LO VI Lecture Part One

The Square Deal

LO VI Lecture Part Two

The New Freedom 

Learning Objective V

Compare and contrast the The Square Deal and The New Freedom. Identify specific actions each president of these programs took that expressed the ideas and spirit of the Progressive Era.

On September 6, 1901, six months after his second inauguration, President McKinley was shot by an anarchist and Theodore Roosevelt become President.

The Square Deal

As President, Roosevelt believed he ha l-two important functions: The first was to serve as the moral leader of the American people, and second was to enforce the national interest against special interest.

Roosevelt thought the county fed two great dangers:

The mob which could be whipped up by demagogues to overthrow existing institutions, and

The plutocracy , which lacked the necessary virtues for leadership and by its excessive greed incited the mob.

Roosevelt's role as the moral leader of the people was to balance out the differences of the two interests and give everyone –“Square Deal."

He believed in change, but gradual change, within established institutions.

Roosevelt's interest in reform was always qualified b)I his distaste for most progressives.

His own program was based upon his own moral principles and was general rather than specific.

Roosevelt advocated "trust-busting," but his moral sense led him to distinguish between "gogd trusts" and. "bad trusts." Actually, the trusts were more powerfully entrenched 'when he left than when he entered office.

"Our aim is not to do away with corporations; on the contrary, these big aggregations are an inevitable development of modern industrialism. We are hostile to them; we ·are merely determined that they shall be so handled as to subserve the public good.”

It is important to keep in mind Roosevelt came to power at a time when the country was ready for action. His philosophy was:

• to regulate all aspects of society to provide stability (stability served the national interest; tlie regulation was based on Roosevelt's moral principles,) and
• to regulate all aspects of society to provide stability (stability served the national interest; the regulation was based on Roosevelt's moral principles,) and
• to assure to each individual unfettered opportunity for realize the dignity and he satisfaction of honest work ''Square Deal"

Consequently, Roosevelt's conception of the presidency was different from that of his recently passed predecessors who had been willing to follow the leadership of Congress.

It made further prosecutions possible. Roosevelt soon ordered suits against the meat packers, the Standard Oil Trust, and the American Tobacco Company . It also served notice on all the great

corporations that they could .no longer ignore the Shermrui Act.

Roosevelt also instituted suits against 44 corporations and won a reputation as a trust-buster. It must be remembered Roosevelt was not opposed to bigness in business, but believed in federal action only in cases of serious misbehavior.

Roosevelt considered the extension of government regulation over the railroads his most important program.

"The question of transportation lies at the root of all industrial success, and the revolution in transportation which has taken place during the last half-century has been the most important factor in the growth of the new industrial conditions... At present the railway is (the highway of commerce) ...and we must do our best to see that it is kept open to all on equal terms... It is far better that it should be managed by private individuals than by the government. But it can only be so managed on condition that justice is done the public ..."

As mentioned earlier, the Interstate Commerce Act of 1887 was abandoned by Congress and emasculated by court decisions to the point where by 1900 it was useless.

Concentration of control by a few major railroads continued to grow until, by 1903, six major railway systems, representing a combination of almost 800 independent railroads and a capitalization of over $9 billion, controlled 3/4 of the mileage in the country.

After the Spanish American War, freight charges had increased sharply without any corresponding increase in wages or improvement in service, while rebates, discrimination and favoritism forbidden by the 1887 act continued unabated.

The result: in February, 1903, Roosevelt signed the Elkins Act into law. The Elkins Act redefined and outlawed rebates and provided for punishment of those receiving as –well as giving rebates.

However, the Elkins Act was continually violated as the offenders could usually obscure the violations by bookkeeping methods over which the Interstate Commerce Commission had no control.

In 1904, Roosevelt pronounced railway regulation, the "paramount issue."

Roosevelt asked Congress to confer on the Interstate Commerce Commission the power to regulate the railroads.

After an investigation, Congress responded with the Hepburn Act of 1906. The Hepburn Act made federal regulation possible for the first time.

However, the Elkins Act was continually violated as the offenders could usually obscure the violations by bookkeeping methods over which the Interstate Commerce Commission had no control.

