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ANNUAL REPORT OF THE Secretary of the Treasury ON THE SPATE OF THE FINANCES FOR THE FISCAL YEAR ENDED JUNE 30 1920 With Appendices WASHINGTON GOVERNMENT PRINTING OFFICE 1921 T R E A S U R Y DEPARTMENT, Document No. .2872. Secretary. As~o. CONTENTS. REPORT OF THE SECRETARY OF THE TREASURY: Page. Introduction Treasury certificates of-indebtedness.: Program for retirement of war debt : Taxation Revision without reduction of revenues Income sm'taxes Excess-profits tax , Excise and luxury taxes Additional sources of revenue. Administrative amendments Tax exemptions of Liberty bonds and Victory notes Economy A Budget system Loans to foreign Governments : Interest and sinking fund payments Foreign obligations received on account of sales of surplus war supplies and European reHef Foreign currencies Expenditures reported by foreign Governments International financial situation Foreign trade • Financing foreign trade. Suggested international financial conference Brussels Conference European relief Domestic credit situation .\ Soldiers' bonus Receipts and expenditures during war period.. Cost of the war Securities owned by United States Government Retirements of Liberty bonds and Victory notes Five per cent bond-purchase fund Bonds purchased from repayments of foreign loans Bonds purchased with franchise tax paid by Federal reserve banks... B.onds retired on account of gifts Bonds retired on account of forfeitures to the United States Bonds retired on account of estate and inheritance taxes Cumulative sinking fund Proposals for refunding the Liberty loans Market prices of Liberty bonds and Victory notes ". Loans on Liberty bonds Liberty loan transactions Permanent coupon Liberty bonds Government savings securities Savings securities for 1920 Savings securities for 1921 •... War Finance Corporation Suspension of active operations Railroads Section 204 Section 209 Section 210 Discontinuance of the Subtreasuries Deposits of Government funds : Interest on Government deposits Special depositaries III ^Jl^ 1 7 22 25 26 36 38 43 44 46 46 47 49 53 62 65 67 69 73 75 76 80 84 92 96 102 104 104 106 107 107 Ill Ill 112 112 112 113 115 120 127 132 135 139 142 146 147 148 155 155 158 165 167 171 174 174 IV CONTENTS. R E P O R T OF THE SECRETARY OF THE T R E A S U R Y — C o n t i n u e d . . Deposits of Government funds—Continued. Page. Interest on special deposits • 174 United States depositaries in foreign countries 175 Collateral security for Government deposits 176 Creation of Division of Deposits 176 I^'raudulent dealings in securities, 177 Gold 180 Production 180 Gold payments 181 Silver 182 Federal farm-loan system '.. 185 Retirement of Government-owned stock 187 Earnings 188 Joint-stock land banks :. 188 Liquidation of joint-stock land banks 188 Tax exemptions of farm-loan bonds : 188 Seed-grain loans to farmers 190 Bureau of Internal Revenue 194 Prohibition enforcement 196 War risk insurance 197 Military and naval compensation 198 Military and naval insurance 198 United States Government life insurance 199 Summary of insurance operations . 199 Military and naval allotments and family allowances 201 Marine and seamen's insurance 201 Medical Division 202 Personnel 203 Enemy or ally of enemy insurance companies and other foreign insurance companies 203 Soldiers' and sailors' civil relief act and bonds. :. 204 District of Columbia school-teachers' retirement act : 204 Hospitalization :. 205 Hospital construction 209 Public Health 213 Precautions against foreign epidemics 213 Transfer of State quarantine stations 214 National leprosarium 214 National health program 215 Coast Guard 216 Rescue and salvage 217 Ice patrol to promote safety at sea 217 Winter cruising 218 Cruises in northern waters v 218 Anchorage and movements of vessels 219 International yacht races 219 Coastal communication 220 Aviation 220 Legislation 220 Retention of t h e Coast Guard in t h e Treasury 221 Commissioned personnel 224 Vessels and stations 224 Coast Guard Academy : 225 Customs 225 Mint Service 226 Proposed new m i n t 227 Bureau of Engraving and Printing 228 Public buildings 229 Suspended building operations 230 National Archives Building 230 Contractors' war claims 231 Supervising Architect 231 Inter-American High Commission .232 General Supply Committee .^ 234 Checking accounts of Government corporations and Railroad Administration maintained with Treasurer of t h e United States 236 OOISTTENTS. R E P O R T OF THE SECRETARY OF THE T R E A S U R Y — C o n t i n u e d . Handling of Government funds by disbursing officers :.... .. Provision for Government disbursements in t h e Philippine Islands ' New currency designs. Treasury organization. ^....... Commissioner of t h e Public Debt Commissioner of Accounts and Deposits Accounting offices Audit of Army foreign accounts. -. Salaries : Undersecretary of the Treasury Activities which should be separated from the Treasury Personnel Retirement of civil-service employees. Space problems of the department' Panama Canal FinancesReceipts and disbursements, fiscal year 1920 General fund Summary of general-fund transactions Postal Service United States notes (greenbacks) Gold reserve fund Trust funds Sinkingfund . Condition of the Treasury June 30, 1920 Cash in the Treasury J u n e 30, 1920.... Comparison of receipts, fiscal years 1920 ahd 1919 Comparison of disbursements, fiscal years 1920 and 1919 Estimates of receipts and expenditures for fiscal years 1921 and 1922 Postal Servdce, estimated revenues and expenditures, 1922 „ Estimates of appropriations, fiscal year 1922, as submitted by the executive departments Estimates for 1922 and appropriations for 1921 Statement of estimates of appropriations for 1922 compared with appropriations for 1921 V Page., 237 238 238 239 240 242 243 244 244 245 247 249 252 253 254 255 255 255 258 258 258 259 259 259 260 260 262 264 274 276 278 280 280 Exhihitslaccompanyinglthelreportlonlthe finances. Exhibit 1: Certificates of indebtedness, total issues, and the amount issued. through each Federal reserve bank from Apr. 6, 1917, to Oct. 31, 1920 . . Exhibit 2: Certificates of indebtedness, par amount issued, retired, and outstanding to Oct. 31, 1920 Exliibit.3: Department Circular No. 167, 4^ per cent Treasury certificates of indebtedness, series T M 3-1920, dated and bearing interest from Dec. 1, 1919, due Mar. 15, 1920 Exhibit 4: Department Circular No. 168, 4^ per cent Treasury certificates of indebtedness, series D 1920, dated and bearing interest from Dec. 1, 1919, due Feb. 16, 1920 Exhibit 5: Department Circular No. 174, 4^ per cent Treasury certificates of indebtedness, series T J-1920, dated and bearing interest from Dec. 15, 1919, due June 15, 1920 Exhibit 6: Department Circular No. 177, 4J per cent Treasury certificates of indebtedness, series T D-1920, dated and bearing interest from Jan. 2, 1920, due Dec. 15, 1920 Exhibit 7: Department Circular No. 180, 4^ per cent Treasury certificates of indebtedness, series T M 4-1920, dated and bearing interest from Feb. 2, 1920, due Mar. 15, 1920 Exhibit 8: Department Circular No. 185, 4J per cent Treasury certificates of indebtedness, series T M-1921, dated and bearing interest from Mar. 15, 1920, due Mar. 15, 1921 Exhibit 9: Department Circular No. 188, 4 i per cent Treasury certificates of indebtedness, series E 1920, dated and bearing interest from Apr. 1, 1920, due July 1, 1920 Exhibit 10: Department Circular No. 189, Treasury certificates of indebtedness dated and bearing interest from Apr. 15, 1920, series F 1920, 5 per cent, due July 15,1920, series G 1920, 5J per cent, due Oct. 15,1920. 293 295 296 297 299 300 301 303 304 VI CONTENTS. REPORT OP THE SECRETARY OP THE T R E A S U R Y — C o n t i n u e d . ' Exhibit 11: Department Circular No. 192, 5^ per cent Treasury certificates of indebtedness, series H 1920, dated and bearing interest from May 17, 1920, due Nov. 15,1920 Exhibit 12: Department Circular No. 193, Treasury certificates of indebtedness dated and bearing interest from June 15, 1920, series A 1921, 5f per cent, due Jan. 3, 1921, series T J-1921, 6 per cent, due June 15, 1921. E x h i b i t 13: Department Circular No. 199, Treasury certificates of indebtedness dated and bearing interest from July'15, 1920, series B 1921, 5 | per cent, due Jan. 15, 1921, series T M 2-1921, 5f per cent, due Mar. 15, 1921 E x h i b i t 14: Department Circular No. 201, 6 per cent Treasury certificates of indebtedness, series C 1921, dated and bearing interest from Aug. 16, 1920, due Aug. 16, 1921 E x h i b i t 15: Department Circular No. 204, Treasury certificates of indebtedness dated and bearing interest from Sept. 15, 1920, series T M 3-1921, 5f per cent, due Mar. 15, 1921, series T S-1921, 6 per cent, due Sept. 15, 1921 Exhibit 16: Department Circular No. 206, 5 | per cent Treasury certificates of indebtedness, series T M 4-1921, dated and bearing interest from Oct. 15, 1920, due Mar. 15, 1921 Exhibit 17: Department Circular No. 211, 5 | per cent Treasury certificates of indebtedness, series D 1921, dated and bearing interest from Nov. 15, 1920, diie May 16,1921 E x h i b i t 18: Offer to redeem before maturity Treasury certificates of indebtedness, series A 1920 E x h i b i t 19: Offer to redeem before maturity Treasury certificates of indebtedness, series B 1920 : Exhibit 20: Offer to redeem before maturity Treasury certificates of indebtedness, series D 1920 Exhibit 21: Statement of the public debt of the United States, June 30,1920. E x h i b i t 22: Preliminary statement of the public debt, Oct. 31, 1920 Exhibit 23: Quarterly comparative public debt statement, showing also figures for Aug. 31, 1919, when war debt was at its peak Exhibit 24: Statement showing dates and amounts of credits established to Nov. 15,1920, in favor of foreign Governments under the acts of Apr. 24, 1917, Sept. 24, 1917, Apr. 4, 1918, and July 9, 1918 : Exhibit 25: Statement shoMdng dates and amounts of cash advances to Nov. 15, 1920, to foreign Governments under the acts of- Apr. 24, 1917, Sept. 24, 1917, Apr. 4, 1918, and July 9, 1918 Exhibit 26: Summary of credits established in favor of foreign Governments, advances made to them, and expenditures reported b y them for period Apr. 6, 1917, to Nov. 1, 1920. Exhibit 27: Summary, b y periods, of credits established in favor of foreign Governments, advances made to them, and expenditures reported by them, Apr. 6, 1917, to Nov. 1, 1920 Exhibit 28: Summary of credits established in favor of foreign Governments, advances made to them, and expenditures reported by them for period Apr. 6, 1917, to Dec. 31,1917 : Exhibit 29: Summary of credits established i n favor of foreign Governments, advances made to them, and expenditures reported b y them for period Jan. 1 to June 30, 1918 Exhibit 30: Summary of credits established in favor of foreign Governments, advances made to fliem, and expenditures reported by them for period J u l y l to Nov. 30, 1918 Exhibit 31: Summary of credits established in favor of foreign Governments, advances made to them, and expenditures reported b y them for period Dec. 1, 1918, to June 30, 1919 Exhibit 32: Summary of credits,established in favor of foreign Governments, advances made to them, and expenditures reported by them for period July 1 1919, to Nov. 1, 1920 Exhibit 33: Letter from the Secretary of the Treasury transmitting, i n response to a Senate resolution of Oct. 17, 1919, a statement based on information received by the Treasury showing the financial obligations of foreign Governments offered in the United States since Aug. 1, 1914 Exhibit 34: Sections 204, 209, and 210 of transportation act, 1920, as amended ; Page. 305 306 307 309 310 311 312 314 314 314 315 323 324 325 330 338 340 342 343 344 345 347 349 355 CONTENTS. R E P O R T OF THE SECRETARY OF THE T R E A S U R Y — C o n t i n u e d . Exhibit 35: Statements of D. F . Houston, Secretary of the Treasury, and R. C. Leffingwell, Assistant Secretary, before Committee on Ways and Means of House of Representatives, Mar. 11, 1920, on soldiers' bonus proposal Exhibit 36: Statement showing the transactions of ,the fiscal year 1920 on the basis of the daily Treasury statements Exhibit 37: Table shomng cash expenditures of the Government for the fiscal years ended June 30,1917, June 30,1918, June 30,1919, and June 30,1920, as published in the daily Treasury statements and classified according to departments and establishments Exhibit 38: Statement showing classified receipts and disbursements of the United States Government, exclusive of the principal of the public debt, by nionths, from Apr. 6, 1917, to Oct. 31, 1920, as^published in daily Treasury statements Exhibit 39: Liberty loans, principal payments received b y t h e Treasurer of the United States, principal retired, and securities outstanding on June 30, 1920 Exhibit 40: Liberty loans, recapitulation of issues and retirements to June 30,1920 Exhibit 41: First Liberty loan of 1932-1947, recapitulation of transactions to June 30, 1920 Exhibit 42: Second Liberty loan of 1927-1942, recapitulation of transactions to June 30, 1920 ' Exhibit 43: Third Liberty loan of 1928, recapitulation of transactions to June 30, 1920. Exhibit 44: Fourth Liberty loan of 1933-1938, recapitulation of transactions to June 30,1920 .^ Exhibit 45: Victory Liberty loan of 1922-23, recapitulation of transactions to June 30,1920 Exhibit 46: Liberty bonds (including full-paid interim certificates) and Victory notes, securities stock account to June 30, 1920 Exhibit 47: Liberty bonds and Victory notes outstanding by denominations, June 30, 1920 Exhibit 48: Liberty bonds and Victory notes, recapitulation of denominational exchanges showing net increases and decreases Exhibit 49: Liberty bonds and Victory notes, conversion transactions as of June 30, 1920 ^ Exhibit 50: Final allotment of subscriptions to Liberty loans (corrected to Oct. 31,1920) Exhibit 51: Final allotments to the Liberty loans, b y States (corrected to Oct. 31, 1920) Exhibit 52: Department Circular No. 183, third Liberty loan subscriptions in default Exhibit 53: Department Circular No. 200, fourth Liberty loan subscriptions in default Exhibit 54: Department Chcular No. 142, assignments of United States registered bonds and notes for exchange for coupon bonds and notes Exhibit 55: Department Circular No. 182, assignments of United States registered bonds and notes :. Exhibit 56: Supplement to Department Circular No. 141 of Sept. 15, 1919, supplemental rules and regulations concerning transactions in Liberty bonds and Victory notes Exhibit 57: Second supplement to Department Circular No. 141 of Sept. 15, 1919, supplemental rules and regulations concerning transactions in l i b e r t y bonds and Victory notes '. Exhibit 58: United States Government Liberty bonds and Victory notes.. Exhibit 59: Department Circular No. 164, exchanges of temporary 4 per cent and 4^ per cent coupon Liberty bonds for permanent bonds Exhibit 60: Supplement to Department Circular No. 164 of Dec. 15, 1919, exchanges of temporary 4 per cent and 4^ per cent coupon Liberty bonds for permanent bonds Exhibit 61: Second supplement to Department Circular No. 164 of Dec. 15, 1919, exchanges of temporary 4 per cent and 4} per cent coupon l i b e r t y bonds for permanent bonds Exhibit 62: Request for exchange of temporary coupon Liberty bonds for permanent bonds (Form L and C 305) VII Page. 362 410 412 413 417 419 421 423 425 426 427 428 430 435 437 439 440 441 443 445 446 447 449 451 454 460 460 462 VIII CONTENTS. REPORT OF THE SECRETARY OF THE T R E A R U R Y — C o n t i n u e d . Exhibit 63: Application by an incorporated bank or trust company for coupon Liberty bonds in permanent form for delivery in exchange for temporary bonds (Form L and C 304) Exhibit 64: Letter from the Secretary of the Treasury to banks and trust companies inclosing placard respecting exchange of temporary bonds for permanent bonds Exhibit 65: Department Circular No. 170, war-savings certificates and Treasury savings certificates, series of 1920 Exhibit 66: Department Circular No. 169, further regulations governing Treasury savings certificates, series of 1919 Exhibit 67: Department Circular No. 171, Treasury savings certificates, series of 1918 Exhibit 68: Department Circular No. 172, agencies for the distribution and sale of war-savings certificates and Treasmy sa^dngs certificates, series of 1920 Exhibit 69: Department Circular No. 178, holdings of United States warsavings certificates in excess of legal limit Exhibit 70: Department Circular No. 181, sales stations for war-savings certificate stamps, series of 1920, and thrift stamps Exhibit 71: Supplement to Department Circular No. 172 of Dec. 10, 1919, agencies for the distribution and sale of war-savings certificates and Treasury sa^dngs certificates, series of 1920 Exhibit 72: Department Circular No. 173, surrender of war-savings certificates and stamps, series of 1919; Treasury savings certificates, series of 1919; and thrift stamps held by agents and sales stations Exhibit 73: Department Circular No. 166, redemption of war-savings certificates contributed to religious, philanthropic, or charitable organizations Exhibit 74: Supplement to Department Circular No. 108 of Jan. 21, 1918, Treasury regulations further defining rights of holders of war-savings certificates Exhibit 75: Supplement to Department Circular No. 149, Treasury regulations further defining rights of holders of Treasury savings certificates... Exhibit 76: War Finance Corporation Exhibit 77: Department Circular No. 209, discontinuance of United States Subtreasury at Boston, Mass Exiiibit 78: Department Circular No. 210, discontinuance of United States Subtreasury at Chicago, 111 Exhibit 79: Department Circular No. 176, regulations governing deposit of public moneys and payment of Government warrants and checks Exhibit 80: Regulations governing sales of silver to the Director of the Mint under the Pittman Act Exhibit 81: Supplemental regulations governing sales of silver to the Director of the Mint under the Pittman Act Exhibit 82: Joint Circular No. 5 (Departments of Treasury and Agriculture), supplemental regulations relative to expenses incurred b y Federal land banks in administering farmers' seed-gi'ain loans in drouth-stricken areas Exhibit 83: Joint Circular No. 6 (Departments of Treasury and Agriculture), regulations relative to release of farmers' seed-grain loans for wheat planting in drouth-stricken areas Exhibit 84: Application for release from repayment of seed-grain loan (Form I B ) Exhibit 85: An act to amend and modify the war-risk insurance act Exhibit 86: Department Circular No. 190, regulations under act approved Jan. 15, 1920, for the retirement of public-school teachers in the District of Columbia Exhibit 87: Department Circular No. 205, regulations under act approved Jan. 15,1920, as amended by act approved June 5,1920, for the retirement of public-school teachers in the District of Columbia Exhibit 88: Department Circular No. 195, public moneys and official cfiecks of United States disbursing officers Exhibit 89: Department Circular No. 194, payment of Government checks drawn by United States disbursing ofiicers located i n the Philippine Islands L Exhibit 90: Statement showing number of employees in the Treasury Department, by months Page. 464 466 468 476 481 488 502 505 507 507 511 513 514 515 521 522 523 538 543 545 545 547 550 557 559 561 565 568 CONTENTS. REPORT OF THE SECRETARY OF THE T R E A S U R Y — C o n t i n u e d . IX Page. Exhibit 91: Department Circular No. 197, deductions from appropriations for salaries, pay, or compensation, for transfer to " T h e Civil Service Re- tirement and Disability Fund " 572 Exhibit 92: Department Circular No. 196, forms of pay rolls for retirement deductions 577 Abstracts of reports of bureaus and divisions. ^ Treasurer of the United States District of Columbia Comptroller of the Currency Number of national banks, amount of capital stock, etc., June 30,1920. Comparative statement, number of banks reporting, loans, cash, deposits, and resources, on dates nearest to June 30, 1919 and 1920 . . . Number of national banks organized, insolvent, in voluntary liquidation, and in existence on June 30, 1920 Banks under State supervision All banks in United States, national and other Mint Service Operations of the niints and assay offices. Stock of coin and bullion in t h e United States : Production of gold and silver : Industrial arts ^ Export of gold coin ' Appropriations, expenses, and income Deposits, income, expenses, and employees, by institutions, fiscal year 1920 Bureau of Internal Revenue Cost of administration Incom.e and profits taxes Estate tax Capital stock tax Child-labor tax law •Taxes on sales, special and miscellaneous commodities, occupations, admissions, and dues National prohibition Bureau of War Risk Insurance Insurance Division Terminsurance applications Reinstatements Premium remittances United States Government life insurance. Premiums on converted policies Six plans represented in approved policies Options for payment of insurance Compensation and Insurance Claims Division Insurance claims and their settlement. Analysis of disallowed insurance claims Returned insurance award checks Term insurance premiums compared with awards United States Government life-insurance premiums compared with awards Compensation claims and their settlement Compensation claims acted upon Pending compensation claims Death and disability claims Active and closed claims Compensation claims on which payments have been terminated Active disability claims Disallowed compensation claims Compensation payments • Compensation checks returned Allotment and Allowance Division Marine and Seamen's Division '. Medical Division...,. Legal Division 581 586 586 588 589 592 593 593 594 594 598 98 598 599 599 600 601 601 602 603 603 603 604 604 605 605 606 606 607 608 609 610 611 611 612 614 615 615 616 616 616 617 618 618 619 619 620 620 621 621 625 628 633 X CONTENTS. R E P O R T OF THE SECRETARY OF THE TREASURY—Continued. Bureau of War Risk Insurance—Continued. Page. • Finance and Administration 635 Administration Division 636 Receipts and Disbursements Division 637 Personnel Division 637 Reduction in number of employees absent 638 Liaison Division 640 District of Columbia school-teachers' retirement 641 Bureau of Engraving and Printing : 642 Customs 644 Tea inspection. ^ 647 Office of t h e Supervising Architect 651 Buildings 651 Statement of appropriations : 658 Summary of acts carrjdng appropriations for fiscal year 1920 658 Summary of acts carrying appropriations for t h e fiscal year 1921.. 659 Statement of expenditures on account of appropriations for public buildings, fiscal year 1920 659 Public Health Service , 661 Division of Scientific Research 661 Division of Interstate Quarantine 667 Division of Foreign and Insular Quarantine and Immigration 669 Division of Sanitary Keports and Statistics 675 Division of Marine Hospitals and Relief 676 Division of Personnel and Accounts 677 Division of Venereal Diseases 679 Inspection Section 679 Education Section 681 Chief clerk's office 682 Purveying depot 683 Recommendations 684 Coast Guard 688 Ice patrol 690 Winter cruising -. 691 Cruises in northern waters 692 Anchorage and movements of vessels 693 Florida coast patrol 694 Medical aid to deep-sea fishermen, 694 Coastal communication 694 Aviation 695 Kecruiting 695 Coast Guard Academy 695 Coast Guard repair depot 696 Commissioned personnel 696 Civilian personnel 697 Discipline 697 Vessels 697 Stations 698 New river cutters 698 Derelicts : 698 Enforcement of customs laws 698 Other activities 699 Repairs, etc :... 699 Transfer of Coast Guard to the Navy •. 700 Award of life-saving medals 701 Division of Loans and Currency 704 Interest-bearing debt of the United States—changes during the fiscal year 1920 704 Interest on registered bonds and notes and registered certificates of indebtedness. .705 Insular and District of Columbia loans—Changes during year 706 Circulation , 706 Paper custody i 707 Custody of Federal reserve notes, series of 1914 and 1918 707 CONTENTS. XI R E P O R T OF THE SECRETARY OF THE T R E A S U R Y — C o n t i n u e d . Division of Loans and Currency—Continued. Page Statement of redeemed securities handled, accounted for, and destroyed, fiscal year 1920 :.... 708 Liberty bonds and Victory notes 708 War-loan securities account—Deliveries, retirements, and outstanding, Apr. 6, 1917, to June 30,' 1920: :. 708 War loan registered issues and interest p a y m e n t s — : 710 Claims on account of lost, stolen, mutilated, or destroyed interestbearing securities, fiscal year 1920 711 T^ivision of Public Moneys : '. 712, Alien Property Custodian account — 713' Purchase of farm-loan bonds ' 713 Division of Deposits : : 713 Division of Bookeeping and Warrants 715 General fund 716 State bonds and stocks owned by the United States 717 Secret Service Division. 717 Division of Printing and Stationery 718 Printing and binding 718 Stationery 720 Postage and materials for bookbinder 722 Department advertising 722 Office of the disbursing clerk. 723 General Supply Committee : 724 Tables accompanying the report on the finances. Table A.—Statement of the outstanding principal of the public debt of the United States June 30, 1920 Table B.—Statement of the outstanding principal of the public debt of the United States on July 1 of each year from 1856 to 1920, inclusive Table C.—Analysis of the principal of the interest-bearing public debt of the United States from July 1, 1856, to July 1, 1920 Table D.—Statement of the issue and redemption of loans and Treasury notes and of deposits and redemptions in bank-note account for the fiscal year 1920 Table E.—:Population, ordinary receipts and disbursements of the Government from 1840 to 1920, exclusive of postal, per capita on receipts, and per capita on disbursements Table F.—Statement shelving ordinary receipts and disbursements of the Government by months; net gold and available cash in the Treasury at end of each month; and imports and exports of gold, from July 1896, to June, 1920, inclusive Table G.—Statement of the balance in general fund of the Treasury, including gold reserve, by calendar years from 1791 to 1842, and by fiscal years from 1843 to 1920 Table H.—Receipts and disbursements of the United States Table 1.—Internal and customs receipts and expenses of collecting, from 1858 to 1920 ' Table J.—Statement of United States bonds and other obligations received and issued by the Office of the Secretary of the Treasury, from July 1, 1919, to June 30, 1920 Table K.—Statement of the coin and paper circulation of the United States, from 1860 to 1920, inclusive, with amount of circulation per capita Table L.—Collections, expenses, and average number of persons employed in the Internal Revenue Service, fiscal year ended June 30, 1920 ...: Table M.—Statement of business of the custoras districts and ports for the fiscal year ended June 30, 1920 Table N.—Statement, by districts and ports, showing total entries of merchandise, receipts and expenses, for the fiscal year ended June . 30, 1920 731 760 762 764 765 767 776 777 789 791 794 795 797 848 XII CONTENTS. R E P O R T O F T H E TREAstiRER: Receipts.and disbursements for 1919 and 1920 Panama Canal Extraordinary disbursements Receipts and disbursements on account of t h e Post Office Department Transactions in t h e public debt Net earnings derived from Federal reserve badks Paynient of obligations of foreign Governments Currencv issued and redeemed Public debt 1919 and 1920. Payment of interest on registered bonds of t h e United States Reserve and trust funds Redemption of notes in gold • State of t h e Treasury, general fund—cash in t h e vaults Net available cash balance, 1910 to 192Q . Gold- in Treasury from. 1910 ^ Bonds held as security for bank circulation and deposits Bonds held as security for postal savings funds Postal savings bonds and investments therein Withdrawal of bonds to secure circulation Depositaries of the United States Public moneys in depositary banks : Interest on public monevs held in depositary banks Gold settlement fund...!^ Monetary stock, 1919 and 1920 , Ratio of gold to total stock of money Money in circulation Circulation and population Paper currency issued directly by t h e Government • United States notes : : Treasury notes of 1890: Gold certificates. Silver certificates : '. Changes in denominations during fiscal year 1920 pieces of United States paper currency outstanding Cost of paper currency.... — Average life of paper currency, Paper currency prepared fbr issue and amount issued Paper currency held in the reserve v a u l t . . . : Paper currency redeemed : Standard silver dollars .....: Subsidiary.silyer coin '.. ! Minor coin ---.---. --. Transfers for deposit in New York—money for moving t h e crops, etc Deposits of gold bullion at mints and.assay offices, 1918, 1919, and 1920... Shipments of currency from Washington, 1919 and 1920 Recoinage, 1919 and 1920-... :---.--. Redemption of Federal reserve and national currency Special trust funds and changes therein during the fiscal year District of Columbia sinking fund ,." General account of the Treasurer of the United States Page. 857 858 859 859 860 860 861 861 862 862 863 863 863 865 865 866 867 870 870 871 871 872 872 873 874 874 874 875 875 876 877 877 878 879 879 880 881 882 882 883 885 885 888 889 889 889 890 892 894 894 , Takles accompanying report of the Treasurer. No.,1..—Assets and liabilities of the Treasury offices, June 30, 1920 No. "2.—Assets of the Treasury in the custody of mints and assav offices, June 30, 1 9 2 0 . . . . : :..: ." No. 3.—General distribution of the assets and liabilities of the Treasury, . Juhe 30,-1920 :•...: No. 4.—Available assets and net liabilities of the Treasury at the close of June, 1919 and 1920 No. 5.—^Assets and liabilities of the Treasury in excess of certificates and Treasury notes at the close pf June, 1919 and 1920 No. 6.—Distribution of the General Treasury balance, June 30, 1 9 2 0 . . . . . No. 7.—Receipts ahd disburseinents for service of the Post Office Department for the fiscal year 1920 900 901 901 903 904 904 904 ;^ CONTENTS. REPORT OF THE TREASURER—Continued. XIII Page. No. 8.—Amount of interest collected on balances of public moneys held in depositaries of the United States from May 30, 1908, to June 30, 1920 905 No. 9.—Estimated stock of gold coin and bullion, the amount in the Treasury, and the amount in circulation at the end of each month, from January, 1915 905 No. 10.—Estimated stock of silver coin, the amount in the Treasury, and the amount in circulation at the end of each month, from January, 1915. Also silver, other than stock, held in the Treasury 909 No. 11.—United States notes, Treasury notes, Federal reserve notes, and national-bank notes outstanding, in the Treasury, and in circulation at t h e end of each month, from January, 1915 913 No. 12.—Gold certificates and silver certificates outstanding, in the Treasury, and in circulation at. the. end of.each month, from January, 1915 917 No. 13.—Estimated stock of all kinds of inoney at the end of each month, from January, 1914. ,. 922 No. 14.—Estimated amount of all kinds of money in circulation at the end of each month, from January, 1914. 923 No. 15.—Assets of the Treasury other than gold, silver, notes, and certificates at the end of each month, from January, 1914 924 No. 16.—Assets of the Treasurv at the end of each month, from January, ' 1914 : 925 • No. 17.—Liabilities of the Treasury at the end of each month, from January, 1914 926 No. 18.—United States notes of each denoniination issued, redeemed, and outstanding at the close of each fiscal year, from 1913 927 No. 19.—Treasury notes of 1890 of each denomination issued, redeemed, and outstanding at the close of each fiscal year, from 1914 929 No. 20.—Gold certificates of each denomination issued, redeemed,, and outstanding at the close of each fiscal year, from 1915 930 No. 21 .-^Silver certificates of each denomination issued, redeemed, and outstanding at the close of each fiscal year, from 1915 931 No. 22.—Amount of United States notes, Treasury notes, gold and silver certificates of each denomination issued, redeemed, and outstanding at the close of each fiscal year, from 1913 932 No. 23.—Old demand notes of each denomination issued, redeemed, and outstanding June 30, 1920 934 No. 24.—Fractional currency of each denomination issued, redeemed, and outstanding June 30, 1920 934 No. 25.—Compound-interest notes of each denomination issued, redeemed, and outstanding June 30, 1920 934 No. 26.—One and two year notes of each denomination issued, redeemed, and outstanding June 30, 1920. 934 No. 27.—United States paper currency of each class, together with one and two year notes and compound-interest notes issued, redeemed, and outstanding June 30, 1920 . . 935 No. 28.