John Passos - Mr. Wilson's War

The run on the banks stopped immediately. There were few extraordinary withdrawals and only five small bank failures.

The next job was to staunch the drain on gold. The chief New York banks had already made an agreement among themselves to ship no more out. Later in the week McAdoo called a meeting of international bankers and exporters at the Treasury. A nationwide gold pool was established to meet obligations as they fell due. The amount was oversubscribed right there.

The mere gesture had the effect of reducing the drain. Only some hundred million dollars’ worth of gold bullion left the country.

Already war orders were coming in. By fall the exchange situation had reversed itself completely, and American bankers were talking about extending credits to the English and the French. In January 1915 the gold pool went out of business for lack of customers.

A few months before the bankers had been viewing national control of the moneymarket with all sorts of apprehensions. Now they were calling for the help of the federal reserve system before its organization was complete. Meanwhile, American victims of the breakdown of European banking were sending out desperate appeals for help. Congressmen, state governors, cabinet members were bombarded with cables. Stranded American travellers swarmed around every embassy and consulate in Europe. They couldn’t cash their letters of credit. They couldn’t change their money. In London the hotels wouldn’t give change for a five pound note for fear of having to give up gold currency. At the same time hotel-keepers and restaurants were demanding immediate cash payment for everything.

On Monday August 3 after the President had spent the first part of his day quieting the panicky financiers in New York, he shut himself up in his office with Secretary Bryan to decide what to do to help the frightened tourists. They decided to allow embassies to countersign travellers’ checks and letters of credit and to urge representatives abroad to use their own judgment in affording what relief they could. Within a couple of days Congress responded by appropriating several million dollars. Before the end of the week the warships Tennessee and North Carolina were steaming for Europe laden with currency for the relief of stranded citizens.

Casting about for shipping to bring Americans home from the zones of war the President and Secretary Bryan came up against the fact that the United States had no merchant marine. Of around five and a half million tons under American registry the great bulk operated on inland waterways or in the coastwise trade. Only fifteen ships flew the American flag on transatlantic or transpacific routes and of those all but six were passenger liners with little cargo capacity.

The United States was one of the great exporting nations, though still mostly of raw materials, but her exports were customarily carried on foreign bottoms.

Right away grain from recordbreaking harvests of wheat and barley and oats began to pile up at the railheads and in the warehouses. Wharves became glutted with products that could find no outlet. Democratic congressmen began to prophesy immediate ruin for the South, which was still in the straightjacket of a onecrop economy, if some way couldn’t be found to market the cotton crop which promised to be enormous.

The economic structure of the southeastern states was based on credit. When a man planted an acre of cotton he borrowed the money for the seed and fertilizer and often for food for himself and his mule, and cash to pay the pickers, from his broker; in the fall the broker took the cotton and sold it and paid the farmer the balance. The broker financed the operation by borrowing from the bank and so on up into the financial hierarchy. The sudden extinction of a market for cotton meant that the whole house of cards would come tumbling down.

A man didn’t have to be a financial genius to see that something had to be done. The President and his advisers were southerners. They felt tenderness for the cottongrower. Immediately Secretary McAdoo began to make currency available to southern banks and to cast around for some way of inducing private financiers to form a syndicate to advance loans on the freshly harvested crop. His aim was to establish a floor under cotton prices.

Republicans in Congress bristled, particularly the New Englanders. The textile manufacturers felt they were being cheated of an opportunity to buy cotton cheap. The opposition, which in the first daze of the European calamity had been tamely accepting Wilson’s leadership, began to harden.

Both sides agreed that, if the American economy were not to strangle in its own productiveness, vessels had to be found to replace the German and Austrian shipping immobilized in neutral ports and the Allied shipping deflected to military uses. But how? The problem kept McAdoo awake nights. “One morning at dawn,” he wrote, “I was lying in bed thinking about the matter when it occurred to me I might as well write out a tentative draft of the shipping bill which would embody the idea of a government owned corporation.” He was thinking of Theodore Roosevelt’s purchase of the Panama Steamship Company which was still being managed by the War Department. Wilson and McAdoo had privately agreed to buy the idle German ships and operate them under the American flag.

At the thought of the government in the shipping business the New York financiers raised a storm. Shipowners’ lobbyists arrived in Washington on every train. Rank socialism was the cry.

At the same time another of McAdoo’s bills was having smooth sailing. Nobody cried “socialism” when he suggested the formation of a Bureau of War Risk Insurance in the Treasury. The professional underwriters were scared to death of war risk insurance. Let the government take the loss. McAdoo’s war risk insurance agency surprised everybody when its affairs were wound up at the end of the war, by showing seventeen million dollars of profit.

McAdoo’s shipping bill furnished the first battleground between Wilson’s progressive Democrats and the Republican opposition which the Schoolmaster in Politics was soon to be excoriating as the forces of darkness.

Investors were in a fever over the profits to be made owning ships. Tramp steamers were clearing their cost in a single voyage. Oceangoing freighters were bringing in clear profits of from three to five times the money invested in them. As soon as the measure was introduced in the House, Republican papers described the government’s entrance into the shipping field as a menace to private enterprise. One of the Morgans called at the Treasury and lectured the Secretary on the hazards and difficulties of transatlantic shipping in wartime. He wanted no government interference. “As for being a menace,” wrote McAdoo, “I could not see that the government’s ships would menace anything but the absurdly high rates of private shipping concerns.”

The bill passed the House against vigorous opposition. In the Senate it was stalled by the Republican minority led by two of T.R.’s old associates from the imperial era of the “tennis cabinet,” Elihu Root, the learned New York corporation lawyer, who had been Roosevelt’s Secretary of State after John Hay’s death, and Henry Cabot Lodge.

Senator Lodge of Massachusetts held the powerful position of chairman of the Senate Committee on Foreign Affairs. Since the very considerable Republican gains in the House and Senate in the fall elections in 1914 he had become a leader of conservative Republican opposition to the Democratic administration’s legislative program.

Lodge was partisan to the marrow. He came of the purest codfish aristocracy. His father was a Boston shipowner and his mother was a Cabot. He had been a friend of T.R.’s since, as a rising historian, an associate of Henry Adams on the North American Review , he’d been interested in the young New Yorker’s project for a naval history of the War of 1812. They had shared a romantic navalism and all sorts of literary enthusiasms since Harvard College days, even while they differed politically. Lodge swallowed part of the New Nationalism but he looked on the New Freedom with a bilious eye.