America’s Money Machine

THE NATIONAL MONETARY COMMISSION had been composed entirely of members of Congress—on the theory, apparently, that they would be more influential thereby in promoting enactment of the Commission’s recommendations. As a result of the 1910 elections, two-thirds of the Commission lost their seats in Congress and were thereafter disrespectfully called “lame ducks,” while still others faded from the scene after the 1912 election.

The general political currents of the time require our attention because their conflicting tendencies are reflected in the monetary legislation subsequently enacted. Beneath the particular issues that rose and found attention lay deeper issues that emerge even more clearly today, more insistently demanding resolution—of the state versus the individual, of the locus of sovereignty, and of the range of individual liberty. Contrary to today’s colorations, the Republican Party was then probably more authoritarian, in demanding more powers for the Federal Government, than was the Democratic Party, traditionally the party of states’ rights—though this coloration may not be evident in respect to individual issues before the public.

Under Theodore Roosevelt, for instance, the campaign against industrial monopolies had resulted in 44 antitrust suits; under Taft 90 proceedings were initiated against monopolies. Taft had also formally proposed legislation requiring federal incorporation of companies engaged in interstate commerce, and the establishment of a Federal Corporation Commission to supervise companies holding national charters, but these proposals were rejected by Congress. Other legislation of the Taft Administration in the direction of centralization of authority were the Mann-Elkins Act, which placed telephone, telegraph, cable, and wireless companies under the jurisdiction of the Interstate Commerce Commission and authorized the Commission to suspend rates pending a court decision; a postal savings bank system which put the Federal government in the banking business, and a tariff act (the Payne-Aldrich Tariff Act of April 9,1909) which lowered duties from an average of 57 per cent to around 38 per cent.

Theodore Roosevelt returned from a year of big game hunting in Africa and a triumphal tour in Europe to find again an opprtunity and a demand for his political talents. Drawn by an appeal to public service, and perhaps to a considerable degree by ambition,1 he began to angle for the leadership of the insurgent wing. In a speech at Osawatomie, Kansas, on August 31, 1910, on “The New Nationalism” he backed the Supreme Court’s attitude toward social legislation and announced the political doctrine “that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it.”

The speech was interpreted as an open break with his protégé, Taft. Opposition to Taft within the Party was further strengthened by the election losses in the fall of that year and in the following January Senator La Follette instigated the formation of the National Progressive Republican League for “the promotion of popular government and progressive legislation.” Among its objects were: direct election of U. S. Senators; direct primaries for the nomination of elective officers; direct election of delegates to the national conventions; amendment of state constitutions to provide for the initiative, referendum and recall; and a corrupt practices act. The president of the new organization was Senator Jonathan Bourne of Oregon, and the obvious objective was to gain control of the Republican organization, block the renomination of Taft and choose their own candidate, Senator La Follette.

Well before the convention in June of 1912, it was apparent that La Follette did not command the strength to win the nomination, and the Progressives began to sound out Roosevelt on his receptivity. The stage was set for his acceptance by a letter addressed to him and signed by seven Republican governors declaring, “A large majority of the Republican voters of the country favor your nomination, and a large majority of the people favor your election as the next President of the United States.” This letter was sent on February 10, 1912. In an address on February 21 before the Ohio Constitutional Convention at Columbus, Roosevelt reaffirmed the principles which he had announced in his Kansas speech, and a little later responded to the governors’ letter by stating that “I will accept the nomination for President if it is tendered to me, and I will adhere to this decision until the convention has expressed its preference.” His followers now set out to gather delegates.

When the Party convention convened at Chicago on June 18, however, the credentials committee refused to seat the Roosevelt delegates and President Taft was renominated. Immediately, the Roosevelt delegates withdrew and issued a condemnation of the nomination, and on August 5 reassembled in Chicago as the Progressive or “Bull Moose” Party and nominated Roosevelt for President and Senator Hiram W. Johnson for Vice President.

