Philip Dru: Administrator, Edward Mandell House [top 100 books of all time checklist .txt] 📗
- Author: Edward Mandell House
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The Administrator further directed the tax board to work out a graduated income tax exempting no income whatsoever. Incomes up to one thousand dollars a year, Dru thought, should bear a merely nominal tax of one-half of one per cent.; those of from one to two thousand, one per cent.; those of from two to five thousand, two per cent.; those of from five to ten thousand, three per cent.; those of from ten to twenty thousand, six per cent. The tax on incomes of more than twenty thousand dollars a year, Dru directed, was to be rapidly increased, until a maximum of seventy per cent. was to be reached on those incomes that were ten million dollars, or above.
False returns, false swearing, or any subterfuge to defraud the Government, was to be punished by not less than six months or more than two years in prison. The board was further instructed to incorporate in their tax measure, an inheritance tax clause, graduated at the same rate as in the income tax, and to safeguard the defrauding of the Government by gifts before death and other devices.
Along with the first board on tax laws, Administrator Dru appointed yet another commission to deal with another phase of this subject. The second board was composed of economists and others well versed in matters relating to the tariff and Internal Revenue, who, broadly speaking, were instructed to work out a tariff law which would contemplate the abolishment of the theory of protection as a governmental policy. A tariff was to be imposed mainly as a supplement to the other taxes, the revenue from which, it was thought, would be almost sufficient for the needs of the Government, considering the economies that were being made.
Dru’s father had been an ardent advocate of State rights, and the Administrator had been reared in that atmosphere; but when he began to think out such questions for himself, he realized that density of population and rapid inter-communication afforded by electric and steam railroads, motors, aeroplanes, telegraphs and telephones were, to all practical purposes, obliterating State lines and molding the country into a homogeneous nation.
Therefore, after the Revolution, Dru saw that the time had come for this trend to assume more definite form, and for the National Government to take upon itself some of the functions heretofore exclusively within the jurisdiction of the States. Up to the time of the Revolution a state of chaos had existed. For instance, laws relating to divorces, franchises, interstate commerce, sanitation and many other things were different in each State, and nearly all were inefficient and not conducive to the general welfare. Administrator Dru therefore concluded that the time had come when a measure of control of such things should be vested in the Central Government. He therefore proposed enacting into the general laws a Federal Incorporation Act, and into his scheme of taxation a franchise tax that would not be more burdensome than that now imposed by the States. He also proposed making corporations share with the Government and States a certain part of their net earnings, public service corporations to a greater extent than others. Dru’s plan contemplated that either the Government or the State in which the home or headquarters of any corporation was located was to have representation upon the boards of such corporation, in order that the interests of the National, State, or City Government could be protected, and so as to insure publicity in the event it was needful to correct abuses.
He had incorporated in the Franchise Law the right of Labor to have one representative upon the boards of corporations and to share a certain percentage of the earnings above their wages, after a reasonable per cent, upon the capital had been earned. [Footnote: See WHAT CO-PARTNERSHIP CAN DO below.] In turn, it was to be obligatory upon them not to strike, but to submit all grievances to arbitration. The law was to stipulate that if the business prospered, wages should be high; if times were dull, they should be reduced.
The people were asked to curb their prejudice against corporations. It was promised that in the future corporations should be honestly run, and in the interest of the stockholders and the public. Dru expressed the hope that their formation would be welcomed rather than discouraged, for he was sure that under the new law it would be more to the public advantage to have business conducted by corporations than by individuals in a private capacity. In the taxation of real estate, the unfair practice of taxing it at full value when mortgaged and then taxing the holder of the mortgage, was to be abolished. The same was to be true of bonded indebtedness on any kind of property. The easy way to do this was to tax property and not tax the evidence of debt, but Dru preferred the other method, that of taxing the property, less the debt, and then taxing the debt wherever found.
His reason for this was that, if bonds or other forms of debt paid no taxes, it would have a tendency to make investors put money into that kind of security, even though the interest was correspondingly low, in order to avoid the trouble of rendering and paying taxes on them. This, he thought, might keep capital out of other needful enterprises, and give a glut of money in one direction and a paucity in another. Money itself was not to be taxed as was then done in so many States.
