better; if limited,
less profit. Its interest is to make the greatest amount of dividends
which it can safely. And all its actions may be more certainly ascribed
to that than any other principle. The administration must have a
poor opinion of the virtue and intelligence of the people of the
United States, if it supposes that their judgments are to be warped,
and their opinions controlled by any scale of graduated bank
accommodations. The bank must have a still poorer conception of its
duty to the stockholder, if it were to regulate its issues by the
uncertain and speculative standard of political effect, rather than a
positive arithmetical rule for the computation of interest.
As to the alleged extension of the business of the bank, it has
been again and again satisfactorily accounted for by the payment of
the public debt, and the withdrawal from Europe of considerable
sums, which threw into its vaults a large amount of funds, which, to
be productive, must be employed; and, as the commercial wants
proceeding from extraordinary activity of business, created great
demands about the same period for bank accommodations, the
institution naturally enlarged its transactions. It would have been
treacherous to the best interests of its constituents if it had not done
so. The recent contraction of its business is the result of an obvious
cause. Notwithstanding the confidence in it, manifested by one of
the last acts of the last house of representatives, congress had
scarcely left the district before measures were put in operation to
circumvent its authority. Denunciations and threats were put forth
against it. Rumors, stamped with but too much authority, were
circulated, of the intention of the executive to disregard the
admonition of the house of representatives. An agent was sent out—
and then such an agent—to sound the local institutions as to the

terms on which they would receive the deposits. Was the bank, who
could not be ignorant of all this, to sit carelessly by, without taking
any precautionary measures? The prudent mariner, when he sees
the coming storm, furls his sails, and prepares for all its rage. The
bank knew that the executive was in open hostility to it, and that it
had nothing to expect from its forbearance. It had numerous points
to defend, the strength or weakness of all of which was well known
from its weekly returns to the secretary, and it could not possibly
know at which the first mortal stroke would be aimed. If, on the
twentieth of September last, instead of the manifesto of the
president against the bank, he had officially announced, that he did
not mean to make war upon the bank, and intended to allow the
public deposits to remain until the pleasure of congress was
expressed, public confidence would have been assured and
unshaken, the business of the country continued in quiet and
prosperity, and the numerous bankruptcies in our commercial cities
averted. The wisdom of human actions is better known in their
results than at their inception. That of the bank is manifest from all
that has happened, and especially from its actual condition of
perfect security.
Sixth. The secretary complains of misconduct of the bank in
delegating to the committee of exchange the transaction of
important business, and in that committee’s being appointed by the
president and not the board, by which the government directors
have been excluded. The directors who compose the board meet
only periodically. Deriving no compensation from their places, which
the charter, indeed, prohibits them from receiving, it cannot be
expected that they should be constantly in session. They must,
necessarily, therefore, devolve a great part of the business of the
bank in its details, upon the officers and servants of the corporation.
It is sufficient, if the board controls, governs, and directs the whole
machine. The most important operation of a bank, is that of paying
out its cash, and that the cashier or teller and not the board
performs. As to committees of exchange, the board not being always
in session, it is evident that the convenience of the public requires