At the same time, the Democratic Party, long dominated by William Jennings Bryan and still under his influence, was also seeking other leadership. The principal rivals who emerged were Beauchamp (“Champ”) Clark of Missouri, who had succeeded Joseph Cannon as Speaker of the House after the Democratic victories in 1910, and Governor Woodrow Wilson of New Jersey. Despite an unfortunate reference by Wilson to Bryan that was reported and publicized—”Would that we could do something to knock him into a cocked hat”—Bryan preferred Wilson to Clark and gave him his support. Wilson was nominated, but only after 46 ballots, and the Republican split gave him the Presidency with a total of 435 electoral votes to 88 for Roosevelt and 8 for Taft, although he received only a minority of the popular vote (6,286,214 out of a total of 15,028,521, with 4,126,020 for Roosevelt and 3,483,922 for Taft).

The Democratic platform plank on the money question, written under Bryan’s influence, was confusing and contradictory. It called for “such a systematic revision of our banking laws as will render temporary relief in localities in which such relief is needed, with protection from control or domination of what is known as the ‘money trusts,’ “ and it opposed “the so-called Aldrich bill,” or the establishment of a central bank.

The President-elect appeared equally vague as to what he wanted. Sometime before, in addressing a convention of Democratic clubs, he had used such expressions as “the control of credit dangerously concentrated in this country” and had referred to the “money monopoly” as being “the greatest monopoly in this country.” Later, his tone became more moderate, and he declared from time to time that he was “as was his wont” keeping his mind open and guarding himself from too definite or possibly premature conclusions. He had spoken from the same platform with the now former-Senator Aldrich, who had announced his general agreement with Wilson as to existing conditions and measurably as to the remedy for them. The New York Times concluded that it was safe to assume that the final and formal expression of Governor Wilson’s views would be “clear and tempered.”

There was little difference between the major party platforms in their common advocacy of conservation measures, a corrupt practices act, and banking and currency reform. The Republicans, however, called for a stricter regulation of trusts and for a milder protective tariff, whereas the Democrats asked for virtual abolition of monopolies, proposed a tariff for revenue only, and promised “immediate downward revision.”

The “New Freedom” proclaimed by Woodrow Wilson could be distinguished from Roosevelt’s “New Nationalism” mainly on the issue of monopoly control. Roosevelt proposed to regulate the monopolies while Wilson wanted their abolition.

Wilson came into office under considerable popular momentum toward centralization of government. Ten days before his inauguration the Sixteenth Amendment to the Constitution, which had been proposed only three years before, was finally ratified and declared in effect. This revolutionary fiscal measure, authorizing a tax on incomes, vested in the Federal government almost unlimited taxing power and gave it the financial means by which it could dominate and eventually overwhelm the state governments. On February 28, 1913, the Pujo Committee investigation into the “money trust,” which had been authorized the February before,2 reported an unwholesome concentration of money and credit through bank consolidations, company mergers, interlocking directorates, security syndicates, and increased banker representation on the boards of insurance companies, railroads, public utilities and industrial corporations.

The public state of mind toward Wall Street favored Federal absorption of power. Shortly after the election Wilson declared that he would build “a gibbet high as Haman’s” for any man who dared to start a panic. In a speech to the Southern Society he served notice on those who “hold the machinery to breed panics.”

The New York Times reproved him editorially for his loose charges and looser thinking.

“The mind of the President-elect,” the editorial stated,

is apparently occupied by some notions regarding panics which would probably be less perturbing if they were clearer. . . .

. . . especially he would have done well to avoid even “figurative” reference to the gibbet of Haman. When he gets into the White House he will find, first, that he will have many things of real importance to attend to, and, second, that he has no power and no authority to exercise the art of executioner, and, third, that there is not and cannot be any such offender as he has allowed himself to conjure up.

Events in the international field were also of a nature to encourage centralization of power. In 1910 a revolution broke out in Mexico, led by Francisco I. Madero, which succeeded in forcing out President Porfirio Diaz who had ruled that country since 1877, but the assassination of Madero plunged the country into new upheavals. The loss of American investments and the expropriation of others, along with Wilson’s strict ideas about de jure and de facto governments, eventually led this country to military intervention.

