committee. In two days of final debate the Senate dealt with a flood of amendments, most of which had been once proposed and rejected in committee. On Sept. 8 Senator La Follette offered a substitute wool schedule providing for a general cut in the existing rates based on a gradual reduction of the duty on raw wool from 30 per cent. in 1914 to 15 per cent. in 1916; this amendment, rejected by a vote of 41 to 28, and another rejected amendment offered by Mr. Penrose (Pa.) proposing a substitute schedule based on specific duties of seven to 18 cents per pound on wools of different classes, were the extent of the postponed Republican fight on free raw wool. The bill was passed by the Senate on Sept. 9 substantially as reported by the Finance Committee. The final vote was 44 to 37, Senators La Follette and Poindexter voting with the Democrats and Senators Ransdell and Thornton with the Republicans.

The Bill in Conference.-The Senate returned the bill to the House with 674 amendments. It was sent to conference on Sept. 11, and on the 26th the Democratic conferees signed a report disposing of all the points of difference save one-the tax on dealings in cotton futures. The House conferees accepted 427 of the Senate amendments without change; compromises were reached on 96; and from the rest the Senate conferees receded. The Senate amendments abandoned in conference included those placing a duty on bananas, imposing an excise tax on wine spirits; changing ad valorem to specific duties in the silk schedule, and authorizing the President to impose countervailing duties. One of the important compromises affected the income-tax section; the House conferees accepted the new surtax schedule and the new exemption limit of $3,000 with $1,000 additional on account of marriage, but rejected the further exemption for minor children. Another compromise was effected on the House provision for a discount of five per cent. on duties on goods imported in American bottoms; the section was restored with the proviso that it should not be construed to conflict with existing treaties. In most important particu

lars, however, the conference report confirmed the changes made by the Senate.

The Final Passage. The House adopted the conference report on Sept. 30 by a vote of 255 to 104; four Democrats were recorded in opposition, and two Republicans, three Progressives, and the single Independent voted with the majority. By a vote of 203 to 137 the House receded from its disagreement to the Clarke cotton-futures amendment, and substituted by a vote of 171 to 161 the so-called Smith-Lever amendment, the adoption of which the House managers had sought to secure in the conference. The Smith-Lever plan was urged by Mr. Underwood on the suggestion of the President as a means of eliminating speculation in cotton futures without destroying the legitimate business of cotton exchanges. It applied to all purely speculative trading the tax proposed in the Clarke amendment, but reduced the tax to the nominal sum of 50 cents per 100 bales on contracts rigidly conforming, through the specification of certain provisions, with the Government's standard of cotton grading. The Senate Democrats in caucus on Oct. 1 resolved to stand by the conference report, to recede from the Clarke amendment, and to reject the Smith-Lever substitute. This programme was carried out in the Senate on the 2d; the conference report was approved by a vote of 36 to 17 and the cotton-futures tax was abandoned without a division. On Oct. 3 the House sustained a motion by Mr. Underwood to recede from the SmithLever amendment, and with a second approval of the conference report the Underwood Tariff Act was enacted into law.

President Wilson signed the bill at 9:09 o'clock p.m. on Oct. 3. To the specially invited audience of party leaders he said:

We have set the business of this country free from those conditions which have made monopoly not only possible, but in a sense easy and natural. But there is no use taking away the conditions of monopoly if we do not take away also the power to create monopoly; and that is a financial, rather than a merely circumstantial and economic, power.

The power to control and guide and

The President's Currency Message. -President Wilson's message on currency reform was delivered in person in joint session of the two houses of Congress on June 23. He urged the immediate necessity of giving "the business men of this country a banking and currency system by means of which they can make use of the freedom of enterprise and of individual initiative" about to be bestowed upon them by the prospective tariff changes. We are about to set them free; we must not leave them without the tools of action when they are free.. One of the chief things business needs now and will need increasingly as it gains In scope and vigor in the years immediately ahead of us is the proper means by which readily to vitalize its credits, corporate and individual, and its originative brains. The tyrannies of business, big and little, lie within the fields of credit. It is perfectly clear that it is our duty to supply the new banking and currency system the country needs, and it will immediately

need more than ever. . .

The principles on which we should act are also clear. The country has sought and seen its path in this matter within the last few years, sees it now more clearly than it ever saw it before, much more clearly than when the last legislative proposals on the subject were made. We must have a currency, not 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, must 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 new system of banking and 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 instruments, not the masters, of business and of individual enterprise and initiative.

