quickly every feature of the new system. It directs the accounts and reports of the reserve banks, publishes a weekly statement, controls the issue and retirement of special Federal reserve notes when these are needed, changes the local reserve requirements fixed by law, for both the local and the reserve banks and determines the number and location of reserve districts. It may also remove officers or directors of the reserve banks for causes connected with their official duties. It co-operates with the Federal advisory council, which is a loose, general committee of inspectors or supervisors chosen by the directors of the various reserve banks. The council is designed to furnish an outside, impartial view of the operation of the banking system and to lead to improvements by legislation and executive orders. The national bank notes are to be gradually retired and their place taken by the notes of the district reserve banks. These notes will be issued on the collateral of commercial paper deposited by the subscribing banks and other security that may be accepted in the discretion of the Federal Reserve Board. The profits of the reserve banks are divided between the subscribing institutions, after a suitable allowance for a surplus fund and Federal tax have been made. The reserve banks are allowed to establish branches within their districts. In order to extend the banking facilities of the farming sections, national banks are now allowed under the law to lend on improved and unencumbered farm land up to one-half of the value of the property for a period not exceeding five years. The advantages of the new Act are many, chief among them being: First, the concentration of reserve funds which it provides within each region in order to strengthen and help any or all of the local banks which may need assistance in time of emergency. Originally it was proposed that a single central reserve bank be established after the plan which has long existed in England, France and Germany; but the small banks and the masses of the people feared a Wall Street control of this central institution and refused to accept any bill which involved this feature. The regional or district reserve bank plan was then adopted. Second, the new system places a premium upon commercial paper of short time, such as ninety days, and thereby removes in part at least the preference which the National banks have heretofore shown to stocks and bonds as collateral for loans. Third, the National banks are now for the first time in their history enabled to lend on farm mortgages as security, an important and most desirable addition. The farmer has paid higher interest rates and has been steadily discriminated against in the past because of his "slow" collateral, and even under the new system some traces of this must inevitably remain but a moderate share of the resources of the National banks may now be devoted to the farmer's needs. Fourth, the new Act remedies one serious weakness in our old system which constantly brought us into difficulties; viz., the absence of any central con trolling authority which would assure a broad, progressive and helpful policy in the management and direction of our reserve funds. Since there were neither official reserve funds for panic times nor any central authority to control them, it was necessary, in time of emergency, as we have seen, to depend on such desperate measures as an unofficial private dictatorship. That need no longer exist and we now have a healthy, normal means of directing and guiding the policy of all the reserve institutions. It is not improbable that this authority may even be strengthened in the future as new conditions may arise requiring it. The report of the Comptroller of the Currency for 1914 shows: Total number of national banks in operation 7,539 Capital...... Bank notes in circulation.... $1,074,239,175 750,000,000 The specie currency of the United States now in circulation is divided as follows: Gold coin... Silver coin and subsidiary silver. $633,000,000 237,000,000 Borrowing Money.-The bonds of the United States are signed and issued by the Register of the Treasury who is appointed by the President and the Senate. This official keeps a complete record of all bonds issued, interest paid, bonds and currency notes redeemed, and all customs, internal revenue and postage stamps condemned for imperfections and destroyed. The more important work of determining within the limits set by law, the amount of bonds to be issued or redeemed, the denomination or size, the general conditions and the exact time of issue is performed by the Secretary of the Treasury in consultation with the President and Cabinet. The exercise of this important power has a strong influence upon the financial conditions of the country at large. In time of sudden financial stringency, the Secretary may, by buying back a quantity of bonds, place at the disposal of the banks a large amount of funds, which enter into circulation and thereby reduce the tension. Or under other circumstances he may find the public willing to buy government bonds but not to lend money-in such a case the Secretary may sell a quantity of bonds and deposit the money, received for them, in the national banks of certain sections of the country where it is most needed. This was done by Secretary McAdoo in 1913 with satisfactory results. REFERENCES Annual Report Secretary of the Treasury. F. N. JUDSON: The Power of Taxation. Reports and Bulletins of the President's Commission on Economy and Efficiency. DEWEY: Financial History of the United States. BARNES AND MILNER: Selected Cases in Constitutional Law, 5th Edition. FORD: The Cost of Government. CONWAY AND PATTERSON: The Federal Reserve Act. SELIGMAN: Essays on Taxation, 1913 Edition. ADAMS: Science of Finance, 2d Edition. QUESTIONS 1. Why have the powers of Congress given rise to so much conflict of opinion among statesmen and in the courts? 2. Why were the Federal powers enlarged in 1787? Which powers were added at that time? 3. Why was the taxing power considered important? 4. What power of taxation had Congress under the Articles of Confederation and how was this changed in the new constitution? 5. What is the rule given in the constitution governing the levy of duties, imposts and excises (indirect taxes)? 6. Could Congress constitutionally tax the salary of a State official? See Collector v. Day and the 16th Amendment. 7. Congress levies a tax upon the circulating notes issued by State banks. Is it constitutional? Give reasons and a precedent. 8. Congress levies a tax on corporations and the Tax Collector includes the amount which a certain corporation owes to the City. Is this inclusion legal? Reasons and a precedent. 9. If Congress levied a tax on all personal property could it include such property as State or municipal bonds? Why? Give a precedent. 