that there should be some authority at the bank daily, to pass daily
upon bills, either in the sale or purchase, as the wants of the
community require. Every bank, I believe, that does business to any
extent, has a committee of exchange, similar to that of the bank of
the United States. In regard to the mode of appointment by the
president of the board, it is in conformity with the invariable usage
of the house of representatives, with the practice of the senate for
several years, and, until altered at the commencement of this
session, with the usage, in a great variety, if not all of the state
legislatures, and with that which prevails in our popular assemblies.
The president, speaker, chairman, moderator, almost uniformly
appoints committees. That none of the government directors have
been on the committee of exchange, has proceeded, it is to be
presumed, from their not being entitled, from their skill and
experience, and standing in society, to be put there. The
government directors stand upon the same equal footing with those
appointed by the stockholders. When appointed, they are thrown
into the mass, and must take their fair chances with their colleagues.
If the president of the United States will nominate men of high
character and credit, of known experience and knowledge in
business, they will, no doubt, be placed in corresponding stations. If
he appoints different men, he cannot expect it. Banks are exactly the
places where currency and value are well understood, and duly
estimated. A piece of coin, having even the stamp of the
government, will not pass, unless the metal is pure.
Seventh. The French bill forms another topic of great complaint
with the secretary. The state of the case is, that the government
sold to the bank a bill on that of France for nine hundred thousand
dollars, which the bank sold in London, whence it was sent by the
purchaser to Paris to receive the amount. When the bank purchased
the bill, it paid the amount to the government, or, which is the same
thing, passed it to the credit of the treasury, to be used on demand.
The bill was protested in Paris, and the agents of the bank, to avoid
its being liable to damages, took up the bill on account of the bank.
The bill being dishonored, the bank comes back on the drawer, and

demands the customary damages due according to the course of all
such transactions. The complaint of the secretary is, that the bank
took up the bill to save its own credit, and that it did not do it on
account of the government; in other words, that the bank did not
advance at Paris nine hundred thousand dollars to the government
on account of a bill which it had already paid, every dollar, at
Philadelphia. Why, sir, has the secretary read the charter? If he has,
he must have known that the bank could not have advanced the
nine hundred thousand dollars for the government at Paris, without
subjecting itself to a penalty of three times the amount, (two million
and seven hundred thousand dollars.) The thirteenth section of the
charter is express and positive:
‘That if the said corporation shall advance or lend any sum of money for the
use or on account of the government of the United States, to an amount
exceeding five hundred thousand dollars, all persons concerned in making such
unlawful advances or loan, shall forfeit treble the amount, one fifth to the
informer,’ and so forth.
Eighth. The last reason which I shall notice of the secretary is,
that this ambitious corporation aspires to possess political power.
Those in the actual possession of power, especially when they have
grossly abused it, are perpetually dreading its loss. The miser does
not cling to his treasure with a more death-like grasp. Their
suspicions are always active and on the alert. In every form they
behold a rival, and every breeze comes charged with alarm and
dread. A thousand spectres glide before their affrighted
imaginations, and they see, in every attempt to enlighten those who
have placed them in office, a sinister design to snatch from them
their authority. On what other principles can we account for the
extravagant charges brought forward by the secretary against the
bank? More groundless and reckless assertions than those which he
has allowed himself to embody in his report, never were presented
to a deceived, insulted, and outraged people. Suffer me, sir, to group
some of them. He asserts, ‘that there is sufficient evidence to prove
that the bank has used its means to obtain political power;’ that, in
the presidential election, ‘the bank took an open and direct interest,

demonstrating that it was using its money for the purpose of
obtaining a hold upon the people of this country;’ that it ‘entered the
political arena;’ that it circulated publications containing ‘attacks on
the officers of government;’ that ‘it is now openly in the field as a
political partisan;’ that there are ‘positive proofs’ of the efforts of the
bank to obtain power. And, finally, he concludes, as a demonstrated
proposition:
‘Fourthly, that there is sufficient evidence to show that the bank has been and
still is seeking to obtain political power, and has used its money for the purpose of
influencing the election of the public servants.’
After all this, who can doubt that this ambitious corporation is a
candidate for the next presidency? Or, if it can moderate its lofty
pretensions, that it means at least to go for the office of secretary of
the treasury, upon the next removal? But, sir, where are the proofs
of these political designs? Can any thing be more reckless than these
confident assertions of the secretary? Let us have the proofs; I call
for the proofs. The bank has been the constant object for years of
vituperation and calumny. It has been assailed in every form of
bitterness and malignity. Its operations have been misrepresented;
attempts have been made to destroy its credit, and the public
confidence in its integrity and solidity; and the character of its
officers has been assailed. Under these circumstances, it has dared
to defend itself. It has circulated public documents, speeches of
members of congress, reports made by chairmen of committees,
friends of the administration, and other papers. And, as it was
necessary to make the defence commensurate with the duration and
the extensive theatre of the attack, it has been compelled to incur a
heavy expense to save itself from threatened destruction. It has
openly avowed, and yet avows, its right and purpose to defend itself.
All this was known to the last congress. Not a solitary material fact
has been since disclosed. And when before, in a country where the
press is free, was it deemed criminal for any body to defend itself?
Who invested the secretary of the treasury with power to interpose
himself between the people, and light and intelligence? Who gave