While the boards and commissions appointed by Administrator Dru were working out new tax, tariff and revenue laws, establishing the judiciary and legal machinery on a new basis and revising the general law, it was necessary that the financial system of the country also should be reformed. Dru and his advisers saw the difficulties of attacking this most intricate question, but with the advice and assistance of a commission appointed for that purpose, they began the formulation of a new banking law, affording a flexible currency, bottomed largely upon commercial assets, the real wealth of the nation, instead of upon debt, as formerly.
This measure was based upon the English, French and German plans, its authors taking the best from each and making the whole conform to American needs and conditions. Dru regarded this as one of his most pressing reforms, for he hoped that it would not only prevent panics, as formerly, but that its final construction would completely destroy the credit trust, the greatest, the most far reaching and, under evil direction, the most pernicious trust of all.
While in this connection, as well as all others, he was insistent that business should be honestly conducted, yet it was his purpose to throw all possible safeguards around it. In the past it had been not only harassed by a monetary system that was a mere patchwork affair and entirely inadequate to the needs of the times, but it had been constantly threatened by tariff, railroad and other legislation calculated to cause continued disturbance. The ever-present demagogue had added to the confusion, and, altogether, legitimate business had suffered more during the long season of unrest than had the law-defying monopolies.
Dru wanted to see the nation prosper, as he knew it could never have done under the old order, where the few reaped a disproportionate reward and to this end he spared no pains in perfecting the new financial system. In the past the railroads and a few industrial monopolies had come in for the greatest amount of abuse and prejudice. This feeling while largely just, in his opinion, had done much harm. The railroads were the offenders in the first instance, he knew, and then the people retaliated, and in the end both the capitalists who actually furnished the money to build the roads and the people suffered.
“In the first place,” said Administrator Dru to his counsel during the discussion of the new financial system, “the roads were built dishonestly. Money was made out of their construction by the promoters in the most open and shameless way, and afterwards bonds and stocks were issued far in excess of the fraudulent so-called cost. Nor did the iniquity end there. Enterprises were started, some of a public nature such as grain elevators and cotton compresses, in which the officials of the railroads were financially interested. These favored concerns received rebates and better shipping facilities than their competitors and competition was stifled.
“Iron mines and mills, lumber mills and yards, coal mines and yards, etc., etc., went into their rapacious maw, and the managers considered the railroads a private snap and ‘the public be damned.’
“These things,” continued Dru, “did not constitute their sole offense, for, as you all know, they lobbied through legislatures the most unconscionable bills, giving them land, money and rights to further exploit the public.
“But the thing that, perhaps, aroused resentment most was their failure to pay just claims. The idea in the old days, as you remember, was to pay nothing, and make it so expensive to litigate that one would prefer to suffer an injustice rather than go to court. From this policy was born the claim lawyer, who financed and fought through the courts personal injury claims, until it finally came to pass that in loss or damage suits the average jury would decide against the railroad on general principles. In such cases the litigant generally got all he claimed and the railroad was mulcted. There is no estimating how much this unfortunate policy cost the railroads of America up to the time of the Revolution. The trouble was that the ultimate loss fell, not on those who inaugurated it but upon the innocent stock and bondholder of the roads.
“While the problem is complicated,” he continued, “its solution lies in the new financial system, together with the new system of control of public utilities.”
To this end, Dru laid down his plans by which public service corporations should be honestly, openly and efficiently run, so that the people should have good service at a minimum cost.
Primarily the general Government, the state or the city, as the case might be, were to have representation on the directorate, as previously indicated. They were to have full access to the books, and semi-annually each corporation was to be compelled to make public a full and a clear report, giving the receipts and expenditures, including salaries paid to high officials. These corporations were also to be under the control of national and state commissions.
While the Nation and State were to share in the earnings, Dru demanded that the investor in such corporate securities should have reasonable profits, and the fullest protection, in the event states or municipalities attempted to deal unfairly with them, as had heretofore been the case in many instances.
The Administrator insisted upon the prohibition of franchise to “holding companies” of whatsoever character. In the past, he declared, they had been prolific trust breeders, and those existing at that time, he asserted, should be dissolved.
Under the new law, as Dru outlined it, one company might control another, but it would have to be with the consent of both the state and federal officials having jurisdiction in the premises, and it would have to be clear that the public would be benefited thereby. There was to be in the future no hiding under cover, for everything was to be done in the open, and in a way entirely understandable to the ordinary layman.
Certain of the public service corporations, Dru insisted, should be taken over bodily by the National Government and accordingly the Postmaster General was instructed to negotiate with the telegraph and telephone companies for their properties
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