Banking interests and conservative newspapers mounted furious attacks, with the New York Sun complaining that the proposal “is covered all over with the slime of Bryanism.” Wilson made a gesture toward the financial community by meeting with representatives of the American Bankers’ Association at the White House on June 25, joined by Glass, Owen, and McAdoo. When the bankers pushed for official representation on the new system’s central board, Wilson asked them, “Which of you gentlemen thinks that railroads should select members of the Interstate Commerce Commission?” He did make one concession—the establishment of an advisory council chosen by the regional banks. The next day, Glass and Owen introduced the revised plan, called the Federal Reserve, in their respective chambers.16
The next attack came from the opposite flank. In the House, a band of southern and western agrarian Democrats bridled at what they saw as a sellout to the “money trust.” They correctly grasped that the one element of private control in the plan—the role of bankers in the regional reserve banks—meant giving those bankers the power to create currency and manipulate credit. These agrarians called instead for further investigation of the “money trust” and extension of credit to farmers by allowing them to borrow against their crops. That scheme, known as rural credits, harked back to an idea of the Populists in the 1890s. Late in July, agrarians on the House Banking Committee offered amendments to the Federal Reserve bill that would expand the board to include representatives of agriculture and “industrial labor” and make $700 million available for loans to farmers. Wilson, who privately sympathized with the idea of rural credits, met with some of the agrarians and appeased them with promises to strengthen the next item on his legislative agenda: anti-trust legislation. This attack from the left did not bother him unduly, and he thought the trouble would disappear when the bill cleared the committees in which the troublemakers were ensconced. Then, he told Ellen, “I believe we shall have comparatively plain sailing.”17
That prediction proved premature. After more meetings and some cajoling by the president, the Banking Committee rejected the agrarians’ amendments and approved the bill on August 5. The Democratic caucus followed suit three weeks later, but only after concessions from the White House on agricultural lending and a threatened agrarian revolt. It took intervention by Bryan to quell that revolt. In a public letter on August 22, he reiterated the president’s promise of strong anti-trust legislation and implored his friends in the House to stand by the president. In the meantime, bankers redoubled their opposition. The American Bankers’ Association met in late August and endorsed a set of counterproposals that amounted to a rejection of public control and reaffirmation of Aldrich-Vreeland. Their stand seemed to bear out Brandeis’s judgment that their differences with the Wilson administration were “irreconcilable.” Floor debate began in the House after Labor Day, and on September 18 representatives passed the Federal Reserve bill by the overwhelming margin of 285 to 85. Only three Democrats—southern agrarians—defected, while twenty-three Republicans, mostly insurgents, and ten Progressives voted in favor. It was a great victory for Wilson, but it had taken a long, hot summer of wrangling, coddling, arm-twisting, lobbying, and threatening to get this far.18
And it was only half the battle. Ahead loomed the Senate. Wilson tried again to put an optimistic face on the situation. He told Ellen that there would be “no insuperable difficulty in handling the situation, so far as I can see.” The president’s distance vision was defective. His party had a much smaller majority in the Senate, and three first-term Democrats on the Banking Committee were joining Republicans in dragging out hearings on the Federal Reserve plan. Each of them—Gilbert Hitchcock of Nebraska, James O’Gorman of New York, and James Reed of Missouri—had his own political and personal reasons for making trouble, and their openly flouted obstructionism strained Wilson’s prized self-control. At the end of September, he told Mary Hulbert of his concern that a “man of my temperament and my limitations … may lose his patience and suffer the weakness of exasperation. It is against these that I have constantly to guard myself.”19
Guard himself he did—barely. He made noises about denouncing the banking lobby, as he had done earlier with the tariff lobby, and he reportedly asked the Senate Democratic caucus to discipline Hitchcock, O’Gorman, and Reed. Eventually, however, he took a softer approach. On October 16, he invited the three recalcitrant senators to the White House and turned on his charm and persuasiveness. The overture seemed to work: newspapers reported that the senators had a pleasant meeting and remained open to changes in the banking bill. The president affirmed the newfound good feelings on October 20 in a public letter to Underwood: “I have met and had conferences with members of Senate Committee on Banking and Currency, both Democrats and Republicans. As a result of those conferences, I feel confident that a report on the bill may be expected not later than the first week in November. … The passage of the bill is assured.”20
What happened next must have put Wilson in mind of the woes of Job. On October 23—at the request of the three dissident Democrats and one Republican on the Banking Committee—Frank A. Vanderlip, president of the National City Bank of New York, appeared before the committee to present a last-ditch alternative to the Federal Reserve plan: the “Vanderlip plan” would set up a Federal Reserve bank with twelve branches, all under the control of the government. The plan immediately attracted support from some progressives, who warmed to the government-control feature, and conservatives, who still wanted a central bank. Wilson bristled at the move. Vanderlip claimed to be working along the same lines as Wilson and requested a meeting so that he and two of his colleagues could explain the plan. The president shot back, “I am at a loss to understand how you have come to think of the plan which you presented to the Senate Committee on Banking and Currency yesterday as ‘being along the lines of my own thought.’ It is so far from being along the lines of my thought in this matter that it would be quite useless for me to discuss it with you.” Wilson also summoned Senate Democratic leaders to a meeting at the White House, at which he warned them that he would not accept any plan dictated by bankers.21
He and his loyalists hung tough. After more haggling, the Banking Committee reported on two measures. One was the House-approved Federal Reserve bill, supported by Democrats, including O’Gorman and Reed; the other was a modified version of the Vanderlip plan, backed by the Republicans and Hitchcock. Floor debate in the Senate opened on December 2 and featured mainly conservative Republican attacks on the Federal Reserve as disguised “Bryanism.” Their arguments evidently made an impact, because the Democratic caucus bowed to Republican preferences by increasing the level of gold reserves in the new system. That was the only modification adopted. On December 19, the Senate narrowly beat back the modified Vanderlip plan, 44 to 41; only Hitchcock joined the Republicans in voting for this alternative. The Senate then passed the Federal Reserve bill by a vote of 54 to 34. Every Democrat, including Hitchcock, supported it, as did six Republicans and the lone Progressive. A conference committee quickly ironed out differences, and the two houses approved the final version on December 22 and 23.22
Just hours after the final vote, the president staged another White House ceremony. This time, Ellen would be present, along with other family members, cabinet officers, congressional Democrats, and reporters. All watched as Wilson signed the Federal Reserve Act into law and presented gold pens—to Glass, Owen, and McAdoo. He praised the two legislators, along with their committee members, and he thanked the Republicans who supported the bill. “All great measures under our system are of necessity party measures,” he noted, “… but this cannot be called a partisan measure.” Nor would this measure benefit one class at the expense of any other but was simply finishing “a work which I think will be of lasting benefit to the business of the country.”23
Wilson toned down the note of triumph because a sigh of relief was more fitting. Creating the Federal Reserve had been a longer, harder-fought, more complicated strugg
le than lowering the tariff. Downplaying partisanship was gracious, although Wilson had again worked almost exclusively with Democrats. Eschewing class politics was wise, and it served his larger ideological purposes of setting a new tone for his party. Yet he could have been pardoned if he had chosen to crow. This was the greatest legislative triumph of Wilson’s presidency, and it showed his style of leadership at its best. He picked the destination and stayed on course. He avoided details and showed flexibility and patience.
Wilson also did something no president had ever done before: he kept Congress on the job without a break. Before then, senators and representatives had rarely spent more than half the year in the capital. Even during the Civil War, Lincoln had not kept them at work continuously. Moreover, in those days before air-conditioning, Washington’s hot, humid summers made long sessions an ordeal on Capitol Hill. Wilson stayed in town, too, except for brief trips to visit his family, and shared in the discomfort. In fact, he would keep the senators and representatives on the job for another nine months, until the fall of 1914. This Congress would stay at work longer than any other in American history.24 Small wonder the political cartoonists often drew Wilson as a schoolmaster keeping his charges chained to their desks.
The Federal Reserve Act brought off the feat of having something in it for everybody. Three of the four contending approaches found fulfillment under the new system. Public control prevailed, though not totally, while centralization and decentralization each found a place. The Federal Reserve would be a government agency with a chairman and board of governors appointed by the president. This was not, however, the awesome institution that later became “the Fed,” with chairmen who mixed the roles of Delphic oracle and economics czar. That development would begin in another twenty years, as a result of reforms under the New Deal. Ironically, those reforms would make the Federal Reserve look more like the Vanderlip plan. Greater power in the original system resided, as most observers recognized at the time, in the regional banks. These, too, were government agencies, with boards appointed by the president, but the board members would be mostly bankers, and their assets would be the deposits of member banks. As Glass recognized, his approach lost little substance in the give-and-take of June 1913. Even the apparent losers in this fight—advocates of a privately controlled central bank—came out well: financial necessity dictated that one of the regional banks be located in New York, on Wall Street.25
Choosing the locations of the regional banks brought some ironic twists. The Federal Reserve Act divided the country into twelve districts, whose boundaries demarcated distinct economic regions. Locations were picked to ensure that anyone in a district could travel to its bank by overnight train. For the states and cities chosen, the banks were rich political plums, better than federal courthouses, almost as good as big customhouses. Some cities were inescapable choices, such as New York, although that particular choice rewarded the obstreperous Senator O’Gorman. One selection may have been at least partly political: the bank for the district covering the northern part of the Great Plains, which could have been located in either Omaha or Kansas City. Unfortunately for Omaha, that city was Senator Hitchcock’s hometown. Instead, the bank went to Kansas City, which was Senator Reed’s adopted hometown, thereby making Missouri the only state to have two Federal Reserve banks (the other one being in St. Louis). Ironically, Hitchcock would later metamorphose into an administration supporter, whereas Reed, after gripping the president’s coattails when he ran for reelection in 1916, would become one of Wilson’s bitterest enemies. Even the greatest political triumph can have surprising sequels.