—United States notes and Treasury notes redeemed in gold, from 1879, and imports and exports of gold during each fiscal year, from 1901 935 No. 29.—Treasury notes of 1890 retired by redemption in silver dollars, and. outstanding, together. with the silver in t h e : Treasury purchased by such notes, for each month, from January,-1914... 936 No. 30.—Transactions between the Subtreasury and clearing house in New York during each month, from January, 1914 937 No. 31.—Balance in the Treasury, amount in Treasury offices, and amount in depositary banks, from 1789 to 1920 938 No. 32.—rFederal reserve and national banks designated depositaries of public moneys, with the balance held June 30, 1920 940 No. 33.—Number of banks with semiannual duty levied, by fiscal years, and number of depositaries with bonds as security, by fiscal years. — :. 949 No. 34.—United States bonds retired, from May, 1869, to June 30, 1920.. 949 No. 35.—Seven-thirty notes issued, redeemed, and outstanding June 30, 1920 : 950 XIV CONTENTS. REPORT OF THE TREASURER—Continued. Page. No. 36.—Refunding certificates, act of .February 26,1879, issued, redeemed, and outstanding, June 30, 1920 950 No. 37.—Checks issued b y the Treasurer for interest on registered bonds during the fiscal year 1920 950 No. 38.—Interest on 3.65 per cent bonds of the District of Columbia paid during the fiscal year 1920..:. 951 No. 39.—Coupons from United States bonds and interest notes paid during the fiscal year 1920, classified by loans 951 No. 40.—Public debt at the close of June, 1919 and 1920, and changes during the year 951 No. 41.—Public debt, exclusive of certificates and Treasury notes, at t h e end of each month, from January, 1914 953 • No. 42.—Checks drawn b y the Secretary and paid b y the Treasurer for interest on registered bonds of the United States during the fiscal year 1920 954 No. 43.—Money deposited in t h e Treasury each month of t h e fiscal year 1920 for the redemption of national-bank notes 954 No. 44.—Amount of currency counted into t h e cash of t h e National Bank Redemption Agency and redeemed notes delivered, by fiscal years, from 1900 955 No. 45.- -Currency received for redemption b y t h e National Bank Redemption Agency from t h e principal cities and other places, b y fiscal ' years from 1900, in thousands of dollars 956 . No. 46.—^Mode of payment for currency redeemed at t h e National Bank Redemption Agency, by fiscal years, from 1900 956 No. 47.—Deposits, redemptions, assessments for expenses, and transfers and repayments on account of the 5 per cent redemption fund of national banks, by fiscal years, from 1900 956 No. 48.—.Deposits, redemptions, and transfers and repayments on account of the retirement of circulation, by fiscal years, from 1900. . . . . 957 No. 49.—Expenses incurred in the redemption of national and Federal Teserve currency, b y flscal years, from 1900 958 No. 50.—General cash account of the National Bank Redemption Agency for the fiscal year 1920 and from July 1, 1874 959 Nfo. 51.—Average amount of national-bank notes outstanding and the redemption, by fiscal years, from 1875 (the first year of t h e agency) ". 959 No. 52.—Federal reserve notes, canceled and uncanceled, forwarded by Federal reserve banks and branches, counted and delivered to the Comptroller of t h e Currency for credit of Federal reserve agents 959 No. 53.—Changes during t h e fiscal year 1920 in t h e force employed in the Treasurer's office 960 R E P O R T OF THE DIRECTOR OF THE M I N T : Operations of the mints and assay offices Coin demand Plant improvements Silver operations under Pittman Act Deposits of gold and silver Refineries Personnel Institutions of the Mint Service Gold operations Silver operations Coinage Stock of coin and bullion in the United States Production of gold and silver Industrial arts Export of gold coin . Estimates for the fiscal year 1922 Appropriations, expenses, and income New assay office building at New York Philadelphia mint improvements San Francisco mint improvements Denver mint improvements Income and expenses of the fiscal year 1920. : , :.. 961 961. 961 962 963 963 963 964 964 964 964 965 965 965 965 965 965 966 969 975 976 977 CONTENTS. R E P O R T OF THE DIRECTOR OF THE MINT—Continued. Deposits, income, expenses, and employees, b y institutions,, fiscal year 1920 • : Coinage Deposits of foreign gold bullion and coin Deposits of foreign silver bullion and coin Issue of fine gold bars for gold coin and gold bullion Balances, receipts, and disbursements of gold bullion Purchase of minor coinage metal for use in domestic coinage Purchase of minor coinage blanks prepared for coinage Sale of minor coinage metals. ^ : Distribution of niinor coins Minor coins outstanding Operations of t h e assay departments Proof bullion (1,000 fine) Operations of the melting and refining and of the coining departments, fiscal year 1920 Refining operations Ingot melts made : Fineness of melts for gold and silver ingots. ,.. Commercial and certificate,bars manufactured Melts for fine gold and fine silver Ingots operated upon b y coining departments and percentage of coin produced , Percentage of good coin produced to pieces struck Sweep cellar operations Bullion gains and losses Wastage and loss on sale of sweeps Engraving department.'. Dies manufactured Medals sold Progress of the numismatic collection , Employees Visitors : Work of t h e minor assay offices. Ore assays Gold receipts at S e a t t l e . . . : Laboratory of the Bureau of t h e Mint : ,. Proceedings of t h e Assay Commission, 1920 Assay Commission medal Tables, Report of Director of t h e Mint XV Page. 978 979 980 980' 981 982: 983984 984 984 985 985 .986 - 986 988 989 990 990 990 991 992 992 99^ 993994 994 99S 996 996 997 997 997 998 998 999 1002 1004 R E P O R T OF THE R E G I S T E R : Bonds redeemed Bonds and notes purchased b y the Secretary. War-savings certificates redeemed Treasury certificates of indebtedness redeemed . Bonds and notes received on account of estate and inheritance taxes Paid interest coupons Total securities paid Securities received for credit to fiscal agency accounts Exchange of temporary bonds for permanent bonds Total securities received for all accounts Securities in the files Improved methods in the public-debt work Status of work in Register's Office Recommendation.. Office force ..>^. Statistical statements .^.^^ Letter transmitting report for fiscal year 1918 Statistical statements for 1918 Letter transmitting report for fiscal year 1919 Statistical statements tor 1919 1048 1048 1048 1048 1049 1049 1049 1049 105O 1056 1051 1051 105^ 1054 1054 1055> 1129 1131 1145» 114S R E P O R T OF THE COMPTROLLER OF THE CURRENCY: Submission of report National banks at highest point Number of depositors exceeds all records National bank failures near zero—Immunity unparalleled Earnings for 1920 far ahead of all former years Bank resources surpass all previous figures 13799—FI 1920 II 1171 1171 1171 1172 1172 1172 XVI CONTENTS. REPORT OF THE COMPTROLLER OP THE CURRENCY—Continued. * Chart showing— (1) Growth of resources, deposits, capital, surplus and undivided profits of the national banks in the "United States since 1913, compared with preceding 50 years (2) Reduction in bank failures, 1882 to 1920 (3) Net earnings of the national banks in the United States, 50 years, 1870 to 1920 : Retrospect and outlook at home and abroad Turn of t h e tide Vain efforts to maintain excessive profits Deflation becomes world wide , (Shrinkage estimated at twelve to eighteen billions "Remedies for ills; pathway to prosperity Inflation m t h reduced production bring hard t i m e s — '. T a v i n g the way for a new advance. 'Our banking power now ten tinies as great as in 1890 Banking power of the United States, J u n e 30, 1920 Our huge credit balances abroad Imports and exports of merchandise, calendar years 1914 to 1920, inclusive. National bank condition November 15, 1920,,.compared with March 4, 1919, following the armistice Loans and discounts, plus United States securities, November 15, 1 9 2 0 — Total bills pavable and rediscounts, including "United, States deposits, November 15, 1920. All deposits, November 15, 1920 Money in the United States T h e circulating medium—coin and paper currency, July 1, 1920 Circulation statement showing coin and paper currency July 1, 1914 No real inflation in our currency—Proportion of money in circulation to total bank resources smaller now than before the European War Stock of money in the United States, in the Treasury, in banks, and in circulation, 1892 to 1920 '. World's supply of gold, silver, and paper money Resources of the central banks in foreign countries Twenty years of unprecedented growth Growth of national banks by five-year periods Comparison of returns from national and State banks Increase in resources of national and State banks in five-year periods State bank failures in 1920 Numbers, failures, and liabilities of State banks, savings banks, loan and trust companies, and private banks, which have failed during the fiscal year November 1, 1919, to November 1, 1920.National and State banks in six-year period Seven-year comparison by States. Classification of certain depositors in and borrowers from national banks engaged in specified occupations, arranged geographically by reserve cities and country banks I Distribution of loans according to occupation of borrowers Deposit balances with national banks, of corporations, firms, individuals, etc., engaged in certain specified kinds of business (Nov. 15, 1920) Loans and discounts made by national banks to those engaged in certain specified occupations (Nov. 15,1920) Earnings of national banks by States and cities Heavy earnings on national-bank capital in large cities Abstract of reports of earnings, expenses, and dividends of national banks for the year ended J u n e 30, 1920 Number of national banks, their capital, surplus, dividends, and net earnings, yearly, 1870 to 1920 Earnings, expenses, and dividends of national banks for fiscal years 1919 and 1920 Legislation enacted relating to national b a n k s . : For what demands national-bank notes may be received •Changes recommended in the bank act To enable a national bank to obtain relief in emergency by use of other than eligible paper or U. S. bonds National-bank officers should not borrow from their own banks. Page. 1172 1172 1172 1172 1173 1176 1177 1177 1179 1180 1181 1181 1182 1182 1184 1185 1186 1187 1187 1188 1188 1189 1191 1192 1193 1194 1194 1195 1195 1195 1196 1196 1197 1197 1199 1200 1201 1204 1207 1207 1209 1217 1218 1219 1219 1219 1220 1222 CONTENTS. R E P O R T OF THE COMPTROLLER OF THE CURRENCY—Continued. Penalties for grafting bank officers *'Securities companies" as adjuncts to national banks often a menace Banks exercising trust powers had best avoid hazardous connections Desirable that active officers of large national banks be not directors in other corporations. Salaries of officers of large national banks Comptroller's recommendations for legislation made in previous years again urged " Form suggested for certain amendments to bank act. Trust companies and banks in the District of Columbia Savings banks and loan and trust companies in the District of Columbia.. Duties and liabilities of national-bank directors Bank officers and employees convicted of criminal violations of law during the year ended October 31, 1920 Digest of court decisions in bank cases Letters of credit and guaranties connected t h e r e m t h by national b a n k s . . . Directors personally reimburse $500,000 in ultra vires transaction Exorbitant interest rates in New York banks. Recommendation relative thereto Possible reasons why New York brokers do not resist high money rates Money rates in Canada much below New York rates. Conditions under which charters are granted to new national banks Increase in number of depositors in national banks Classification and number of deposit accounts in national banks on June 30, 1920, by central reserve, reserve cities, and country banks Abstract of reports of condition of national baoks at the date of each call during the report year Condition of national banks September 8, 1920 Loans and discounts Overdrafts....Uhited States Government securities owned Other bonds, securities, etc Stocks... Bank premises and other real estate owned Due from banks -. Exchanges for clearing house Liabilities: Capital stock, surplus, and undivided profits. Circulation outstanding Due to banks Individual deposits United States deposits Bonds and nioney borrowed Bank acceptances Total resources and liabilities Classification and amount of loans by national banks in the central reserve cities, etc., J u n e 30, ].920 Comparative statement of loans by national banks during the past three years Rate of interest paid by national banks on deposits and number of banks reporting each rate on May 4, 1920 Bates of interest charged by national banks on loans and number of banks reporting each rate^on May 4, 1920 . Classification ofloans by national banks in the city of New York for five years, June, 1916, to June, 1920, inclusive. Paper eligible for rediscount with Federal reserve banks, held b y national banks, in country and reserve cities, by geographical districts Statement showing the amount of paper eligible for rediscount with Federal reserve banks, November 17,1919, as compared m t h June 30,1920, classified by Federal reserve cities and States Classiflcation of rediscounts, together with the total of loans and discounts, as shown by the reports of national banks. May 4, June 30, and September 8, 1920 Loans made by national banks for their correspondents, May 4 and June 30, 1920 XVII Page. 1223 1223 1224 1225 1226 1228 1236 1240 1241 1241 1241 1244 1245 1246 1247 1262 1274 1274 1275 1278 1280 1282 1284 1284 1285 1285 1285 1285 1286 1286 1287 1287 ] 287 1287 1288 1288 1288 1289 1289 1289 1290 1291 1296 1300 1300 1301 1304 1312 XVIII CONTENTS. R E P O R T OF THE COMPTROLLER OF THE CURRENCY—Continued. Amount of money loaned by national banks, either by direct loans or through bought paper, to parties who keep no deposit accounts with the banks, and number of such loans, February 28, 1920 Rediscounts of national banks with Federal reserve banks, classified b y States (country banks) and reserve cities, November 17, 1919 Principal items of national-bank resources and liabilities on September 8, 1920, arranged by States Loans and discounts and investrnents of national banks Domestic and foreign bonds, securities, etc., owned b y national banks. May 4, 1920 Classification of foreign Government bonds owned by national banks on June 30, 1920. Classification of investments made by national banks Domestic and foreign securities held by national banks Balances due national banks from Federal reserve banks Specie and gold and silver certi flcates in national banks National-bank charters applied for, granted, and refused Increases and reductions.of capital stock of national banks Liquidation of national b a n k s : Consolidation of national banks ' National banks consolidated under act of November 7,1918, their capital, surplus, undivided profits, and aggregate assets, year ended October 31, 1920 • Growth in number and capital of national banks ^ National banks organized since 1900 i State banks converted or reorganized into national banldng associations since 1900 , :.. Organization and liquidation of national banks , Number and authorized capital of national banks organized W d the number and capital of banks closed in each year ended October 31, since the establishment of the national banldng system, with the yearly increase or decrease : Number of national banks organized, in liquidation, consolidated under act of November 7, 1918, insolvent, and in operation, with amount of bonds on deposit, and circulation issued, redeemed, and outstanding on October 31, 1920 : Number of national banks organized, in voluntary liquidation, consolidated under act of November 7, 1918, insolvent, and number and capital of associations in active operation on January 1 of each vear from 1864 to 1920 ." National banks chartered during the year ended October 31, 1920 Number of national banks chartered in each month from March 14,1900, to October 31, 1920 Number of national banks increasing their capital, together with the amount of increase monthly, January 1, 1916, to October 31, 1920 Number and classification of national banks chartered during the year ended October 31, 1920 ^ Conversions of State banks and primary organizations as national banks since 1900 Number and capital of State banks converted into national banking associations in each State and Territory from 1863 to October 31, 1920 Capitalization of national banks classified b y States Summary by States, geographical divisions, and classes of national banks organized from March 14,1900, to October 31,1920, and the paid-in capital stock of all reporting national banks on September 8, 1920 Expirations and extensions of charters of national banks Number of national banks in each State the charters of which were extended under act of July 12, 1882, to October 31, 1920 , Reextension of national-bank charters _. -. Changes in capital stock, of national banks, increases and reductions Changes in title of national banks Changes of title incident to consolidations of national banks Failures and suspensions of national b a n k s . . . . . . . . . . . . . Causes of national-bank failures Principal causes of failure of national banks in past 57 years. Page. 1314 1318 1319 1321 1322 1326 1326 1327 1328 1328 1329 1329 1329 1329 1330 1330 1331 1331 1331 1332 1333 1334 1335 1342 1.342 1342 1343 1343 1343 1344 1345 1345 1346 1346 1347 1348 1348 1351 1351 CONTENTS. XIX R E P O R T OF THE COMPTROLLER OF THE CURRENCY—Continued. Failures and suspensions of national banks—Continued. National-bank failures since inauguration of the system National-bank failures b y years, 1864.to 1920, showing each year, number of failures, capital of failed banks, capital and total resources of all national banks, and percentage of capital of failed banks each year, to total capital of all national banks National banks organized,, failed, and reported in voluntary liquidation during the year ended October 31, 1920 Bank investments i n United States securities United States bonds eligible as security for national-bank circulation United States bonds deposited as security for circulation b y banks chartered and b y those increasing their circulatio:a, together with the amount withdrawn b y banks reducing their circulation, and b y those closed, during each month, year ended October 31, 1920 Profit on national-bank circulation • Redemption of national-bank notes , Bank currency ;?3ceived for redemption, b y months, from November 1, 1919, to October 31, 1920 : Principal sources of bank currency received for redemption for the year ended October 31, 1920 •. Statement of national-bank currency issued to banks from November 1, 1919, to October 31, 1920 National-bank circulation • : •. . : . . . • Yearly increase or decrease in national bank circulation from January 14, 1875, to October 31, 1919, and quarterly increase or decrease for the year ended October 31, 1920 :.. Denominations of national bank circulation National bank notes outstanding October 31, 1920 Vault account of national bank circulation Interest-bearing debt of the United States, June 30, 1920 .-...•.. Investment value of United States bonds. : United States bond market quotations : Federal reserve notes Weekly statement of Federal reserve notes outstanding (amount issued b y FederaFf^serve agents to the banks, less " u n f i t " notes returned for redemption), amount secured b y gold, and amount secured b y commercial and other eligible paper from December 5, 1919, to November 26, 1920 .-. , Statement of Federal reserve notes, b y denominations, printed, shipped to Federal reserve agents and United States subtreasuries, since inauguration of Federal reserve system, and on hand in reserve vault, October 31, 1920 .J. Federal reserve notes, b y denominations, issued through the Federal reserve agents to the banks, since inauguration of Federal reserve system, also amounts retired and outstanding, October 31, 1920 Mutilated Federal reserve notes, b y denominations, received and destroyed since organization of banks and on hand in vault, October 31, 1920 Federal reserve bank notes Issue of $1 and $2 Federal reserve bank notes Statement showing the total amount of Federal reserve bank notes, b y . denominations, issued to Federal reserve banks upon the deposit of securities under the provisions of the act of April 23, 1918 Total amount of Federal reserve bank currency printed b y the Bureau of Engraving and Printing, issued and on hand, from the inauguration of the Federal reserve system, to October 31, 1920 Total amount of Federal reserve bank currency issued, redeemed, and outstanding from the inauguration of the Federal reserve system to October 31, 1920 : National, Federal reserve notes, and Federal reserve bank notes, year ended October 31, 1920.. Ratio of paper secured b y Government war obligations to total bills held by the Federal reserve banks on the last Friday of each month during 1920.. Federal reserve system Statement showing the condition of the 12 Federal reserve banks at the close of each month, from J u n e 29, 1917, to November 27, 1920. Discount rates of Federal reserve banks Page. 1352 1353 1354 1355 1355 1356 1356 1356 1357 1357 1358 1358 1358 1359 1359 1359 1360 1360 1360 1360 1361 1362 1364 1366 1367 1367 1367 1368 1369 1370 1370 1370 1371 1372 XX CONTENTS. R E P O R T OF THE COMPTROLLER OF THE CURRENCY—Continued. Rates for money in New York : Range of rates for money in the New York market, year ended October 31, 1920 Changes in the principal items of assets and liabilities of national banks at the date of each call, November 17, 1919, to September 8, 1920 Relation of capital of national banks to deposits, etc Percentage of the principal items of assets and liabilities of national b a n k s . •. Reserve Reserye required and held b y national banks in reserve cities, etc Classification of loans made and deposits in national banks as of January 31, 1920, in reserve cities and cities of 50,000 or more population Classification of loans (including paper bought) made by 595 national banks in certain cities, as of January 31, 1920, showing separately loans made to banks and bankers, loans made to borrowers who keep deposit accounts with the lending banks, loans made to those who keep no deposit account, and loans placed for account of correspondents All loans made b y t h e 595 national banks in certain cities, as of January 31, 1920, arranged according to location of borrowers in each geographical division—Total of loans and discounts Deposits held January 31, 1920, b y the 595 national banks in certain cities for the credit of other banks. State and national, and trust companies, arranged b y geographical divisions—Balances to credit of correspondent banks • Growth of national banks since passage of the Federal reserve act, i n reserve cities and elsewhere in the country Principal items of assets and liabilities of national banks, 1913-1920 Domestic branches of national banks Foreign branches of national banks Condition of the foreign branches of the National City Bank, New York, N. Y., and the First National Bank, Boston, Mass., on J u n e 30,1920 Banks other than national State, savings, private banks, and loan and trust companies Summary of reports of condition of 22,109 banks other than national, June 30, 1920 Resources and liabilities b y classes of 22,109 State, savings, and private banks and loan and trust companies, June 30, 1920 Five-year statement, principal items of assets and liabilities of reporting banks, other than national State banks. Comparison of condition of mutual savings banks in the United States in June, 1919 and 1920 " Number of mutual savings banks in each State, number of depositors, and the average amount due each depositor on June 30,1919 and 1920. Stock savings banks Number of stock savings banks, number of depositors, aggregate deposits, and average deposit account, by States, June 30, 1919 and 1920 Mutual and stock savings banks "Number of savings banks in the United States, number of depositors, amount of savings deposits, average amount due each depositor in the years 1820, 1825, 1830, 1835, 1840, 1845, and yearly to 1920, and average per capita in t h e "United States in the years given Loan and trust companies Principal items of resources and liabilities of loan and trust companies, 1914 to 1920 Private banks Abstract of condition, b y States, all banks other than national, in the continental United States and island possessions, on or about J u n e 30,1920 Comparative statement of the condition of all reporting national and State banks in the United States Principal items of resources and liabilities of the 22,109 reporting banks other than national in the United States and island possessions, and 8,030 national banks, on June 30, 1920, together with the grand t o t a l . . . Comparison of t h e principal items of resources and liabilities of national banks and other reporting State banks for the years 1920 and 1919 Page. 1372 1373 1374 1375 1375 1375 1376 1377 1378 1382 1386 1390 1391 1393 1395 1396 1400 1400 1400 1401 1402 1402 1404 1405 1406 1407 1408 1409 1410 1411 1411 1412 1417 1418 1418 CONTENTS. REPORT OF THE COMPTROLLER OF THE CURRENCY—Continued. Comparative statement of growth in resources of national and State banking institutions for 5-year period. Statement of the principal items of resources and liabilities of reporting banks, including t h e Federal reserve banks in the United States and island possessions, June, 1920 Summary of the combined returns from all reporting banks in the United States and island possessions, June 30, 1920 Assets and liabilities of all reporting banks in each State Condensed statement, b y States, of assets and liabilities of all reporting banks in the United States, June, 1920 Statement of resources and liabilities of all reporting banks, 1915-1920 Growth of all reporting banks, 1863 to 1920, inclusive Individual deposits in all reporting b a n k s . Cash in all reporting banks United States Postal Savings System .' Postal Savings Bank of Manila, Philippine Islands, condition of, June 30, 1920 Federal farm loan system Farm loan associations Joint-stock land banks Building and loan associations in the United States Statistics for 1919-20 Building and loan associations in the District of Columbia Financial institutions in the District of Columbia. Earnings, expenses, and dividends of savings banks and trust companies i n the District of Columbia Savings banks i n the principal countries of the world i Sterling exchange Transactions of clearing-house associations New York clearing house Liberty loan bonds. Victory notes, and certificates of indebtedness owned and held as collateral by national banks for loans, etc., December 31, 1919, and June 30, 1920 Examinations of national bank branches in foreign countries National bank examiners, list of Conclusion Exhibit A—Duties and liabilities of directors of national banks and member banks of the Federal reserve system XXI Page. 1419 1420 1421 1422 1423 1427 1428 1430 1430 1431 1435 1435 1438 1440 1442 1443 1444 1444 1445 1445. 1448 1448 1449 1450 1456 1457 1459 1463 R E P O R T OF THE COMMISSIONER OF INTERNAL R E V E N U E : Introduction Collections Cost of administration , Income Tax Unit : Eventual decentralization of operations Personnel of Income Tax Unit Audit and assessment Changes in organizatioii during the year Collections from departing aliens Audit of technical cases Committee on Appeals and Review T h e unit directing t h e administration of the estate, capital-stock, and child-labor t&,x laws : Personnel Taxes collected Estate Tax Division Capital Stock Tax Division • Child Labor Tax Division .^ ^ Sales taxes—Special and miscellaneous commodities—Occupations and privileges Tobacco. 01eom.argarine Adulterated butter Renovated butter Mixed flour : Collection fleld service; ^ Reorganization of t h e bureau work relating to receipts and disbursements. 1479 1479 1480 1481 1481 1483 1483 1484 1485 1485 1486 1487 1488 1488 1488 1489 1491 1493 1494 1496 1497 1498 1498 1498 1500 XXII CONTENTS. R E P O R T OF THE COMMISSIONER OF INTERNAL R E V E N U E — C o n t i n u e d . Page. Enforcement of national prohibition Organization of Prohibition U n i t Office of counsel and Legal Division Prohibition field force Supervising Federal prohibition agents Federal prohibition directors Warehouse agents Narcotic field force Division of Technology Chemical work Nonbeverage alcohol Tax-free alcohol Industrial alcohol and denatured alcohol . Division of Audit and Statistics Distilled s p i r i t s . . : Denatured alcohol Narcotics Intoxicating liquors in possession January 17, 1920 Liquor tax assessments Fermented liquors Wines and cordials Executive Division .^ Solicitor of Internal Revenue. Stamps Bureau and field personnel Statistical tables Digest of court decisions : 1501 1503 1504 1504 1505 1505 1505 1505 1506 1507 1507 1508 1508 1508 1509 1509 1510 1511 1511 1511 1512 1512 1512 1517 1518 1520 1527 ANNUAL REPORT ON THE FINANCES. TKEASURY DEPARTMENT, Washington^ November ^(?, 19W. S I R : I have the honor to make the following report: Transitio:Q and adjustment have marked the course of the country's business during the last 12 months. Forces of broad sweep and intensity have operated. They have been world-wide and consequently beyond the possibility of control by any industrial group or even by nations. During the war forces were set in motion which no Government could or did controL No Government succeeded, for instance, in checking the rising tide of costs and prices. After the armistice, with the return of millions of men to productive activities, with the beginnings of more normal conditions everywhere, with the restoration of better transportation on land and sea, and with the fuller contribution of nations once more to the world's stock of goods, reverse forces were set in operation which no Government can thwart. These forces were the natural aftercurrents of a World War and resulted in a financial and industrial cycle typical of periods immediately following great struggles, but of unparalleled intensity. They set up very complex problems, which have sorely taxed the best thought of private and public leaders everywhere; but this Nation faced them with characteristic calmness; dealt with them for the most part with marked effectiveness; proceeded in orderly fashion; and is now slowly and cautiously, but confidently, feeling its way to more sound and stable conditions. That a Nation which so splendidly withstood the greatest financial strain of history can now satisfactorily cope with the much less serious situation confronting it and attain its objective would seem to admit of no reasonable doubt. Its failure to do so would be a reflection, on the patriotism as well as on the intelligen<ie of its people. I t emerged from the war incomparably strong. I t has immense liabilities; it has great debts; but it has enormous resources, and the only question is whether it will utilize and direct them wisely. The need of the exercise of plain common sense, of patience, of the effective realization that burdens of war do not end with the fighting, of hard work, of thrift and of economy, private and public. Federal, State, county, and municipal, is so obvious as to render emphasis and discussion of it unnecessary. 