In Europe, the Young Turk revolution had forced concessions from the Sultan, but had weakened the government and invited war with Turkey’s Balkan neighbors.

Next door, in Persia, a similar discontent with monarchy had brought a constitutional regime and political anarchy, and the country was saved from extinction only by the rivalry of Great Britain and Russia. To restore order, and perhaps to obtain American influence against dismemberment, the young government invited in an American, Morgan Shuster, as Treasurer-General, to reform the fisc of the country. Shuster’s activities revived Persian morale and patriotism, but on that account displeased the Russians, who issued an ultimatum demanding Shuster’s resignation and occupied Resht and Tabriz in the north, during the course of which some five hundred Persians were slain.

In the Far East the collapse of the old Manchu Dynasty and the establishment of a republic (1911) produced further unsettlement which became Russian opportunity, and parts of Mongolia and Turkestan passed under Russian influence, if not under Russian authority.

The war between Greece, Bulgaria, and Serbia on the one hand and Turkey on the other began in October, 1912, and although it was practically ended by the first of November, it unsettled the already precarious balance of power in Europe, and on December 3 Germany gave a warning to Russia that it would go to war in support of Austria if Russia should support Serbia. The prospect of war became a common preoccupation, and in 1913 France instituted a new regime of universal conscription.

Political unsettlement brought evidences of a “money famine” in Europe and the hoarding of gold. All these events gave new urgency to the U. S. monetary problem.

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3This is vigorou sly denied by his biographers.

4A Subcommittee of the House Committee on Banking and Currency, headed by Representative Arsène Pujo of Louisiana.

• 1Mrs. Fish’s social invasion of Washington may have been the result of the intimacy that existed between her husband and Roosevelt. It is important to recall this camaraderie in any attempt to understand the tangle of subsequent events. Both were New York aristocrats; both were Republicans; they had a common fondness for rural estate life; they had gone together on hunting trips to the South. It is reported that during the Fish residence in Washington, Roosevelt, who was accustomed to early morning canters in Rock Creek, would ride over to the house and shout up, “Stuy!” and when the railroad president came to the window would joke with him for a while before continuing his ride.
• 2Nevertheless, not all railroads were prosperous, and much of Harriman’s success lay in his careful husbandry of his properties and his superb railroading management. He was like a good householder. If he milked his cow, he also fed it well. No sooner had he acquired control of the Union Pacific than he began a large scale rebuilding of tracks and stations, and modernizing equipment. He continually travelled inspecting his properties. He paid particular attention to public relations. He cultivated new customers by offering inducements to industries to establish themselves on his routes. In the only magazine article he is known to have written, he gave his creed of railway management: “The railroad that does not seek to build up the territory through which it passes by offering good service, pursues a policy that will only bring it grief in the long run.” When the Colorado River left its banks and flooded the Imperial Valley of California in 1907, Harriman sent Southern Pacific engineers to the area and he personally directed the work of relief and rehabilitation. Before the control of the river was achieved, the Southern Pacific had invested $3 million in the effort.
• 3Theodore Roosevelt returned from a year of big game hunting in Africa and a triumphal tour in Europe to find again an opprtunity and a demand for his political talents. Drawn by an appeal to public service, and perhaps to a considerable degree by ambition,* he began to angle for the leadership of the insurgent wing. In a speech at Osawatomie, Kansas, on August 31, 1910, on “The New Nationalism” he backed the Supreme Court’s attitude toward social legislation and announced the political doctrine “that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it.”
• 4Wilson came into office under considerable popular momentum toward centralization of government. Ten days before his inauguration the Sixteenth Amendment to the Constitution, which had been proposed only three years before, was finally ratified and declared in effect. This revolutionary fiscal measure, authorizing a tax on incomes, vested in the Federal government almost unlimited taxing power and gave it the financial means by which it could dominate and eventually overwhelm the state governments. On February 28, 1913, the Pujo Committee investigation into the “money trust,” which had been authorized the February before,* reported an unwholesome concentration of money and credit through bank consolidations, company mergers, interlocking directorates, security syndicates, and increased banker representation on the boards of insurance companies, railroads, public utilities and industrial corporations.