One last major issue remained on Wilson’s legislative agenda—an antitrust solution. By 1913, this issue had acquired even more “expediency” than banking reform. The previous year, all three major presidential contenders had argued that something had to be done about the huge concentrations of economic power in private hands, but careful analysis revealed sharp disagreements about what approach to take. Roosevelt’s diagnosis of the problem as “conduct, not size” and the solution of government oversight and regulation had attracted scant support, even among his Progressive followers, but it did plant the seed of a regulatory, rather than a legal, approach. Taft and Wilson had favored a legal approach, but not the same one. Taft had maintained that vigorous enforcement of the existing anti-trust law, the Sherman Act, would do the job, an approach that had attracted little support even among Republicans; many conservatives disliked the anti-trust law, and insurgents were so alienated that they gave him little credit for effective action despite his success in dissolving such monopolies as Standard Oil and American Tobacco. Wilson had reaped the greatest political profit by attacking the Sherman Act as inadequate, thereby appealing to widespread convictions that the anti-trust laws needed to be strengthened. Now that he was president, he needed to come up with such a law and, presumably, a better approach to the trust problem.26
At first, Wilson seemed hesitant about how to proceed. He vetoed an effort by Attorney General McReynolds to use the new income tax as a tool to punish the “tobacco trust” and other firms convicted under the Sherman Act. Yet he backed moves by McReynolds against American Telephone and Telegraph, United States Steel, and the New Haven Railroad, a Morgan holding. The president did not speak out on the anti-trust issue until the end of 1913, but his praise of tariff revision for unleashing enterprise and of banking reform for attacking the “money trust,” as well as his promises to congressional Democrats of a strong anti-trust law, showed that his ardor for the New Freedom had not cooled. Wilson’s hesitancy seems to have sprung from the process of learning his way, from his not wanting to overload the legislative agenda, and from his feeling distracted by other matters, particularly Mexico. After Congress passed the banking bill, he predicted “many another struggle until the middle of next summer” over the anti-trust problem. In November, when the Federal Reserve bill appeared to be breaking free in the Senate, Wilson turned to this question. After conferring with congressional leaders, he affirmed in his first State of the Union address, on December 2, “I think that all thoughtful observers will agree that the immediate service we owe the business communities of the country is to prevent private monopoly more effectually than it has yet been prevented.”27 He called for new legislation to supplement and clarify the Sherman Act but said the subject was so complicated that it required a separate address to Congress.
With the trust problem, as with banking reform, Wilson faced a variety of proposed solutions and a plethora of conflicting advice. In the Senate, La Follette offered a bill, drafted with Brandeis’s help, that called for broad revisions in the anti-trust law; other bills in both houses called for prison terms for persons convicted of violating the Sherman Act, strict control of railroad stock, and regulation of financial markets. At the same time, Secretary of Commerce William Redfield was urging the president to soft-pedal the anti-trust issue and reassure a nervous business community, and Colonel House was dropping similar hints. Wilson confronted the situation in typical fashion. He thought the issue over by himself during the two-week vacation that he and Ellen took in the Gulf Coast city of Pass Christian, Mississippi, after Christmas. This time, he did not confer with Brandeis directly, but he was receiving advance copies of the lawyer’s series of articles on “Breaking the Money Trust,” which were appearing in Harper’s Weekly. When he returned to the White House, on January 13, 1914, Wilson was ready to move.
While he was away, he had written the speech he had promised to Congress. He read a draft to the cabinet as soon as he got back to Washington and met with members of the Commerce Committees of the two houses to discuss legislative plans. On January 20, he went before a joint session to speak about the anti-trust issue. His opening was pure Burke: “Legislation is a business of interpretation, not of origination; and it is now plain what the opinion is to which we must give effect in this matter. It is not recent or hasty opinion. It springs out of the experience of a whole generation.” Into this vi
sion of “expediency,” he mixed reassurance toward business. “The antagonism between business and government is over,” he announced, but he also favored a long-sought goal of Bryanite Democrats and insurgent Republicans, the prohibition of interlocking directorates. He likewise backed another of their schemes: empowering the Interstate Commerce Commission to oversee railroad finances, and he endorsed an idea previously favored mainly by Progressives: an interstate trade commission. He hedged by saying that such a commission would be used “only as an indispensable instrument of information and publicity,” but he also affirmed, “Other questions remain, which will need very thoughtful and practical treatment.”28
That last bit of ambiguity gave him the flexibility he wanted, and he would need all he could muster. For one thing, he would be grappling not just with other people’s divergent ideas but also with his own. He would also face even more challenging legislative hurdles with this issue than he had with the previous two New Freedom measures. Those measures had needed only to go through single committees in each chamber—Ways and Means in the House and Finance in the Senate for the tariff and the income tax, Banking in both the House and the Senate for the Federal Reserve—and congressional Democratic leaders had shrewdly folded the income tax into the tariff bill. None of those advantages obtained with anti-trust measures. Proposals for a new law to supplement the Sherman Act would go before the Judiciary Committee in each chamber, whereas trade commission bills would go before the respective Commerce Committees. Finally, other issues and interests were intruding on the picture. In particular, some Democrats and insurgent Republicans wanted to take Wilson up on the issue of strengthening the Interstate Commerce Commission’s oversight of railroads, while labor unions were clambering for Congress to lift restrictions that courts had placed on them under the Sherman Act.29
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