The Commoner
OCTOBER, 1914
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The Treasury's Assistance to the Country
During the European War
Tho outbreak of the great European war with
its spasm suddenness, convulsed tho world. So
interrelated are the marts of trade and the finan
cial centers of the entire earth that even a small
disturbance will find its echo in every country.
But the greatest war of all time shook the uni
verse, paralyzed credit, destroyed international
exchange, and stagnated business wherever men
livo' and work.
The United States, as one of the great powers
of supply and consumption in the world's com
merce, felt the shock with more force than any
other nation, with the exception of those actual
ly engaged in the war. America, on the threshold
of what promised to be boundless prosperity pro
ceeding from bumper crops, was commercially
isolated from the rest of the world which it, in
largo measure, feeds and clothes. The nation
was staggered by the blow.
With no precedent to guide it, President Wil
son's administration was confronted with the
greatest economic problem in the history of the
country, to save the nation from disaster. Its
solution and the welfare of a hundred million
people called for a test of real statesmanship.
Tho burden of dealing with the business and
financial, situation naturally fell in great part
upon the secretary of the treasury because of his
close and intimate touch with the business of the
country. With his hand on the financial and
business pulse of the nation, Secretary McAdoo
grasped the situation and by prompt, vigorous
and intelligent action with all the resources at
his command, unquestionably saved the' country
from an impending panic that would have per
meated every corner of the land with ruin sweep
ing in -its wake.
Soon after hostilities were declared thd New
York. Stock Exchange like the other exchanges
of the world, closed down for its own protection,
and to prevent Europe from dumping -millions of
American securities upon the America'n market,
which Europe was endeavoring to sell in order
to finance tho overpowering expenses of the ti
tanic struggle.
' New York bankers were panic-stricken for the
moment by the vastness and danger of the un
paralled situation. Unlike their attitude in emer
gencies in the past they did not assume to dictate
to thegovernnient what to do but they came to
the government and asked for assistance. Tho
financial community was paralyzed and helpless.
Singly and in committees, bankers came to Sec
Tetary McAdoo for advice. When the situation
was at its acutest stage they pleaded for the sec
retary of the treasury to go to New York, where
ho could more conveniently get in touch with
the situation. He jumped ona train one Sunday
afternoon at the end of momentous conferences
in- Washington, taking with him the comptroller
of the currency and members of the federal re--serve
board. He received the representative
bankers of New York at his hotel, and held a
conference lasting till long after midnight. It
was at this conference that the secretary of the
treasury stiffened the backbone of the financiers
of New York, and counselled tho caution and
cpol-lieadedness that saved the situation? He
pointed the ways of restoring credit and inter
national exchange, and the means of preserving
the gold supply the safe basis of all credit. -Secretary
McAdoo left New York on Monday for
Washington, where he was in touch with the
whole country. Intelligent leadership and active
' co-operation with the bankers and business men
in the interest of all the people of this country
marked the government's course.
- Immediately the problem was upon the nation,
Secretary McAdoo announced that there was
printed and stored in the vaults of the treasury ,
$500,000,000 of Aldrich-Vreeland national bank
notes, which could be issued upon a moment's
notice to supply an increased circulating medium,
the first pressing need of the situation. Due to
democratic foresight, the Aldrich-Vreeland law
was continued in force until June 30, 1915, by
the federal reserve act, and liberalized as to the
tax on the circulation of notes under it, so that
it is a practical and useful measure. As origin
ally framed and passed by a republican congress,
the tax on circulation was so great that the law
was valueless because banks could not afford to
issue the notes. To further liberalize and make
J.he law meet the unprecedented situation, con
gress, at the suggestion of President- Wilson. and
Secretary McAdoo, qu'ckly passed two additional
amendments permitting the secretary of the
treasury, in his discretion, to waive the limita
tion which prevented banks without 40 per cent
of outstanding circulation from issuing addition-
al notes on the security of commercial paper;
and increasing tho possible maximum circulation
for each bank to 125 per cent of its capital and
surplus. These amendments freed the law of all
impediments to its adequate use in the pressing -emergency
and would permit the issuance of a
billion and a half dollars of national bank notes
if necessary.
" With these means at his command, Secretary
McAdoo has issued sufficient additional currency, "
without undue inflation-, to take care of the coun
try's needs and to finance the crops until tho
markets of the world are opened by adequate ex
change and shipping facilities. The promptness
with which the secretary swept this relief to the
country brought recovery from the world-wide
shock and gave the nation time to breathe and
consider the problem of re-establishing its com
mercial relations abroad.
With no merchant marine of their own, the
American people were brought by this crisis to a
full realization of their utter helplessness to
move their products over, the seas unless heroic
measures were adopted. Grain was congested in
the seaports, on the railroads and in the eleva
tors awaiting export. The restoration of the
foreign exchange market and provision 'for ocean
transportation became pressing questions. To
consider these matters of so much moment to all
the people of the United States, Secretary Mc
Adoo -called a conference at the treasury depart
ment on August 14th of representative foreign
exchange bankers, exporters and shippers. These
representatives 'were received by President Wil
son, who assured-them oE the government's read
iness and willingness to co-operate with the busi
ness interests of tho country to meet the unpar
alleled situation.
Out of this co-operation and common counsel -grew
the administration's program that will not
only save the nation's usual share of the world's
trade, but In all probability will result in wrest
ing a large proportion of that previously hold by
other great nations.