The Owen-Glass Bill.-The Federal Reserve Act was introduced on June 26, in the Senate by Senator Owen (S. 2639) and in the House by Mr. Glass (H. R. 6454). The defects of the existing system, the chief of which are outlined on another page (see XIV, Banking and Currency), were clearly defined in the elaborate inquiry of the National Monetary Commission which ended its labors in

charter of a central reserve bank with branches in 15 districts, to be owned and controlled by the subscribing banks, which should act as the fiscal agent of the Government, accept deposits from subscribing banks, rediscount commercial paper, and issue currency to replace the existing national-bank circulation (A. Y. B., 1911, pp. 304-7; 1912, p. 346). In the estimation of many bankers and economists, the plan offered a satisfactory means of providing an elastic currency and of mobilizing reserves. The Democrats, however, repudiated the principle of centralized control by banking interests as the invention of the "money trust." Their theory, as defined in the President's message, considered the banks as public utilities over which the representatives of the people should retain ultimate control. Hence, the fundamental principle of the Owen-Glass bill was the decentralization of the system so far as bankers were directly concerned, and the establishment of complete government control through a board from which the representation of banking interests should be absolutely excluded.

Organization of Federal Reserve Banks.-The bill proposed to divide the continental United States into at least 12 districts, determined by the convenience and customary course of business of the community, and to create in a reserve city in each district a Federal reserve bank, to be incorporated under a Federal charter for a period of 20 years. It required each national bank in the district, subject to the penalty of dissolution, to subscribe to the capital stock of the Federal reserve bank a sum equal to 20 per cent. of its unimpaired capital, one-half to be paid in and the remainder to be subject to call; the capital of the Federal reserve bank, in no case to be less than $5,000,000 paid-up and unimpaired, should be increased or decreased with the capital of the subscribing banks and the shares should not be subject to transfer or hypothecation. For each Federal reserve bank was prescribed a board of nine directors, three chosen by the subscribing banks as their representatives, three chosen by the

committee with regard to sugar shows an appreciation of the commercial conditions involved and the committee's desire to respond to the public demands for free sugar. The plan as provided in the bill is to reduce with its passage the present sugar rates ($1.65 per 100 lbs.) by 25 per cent., with the further provision that May 1, 1916, sugar goes on the free list.

Schedule F, Tobacco, and Schedule H, Spirits, Wines, and Other Beverages.Schedules F and H have been found to be good producers of revenue, are sufficiently adjusted to the internal-revenue duties of the United States, deal entirely with articles not to be classed as necessaries, and have, with the exception of scrap tobacco and mineral waters, been left at the same rates as in the present law.

Schedule G, Agricultural Products.In the effort to relieve the consumer, and to mitigate the high and rising cost of living, Schedule G has been thoroughly revised and important reductions have been made. Horses valued at more than $150 have been cut from 25 to 10 per cent., cattle from 27.07 to 10 per cent., sheep from 16.41 to 10 per cent., barley from 43.05 to 23.08 per cent., macaroni from 34.25 to 23.81 per cent., hay from 43.21 to 26.67 per cent., lemons from 64.85 to 24.03 per cent., and live poultry from 13.10 to 6.67 per cent.

Schedule I, Cotton Manufactures.Particular attention has been paid to the revision of this schedule in the effort to adjust it more equitably both to the needs of the consumer and to the condition of the manufacturing industry in the United States. Comparisons of the principal items show reductions on cotton thread from 31.54 to 19.29 per cent., on spool thread from 22.95 to 15 per cent., on cotton cloth from 42.75 to 26.44 per cent., on ready-made clothing from 50 to 30 per cent., on collars and cuffs from 64.03 to 25 per cent., on handkerchiefs from 59.27 to 30 per cent., on stockings selvedged, etc., from 75.38 to 40 and 50 per cent., according to value, on gloves from 89.17 to 35 per cent.. and on underwear from 60.28 to 30 per cent.

Schedule J, Flax, Hemp, and Jute, and Manufacturers of.-Schedule J has been similarly dealt with. Raw flax and raw hemp have been reduced from $22.40 and $22.50 per ton, respectively, to $11.20 each, jute yarns not finer than five lea have been cut from 26.90 to 15 per cent., cables and cordage of istle, etc., from 6.43 to 4.55 per cent., oilcloths for floors from 44.29 to 20 per cent., handkerchiefs from 50 to 35 per cent.

Schedule K. Wool and Manufactures of. Schedule K, dealing with wools and woolen manufactures, has been the center of criticism for many years and the Committee has given it very careful study. The result has been to make raw wool free of duty, and reduce yarns from 79.44 to 20 per cent., blankets from 72.69 to 25 per cent., flannels from 93.29 to 25 and 35 per cent., according to value. dress goods from 99.70 to 35 per cent., clothing from 79.56 to 35 per cent., webbings, etc., from 82.07 to 35 per cent.. and carpets from rates ranging from 50

to 88 per cent. to rates ranging from 20 to 50 per cent.