13799—FI 1920 1 1 2 REPORT ON T H E FINANCES. The industry of this Nation during, the^ period to which reference has been made parsed through several fairly well-defined stages. The first, extending through last winter, was marked by a continuance of business and credit expansion, great commercial activity, high and rising wages and prices, and free and extravagant spending on the part of many, coupled with general growing restlessness and anxiety over high prices and the cost of living. Indications of a change appeared toward the end of February. Hints of a possible reduction in the volume of business began to be thrown out; recognition of an undue credit expansion was manifested; and there was a waning of speculation in commodities. This was followed by a few weeks of hesitation and of lessening extravagance and by a period of care in buying, of slight declines of prices here and there, of attempts to hold goods for higher prices, of adcjed credit strain resulting in part from efforts to hold goods off the market and intensified by an exceptional congestion of railroad traffic, and of cancellation of orders, first for shoes and woolens and later for cotton goods. I n July these mQvements were very noticeable. I t was a month of unmistakable transition. Transportation continued to be inadequate, reckless spending decidedly declined, cancellation of orders increased, further indications of falling prices appeared, a pro- • nounced check of speculation in financial centers occurred, liquidation of stocks held on a speculative basis proceeded, a number of manufacturing establishments were closed, some unemployment developed, and a halt had been called to undue credit extension. These conditions called for care on the part of all financial agencies, but this was taken and business began to adjust itself to the new basis and to feel its way with due confidence. Scarcely had this point been reached when problems, in part, of an opposite sort were presented for consideration by the Treasury and the banks of the Nation. The harvest season came on and the Nation was confronted with the task of marketing one of its record crops at a time when transportation facilities were still unsettled and when Europe's demand for food and raw materials was lessened partly by reason of her own larger self-sufficiency arising from the return of millions of her people to productive efforts, partly because of the lack of security and credit in some of her nations, and partly because of the restoration of more normal conditions in marine transportation and the consequent reappearance of the products of distant countries in the markets of the world. The banks of the Nation were called upon to finance the marketing of crops in a gradual and orderly manner. And more than t h a t : they and the Treasury were insistently called upon by a considerable number of individuals to facilitate the holding of commodities off SECRETARY OF THE TREASURY. 3 the market for an indefinite period so that a predetermined price might be realized. The latter was impracticable; the former was feasible, but not easy. I t was rendered difficult by the very abundance of the crop yields, by disturbed conditions existing particularty in Central Europe, by reduced buying power in most parts of that continent, and by the failure of our people heretofore to develop more adequate storage facilities for farm products and of the farmers particularly more satisfactorily to solve their marketing and financial problems by larger resort to legitimate cooperative undertakings. The beginning of the crop-moving season found the banks with credits still largely extended. The expansion of credit which was marked during the^war did not end with the armistice. When the fighting ceased, there was a real apprehension everywhere that there might be industrial stagnation, unemployment, and reduced production. The appeal was that business should go forward. Business ^men and the banks in whose hands the initiative lay responded and liberal credits were extended. Between the armistice and October 1, 1920, the loans and investments of all banks increased, it is estimated, more than $7,000,000,000 and Federal reserve notes more than $740,000,000. I n January, 1920, on the recommendation of certain Federal reserve banks, steps were taken, partly through higher rates, to control the undue credit expansion; but it persisted. We were threatened with a continuance and extension of the cycle of rising prices, of demands of labor for additional wages, and with a situation which might make it difficult for the banks to give adequate aid in emergencies. Further steps were taken and for a few weeks in the early summer the brakes worked and something like an equilibrium was established. Still in the period from January 23, 1920, when the advance was made in the discount rates of the Federal reserve banks to 6 per cent for commercial paper, to the end of September, the loans and investments of all the banks in the countr}^ expanded, it is estimated, approximately $1,000,000,000, and the Federal reserve note circulation $460,000,000. But what is more important is the fact that accommodations extended to agriculture, industry, and commerce increased, it is estimated, in the same period more than $3,000,000,000 and possibly nearer $4,000,000,000, this large growth in the accommodations for agricultural, industrial, and commercial purposes being made possible by the shifting of funds following the. reduction of loans on Government paper and against stock and bond collateral. I n the period from the beginning of the cropmoving season in July of this year to October 16 the bills discounted and purchased by the Federal reserve banks gained at an average rate of $22,000,000 a week and the Federal reserve note circulation at the rate of $20,000,000. 4 REPORT ON T H E FINANCES. The banks of the Nation generally recognized their obligation to see that the fundamental activities of their several communities were supported. As indicated, they.largely increased their accommodation for agriculture, industry, and commerce. Loans for speculative purposes were discouraged and largely reduced. Where discrimination had to be exercised loans for essential purposes were given preference ; and Federal reserve banks in the industrial sections rediscounted in large volumes for those in crop-moving sections. There was not only no contraction, as was asserted in many quarters, but an actual considerable expansion of credits. But still, for reasons beyond the control of banking establishments, or of the Government, prices of farm products fell, and fell suddenly; and those who were distressed began to look in other directions for relief. The first impulse of many who were searching for a wa}^ out was to turn to the Government, and especially to the Treasury, as the sole instrumentality for full economic salvation. This disposition,^ well developed before the war, was reinforced during hostilities by practices of the Government which became necessary for the successful prosecution of the war and for the preservation of national life. I t is the same disposition which causes resort to the Government for appropriations for all sorts of enterprises, many even of a purely local character. I t is this disposition, rather than self-aggrandizing efforts of Federal departments to extend their functions, which is the main explanation of mounting Federal budgets and of centralizing tendencies frequently criticized. If there is a fault, and that there is one there is little doubt, the blame must rest largely on the public which remains quiescent while interested groups are clamorous. When the people appreciate this fact there will be a remedy, and not until then. This attitude so extremely manifested is unwholesome and menacing, and it is of the highest importance t h a t individuals and communities return to a normal degree of self-help and self-reliance. We have demobilized many groups, but we have not demobilized those whose gaze is concentrated on the Treasur}^ I n the circumstances producers whose products could not be satisfactorily marketed and whose prices were falling demanded that the Treasury intervene. They asked either that it deposit money in certain sections or that the activities of the War Finance Corporation be resumed. Neither of these things was feasible. The Treasury had no money to lend and no money to deposit except for Government purposes. I t is not in the banking business and should not be. I t is borrowing money periodically to meet current obligations at a cost of about 6 per cent. On several occasions before the Federal Reserve System was instituted the Secretary of the Treasury, at a time when the SECRETARY OF THE TREASURY. 5 Treasur}^ hacl a surplus, did deposit small sums of money in banks in various sections of the country to meet emergencies; but this necessit}'' is obviated by reason of the existence and practices of the Federal Eeserve System, and it is interesting to note that during the recent strain Federal reserve banks in certain sections of the country rediscounted for banks in crop-moving sections approximately six times as much as was ever deposited for crop-moving purposes by the Secretary of the Treasury. Furthermore, the War Finance Corporation was a war agency and was created to help win the war. I t was clearly desirable that war agencies should cease to function as quickly as possible. The only power of the corporation which had any possible bearing on the situation is ohe which was inserted after the a:rmistice with a particular possible state of facts in view. Fearing that with the cessation of exports for military purposes after the armistice, exports might not go forward. Congress empowered the corporation, in order to promote commerce with foreign nations, to make advances under certain conditions. The War Finance Corporation had no money of its own. I t or the Treasury would have had to borrow the money, and borrow it at a cost of about 6 per cent. And they were called upon to do this to stimulate exports which were going forward in such volume as to continue the already existing derangements of international exchange. Exports did not decline; they increased at an astounding rate. While the prewar exports had risen to about tAvo and one-half billions of dollars, and while in 1918, the last year of the war, they ' were valued-at $6,000,000,000, they rose in 1919 to 7.9 billions and are going forward this year at the rate of over 8 billions, and approximately 50 per cent of these consists of agricultural products. I t is clear that the condition contemplated by the Congress did not arise. Exports have gone forward in enormous volume and are being privately financed. Individuals or firms have not been unable to obtain funds with which to finance exports. But there are limitations imposed by an unfortunate situation. This country has not yet found itself able to join the other civilized nations of the world in establishing a prompt peace, upon the full restoration of which, as the recent Brussels conference correctly stated, improvement of the financial position of the world largely depends. And, furthermore, as the same body pointed out, borrowing countries of Europe lack sufficient satisfactory securities. This is the chief obstacle in the way of their securing credit, and this obstacle the Government of this country can not remove. I n the midst of such forces and happenings the Treasury pursued its course and discharged the duties imposed upon it by law. Tasks b REPORT ON T H E FINANCES. under its care have been heavy, but they have yielded to patient treatment, and for the most part the various services have developed satisfactorily. The Nation's finances in particular have shown marked improvement. The total ordinary receipts of $6,694,565,388.88 for the fiscal year 1920, on the basis of the daily Treasury statements, exceeded those for 1919 by $1,542,308,252.45, while the total net ordinary expenditures decreased from $18,514,879,955.03 to $6,403,343,841.21. The gross public debt, which reached its highest point on August 31, 1919, amounting to $26,596,701,648.01, had dropped on October 31, 1920, to $24,062,509,672.96, on the basis of daily Treasury statements.- Of very particular significance is the marked disappearance from meinber banks of Government war securities held by them and the reduction of their loans on such paper. On May 2, 1919, holdings by 771 member banks in selected cities of Government war securities and loans on such paper, exclusive of rediscounts, aggregated $4,083,193,000, while on October 29, 1920, those of 823 member banks in the same cities stood at only $1,750,638,000. On May 2, 1919, the bills held by Federal reserve banks secured by Government war obligations amounted to $1,788,068,000 and all other bills to $373,999,000, while on October 29, 1920, the former had been reduced to $1,203,905,000 and the latter had increased to $1,895,767,000. This fortunate result was brought about in part by the reduction of the public debt, especially of the floating debt, but more particularly by the distribution of the securities among permanent investors. T h e cessation of the Treasury's borrowing, except through shorttime certificates of indebtedness, was also a matter of consequence to the people of the country as a whole as well as to the holders of Liberty bonds and Victory notes, and has had an important bearing on the matter of effective credit control. The year has been characterized by the progressive relative withdrawal of the Treasury from the domestic credit market and from a position of dominant influence. By the beginning of the fall this withdrawal had reached the point where the influence of Treasury borrowing was compara-^ tively limited. The future course will necessarily depend upon the extent to Avhich economies are practiced and the amount of the burdens placed upon the Treasury, as well as upon the industrial developments and the maintenance of tax receipts on a sufficiently high level. The action of the Treasury Department on matters of importance, its financial program, and its proposals on the several matters within its province, are set forth at some detail in the following discussion: SECRETARY OF T H E TREASURY. 7 TREASURY CERTIFICATES OF INDEBTEDNESS. The chief financial operations of the Government during the year have been in Treasury certificates, which were sold to meet in part the current requirements of the Government. They were either shortterm loan certificates or certificates in anticipation of income and profits taxes. These certificate operations have been particularly noteworthy because of the increased interest rates which it became necessary to pay in order to secure the distribution of the securities among real investors and to avoid lodging them in the banks. Since the Victory loan campaign efforts to procure the distribution of both tax and loan certificates among investors have been increased and have had marked success. The banking institutions of the count r y have been asked to buy the certificates and sell them to their customers; and their efforts to that end have been supplemented by the Federal reserve banks and by circulars mailed by the Treasury in connection with each issue to a selected list of taxpayers and bond subscribers. The success of these efforts is evidenced by the fact that on October 29, 1920, the 823 reporting member banks of the Federal Reserve System (which are believed to control about 40 per cent of the commercial banking resources of the country and to have subscribed in the first instance to nearly 75 per cent of the outstanding issues of Treasury certificates) held'only $295,000,000 of loan and tax certificates out of a total of about $2,337,000,000 then outstanding. On the same date the Federal reserve banks reported only $240,000,000 of Treasury certificates pledged with them to secure loans and discounts, notwithstanding the preferential rates still maintained in favor of Treasury certificates in some Federal reserve districts. As the result of the year's operations there was also a marked decline in the total volume of Treasury certificates outstanding. On June 30, 1920, there were outstanding loan and tax certificates unmatured in the amount of $2,485,552,500 as against $3,267,878,500 on June 30, 1919, a reduction of $782,326,000, while on October 31, 1920, there were outstanding $2,337,203,500 as against $3,462,258,000 on October 31, 1919, a decrease of $1,125,054,500 in the 12 months and of $930,675,000 from June 30, 1919. These reductions were not effected uniformly; for the course of the floating debt is determined very largely by the relation between current receipts and current expenditures, and the Treasury has no control over appropriations or expenditures, nor, for example, over the salvage operations of other Government agencies. The reductions have been accomplished chiefly at the periods of the heavy income and profits tax payments, and the laxgest decreases coincide roughly with the months in which the quarterly tax payments are received. As frequently pointed out 8 REPORT ON THE FINANCES. by the Treasury, and as generally understood in the business and financial world, it is inevitable, in view of the fact that the large installments of income and profits taxes are payable quarterly, that there will be more or less substantial fluctuations in the floating debt in the intervals between the heavy tax payments. It is the Treasury's expectation that each quarterly payment of income and profits taxes henceforth will witness an important progressive decline in the floatirig debt, and that any increases which may occur in the intervals between quarterly tax payments will be more than overcome each time by the decrease effected as the result of the quarterly payment. This has been the history of the floating debt during the fiscal year 1921, as is well illustrated by the following comparative statement by months from June 30,1920, to September 30,1920: Date. June 30,1920 July 31,1920 Loan and tax certificates outstanding. S2,485,552,500 2,433,546,500 Loan and tax certificates outstanding. Date. Aug. 31, 1920 Sept. 30, 1920.. . . $2,571,201,000 2,347,791,000 The course of the certificate operations for the period under review can be shown best by reference to the circular letters and public statements issued from time to time during the year concerning the Treasury certificate program. The previous annual report of the Secretary of the Treasury covered the situation through the offering of September 15, 1919, which was described in detail in the circular letter of September 8, 1919, to banks and trust companies. The success of this issue, to which there were total subscriptions of $758,600,500, coupled with unexpectedly heavy receipts from salvage, made it possible for the Treasury to postpone the next offering till late in November, 1919, when two issues, both dated December 1, 1919, and bearing 4^ per cent interest, were made, one of loan certificates, maturing in two and one-half months, on February 16, 1920, and the other of tax certificates, maturing in three and one-half months, bn March 15, 1920. The 4^ per cent interest rate was the same as the rate on the certificates of six months maturity which had been sold on September 15, 1919. The situation existing at the time of this resumption of offerings, and the terms of the December 1 issue, were described in detail in the following letter to the banks and trust companies of the country: WASHINGTON, Novemher 24, 1919. DEAR SIR : In my letter of September 8, I stated tbat, wliile it could not be said definitely when semimonthly issues of loan certificates would be resumed^ such issues would certainly not be resumed before October 15. Though most ^ SECRETARY OF THE TREASURY. 9 factors in the general situation since t h a t letter was w r i t t e n have been adverse, the position of t h e T r e a s u r y h a s developed more favorably t h a n then t h e r e seemed any reason to hope. T h e great success of t h e issue of t a x certificates then announced, the reduction in current expenditures, and the increase of receipts, notably from sales of w a r m a t e r i a l s and supplies, have made it possible to avoid until now the resumption of t h e issue of certificates. On the basis of T r e a s u r y daily statements, in the month of October the net current deficit (excess of disbursements over receipts, exclusive of transactions in the principal of the pubUc debt) w a s $319,239,450.35, t h e lowest figure for any month since April, 1917, excluding the months in which income and profits taxes were payable, and for the first half of the month of November the net current deficit w a s $118,630,787.30, indicating t h e Ukelihood ^ f a further important reduction for t h a t month. On t h e basis of T r e a s u r y daily statements the total gross debt, Which on J u n e 30, 1919, amounted to $25,484,506,160.05 and on August 31, 1919, h a d reached t h e peak at $26,596,701,648.01, h a d been reduced by September 30 by more t h a n $400,000,000, and, notwithstanding t h e increase resulting from the Victory loan installment payments in October and November, when the final payment w a s made, stood on November 15 a t $26,210,905,795, a net reduction of about $385,000,000 from the high m a r k at t h e end of August, and a net increase since J u n e 30 of only $726,399,634.95, although in t h a t period only one q u a r t e r l y income and profits t a x installment h a d been received. T h e total amount of loan certificates outstanding and u n m a t u r e d , which, on J u n e 30 w a s $2,478,317,500 and on August 31 $2,012,387,500, w a s reduced in September to $1,634,671,500, a t which figure it s t a n d s ; while the total amount of t a x certificates outstanding and unmatured, which on J u n e 30 was $789,561,000 and on August 31 w a s $1,925,837,500, w a s reduced in September to $1,827,586,500, at w.hich figure it stands. Of the latter, certificates to the amount of $746,869,500 m a t u r e December 15, 1919, and are amply provided for by the income and profits tax: installment payable on t h a t date. Very gratifying progress h a s been made in t h e ' absorption by investors of Government securities. During the period of five months from J u n e 6 (when holdings of Victory notes were first reported separately) to November 7 (the last date for, which reports are available) all reporting member b a n k s (about 783 member banks in leading cities, which are believed to control about 40 per cent of the commercial bank deposits of the country) have, according to Federal Reserve Board reports, reduced their holdings— Of Liberty bonds from To $646, 273, 000 633, 950, 000 Or Of Victory notes from To 438, 589, 000 292, 410, 000 $12, 323,000 : Or L^_________ -. 146,179, 000 Of United States certificates of indebtedness from— 1, 514, 462, 000 To ^ 847, 558, 000 Or - - 666, 904, 000 Making a total reduction in all reporting member banks' holdings of United States w a r securities of 825, 406, 000 . Loans by all reporting member banlis secured by United States w a r securities, after deducting those rediscounted with F e d e r a l reserve banks, a r e reported a s 10 REPORT ON THE FINANCES. reduced in the same period by $221,450,000 (from $1,420,581,000 to $1,199,131,000), this reduction being partly offset, however, by increased rediscounts of such paper with Federal reserve banks. The long intermission in the issue of certificates of all kinds makes it possible, upon resuming, to issue loan certificates, bearing 4i per cent interest and having only two and one-half months to run, instead of five months as heretofore, while fixing the maturity one-half month later than that of the last issue of loan certificates. Along with the issue of these loan certificates it has been thought wise, in order to make it possible and convenient for taxpayers to prepare further for the large tax payments which fall due on March 15, 1920, to offer an issue of 4^ per cent tax certificates of that maturity. The Treasury again confidently appeals to the banking institutions of the United States for their continued support and asks them not only to subscribe liberally to the certificates of one or both issues now offered but also to use their best efforts to secure the widest possible distribution among investors of the certificates so subscribed for. Cordially yours, CARTER GLASS. To the PRESIDENT OF THE BANK OR TRUST COMPANY ADDRESSED. The response was so satisfactory that the subscription books were closed on the first day for the loan certificates and on the second day for the tax certificates. The total subscriptions for the tax series were $250,942,500 and for the loan series $162,178,500. The result was announced in the following public statement on December 3, 1919: Secretary Glass announced that subscriptions for the issue of Treasury certificates of indebtedness of. Series T M-3, 1920, dated December 1, 1919. maturing March 15, 1920, closed at the close of business on Tuesday, December 2. The subscriptions for Treasury certificates of indebtedness of Series D 1920, dated December 1, 1919, and maturing February 16, 1920, closed at the close of business on Monday, December 1. Both of these series of certificates bear interest at the rate of 4^ per cent. No specific amount of certificates of either series was offered. I t will be noted that the subscription books for the one series remained open for only one day, and for the other series for only two days. Final reports of subscriptions have not yet been received, but preliminary reports indicate that the aggregate subscriptions for both series up to the time of closing exceed $400,000,000, a result very gratifying to the Treasury. In response to the continuing demand for tax anticipation certificates, and in order to make further provision for the payment without inconvenience of the installment of income and profits taxes due March 15, 1920, the Secretary of the Treasury has authorized the Federal reserve banks, until further notice, to issue 4^ per cent Treasury certificates of indebtedness of Series T M-3, 1920, at par, with an adjustment of accrued interest, in exchange for Treasury certificates of indebtedness of any issue now outstanding, not overdue, maturing on or before February 16, 1920, with any unmatured coupons attached. . Additional certificates of Series T M - 3 , 1920, to the amount of $9,379,500, were issued on exchange pursuant to this announcement. The next offering was made in connection with the heavy maturity of certificates on December 15, 1919, which was also the last quar- SECRETARY OF THE TREASURY. 11 terly tax payment date for the calendar year 1919. Six months tax certificates, dated December 15, 1919, maturing J u n e 15, 1920, bearing interest at 4^ per cent, were offered. They were promptly subscribed. The books closed on December 19, with total subscriptions of $728,130,000. This issue was closely followed by a further offering, dated J a n u a r y 2, 1920, made necessary chiefly by the large maturities of loan certificates on J a n u a r y 2, January 15, February 2, and February 16, 1920. The* J a n u a r y 2 certificates, maturing December 15, 1920, bearing interest at 4 | per •cent, were also issued in anticipation of taxes. The total subscriptions for this issue were $703,026,000. The following public statement of Dec'ember 30, 1919, announced the offering and explained the Treasury's plans: • ^ The Treasury is offering to-day an issue of 4 | per cent tax certificates dated January 2, 1920, and maturing December 15, 1920. The success of this issue .should assure the consummation of the Treasury's plan for financing the unfunded portion of the war debt in such a way as to avoid the necessity for :great refunding operations by spreading maturities and meeting them so far .as may be out of tax receipts. The total amount of loan certificates, which on November 24 had been ^reduced to $1,634,671,500, has been further reduced by purchase, exchange and optional redemption by $236,703,500 net, and on December 24 was as follows: .Series 'series Series -Series A, due Jan. 2, 1920 B, due Jan. 15, 1920 C, due Feb. 2, 1920 D, due Feb. 16, 1920— Total ^^— _' : $348, 446,.000 4^1,844,500 493,153, 500 104, 524, 000 1, 397,968, 000 Of the $1,397,968,000 loan certificates thus remaining about one-half haye already been provided for and the success of the issue of tax certificates nowoffered shoukl provide for the retirement of the balance of the loan certificates and render the issue of any further certificates in January unnecessary, while leaving an important part of the tax payment due March 15, 1920, available for •current purposes. The total amount of tax certificates outstanding December 24, 1919, was approximately as follows: Series T-8, T-9, and T M-3, due Mar. 15, 1920 Series T-J, due June 15, 1920 •Series T-10, due Sept. 15, 1920 Total — $550,366,000 728,130,000 657, 469, 000 1, 935, 965, 000 On account of the income and profits tax installment paid in this month of December, the operations of the month produced a net current surplus, excluding transactions in the principal of the public debt, of $659,080,315.06 for the portion of the month ended December 24, 1919, on the basis of Treasury daily .statements. ' The success of these operations placed the Treasury in a .very fort u n a t e position and left it with practically no loan certificates .out- 12 REPORT ON THE FINANCESa standing not covered by cash on hand. On J a n u a r y 12, 1920, the Secretary summarized the situation as follows: It will no doubt be recalled that on September 8, in announcing an issue of tax certificates, I made certain statements concerning the Government's .financial position and prospects for the balance of the calendar year and said that the turn of the tide had come. Now.that the figures at the year's end are in hand it appears that my most sanguine expectations have been more than realized. On the basis of Treasury daily statements, the Government's gross debt on Aug. 30, 1919, was $26, 596, 701, 648. 01 On Dec. 31 it amounted to 25, 837, 078, 807. 38 A reduction of Its floating debt (unmatured Treasury certificates of indebtedness) on Aug. 30 was On Dec. 31 it amounted to___^ A reduction of_^ The portion of the floating debt requiring to be refunded (so-called *' loan certificates ") on Aug. 30 amounted to__ On Dec. 31 it amounted to A reduction of 759, 622, 840. 6a 4, 201,139, 050. 39 3, 578,485,800. 37 622, 653, 250. 02 2, 012, 387, 500. 00 1, 326, 661, 000. 00 685, 726, 500. 00 The loan certificates outstanding on December 31 were of issues maturing January 2, January 15, Februaiy 2, and February 16, 1920, and have been or will be paid from cash on hand December 31 and from the proceeds of the sal^ of tax certificates thereafter issued, thus consummating the Treasury's plan for financing the unfunded portion of the war debt in such a way as to avoid any large funding operations. As to the future, it may be stated positively that unless Congress should enter upon new fields of large expenditure not included in the Treasury's estimates or should make a reduction in the amount of taxes in addition.to the reduction made a year ago upon the recommendation of Secretary McAdoo from about $6,000,000,000 to about $4,000,000,000, we may look forward confidently to the retirement of the floating debt out of the taxes provided by existing law and miscellaneous receipts coming within the general head of war salvage (although further issues of tax certificates in diminishing amounts will be necessary from time to time in the intervals between income and profits tax installmen^t payVments), and to the gradual reduction of the funded war debt through^the operations of the Liberty loan bond purchase fund and sinking fund already created by law. On the other hand, should Congress embark upon new flelds of large expenditure or further reduce taxes, it will, as I have already indicated, be clearly necessary to revise \he Treasury's plans and call upon the country to finance the resulting deficit by the issue of a new Liberty loan. To provide for the maturities of loan certificates on February 2 and February 16 it became necessary to offer a further issue of certificates, dated February 2, 1920, maturing March 15, 1920, bearing interest at 4J per cent. These certificates were to be provided for out of the installment of income and profits taxes due on March 15. Subscription^, which closed on February 6, aggregated $304,877,000, including $7,477,000 as the result of exchanges of certificates of series SECRETARY OF T H E TREASURY. 13 T - 9 , which had the same maturity and were accepted in exchange for the new issue pursuant to the Treasury's announcement on September 8,1919, that if thereafter certificates maturing on or before March 15, 1920, should be issued bearing interest at a higher rate t h a n 4J per cent, the certificates of series T-9 would be accepted in exchange at par with an adjustment of accrued interest. W i t h the maturity of loan certificates on February 16, 1920, the Treasury found itself in a position where it no longer had any such certificates outstanding. All the issues remaining matured on income and profits tax installment dates and the amounts of the various maturities in no instance exceeded the estimated amount of income and profits taxes pa^^able on the maturity date. The Secretary, in a public statement issued under date of February 12,1920, summed up the situation as follows: The last issue of the Treasury's " l o a n " certificates of indebtedness matures on Mdnday. Since the Treasury announced its readiness to redeem these certificates before maturity about $38,000,000 have been redeemed and the am-ount remaining outstanding last night was only about $60,000,000. The significance of this very interesting and important fact is not perhaps fully realized. When these certificates have been paid the Treasury will have outstanding in the hands of the public no floating debt whatever in the sense of short-term certificates requiring to be refunded at maturity. The amount of tax certificates outstanding February 10 is approximately as follows: Series T-S, interest 4^ per cent, dated July 15, 1919, due Mar. 15, 1920 $315, 844, 500 Series T-9, interest 4.1 per cent, dated Sept. 15, 1919, due Mar., 15, 1920 — 74, 295, 500 Series T M-3, 1920, interest 4^ per cent, dated Dec. 1, 1919, due Mar. 15, 1920 Series T M-4, 1920, interest 4i per cent, dated Feb. 2, 1920, due Mar. 15, 1920_ 1 Series T J-1920, interest 4^ per cent, dated Dec. 15, 1919, due June 15, .1920 I 152, 307, 500 304, 877, 000 847,324,500 728,130, 000 Series T-10, interest 4i per cent, dated Sept. 15, 1919, due Sept. 15, 1920 ,^. 657, 469, 000 Series T D-1920, interest 4 | per cent, dated Jan. 2, 1920, due Dec. 15, 1920 703, 026, 000 Total tax certificates outstanding Feb. 10, 1920 2, 935, 949, 500 These certiflcates mature on income and proflts tax installment dates and the amounts of the various maturities in no instance exceed the estimated amount of the taxes payable at the maturity date. The tax payments which have thus been anticipated and which are payable during the calendar year 1920 are payable in respect to the income and proflts of the calendar year 1919, and consequently would not be adversely affected if any recession of business and profits should take place in 1920. The Treasury is naturally pleased with the success of the operations initiated last September and now brought to a successful conclusion which have made this splendid achievement possible. It is very grateful for the patriotic support and assistance of the Federal reserve banks and the 14 REPORT ON THE FINANCES. Treasury certificate organization and of the banking institutions of the country which have subscribed for the certificates in the first instance and distributed them very widely among investors. The rapid reduction of Government expenditure and realization of the surplus stocks accumulated for war purposes have been important factors in making possible the reduction of the floating debt and the gross debt of the Government in the past flve months. The result of the elimination of loan certificates and the great reduction in the floating debt and gross debt have both been contributed to by the application to the payment of loan certiflcates of an important part of the balance in the general fund, which it had been necessary to retain at a high flgure as long as the loan certiflcates were outstanding in order to provide for these frequent maturities, and which it was possible to reduce greatly in connection with their retirement. Although the Treasury will, of course, be obliged to borrow from time to time to meet the current deflcit (which in January amounted to less than $93,000,000), in the intervals between income and proflts tax installment payments, and the current requirements of the War Finance Corporation, the fact that the Treasury has no uncovered maturities is of immense importance. So long as the Treasury had certiflcates of indebtedness maturing in very large amounts and on dates when it could only provide the funds to meet them by fresh borrowings, its position might under certain circumstances have become embarrassing (though it never did), and it was consequently impossible for the Federal Reserve Board to exert any effective control over credit. The .point is illustrated by the following quotation from the London Economist of January 24: " Plenty of money and a consequent demand for bills have been the chief features of the internal history of the money market. The plenty may be_attributed to the fresh creation of ways and means advances, necessitated by the maturing of more Treasury bills than were applied for. By this process, as we have frequently pointed out, dealers in and users of credit can now at any time oblige the Government to create more ' cash at the bank' by the weapon that they hold in the shape of 1,000 millions odd Treasury bills outstanding. Thus the powers that be can make money dear by paying more for it, but they can not make it really scarce until, by taxation or otherwise, they have reduced the effectiveness of this weapon." The fact that the Treasury of the United States is no longer in the position somewhat similar to that described'by the Economist is of immense importance for the general welfare of the country and incidentally to the holders of Liberty bonds and Victory notes, since the danger of the Treasury's being obliged toDorrow large sums to meet maturing certiflcates upon disadvantageous termshas been eliminated. The position of the Treasury to-day and the future of the market for the outstanding issues of Liberty bonds and Victory notes is very bright. The whole color of the picture would, of course, be changed if Congress should embark upon new expenditures on a large scale. The whole problem to-day is that of giving the people time and will to save capital sufiicient toenable them to absorb that part of the war issues which is still owned or loaned upon by banks and as well the flood of securities which are being pressed upon our markets from foreign sources in consequence of the extreme depression in* European exchanges. Following this announcement came the passage of the transportation act, 1920, approved February 28, 1920, which provided for the return of the railroads to private control. At the same time, thegrowing scarcity of capital and credit, accompanied by increased. SECRETARY OF THE TREASURY. 15 Tates of interest and discount, affected not only private borrowings but the Treasury's current borrowings as well. As early as November, 1919, the Federal reserve banks had taken action to increase discount rates, and by the end of January the rate on paper secured by Treasury certificates had already been raised to 4f per cent in all of the Federal reserve districts, and by the end of February to 5 per cent in most of the districts. This meant, for example, that the February 2,1920, offering of Treasury certificates, bearing 4^ per cent interest, had been sold, largely on account of its short maturity, not only without a preferential rate of discount but with a differential against rediscount. On March 15, 1920, in connection with the quarterly tax payment on that date and the large maturity of certificates, tax certificates were offered maturing in one year, on March 15,1921, and bearing interest at 4 | per cent. The subscription books remained open for almost two weeks after March 15, and the total amount subscribed was only $201,370,500. With this relatively light subscription a:nd the increasingly heavy burdens resulting from payments to the railroads under the transportation act, it soon became evident that the most sanguine expectations of February 12 would not be realized, and that it wa^ necessary, in order to "meet the enlarged requirements of the Treasury and insure the absorption of the securities by investors, to diversify maturities, to introduce loan certificates in moderate amounts, and to offer certificates at rates of interest iii line with the market rates for money. There followed a succession of loan-certificate offerings, the first on April 1, 1920, maturing July 1, 1920, bearing interest at 4J per cent, to which $200,669,500 was subscribed. Then came two series dated April 15, 1920, one maturing July 15, 1920, and bearing interest at 5 per cent, for which $83,903,000 was subscribed, and the other maturing October 15, 1920, and bearing 5^ per cent interest, for which $170,633,500 was subscribed. The April 15 offering was accompanied by the following statement from the Treasury, dated April 12, 1920: Secretary Houston said that recent changes in the situation, which he had had the advantage of discussing with the Federal reserve bank governors meeting in Washington during the past week, had led him to the determination that it would be wise to meet the current requirements of the Government, enlarged as they are by expenditures in connection with the return of the railroads to private control, by the issue of Treasury certiflcates of relatively short maturities and bearing interest at higher rates. Accordingly he was announcing an issue of 5 per cent certiflcates of three months' maturity and 5^ per cent certiflcates of six months' maturity. Then followed an announcement of $100,000,000, or more, of loan certificates, dated May 17,1920, maturing November 15,1920, bearing interest at 5^ per cent, for which subscriptions of $129,749,500 were received and only $102,865,000 allotted. This was the first issue on 16 REPORT ON THE FINANCES. which partial allotments were made, only 20 per cent being allotted on oversubscriptions. By this time the discount rate on paper secured by Treasury certificates had been raised to 5^ per cent in most of the Federal reserve banks. The next issue was the usual quarterly operation in connection with the June 15 payment of income and profits taxes and the heavy Treasury certificate maturities from J u n e 15 to J u l y 15, 1920. Two series, both dated June 15, one maturing J a n u a r y 3, 1921, and bearing interest at 5 | per cent, and the other; a tax issue maturing in one year, on June 15, 1921, and bearing interest at 6 per cent, were announced. The general situation at this time and the terms of the offering are more fully described in the open letter of J u n e 10, 1920, from the Secretary of the Treasury to the banking institutions of the country, which is as follows: WASPIINGTON, June 10, 1920. DEAR SIR : Treasury certiflcates to the amount of nearly $1,000,000,000 mature on or before July 15. The greater part of these are provided for by the income and proflts tax installment payable in June. To refund the balance and provide for current requirements up to July 15, according to the best estimates now available, it seems desirable at this time to issue Treasury certiflcates to the amount of $400,000,000, or thereabouts; and accordingly the Treasury is offering certiflcates in two series, both dated June 15, series A 1921, bearing interest at 5 | per cent and maturing January 3, 1921, and series T J-1921, bearing interest at 6 per cent and maturing June 15, 1921, particulars concerning which will be furnished by the Federal reserve banks. On the basis of Treasury daily statements and excluding transactions in the principal of the public debt, though the first quarter, ended September 30, 1919, of the present fiscal year ending June 30, 1920, was marked by a deficit of about $770,000,000, in the second quarter, ended December 31,1919, there was a surplus of over $150,000,000; in the third quarter, ended March 31, 1920, there was a surplus of nearly $400,000,000, and the fourth quarter, ending June 30 next, should also show a surplus. The completed fiscal year's operations should show little, if any, deficit—^the Government having about balanced its budget, current receipts against current disbursements, for the first full flscal year after flghting stopped.. ' The total gross debt of the United States, which, on June 30,^1919, on the basis of Treasury daily statements, amounted to nearly $25,500,000,000, and on August 31, 1919, to nearly $26,600,000,000, had been reduced on May 31, 1920, to less than $25,000,000,000. The floating debt outstanding (loan and tax certiflcates), which on June 30, 1919, amounted to over $3,250,000,000, and on August 31, 1919, to nearly $4,000,000,000, had been reduced on May 31, 1920, to less than $2,850,000,000. The reduced ordinary and public debt disbursements have made possible a very important reduction in the amount of the net balance in the general fund, which has been applied to the reduction of debt. Both gross debt and floating debt will be further greatly reduced by the operations outlined in the flrst paragraph of this letter. During the coming flscal year, beginning July 1. 1920, the Treasury expects, though it is impossible to speak positively, that there will be a further reduction of both gross debt and floating debt in the first two quarters, and, unless additional burdens should be imposed by future legislation, that there will be a very important reduction in the last two quarters. SECRETARY OF THE TREASURY. 17 The period of upward of 12 months since the flotation of the Victory Liberty loan has witnessed great expansion of commercial credits, but steady liquidation of United States Government war securities. The Federal reserve banks' combined loans and discounts secured by United States Government war securities have been reduced by more than $400,000,000, though they have increased their other loans and investments by about $1,200,000,000. All reporting member banks (about 800 member banks in leading cities which are believed to control about 40 per cent of the commercial bank deposits of the country) have reduced their holdings, of and loans upon United States Government war securities by about $2,000,000,000, but have increased their other loans and investments by about $4,000,000,000. The Treasury confldently asks the banking institutions of the country for their continued support and, in particular, to subscribe liberally for the certifl<;ates now offered and use their best efforts to obtain the widest possible distribution of them among investors. Cordially yours, D. F. HOUSTON. To the PRESIDENT OF THE BANK OR TRUST COMPANY ADDRESSED. These two offerings met with a quick response and were promptly absorbed by investors. The sul^scription boo.ks closed on J u n e 16, the day after the date of issue. The total subscriptions aggregated $419,121,000, of which $176,604,000 Avere for the J a n u a r y 3 maturity and $242,517,000 for the June 15 maturity, all which were allotted in full. U p to October 31, 1920, four issues of certificates had been made ih the fiscal year beginning J u l y 1, 1920. The result was a further reduction in the total amount of outstanding loan and tax certificates, from $2,485,552,500 on J u n e 30,1920, to $2,337,203,500 on October 31, 1920. There has also been a decrease in the amount of loan certificates, as compared with tax certificates, from $681,170,000 on J u n e 30, 1920, to $555,163,500 on October 31, 1920. On J u l y 15, 1920, two issues were made, one inaturing J a n u a r y 15, 1921, and the other, tax certificates, maturing March 15, 1921, both bearing interest at 5 | per cent. The Treasury asked for $200,000,000, or thereabouts. T h e books closed on J u l y 20 with total subscriptions of $201,061,500, of which $126,783,500 were for the J a n u a r y 15 maturity and $74,278,000 for the March 15 maturity. The general situation as it existed after this successful flotation is summa,rized in a statement of the Secretary dated J u l y 26, 1920, which reads as follows: My letter of June 10, 1920, to banks and trust companies, in connection with the ofl'ering; of Treasury certiflcates of indebtedness dated June 15, called attention to die fact that Treasury certiflcates to the amount of nearly $1,000,000,000 would mature on or before July 15, and stated, first, that the completed operations for the fiscal year ending June 30, 1920, should show little, if any, current deficit; and, second, that both gross debt 'and floating debt would be further greatly reduced by the operations incident to the handling of the Treasury certiflcate maturities from June 15 to July 15. The results show that the Treasury's expectations have been realized. 13799—FI 1920 2 18 REPORT ON THE FINANCES. On the basis of daily Treasury statements, the total ordinary receipts for the flscal year ended June 30,1920, amounted to $6,694,565,388.88 and current ordinary disbursements amounted to $6,766,444,461.09, leaving a net current deflcit (excess of current ordinary disbursements over ordinary receipts) of only $71,879,072.21 for the fiscal year 1920, the flrst full flscal year after hostilities ceased. After taking into account the special deposit of tiie War Finance Corporation, resulting from its redemption of United States securities (explained on page 2 of the daily Treasury statement for June 30, 1920), the net ordinary disbursements for the fiscal year 1920 were $6,403,343,841.21, leaving an adjusted surplus (excess of ordinary receipts over net ordinary disbursements) of $^91,221,547.67 for the flscal year? The operations incident to the handling of the maturities of Treasury certiflcates from June 15 to July 15 have now been completed and have resulted in further reductions in both the gross debt and the floating debt of the United States. The gross debt on June 30, 1920, on the basis of daily Treasury statements, amounted to $24,299,321,467.07, as against $25,484,506,160.05 at the end of the previous flscal year on June 30, 1919, and $26,596,701,648.01 on August 31, 1919, when the gross debt was at its peak. In other words, the gross debt on June 30, 1920, had been reduced by $2,297,380,180.94 from its peak on August 31, 1919, and by $1,185,184,692.98 from the flgure on June 30, 1919. On July 20, 1920, on the basis of daily Treasury statements, the gross debt amounted to $24,264,309,321.54, showing a further reduction of about $35,000,000 after taking into account the $201,061,500 face amount of Treasury certiflcates issued under date of July 15. The floating debt (loan and tax certiflcates unmatured) on June 30, 1920." amounted .to $2,485,552,500 as against $3,267,878,500 at the close of the previous flscal year on June 30, 1919, and $3,938,225,000 on August 31, 1919.. On July 20, 1920, the loan and tax certificates outstanding amounted to $2,453,946,500, showing a further reduction of about $31,000,000 as the result of the redemption of loan certiflcates since the close of the fiscal year 1920 in the amount of some $232,000,000 and the issue of loan and tax certificates dated July 15 in the amount of some $201,000,000. Further issues of Treasury certificates will be offered as necessary from time to time to provide for the current requirements of the Government and to meet maturities of Treasury certificates now outstanding. The amounts of these issues will depend in large measure upon the extent of the burdens imposed upon the Treasury by the transportation act, 1920, in connection with the return of the railroads to private control, including particularly the liability on the guaranty, which is as yet unascertainable. While, as the result of new issues of Treasury certiflcates in the intervals between the large income and proflts tax installments, there may be temporary increases in both gross debt and floating debt, the Treasury expects, though it is impossible to speak positively, that both gross debt and floating debt will, during the first two quarters of the current flscal year, be reduced below the flgures outstanding on tjune 30, 1920,. and that unless additional burdens should be imposed by legislation there will be an important further reduction in the last two quarters of the flscal j^ear. Another offering of loan certificates in the amount of $150,000,000,. or thereabouts, was announced for August 16,1920, maturing August 16, 1921, and bearing interest at 6 per cent per annum. This was quickly absorbed and subscriptions closed on the opening day with an excess of over $50,000,000, the total being $208,347,500: Allotments of only 20 per cent were made on oversubscriptions, making SECRETARY OF T^HE TREASURY. 19 the total allotted $157,654,500. Then followed the usual quarterly operation incident to the September J 5 payment of income and profits taxes and the maturity on September 15 of about $640,000,000 of tax certificates. Two series of tax certificates dated September 15, 1920, one maturing March 15, 1921, with interest at 5f per cent per annum, and the other maturing on September 15, 1921, with interest at 6 per cent per annum, were offered. The general situation was described at length in the circular letter of September 7, 1920, from the Secretary of the Treasury to the banking institutions of the country, which is as follows: WASHINGTON, Septeniber 7, 1.920. DEAR SIR : Treasury certificates Of indebtedness to the amount of about $640,000,000 mature on September 15, 1920, and about $160,000,000 mature on October 15, 1920. The greater part of these $800,000,000 maturing certificates will be covered by the installment of income and profits taxes payable on September 15. In order to provide for the balance of the certificates requiring to be refunded and meet the current requirements of the Government up to October 15, the Treasury has decided, on the basis of the best estimates available at this time, to offer Treasury certificates of indebtedness in" the amount of $400,000,000 or thereabouts, in two series, both dated September 15, 1920, one series designated T M 3-1921, bearing 5 | per cent interest, maturing March 15, 1921, and the other series designated T S-1921, bearing 6 per cent interest, and maturing September 15, 1921. Applications for Treasury certiflcates of tbese series will be received through the several Federal reserve banks, from which full particulars concerning the offering may be obtained. Treasury certificates of the series maturing September 15,, 1920, and October 15, ,1920, will be accepted at par with an adjustment of accrued interest in payment for any certificates of the two series now offered which may be subscribed for and allotted. On the basis of daily Treasury statements, during the first two months of the current flscal year, beginning July 1, 1920, the ordinary receipts of the Government amounted to $628,767,191.13, while the ordinary disbursements during the same period amounted to $754,072,901.76, leaving a net current deflcit (excess of ordinary disbursements over ordinary receipts) of $125,305,710.63. This net current deficit for the flrst two months of the fiscal year is due chiefly to actual cash payments, in amount of some $130,000,000, made necessary by the provisions of the transportation act, 1920, in connection with the return of the railroads to private control. According to the latest estimates, payments on account of the railroads will probably continue on a large scale during the balance of the present calendar year, and will be relatively heavy during the month of September. Notwithstanding the net current deficit during the first two months and these extraordinary payments on- account of the railroads, it is expected that the first quarter of the fiscal year, ending September 30, :L920, will show a surplus. The gross debt of the Government on August 31, 1920, on the basis of daily Treasury statements, amounted to $24,324,672,:I23.79, as against $24,299,321,467.07 at the close of the fiscal year ended June 30, 1920, an increase of only $25,350,656.72. The floating debt (loan and tax certificates unmatured) on August 31, 1920, amounted to $2,571:201,000, as against $2,485,552,500 on June 30, 1920. As a result of the operations incident, to the handling of the maturities of Treasury certiflcates on September 15 and October 15, and the payment of the income and proflts tax installment on September 15, it is expected that the increases in both gross debt and floating debt which have occurred since 20 REPORT ON THE FINANCES. June 30 as the result chiefly of the heavy railroad payments will be more than overcome and that both gross debt and floating debt wiU be materially reduced by September 30 below the amounts outstanding on June 30, 1920. Further issues of Treasury certiflcates during the months of October and November may subsequently result in temporary increases in both gross debt and floating debt, but the Treasury confldently expects that by the completion of the second quarter of the flscal year, on December 31, 1920, any such temporary increases will have been overcome, and that the gross debt and floating debt on December 31 will have been further reduced below the amounts outstanding on September 30. The Treasury certificates of the two series now offered, dated September 15, are exempt from State and local taxes, except inheritance taxes, and from the normal Federal income'tax and the corporation income tax, and are admissible assets for the purpose of calculating profits taxes. The certificates are acceptable in payment of Federal income and profits taxes payable at their respective maturities, and the United States reserves no option to call them for redemption before maturity. These .features, together with the attractive interest rates and absolute safety of principal and' interest, make the certificates extremely desirable investments. The Treasury believes, therefore, that banks generally should feel free to subscribe largely for the certificates with the confident expectation of prompt resale for investment, lln this connection it is interesting to note that all reporting members banks (about SIS member banks in leading cities, which are believed to control about 40 per cent of the commercial bank deposits of the country, and to have subscribed in the first instance for about 75 per cent of the Treasury certificates of indebtedness now outstanding) held on August 27, 1920, only about $430,000,000 face ampunt of Treasury certificates, notwithstanding the fact that there were outstanding on that date some $2,571,000,000 face amount of loan and tax certiflcates. The Treasury again asks the banking institutions of the country for their continued support and, in particular, to subscribe liberally for the certificates now offered and use their best efforts to obtain the widest possible distribution of them among investors. Cordially yours, D. F. HOUSTON. To the PRESIDENT OF THE BANK OR TRUST COMPANY ADDRESSED. On the September 15 offering the Treasury asked for subscriptions of $400,000,000, or thereabouts, and, notwithstanding the size of the issue and the heavy demands for funds for crop-moving purposes, it was promptly oversubscribed. The books closed on the opening day with a total of $492,262,000. Three of the Federal reserve districts oversubscribed their quota and, the Treasury allotted 70 per cent of their excess, leaving a total allotment of $448,596,000, of which $106,626,500 were of the March maturity and $341,969,500 were of the September maturity. The success of these issues placed the Treasury in a position to meet the extraordinary demands during the month of September and, early October in connection with loans and guaranty payments to the railroads under the provisions of the Transportation act, 1920. About $250,000,000 was disbursed tp the railroads during this period. I t became necessary, therefore, to make a further issue on October 15, 1920. The October 15 offer- SECRETARY OF THE TREASURY. 21 ing took the form of five months 5 | per cent tax certificates, dated October 15, 1920, maturing March 15, 1921, in the amount of $100,000,000, or thereabouts. The announcement was accompanied by the following public statement, dated October 8, 1920, which summarized the Government's immediate requirements and the terms of the offering: Treasury certificates of series G, 1920, to the amount of about $125,000,000 mature on October 15, 1920, and on the same date semiannual interest will be payable on fourth Liberty loan bonds to the amount of about $125,000,000. The Treasury is offering for subscription an issue of 5 | per cent five months tax certificates dated October 15, 1920, maturing March 15, 1921, in the amount of $100,000,000 or thereabouts. A further reduction in both gross debt and floating debt may, therefore, be expected in connection with the October 15 offering of Treasury certiflcates. Subscriptions for the October 15 issue closed on that day with a surplus of $85,076,500. Ten of the Federal reserve districts oversubscribed their quota. The totai allotment was $124,252,500. Another offering in the amount of $200,000,000, or thereabouts, was made in November in order to meet the current requirements of the Treasury, including particularly the maturity of nearly $100,000,000 of loan certificates on November 15 and the interest payment on the second Liberty loan on the same date of some $70,000,000. I t took the form of six months 5 | per cent loan certificates dated November 15, 1920, maturing May 16, 1921. Subscriptions closed promptly on November 15, and aggregated $292,696,500, the total amount allotted being $232,124,000. Seven of the Federal reserve districts oversubscribed their quota and 40 per cent allotments were made on oversubscriptions. Tables showing in detail all the issues of certificates of indebtedness, from the beginning of the war to October 31, 1920, and a summary thereof are attached as Exhibits 1 and 2, pages 284 and 293. The official circulars for the various offerings of loan and tax certificates, together with offers to redeem before maturity at the option of the holders, issued since the Annual Eeport of the Secretary of the Treasury for 1919, are attached as Exhibits 3 to 20, pages 295 to 314, The aggregate aniount of certificates issued from the beginning of the war, to October 31, 1920, was $43,989,326,308.53. Of this total, $19,839,279,500 represent loan certificates; $9,148,235,000 were sold in anticipation of income and profits taxes; and $15,001,811,808.53 comprised special issues. The amount of unmatured certificates of all classes outstanding on October 31, 1920, aggregated $2,629,432,950^ consisting, as shown by the following table, of $1,782,040,000 tax cer» tificates, $555,163,500 loan certificates, $259,375,000 Pittman Act certificates, and $32,854,450 other special issues. 22 REPORT ON THE FINANCES. Statement of Treasury certificates outstanding October 31, 1920. TAX CERTIFICATES. TD-1920, interest 4f per cent, dated Jan. 2,1920, due Dec. 15,1920_ $691, 026, 000 TM-1921, interest 4f per cent, dated Mar. 15, 1920, due Mar. 15, 1921 ._ 201, 370, 500 TM2-1921, interest 5$ per cent, dated July 15, 1920, due Mar. 15, 1921 74, 278, 000 TM3-1921, interest 5f per cent, dated Sept. 15, 1920, due Mar. 15, 1921_ 106, 626, 500 TM4-1921, interest 5f per cent, dated Oct. 15, 1920, due Mar. 15, 1921 124, 252, 500 Total tax certiflcates due Mar. 15, 1921___ TJ-1921, interest 6 per cent, dated June 15, 1920, due June 15, 1921 TS-1921, interest 6 per cent, dated Sept.. 15, 1920, due Sept. 15, 1921____ 506, 527, 500 242, 517, 000 341, 969, 500 LOAN C E R T I F I C A T E S . H-1920, interest 5i per cent, dated May 17, 1920, due Nov. 15, 1920 ' 1 $94,121, 500 A-1921, interest 5f per cent, dated June 15,1920, due Jan. 3, 1921_ 176, 604, 000 B-1921, interest 5| per cent, dated July 15, 1920, due Jan. 15, 1921 ^ 126, 783, 500 C-1921, interest 6 per cent, dated Aug. 16, 1920, due Aug. 16, 1921_ .Total loan certificates series 1921 ^___ 157,654, 500 461, 042, 000 RECAPITULATION. Total Total -- Total Total tax certificates tax certiflcates tax certificates tax certiflcates due Dec. due Mar. due .lune due Sept. 15, 1920 15, 1921 15, 1921 15, 1921 ^ $691, 026, 000 ' 506, 527, 500 242, 517, 000 341, 969, 500 Total tax certificates : . Loan certificates due Nov. 15, 1920 Loan certificates due Jan. 3, Jan. 15, and Aug. 16, 1921_____ ' Total tax and loan certificates,— Pittman Act certificates Other special certificates 1, 782, 040, 000 94,121, 500 461, 042, 000 2, 337, 203, .500 259, 375, 000 —__ 32, 854, 450 Total outstanding Oct. 31, 1920 / 2, 629, 432, 950 PROGRAM FOR R E T I R E M E N T OF WAR DEBT. The maturities of the Liberty loans and the privileges reserved to ^ the Treasury to call the Liberty bonds and Victory notes for redemption prior to maturity give the Treasury adequate control over the war debt and make it practicable for the Government to follow an orderly program of debt retirement, provided adequate revenues from taxation are maintained and the Government exercises rigid economy in its expenditures. As has already been indicated, SECRETARY OF THE TREASURY. 23 there has been gratifying improvement in the public debt situation. On the basis of the daily Treasury statements, the gross debt of the United States on August 31, 1919, when it reached the peak, was, in round figures, $26,596,000,000, of which about $4,000,000,000 represented loan and tax certificates maturing within the year. On September 30, 1920, the gross debt was $24,087,000,000, a reduction of over two and one-half billions of dollars, while the floating debt was $2,347,000,000, or approximately $1,600,000,000 less than on August 31, 1919. These reductions were effected chiefly by the application of the proceeds of taxation and salvage and were made possible to some extep.t by the reductions of Treasury balances resulting from the reduced scale of Governinent expenditures and the retirement of large amounts of outstanding loan certificates. The gros^ debt on October 31, 1920, amounted to about $24,062,500,000, a further reduction of about $25,000,000, while the fioating debt was reduced to about $2,337,000,000. While there may be increases in both gross debt and floating debt in the month of November as the result of current operations, the Treasury confidently expects that by the close of the current quarter on December 31, 1920, there will be substantial decreases in the public debt more than sufficient to overcome any such increases, and that both gross debt and floating debt on December 31, 1920, will be reduced below the amounts.outstanding at the close of the quarter ending September 30, 1920. The gross debt of $24,087,000,000 on September 30, 1920, included $15,293,000,000 of Liberty bonds maturing between 1928 and 1947, about 4J billions of Victory notes maturing May 20, 1923, almost 800 millions of war-savings certificates Eaaturing on January 1, 1923, and $2,347,000,000 of loan and tax certificates maturing within a year. Within a period of about two and a half years, ending in May, 1923, there will thus become payable about 7-| billions of Government war obligations, of which app:i:'oximately 4^ billions repre-. sent Victory notes. Earlier plans and expectations were disarranged by the unexpectedly large burdens placed upon the Treasury by the transportation act. According to the estimates, there will be paid on account of the railroads during the current fiscal year probably a billion dollars," of which over three hundred millions has already been called for and paid. Added to these experiditures are large payments to the railroads on account of the settlement of matters arising under Federal control. I t is obvious that these payments limit the progress which the Government had expected to make in the retirement of the floating debt. I t is expected, however, that perhaps the heaviest payments on account of the railroads will have been completed by the spring of next year, and then for the remaining months of the fiscal year the Treasury looks forward to a more rapid- reduction of the floating debt. By 24 REPORT ON THE FINANCES. ' ^ the end of the fiscal year, in the absence of unforeseen contingencies, the floating debt should be brought considerably below two billions, perhaps to as low as a billion and a half. The balance should be retired during the fiscal year 1922, except such an amount as it may be necessary to keep outstanding in order to avoid money strain in« connection with the quarterly payments of income and profits taxes and to finance the Government's current requirements in the intervals between the heavy 'tax receipts. By the end of the fiscal year 1922, the Victory loan should also have been reduced by at least a half billion dollars as a result of sinking-fund operations. ' The remainder of the Victory loan, perhaps 3f billions, will then have become substantially floating debt, as it will mature during the following fiscal year. Provision should be made, therefore, under proper Treasury regulations and, if necessary, by partial calls for redemption, for the acceptance of Victory notes during the fiscal year 1923, before maturity, in paj^-ment of income and profits taxes. Iri this way and through further sinking-fund operations, it. should be possible to reduce the Victory loan so that at maturity it would stand at about three billions of dollars. I n the meantime, on J a n u a r y 1, 1923, the unredeemed war-savings certificates of the series of 1918 will mature and must be provided for. The Treasury is committed to the continuance of the Government savings movement and expects to push the campaign for the sale of savings securities during the coming year, with the view particularly of assuring the continuity of the savings movement and making provision, so far as possible, for maturing savings securities out of new sales, to the extent that maturities are not covered by current receipts and other current financing. These measures for the handling of the floating debt and the retirement of a substantial portion of the Victory loan before maturity are feasible and necessary. If carried out, they should make possible the refunding of such part of the Victory loan as may require to be refunded on terms advantageous to the Government. The program can be accomplished, however, only by strict econom37^ in Government expenditure and by the maintenance of adequate revenues from taxation. Sound fiscal policy dictates that the receipts from taxes and salvage be kept sufficiently high not only to meet current bills, including* interest and sinking-fund charges, but also to retire the present floating indebtedness and a considerable part of the Victory notes before the close of the fiscal year 1923. The maturities and redemption dates of the war debt maturing after the Victory loan are so arranged that a substantially similar program is feasible and should be carried out with resiDect to the several issues of Liberty bonds. The third Liberty loan, for example, SECRETARY OF THE TREASURY. 25 will mature about five years after the maturity of the Victory loan, on September 15, 1928, and after the Victory loan has been provided for, sound fiscal policy would require that the sinking fund and surplus revenues then be applied to the bonds of the third Liberty loan, and thereafter to the remaining Liberty bonds in the order of their maturity. The cumulative sinking fund provided by the Victory Liberty loan act is calculated to retire the funded war debt, less the amount of foreign Government obligations held by the United States on July 1, 1920, in about 25 years. By the operation of the sinking fund and the application to the debt of surplus revenues and any repayments by foreign Governments of the principal of their obligations, it should be feasible to pay off the whole war debt within a measurable time. The war debt should be paid, not perpetuated, and the time to pay it is as soon as possible after the end of the war. There are attached hereto as Exhibit 21, page 315, a copy, of the public-debt statement of the United States as of June 30, 1920; as Exhibit 22, page 323, a preliminary statement of the public debt as of October 31, 1920', on the basis of the daily Treasury statements; and as Exhibit 23, page 324, a quarterly comparative public-debt statement on the basis of the daily Treasury statements. TAXATION. Fiscal and business conditions indicate the imperative need of a thorough revision' of the tax law, in order that the more important changes may, without important retroactive application, be made effective with respect to income and profits for the calendar year 1921. The business interests of the country have a right to know in advance the rate of taxation they will be called upon to pay. The purchaser ..and consumer have an equally vital interest in the early determination of the tax burden, and unless the making of returns and the prompt payment of the tax are t o be obstructed the Bureau of Internal Eevenue must be given a considerable period of time before the first installment pa3^ment in which to interpret the new law, to study, prepare, and issue regulations, print the requisite forms, and create any new administrative machinery which may be necessary. -For more than 18 months— since the opening 'of the special session of the Congress which began May 19, 1919—the President and his chief financial advisers have repeatedly urged revision of the internal-tax laws. There is pressing need for expedition in this matter by the Congress. Unless the principal amendments to the income and excess-profits tax law be adopted in the early months of 1921 they can not, without widespread, confusion, be made to apply to income for the calendar year 1921. 26 REPORT ON T H E FINANCES. Revision without reduction of revenues. While it is highly desirable that the tax law should be revised at the earliest possible date, it is imperative, in m};^ opinion, that the revenue from taxation be maintained after this fiscal j^ear on a level of not less than four billions a year, to the end at least of the fiscal year 1923. The internal-revenue receipts may not greatly exceed $4,000,000,000 even in the'fiscal year 1921, on the basis of existing law. We now have a floating debt (tax and loan certificates maturing within 12 months) of approximately $2,350,000,000. This shorttime debt should not be funded, but should be retired, if possible, by the end of the fiscal j^ear 1922. On January 1, 1923, war-savings certificates now amounting to about $800,000,000 falL due, and on May 20, 1923, Victory notes now amounting to about $4,250,000,000 mature. The retirement of the tax and loan certificates, the reduction of the volume of obligations maturing in 1923, to some extent by the operations of the sinking fund, and the successful refunding of the balance of those obligations constitute a colossal task to the accomplishment of which the whole financial policy of the Government must be shaped. With obligations of approximately $7,500,000,000 maturing in the next two and a half years, it would be unwise, unless compelled by the severest form of industrial depression, to plan for aggregate tax receipts after this fiscal year and till at least the end of the fiscal year 1923, of less than four billions a year. But this, of course, does not mean that the public will have to pay as large a tax amount in the aggregate in that period as in the current or the preceding fiscal year. Future relations between expenditures and receipts are beset with great uncertainty. The estimated receipts and expenditures for the fiscal years 1921 and 1922 are recited on pages 273 to 278 of this report. These estimates of expenditures were prepared by the several departments and independent establishments and not by the Treasury, except for the Treasury Department. If rigid economy is practiced and the estimates .reduced wherever possible, there is some hope that by the close of the fiscal year 1922 the floating debt may be extinguished, provided, of course, that adequate revenues from taxation are maintained. There is no certain means, however, of predicting the course of business or of incomes and profits, and it is a certainty that tax receipts even under existing law will not keep up to the 1920 level. There are also frequent efforts by extraordinary measures, like the soldiers' bonus, to bring about a radical increase in expenditures. I n these circumstances—as was suggested in my letter of May 18, 1920, to the chairman of the Committee on Ways and Means of the House of Eepresentatives—^the only question Avhich should be considered is whether a due regard for the protection of the Treasury SECRETARY OF T H E T:PVEASURY. 27 does not impose upon the Congress a real duty to seek out additional sources of tax revenue for the next two years. The country at times is being encouraged to expect a " reduction of taxes." Eevision of taxes should be effected. There can a:nd should be a better distribution of the tax burden. Unwise taxes should be eliminated. B u t any scheme which would after this fiscal year yield for several . years to come less than four billions of dollars would be incompatible with safety and sound finance. And the country should face the fact that present taxes even may not in the future be relied upon to yield the needed revenue. The letter of May 18, 1920, referred to, reads as follows: W A S H I N G T O N , May 18, 1920. DEAR MR. FORDNEY: I received your letter of May 1, with t h e inclosed copies of bills H. R. 13798, introduced by Mr. Johnson, and R. it. 13799, introduced by Mr. Rainey, to provide for the payment of ad.1 usted compensation to the vete r a n s of the World War. Both bills impose an 80 per cent war-profits tax., T h e m.ost serious aspect of this com-pensation matter, as 1 pointed out when I had the honor of appearing before the committee, is the proposal greatly to add, especiaily at this time, to the present grievous burdens resting upon the people of the Nation and upon the T r e a s u r y . The method of financing the proposal raises gravo problems, but is secondary., T h e very heavy burdens which will rest upon t h e Treasury by reason of laws already enacted, including particularly the recent railroad law, which it is estimated will entail an expenditure of approximately $1,000,000,000, and also by reason of the delay in making provision to realize upon the Government's investments in railroads and ships, taken in connection with the existing credit situation, suggest the need of grave consideration of the question whether, quite aside from and in addition to any taxation which it might be necessary to impose in order to pay a bonus to t h e soldiers, it may not be necessary to provide for meeting the necessities of the Government in larger measure from taxation. The total indebtedness of the Government maturing within three years, represented by T r e a s u r y certificates, war-savings certificates and Victory notes, is in the neighborhood of $8,000,000,000. I t is no longer possible to flnancvi the current needs of the Gov-' ernment in p a r t by the issue of T r e a s u r y certificates except on onerous terms which reflect upon the value of t h e Government's long-time bonds and depreciate them in the market. F u r t h e r m o r e , it would appear to be bad economy and bad finance for the Government to borrow inoney on short-term certificates of indebtedness ( m a t u r i n g within three to six months) to be invested for a term* of years in railroads and ships. I t is a , m a t t e r of serious concern to have the Government appearing in t h e m a r k e t every few weeks for loans. Certainly nothing ought to be done to add to existing credit expansion t h a t can possibly be avoided. T h e result would be to increase prices and to make a difficult situation less satisfactory. I n t h e circumstances obviously the Government ought to appear in the m a r k e t for loans as infrequently as possible and for the lowest sums. Additional t a x e s are also undesirable, but they may be less undesirable t h a n borrowing. They would a t least have the effect in p a r t of enforcing economies. T h e first thing to do, I am s u r e you will agree, is to keep F e d e r a l expenditures down to the minimum and it is obvious also t h a t other governmental jurisdictions and private individuals should do likewise. I beg to submit to .your committee for its serious consideration the question' whether, all things considered, it would not now be advisable to seek out addi- 28 REPORT^ ON THE FINANCES. tional sources of revenue to meet the current requirements of the Government, over and above any additional revenue which would be necessary if the soldier bonus plan is determined upon, in order to obviate the necessity of continuing in considerable measure to meet them by borrowing. Having these things in mind, I hestitate to express an opinion concerning the bills which you have submitted to me, taken by themselves. There are many grave objections, both to the proposed new war-profits tax and to the alternative measure, a sales tax, which I understand your committee is considering. If, in view of the urgent needs of the Government for money to meet its requirements, your committee concludes that it will be wise to raise a larger amount by taxation and desires any suggestions from the Treasury, I shall be glad to have the experts place themselves at its disposal. In the meantime I refrain from making any further comment on either proposal. For the reasons indicated, and for other reasons, I think it would be highly unfortunate for any new obligations to be placed upon the Treasury through the enactment of the bonus proposal in any form, however financed. Very truly yours, D . F . HousTOis?. Hon. JOSEPH W . FORDNEY, Chairman Committee on Ways and Means, House of Representatives. This letter voices my deliberate conviction, that " i t would be highly unfortunate for any new obligations to be placed upon the Treasury through the enactment of the bonus proposal in any form, however financed." I repeat the statement with a renewed feeling of its soundness. I n the form in which it passed the House of Eepresentatives, the bill providing for the soldiers' bonus would involve new cash expenditures of not less than $1,250,000,000, to be made during the period in which the Treasury will be most severely t r i e d ' by the burden of meeting heavy maturing obligations. I t would increase the present tax burden, delay the lightening of that burden, and dismay taxpayers with its promise or threat of future drafts of like character upon the public purse. I t would, in short, dominate the entire program of tax legislation during the next two years or more. It seems plain that the bonus question must be definitel}^ settled before the larger outlines of the tax program for the next year can be intelligently determined and that the bonus bill must be disposed of before the general revision of the tax law can proceed. The Treasury's views with respect to the bonus proposal are set forth more in detail elsewhere in this report on pages 102 and 103 under the heading " Soldiers' bonus." From this letter it will be noted that, in the Treasury's opinionj there are many grave objections to a sales tax. Further consideration of the subject has convinced me that a general sales or turnover tax is altogether inexpedient. I t would apply not only to the abso-' lute necessities of life—the food and clothing of the very poor—^but it would similarly raise the prices of the materials and equipment used in agriculture and manufactures. I t would confer, in effect, a .SECRETARY OF THE TREASURY. 29 substantial bounty upon large corporate combinations' and place at corresponding disadvantage the smaller, or disassociated industries which carry on separately the business operations that in many combinations and trusts are united under one ownership. The group of independent producers would pay several taxes, the combination only one tax. Finally, it would add a heavy administrative load to the Bureau of Internal Eevenue which—burdened as it is with the responsibility of enforcing the child-labor tax law, the national prohibition act, the narcotic-drug law, the adulterated butter and mixed flour tax laws-^is already near the limit of its capacity. Simplification of the tax law and restriction rather than extension of its scope are as important from the standpoint of successful administration as from that of the taxpayers' interests. Consumption taxes, if used at all, should be laid upon other than absolute necessaries and restricted to a few articles of widespread use, 'so that the administration of the tax may be concentrated and made relatively simple. As early as March of this year I pointed out in a letter to the •chairman of the Committee on Ways and Means the necessity of a simplification of the tax system and the repeal of the excess-profits tax, a modification of the income supertaxes, and certain fundamental administrative changes such as the giving to the Treasury the power to make final settlement of tax claims and to issue regulations which should be effective from the date of their approval. The letter in question is as follows: WASHINGTON, March 17, 1920. Hon. JOSEPH W . FORDNEY, ^ Chairman Committee on Ways and Means, House of Representatives. MY DEAR MR. FORDNEY : I am very glad to respond to your threefold request, <:ommunicated through Dr. Adams, for estimates of the loss in revenue which may be expected to result from the recent decision of the Supreme Court in the stock-dividend case, for recommendations concerning a new method of dealing with personal service corporations; and for definite suggestions looking to the fundamental simplification of the income and profits taxes, brief enough to receive, but thoroughgoing enough to deserve, careful consideration at a session of the Congress crowded with other questions of grave importance. To facilitate their presentation, I may discuss these subjects in the inverse order in which they have been mentioned above. SIMPLIFICATION OF THE INCOME AND PROFITS TAXES. In dealing with this subject I may go at once to what is, in many respects, its most vital aspect—the question of early action. Public opinion has not yet awakened to the gravity of the consequences which are likely to follow a failure to simplify the tax law at this legislative session. Unless the necessary amendments be passed now, they will be delayed in all probability, I understand, until the autum or mnter of the year 1921, with the result, unless they are to disrupt the administrative procedure and confuse the necessary calculations of the taxpayer by being made retroactive, that income and profits taxes must continue to be collected on the basis of the present law until the close of the 30 ' REPORT ON THE FINANCES. calendar year 1922, and, in the case of some taxpayers on the so-caUed fiscal year basis, until the early months of the calendar year.1923. I can not contemplate such delay without the gravest apprehension. An imperfect and uncertain tax affects the future even more adversely than the present, and for similar reasons it is costly and unwise to make a beneficent modification of the tax lav/ retroactive or even to delay its adoption and announcement until the time at which it is to take effect. It would be manifestly unsafe, in my opinion, to reduce now the income and profits taxes to be collected in the calendar years 1920. and 1921, but I can see nothing in the financial prospects for the calendar year 1922 and thereafter which would make impossible or unwise the very modest reduction involved in the plan of simplification hereinafter presented; and it should never be forgotten that the tax system itself is one of the most powerful causal factors affecting public expenditures. A tax s.ystem yielding, or likely to yield in the future, a surplus of revenue'over expenditures is an open invitation to public extravagance, whereas an announced resolution to reduce taxes as the occasion which called them forth recedes into the past is one of the most potent means of insuring economy in public expenditures. The people, therefore, consumers as well as producers, indirect as well as direct taxpayers, may fairly ask to be told now the earliest future date at which the most obsolete features of the tax law are to be repealed. Complexity in tax laws violates the most fundamental canon of taxation— that the liability shall be certain and definite. It is not merely a source of irritation, labor, and expense to the taxpayer; but when conjoined, as it is in the present law, Avith the heavy rates of taxation which war exigency has forced upon us, it becomes a major menace, threatening enterprise with heavy but indefinable future obligations, generating a cloud of old claims and potential back taxes which fill the taxpayer with dread, ^creating, to be sure," an attractive source^ of additional revenue, but clogging the administrative machinery and threatening, indeed, its possible breakdown. FINAL D E T E R M I N A T I O N AND SETTLEMENT OF TAX CLAIMS AND ASSESSMENTS. 1, I recommend, therefore, as the most urgent and important of the measures of simplification which could advantageously be put into effect at once, an amendment authorizing the Commissioner of Internal Revenue, with the consent of the taxpayer and the approval of the Secretary of the Treasury (or under such other public safeguards as the Congress may prefer), to make a final determination and settlement of any -tax claim or assessment, which shall not thereafter be reopened by the Government or modified or set aside by any officer, employee, or court of the United States, except upon a showing of fraud, malfeasance, or misrepresentation of fact materially affecting the determination thus made. This recommendation is of major importance. At present the taxpayer never knows when he is through. Every time an old ruling is changed by court decision, opinion of the Attorney General, or reconsideration by the department, the dep££rtment feels bound to apply the new ruling to past transactions. The necessity of constantly correcting old returns and settlements is as distressing to the department as it is obnoxious to the taxpayer. But an even more serious situation arises in connection with the assessment of back taxes. The tax return of a large corporation is likely to be crowded with debatable points whict the corporation, in the first instance, usually decides in its own favor. The auditing of these returns has been necessarily delayed by the inability of the Bureau of Internal Revenue to engage and hold a sufficient force of experts SECRETARY OF THE TREASURY. 31 to audit promptly the more complex and difficult returns; but when the audit comes to be made it ordinarily brings to light a large amount of back taxes. A prompt determination and collection of such back taxes due would probably bring in additional revenue exceeding $1,000,000,000. On the other hand, this situation must fill the taxpayers concerned with the gravest apprehension. If present taxes be continued and a period of industrial depression ensues during which the department finds the time.and the men with which to clear up both current and back taxes within the same year the result may be highly disastrous to business. The commissioner should be empowered and directed to dispose of these cases promptly and finally. This proceciure would bring in much additional revenue, relieve business from grave uncertainty, keep out of the courts many debatable cases, and help to avert an administrative deadlock. INTERPRETATIVE REGULATIONS OR TREASURY D E C I S I O N S NOT TO BE RETROACTIVE. 2. As a desirable concomitant of the preceding suggestion and for reasons stated in explaining that suggestion, I recommend the adoption of an. amendment providing in substance that in case a regulation or Treasury decision made by the commissioner or the Secretary, or by the commissioner with the approval of the Secretary, is reversed by the subsequent issue of a similar regulation or decision, and such reversal is not immediately caused by or based upon an opinion of the Attorney General or a decision of a court of competent jurisdiction, such new regulation or decision may be made effective from the date of approval. ^ FIVE-YEAR L I M I T A T I O N ON T I M E FOR BRINGING S U I T FOR COLLECTION OF T A X E S . 3. Section 250 of the revenue act of 1918 now provides, in subdivision (d), that no suit or proceeding for the collection of any tax shall be begun after the expiration of five years after the date when the return was due or was made, except in the case of false or fraudulent returns with intent to evade the tax. This subdivision has been held to apply only to taxes due under the revenue act of 1918. I recommend that this time limit be extended to all income and profits taxes due either under present or prior acts of Congress. S I M P L I F I C A T I O N OF LIBERTY BOND E X E M P T I O N . 4. The exemptions from income surtaxes authorized by the several Liberty bond acts are highly complex and responsible for perhaps the most intricate schedule of the return which the individual taxpayer is required to fill out. My predecessor in office has recommended a consolidation of these exemptions which, while not breaking faith with the holders of Liberty bonds, would simplify their tax returns and operate to strengthen the market standing of such bonds without in any appreciable amount reducing the public revenue. I heartily indorse this recommendation, the detailed provisions of which may be found on pages 99 and 100 of the Annual Report of the Secretary of the Treasury for 1919. C O M P E N S A T I O N FOR P E R S O N A L SERVICE AND G A I N S FROM SALES OR DEALINGS I N PROPERTY. 5. The heavy surtaxes cause real hardships when income earned over a period of years is realized or received in one year and taxed as a lump sum' in that year. I recommend, therefore, that such extraordinary income, when it constitutes a material part of the gross income for that year, be deemed to have ac- 32 REPORT ON THE FINANCES. crued or been received ratably during the years in which the service was rendered or the property held, and the amount of the extraordinary income so assigned to any year be subjected to the surtax rates prescribed by law for that year. EXCESS-PROFITS TAX. 6. Provision for the simplification and fundamental modification or repeal of the excess-profits tax at the earliest possible future date should, in my opinion, be made now. In explaining this conclusion it is unnecessary to enter into a discussion of controversial details. Two facts impress me as indisputable and conclusive: First, the application or calculation of the excess-profits tax is so complex that it has proved impossible to keep up to date the administrative work of audit and assessment. New returns are being made faster than old returns can be audited, resulting in an accumulation of claims and potential back taxes, the, dangers of which have already been described. Second, the profits tax is confined to a small fraction (in number) of the business concerns of the country. Personal-service corporations, partnerships, sole proprietors, and most forms of trust organizations are exempt from the tax. If the principle be sound, it should be extended to all forms of business organization, a proposal which administrative considerations alone stamp as impracticable either in the present or any future period near enough to be worth consideration. The general course or principle which simplification of this part of the tax law should follow is, I believe, reasonably clear. The outstanding feature af tiae present' system of income taxation in its most important application to business income is the fact that we employ for this, purpose two systems of taxation which are incommensurate and irreconcilable. Corporations pay the profits tax and normal income tax wliile their stockholders pay surtaxes on dividends or distributed profits, but nothing in respect of the undistributed corporate profits. On the other hand, sole proprietors and the members of partnerships pay full income tax, normal tax, and surtaxes upon the entire profits of their business whether distributed or not, but are exempt from the profits tax. The profits tax on corporations is evidently meant to be a rough equivalent for the surtaxes levied upon the reinvested or undistributed profits of other forms of business. But no true equivalence is reached. In 1918 the members of a well-known partnership paid nearly $1,125,000 more taxes than they would have paid had their business been organized as a corporation. And the contrary is quite as frequently true. There should be one system and not two systems of income taxation applicable to persons engaged in business. Substantial uniformity of treatment, or at least a nearer approach to uniformity of treatment, could be achieved in a variety of ways, the details of which it is not necessary to discuss here. I outline below one such plan which has many attractive features, the detailed provisions of which I shall be glad to supply upon request. The technical details, while important, are elastic and susceptible of modification. The essential thing is to simplify the excess-profits tax and grasp a uniquely opportune moment to remedy a deeply rooted defect in our system of income taxation by providing for the' just taxation of the undistributed profits of corporations at a time when such taxation represents simplification and relief, not further complexity and heavier burdens. Equalization of the tax upon corporate and unincorporated business can be accomplished now with benefit to the corporations, the Government, and the general public. We should grasp an: opportunity which may never return. The principal features of the plan referred to above are as follows: SECRETARY OF THE TREASURY. 