as Taft had done, to revise the tariff. Congress would not wait for a commission to work out a scientific basis for a tariff, but at once reduced the rates on almost a thousand imported articles. This revision was known as the Underwood Tariff, after the name of the member of the House of Representatives who had spent much time in preparing it. The World War came before the people had time to make up their minds about the new tariff. After that War the Republicans passed the Fordney-McCumber Tariff Bill (1922), which increased duties.

New methods of dealing with corporations. The Federal Trade Commission Act (1914) provided a permanent body of five commissioners to investigate large corporations doing an interstate business, to find if they try to prevent competition or resort to unfair methods. This Federal Trade Commission stands in the same relation to industrial corporations engaged in interstate trade as the Interstate Commerce Commission does to the railroads. The Federal Trade Commission has the power to examine all books and accounts of large corporations so that the public may know how the business is conducted. Heavy fines and imprisonment are the penalty for unfair competition in restraint of trade.

A few weeks later, Congress passed an antitrust act often called the Clayton Bill, from the name of its proposer. This was planned to strengthen the Sherman Act and to make it more easily understood. The new act forbade discriminations in price and did not allow large companies to have the same directors as competing companies or to own stock in them. The Pennsylvania Railroad was forced, for instance, to sell its stock in the Baltimore and Ohio Railroad, which was a competitor. Neither road could have any director who served on the board of the other road.

Labor and the antitrust law. At the beginning of the twentieth century, a union of hat workers tried to compel a firm in Danbury, Connecticut, to employ only union labor. They combined to boycott the hats made by this firm and

decreased its business. The firm sued the union as a combination forbidden by the Sherman Act. The case was fought in the courts for twelve years. Finally, the Supreme Court of the United States decided that the Sherman Act applied to combinations of labor as well as of capital and that the boycott had restrained interstate trade. A verdict of $252,000 against the union was given to the manufacturing firm.

The Clayton Bill excluded combinations of laborers from prosecution under the Sherman Act and declared that "the labor of a human being is not a commodity or article of commerce.' President Gompers of the American Federation of Labor called this exemption of labor from prosecution "the industrial Magna Charta upon which the working people will rear their structure of industrial freedom." Others thought that the same rule should apply to both labor and capital.

The Federal Reserve Act.-Wilson and Congress tried to solve the old problem of escaping the influence of a centralized money power and of issuing paper money to meet the needs of the country in emergencies. Congress passed the Federal Reserve Act (1913) as the answer to this difficult problem. This act established twelve banks in different parts of the country in order to prevent any one bank or section from exerting too much influence. These twelve Federal Reserve banks are banks for bankers and not for individual depositors. In one respect they are like wholesale stores which sell only to other stores and not to individuals. Each of these twelve banks gives credit to other banks in its district and issues paper money to meet the needs .of business. They can expand or contract the currency when necessary. Every national bank must be a member of the Federal Reserve bank in its district.

Before this, paper money was based on one hundred per cent of coin or of government bonds. In panics or hard times many refused to give credit, and those who had money often locked up in safety vaults. The Federal Reserve Act made it possible to issue more money if it is needed for business or to take the

it

place of money that has been withdrawn from circulation. Federal Reserve banks may issue paper currency based on only forty per cent of gold and sixty per cent of "commercial paper." Business men and corporations often give their notes or acceptances instead of money to those from whom they buy goods. These promises to pay are called commercial paper. The Federal Reserve currency which is in common use to-day is in large part based on these notes and acceptances.

Farm Loans.-The Federal Farm Loan Act was passed (1916) to enable farmers to get loans more easily and cheaply. This act provided for twelve Federal Land banks in different parts of the United States. These banks were given power to loan on farms in their districts sums of from $100 to $10,000 at not over six per cent interest. Capital for these banks was raised by selling bonds free from all kinds of taxes.

