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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.

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.

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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 99 were prohibited. The difficulty of the Interstate terstate 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 less aroused 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 corporations, 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.

Therefore, several attempts were made in the East and West by different groups of railroads to make out a case for an increase of passenger and freight rates. For years two cents a mile was regarded as a reasonable local and through rate. As late as 1913, some States enacted it for intrastate passenger traffic; and most of the through passenger fares were figured upon that basis. A few of the railroads, especially the New York Central and the Pennsylvania, added to this rate by collecting an excess fare for travel on their fast and desirable trains.

A movement for higher fares brought about a raise in a few States. The same argument applied to interstate rates and the Interstate Commerce Commission sanctioned raising fares by about 12 per cent. on some lines; partly on the ground that the fast through trains did not pay for themselves, and could only be kept up by making up the deficiency out of the proceeds of the freight business. In several different cases, in which the hearings lasted for months, the Interstate Commerce Commission faced the question of raising freight rates. Combinations of shippers and others appeared to oppose such increases, on the ground that the railroads were not efficiently managed and could meet the difficulty by diminishing the general expense of their business. The old charge of stock-watering was brought up again, and the Commission began a process of "valuation"

in order to discover what the railroads had actually cost and therefore what would be a fair allowance for

interest on capital. interest on capital. Meantime there were several alarming failures or near failures of great railroad systems. With much hesitation, the Commission finally allowed several small increases of rates. In 1916 there was another concerted movement of the railroad men to increase their whole standard of wages at a cost of about $125,000,000 a year of additional pay. Since the total annual dividends were only about $375,000,000 a year, the railroads strongly resisted the pressure.

The Tariff 1914-1916.

Strictly speaking, the various acts of Congress for increased control of railroads and corporations were not partisan measures. Though they were pushed through in their detail by Democratic caucuses in the two Houses, supported by the influence of the President, they were in the same line as earlier acts passed by the Republicans, and some Republicans voted for them. The tariff was more clearly a party measure, for it was based on a party principle which appeared in the Democratic platform of 1912. The Progressives in their campaign of 1912 and thereafter were in favor of a protective tariff, and most of them joined in the protest of the Republicans against the Democratic Underwood tariff. The proceeds of the import duties in the year 1912-13

under the Payne-Aldrich tariff were $318,000,000. In 1913-14 they were $292,000,000; in 1914-15 they were $209,000,000. To offset this diminished revenue of $109,000,000 the old internal revenue increased only from $309,000,000 to $336,000,000. The corporation and income taxes together increased from $29,000,000 to $80,000,000. The total ordinary receipts

of the United States for the two years dropped from $724,000,000 to $696,000,000.

It is difficult to say what was the actual influence of the tariff upon business, because the outbreak of the European War in 1914 threw all calculations out of account. Some parts of the country showed an alarming lack of employment, and in all parts business was dull during the first two years of President Wilson's administration. A decided movement toward a more highly protective tariff showed itself even in some strong Democratic regions; for instance, the Democrats in Louisiana lost a seat in the election. of 1914, on the issue of maintaining the protective sugar duties. Members from some of the western beet-sugar districts joined in the protest against free sugar.

When business revived in 1915 and 1916, though the Republican party stood firm as an advocate of the protective tariff, less was heard about a general revision and more about changes in certain details. During the European War, imports of dye-stuffs from Germany were almost entirely.

cut off, thus indicating that that country had possessed something like a monopoly of the business. American manufacturers insisted that they could produce an article equal to that of the Germans, provided they could have assurances that, when the war was over, they would be protected from a renewal of the German competition; and a great pressure was put on Congress to lay a special duty to meet this case. In view of the likelihood that, at the end of the war, the accumulated stocks of goods in Germany and other countries would be poured into the United States-" dumped was the usual term employed-there was an agitation in favor of special legislation which would raise the duties on such imports.

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Another question of great moment. was a widespread protest against the methods by which tariffs were usually put together. It was notorious that parts of the McKinley tariff of 1890 and the Dingley tariff of 1897 were written by manufacturers, who were allowed almost to dictate the terms of their protection. The Payne-Aldrich tariff of 1909 was so irregular and unscientific that President Taft hesitated to sign it, though he afterwards held it to be the best tariff that the country had ever known.* its predecessors, the Underwood tariff was framed by a Committee of Ways and Means which included some men with little knowledge of the subject, and the material which was available See pp. 278-280, ante.

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