33';:'' (a) This plan is designed, first,, to eliminate from the war-profits and excess-profits tax^law (except as it is applied to profits derived from the socalled "Wai^ contracts") all reference to or use of " invested . capital," and, second,'to place the taxation of incorporated and unincorporated business concerns, so far as may be, on substantially the same basis. (&) The flrst object is accomplished by substituting for the i[ireseiit graduated rates of 20 and 40 per cent, a flat tax on proflts in excess of^the distributed earn- .. ings. A rate of 20 per cent has been used as the basis of certain estimates :, quoted below, but the adoption of the proper rate is, of course, a matter which the committee will desire to settle for itself. It wonld be possible to adopt adeclining rate, say, of 25 per cent for the flscal year in which the suggested amendment is in operation, 20 per cent for the secoiad year, and 15 per cent thereafter. It is only necessary that the rate should be fixed at one flgure for a particular year. (c) The second object could be accomplished (although the plan would be well worth while without this feature) by making it explicit in the law that corporations have the right to pay dividends in bonds or proraises to pay bearing a fair rate of interest which are taxable to the stockholders as ordinary dividends, or by authorizing corporations to receive back from their stockholders as "paid-in surplus" cash or other dividends recently distributed. Under these or analogous procedures a corporation could retain its proflts for use in the business and yet convert the proflts tax into a genuine income tax. The excess-proflts tax would thus become a flat tax on undistributed earnings; " invested capital" would practically disappear; and the corporation, if it desired, could place itself on substantiaUy the same basis as the partnership, the personal-service, corporation, and the sole proprietor. The principal object of this suggested amendment is to simplify the tax by removing the greatest source of inequality and complexity. now found in the tax laws, i. e., the use, of " invested capital." (d) Revenue needs make it impracticable, in my opinion, to apply the preceding amendment to.profits for the calendar year 1920, the taxes upon which will be payable in the calendar year 1921. But it should be put into effect as soon thereafter as the diminishing expenditures of the Government will permit. . It is estimated that with a 20 per cent rate and on the basis of present corporate net income the suggested amendment would reduce the tax revenue by approximately $430,000,000 a year. If, for iastance, the amendment were adopted and made to apply to income received on and after January 1, 1921, the flrst reduction in the tax collections would occur iin the last half of the fiscal year 1922, and would amount to^ $215,000,000 for that fiscal year. (e) However, present corporate conditions can hardly be maintained, * and if corporate income declines and invested capital ihcreases as rapidly as they have done in the past 12 months the proposed amendment would probably cause no reduction in the future revenue. New schemes are constantly being devised for the purpose of increasing invested capital. It is time to provide for a modification of the excess-proflts tax, not only to relieve the taxpayer, but because of an approaching decline in its productivity. . , REDUCTION OF SURTAXES ON I N C O M E SAVED AND REINVESTED. T.tjIn connection with the suggested tax on the undistributed profits of corporations, attention may appropriately be directed to a possible extension of its application which would go far to rectify one of the most dangerous defects of the present income tax. Because of possible doubt about the effects of such a change upon the revenue, and because the details of the proposal as they now 13799—FI 1920^ 3 34. REPORT ON THE FINANCES.. present themselves to my mind could not accurately be said to simplify the mere computation of the tax, I do not urge its adoption at this seskon of the Congress; but I have no hesitation in expressing my personal opinion that, this or some similar amendment embodying the same Idea could advantageously be adopted, to take effect at the earliest future date at which, in the opinion of the Congress, revenue needs and prospects periliit. While it is vitally important that savirig and reinvestment effected through the medium of the corporation should not be dealt with more leniently than similar savings made by the partnership or individual, it is equally important that the methods of taxation employed should in a i r cases penalize saving and investment as little as possible. Our present surtaxes offend greatly in this respect. We attempt to levy surtaxes, rising to 65 per cent upon ordinary income, while there are thousand's of millions of tax-free securities in the market, the income from which is practically exempt from all taxation. The result is to make investment by wealthier taxpayers in the expansion of industry or foreign trade unattractive and unprofitable. It is obvious that this situation should be remedied. The remedy which most commends itself to my judgment at the present time is to reduce (e. g., by one-fourth) surtaxes attributable to that part of the net income which is saved and reinvested in business or property yielding taxable income and at the same time to limit the total amount of such reduced surtaxes t o the same percentage (e. g., 20 per cent) of the reinvested income as the rate imposed upon the undistributed profits of corporations. The maximum tax upon such saved income would thus be iapproximately the same, whether reinvested by the individual, the partnership, or the corporation, and whether reinvested personally by the stockholders of a corporation or by such corporation for its stockholders. If at any later date the profits of a corporation which had paid the undistributed profits tax came to be distributed, a credit equal to the tax already paid by the corporation could, if it were thought wise, be easily granted to the stockholders. The revenue lost by such an amendment could, if necessary, be made up by increasing the normal tax- or that portion of the surtaxes attributable to income spent for purposes of consumption. But the time is fast approaching when the adoption of such an amendment would cause little real reduction of the revenue. We can not long continue to collect surtaxes rising to 65 per cent upon income from ordinary business and investment while exempt interest at a remunerative rate can easily be secured from tax-free bonds. AVe must take something less than 65 per cent or in the end take nothing. On the other hand, no reduction is urged in respect of income spent for unnecessary or ostentatious consumption. Income saved and reinvested in property or business yielding a taxable income should be taxed at a lower rate; income spent for consumption or invested in tax-exempt securities should pay at established rates both the normal tax and surtaxes. To the extent that it falls on savings the income tax should be reduced; to the extent that it is a tax on waste it should be maintained or even increased. PERSONAL-SERVICE CORPORATIONS. Under the revenue act of 1918 personal-service corporations are treated substantially, as partnerships; i. e., the corporation as such is exempt from incom'e, proflts, and capital-stock taxes, but stockholders are subject to both normal income tax and surtaxes upon their full distributive shares in the net income of the corporation whether such income is actually distributed or not. The validity of this procedure is involved in the gravest doubt by the. doctrine enunciated in the stock-dividend case, which apparently leads to the conclusion that SECRETARY 01] T H E TREASURY. 35 a stockholder bf a corporation, particularly a minority stockholder, can not be . taxed (without apportionment according to population) upon a s h a r e of the corporation's income which h e h a s not actually received. I t is possible, notwithstanding t h e above reasoning, t h a t t h e present s t a t u t o r y method of dealing with personal-service corporations might be sustained on the ground t h a t it represents in general, in its effects upon persorial-service corporations and their stockholders a s a class, a relief provision .imposed in lieu of the excess-profits t a x which is unsuited to personal-service corporations and if .ai)pUed' tb.'them .^gen^. erally would in many cases work intolerable hardships. B u t this interesting question need not be discussed here. There is a grave possibility, if not probability, t h a t the stock-dividend decision practically exempts from all income and profits taxation a group of approximately 2,500 corporations and their stockholders, who would pay under existing law—and should in fairness pay at least—from five to six million dollars. This possibility with its consequent un certainties should plainly be removed by the passage of amendatory legislation. F o r t u n a t e l y it is possible to place personal-service corporations and their stockholders in nearly the same position t h a t they now occupy—in a manner wholly consistent With t h e spirit and letter of the ruling of the Supreme Court— by applying to such corporation and after J a n u a r y 1, 1918, the t a x on undistributed profits recommended above for all corporations on and after J a n u a r y 1, 1921. This t a x would, of course, be in lieu of the war-profits and excessprofits t a x •which, because of its dependence upon " invested capital," can not intelligently be applied, to personalrservice- corporations- in which, by .definition, " c a p i t a l (whether invested or borrovzed) is n o t a material income-producing factor." I t is plain also t h a t the law should be so amended as to t a x dividends received by t h e stockholders of personal-service corporations in the same manner as other dividends a r e taxed. I t would be desirable, moreover, in my opinion, to permit personal-service corporations a t their option to distribute, during the year 1920 cash or other t a x a b l e dividends to the full exteiat of their profits earned during 1918 and 1919, but not yet d i s t r i b u t e d ; and such retroactive distributions should be made taxable by the stockholders a t the s u r t a x rates applicable to the years in which the profits were, accumulated by the corporation. By so doing personal-service cor. porations could, if they desired, place themselves and their stockholders in nearly t h e same position t h a t they now occupy, i. e., they would pay no proflts t a x a t all, while the entire corporate income (having been distributed) would , be t a x a b . e in the* h a n d s *bf the stockholders. Indeed, so closely would the. proposed plan resemble in effect the method of taxing personal-service corporations, prescribed in the revenue act of 1918 t h a t it would be eminently proper—and probably a source of great convenience to the t a x p a y e r s concerned—to authorize personal-service corporations with the written consent of their stockholders to elect voluntarily to pay taxes for the years 1918 a n d 1919 on the basis pre-, scribed in the revenue act of 1918. E S T I M A T E S OF PROBABLE L O S S I N REVENUE RESULTING FROM T H E DECISION I N EISNER,V. MACOMBEK. ' The loss resulting from this decision falls into two principal classes, t h a t chargeable to the possible exemption of public-service corporations a n d their stockholders, and t h a t chargeable to the complete exemption of stock dividends. T h e r e ' a r e about 2,500 personal-service corporations having net income of approximately $30,000,000 involved, the taxes upon which, under existing law, do not exceed $6,000,000 for the year 1918, and a shghtly smaller amount for t h e year 1919. The aggregate loss for the" two years, 1918 and 1919, would 36 REPORT ON THE FINANCES. probably be between $10,000,000 and. $12,000,000.. .The need for legislation, in this connection arises not, so much from the possible loss of revenue as from the. obvious undesirability of' permitting 2,.500 corporations and their stockholders to escape both the taxes upon corporations and those imposed upon individuals. The loss resulting from the exemption^ of stock dividends is very difficult to estimate, owing to the fact that such dividends have' not in the past been, separately shown on the returns, while the losses from the exemption of stock dividends as such will be partially or wholly offset by the heavier taxes resulting from the decision upon any gains realized from subsequent sale of the stock, and by other offsetting factors which need, not be mentioned in detail. After consideration of these factors the Actuary of the Treasury Department estimates that t h e n e t loss or refund of taxes already paid—i. e., taxes for the period ending with the year 1918 will be in the neighborhood of $35,000,000— and that taxes for the year 1919 (payable in the calendar year of 1920)-will be reduced by approximately $70,000,000 on this account. These flgures may be regarded as maxima, and most of the experts of thfe department are of the opinion that the entire net loss resulting from the exemption of stock dividends will amount to less than $25,000,000. The suggestions made above do not comprehend all the changes in the present law which, in my opinion, could be advantageously adopted at the present session of Congress. I have conflned my suggestions to an irreducible minimum of measures, looking largely to t h e simpliflcation of the income and profits taxes, for the consideration of which there still remains time and action upon which at this session of Congress may reasonably be asked by the taxpaying public. I shall be glad, upon request, to submit drafts of amendments embodying the suggestions here presented, and to place at your disposal for the work of tax revision all of the personnel and facilities of the Treasury Department. Respectfully, .D. F. HOUSTON, Secretary. Income surtaxes. Since the adoption of the heavy war surtaxes in the revenue act of 1917, the Treasury has repeatedly called attention to the fact that these surtaxes are excessive; that they have passed the point of miaximum productivity and are rapidly driving the wealthier taxpayers to transfer their investments into the thousands of millions of taxfree securities which compete so disastrously with the industrial and railroad securities upon the ready purchase of which the development of industry and the expansion of foreign trade intimately depend. I t seems idle to speculate in the abstract as to whether or not a progressive income-tax schedule rising to rates in excess of 70 per cent is justifiable. We are confronted with a condition, not a theory. T h e fact is that such rates can npt be successfully collected. Tax returns and* statistics are demonstrating what it should require no statistical evidence to prove. F o r the year 1916 net income amounting to $992,972,985 was included in the returns of taxpayers having net income over $300,000 a year. This aggregate fell to $731,372,153 SECRETARY OF THE TREASURY. 37 for the year 1917 and to $392,247,329 for the year 1918. There is little reason to believe that the actual income of the richer taxpayers of the country had fallen in that interval. I t is the taxable iricome which has been reduced and almost certainly through investment by the richer taxpayers in tax-exempt properties. Whatever one may believe, therefore, about the abstract propriety of projecting incometax rates to a point above 70 per cent, when the taxpayers affected are subject also to State and local taxation, the fact remains that to retain such rates in the. tax law is to cling to a shadow while relinquishing the substance. The effective way to tax the rich is to adopt rates that do not force investment in tax-exempt securities. The simplest remedy for this situation would be a general reduction of the higher surtaxes, accompanied by increases in the lower surtax rates. I t is suggested that the Congress consider such a general revision, with a reduction to a maximum rate lower than that contained in the present law, provided acceptable new taxes of equal yield can be found. But; if for the immediate future it is found impracticable to reduce the higher surtaxes to a level which would induce or make it profitable for wealthier taxpayers to select taxable rather than tax-exempt investments, an effective remedy might be found in limiting the surtax rates possibly to about 20 per cent on that part of the taxpayer's income which is saved and reinvested in property or business yielding taxable income (hereinafter referred to as " s a v e d " income), leaving higher, rates—perhaps the present rates—upon income which is spent or wasted or invested in tax-free securities. By adopting this partial abatement, the yield of the surtaxes would not be as greatly reduced as if the general level of the surtaxes were lowered, a premium would be placed upon saving and a penalty upon spending, and a legitimate check would be imposed upon investment in nontaxable's. This policy could be applied in a number of different ways, which the proper committees of the Congress may desire to consider in detail. Thus, a reduction on all saved income could be given by including it in the taxable income at 80 per cent of the full amount; or the proportionate amount of surtax attributable to that part of the income which is saved could, for example, be reduced one-fifth, with a provision that such surtax should never exceed 20 per cent of the saved income. But the simplest plan would be to treat saved income as " at the top " of the taxable income, or, in other words, as subject to the highest surtax rates, and then limit the tax on saved income to 20 per cent or whatever other rate was selected as the proper limit. The last plan would work as follows in the case of a head of a family Avith no dependents having an income of $300,000, of which $100,000 is " s a v e d " and $200,000 spent. Under the present law he would pay $23,680 normal tax and $137,510 surtax, 38 ' ' REPORT ON THE FINANCES. or $161,190 in all. With the limited tax on saved income in the third form suggested above, the surtax on $200,000 of spent income would be $77,510; the 20 per cent surtax on $100,000 of saved income would be $20,000; and the total tax would be $121,190, a reduction of $40,000 from the present tax. I t is important to note not only that the limited rate of 20 per cent would make a " taxable " investment at 7^ per cent approximately as attractive, so far as Federal taxation is concerned, as a tax-free investment at 6 per cent, but.the taxpayer would have the tax abatement of ^$40,000 to use or iuA^est as additional capital, a consideration which would throw the balance in favor of investment in industrial or other taxable fields. The maximum loss of revenue which would result from the limitation of surtaxes on saved income to 20 per cent is estimated at $230,000,000. This could be made up by increasing the lower surtaxes, or, if it is thought wise, the normal tax, or by adopting some of the new taxes later indicated. I n any revision of the surtaxes, attention should be given to the serious direct loss involved in our present treatment of income derived from tax-free securities. The Annual Eeport of the Secretar}^ of the Treasury for the year 1919 called attention to the apparent injustice and unwisdom of the bounty or privilege now accorded to this class of income. I heartily indorse the remedial recommendations alluded to in the following excerpt from that report: In that connection I call attention to the urgent necessity of revisipn of the revenue law so as to require that, for the purpose of ascertaining the amount of surtax payable by a taxpayer, his.income from State and municipal bonds shallbe reported and included in his total income^ and the portion of his income which is subject.to taxation taxed at the rates specifled in the act in respect to a total income of such amount. The Treasury's recommendations in this respect have been transmitted to the appropriate committees of Congress in connection.with the revenue act of 1918, and again in the present calendar year. Under the present law a person having an income- of, say, $1,000,000 from taxable securities would, upon the sale of half his property and the investment of the proceeds of that half in State or municipal bonds, not only obtain exemption for the income derived from such investment in State and municipal bonds, but greatly reduce the surtaxes payable in respect to his other incoine. It is intolerable that taxpayers should be allowed, by purchase of exempt securities, not only to obtain exemption with respect to the income derived therefrom, but to reduce the supertaxes upon their other income, and to have the supertaxes upon their other income determined upon the assumption, contrary to fact, that they are not in possession of income derived from State and municipal bonds. ExcesS'frofjts tax. The reasons for the repeal of the excess-profits tax should be convincing even to those who on grounds of theory or general political philosophy are in favor of taxes of this nature. The tax does not attain in practice the theoretical end at which it aims. It discriminates against conservatively financed corporations and in SECRETARY OF THE TREASURY. 39 favor of those whose capitalization is exaggerated; indeed, many overcapitalized corporations escape with unduly small contributions. I t is exceedingly complex in its application and difficult of administration, despite the fact that it is limited to one class of business concerns—corporations. Moreover, it is rapidly losing its productivity. The invested capital of the average corporation, earning profits high enough to subject it to the excess-profit tax, is now estimated to be increasing at the approximate rate of 12 per cent a year, while the income of the average corporation is almost certainly declining at as great a rate. Both movements cut into the productivity of the tax. If the present changes"in capital and income continue for some time in the future, as now seems probable, large reduction may be expected in the yield of the excess-profits tax. For the present fiscal year, the profits tax, with collections of back taxes, is estimated to yield about $1,250,000,000, and for the fiscal year 1922 about $800,000,000, as against an estimated yield for the .fiscal year 1920 of slightly over $2,000,000,000. " . The excess-profits tax, however, must be replaced, not merely repealed, and I believe t h a t it should be replaced in large part by some form of corporation profits tax. This conclusion is based not only upon the Government's need for revenue but upon grounds of equality and justice. So long as taxpayers other than corporations are subject to a progressive income tax rising now to over .70 per cent, corporation profits should not be allowed to escape with a single tax of only 10 per cent. Individuals (and partnerships in effect) pay normal taxes and surtaxes upon, all net income, whether spent, saved, or retained in the business of the taxpayer. Corporations pay only normal tax on such income, although their stockholders pay in addition surtaxes on the profits of the corporation which are distributed as dividends. But no surtaxes are paid on or with respect to the profits not distributed. I t seems plain, therefore, that when the excess-profits tax is repealed some equivalent or compensatory tax should be placed upon the corporatiori in lieu of the surtax upon reinvested income paid by other taxpayers. Unless this be done, a heavy premium would be given to the corporate form of business. If, for example, three equal partners in a business invest capital of $2,000,000 and make net profits of $600,000, draw out $75,000 as salary and $75,000 as profits, leaving $450,000 in the business, these partners would together pay iriCo:tne taxes of approximately $279,570. But if they should incorporate the business, the total income and -capital-stock taxes on the co:rporation and its three stockholders would, in case the excess-profits tax were repealed, be only $75,865. One partial substitute for the excess-profits tax would be a tax on the undistributed profits of corporations as nearly as possible equal to the surtax imposed upon the saved income of the individual. If 40 REPORT ON TI-IE ^FINANCES. individuals doing business in partnership pay 20 per cent on undistributed profits, individuals doing business through the medium of the corporation should pay 20 per cent. This plan could be applied in many different ways: (1) The distributed profits of tlie corporation could be substituted for the so-called excess-profits credit of the excess^profits tax and the remaining or taxable profits be taxed at 20 per cent; or (2) a 20 per cent tax on undistributed profits could be applied as a corporation surtax under Title I I of the revenue act; or (3) corporations could in form be subjected to the same progressive surtaxes as individuals—a proposal which would prove very advantageous to all corporations with small incomes—with a proviso that the total surtax should never exceed an amount equal to 20 per cent of the undistributed profits. None of these plans presents any grave administrative diiBculty or involves any particular complexity of operation. If an undistributed profits tax be adopted, it should contain provisions expressly recognizing the various devices by which many corporations find it possible to distribute statutory " dividends," while actually retaining the profits in the business. The object should be to subject stockholders of corporations to the same tax burdens imposed upon the members of a partnership, and any procedure which facilitates the attainment of this object should be welcomed. The stockholders of any corporation should be permitted, for example, by a unanimous vote to elect to be taxed as the members of a partnership or as the stockholders of a personal-service corporation are now taxed under existing law. I t would be advisable seriously to consider the propriety of requiring every corporation, 95 per cent or more of the stock of which is held by one individual, to be treated as a partnership or„ personal-service corporation. This would go far toward solving the problem whose solution is now. vainly sought in section 220 of the revenue act of 1918. The object of these suggestions is to establish so far as possible an exact equivalence between the taxation of corporation stockholders and other taxpayers. The undistributed-profits tax appears to be one practical means of obtaining approximate equality of treatment. This is not only to satisfy a theoretical sense of justice. I t is, I believe, the course of practical wisdom. At some points the revenue law as now formulated discriminates unjustifiably against the individual in favor of the corporation. At others it discriminates unduly against corporations in favor of the individual. These discriminations operate to force man}^ business enterprises into forms of organization not intrinsically the best suited to their needs. Furthermore, the most troublesome problem of income taxation is the same in case of both corporations and unincorporated taxpayers, i. e., the repressive effects of heavy rates when applied SECRETARY OF THE TREASURY. i 41 . to income which is saved and reinvested. That and many other problems of personal and corporation income taxation will best be decided when linked together. We are now taxing reinvested income of individuals at rates which may exceed 70 per cent. The error of this treatment 'appears plainly when we attempt to apply such rates in the case of corporations. I t would be unthinkable to tax the saved income of corporations at 70 per cent. On the pther hand the stockholders of corporations are forced to pay through the corporation a higher normal tax than individuals. They receive no credit against this normal tax for the personal exemptions, and—under existing law—profits which have paid both the corporation income tax and the heavy excess-profits tax are again subjected, when distributed as dividends to stockholders, to surtaxes rising in some cases to 65 per cent. I n the latter instances the discrimination is against the corporation and its stockholders. Like treatment should prove in "the long run the surest means of obtaining just and wholesome treatment. Separate treatment will in the long run conduce to corporation baiting. If corporations insist upon different treatment, they are in the long run likely to receive worse treatment. The next revision of the tax law should place the income tax upon an enduring foundation of sound principle. Lasting solutions and not temporary makeshifts should be sought. The tax on undistributed profits has certain obvious disadvantages, as, in fact, have all tax proposals. I t is widely opposed because it would, in form, fall on reinvested profits, although the personalincome tax falls also on reinvested profits. I t is believed also by many honest and able men that, notwithstanding thei fact that it would reduce the tax burden upon corporations, it would tend to cause an undue dissemination of corporation profits and subject directors of corporations to a strong temptation to pay out as dividends profits actually needed in extending or maintaining the business itself. If,*in the opinion of the Congress, these or other difficulties make the undistributed-profits tax unavailable, the excess-profits tax might be replaced, in part at least, by a compensatory corporation tax, or " corporation surtax," at a flat rate. Such a tax, at any practicable rate, can not be made the equivalent of the individual or personal surtaxes on reinvested iricome. I t would leave the corporation tax less burdensome than the personal tax on some business concerns and more burdensome than the personal tax on others. The undistributedprofits plan would tax income saved by corporations at the maximum rate paid bj^ individuals on saved income, while leaving the corporation an option to distribute the profits—eitlier constructively or actually-^and thus subject such profits to taxation in the liands of the stockholders. But the " corporation surtax " has the great merit of 42 REPORT ON T H E FINANCES. simplicity, and such a tax has recently blen adopted in the United Kingdom for precisely the purposes here set forth; that is, to secure from corporations some contribution in lieu of the surtax collected from individuals on reinvested income. The discussion of this tax by the chancellor of the exchequer iri his firiancial statement of April 19^ 1920, is enlightening, arid it is quoted in part below. The italics are mine: CORPORATION-PROFITS TAX. I propose therefore to introduce this year a new tax which, for the time being, will be levied concurrently With the excess-profits duty, but which, either in the form in which I propose it or in an amended form, may in the future prove a substitute for it. The character of the new tax, a permanent tax, has been the subject of most anxious consideration by the Government and myself and, as I have previously mentioned, I think, in the House last year, I sent out a mission to Canada and the United States to investigate and to study the schemes of profits taxation in force in those countries, and. to see whether we could derive any lessons of use'to us from their, practice and experience. The results of the inquiry' and of independent investigation in this country have not served to remove the difficulties which presented themselves to our first consideration of the proposal for a taxation of profits in excess of a certain return upon invested capital, and have not enabled us to see our way to adjust such a tax to existing business conditions and customs in this country. We, therefore, abandoned the idea of creating a tax on profits in excess of a fixed standard and we propose to have recourse to a dift'erent measure. I may describe our proposafas a corporation tax levied at the rate of 1 shilling in the pound on the profits and income of concerns with limited liability, engaged in trade or similar transactions. This tax will run concurrently with excess-profits duty until that duty is repealed. Where a concern is liable to both taxes, any excess-profits duty payable will be treated as a working expense in arriving at the profits for the purpose of the new tax. Both excess-profits duty and corporation tax will be deducted before the assessment of profits for income tax, and to prevent the new tax constituting too severe a burden on the ordinary shareholder of existing concerns in which there are large issues of debenture and preference shares, where a considerable proportion of the profit has to be allocated to the payment of interest and fixed dividends thereon, we propose that in no case shall the duty exceed 2 shillings to the pound on the profits which remain after the payment of .such interest and Iividends on existing issues of debentures and preference shares. I ^oould remind the committee that under the provisions of the excess-profits duty prosperous concerns with a large prewar profit sta.ndo,rd may escape liability for the tax because their present profits, thougTi high, are not in excess of their standard, and, at any rate, they pay a tax on what all of us think an unduly low scale. Incidentally, the new tax loill do something to correct this anomaly. But I justify it on much broader grounds. Companies incorporated with alimAted liability enjoy privileges and conveniences by virtue of the laio for ivhich they m,ay well be asked to pay some acknowledgment. But, more than that, partners in a private partnership pay supertax not merely on the profits which they divide, but. also on the undivided profits lohich.they place to reserve. No such charge falls upon the undivided profits of limited liability companies. The corporation tax is justified by this distinction of the existing law in favor of such corporations, and it may be regarded as a composition in lieu of the liability to supertax. SECRETARY OF THE TBEASURY. 43 A flat corporation surtax of adequate rate could probably be sub-stituted for the excess-profits tax without serious loss in revenue. Whether any loss would result by the substitution of an undistributedprofits tax is problematical. The shrinkage in the tax collected from •corporations as the result of distributed profits would be partially counterbalanced .by an increase in the taxation of the stockholders of the corporations involved. Furthermore, the yield of the excessprofits tax is declining and may decline rapidly in the near future. Two hundred million dollars is probably a maximum allowance for the loss of revenue that would result in 1922 if the excess-profits tax were replaced (as of Janiiary 1,1921) by an undistributed-profits tax of 20 per cent. New taxes capable of yielding approximately this amourit should be selected from the additional taxes suggested below or from other sources in case the undistributed-profits tax is adopted. Excise and luxury taxes. I n the case of individuals who pay income tax, particularly surtax, the income tax operates as a ge:Qeral and perhaps the best form of luxury taxation. But there is luxurious or wasteful consumption among those persons who do not ordinarily pay income tax, and to reach this,class of surplus income of taxable capacity excise or sales taxes—here briefly referred to as "consumption taxes"—must be employed. I t is not necessary, however, to tax every luxury. Consumption is elastic. If the tax is laid upon tobacco and the particular consumer prefers tobacco to candy he will reduce his consumption of candy in order to secjire his accustomed supply of tobacco. I t is desirable to avoid absolute necessaries of life, however, because some individuals have little or no waste income to be tapped either directly or indirettly. But if the absolute necessaries are avoided, the selection of other articles of taxation should be controlled by practical considerations of simplicity and convenience. I n appearance consumption taxes do not conform to the theory of " ability to pay." But when used as supplementary to a highly progressive income tax they do not necessarily—if moderate in amount and properly selected—violate this principle. The system of taxation may conform to this principle, though each tax may not. The continued use of consumption taxes in the budgets of the most advanced countries seems to prove that they have a legitimate though restricted place. Consumption taxes must be largely justified, if at all, by the practical virtues of certainty, corivenience, productivity, and efficient collection. Some of the excise or consumption taxes at present imposed by the revenue act of 1918 do not meet these tests. On this account I recommend the repeal of the taxes upon fountain drinks, ice cream, and other "similar articles of food-and d r i n k " imposed by section 44 REPORT ON T H E FINANCES. . 630; the excess price or so-called " luxury " taxes imposed by section 904; and the taxes imposed upon medicinal articles by section 907 of the revenue act of 1918. These taxes are not highly productive (yielding in the aggregate less than $50,000,000 in the fiscal year 1920); they are ill defined and uncertain; they are vexatious and expensive to the dealers who pay them; and I am informed by those in charge of their admiriistration that they are widely evaded and that such evasion can not be stopped without the employment of a larger number of agents and measures more drastic than the potential importance of these taxes would justify. To this last statement there is one possible exception: The taxes imposed by section 907 apply not only to patent or proprietary medicinal preparations but to perfumes, toilet waters, cosmetics, and a long list of allied luxuries. The most striking defects of the present tax affecting these articles would be remedied by collecting the tax not on the individual sale but from the manufacturer, producer, or importer; and if the tax seems important enough to retain, it should be changed from the present basis to that suggested. I t may be added that Canada has just changed the method of collecting stamp duties on patent and proprietary medicines and perfumery by having the stamps affixed b}^ the manufacturer or importer and not by the retailer. Additional sources of revenue. The loss of revenue which would result from the adoption of the 23receding recommendations, together with the loss to result even under existing law from the shrinkage of business, would have to be made up from new sources. For the convenience of thfe committees of the Congress which will be directly responsible for tax revision, I set out below a number of new or additional taxes capable of }jielding in the aggregate as much as $2,000,000,000 a year. These estimates are based upon, conditions in the midsummer of 1920, and changes in the future may affect the revenue yield of the taxes mentioned. Source. Tax rate. E.stimated additional yield for a 12-month period. Increase the 4 and S per cent rates to iS1.50,940,00(}' 6 and 12 per cent. Readjusted surtax rates. 2 230,000,000(2) Corporation income tax. 3 465,000, OOO Additional 6 ner cent . Do 58,000, ooa Abolish S2,000 exemption l i t is e.stimated that an increase of the 4 and 8 per cent normal income-tax rates to 5 and 10 per cent, respective l.V, would yield during a 12-month period additional revenue amounting to $75,470,000. Itisalsoestimated that if only the 8 per cent normal income-tax rate is increased to 12 per cent, the additional: revenue to be derived therefrom during a 12-month period would amount to $103,090,000. 2 The surtax rates, .^hown on pa.ire 45, it is estimated, would yield the same amount, $990,000,000, asthe present surtax rates. Inasmuch as the loss of revenue resulting from the abatement of surtaxes on saved or reinvested income has been estimated at $230,000,000, only this amount has been included in the table of suggestions. 3 It is estimated that an increase in the corporation income tax from 10 to 12 per cent w-ould yield during a 12-month period an additional revenue of $118,800,000. Normalincome tax. 45 SECRETARY OF T H E TREASURY. Source. Estimated additional yield for a 12-month period. • Tax rate. Corporation undistributed profits tax: Increase in corporation income tax, estimated at $190,000,000. Additional revenue from the application ofthe surtax rates to dividends distributed by corporations to avoid the'20 per cent undistributed profits tax, estimated at $500,000,000. Stamp taxes, Title XI, act of 1918 20 per cent Individual surtax rate. $R90,000,000 Double rates in subdivision 10 and quadruple rates in subdivisions 1-9 11, and 12. . Federal license tax on use of automobiles 50 cents per horsepower Cigars , 25 cents per 1,000 additional Cigarettes, weighing not more than 3 pounds per $2 per 1,000 additional : l;000.. Tobacco and snuff 6 (jents per pound additional. Gasoline 2 cents per gallon Admissions to theaters 10 per cent additional Increase rates on following articles specified in 5 per cent additional section 900 of the revenue act of 1918: Automobiles (other than automobile trucks and wagons) and motor cycles, including automobiles . and motor-cycle tires, inner tubes, parts, and accessories (subdivisions 2 and 3). Musical instruments (subdivision 4) .do., Chewing gum (subdivision 6) 7 per cent additional. Candy (subdivision 9) 5 per cent additional. Toilet soap and toilet-soap powders (subdivi- 7 per cent additional. sion 21). Jewelry and Articles of precious metal (sec. 905, 5 per cent additional. revenue act of 1918). Motion-picture films (sec. 906, revenue act of do 1918). Perfumes, cosmetics, and medicinal articles, a 10 per cent tax upon the sale by the manufacturer, producer, or importer in lieu of the tax imposed under section 907, revenue act of 1918, of. I 134,000,000 100,000,000 •5,000,000 70,000,000 8,000,000 90,000,000 70,000,000 100,000,000 13,000,000 2,000,000 20,000,000 4,000,000 25,000,000 4,ooo;000 16,oop; 000 1 If the stamp taxes imposed by Title XI ofthe revenue act of 1918 were doubled the additional yield for a 12-mont.h period would, it is estimated, be $90,000,000. The following surtax rates, limited to 20 per cent on saved or reinvested income, would yield, it is estimated, as much as the present surtax rates > . Surtax rates. Incomes $5,000-$6 000 $6,000-$8,000 $8,000-$10,000 $10,000-$15,000 $15,000-$20,000 $20,000-$30,000 Surtax rates. Saved income. Remainder of income. Per cent. 2 5 10 12 15 20 Fer cent. 0 2 5 ]0 12 15 20 Incomes. $30 000-$40,000 $40,000-$50,000 $50,00O-$75,000 $75,000-$100,000 Over $100,000 Saved income. Fer cent. 20 20 20 20 20 Remainder of income. Fer cent. 25 30 35 40 50 These possible sources of revenue are mentioned for the information of the Congress. While I shall not attempt to discuss them in detail, attention should be called to the new or ad(iitional consumption taxes included. Eeasons have been given above for the belief that no valid objection exists against the employment of a moderate number of consumption taxes properly selected; but it would, in my opinion, be neither wise nor expedient to increase radically the 46 REPORT ON T H E FINANCES. volume of consumption taxation. During the last .fiscal ^^ear the taxes on transportation and insurance, beverages, tobacco products, adinissions, and dues, together with the excise or sales taxes imposed b.3^ Title IX.of the.revenue.act^^taxes wliix^h ^may be roughly'grouped as consumption;taxes--yyielded $1,150,386,7^^^^^ ^Xper cent of the total internal taxes. If necessary this amount could be moderately increased to perhaps 25 or 30 per cent of the total. But I can see no justification for a general-sales tax designed to substitute indirect taxes falling on the consumer for the income lax which now furnishes the backbone of the Federal fiscal system, nor even for an increase in specific sales or consumption taxes which would yield perhaps two billions in place of the one billion, approximately, now collected from the consumer. The j^articular articles included in. the suggested list of additional consumption taxes have not.been selected because their use is particularly liarm:ful or in any sense less legitimate than the use of articles not so included. Consumption taxes must be judged by liractical standards. What should be sought are a few consumption taxes which will tap the surplus income which is being wasted, not a. conglomerate multiplication of petty taxes upon every article of luxurious or unnecessar}'- consumption, which can neither be clearly defined, cheaply collected, nor administered without widespread evasion. Adm/lnistrative amendments. A number of important technical and administrative amendments were recommended in my letter of March 17, 1920, to the chairman of the Committee on Ways and Means, previously quoted. Theserecommendations have been substantially embodied in TI. E. 14197 and H . E. 14198, both of which have already, passed the House of Eepresentatives. I earnest^ hope that these bills may be promptly enacted into law. Tax exemptions of Liberty bonds and Victory notes. The attention of the Congress is again invited to the recommendation made in the Annual Eeport of the Secretary of the Treasury for1919, on pages 96-100, that legislation be enacted to simplify and consolidate the limited exemptions of 4 and 4 | joer cent Liberty bonds^ from surtaxes and profits taxes. The existing situation with respect to these exemptions, which were conferred upon Liberty bond holders by legislation enacted from time to time during the war, is fully set forth in the annual report for 1919. A provision embodying the Treasury's suggestions as to the simplification of these exemptions.^ was incorporated in H. E. 13355, introduced in the House of Eepre- SECRETARY OF TIIE TREASURY. 47 sentatives on March 30, 1920, and referred to the Committee on Ways and Means, and again in section 6 of H. 3.14198, which passed the House of Eepresentatives on May 27, 1920, and has been referred to the .Conimitteerori 'l?inance :of the Senate. I. believe that these simplified exemptions should be enacted into law and that any slijght loss of revenue which may result will be more than counterbalanced by the gain to the Treasur.y which will result from the increased attractiveness of the taxable issues of Liherty bonds and the conse((iient benefit to the Government's credit, as well as from the simplification of administration in the Bureau of Internal Eevenue. ECONOMY. The necessity of rigid econom}'- in Government expenditure, as a coridition of any sound financial program, has already been emphasized. Government expenditures m u s t be reduced to the minimum consistent with efficient service and an effective national budget system must be established. Any consideration of the problem of public econom}^ must take into account, however, the various elements in the existing situation and the facts as to the nature and distribution of the expenditures. Perhaps the most fundamental fact is that, apart from maturities of the floating debt, the Government of the United States has balanced its budget and that the current operations of the Treasury are now showing a surplus. On the basis of daily Treasury statements, the total ordinary receipts for the fiscaL year ended June 30, 1920, amounted to $6,694,565,388.88 and current ordinary disbursements amounted to $6,766,444,461.09, leaving a net current deficit (excess of current ordinary disbursements, over ordinary receipts) of only $71,879,072.21 for the fiscal year 1920, the first full fiscal year after hostilities ceased. -After taking into account the special deposit of the W a r Finance Corporation, resulting from the redemption of its holdings of United States securities, the net ordinary disbursements for the fiscal year ended June 30, 1920, were $6,403,343,841.21, leaving an adjusted surplus (excess of ordinary receipts over net ordinary disbursements) of $291,221,547.67 for the fiscal year. For the first quarter of the current fiscal year, through September 30,1920, the total ordinary receipts of the Government, on the basis .of daily Treasury statements, amounted to $1,540,000,000 as against ordinary disbursements during the same period of $1,251,000,000, resulting in an excess of ordinary receipts oyer ordinary disbursements of $289,000,000 for the quarter. The remaining three quarters of the fiscal year, when completed, should also show a substantial excess of ordinary r„eceipts over ordinary disbursements, which must be applied to the retirenient of the floating debt and the operations of the sinking fund. With 48 ' REPORT ON TPIE FINANCES. ' out substantial reductions in the estimated expenditures for the fiscal years 1921 and 1922, however, the surplus applicable to the public debt will not be sufficient unless additional revenues from taxation are provided. An analysis of Government expenditures for the fiscal year 1920, on the basis of daily Treasury statements, develops the striking fact that of the net ordinary disbursements of $6,403,000,000, about 90 per cent consisted of expenciitures under the following main heads: Purchase of obligations of foreign Governments.War Department Navy Department Shipping Board Federal control of transportation systems and payments to the railroads under the transportation act, 1920 Interest on the public debt —_ . Pensions : '. War-risk insurance L Purchase of Federal farm loan bonds Total— $421, 000, 000 1, 611, 000, 000 736,000,000 531,000, 000 1, 037, 000, 000 1.020,000,000 213, 000, 000 117, 000,000 30, 000, 000 5, 716, 000, 000 Substantially all the expenditures entering into this total, and a large share of the expenditures on various minor accounts, represent burdens directly traceable to the war, to past wars, or to preparedness for future wars. These figures serve to indicate the direction which sincere efforts to reduce the cost of the Government must take. I n considering governmental economy, one practice of recent origin must not be overlooked, namely, that of making revolving-fund appropriations and authorizing receipts to be credited as repayments to appropriations. I t has been frequently objected to by the Treasury as a peace-time measure. I t s evils were pointed out at length in the . Annual Eeport of the Secretary of the Treasury for 1919, on pages 126 to 129. A still more questionable tendency has recently shown itself, notably in the merchant marine act, 1920, in the form of statutory provisions relieving various interests of profits taxes, thus diverting monej^ from the Treasury just as truly as if carried as an appropriation. Practices of this character are destructive of any program of econoniy and would greatly impair the working of a budget system. I t is clearly desirable that henceforth no moneys be taken out of the Treasury except by direct and definite appropriation. The following table, analyzing appropriations made and expenditures authorized by the Sixty-sixth Congress, second session, strikingly illustrates the extent of the burdens imposed upon the Treasury this year .by indefinite and indirect appropriations, in addition to the total appropriations customarily shown as carried by law: SEORETARY OF THB TREASURY. 49 A p p ^ o p H a t i o n s m a d e and expenditures authorized by the Sixty-sixth Congress, second session. DIRECT A P P R O P R I A T I O N S , Total appropriations under annual appropriation acts P e r m a n e n t and indefinite a p p r o p r i a t i o n s . . Miscellaneous appropriation acts—' Deficiencies „_! Total _..-___ .__: ADDITIONAL AUTHORIZATIONS.'^ •- $2, 212,084, 098. 78 1,425,407,752.29 ' 156, 501, 585. 78 986, 836, 073. 50 4, 780, 829, 510. 35 --. Additional, expenditures authorized from various balances of prior appropriations and from receipts Authorizations for United States Shipping B o a r d : Estimated expenditures authorized . " from the " Emergency shipping fund " during fiscal year 1921, from the several classes of receipts as provided in the sundry civil act, ., J u n e ..5, 1920^-_J_____-,__^_:___^_ $250, 000, 000. 00 Unexpended balance on h a n d J u l y 1, 1920, under appropriation *' :EnTergency shipping fund," made available for expenditure during fiscal year 1921 by same act 62, 671, 670. 34 — — •Estimated expenditures authorized under indefinite appropriations provided by t h e transportation act, Feb. 28,, 1920, on account of r e t u r n of railroads to private control— $210, 937, 608. 07 312,671,670.34 570, 000, 000. 00 Total additional appropriations and authorizations 1, 093, 609, 278. 41 Grand total, appropriations and authorizations—, 5, 874, 438, 788. 76 A BUDGET S Y S T E M . The creation of a Federal budget system is an urgent necessity. I t was needed when the expenditures of the Government were relatively small; now that they are vastly greater, it is imperative. The national finances must be handled on a business basis. They can not be under the present.arrangements. The Secretary of the Treasury is now merely the medium through which estimates of appropriations are transmitted to the Congress. The estimates are not jointly considered by executive agencies. They are made up separately by the several departments. The country does not get a complete view of them. Congress considers them piecemeal and without specific reference to income. I t spends much time on details, instead of considering larger matters which really make for effective control 13799—FI 1920 4 50 REPORT ON T H E FINANCES. of the finances. The system was the subject of criticism and discontent even before the war. I t is now condemned in unmeasured terms and there has arisen a popular demand for scientific improvement that would seem to impel action. Private enterprise relates its expenditures and its activities to its income under the controlling influence of profits., This has resulted in scientific business management in most of the great industries. The Government has grown from a relatively small affair to a great institution. Its management is a business operation which should be conducted in accordance with enlightened principles. I t has not the stimulus of profits, as understood in private business, to increase its efficiency. I t s profits are not expressed in dollars and cents, but in the benefits to the people of the country and the results achieved. Its ultimate possible cost is limited only by the ability of the people to pay under the power of taxation. Financial burdens upon the people will be needlessly maintained or increased unless the system is reformed. This can be accomplished only by the establishment of an effective budget system which would point the way to coordination of the activities of Government and control of the expenditures with due regard to income. I n the first place, a budget system should provide for the formulation and submission to the Congress of unified estimates. These should consist of a well-balanced scheme in which the cost of each activity would be properly related to the cost of the whole and to the Nation s income. The responsibility for the preparation of the budget should be placed upon the President, and, in my judgment, he should meet it through the Secretary of the Treasury, the chief fiscal officer of the Governmentr ^I believe that the budget bureau should be established in the oflice of the Secretary of the Treasury. He is the officer charged by law to jirovide funds for expenditures. I t would appear that the preparation of the budget should be the principal function of the chief' Government finance officer. I t is indefensible that he should be/charged with the duty of keeping an adequate balance in the general fund to meet any and all demands and denied any word with respect to the determination of the expenditures of the Government outsidfrWi gwn department. To place the budget bureau in the office of the President, as is sometimes urged, would mean the/creation of an establishment likely to overshadow, or to be overshadowed by, the great departments of the Governihent and, what is more important, would mean a division of responsibility with respect to receipts and expenditures which should be centralized under on^ control. The Secretary of the Treasury, acting for the President, should have power to reduce and revise the estimates. Under his cirection the bureau of the budget should SECRETARY OF THE TREASURY. 51 make a continuous study of the various Government agencies, with a view to the elimination of duplicated work and wasted effort. If this responsibility is placed upon the Treasury, the Bureau of War Eisk Insurance, the Public Health Service, the Office of the Supervising Architect, the General Supply Committee, and the prohibition unit of the Bureau of Internal Eevenue simultaneously should be transferred to the jurisdiction of some other department, as recommended later in this report. I n the second place, the budget should receive initial consideration by the Congress through a single great budget committee for each House. These committees should consider both the appropriations' and the ways of raising the revenue to meet them. There should be a rule that after the committees have made their reports no addition can be made to any item in the budget except by an unusual vote, such, for instance, as two-thirds. I t would be an important achievement if the Congress would go further and, as - far as the budget presented by the President is concerned, impose a limitation on the right to increase any item either in committee or on the floor, unless recommended by the Secretary of the Treasury or approved by two-thirds of the membership of the Congress. The Congress should, of course, retain the right to reduce itejns in the budget, but if the President is to be held responsible for a fi:nancial program it should exercise restraint in increasing the budget as submitted by him. In order that there may be no interference with the constitutional right of the Congress to appropriate money apart from the budget, it appears to nie that such appropriations should be made in separate bills. These should also provide for the necessary revenue to meet the proposed expenditures in case the estimated revenues of the Government are not sufficient. A plan of this character would definitely place the responsibility for expenditures before the people of the country. ' The third step in the formulation of an adequate budget scheme is the establishment of an effective auHit. At the present time the auditing force consists of the Comptroller of the Treasury and six auditors. Their audit of the Government's. accounts is to insure that expenditures are made in accordance with law. These offices should be consolidated into one organization and the scope of their worK anlarged so as to include not only the examiiiation of accounts as to accurac}?- and legality, but also the desirability of the expenditures and the adequacy of the results. The head of/this accounting organization and the assistant head, who for convenience may be*called the Comptroller General of the United States and the Assistant Comptroller General of the United States, shouM be appointed by the President, by and with the advice and conseint of the Senate. They &2 REPORT ON TFIE FINANCES should not be regarded as political appointees and should be free from partisan considerations. Their terms of office should not be limited to any specified period of years. They should be permitted to continue during good behavior and efficient service and be subject tp removal by the President. I t is not to be supposed that any President, in view of the very nature of the offices, would remove these officials except in the public interest. The reports of the Comptroller General should be made to the President and to the Congress. The Treasury, except as a matter of organization, is not particularly concerned with the question whether the general accounting office should be attached to this department, as is the case under the present accounting sj^stem, or established as an independent unit. There is much to be said, theoretically, for a separate and independent auditing establishment. I t is sound budget practice. Its advantages, however, are probably more apparent than real. Without question, the comptroller general must be free and untrammeled in his decisions and his criticisms. There must be no interference with him in giving any information he may desire to the President, the Congress, or the people. As a part of the Treasury, he would have behind him the support and prestige of this great department, which would have every reason to uphold his independence, as is the case under the existing order. I t would appear that his association with the Treasury would be an asset rather than a liability tb him in the free exercise of his functions. He probably would be stronger than if standing alone. Furtherinore, the fiscal operations of the Treasury and the accounting system are intertwined. For instance, every warrant signed in the name of the Secretary of the Treasury for the deposit of funds in the Treasury or the withdrawal of funds from the Treasui:,y is countersigned in the name of the Comptroller of the Treasury. This countersignature would probably be continued under a budget system. The operations of the two establishments would be so closely connected that it would seem that they would functicm more effectively and easily if they were under the same head. These observations are presented for consideration. The Treasury, however, offers no objection to the separation of the accounting system from th^s department, if, in the wisdom of the Congress, such action seeiris desirable in the creation of an effective budget. If the activities of the Treasury which I propose be transferred to some other department are not transferred, it would appear that the auditing system should be erected as an independent establishment. . ( A budget system will, not only be a great step forward in improving the business methods of the executive agencies, but it will also be one of the best means of giving the people of the country complete information with respect to the operations of their Govern SECRETARY. OF THE TREASURY. ' 53 ment, the efficiency of its management, and the results achieved in relation to the cost of the undertaking. The postponement of this reform is inconsistent with our conceptions of democracy. The Congress already has devoted attention to this important question, having passed a measure which the President returned because of a constitutional objection. The PCouse passed the bill modified to meet that objection. I n its revised form, it is believed that the bill, together with supplementary action already taken by the Congress in modifying its rules and further steps which may follow, will provide the foundations of an adequate budget system, although, of course, experience may point the need of amendment. I t is earnestly recommended that the Congress give this matter consideration at the present session. , LOANS TO FOREIGN G O V E R N M E N T S . Under the acts of Congress of April 24, 1917, September 24, 1917, April 4, 1918, and July 9, 1918, the Secretary of the Treasury was authorized to establish credits in favor of foreign Governments engaged in war with enemies of the United States, and to the extent of these credits to make advances to such Governments through the purchase at par of their respective obligations. The amounts appropriated for such loans by the respective acts were as follows: Act Act Act .\ct . Apr. 24, 1917 Sept: 24, 1917 Apr. 4, 1918— .luly 9, 1918 1 $3,000,000,000 4,000,000,000 1,500,000,000 ^— 1, 500, 000, 000 •—.^^ 1 Total -/ — 10, 000, 000, OOO Under this authority loans w^re made during the war and after the armistice for the purpose ini general of enabling the respectiye Governments to meet commitments made in the United States in connection with the prosecution of the wa^r. During the past fiscal- year the Secretary of the Treasury has continued to allow credits and to make advances only to the extent to wlii^ii he had previously made commitments. From November 15, 1919,1 to November 15, 1920, credits were established as follows: \ Belgium Czecho-Slovak Republic Italy .___ ., And advances were made as follows: Belgium— Czecho-Slovak Republic Erance —— Greece Italy : ^_ ^-._. _V_— W. : _f $6,983, 793. 77 12, 000;000. 00 45, 337, 306. 73 | jL | 1 1 I $10, 469, 467. 89 8, 566, 206. 74 110,000,000. 00 15,000, 000. 00 20, 416,114. 00 No credits were established/under the Victofry Liberty loan act. / 54 REPORT ON T H E FINANCES. I n certain instances in which the purpose was accomplished without requiring the total amount of the credit or the advance, the balance of credit was withdrawn or the unused portion of the advance was repaid. Certain repayments were made in connection Avith the routine of the accounts. A repayment was made by Cuba as the first step toward discharging the indebtedness of the Cuban Government to this Government. Withdrawals of credits from November 15, 1919, to November 15, 1920, were as follows: Belgium Czecho-Slovak Republic j _ _ _ — $1, 214, 32.5. 88' 958. 90 Eepayments were made during the same period as follows: Cuba— France 1 J Great Britain Roumania _ Serbia —________:_ '_ $500, 000. 00 19, 302, 357. 55 23, 017, 633. 57 _ - i , 794,180. 48 ____ 605,326. 34 _ There have also been received the following sums, application of which will be made in due course: Belgium_ _— ^ France^—_^^___^_^_ . . $1, 512, 901. 66 17, 246, 490. 00 From April 24, 1917, up to November 15, 1920, the credits established (after deducting credits which had been withdrawn) and the cash advances were as follows: Credits \ Other charges Balances under established net. v Cash advanced. agamst credits. established. credits. Countries. Belgium Cuba Czechoslovakia. FranCe Great Britain Greece Italy. Liberia . Roumania Russia Serbia '. $349,214,467.89 10,000,000.00 67,329,041.10 3,047,974,777.24 4,277,000,000.00' 48.236,629/05 1,666,260,1,79.72 5,000,.<500.00 V. 25,oop;000.00 187,729,750.00 ; 2^^780,465.56 \$349,214,467.89 10,000,000.00 ,/ 61,256,206.74 2,997,477,800.00 4,277,000,000.00 15,000,000.00 1,631,338,986.99 26,000.00 25,000,000.00 187,729,750.00 26,780,465.56 $33,236,629.05 9^10,525,310.56 9,580,823,677.18 33,236,629.05 $6,072,834.36 50,496,977.24 • 34,921,192.73 4,974,000.00 96,465,004.33 Of the foregoing advances there/ have been repaid up to November 15, 1920, by— British Govermnent ./ $SQ, 181,641.56 French Government f 3i, 449,357.55 Roumanian Government Jh. 1,794,180.48 Serbian Government .¥ 605,326.34 Cuban Government n 500,000.00 Belgian Government \rl 10,000.00 Detailed statements khowing the dates and amounts of credits and advances to foreign Glovernments are attached hereto as Exhibits 24 and 25, pages 325 to|337. No further credits Swill be extended under existing legislation by the Secretary of th Treasury in favor of any foreign Govern\ SECRETARY OF THE TREASURY. 55 ment, and consequently iio further advknces will be made to. Governments in favor of which there are no existing balances. Present balances are as follows: Czeclio^Slovak Republic France^ ^ ^__^___ Greece: Italy Liberia '— _^. . ^ $6,072, 834. 36 50, 496, 977. 24 . 33, 236, 629. 05 34. 021,192. 73 4, 974, 000. 