him the right to dictate what information should be communicated to
the people and by whom? Whence does he derive his jurisdiction?
Who made him censor of the public press? From what new sedition
law does he deduce his authority? Is the superintendence of the
American press a part of the financial duty of a secretary of the
treasury? Why did he not lay the whole case before congress, and
invite the revival of the old sedition law? Why anticipate the arrival
of their session? Why usurp the authority of the only department of
government competent to apply a remedy, if there be any power to
abridge the freedom of the press? If the secretary wishes to purify
the press, he has a most Herculean duty before him. And when he
sallies out on his quixotic expedition, he had better begin with the
Augean stable, the press nearest to him, his organ, as most needing
purification.
I have done with the secretary’s reasons. They have been
weighed and found wanting. There was not only no financial motive
for his acting—the sole motive which he could officially entertain—
but every financial consideration forbade him to act. I proceed now,
in the third and last place, to examine the manner in which he has
exercised his power over the deposits.
Thirdly. The whole people of the United States derive an interest
from the public deposits in the bank of the United States, as a
stockholder, in that institution. The bank is enabled, through its
branches, to throw capital into those parts of the union where it is
most needed. Thus it distributes and equalizes the advantages
accruing from the collection of a large public revenue, and the
consequent public deposits. Thus it neutralizes the injustice which
would otherwise flow from the people of the west and the interior’s
paying their full proportion of the public burdens, without deriving
any corresponding benefit from the circulation and deposits of the
public revenue. The use of the capital of the bank has been signally
beneficial to the west. We there want capital, domestic, foreign—any
capital that we can honestly get. We want it to stimulate enterprise,
to give activity to business, and to develope the vast resources

which the bounty of Nature has concentrated in that region. But, by
the secretary’s financial arrangements, the twenty-five or thirty
millions of the public revenue collected from all the people of the
United States, (including those of the west,) will be retained in a few
Atlantic ports. Each port will engross the public moneys there
collected. And, as that of New York collects about one half of the
public revenue, all the people of the United States will be laid under
contribution, not for the sake of the people of the city of New York,
but of two or three banks in that city, in which the people of the
United States, collectively, have not a particle of interest; banks, the
stock in which is or may be held by foreigners.
Three months have elapsed, and the secretary has not yet found
places of deposit for the public moneys, as substitutes for the bank
of the United States. He tells us, in his report of yesterday, that the
bank at Charleston, to which he applied for their reception, declined
the custody, and that he has yet found no other bank willing to
assume it. But he states that the public interest does not in
consequence suffer. No! What is done with the public moneys
constantly receiving in the important port of Charleston, the largest
port, (New Orleans excepted,) from the Potomac to the Gulf of
Mexico? What with the revenue bonds? It appears that he has not
yet received the charters from all the banks selected as places of
deposit. Can any thing be more improvident than that the secretary
should undertake to contract with banks, without knowing their
power and capacity to contract by their charters? That he should
venture to deposit the people’s money in banks, without a full
knowledge of every thing respecting their actual condition? But he
has found some banks willing to receive the public deposits, and he
has entered into contracts with them. And the very first step he has
taken has been in direct violation of an express and positive statute
of the United States. By the act of the first of May, 1820, section
sixth, it is enacted:
‘That no contract shall hereafter be made by the secretary of state, or of the
treasury, or of the department of war, or of the navy, except under a law

