During this period the monetary circulation gradually increased. Bank circulation grew from $254,000,00 in 1900 to $739,000,000 in 1911. But the currency system remained as inelastic as ever, and the increased circulation brought with it the dangers of inflation. In October 1907, a severe panic occurred which brought the problem of currency reform into greater prominence. Many plans were pro posed, as for establishing a central bank, legal izing notes issued by clearing-house associations and for the issue of an emergency circulation. The result was the Vreeland-Aldrich Act of 1908,, which provides for the issue of supple mentary credit notes subject to a special tax. Provision was also made for the appointment of a monetary commission to devise a more permanent and satisfactory plan. This com mission in 1912 reported in favor of the es tablishment of a reserve association chartered by the Federal goverment to be the fiscal agent of the government and to hold its deposits. Its banking powers were limited to dealings with banking institutions, and ultimately the plan provided for giving to the reserve asso ciation the sole power of note issue. Much fear, however, was expressed that this would centralize the banking power and thus es tablish under another name a central bank, to which public opinion was generally opposed. Action was consequently delayed.
In 1910 Congress authorized the establish ment of a postal savings bank system, whereby a certain percentage of the deposits are kept as a reserve fund in the treasury and a part invested in government securities.
In 1909 the Payne-Aldrich Tariff Act was enacted. Although there was general expecta tion that duties would be lowered, but few important changes were made. The most im portant change was the placing of hides on the free list. Reciprocity as a general princi ple was abandoned and a policy of retaliation endorsed through the adoption of a maximum and minimum principle. There was much dis appointment over the outcome of this tariff struggle, for the cost of living was increasing and monopolistic influences appeared to be more and more oppressive. The Democrats secured a majority in the House of Representa tives in 1910, and passed several tariff bills for the reduction of rates, particularly on cotton and woolens. These bills, however, were vetoed by President Taft. In January 1911, President Taft arranged a reciprocity treaty with Canada which provided for free trade in certain food products and reduced duties on manufactured goods. Only after a struggle was this agreement endorsed by Congress. Canada, however, decided against it.
Authority was also given for the appoint ment of a tariff board which should collect data to assist the President in determining when a foreign country was entitled to the minimum scale of duties. Later this board was given larger powers in the collection of information which it was hoped might be of service in framing new tariff laws. The board employed experts and published exhaustive reports on the cost of production of woolen and cotton goods. The Democrats, however, were dis
inclined to accept the assistance of this new branch of administrative machinery on the ground that it encroached upon the legislative privilege and duty of originating and framing tariff bills. In 1912 consequently the board went out of existence owing to lack of an ap propriation for its support.
The Payne-Aldrich Tariff Act provided for a tax of 1 per cent on incomes above $5,000 of all corporations organized for profit. Con gress also proposed a constitutional amend ment whereby a general income tax might be imposed, and this was accepted by two-thirds of the States.
The growth of treasury receipts and ex penditures since the Civil War until 1910 is shown in the following table (in millions of dollars) : Expenditures rapidly increased after the Spanish War. The colonial• possessions im posed new burdens of protection and develop ment upon the government; and there was a growing consciousness that this country must be in a position to take a larger place in world politics. The army, and more particularly the navy, made heavy draughts upon the treasury. The cost of the navy increased from $56,000, 000 in 1900 to $123,000,000 in 1910. The gov ernment extended its activity in many new directions at home. Of special importance were the expenditures for the Department of Agriculture. Between 1900 and 1912 the sum appropriated for agricultural purposes was $90,000,000, or double the sum expended in the previous 60 years. New services were under taken, as food and meat inspection, the re clamation of arid land and the extension of the forest service. Salaries increased with the growing cost of living; new public buildings were constructed, and the Census Bureau was made permanent. The cost of construction of the Panama Canal, amounting to nearly $300, 000,000, was in part paid out of current taxa tion and in part by loans.
The Democrats came into power in 1913. Their first step was to enact a new tariff law, known as the Underwood tariff. Ad valorem rates were substituted for specific and com pound duties; the free list was extended, includ ing coal, leather, wood-pulp, lumber, agricul tural implements and machinery, wood, and ultimately sugar. Rates on many manufactured products were lowered and simplified. It is difficult to determine the effect of this new tariff either upon industry or fiscal receipts owing to the outbreak of the Great War in 1914 which disturbed so violently the normal commercial relationships of this country with Europe. Customs receipts fell from $319,000, 000 in the fiscal year ending June 1913 to $210, 000,000 in 1915 and $183,000,000 in 1918. The latter figure is the lowest reached for 20 years. The average ad valorem rate of duty on the total volume of dutiable goods has fallen from 50 per cent in 1899 to about 25 per cent; and on all goods, dutiable and free, from about 30 to less than 8 per cent.