Summary of Points of Emphasis for Review.—(1) Taft elected President, his training for the office, (2) why the people wanted the tariff lowered, (3) two steps prompted by the tariff unrest, (4) prosecution of trusts, (5) how the post office became more efficient, (6) the admission of New Mexico and Arizona into the Union, (7) the unusual election of 1912, (8) Wilson's early training, his essay on Congress, (9) offices held by him before becoming President, (10) tariff reform, (11) why the Federal Trade Commission Act and the Clayton Bill were passed, (12) labor not a commodity, (13) Federal Reserve Act and its purpose, (14) the Federal Farm Loan Act. Activities.—(1) Would reciprocity with Canada have lessened the cost of living? Why did the farmers object?

Write a paragraph on the advantages of the parcels post.

How had the conduct of the United States post office made it a partner in the crime of swindling?

In fifty words define "progressive" and "standpatter."

Is there any way in which a lender of money may be paid back the same purchasing power as he lent? Laughlin, in his Elements of Political Economy (Chapter X.), proposes a simple method.

References.-Ogg, National Progress, 1907-1917, I.-XIII.; Paxson, Recent Hist. of U. S., XXXVI.-XLI.; New Nation, XX.; Beard, Contemporary Am. Hist., XII., XIII.; Bogart and Thompson, Readings in Economic Hist. of the U. S., 709–711, 765-768, 682-686; James, Readings in Am. Hist., 570-581; Fish, Development of Am. Nationality, 525-542.

CHAPTER XXXV

THE WORLD WAR

Europe in 1914.-We should be thankful that our country extends from the Atlantic to the Pacific. If the area of the United States contained a dozen countries jealous of each other's power, we might, like Europe, have been in constant danger of war.

The "balance of power" was a phrase often used in Europe. This meant that the different countries of Europe tried to combine so as to prevent one nation or group of nations from becoming powerful enough to control the rest. In 1914 Germany was reaching out after the commerce of the world. She was building a railroad from Constantinople to the city of Bagdad on the Tigris River to develop trade with Asia and also to control the Turkish Empire. Her railway from Berlin to Constantinople passed through Serbia, and Germany wished her ally Austria-Hungary to keep Serbia under control.

In the last half of the nineteenth century some European nations, fearing Russia's power, had combined to cripple her commerce by preventing her from having free access to the Mediterranean or from getting a port on an open sea which does not freeze. Russia was determined that her commerce should have a place in the sun, and she waited her chance to secure possession of the outlet from the Black Sea to the Mediterranean for her ships. She feared that the Dardanelles might be closed if Austria-Hungary and Germany controlled Serbia.

Almost all the European nations had special grievances and were jealous of each other. For many years they had been increasing their armies, in fear of war. It required only a spark to cause an explosion.

The World War begins. The heir to the Austrian throne was killed (June, 1914) by a man of the Serbian race, citizen of a

province that had been annexed by Austria. Several weeks later Austria sent a note to Serbia with ten demands and gave her forty-eight hours to answer. Serbia agreed to nearly all the demands and offered to submit the others to the Great Powers for arbitration. Austria would not agree to this condition. Russia gave notice that she would assemble her army the day that Austrian forces invaded Serbia. Great Britain asked for a conference to prevent the war, but Germany insisted that Austria and Serbia should settle their affairs by themselves and thus showed that she approved of Austria's demands. Germany could have stopped the war, but instead she encouraged Austria to begin it. Her great men taught that war is necessary for progress because they said it enabled the strongest and fittest nations to take the place of the weak and unfit. A German magazine for boys called war "the holiest and noblest human activity." Germany had the greatest army in all history, and she thought that war would put her in the foremost place in the world.

Austria-Hungary declared war on Serbia, July 28, 1914. The next day Russia began to gather her army. Germany demanded that Russia should stop military preparations and begin to demobilize her army within twelve hours. Russia paid no attention to this demand, and Germany declared war against Russia, August 1, 1914. Germany also declared war against Russia's ally, France, and began to rush her troops through Belgium in order to reach Paris before France could arm. Germany was bound by a treaty to respect the neutrality of Belgium, but her prime minister called this treaty a scrap of paper. The German invasion of Belgium led Great Britain and her colonies to enter the war against Germany.

Turkey and Bulgaria later joined Germany and AustriaHungary. These four were called the Central Powers. Italy had been an ally of Germany and Austria, but she did not now join them, on the ground that they had provoked the war and that her treaty with them bound her to aid them only in case of