authorizing the same, or under an appropriation adequate to its fulfilment; and
excepting, also, contracts for the subsistence and clothing of the army or navy,
and contracts by the quarter-master’s department, which may be made by the
secretaries of those departments.’
Now, sir, what law authorized these contracts with the local
banks, made by the secretary of the treasury? The argument, if
I understand the argument intended to be employed on the other
side, is this; that, by the bank charter, the secretary, is authorized to
remove the public deposits, and that includes the power in question?
But the act establishing the treasury department confides, expressly,
the safe-keeping of the public moneys of the United States to the
treasurer of the United States, and not to the secretary; and the
treasurer, not the secretary, gives a bond for the fidelity with which
he shall keep them. The moment, therefore, that they are withdrawn
from the bank of the United States, they are placed, by law, under
the charge and responsibility of the treasurer and his bond, and not
of the secretary, who has given no bond. But let us trace this
argument a little further. The power to remove the deposits, says the
secretary, from a given place, implies the power to designate the
place to which they shall be removed. And this implied power to
designate the place to which they shall be removed, implies the
power to the secretary of the treasury to contract with the new
banks of deposit. And, on this third link, in the chain of implications,
a fourth is constructed, to dispense with the express duties of the
treasurer of the United States, defined in a positive statute; and yet
a fifth, to repeal a positive statute of congress, passed four years
after the passage of the law containing the present source of this
most extraordinary chain of implications. The exceptions in the act of
1820, prove the inflexibility of the rule which it prescribes. Annual
appropriations are made for the clothing and subsistence of the
army and navy. These appropriations might have been supposed to
be included in a power to contract for those articles, notwithstanding
the prohibitory clause in that act. But congress thought otherwise,
and therefore expressly provided for the exceptions. It must be
admitted that our clerk, (as the late governor Robinson, of Louisiana,

one of the purest republicans I have ever known, used to call a
secretary of the treasury,) tramples with very little ceremony upon
the duties of the treasurer, and the acts of the congress of the
United States, when they come in his way.
These contracts, therefore, between the secretary of the treasury
and the local banks are mere nullities, and absolutely void,
enforceable in no court of justice whatever, for two causes; first,
because they are made in violation of the act of the first of May,
1820; and, secondly, because the treasurer, and not the secretary of
the treasury, alone had, if any federal officer possessed the power to
contract with the local banks. And here, again, we perceive the
necessity there was for avoiding the precipitancy with which the
executive acted, and for awaiting the meeting of congress. Congress
could have deliberately reviewed the previous legislation, decided
upon the expediency of a transfer of the public deposits, and, if
deemed proper, could have passed the new laws adapted to the new
condition of the treasury. It could have decided whether the local
banks should pay any bonus, or pay any interest, or diffuse the
public deposits throughout the United States, so as to secure among
all their parts, equality of benefits as well as of burdens, and
provided for ample guarantees for the safety of the public moneys in
their new depositories.
But let us now inquire, whether the secretary of the treasury has
exercised his usurped authority, in the formation of these contracts,
with prudence and discretion. Having substituted himself to congress
and to the treasurer of the United States, he ought at least to show
that, in the stipulations of the contracts themselves, he has guarded
the public moneys and provided for the public interests. I will
examine the contract with the Girard bank of Philadelphia, which is
presented as a specimen of the contracts with the Atlantic banks.
The first stipulation limits the duty of the local banks to receive in
deposit, on account of the United States, only the notes of banks
convertible into coin, ‘in its immediate vicinity,’ or which it is, ‘for the
time being, in the habit of receiving.’ Under this stipulation, the