10. The State Government of X decides to take over the tobacco business within its borders and conduct it by State officials. Must it pay the Federal internal revenue tax on tobacco? Explain the arguments of the State and the decision of the Court, with reasons. II. Explain the constitutional rule governing the levy of direct taxes. 12. In order to protect our natural resources Congress levies a duty of $1.00 per ton on all coal exported from the United States. Would such a tax be constitutional? Reasons. 13. Do direct taxes have to be uniform throughout the United States? Reasons. 14. Could Congress levy a tax of 50% on the value of silks imported into the United States and a tax of 51% on imported tobacco? 15. Could Congress levy a tax of 50% on the value of woolen cloth imported into Philadelphia and 30% on the same cloth imported into New York City? Reasons. 16. Congress enacts a law providing that vessels passing from Chicago to Duluth shall pay a tax of one-quarter of 1% of the value of their cargo at the latter point, and shall make out clearance and entry papers for the voyage the same as if they were bound for a foreign port. Is this constitutional? Reasons. 17. In 1894 Congress levies a tax of 1% on all incomes over $4,000. Is it constitutional? Reasons. 18. In 1913 Congress levies a tax of 1% on incomes over $3,000. Is it constitutional? Reasons. 19. The Federal Government does not at present tax land. Could it constitutionally do so? How must a land tax be levied and why? 20. In order to discourage the attempts of the States to regulate business, Congress establishes a tax of 5% on the salaries of all officials employed in regulative work by the States. Is it constitutional? Reasons. 21. If the income tax of 1894 was unconstitutional, why was not the corporation tax of 1909 also so declared? 22. In 1900, a grocer imports coffee from the Philippines and is obliged to pay a small duty at the port of entry in the United States. He protests on the ground that the Constitution declares that duties shall be uniform throughout the United States. Decide the case with reasons. 23. Give and explain the most important sections of the Constitution limiting the State power to tax. 24. Illinois levies a tax of $1.00 per ton on steamboats and other craft which ply the waters of the State. Is the tax constitutional? Reasons. 25. Illinois levies a tax on all movable property owned or located in the State, including vessels owned by residents, and located within its boundaries. The tax is 1% of the value. Is it constitutional? Reasons. 26. Illinois taxes the notes of the new Federal reserve bank located in Chicago. Is the tax constitutional? Reasons. Cite an authority. 27. Could Massachusetts protect the health of its people by establishing a State quarantine or health inspection service and charging a small inspection fee on all goods imported into the State, in order to cover the cost of the medical officers in examining the imported goods? Explain the reasons and cite the clause of the Constitution in question. 28. If Congress gave its consent could a State levy a general tax on imported articles? 29. Explain fully the meaning of the general welfare clause of Article I, Section 8. 30. You are present at a discussion in which the power of Congress to regulate the public school system is argued. Someone claims that Congress has the power to do so under the general welfare clause. What would be your views? 31. At the urgent insistence of temperance societies Congress doubles the present internal revenue taxes on intoxicating liquors. A distillery owner objects to the payment of the tax on the ground that it will destroy his business, which Congress cannot do under the 5th Amendment, and that Congress has no power to regulate manufacturing. He complains that the tax is an attempt to discourage and thereby regulate the distilling business. What would the court decide? Reasons. 32. Would a law which levied a tax of 2c per pound on imitation butter and made it unprofitable to produce such imitation butter, be constitutional? 33. In 1920 Congress levies a heavy tax on automobiles. You own an automobile on which you have already paid taxes to the State. Could you claim that the Federal law was unconstitutional because of double taxation? 34. How have the State and national governments heretofore kept their subjects of taxation, or sources of revenue separate? 35. What subjects are they now both taxing? 36. Explain briefly the newer drift of public opinion in taxation and its effects upon proposed tax laws? 37. Is taxation without representation unconstitutional? 38. In a discussion of the Federal income tax of 1913 it is claimed that the law is unconstitutional because it exempts incomes under $3,000 and thereby violates Article I, Section 8, which requires that certain taxes shall be uniform throughout the United States. Give your views as to the strength of this claim, with reasons. 39. Give a brief summary of the chief sources of national revenue. 40. What is the difference in the cost of collection of customs and internal revenue respectively? 41. Give a brief summary of the chief expenditures of the government, 42. Outline the outstanding indebtedness of the United States. 43. Explain how customs duties are collected and the administrative organization for this purpose. 44. Outline the organization for the collection of internal revenue, and show the chief items of such revenue. 45. Summarize briefly the method of auditing accounts in the national government. 46. Does Congress or do the people know accurately the efficiency, economy or extravagance of the executive departments? Why? 47. What is the purpose of the national budget? 48. Explain the work of the secret service division. 49. Why has its authority been limited by Congress? 50. What is the constitutional power of Congress over currency? 51. In order to pay the expenses of the Civil War Congress issued a large amount of paper money and declared such paper to be legal tender in payment of debts between individuals. Was such action constitutional? Reasons. 52. It also declared this money to be legal tender for debts contracted before the passage of the law. Was this constitutional? 53. Why has it usually been more difficult for the farmer and the business man to secure credit, in times of panic, than for the stock speculator? 54. How has the separation of the resources of different banks and the failure to co-operate increased the dangers of banking and the seriousness of panics in the past? 55. Explain how the new Federal banking act aims to remedy the weaknesses pointed out in the last two questions. 56. How does the United States borrow money? How may the Secretary of the Treasury aid the farmers in marketing their crops in times of tight money? |