Schedule L, Silk and Silk Goods.-In Schedule L it has been sought to convert the schedule, previously almost wholly specific, to an ad valorem basis, thereby placing it upon an equality of treatment with the other schedules allied to it and eliminating the possibility of concealed protection. Inasmuch, however, as silk and silk goods are distinctly to be classed as luxuries, it has been deemed wise to make only very moderate reductions in the rates of duty. Partially manufactured silk has been cut from 21.01 to 15 per cent., spun silk yarn from 37.09 to 35 per cent., sewing silk from 25 to 15 per cent., silk velvets and plushes from 53.64 to 50 per cent., silk handkerchiefs (plain) from 50 to 40 per cent., ribbons from 50 to 40 per cent., woven fabrics from 54.89 to 45 per cent., and artificial silk yarns from 41.75 to 35 per cent.

Schedule M, Pulp, Papers and Books. -Print paper, the cost of production of which is as low in this country, under favorable conditions, as it is anywhere in the world, has been transferred to the free list when worth less than 24 cents per pound, while the higher grades have been given a tariff of 12 in place of 15.80 per cent. Copying paper has been cut from 42.33 to 30 per cent., bags, envelopes, etc., from 49.92 to 35 per cent., parchment papers from 47.94 to 35 per cent.. photographic paper from 28.99 to 25 per cent., writing paper from 45.13 to 25 per cent., common wrapping paper from 35 to 25 per cent., and books from 25 to 15 per cent.

Schedule N, Sundries.-Schedule N, which deals with a variety of sundries, calls for comparatively little comment, except to say that the general principles of tariff reduction have been applied to each of the items carried in the schedule according to the peculiarities of each. Thus trimmed hats are given only a moderate reduction, being cut from 50 to 40 per cent., while brooms are substantially reduced, being cut from 40 to 15 per cent. Jewelry has been but slightly reduced, falling from 75.74 to 60 per cent.

The Free List.-The bill added to the free list over 100 items, the more important being:

On the other hand duties were imposed on about 70 items previously free, including aniline dyes, balsams, coal-tar products, gums, essential oils, roots, spices, uncut diamonds and other precious stones (10 per cent.), and furs and fur skins (10 per cent.). Estimated Revenue. The total value of dutiable imports in the fiscal year 1912 was $759,209,915; the customs receipts were $304,597,035, an average rate of duty of 40.12 per cent. For the first 12-month period under the rates proposed in the Underwood bill, the Treasury Department estimated the value of free imports at $102,403,000, the value of dutiable imports at $798,596,000, and the customs receipts at $266,701,000, an average rate of duty of 29.60 per cent. The total receipts of the Government in 1912 were $938,522,481. The Treasury Department estimated that in the first year under the new tariff the receipts would fall to $926,000,000, the loss in customs revenues being only partially offset by an increase in postal revenue. Expenditures, which reached $901,297,979 in 1912, would be swelled in the same year by increases in pensions and the military, naval, and postal services to $994,790,000. Hence the deficit to be anticipated under the Underwood tariff was estimated at $68,790,000.

The Income Tax.-To secure additional revenue to balance the budget, the power to levy a tax on incomes newly granted by the Sixteenth Amendment to the Federal Constitution was put into effect. The Underwood bill imposed a normal tax of one per cent. per annum on the net income of all persons residing in the United States and of citizens of the United States residing abroad, above an exemption limit of $4,000, and of all corporations and joint-stock companies, without exemption. The normal tax applied only to net incomes

of less than $20,000. For the purpose of graduating the tax on individuals the bill imposed additional taxes on larger incomes as follows: one per cent. on the amount by which the total net income exceeds $20,000 up to a limit of net income of $50,000; two per cent. on the amount by which the total net income exceeds $50,000 up to a limit of net income of $100,000; and three per cent. on the amount by which the total net income exceeds $100,000. Subject to certain exemptions and deductions, the net income of a taxable person was

defined as:

Gains, profits and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid; or from professions, vocations, businesses, trade, commerce, or sales or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or from any profits and income derived from, but not the value of, property acsource whatever, including the income quired by bequest, devise, or descent. A special clause exempted from computation as income the proceeds of life-insurance policies paid upon the death of the person insured. The deductions allowed in computing net income were specified as:

curred in carrying on any business, not The necessary expenses actually inincluding personal, living, or family expenses; all interest accrued and payable within the year by a taxable person on indebtedness; all national, state, county, school and municipal taxes accrued within the year, not including those assessed against local benefits or taxes levied hereunder; losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise; debts actually ascertained to be worthless and charged off during the year; also a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business, but not for the expense of restoration or permanent improvement of property. Dividends on the stock of any corporation taxable on its net income were exempted from the tax on individuals, and also interest on the obligations of the United States or any of its political subdivisions.

The bill provided that only one deduction of $4,000 should be made from the aggregate income of all the