Girard bank, for example, will not be bound to receive the notes of
the Louisville bank, although that also be one of the deposit banks,
nor the notes of any other bank, not in its immediate vicinity. As to
the provision that it will receive the notes of banks which, for the
time being, it is in the habit of receiving, it is absurd to put such a
stipulation in a contract, because by the power retained to change
the habit, for the time being, it is an absolute nullity. Now, sir, how
does this compare with the charter and bank of the United States?
The bank receives every where, and credits the government with the
notes, whether issued by the branches or the principal bank. The
amount of all these notes is every where available to the
government. But the government may be overflowing in distant bank
notes when they are not wanted, and a bankrupt, at the places of
expenditure, under this singular arrangement.
With respect to the transfer of moneys from place to place, the
local banks require in this contract, that it shall not take place but
upon reasonable notice. And what reasonable is, has been left totally
undefined, and of course open to future contest. When hereafter a
transfer is ordered, and the bank is unable to make it, there is
nothing to do but to allege the unreasonableness of the notice. The
local bank agrees to render to the government all the services now
performed by the bank of the United States, subject, however, to the
restriction that they are required ‘in the vicinity’ of the local bank.
But the bank of the United States is under no such restrictions; its
services are coextensive with the United States and their territories.
The local banks agree to submit their books and accounts to the
secretary of the treasury, or to any agent to be appointed by him,
but to be paid by the local banks pro rata, as far as such
examination is admissible without a violation of their respective
charters; and how far that may be, the secretary cannot tell,
because he has not yet seen all the charters. He is, however, to
appoint the agents of examination, and to fix the salaries which the
local banks are to pay. And where does the secretary find the

authority to create officers and fix their salaries, without the
authority of congress?
But the most improvident, unprecedented, and extraordinary
provision in the contract, is that which relates to the security. When,
and not until the deposits in the local bank shall exceed one half of
the capital stock annually paid in, collateral security, satisfactory to
the secretary of the treasury, is to be given for the safety of the
deposits. Why, sir, a freshman, a schoolboy, would not have thus
dealt with his father’s guardian’s money. Instead of the security
preceding, it is to follow the deposit of the people’s money! That is,
the local bank gets an amount of their money, equal to one half its
capital, and then it condescends to give security! Does not the
secretary know, that when he goes for the security, the money may
be gone, and that he may be entirely unable to get the one or the
other! We have a law, if I mistake not, which forbids the advance of
any public money, even to a disbursing agent of the government,
without previous security. Yet, in violation of the spirit of that law, or,
at least, of all common sense and common prudence, the secretary
disperses upwards of twenty-five millions of public revenue among a
countless number of unknown banks, and stipulates that, when the
amount of the deposit exceeds one half of their respective capitals,
security is to be given!
The best stipulation in the whole contract, is the last, which
reserves to the secretary of the treasury the power of discharging
these local banks from the service of the United States whenever he
pleases; and the sooner he exercises it, and restores the public
deposits to the place of acknowledged safety, from which they have
been rashly taken, the better for all parties concerned.
Let us look into the condition of one of these local banks, the
nearest to us, and that with respect to which we have the best
information. The banks of this district (and among them that of the
Metropolis) are required to make annual reports of their condition on
the first day of January. The latest official return from the Metropolis

