When Wilson took office in March 1913, he immediately met with Congress to outline his New Freedom agenda for how progressive interests could be best preserved. His plan was simple: regulate the banks and big businesses, and lower tariff rates to increase international trade, increasing competition in the interest of consumers. Wilson took the unusual step of calling a special session of Congress in April 1913 to tackle the tariff question, which resulted in the Revenue Act of 1913, also known as the Underwood Tariff Act. This legislation lowered tariff rates across the board by approximately 15 percent and completely eliminated tariffs on several imports, including steel, iron ore, woolen products, and farm tools. To offset the potential loss of federal revenue, this new law reinstituted the federal income tax, which followed the ratification of the Sixteenth Amendment. This first income tax required married couples who earned $4000 or more, and single people who earned $3000 or more, to pay a 1-percent, graduated income tax, with the tax rate getting progressively higher for those who earned more.

Late in 1913, Wilson signed the Federal Reserve Act to regulate the banking industry and establish a federal banking system. Designed to remove power over interest rates from the hands of private bankers, the new system created twelve privately owned regional reserve banks regulated by a presidentially appointed Federal Reserve Board. The Board, known informally as the Fed, regulated the interest rate at which reserve banks loaned or distributed money to other banks around the country. Thus, when economic times were challenging, such as during a recession, the Fed could lower this “discount rate” and encourage more borrowing, which put more currency in circulation for people to spend or invest. Conversely, the Fed could curb inflationary trends with interest hikes that discouraged borrowing. This system is still the basis for the country’s modern banking model.

Figure 1. With the creation of the Federal Reserve Board, President Wilson set the stage for the modern banking system (a). This restructuring of the American financial system, which included the authorization of a federal income tax, was supported in large part by an influential Republican senator from Rhode Island, Nelson Aldrich (b), co-author of the Payne-Aldrich Act of 1909.

In early 1914, Wilson completed his New Freedom agenda with the passage of the Clayton Antitrust Act. This law expanded the power of the original Sherman Antitrust Act in order to allow the investigation and dismantling of more monopolies. It also specifically regulated mergers and price discrimination and protected labor’s access to collective bargaining and related strategies of picketing, boycotting, and protesting. Congress further created the Federal Trade Commission to enforce the Clayton Act, ensuring at least some measure of implementation. The new act also took on the “interlocking directorates”—competing companies that still operated together in a form of oligopoly or conspiracy to restrain trade. His New Freedom agenda complete, Wilson turned his attention to foreign affairs, as war was quickly encompassing Europe.

The Final Vestiges of Progressivism

As the 1916 election approached, Wilson’s focus on foreign affairs, as well as the natural effect of his small government agenda, left the 60 percent of the American public who had not voted for him the first time disinclined to change their minds and keep him in office. Realizing this, Wilson began a flurry of new Progressive reforms that impressed the voting public and ultimately proved to be the last wave of the Progressive Era. Some of the important measures that Wilson undertook to pass included the Federal Farm Act, which provided oversight of low-interest loans to millions of farmers in need of debt relief; the Keating-Owen Child Labor Act, which, although later deemed unconstitutional by the U.S. Supreme Court, prohibited the interstate distribution of products by child workers under the age of fourteen; and the Adamson Act, which put in place the first federally mandated eight-hour workday for railroad workers.

Wilson also gained significant support from Jewish voters with his 1916 appointment of the first Jewish U.S. Supreme Court justice, Louis D. Brandeis. Popular among social justice Progressives, Brandeis went on to become one of the most renowned justices on the court for his defense of freedom of speech and right to privacy issues. Finally, Wilson gained the support of many working-class voters with his defense of labor and union rights during a violent coal strike in Ludlow, Colorado, as well as his actions to forestall a potential railroad strike with the passage of the aforementioned Adamson Act.

Wilson’s actions in 1916 proved enough, but barely. In a close presidential election, he secured a second term by defeating former New York governor Charles Evans Hughes by a scant twenty-three electoral votes, and less than 600,000 popular votes. Influential states like Minnesota and New Hampshire were decided by less than four hundred votes.

Despite the fact that he ran for reelection with the slogan, “He Kept Us Out of the War,” Wilson could not avoid the reach of World War I much longer. For Wilson and the American public, the Progressive Era was rapidly winding down. Although a few Progressive achievements were still to come in the areas of women’s suffrage and prohibition, the country would soon be gripped by the war that Wilson had tried to avoid during his first term in office. When he took the oath for his second term, on March 4, 1917, Wilson was barely five weeks away from leading the United States in declaring war on Germany, a move that would put an end to the Progressive Era.