President Wilson and the Democrats in Congress insisted on a sharply progressive schedule – taxing those with very high incomes at higher rates than the middle class and exempting the poor. Another advantage of taxation was that Congress could set the rate schedule to target those they thought should bear the greatest burden. Their expenditures will fall, freeing productive resources (labor, machines, factories, and raw materials) to be employed in support of the war. Taxes are compulsory, and those who must pay are left with less purchasing power. Taxation would work directly and transparently to reduce consumption. The original idea was to finance the war with an equal division between taxation and borrowing. McAdoo chose a mix of taxation and the sale of war bonds. “Any great war must necessarily be a popular movement,” he thought, “… a kind of crusade.” McAdoo also opposed printing money because it would hide the costs of war rather than keeping the public engaged and committed. The experience with issuing “greenbacks” during the Civil War suggested that fiat money would generate inflation, which he thought would lower morale and damage the reputation of the newly issued paper currency, the Federal Reserve Note. "We must be willing to give up something of personal convenience, something of personal comfort, something of our treasure – all, if necessary, and our lives in the bargain, to support our noble sons who go out to die for us."īut the question remained: how would the shift in output be arranged? How should the war be paid for? There were three possibilities: taxation, borrowing, and printing money.įor McAdoo, printing money was off the table. Shortly after war had been declared, he delivered a speech that he later recorded for posterity: The wartime population would have to sacrifice to pay the bill, and McAdoo understood the point. At the time of the congressional declaration of war, the American economy was operating at full capacity, so the requirements of the war effort could not be met by putting underutilized resources to work. When the United States entered World War I in 1917, it became immediately evident that an unprecedented effort would be required to divert the nation’s industrial capacity away from meeting consumer demand and toward fulfilling the needs of the military. Congress cleared the bill in December 1913. Wilson’s secretary of the Treasury, William Gibbs McAdoo, designed and arranged that compromise, and he emerged from the deal in charge of both the Treasury and the Federal Reserve. 1 The other members were the comptroller of the currency and five members appointed by the president and confirmed by the Senate. The resulting compromise created a seven-member Federal Reserve Board seated in Washington, DC, with the secretary of Treasury designated ex officio as chair. President Woodrow Wilson, however, insisted on a public agency with supervisory powers over the banks. Carter Glass, opposed the idea of a central coordinating board. The chair of the House Banking and Currency Committee, Rep. In the congressional debates over the structure of the Federal Reserve, the makeup of the Federal Reserve Board and even its very existence were key issues. The Treasury and the Fed, united under one leader, worked together in both the creation of the financial war plan and its execution. Generally speaking, the secretary of the Treasury proposes a funding plan for war financing and works with Congress to enact the necessary legislation, while the Federal Reserve operates with considerable independence from both the executive and legislative branches of government. These securities were issued by the Treasury, but the Federal Reserve and its member banks conducted the bond sales. The borrowing effort was called the “Liberty Loan” and was made operational through the sale of Liberty Bonds. For this war, the federal government relied on a mix of one-third new taxes and two-thirds borrowing from the general population. Wars are expensive and, like every governmental effort, they have to be financed through some combination of taxation, borrowing, and the expedience of printing money. During the three years it took for the United States to enter the conflict, the Fed had completed its organization and was in a position to play a key role in the war effort. World War I began in Europe in 1914, the same year the Federal Reserve System was established. It is a kind of crusade and like all crusades, it sweeps along on a powerful stream of romanticism." "Any great war must necessarily be a popular movement.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |