were

These general principles stated more specifically in the President's inaugural address of March 4, 1913, and in a communication on April 7, when Congress was summoned in special session. For the first time in more than a century, the President appeared in person before the two Houses of Congress, and read a speech instead of sending in a written message. In it, he proposed a revision of the tariff, a new banking system, including rural credits, conservation of natural resources, further regulation of capital, a public railway in Alaska, independence of the Philippines, and primary elections to select candidates for the Presidential election.

a

To carry out these far-reaching policies, the President needed strong Cabinet and a willing majority in Congress. To the post of Secretary of State, he named William J. Bryan, whose influence in the Baltimore convention had been strongly exerted in favor of Wilson's nomination. Mr. Bryan was without previous diplomatic experience, but had travelled widely, had served four years in Congress, and had three times been the candidate of his party for the Presidency. Associated with him for a time as official counselor was John Bassett Moore, of New York. The Secretary of the Treasury, William G. McAdoo, was the head of one of the great traction

companies of New York and chairman of the Democratic national committee in the campaign. in the campaign. Lindley M. Garrison, of New Jersey, a lawyer of distinction, was made Secretary of War. James C. McReynolds was AttorneyGeneral, having previously served the government in prosecutions of trust concerns. Albert S. Burleson, of Texas, the Postmaster-General, had served seven terms in Congress. Josephus Daniels, of North Carolina, Secretary of the Navy, had been a journalist and an active member of the Democratic national committee. Franklin K. Lane, Secretary of the Interior, had been for eight years a member of the Interstate Commerce Commission. David F. Houston, Secretary of Agriculture, had been president of several universities and, at the time of appointment, was chancellor of Washington University, St. Louis. William C. Redfield, of New York, Secretary of Commerce, had been a manufacturer and leader in organizations of business men. The new Department of Labor, created just at the end of the previous administration, was filled by William B. Wilson, of Pennsylvania, who had been a prominent official in several labor unions and had served six years. in Congress. This cabinet of ten men, as a whole, accepted the President's personal leadership and supported his policy of sweeping legislation.

The Underwood Tariff and the Reserve Bank. The Democrats and tariff reform Republicans had prepared the way for the revision of the tariff in 1911 and 1912 by passing four bills for reducing duties on specific groups of articles; but all four were vetoed by President Taft.* After Wilson's election, the Democrats of the Ways and Means Committee prepared a draft of a new tariff. It was introduced in the special session which began April 7, 1913, by Oscar W. Underwood, of Alabama, who was to be the chairman of the Committee and the party leader in Congress; and it was approved in principle by President Wilson before it came up for public discussion. As explained by its draftsman, the bill was intended to keep high rates on luxuries and to fix a low revenue rate on the "necessities of life." At the same time, it undertook to allow competition by foreign manufacturers in lines of manufacture which tended toward monopoly in the United States. The bill as finally worked out greatly increased the free list, and sufficiently lowered duties so that in the next full revenue year (1913-14) the proceeds of the customs were about $26,000,000 less than in 1912-13.

A few weeks before these debates, the Sixteenth Amendment to the Federal Constitution, which had been pending for three years and a half, received the necessary three-fourths

557

of the Constitution.† Congress was thus authorized to lay an income tax without apportioning the amount among the States. This authority was at once used by adding to the tariff act a section providing an income tax to apply to incomes above $3,000 ($4,000 for married couples). The tax was 1 per cent. on the annual income up to an income of $20,000 and then was increased to 2 per cent. and 3 per cent. on higher incomes. The proceeds were expected to make good to the treasury the loss of revenue expected from the lowering of tariff duties. In the course of the debate, some of the Democratic members opposed the bill, because it did not protect manufactures in which their districts were especially interested. The Democratic party caucuses in the House and Senate compelled most of the objectors to submit, and the President used his powerful personal influence to support the Underwood bill, which became a law October 3, 1913. Another which was pressed even harder by the President, was the so-called Federal Reserve Act. For several years, efforts had been made to re-organize the National bank system, and Senator Nelson W. Aldrich, of Rhode Island, a Republican leader, drew up an elaborate bill in 1911. The main point was to make the currency and the reserves more flexible. To this end a new Democratic measure was introduced, com

measure,

See p. 288 et seq., ante.

See p. 280, ante.

which replaced the old National banks

*See p. 296, ante.

by an organization which subdivided the United States into twelve districts, in each of which was to be a reserve city as the central point of the National chartered banks in that district. The whole system was directed by a Federal Reserve Board of seven members. All the old National banks were obliged to go into this system or forfeit their charters. The reserve banks were allowed to deal in commercial paper on more liberal terms, and they issued federal reserve treasury notes in place of the old National bank notes.

Divisions arose in Congress over the question of just what sorts of commercial paper should be discounted; but the elections in 1913 were favorable to the Democrats, and gave new strength to their bank measure. The party caucus and the President together held the Democratic members of Congress in line, and nearly all of them, together with about 50 others outside the Democratic party, voted for the OwenGlass bill, and it became a law, December 23, 1913. It was some time before the new system was in operation. The various cities which desired to be the banking centre for their region raised great objection to the choice made by the Federal Reserve Board; and a quarrel arose between the President and the Senate over the nomination of several members of the Board, one of whom was finally rejected because he held one share of stock in a large manufacturing trust.