One of the impediments to commerce was the
inability of the insurance companies to assume
the war risks involved In ocean transportation.
The problem was too vast for anybody except a
government. With England, France and Belgium
issuing war risk insurance to vessels flying their
respective flags, It became evident that these na
tions, especially England, would be able to carry
the exports of American grain and other com
modities at their own price. This was an emer
gency situation and emergency measures be
came necessary. Congress was asked by the ad
ministration to pass a law creating a war risk
insurance bureau in the treasury department,
through which, during this crisis, tho govern
ment would issue war risk insurance to vessels
flying the American flag, and place the shipping
and exporting interests of the United States on
a basis to compete with the foreigner. The law
was enacted, and the bureau is now in operation.
After congress, as a quick measure of assisting
the establishment of an American merchant ma
rine, amended the law so as to permit all foreign
ships to enter American registry, it became
doubtful whether sufficient private capital in the
United States, in view of the demands in all di
rections, could bo enlisted to take up tho prob
lem of transportation without government assist
ance. This was no time for laggards or nervous
systems, The people looked to the power and
energy of their government to protect them.
President Wilson, Secretary McAdoo and tho
leaders in congress began the consideration of
practical means of permitting the government to
organize corporations in which the government
would have a controlling interest, to purchase
and operate ships to move the nation's crops and
manufactures, and to establish the nucleus of a
merchant marine flying the American flag.
One of tho greatest difficulties that confronted
the business world was the complete disorgan
ization of the market for bills of foreign ex
change. Aside from the material relief afforded
in this respect by tho promotion of transporta
tion facilities, Secretary McAdoo, as an emer
gency measure, deposited several millions of
dollars in New York. to bo used exclusively for '
tho purchase of bills representing. the export of
grain and other commodities. The secretary'
kept close account of this money, and assured
hlmgelf that it was used for no other purpose?.
This step assisted New York, where the -pressure
was greatest, In buying bills of foreign exchange,
offsetting tho commercial debt which this, coim- '
try owed Europo niid consequently preventing
tho exportation of American gold a saving fac
tor In tho crisis.
Tho cotton situation, even more, than the
grain, presented a perplexing problem for Amer
ican finance. Tho southern cotton producer, the
southern and Now Englaud cotton manufacturer '
and his employees, and the southern banker wero
fdeo to face with paralyzing loss and ruin unless -tho
strong hand of ah Intelligent and actlvo gov
ernment extended assistance. With many of the
world's markets closed; It was conservatively es
timated that there would be a surplusage ol
about 4,000,000 bales of this year's American,
cotton crop which would not be consumed arid
which must bo financed to prevent Incalculable
loss and misery. Indifference and hesitation on
tho part of the government meant disaster to the'
cotton bolt and the entire country. The ndnilu
iBtration, already burdened with its multitudin
ous duties in the more emergent features of the
crisis, grappled, however, with this condition
with tho same vigor and celerity that had char
acterized its every move to save the country from
loss.
Secretary McAdoo called a conference on Au
gust 24th and 25th, of men from all sections of
the country representing the cotton producing,
manufacturing and financing interests to consld-,
or with the government the great problem that
faced tho south in particular and the nation in
general. Here again was the government weld
ing all factors together in common counsel. It
was the democratic administration that saved
tho situation. Secretary McAdoo announced
that he would accept, under the Alrlch-Vreeland
law, properly certified and guaranteed warehouse
receipts for cotton as security for the issuance
of currency under that act. This ,was the prac
tical solution of a problem that had tried men's
souls. The south had been rendered helpless;
Secretary McAdoo pointed the way. His poficy
meant that tho cotton loss incident to the 'an,
would bo reduced to a minimum by the, course of
a wise and provident administration. So effec-'
tual was this proffer of the secretary of the treas
ury that even before the conference adjourned,
plans wero under way for the expeditious con-
structlon of adequate warehouses to receive the
cotton which must be stored until the world can
consume it.
This is only a brief resume of the treasury's
activities that resulted in annihilating the grim
spectre of panic which threatened the nationjn
the greatest commercial and financial crisis "in
the time of peace in the history of the country.
Tho government got down among tho people,
learned the conditions and applied the remedies.
Senator Penrose's friends in the senate are
very bitter in their opposition to an effort being
-made by Senator Norrls to investigate who fur
nished the great fund that made possible the
senator's renomination at the hands of Pennsyl
vania republicans. No wonder.
In almost every state where direct primary
nominations for office are made, the primary
election this year was followed by a concerted
demand on tho part of bosses thus left without
jobs for an amendment to the law. ITsually tho
amendment urged was the substitution of the
state convention for the'state-wlde primary, on
the ground tha.t voters must act blindly in many
instances because of a lack of knowledge with
respect to candidates, and because a state-wide
campaign Is too expensive for candidates. These
objections weigh no more heavily against the
general election plan than against the primary
election plan. Under the convention system,, as
the bosses had it rigged up, nobody who voted
for delegates at the primary knew for whom he
was voting, and often the delegates did not know
for whom they were to vote until the slate was
handed around. No politician will dare attack
openly the direct primary principle as an effec
tive means of self-government; but beware of
those who would amend it to death.
No one desires to see the great European con
flict fulfill the prophecy of those who predrctthnt
it will last eighteen months or two years. But
if it does, tho fact that an American tourist's
money is no longer good across the water may
give great impetus to the "See America First'4
movement.
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