Woodrow Wilson's Economic Policy

Woodrow Wilson, as the 28th President of the United States, enacted some of the most sweeping economic overhauls the American government has ever seen. The "Professor President", by compromising and cutting deals, was able to bring to life his vision of reform in the business world. The Underwood-Simmons bill, the Federal Reserve Act, the Federal Trade Commission Act and the Clayton Anti-Trust Act were all brought about by Wilson as tools to further his goal of taking away power from the large corporations and banks and giving it to the small businesses and entrepreneurs.

First, Wilson enacted the Underwood-Simmons bill in 1913. This Act lowered the trade tariffs for the first time since before the Civil War, and initiated the first progressive income tax for citizens of the United States. By doing this, Wilson lowered the tariffs, opening the doors for foreign goods to be brought in at cheaper prices. Wilson lowered the tariffs on the belief that "we long ago passed beyond the modest notion of protecting the industries of the country and moved boldly forward to the idea that they were entitled to direct patronage of the government." In essence, he was saying that the original justifications for the tariff were no longer applicable and were only causing harm by giving unfair advantage to corporations.

"For a long time - a time so long that the men now active in public policy hardly remember the conditions that preceded it - we have sought in our tariff schedules to give each group of manufacturers or producers what they themselves thought that they needed in order to maintain a practically exclusive market as against the rest of the world. Consciously or unconsciously, we have built up a set of privileges and exemptions from competition behind which it was easy by any, even the crudest, forms of combination to organize monopoly; until at last nothing is normal, nothing is obliged to stand the tests of efficiency and economy, in our world of big business, but everything thrives by concerted arrangement. Only new principles of action will save us from a final hard crystallization of monopoly and a complete loss of the influences that quicken enterprise and keep independent energy alive."

In addition to the lowering of tariffs, the Underwood-Simmons bill established the first progressive income tax to be charged to all United States' citizens. Wilson realized that by lowering the tariffs, this would take money away from the government. In order to offset the loss in revenue, he put into place the income tax, which the nation had been pushing for but until the passing of an amendment that year, had been ruled unconstitutional. Wilson wanted to relieve the nation of the burden of tariffs, but still realized the importance of government revenue. In addition to government finance, the progressive income tax helped shift the burden off the poor and onto those more able to foot the bill of taxation. The fact that Wilson was able to pass such a tax says something about his relative innocence in respect to affiliation with corporate interest groups. Coming into politics from the world of academia, he had not formed connections with special interests that most career politicians had and thus was able to relate more to the constituents he had left only a few years before his Presidential campaign.

In the same year that the Underwood-Simmons bill had passed, his first year as President, Wilson was also able to get the Federal Reserve Act through Congress. The Federal Reserve was Wilson's vision of the consolidation of money and credit. Credit, up until then, had been centralized in New York by its major banks. "The great monopoly, in this country is the money monopoly. Credit... is dangerously concentrated in this country." The banks had developed close bonds with the nation's industries, an intermingling of board members and directors had fused them together so that the interests of the banks were those of the major industries. Financing of potential competitors was nearly impossible which gave the already established an unfair advantage in the market.

"The control of credit also has become dangerously centralized. It is the mere truth to say that the financial resources of the country are not at the command of those who do not submit to the direction and domination of small groups of capitalists who wish to keep the economic development of the country under their own eye and guidance."

Wilson wanted to take the power away from the banks in New York and make money more available to people outside of Wall Street by spreading it throughout the country in independent reserves that were controlled by the federal government and not bankers.

"We must have a currency, not as rigid as now, but readily, elastically responsive to sound credit, the expanding and contracting credits of everyday transactions, the normal ebb and flow of personal and corporate dealings. Our banking laws must mobilize reserves; not permit the concentration anywhere in a few hands of the monetary resources of the country or their use for speculative purposes in such volume as to hinder or impede or stand in the way of other more legitimate, more fruitful uses. And the control of the system of banking and of issue which our new laws are to set up must be public, not private, must be vested in the Government itself, so that the banks may be the instrument, not the masters, of business and of the individual enterprise and initiative..."

With control over the interest rates and the amount of currency in circulation, the Federal Reserve was a check on the bankers. By controlling the money, Wilson's Reserve Board would make credit more accessible to the smaller businesses and entrepreneurs, thereby eliminating another barrier to entrance that the monopolies and trusts had relied on for the protection of their market share.

Wilson's next aim at economic reform was another shot at monopolies and trusts. He saw through Congress the passage of the Federal Trade Commission Act of 1914. This would be the policing arm of Wilson's reforms. The new Commission would be an independent, bipartisan organization that would monitor commerce and act against monopolistic practices.

The opinion of the country would instantly approve of such a commission. It would not wish to see it empowered to make terms with monopoly or in any sort to assume control of business., as if Government made itself responsible. It demands such a commission only as an indispensable instrument of information and publicity, as a clearing house for the facts by which both the public mind and the managers of the great business