government oil deposits (especially the Teapot Dome field in Wyoming) reserved for the use of the navy, showed that he had been unfortunate in the appointment of Senator Albert B. Fall of New Mexico and Edwin F. Denby of Michigan to the posts of Secretary of the Interior and Secretary of the Navy respectively, there was no serious objection to the cabinet appointments in the spring of 1921, except in the case of Harry M. Daugherty of Ohio, chosen, it appeared, as a reward for political services to the Republican candidate. Daugherty was severely criticized for inefficiency during his whole tenure of the headship of the Department of Justice, until he resigned under pressure, in March, 1924, and was succeeded by Harlan F. Stone, former dean of the Columbia Law School and a man of the highest character and ability. The other appointments were John W. Weeks of Massachusetts, as Secretary of War; Will H. Hays of Indiana, the chairman of the national committee, as PostmasterGeneral; Henry C. Wallace of Iowa, as Secretary of Agriculture; and James J. Davis of Indiana, as Secretary of Labor. The first break in the cabinet came just a year after the inauguration, when Postmaster-General Hays resigned to head the national association of motion-picture producers at a reputed salary of $150,000 a year. His place was taken by the First Assistant Postmaster-General, Dr. Hubert Work of Colorado. In the spring of 1923, before the revelation of the oil leases, which sadly damaged his reputation, Secretary Fall resigned the portfolio of the Interior and was succeeded by Postmaster-General Work, whose place was taken by Senator H. S. New of Indiana. The Teapot Dome investigation forced Secretary Denby out in March, 1924, and President Coolidge appointed Judge Curtis D. Wilbur of California, an Annapolis graduate, as the new head of the Navy Department.1 President Harding established an

1 Naturally, in the spring of a presidential year, every effort was made by the opposition senators to bring discredit on the administration. Noses were sharpened to detect the smell of oil on the official garments of any important person in the government. The attempt was made to involve even President Coolidge because he had sat in the Harding cabinet when the leases were discussed. It seemed in the spring of 1924 as if the Senate had abandoned every function except partisan bickering, and that we had come to a "government by investigation." In

innovation by inviting the vice president to sit in the cabinet, an idea which John Adams had entertained for a moment in 1797.

Congress was called in extra session on April 11, 1921. Domestic problems were uppermost in the President's mind. He recommended the creation of a national budget, the enactment of an emergency tariff law, the readjustment of the war taxes, economy and retrenchment, the restriction of immigration, generous treatment of the disabled soldiers, and aid to the farmers. "The return to normalcy" was the phrase in which he summed up the country's need. As to foreign affairs, he reiterated the sentiment of his inaugural address: "We seek no part in directing the destinies of the Old World. . . . We crave friendship and harbor no hate. . . . We are ready to associate ourselves with the nations of the world, great and small, for conference and counsel, for the suggestion of plans of mediation, conciliation, and arbitration; but every commitment must be made in the exercise of our national sovereignty. . . . This is not aloofness but security. It is patriotic adherence to the things that have made us what we are." The Knox resolution for the declaration of peace with Germany, which President Wilson had indignantly vetoed a year before, was immediately introduced into the Senate and passed. It was signed by President Harding on July 2 and accepted the next month by the government of the German republic. After exchange of ratifications full diplomatic relations were resumed with Germany, on January 1, 1922. Alanson B. Houghton of New York was appointed ambassador to Berlin. Peace was also formally concluded with Austria and Hungary. In regard to Russia, however, the policy of the Wilson administration was maintained. Litvinov's over

April there were no less than eleven special committees and subcommittees of the Senate, comprising fifty of its ninety-six members, occupying most of their time in the investigation of somebody else's conduct. Secretary Mellon wrote the President a note on April 10, saying that his position was being made intolerable by the inquisition headed by Senator Couzens, to fix upon the companies in which the Secretary of the Treasury was interested the charge of undue favor from the government in the refund of taxes; and the next day the President addressed a communication to the Senate, declaring that if such methods were continued, the government would be "thrown into disorder."

tures to Secretary Hughes for the recognition of the Bolshevist government and the resumption of trade relations with Russia were rebuffed.

