Wilson, in a spirited campaign, defeated both rivals. Under his leadership, the new Congress enacted one of the most notable legislative programs in American history. Its first task was tariff revision. "The tariff duties must be altered," Wilson said. "We must abolish everything that bears any semblance of privilege." The Underwood Tariff, signed on October 3, 1913, provided substantial rate reductions on imported raw materials and foodstuffs, cotton and woolen goods, iron and steel, and removed the duties from more than a hundred other items. Although the act retained many protective features, it was a genuine attempt to lower the cost of living.
The second item on the Democratic program was a long overdue, thorough reorganization of the inflexible banking and currency system. "Control," said Wilson, "must be public, not private, must be vested in the government itself, so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative."

8.3 The Bank Reform
The Federal Reserve Act of December 23, 1913, was one of Wilson's most enduring legislative accomplishments. It imposed upon the existing banking system a new organization that divided the country into 12 districts, with a Federal Reserve Bank in each, all supervised by a Federal Reserve Board. These banks were to serve as depositories for the cash reserves of those banks that joined the system. Until the Federal Reserve Act, the U.S. government had left control of its money supply largely to unregulated private banks. While the official medium of exchange was gold coins, most loans and payments were carried out with bank notes, backed by the promise of redemption in gold. The trouble with this system was that the banks were tempted to reach beyond their cash reserves, prompting periodic panics during which fearful depositors raced to turn their bank paper into coin. With the passage of the act, greater flexibility in the money supply was assured, and provision was made for issuing federal reserve notes to meet business demands.

The next important task was trust regulation and investigation of corporate abuses. Congress authorized a Federal Trade Commission to issue orders prohibiting "unfair methods of competition" by business concerns in interstate trade.

9. War,Prosperity and Depression

9.1 War and Neutral Rights
To the American public of 1914, the outbreak of war in Europe came as a shock. At first the encounter seemed remote, but its economic and political effects were swift and deep. By 1915 U.S. industry, which had been mildly depressed, was prospering again with munitions orders from the Western Allies. Both sides used propaganda to arouse the public passions of Americans -- a third of whom were foreign-born or had one or two foreign-born parents. Moreover, Britain and Germany both acted against U.S. shipping on the high seas, bringing sharp protests from President Woodrow Wilson. But the disputes between the United States and Germany grew increasingly ominous.

9.2 United States Enters World War I.
On January 22, 1917, the German government gave notice that unrestricted submarine warfare would be resumed. When five U.S. vessels had been sunk by April, Wilson asked Congress for a declaration of war. By October 1918, on the eve of Allied victory, a U.S. army of over 1,750,000 soldiers had been deployed in France. The U.S. Navy was crucial in helping the British break the submarine blockade, and in the summer of 1918, during a long-awaited German offensive, fresh American troops, under the command of General John J. Pershing, played a decisive role on land.

President Wilson contributed greatly to an early end to the war by defining the war aims of the Allies, and by insisting that the struggle was being waged not against the German people but against their autocratic government. His famous Fourteen Points, submitted to the Senate in January 1918 as the basis for a just peace, called for abandonment of secret international agreements, a guarantee of freedom of the seas, the removal of tariff barriers between nations, reductions in national armaments, and an adjustment of colonial claims with due regard to the interests of the inhabitants affected. Other points sought to ensure self-rule and unhampered economic development for European nationalities. The Fourteenth Point constituted the keystone of Wilson's arch of peace -- the formation of an association of nations to afford "mutual guarantees of political independence and territorial integrity to great and small states alike." By the summer of 1918, when Germany's armies were being beaten back, the German government appealed to Wilson to negotiate on the basis of the Fourteen Points. The president conferred with the Allies, who acceded to the German proposal. An armistice was concluded on November 11.

9.3 The League of Nations
It was Wilson's hope that the final treaty would have the character of a negotiated peace, but he feared that the passions aroused by the war would cause the Allies to make severe demands. In this he was right. The concept of self-determination proved impossible to implement. Persuaded that his greatest hope for peace, the League of Nations, would never be realized unless he made concessions to the Allies, Wilson compromised on the issues of self-determination, open diplomacy and other specific points during the peace negotiations in Paris. However, he resisted the demands of the French premier, Georges Clemenceau, to detach the entire Rhineland from Germany, prevented France from annexing the Saar Basin, and frustrated a proposal to charge Germany with the whole cost of the war -- although the Versailles Peace Treaty did levy a heavy burden of reparations upon Germany.