bank is of the first of January, 1832. Why it did not make one on the
first of last January, along with the other banks, I know not. In point
of fact, I am informed, it made none. Here is its account of January,
1832, and I think you will agree that it is a Flemish one. On the
debit side stand capital paid in, five hundred thousand dollars. Due
to the banks, twenty thousand nine hundred and eleven dollars and
ten cents; individuals on deposit, seventy-four thousand nine
hundred and seventy-seven dollars and forty-two cents; dividend
and expenses, seventeen thousand five hundred and ninety-one
dollars and seventy-seven cents; and surplus, eight thousand one
hundred and thirty-one dollars and two cents; making an aggregate
of six hundred and eighty-four thousand four hundred and ninety-six
dollars and thirty-one cents. On the credit side, there are bills and
notes discounted, and stock (what sort?) bearing interest, six
hundred and twenty-six thousand and eleven dollars and ninety
cents; real estate, eighteen thousand four hundred and four dollars
and eighty-six cents; notes of other banks on hand, and checks on
the same, twenty-three thousand two hundred and thirteen dollars
and eighty cents; specie—now, Mr. President, how much do you
imagine? Recollect, that this is the bank selected at the seat of
government, where there is necessarily concentrated a vast amount
of public money, employed in the expenditure of government.
Recollect that, by another executive edict, all public officers, charged
with the disbursement of the public money here, are required to
make their deposits with this Metropolis; and how much specie do
you suppose it had at the date of its last official return? ten
thousand nine hundred and seventy-four dollars and seventy-six
cents; due from other banks, five thousand eight hundred and ninety
dollars and ninety-nine cents; making in the aggregate on the credit
side, six hundred and eighty-four thousand four hundred and ninety-
six dollars and thirty-one cents. Upon looking into the items, and
casting them up, you will find that this Metropolis bank, on the first
day of January, 1832, was liable to an immediate call for one
hundred and seventy-six thousand three hundred and thirty-five
dollars and twenty-nine cents, and that the amount which it had on
hand, ready to meet that call, was forty thousand and seventy-nine

dollars and fifty-five cents. And this is one of the banks selected at
the seat of the general government, for the deposit of the public
moneys of the United States. A bank with a capital of thirty millions
of dollars, and upwards of ten millions of specie on hand has been
put aside, and a bank with a capital of half a million, and a little
more than ten thousand dollars in specie on hand, has been
substituted in its place! How that half million has been raised,
whether in part or in the whole, by the neutralizing operation of
giving stock notes in exchange for certificates of stock, does not
appear.
The design of the whole scheme of this treasury arrangement
seems to have been, to have united in one common league a
number of local banks, dispersed throughout the union, and subject
to one central will, with a right of scrutiny instituted by the agents of
that will. It is a bad imitation of the New York project of a safety-
fund. This confederation of banks will probably be combined in
sympathy as well as interest, and will be always ready to fly to the
succor of the source of their nourishment. As to their supplying a
common currency, in place of that of the bank of the United States,
the plan is totally destitute of the essential requisite. They are not
required to credit each other’s paper, unless it be issued in the
‘immediate vicinity.’
We have seen what is in this contract. Now let us see what is not
there. It contains no stipulation for the preservation of the public
morals; none for the freedom of elections; none for the purity of the
press. All these great interests, after all that has been said against
the bank of the United States, are left to shift and take care of
themselves as they can. We have already seen the president of a
bank in a neighboring city, rushing impetuously to the defence of the
secretary of the treasury against an editorial article in a newspaper,
although the ‘venom of the shaft was quite equal to the vigor of the
bow.’ Was he rebuked by the secretary of the treasury? Was the
bank discharged from the public service? Or, are morals, the press,
and elections, in no danger of contamination, when a host of banks

become literary champions on the side of power and the officers of
government? Is the patriotism of the secretary only alarmed when
the infallibility of high authority is questioned? Will the states silently
acquiesce, and see the federal authority insinuating itself into banks
of their creation, and subject to their exclusive control?
We have, Mr. President, a most wonderful financier at the head of
our treasury department. He sits quietly by in the cabinet, and
witnesses the contest between his colleague and the president; sees
the conflict in the mind of that colleague between his personal
attachment to the president on the one hand, and his solemn duty
to the public on the other; beholds the triumph of conscientious
obligation; contemplates the noble spectacle of an honest man,
preferring to surrender an exalted office with all its honors and
emoluments, rather than betray the interests of the people;
witnesses the contemptuous and insulting expulsion of that
colleague from office; and then coolly enters the vacated place,
without the slightest sympathy or the smallest emotion. He was
installed on the twenty-third of September, and by the twenty-sixth,
the brief period of three days, he discovers that the government of
the United States had been wrong from its origin; that every one of
his predecessors from Hamilton down, including Gallatin, (who,
whatever I said of him on a former occasion, and that I do not mean
to retract, possessed more practical knowledge of currency, banks,
and finance, than any man I have ever met in the public councils,)
Dallas, and Crawford, had been mistaken about both the expediency
and constitutionality of the bank; that every chief magistrate, prior
to him whose patronage he enjoyed, had been wrong; that the
supreme court of the United States, and the people of the United
States, during the thirty-seven years that they had acquiesced in or
recognised the utter utility of a bank, were all wrong. And, opposing
his single opinion to their united judgments, he dismisses the bank,
scatters the public money, and undertakes to regulate and purify the
public morals, the public press, and popular elections!

