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.A friend of business it was, and business would soon reap the benefi tsof the president’s diplomacy.The Progressive Era in business had come toan end.68p r o p h e t o f p r o s p e r i t yWilson’s June performance as an economic prophet had been rightly ridi-culed.But in the event it was Wilson and not the critics who proved correct,although not for the reasons Wilson expected.The economy had indeedbeen suffering.Railroads in the East and related industries like steel werein genuine pain because the ICC held rates too low to permit maintenanceand expansion and still allow for dividends.Railroads were in such bad shapethat a group of prominent railroad presidents met with Wilson on September• 241 •The Speculation Economy9 to ask for various forms of relief, including postponement of the Rayburnbill.But the war gave the railroads what they needed.Not only was the Ray-burn bill postponed for almost six years but also, on December 18, the ICCfi nally gave the railroads the rate relief they had been seeking, allowing anincrease of 5 percent.Railroad and steel stocks reacted shortly thereafter asheadlines announced that the increase would mean a “big revenue jump” ofat least $30 million.By December 9, McAdoo confi dently stated that pros-perity already had begun to return.The absence of panic during the lengthydepression was, he said, “phenomenal” and the railroad rate increase andthe easing of money that came with the operation of the new Federal Re-serve banks were having good effects.Americans had started saving and hadmoney to invest in domestic industrial expansion.“ ‘Any war is injurious tothe world, yet we have reached the point where the present war is in someways an actual benefi t.’ ” 69The benefi ts were not immediate.The fi rst new order of business fac-ing McAdoo and the bankers immediately after the declaration of war wasto stave off a possible currency crisis.Gold reserves dropped by almost $160million on a base of $1.1 billion because European creditors could not collectgold from their own debtors to pay off U.S.debt and because they dumpedtheir American securities prior to the exchange closings.This brought Mc-Adoo to New York immediately after July 31 to negotiate the issuance of clear-inghouse certifi cates and increase available currency by $500 million underthe Aldrich-Vreeland Act.70Emergency revenue measures also placed a short-term burden on in-creased commerce.House Democrats backed the president’s proposal forwar taxes on items like beer, wine, tobacco, licenses, gasoline, bankers andbrokers and a stamp tax on bonds, stock and other fi nancial instruments,which alone was estimated to raise $35 million.Despite signifi cant Repub-lican opposition, the measure was supported by the NYSE as a patriotic ges-ture and was backed in force by Democrats, passing on October 22 as theFederal Emergency Revenue Act.71American investors refl ected their new optimism even before therewas any discernible improvement in economic fundamentals.Despite themarket closures, or perhaps because of them, there was signifi cant pent-upinvestment demand.Restricted bond trading opened on the NYSE on Sep-tember 20 and, on the 21st, a New York City bond issue was oversubscribedwithin twenty-four hours.Trading in unlisted stocks resumed on September25 subject, like bonds, to price review by a stock exchange committee, andbond trading volume had increased signifi cantly by the end of September.• 242 •The End of ReformInvestor confi dence continued despite dividend cuts or suspensions by rail-roads and industrials preparing for war fi nance.Plummeting foreign ex-change rates, bumper wheat crops and a balance of trade increasingly in fa-vor of the United States helped to keep confi dence high.Only the Southcontinued to suffer as the interruption in the cotton trade, especially withBritain, made the crop virtually illiquid and led to bailout plans by banks andthe federal government.72Signs were suffi ciently good that Wilson, demonstrating perhaps thathis judgment had not improved much since June but bolstered by the im-proving balance of trade fi gures, proclaimed on October 12 that businessconditions were “improving rapidly,” noting that “he had not made any sys-tematic canvas, but that from reports received from here and there he is ofthe opinion that business is rapidly assuming normal conditions
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