In 1904, Roosevelt pronounced railway regulation, the "paramount issue."

Roosevelt asked Congress to confer on the Interstate Commerce Commission the power to regulate the railroads.

After an investigation, Congress responded with the Hepburn Act of 1906. The Hepburn Act made federal regulation possible for the first time.

The act extended federal regulation to include storage, refrigeration and terminal facilities.

The railroads could appeal, but the burden of proof was now on the railroads and not on the commission.

The Hepburn Act represented a substantial advance in railway regulation. Within two years, the Interstate Commerce Commission had heard almost twice as many complaints as in its previous 19 years. By 1911, the commission had reduced over 200,000 rates, some by as much as 50%.

Federal regulation was further extended in 1910 under the Mann-Elkins Act to include telephone and telegraph companies.

The Anthracite Strike: May, 1902 to March, 1903

The strike started when the United Mine Workers under president John Mitchell struck on May 12, 1902, for

(1) higher wages,

(2) union recognition, and

(3) an eight-hour day.

The mine operators were dead set against concessions. When the miners went out, the operators shut down their properties and prepared to starve the strikers into submission.

Throughout the summer and early fall, the miners held firm. They conducted themselves well, avoiding violence and expressing full willingness to submit their claims to arbitration. As the price of anthracite soared with the approach of winter, sentiment in their behalf mounted rapidly.

Roosevelt shared the public's sympathy for the miners and the threat of a coal famine naturally alarmed him. On October 3, 1902, Roosevelt called a conference of operators and miners and appointed a commission to mediate their differences, as a result of which , Mitchell called off the strike on October 21, 1902. In March, 1903, the commission awarded the union a 10% wage increase, a nine-hour day, but no union recognition.

Since Roosevelt had not intervened on the side of the owners, he established a pro-labor reputation for himself , but he was always suspicious of labor's radicalism.

The strike indicated Roosevelt's "Square Deal" philosophy as he stated himself, 11•••everyone received a Square Deal

Roosevelt shared the public's sympathy for the miners and the threat of a coal famine naturally alarmed him. On October 3, 1902, Roosevelt called a conference of operators and miners and appointed a commission to mediate their differences, as a result of which , Mitchell called off the strike on October 21, 1902. In March, 1903, the commission awarded the union a 10% wage increase, a nine-hour day, but no union recognition.

Since Roosevelt had not intervened on the side of the owners, he established a pro-labor reputation for himself , but he was always suspicious of labor's radicalism.

The strike indicated Roosevelt's "Square Deal" philosophy as he stated himself, 11•••everyone received a Square Deal.11

Woodrow Wilson. The Republican dynasty which had been entrenched in the White House since 1897 was broken in 1913 after the Roosevelt-Taft feud had split the party wide open in the election of 1912.

Wilson and Roosevelt were closer in political philosophy than the campaign rhetoric suggested as they both had the interest of the common man at heart.

In the campaign, Roosevelt with his New Nationalism welcomed big business and asked only for a powerful federal government to regulate it. Roosevelt's New Nationalism included not only the old Roosevelt policies of honesty in government, regulation of big business, and conservation of natural resources, but a relatively new insistence on social justice. Also included in the New Nationalism was his criticism of recent Supreme Court decisions, which had nullified social legislation in the states. Roosevelt felt the chief Executive was ''the steward of the public

Wilson with his New Freedom demanded free competition and the end of monopolies. He opposed Roosevelt's partnership of business and government.

Woodrow Wilson's "New Freedom"

Wilson's New Freedom consisted of a three-point program designed to foster the interest of the small capitalist.

A lowered tariff to deny the trusts an unfair advantage.

A changed banking structure to make credit more available to the small business.

New trust legislation to prevent big business .from squeezing out the small competitor.

The Underwood-Simmons Tariff

Wilson was determined to seize the initiative in law making and on the very first day in office, he summoned Congress to a special session to revise the country's old tariff system.

Wilson stated, "The tariff duties must be altered and we must abolish everything that bears even the semblance of privilege, or any kind of artificial advantage, and put our businessmen and producers under the stimulation of a constant necessity to be efficient, economical, and enterprising." 