If we examine the operations of this modern Turgot, in their
financial bearing, merely, we shall find still less for approbation.
First. He withdraws the public moneys, where, by his own
deliberate admission, they were perfectly safe, with a bank of thirty-
five millions of capital, and ten millions of specie, and places them at
great hazard with banks of comparatively small capital, and but little
specie, of which the Metropolis bank is an example.
Second. He withdraws them from a bank created by, and over
which the federal government had ample control, and puts them in
other banks, created by different governments, and over which it
has no control.
Third. He withdraws them from a bank in which the American
people, as a stockholder, were drawing their fair proportion of
interest accruing on loans, of which those deposits formed the basis,
and puts them where the people of the United States draw no
interest.
Fourth. From a bank which has paid a bonus of a million and a
half, which the people of the United States may be now liable to
refund, and puts them in banks which have paid to the American
people no bonus.
Fifth. Depreciates the value of stock in a bank, where the general
government holds seven millions, and advances that of banks in
whose stock it does not hold a dollar; and whose aggregate capital
does not probably much exceed that very seven millions. And, finally,
Sixth. He dismisses a bank whose paper circulates in the greatest
credit throughout the union and in foreign countries, and engages in
the public service banks whose paper has but a limited and local
circulation in their ‘immediate vicinities.’
These are immediate and inevitable results. How much that large
and long-standing item of unavailable funds, annually reported to

congress, will be swelled and extended, remains to be developed by
time.
And now, Mr. President, what, under all these circumstances, is it
our duty to do? Is there a senator, who can hesitate to affirm, in the
language of the resolution, that the president has assumed a
dangerous power over the treasury of the United States, not granted
to him by the constitution and the laws; and that the reasons
assigned for the act, by the secretary of the treasury, are insufficient
and unsatisfactory?
The eyes and the hopes of the American people are anxiously
turned to congress. They feel that they have been deceived and
insulted; their confidence abused; their interests betrayed; and their
liberties in danger. They see a rapid and alarming concentration of
all power in one man’s hands. They see that, by the exercise of the
positive authority of the executive, and his negative power exerted
over congress, the will of one man alone prevails, and governs the
republic. The question is no longer what laws will congress pass, but
what will the executive not veto? The president, and not congress, is
addressed for legislative action. We have seen a corporation,
charged with the execution of a great national work, dismiss an
experienced, faithful, and zealous president, afterwards testify to his
ability by a voluntary resolution, and reward his extraordinary
services by a large gratuity, and appoint in his place an executive
favorite, totally inexperienced and incompetent, to propitiate the
president. We behold the usual incidents of approaching tyranny.
The land is filled with spies and informers; and detraction and
denunciation are the orders of the day. People, especially official
incumbents in this place, no longer dare speak in the fearless tones
of manly freedom, but in the cautious whispers of trembling slaves.
The premonitory symptoms of despotism are upon us; and if
congress do not apply an instantaneous and effective remedy, the
fatal collapse will soon come on, and we shall die—ignobly die! base,
mean, and abject slaves—the scorn and contempt of mankind—
unpitied, unwept, unmourned!

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