It was not to be expected that the Republicans would let the tariff of 1913 stand. They had already passed an emergency bill looking toward the restoration of protective duties, when they had regained control of Congress in the latter part of the Wilson administration. President Wilson had effectively vetoed the bill on the last day of his term, declaring it a "blow at the large and successful efforts which have been made by many of our great industries to place themselves on an export basis." Repassed by the extra session in the spring of 1921, the emergency tariff was completed and supplemented in the regular session by the Fordney-McCumber tariff, signed by President Harding on September 21, 1922. The new bill was a frank return to the high rates of the Payne-Aldrich Act, levying higher duties than any previous bill on agricultural products, and almost prohibitive duties on many manufactured articles, like cutlery, yarns, laces, and embroideries. Pig iron, manufactures of iron and steel, salt, wool, hemp, and many food products were taken from the free list of the Underwood tariff. A unique feature of the new bill was the authority given to the President to alter the rates up to a limit of 50 per cent whenever he found, upon investigation by the Tariff Commission, that the congressional rates did not fairly equalize the difference in costs of production here and in the chief competing countries. The Democrats characterized the bill as a "monstrosity," alleging that it would add $4,000,000,000 to the cost of living of the American people at a time when retail prices were 60 per cent higher than they had been in 1914, and that it would discourage foreign trade at a time when the large debts owed us by the European countries would have to be paid chiefly in goods, if at all. The war, they claimed, had made a protective tariff an anomaly. We were no longer inviting European capital for the development of our industries, as in the days after the Civil War, but were ourselves the chief supply of the world's money, and had been exporting capital at the rate of $2,000,000,000 a year since the armistice. Representative Ford

ney of Michigan, chairman of the Committee on Ways and Means, replied that the new act would not increase costs to the American consumer "to any considerable extent," but would "divert at least a small part of their enormous profits from the foreigner and his representative in this country to the United States." The most serious objection to the revival of high protection, however, was its erection of economic barriers between the United States and foreign nations for the alleged reason of saving our industries from ruin. Economic coöperation is admittedly one of the chief requisites for the restoration and preservation of good feeling between the nations. President Wilson made the removal of economic barriers one of the first of his famous fourteen points. In our political policy, through the promotion of arbitration, the advocacy of reduced armaments, and the preservation of the open door, we have made notable contributions to the cause of international good will. Unless our commercial policy is equally liberal and enlightened we shall do much to frustrate our own beneficent efforts in this field. The increase of a few hundred millions of dollars in customs revenues (from $356,443,000 in 1922 to $561,928,000 in 1923) in a budget of approximately $2,500,000,000 is an insignificant factor to set over against the charge of selfish nationalism and commercial retaliation.

The revision of the war taxes was begun with the repeal of the excess-profits taxes and the transportation tax, and a reduction in the surtaxes on incomes. Still the internal-revenue receipts for the year ending June 30, 1922, were over $3,000,000,000, and the Treasury surplus for 1923 was about $310,000,000. Congress was still debating in the spring of 1924 the form which tax reduction should take. The Democrats opposed any drastic cut in the levy on wealth. They would have surtaxes as high as 44 per cent on incomes above $94,000. Secretary Mellon, on the other hand, contended that the high surtaxes were failing to accomplish their object, because wealthy men were transferring their investments to tax-exempt bonds, of which no less than $11,000,000,000 had been issued up to the year 1922. Surtaxes on incomes above $300,000 had brought $248,600,000 into

the Treasury in 1919. The next year this amount had fallen to $135,000,000, and in 1921 to $85,000,000. A reduced rate was the only thing that would induce capital to go into productive ventures. The Secretary therefore proposed a plan reducing the surtaxes to a maximum of 25 per cent and making a considerable cut in the normal income-tax rate, which still remained at the high figure of 4 per cent on the first $4000 and 8 per cent for amounts above. The plan carried also the proposal for the reduction or abolition of a number of miscellaneous taxes. A bill embodying the Secretary's plan and estimated to reduce revenues by some $446,000,000 for the fiscal year 19241925 was passed by the House on February 29, 1924, by a vote of 408 to 8. On April 12 Senator Smoot, chairman of the Committee on Finance, reported to the Senate a bill containing a somewhat smaller reduction ($434,720,000). As the estimated surplus for the year 1923-1924 was $395,000,000, the new bill would apparently result in a deficit of nearly $50,000,000, but it was thought by the Secretary that this loss would be more than absorbed by the rapidly improving economic condition of the country and the stimulus to business furnished by the bill itself.1

The whole question of tax revision has been complicated by political and sectional antagonisms. The war brought a new theory of taxation in the direct levy of a large toll on the usufruct of capital. Four fifths of the war taxes were laid on capital and business. People of small incomes in America were subject to very much lower taxes than they were in any of the European countries. The highest rate levied on incomes of married people with incomes of not more than $4000 above the $2000 personal exemption was 6 per cent in America, while people in England were paying a tax of 22 per cent on incomes of a few hundred pounds. In 1920, for example, 90.6 per cent

1 One feature of the proposed tax reduction was the immediate abatement of 25 per cent of the income taxes for 1923, the first installment of which was due March 15, 1924. President Coolidge favored this suggestion and urged Congress to separate the rebate from the tax bill and pass it before the date mentioned. Many people delayed their payments till the last moment, hoping that Congress would accept the advice.