Seeking a Secretary of the Treasury with financial experience who was not too closely identified with Wall Street, President Woodrow Wilson found lawyer-businessman William G. McAdoo (1863-1941). The pressing issue of the era was bank reform, which had been gaining attention since the Panic of 1907, and it was clear that some kind of central banking system was needed. There were two problems with the existing system, it was inelastic, or unable to expand and contract the money supply with the needs of the nation, and it was decentralized, resulting, at times, in an uneven distribution of currency throughout the country.
McAdoo opposed Senator Nelson W. Aldridge's proposed system of private reserve banks under control of the banking industry and advocated instead a central bank operated out of the Treasury. The Federal Reserve Act (1913) was a compromise, creating a centralized banking system controlled by an independent federal board with the power to perform such central banking functions as determining and harmonizing discount rates defining eligible paper, and controlling the issue of notes. The income tax, declared unconstitutional in 1895, was made constitutional by the Sixteenth Amendment and reintroduced permanently in 1913 to provide revenue for the fast-growing nation. McAdoo also successfully financed World War I by awakening a patriotic spirit in the American people, who were unused to saving through the purchase of government bonds, and floating four Liberty Loans to pay for the war. He resigned in 1918 to resume the practice of law in New York.
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of the Curator
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