Nearly all the National banks in the country came into the new system and many State banks also took membership, which obliged them to do business under a Federal charter. The change in the caption of the bank notes was hardly noticed by the public. In the very difficult conditions of banking during 1914 and 1915, the Federal Reserve plan showed convenience and success in furnishing credit where it was most needed. The new system not only recognized the soundness of commercial paper as a security which could be transferred from bank to bank; it also prevented the accumulation of heavy balances by the New York banks held to the credit of distant banks, and meantime used in short loans for purposes of speculation. The new system was an effort to decentralize the banking of the country, and was reasonably successful in that endeavor.

Anti-Trust Acts.

Another measure urged by President Wilson was a more searching regulation of corporations. When Wilson came into office, there were two groups of restrictive acts. (1) The Interstate Commerce Act of 1887 and twelve amending acts passed down to 1913, of which the most important were the Expediting Act (1903); the Elkins Act (1903); the Hepburn Act (1906); the Employer's Liability Act (1908); and the MannElkins Act (1910).* These statutes gave great power to the Interstate * See pp. 259, 283, ante.

Commerce Commission, which was gradually relieved from some of the checks imposed by the regular judicial courts which impeded its action. (2) The Sherman Anti-trust Act of 1890,* aided by the establishment of the Bureau of Corporations (1905) and the Corporation Tax (1909).† These acts forced corporations to submit their accounts as a basis of taxation, and also compelled them to allow investigation of their affairs which might result in suits brought against them under the Sherman Act for monopoly or efforts to monopolize. By the Northern Securities decision (1904), the Supreme Court held that railroads as corporations were subject to the Sherman Law.‡

President Wilson intended from the first to strengthen these measures and was interested in the Rayburn bill, which was brought forward in 1914 to prevent railroads from overissuing their stocks and bonds, really an anti-stock-watering measure. In the course of the discussion it was revealed that many railroads, even the strong lines, were facing serious financial difficulty. The New York, New Haven and Hartford, with a capital of $250,000,000, was for a time doubtful about its fixed charges. The Boston and Maine Railroad, capitalized at about $100,000,000, was on the verge of bankruptcy. The Rock Island system of 8,000 miles of railway went into the hands of a receiver

* See pp. 46-47, ante. See p. 279, ante.

See p. 223, ante.

559

and later the Frisco system of 5,200 miles. The Rayburn bill passed the House almost without objection, but was stopped in the Senate because that body and the President seemed to agree that it was not desirable to press the railroads by further legislation at that time.

Two general anti-corporation measures were made law by the great efforts of the President and Congress. The first of these was the Federal Trade Commission bill, the purpose of which was to create a body resembling the Interstate Commerce Commission, which might deal with corporations that were not engaged in transportation but did carry on an "interstate business" from one State into another State, or with a foreign country. One purpose was to reach the so-called "twilight zone, " that is, transactions which were not covered either by State or National law. Just

as

"combination in restraint of trade" was forbidden by the Sherman Act of 1890, so in this act " unfair methods of competition" were prohibited. The difficulty of the Interstate Commerce Commission in securing evidence induced Congress to give the new commission, from the beginning, power to obtain evidence on the concerns affected, and to report both upon infractions of law and defects in the law. The bill, which became an act, September 26, 1914, finally took the form of a commission. of five members officially called the Federal Trade Commission; and it

took up and included the former Bureau of Corporations.

The other statute was the Clayton Anti-trust Act, which attempted to meet difficulties that had arisen through efforts of corporations to create monopolies by indirect dealing, such as offering their products at special low prices, until their competitors were driven out of business. Such methods were prohibited by the act, which also forbade any forms of contract by which the purchaser of an article agreed not to buy the same kind of article or accessory articles from a competitor of the seller. A carefully drawn clause declared that the act should not be understood to apply to fraternal, labor, or agricultural associations, not conducted for profit. Other clauses of the bill forbade holding corporations and interlocking directorates. To the Trade Commission and also to the Interstate Commerce Commission was given power to put an end to these discriminations and other violations of the strong clauses against monopoly which appeared in both acts. In its progress the Senate attempted to "take the teeth out" of the bill, but the act was passed October 15, 1914, in about the shape desired by the President.

By this series of statutes, the Democratic Party expected to put itself on record as more opposed to monopolies of all kinds, whether in transportation or trade, than the Republican Party had shown itself. At the

same time, the structure of Federal anti-monopoly laws was made more complete. However, the Trade Commission was not organized till March, 1915; and for some time did not occupy in the public mind anything like the attention which was given to the Interstate Commerce Commission.

The Railroad Situation, 1913-1916.
For several reasons the public was

less aroused by
by the complaints
against monopoly than in previous
years. 1913 and 1914 were a period
of depression in business, and by some
people this state of things was thought
to be due to the interference of the
State and Federal governments with
the methods of doing business. The
profits of some of the largest corpora-
tions, such as The United States
Steel Corporation, fell off; and there
was a wave of feeling that business
ought to be let alone.

The same conditions applied to the railroads. Though their business was growing with the growth of the country, their net profits were reduced.

The State and National railroad commissions brought about some reductions in rates, and, at the same time, there was a rise in the wages of the railroad employees, who in 1914 drew about $1,381,000,000 a year as against $1,144,000,000 in 1910. The railroads insisted that they were caught between the labor unions and the Interstate Commerce Commission, and that the only relief was to allow them to raise their rates.