The tariff lowered average duties from 39% to 25%, but more important, it added a number of consumer goods to the free list, making them cheaper to the common man, and eliminated the protection of iron, steel, and various other products of the trusts.

Duties were decreased on 958 articles and raised on only 86.

To make up for the loss in revenue, the tariff levied a 1% tax on all incomes above $4,000., with additional surtaxes for incomes above $20,000.

This was made possible by the ratification of the 16th Amendment the Constitution. in February, 1'913.

Banking and Currency Reform

While Congress was still wrestling with the Underwood Tariff, Wilson presented a proposal to reorganize the banking system. The need for an overhauling of our banking and currency system was almost universally recognized, particularly after the Panic of 1907.

The panic suggested financial power was concentrated in the hands of a small group of eastern bankers who controlled the nation's credit and interest rate.

The Morgan and Rockefeller interests held 341 directorships of 112 corporations with a capitalization of $22,245,000,000.

All within Congress agreed to the necessity of reform, but they disagreed vigorously about what form it should take.

The conservatives wanted a central bank to be authorized by the government, but privately controlled like the former Bank of the United States, which was 80% privately owned.

They also wanted the government to issue currency which would back it, but would be privately controlled.

The liberals insisted that the power to issue notes and control of the new banking system be exclusively governmental.

The Federal Reserve Act of December 23, 1913.

Under the act, the country was divided into 12 districts, each with a Federal Reserve Bank owned by the member banks (commercial banks).

Upon joining the Federal Reserve System commercial banks are required to purchase shares of stock in the Federal Reserve bank in their district. 

The Federal Reserve is the central bank of the United States. Its unique structure includes a federal government agency, the Board of Governors, in Washington, D.C., and 12 regional Reserve Banks.

Reflecting this structure, which balances centralization with regional presence, the Fed has web sites that are national in scope (see links at right) and regional (see below).

Federal Reserve Districts

Atlanta | Boston | Chicago | Cleveland | Dallas | Kansas City | Minneapolis | New York | Philadelphia | Richmond | San Francisco | St. Louis

Board of Governors--The seven members of the Board are appointed by the President with the confirmation of the Senate. The terms are 14 years--and staggered so that one member is replaced every two years. The Board is staffed by appointment rather than elections in an attempt to divorce monetary policy from partisan politics.

The Board of Governors has the responsibility of exercising general supervision and control over the operation of the money and banking system of the nation.

The Federal Open Market Committee sets the banking system's policy with respect to the purchase and sale of government bonds in the open market. The Federal Advisory Council is purely advisory; it has no policy-making powers.

The Federal Reserve System changed the American banking system form privately owned and privately controlled to privately owned, but publicly controlled.

The best definition of the Federal Reserve System is that it is a bankers n . Everything an average person does at a bank, a bank does at its Federal Reserve Bank. There are TWO major ways in which the Federal Reserve System can exercise control over a member bank (commercial bank).

1. The Regulation of Business

As soon as the tariff and banking reform bills were disposed of, Wilson appeared before Congress to ask for legislation on trust and monopolies in January, 1914.

Congress responded with two bills.

The Clayton Act:

The act prohibited discrimination in prices which might tend to lessen competition and/or create a monopoly. The act aimed at plugging the worst loopholes in the Anti Sherman Act.

The law attempted to state definitely what practices and conditions would be considered interference with free competition.

The Federal Trade Commission Act which established the Federal Trade Commission.

The commission was designed to investigate violations of the anti-trust laws.

The basic objective of the F.T.C. was the maintenance of free competition, which Wilson felt was the keystone to the American economy.

'With this legislation," said Wilson optimistically,

"there is clear and sufficient laws to check and

destroy the growth of a monopoly in its infancy."

In pushing through his three-point program, Wilson had demonstrated that he was a great leader of his party, of Congress, and of the nation.

Wilson had asserted presidential leadership.

He had converted a states rights party to enlightened nationalism.

He convinced the average citizen the government was at last his servant.

He made it clear progressivism transcended party lines.