The United States Since the Civil War

by Charles Ramsdell Lingley

The appointment of the cabinet occasioned unusual interest. Bryan, the one Democrat who had a large and devoted personal following, became Secretary of State. His influence in nominating Wilson had been very great and the adherence of his admirers was necessary if the party was to be welded into an effective organization. Several of the other members of the cabinet proved themselves to be men of unusual capacity, and their ability to cooperate with one another provided the "teamwork" which the President was anxious to obtain.[1]

His conception of the part which the chief executive ought to play was a definite one. He looked upon the President as peculiarly the representative of the whole people in the federal government, as the leader of the party in power and as commissioned by the voting population to carry out the platform of principles upon which the party and its leader were elected. He believed that the unofficial leaders who are better known as "bosses" existed partly because of the absence of official leaders. As Governor of New Jersey he had acted on the principles that he had outlined for the chief executive of the nation, and upon his accession to the presidency he began at once to put into effect a similar program.

Congress was called for a special session on April 7, 1913, in order to revise the tariff. It was a dangerous task—one which had discredited the Democrats in 1894 and divided the Republicans in 1909—but plans had been laid with care in order to avoid previous mistakes. The Chairman of the Committee on Ways and Means in the House, Oscar W. Underwood, had begun the preparation of a bill during the session before and had discussed it with Democratic members of the Senate Committee on Finance, and with the President.

At the opening of the session Wilson broke the precedent established by Jefferson in 1801, and read his message personally to Congress, instead of sending it in written form to be read by a clerk. In substance the message expressed the President's conviction that the appearance of the chief executive in Congress would assist in developing the spirit of cooperation, and outlined the tariff problem which they were together called upon to settle. He declared that the country wished the tariff changed, that the task ought to be completed as quickly as possible and that no special privileges ought to be granted to anybody. He advocated a tariff on articles which we did not produce and upon luxuries, but he urged that otherwise the schedules be reduced vigorously but without undue haste. Other considerations were more important, however, than the substance of the message. Previous documents of this kind had been long and filled with a wide variety of recommendations concerning both international and domestic relations; Wilson's speech occupied but a few moments, it focused the attention of Congress upon one subject, and fixed the eyes of the country upon the problem. The nation knew that one task was in hand, and knew where to lay the blame if delay should ensue. It was a great responsibility that the President had assumed, but he assumed it without hesitation.

Underwood presented his bill at once and it passed the House without difficulty, but in the Senate the Democratic majority of six was too small to guarantee success in the face of the objections of Louisiana senators to the proposal for free sugar, and the usual bargaining for the protection of special interests. When the lobby appeared—the group that had so mangled the Wilson-Gorman bill and discredited the Payne-Aldrich Act—the President issued a public statement warning the country of the "extraordinary exertions" of a body of paid agents whose object was private profit and not the good of the public. So vigorous an action resulted in hostility to Wilson, but Congress found itself unusually free from objectionable pressure. Hence while experts differed in regard to the wisdom of one part or another of the bill, it was not charged that its schedules bore the imprint of favoritism for any particular private interests. Discussion in the Senate was so extended that the Underwood act did not finally pass and receive the President's signature until October 3.

The general character of the measure is indicated by the number of changes made in the tariffs as they existed at the time of the passage of the act. On 958 articles the duties were reduced; on 307 they were left unchanged; and on eighty-six (mainly in the chemical schedule), they were increased. Despite the numerous reductions, the Underwood law retained much of the protective purpose of preceding enactments. Attempts were made to decrease the cost of living by considerable reductions on certain agricultural products and by placing others on the free list; wool was to be free after December 1, 1913, and the duty on sugar was to be reduced gradually and taken off completely on May 1, 1916; duties on cotton goods and on woolens ("Schedule K") were heavily reduced. Underwood represented an iron manufacturing section of Alabama, but he showed an uncommon attention to the general interest by favoring large reductions on pig-iron and placing iron ore and steel rails on the free list. An important part of the law was a provision for an income tax, which had been made possible by the Sixteenth Amendment to the Constitution proclaimed on February 25, 1913. Incomes over $3,000 ($4,000 in the case of married persons), were to be taxed one per cent., with an additional one per cent. on incomes of $20,000 to $50,000, and similar graded "surtaxes" on higher incomes, reaching six per cent. on those above $500,000. The board which the Republicans had established for the scientific study of the tariff had been allowed to lapse by the Democrats, but was revived in 1916 through the appointment of a bi-partisan Commission of six members with twelve-year terms.

On June 23, 1913, after the tariff bill had been piloted around the chief difficulties in its way, the President again addressed Congress-this time on currency legislation. Again he laid down certain principles-a more elastic currency, some means of mobilizing bank reserves, and public control of the banking system. Before mentioning the further history of this recommendation, however, it is necessary to have in mind the main facts in the development of the monetary issue since 1900. Complaint had been common since that year. One difficulty lay in the fact that the volume of the currency could not quickly increase and decrease as busy times demanded more or quiet times required less of the circulating medium. At those parts of the year, for example, when the crops were being moved there was a greater demand for currency than the banks could conveniently meet. They could, to be sure, buy United States bonds and issue national bank notes upon them as security, but this was a slow and costly process. The dangers of the existing inelastic arrangement were illustrated in the panic of 1907.

In that year occurred a financial crisis which resulted in business failures, unemployment and the indictment of prominent figures in the commercial world; it was precipitated by a gamble in copper stocks. An unsuccessful attempt to corner the stock of a copper company led to the examination of the Mercantile National Bank of New York, with which the speculators had intimate connections. Meanwhile the president of the bank and all the directors were forced to resign. One of the associates of a director in the Mercantile was the president of the Knickerbocker Trust Company, and depositors in the latter bank thereupon became frightened, and $8,000,000 were withdrawn in three hours. The alarm then spread to the depositors of the Trust Company of America—the president of the Knickerbocker was one of its directors—and $34,000,000 were withdrawn by the now thoroughly anxious depositors, who stood in line at night in order to be ready for the next day. The panic spread to other parts of the nation; country banks withdrew funds from the city banks, and they from New York; and at length the government came to the aid of the distressed institutions and deposited $36,000,000 between October 19 and 31. Nevertheless, at the time when depositors were trying to get their money there was sufficient currency in existence to satisfy all needs. The defect lay in the lack of machinery for pooling resources in such a way as to relieve any institution that was in temporary straits. The experts pointed also to the unscrupulous manipulation of the supplies of currency by New York financiers. There was widespread comment on the fact that if the magnates did not actually constitute a "money trust" they were nevertheless able to expand and contract the available supply to such an extent as to serve their own ends and embarrass the public.

In the meanwhile many experts, among them Senator Nelson W. Aldrich, had been studying the entire banking system. The result of this work was the Aldrich-Vreeland Act of 1908 providing a temporary method for making the supply of currency more flexible and also arranging for a National Monetary Commission to investigate the currency and banking systems in this and other countries. The Commission published thirty-eight volumes of information and recommendations, which were a storehouse of facts concerning the problem, although no legislation resulted. All that Taft did was to pass the task along to Wilson.

As has been seen, President Wilson seized the opportunity at once. Senator Owen and Carter Glass, Chairmen of the Senate and House Committees on Banking and 'Currency, together with William G. McAdoo, the Secretary of the Treasury, and the President himself drafted the Federal Reserve bill. This measure received careful attention, being the cause of extended hearings and debate in Congress and of discussion in banking circles. The special session wore on and came to an end, but the regular session began at once (December 1), and consideration of the measure continued without interruption. At length on December 22 the House acted favorably, thirty-four Republicans, eleven Progressives, and one Independent assisting the Democrats in passing the bill; on the following day the Senate passed it, one Progressive and three Republicans voting with the majority. In many details the act as passed differed from the original plan, but in its essential points it was not amended. Although its precise form was the work of a few men, the project in general, of course, represented the labors of many persons extending over many years, and for that reason embodied the best that American experts could give.