00 The credit of which a balance remains in favor of the Czechoslovak Eepublic was granted for the purpose of assisting that Government to repatriate its troops from Siberia. The movement of the troops has been substantially completed and a large part of the expenses paid. I t is not expected that the remaining liabilities on this account will require the advance of more than a part of the balance. I t is estimated that advances of not more than $21,070,000 will be required to accomplish the purposes for which the balance in favor of France was arranged. The credits in favor of Greece were established pursuant to a special agreement made early in 1918, under which the United States, Great Britain, and France undertook to lend to the Greek Government for specified purposes, in equal shares in their respective currencies, up to the equivalent of 250,000,000 francs each. Although a special charge has. been created aga/inst the credits established, by the United States, th*e advances to be made, and consequently the amount of the special charge, are limited by the purposes set forth in the agreement. Further advances b?y the Treasury will probably not exceed the sum of $28,900,000. / The balance of credit in favor of Italy was extended for the purpose of enabling the Italian Gcivernment to make certain reimbursements in dollars to the British Government. The amount of these reimbursements has been determihe^d to be $16,695,063.91. Further advances to Italy are therefore not ^xpected to exceed this amount. The British Government has agreed that upon receipt of this amount from the Italian Government it will paj^ it to the Secretary of the Treasury to be applied by him upon obli^^ations held by the United N States Government. v \ Advances to Liberia will be made only tor specific purposes for which commitments have heretofore been incurred. I t is not expected that they will exhaust the entire balance of credits in favor of Liberia. All balances of credits in excess of the amjount necessary to carry out the commitments will be withdrawn in dide course. For these advances, the Treasury holds pbligations in the form of certificates of indebtedness to the Unitf^d States, payable as to principal and interest, without deduction [for taxes of the debtor 56 REPORT ON THE l^NANCES. Government, in gold coin of the United States of the present standard of weight and fineness at the Subtreasury of the United States in New York or at the Treasury of the United States in Washington. Certain of them, at the option of the holder, are payable in the money of the debtor country; some at a fixed rate and others at the buying rate for cable transfers of the currency of the debtor country in the New York market at noon on the day of demand as determined by the Federal Eeserve Bank of New York. The certificates of indebtedness are signed in the name of the respective debtor Governments by representatives of such Governments designated to the Treasury by the Pepartment of State as being authorized to sigOi them in the name and on behalf of the respective Governments. The earlier certificates were payable at fixed dates of maturity, aU which are now past, so that they are now held as demand obligations.. They bore interest at various rates of interest from 3 per cent per annum upward. Those subsequently taken are payable on demand and bear interest at the rate of 5 per cent. By arrangement with the respective Governrnents substantially all the obligations have since May 19,1918, borne interest at the- M^jp of 5 per cent. The certificatesof indebtedness are receivable in' payinent for bonds of the debtor Government or else are convertible into bonds in conformity with the provisions of the various Liberty bond acts in effect at therespective dates of the certificates \pfltidebtedness. All the obligations are of the same general charaC'jter. The following is a skeleton copy of an obligation received und^r the fourth Liberty bond a c t : CERTIFICATE OF IN]bEBTEDNESS. \ $ (amount in figures). The Government of (name of foreign Government),"for value received, promises to pay to the United States of America, ,or assigns, the sum of (number of dollars in words) on demand, with interest from date hereof at the rate of (rate per cent) per cent per annum. Such' principal sum and the interest thereon will be paid without deduction for anv (name of foreign Government) taxes, present or future, in gold coin of the.TJnlted\States of America of the presentstandard of weight and fineness at tlie Subtreasurj^f the United States in New York, or, at the option of the hol/der, at the Treasury^-of the United States in Washington. / This certificate will be converted by the Government of (name of foreign^ Government) if requested by/the Secretary of the Treasury of the United States of America, at par.witlVan adjustment of accrued interest into an equal par amount of (rate per cent/} x)e.iicent convertible gold bonds of the Government of .(name of foreign Gcbvernment), conforming to the provisions of actsof Congress of the United Stites known, respectively, as second Liberty bond act, third Liberty bond act, ?and fourth Liberty bond act. If bonds of the • United States issued under au^thority.of said acts shall be converted into other, bonds of the United" States bearing a higher rate of interest than 4 i per cent per annum, a proportionate paift of the obligations of the Government of (name of foreign Government) of this) series acquired by the United States under au- SECRETARY OF THE TREASURY. 57.' thority of said acts shall, at the request of said Secretary of the Treasury, be> converted into obligations of said Government of (name of foreign Government), bearing interest at a rate exceeding that previously borne by this obligation by the same amount as the interest rate of the bonds of the United States^ issued upon such conversion exceeds'the interest rate of (rate of this obligation)' per cent, but not less than the highest rate of interest borne by such bonds^ of the United States. » (Signature of representative of foreign Government.) For the Government of (name of foreign Government). day of . Dated the -^ To and including November, 1918, the dates for the collection of" interest from foreign Governments were May 15 and November 15... In the spring of 1919 the respective Governments were informed^ that it would be convenient for the Treasury to receive seiniannual. payments of interest on April 15 and on October 15 on approximately two-thirds of their respective obligations, and on May 15 and Novem15 on the remainder. The full amount of interest due up to April 15,.. 1919, or May 15, 1919, was, except in the case of Eussia, paid :Ln easily: on all these loans. To the extent that such interest was not paid, from other resources of the foreign Governments concerned, it was. paid from the proceeds of loans made by the United States Governr ment. All interest on the debts of Cuba and Greece was paid as it became due. The following is an itemized statement showing the amount of interest heretofore paid by each of the foreign Governments on<i advances made to it by the United States Treasury: Belgium Cuba Czecho-Slovak Republic FranceGreat Britain Greece Italy Liberia Roumania Russia Serbia Total : _: . $10, 907,^281. 55-. 1,136, 865. 47 304,178. 09 > 128,140, 816. 48 !_ 233, 357,185. 50409,153. 34 57,598,852.62. 161.10263,313. 74. 4, 595,564.15 •636, 059.14. , '. - , : ^ - - 437, 340, 431.18 The amount paid on Eussian obligations represents the interest, up to November 15,1917, in full, together with a partial payment of $1,865,925.08 on account of the interest which became due May 15,.. 1918, and partial payments of $1,399,877.43 on account of the interest, which became due November 15, 1918. That paid by the Governments of Greece and Cuba includes interest paid up to October 15,. 1920, and November 15, 1920, respectively. The amount paid by the French Government includes interest amounting to $1,810,441.50 to - 58 REPORT ON T H E FINANCES. July 31, 1919, on an obligation dated January 28, 1919, and also interest accrued after April 15, 1919, on $19,302,357.55 principal subsequently repaid by the French Government in connection with the adjustment of accounts^ The sum paid by the British Government includes $2,244,778.59 interest accrued after May 15, 1919, on $80,181,641.56, principal subsequently repaid by the British Government in connection with the adjustment of accounts and that paid by Eoumania includes a partial payment of $154,409.63 on account of interest accrued to October 15, 1919. The Secretary of the Treasury holds a special fund of $1,808,506, which is equal to the unpaid balance of the interest which became due on Eussian obligations on May 15,1918. I t is believed that ultimately this can be applied in discharge of this balance. A similar fund of $335,095.07 is held which it is believed will be applicable upon the unpaid balance of the interest which became due November 15, 1918, on the Eussian account. The interest accrued and remaining unpaid on Eussian obligations, after deducting these special funds, for the half year ending November.15, 1918, is $2,994,025.10, and for the half years ending April 15,1919, and May 15,1919, is $4,101,107.50. The interest accrued and remaining unpaid on obligations of foreign Governments purchased by the Treasury under the Liberty bond acts for the half years ending respectively October 15,1919 and November 15,1919, April 15, 1920 and May 15, 1920, and October 15, 1920 and November 15, 1920, is as fOIIOAVS : Countries. . Belgium Czechoslovakia.. France Great B r i t a i n . . , Italy Liberia: Roumania Russia Serbia A d d b a l a n c e (in excess of special funds above m e n t i o n e d ) of i n t e r e s t accrued a n d r e m a i n i n g u n p a i d on R u s s i a n obligations for half year e n d i n g N o v . 15, 1918, a n d half years e n d i n g A p r . 15, 1919, a n d May 15, 1919 Total. Oct. 15 a n d N o v . 15,1919. A p r . 15 a n d M a y 15,1920. Oct. 15 a n d N o v . 15,1920. Total. S8,330,832.65 1,164,422.14 65,669,500.12 104,741,907.05 39,050,152.83 328.69 382,818.09 4,713,366.30 689,258.13 S8,468,375.00 1,354,134.64 72,218,078. 80 104,920,458.96 40,442,845. 74 640.16 625,000.00 4,685,999.25 669,511.64 $8,539,887.75 1,478,333.35 73,637,124.10 101,920,458.96 40,765,715.11 650.00 597,302.95 4,693,243.75 659,230.96 $25,339,095.40 3,996,890.13 211,524,703.02 314,582,824.97 120,258,713.68 1,618.85 1,605,121.04 14,092,609.30 1,998,000.73 224,722,586.00 233,385,044.19 235,291,946.93 693,399,577.12 7,095,132.61 700,494,709.72 The Liberty bond acts which authorized the Secretary of the Treasury to acquire foreign obligations also authorized him to exchange them into long-time obligations bearing a rate of interest not less than that borne by the demand instruments. The acts provide that the former shall be in such form and terms as the Secretary of the Treasur}^ may prescribe. In the early autumn of 1919, the Treas- SECRETARY OF THE TREASURY. 59 ur}^ informed the treasuries of the European Governments to which it had made advances t h a t it was prepared, in case they so desired, to discuss with them the exchange of the demand notes for longtime obligations, and in that connection the deferring of interest collection during the reconstruction period of two or three years from the spring of 1919. Public announcement of the position of the Treasury was made on September 26, 1919. The considerations which moved the Treasury with regard to deferring the collection of interest were set forth in the following letter from the Secretary of the Treasury to the chairman of the Committee on Ways and Means of the House of Eepresentatives: WASHINGTON, December 18, 1919. MY DEAR CONGRESSMAN : On October the 9th last I sent you a copy of a public statement made by me on the 26th of September relative to the obligations of foreign Governments held by the United States Government, and also a copy of a letter written by me on October 9th to Senator Penrose in reply to a letter from him requesting information concerning the extension of the interest on such loans. In that statement and in my letter to Senator Penrose I explained the policy which the Treasury proposed to adopt in respect to the funding of the demand obligations of foreign Governments now held by the United States into long-time obligations, and the funding during the ^reconstruction period of two or three years of the interest on such obligations. Notwithstanding my public announcement of September 26 and the controlling reasons which prompted the Treasury to adopt this policy, it appears from statements which have been made lately in Congress and elsewhere that there still exists a misunderstanding in respect to this question. Some of the statements to the effect that it is the duty of our Government, notwithstanding the present grave derangement of foreign exchanges, to insist upon immediate payment of interest amounting to about $475,000,000 a year, indicate a tendency to overlook certain aspects of the question and a failure to grasp the meaning of the present position of the finances of the world. While the Treasury favors such an arrangement, it does not favor the cancellation and, indeed, has no power to cancel any portion of the interest or principal. The collection in dollars of this interest under present circumstances would be no less disastrous to American interests than to the interest of our debtors. The loans to foreign Governments were made, as provided by Congress in April, 1917, for the purpose of assisting them in the prosecution of the war. Our entry into the war made it necessary for this Government to call upon the American people for vast sums of money for its own war purposes. In order to obtain such funds it was necessary substantially to close' our financial markets to all other borrowings, but, at the same time, it became most important that our associates in the war should be able to obtain in greater amounts than theretofore the supplies which they required and which we alone could furnish. Except for the purpose of meeting commitments for war purposes previously made with the knowledge of the Treasury, the Treasury has, since last April, substantially discontinued the establishment of credits in favor of foreign Governments. The program authorized by Congress for foreign loans was therefore substantially ended eight months ago. At almost the same time the foreign Governments of their own accord, but with the hearty approval of the Treasury, ceased the "pegging" of their exchanges. -60 REPORT ON THE FINANCES. ^ These necessary steps by the United States Treasury and the treasuries of our associates, in the endeavor to reduce governmental financial activity and to return trade and finance to normal channels, have been refiected in the gr^afc drop which has taken place in the foreign exchanges. With the ending of the war and of the program of our loans to foreign Governments, it was,considered appropriate,.in accordance with.the authority conferred by the Liberty bond acts,.to take up with those Governments the funding; of 'the demand obligations now held by the United States into long-time obligations ; and in view of the fact that, as indicated by the state of the foreign exchanges, the reconstruction of Europe has not proceeded! to a point whereEurope can even yet pay by exports for its necessary food, it was considered bythe Treasury most expedient that as a part of a general funding arrangement provision should be made for deferring and spreading over a later period thepayment of interest which would accrue during the next two or three years. At the time of writing exchanges of the principal Allies are quoted as follows:: Sterling, 3.86, or at a discount of 20.7 per cent. Francs, 10.23, or at a discount of 49.4 per cent. Lire, 12.75, or at a discount of 59.4 per cent. Belgian francs, 9.97, or at a discount of 48 per cent. Under these circumstances an impenetrable barrier exists which makes ir. impracticable for those Governments to pay in dollars the amountiof interest due from them to the United States. This involves no question as 'to the solvency or financial responsibility of those Governments, nor a failure to raise* funds by loans and taxes from their people and a corresponding burdening of~ our people, but results from the condition of thc foreign exchange market. I f the Governments of the Allies were to raise immediately by taxes and loans thewhole of their debt to us, those taxes and loans would produce only sterling,. francs, and lire, and those foreign currencies would not furnish one additional dollar of dollar exchange because conditions are not such as to permit those currencies now to be converted into dollars. The United States Treasury has no use at 'the present time for any considerable amounts of these currencies and could not afford to accumulate large idle foreign balances. If the Treasury does not defer the collection of interest and thus adds to the present difficulties in the financial and economic rehabilitation of the world by demanding' an immediate cash payment of interest before the industry and trade of Europe has an opportunity to revive, we should not only make it impossible for Europe to continue needed purchases here and decrease their ultimate capacity to pay their debt to us, but should hinder rather, than help • the reconstruction which the world should hasten. A nation can liquidate its foreign debts only by the accumulation of foreign credits, which may beaccomplished through an excess trade balance, invisible exchange items, the creation of credits by loans, or by the export of gold. Until our associates in the war, whose manufacture and trade suffered so much more than ours,. have had an opportunity to resume normal industrial and commercial activities, they have not the exports with which to pay the interest due on our obligations and could make such payment only by the shipment of gold or by obtain- ing dollar loans in the United States. The loans which the Allied Governments have so far been able to place in our markets have not been sufficient : to correct the situation. I can not believe that anyone would consider it equitable or wise, in the present circumstances,'for us to require payment in . gold, of which we already have enough, when the' payment of one year's interest alone would exhaust about 50 per cent of the gold reserves of our debtors... While I fully realize the desirability of collecting this interest and of decreas-- SECRETARY OF THE TREASURY. 61 Ing at once by a corresponding amount the taxes which we must collect, I •should be most reluctant, without specific instructions from Congress to the 'Contrary, to demand the immediate payment of interest which would not only :seriously retard the economic restoration of those countries without which 'they will be unable to pay the interest and principal of their debt to us, but. which would also destroy their power to make needed purchases in our market. My advisers are firmly of the opinion that in connection with^and as a part •of a general funding of the demand obligations into time obligations I am. 'duly authorized under the Liberty loan acts to spread over subsequent years•the interest which would accrue during the reconstruction period of, say, two •or three years, and to include such amounts in the time obligations. If, how- -ever, the Ways and Means Committee- of the House, which shared with the •Secretary of the Treasury the initial responsibilty for the Liberty loan acts, •should question my power so to act, I shall be pleased to have you so inform •me at once, in order that 1 may lay before your committee a proposal for further enabling legislation. Cordially yours, . • CARTB:R GLASS. Hon. JOSEPH W . FORDNEY, House of Representatives. The Committee on Ways and Means replied that there T^as.inJts opinion no legislative bar to the procedure proposed. Negotiations looking to the exchange and, in that connection, the deferring of interest collection were undertaken in Washington. They were continued in Europe in the fall of 1919 and the spring of 1920 by Albert Eathbone, then Assistant Secretary of the Treasury, and will be concluded in Washington. I trust that they will be completed in the near future. Such an arrangement will involve no present burden to the debtor nations and would do much in fact to clear the atmosphere and to improve European credits. The foreign exchanges are now at a greater discount than they were at the time of the Treasury's original statement. I t would add to the difficulties of the situation and would not be to the advantage of t h e U n i t e d States at this time to require cash payment of interest from the debtor European Governments. Section 8 of the Victory Liberty loan act provides that obligations oof foreign Governments acquired by virtue of the provisions of the first Liberty bond act or through the conversion of short-time notes acquired under that act shall mature not later than June 15, 1947, and that all others shall mature not later than October 15, 1938. I am of the opinion that, if they so desire, the respective foreign Governments should be given the benefit of the full periods thus permitted. The long-time obligations should, I believe, contain a provision for a moderate sinking fund, the first payments on which should be made at a reasonably early date. The dates on which the Treasury receives large tax payments, and is itself bound to pay interest on obligations of the IJnited States, require that interest and 62 REPORT ON T H E FINANCES. sinking fund payments on the foreign obligations be made in substantially the following proportions and on the dates mentioned : Ten per cent January 15 and July 15. Ten per cent February 15 and August 15. Fifty per cent April 15 and October 15. Thirty per cent May 15 and November 15. The following tables show substantially the annual installments of deferred interest and sinking fund payments which I believe the long-time obligations should provide for, subject to the necessary modifications to suit such obligations as in the adjustment may bear different dates: Interest and sinking fund payments. FOR BONDS MATURING JUNE 15, 1947. Annual interest Annual Period (excess incovered. sinkingto back terest. fund). Interest and sinking fund payment dates Oct. Oct. Oct. Oct. Oct. Oct. Oct. 15 1919 to Apr 15, 1922, to Apr. 15 1924 to Apr 15, 1926, to Apr. 15, 1928, to Apr 15, 1930, to Apr. 15, 1934, to Apr 15 1922 both 15, 1924, both 15 1926 both 15, 1928, both 15, 1930 both 15, 1934, both 15 1947, both inclusive inclusive inclusive.. . . . inclusive inclusive . . . . inclusive inclusive . . Annual sinking fund installment. Annual total. Years. Per cent. Fer cent. Fer cent. Fer cent. 3 5 2 hi 5 1 2 66, 5 2 5 1^ 5 1 1^ 6 5 1 13 f FOR BONDS MATURING OCT. 15, 1938. Oct Oct. Oct. Oct Oct. Oct. Oct. 15, 1919 to Apr 15. 1922, to Apr. 15, 1924, to Apr 15, 1926, to Apr. 15, 1928, to Apr. 15, 1930, to Apr. 15, ,1934,.to Apr. 15 1922 both inclusive -. 15, 1924^ both inclusive 15 1926, both inclusive 15, 1928, both inclusive 15, 1930, both inclusive 15, 1934, both inclusive 15, 1938, both inclusive Years. Per cent. Fer cent. Fer cent. Fer cent. 3 2 5 5 2 ' '^ 5 2 6J 5 2 5 1^ 4 5 4 1 I' I t may be necessary for certain small payments of principal to be made at the time the agreements for the exchange are entered into, in order to bring the principal to round sums. The agreement with^ each Government should give the United States the right to use the obligations of that Government held by the United States, whether before or after the exchange, in settlement of war claims hereafter made by such Government against the United States. The bonds should provide for accelerating the payment of all deferred interest whenever the currency of the Government in question over the foreign exchanges reaches a price approximating the gold import point and while the exchange remains not lower than that figure, and that, if this should happen before the deferred interest period has expired, no further interest should be deferred. Both principal and interest should be payable in gold coin of the United States SECRETARY OF THE TREASURY. 63 or, at the option of the holder, in the currency of the debtor Government at a fixed rate of exchange (about gold parity), and without deduction for, and exempt from all, taxation by the debtor Government. The obligations should contain suitable provision for their conversion into bonds of small denominations or for their payment, at the option of the obligor, in lieu of such conversion. To prevent or curtail gold exports from the United States, they should contain an agreement by the debtor Government to offer demand drafts payable in its currency at a figure to be fixed (substantially the gold export point), and to apply the proceeds to deferred interest and then to principal, current interest to be adjusted accordingly. Sinking-fund payments should be provided to be made in gold coin" of the United States or in the currency of the debtor Government at the par of exchange, if the holder shall so request. Of the obligations of the British Government held by the United States^ $122,017,633.57 are regarded as.having been given for purchases of silver uncier the Pittman Act. An agreement has been made with the British Government for the funding and payment of this aniount as follows: The sum of $17,633.57 has been paid with interest. As to the remainder, $122,000,000, the British Governinent, on April 15 and May 15, 1921, respectively, is to pay the interest accrued on 60 per cent from April 15, 1919, and on 40 per cent from May 15, 1919, at the rate of 5 per cent per annum. On each 15tli of October, November, April, and May thereafter it is to pay a semiannual installment of interest at the rate of 5 per cent per annum, which has accrued up to the respective date upon the corresponding proportion of the part of the principal from time to time remaining unpaid. The principal is to be paid in equal annual installments in the years 1921,1922, 1923, and 1924 in the proportions of 60 per cent on April 15 and 40 per cent on May 15 of each year. Until the payment in full of the principal with interest, in order to afford American nationals an opportunity to acquire rupee credits at the same cost as such credits are offered to British nationals, the British Government will permit the United States Treasury, through the Federal Eeserve Bank of New York, on substantially the same terms, as are open to British nationals, to make tenders to purchase rupee credits offered by the Indian Government in London or elsewhere in Great Britain. Payment is to be made in dollars to the agents in New York of the British Government for the sterling cost of the rupees at the cable rate for sterling fixed by the Federal Eeserve Bank of New York at noon of the day of such sterling payment in London. The British treasury having made the necessary arrangements with the Government of India, upon the request of the Secretary of the Treasury, will, ih addition, place at the disposal of the 64 REPORT. ON T H E FINANCES. Federal Eeserve Bank of New York rupee credits at the rate of exchange of 48f cents per rupee in amounts not exceeding 1 crore in any one month and not exceeding 7 crores in any one year. ForthAvith upon the sale of such credits by the Federal Eeserve Bank of. New York, payments therefor at the given rate will be made to agents of the British treasury in New York. Eupee credits thus acquired may be availed of by cable transfers by the Federal Eeserve Bank of New York and may be disposed of by that bank, but not at a lesser price than their actual cost to the bank. The dollar amounts paid for rupee credits shall be used by the British treasury to repay the principal of the obligations mentioned in this paragraph, not previously paid, accrued interest upon the principal sums repaid to date of payment simultaneously to be paid b}^ the British treasury. All principal amounts so paid in any year shall reduce correspondingly the fixed annual, installments payable in that year, and .payments of interest thus macJe shall reduce correspondingly the interest payments otherwise due. The indebtedness incurred by' the United States to make the for-eign loans is not cared for by the sinking fund. Congress contemplated that foreign repayments would provide for that part of our debt. Of late there has been no little discussion as to how this foreign debt should be treated. Some advance the proposal that it should be canceled. This is a favorite plan of some Europeans and some Americans. The suggestion is based first on one ground and then on another. At one time it is based on sentiment or on considerations of generosity. By some it is based on the contention that it will promote peace. I t apparently is assumed that antagonisms will be set up if the nations of Europe are asked to repay the loahs which they sought and so gladly received. At another time it is based on consideration for present producing interests. Voices are heard representing that it will ruin the trade of America if Europe is to send us her commodities for what she owes us. Apparently these advocates contend that international trade will be profitable provided only we give to the world what we produce, declining to receive any commodities in return. I imagine neither of these suggestions will be received with favor by the American taxpayers. They will realize that if the debts are canceled they must pay taxes to meet the interest and to redeem the principal of ten billions of dollars. Another suggestion is that the demand notes now held by the Government shall be funded into bonds bearing a higher rate of interest which the debtor nations will consent to exchange for the outstanding bonds and that a direct relation be set up between those who consent to receive such bonds in this country and the foreign debtors, although it is proposed that this Government guarantee the 65 SECRETARY OF THE TREASURY. bonds. No evidence is furnished that debtor nations would be willing to assent to the creation of a bonded debt Avitli a higher rate of interest with obligation for the immediate payment of interest; and there is nothing in existing law which warrants such a transaction. They should not be charged interest at a rate exceeding the cost to our Government of the money borrowed from our people to lend to them. The advances made by the United States to.the Allies began only at the time of our entry into the war. For substantially a year we had no considerable military forces in Europe and we were lending the money needed to supply the part purchased from our people of the materials necessary for the armies of the Allies, who were holding the Germans in the meantime. If, in April, 1917, we had had a vast army in Europe there would have been no considerable loans to the Allies for purchases of war material in this countrj-, since our own armies would have needed all the munitions this country could have produced. In the circumstances we must deal with the debts of the allied Governments in a spirit of fairness. The suggestion that we should throw them upon the niarket appears to me to be as fatuous and impracticable as either of the other suggestions. The reasonable and proper course is to proceed under the terms of existing law, which authorizes the Secretary of the Treasury to fund the demand notes into obligations with a distant maturity at a rate of interest at least equivalent to that borne by our own bonds, coupled with authority for the time being to defer interest payments. Foreign obligations received on account of sales of surplus loar supplies and, European relief. . • Foreign obligations have been received from the Secretary of War up to November 15, 1920, on account of sale of surplus war supplies, as follows: Country. Principal amount payable. Date. Maturity. Interest runs from— Interest payable. $19,000,000.00 Apr. 10,1919 Apr. 10,1922 June 30,1919 Apr. 10-Oct. 10. 8,392,097.57 Aug. 5,1919 Aug. 5,1922 Aug. 5,1919 Feb. 5-Aug. 5. 196,483.57 Aug. 21,1919 Aug. 21,1922 Aug. 21,1919 Feb. 21-Aug. 21. Belcium 27,588,581.14 Czechoslovakia 5,000,000.00 5,000,000.00 4,902,994.94 2,464,9'50.38 1,291,903.85 1,962,145.37 20,621,994.54 13799—ri 1920- May June Aug. Oct. Feb. May 29,1919 15,1919 10,1919 14,1919 10,1920 1,1920 June June June Oct. Jan. June 30,1922 June 30,1919 June 30~Dec. 30. 30,1923 do Do. 30,1924 do Do. 14,1922 Oct. 14,1919 Apr. 14-Oct. 14. 28,1923 Feb. 10,19^0 Jan. 28-July 28. 30,1925 June 30,1920 June 30-Dec. 30. 66 EEPOKT ON T H E FINANCES. Principal amount payable. Country. Esthonia $5,000,000.00 5,000,000.00 2,213,377.88 Date. Maturity. June '6,1919 June 30,1922 June 11,1919 June 30,1923 June 29,1919 June 30,1924 Interest runs from— Interest payable. June 30,1919 do do June 30-Dec. 30. Do. Do. 12,213,377.88 France .- Latvia . . . 400,000.000.00 -. . Lithuania Poland 2,521,869.32 4,159,491.96 Aug. 1,1919 Aug. 1,1929 Aug. 1,1920 Feb. 1-Aug. 1. June 28,1919 June 30,1922 June 30,1919 do do 10,000,000.00 June 3,1919 .do June 30,1923 10,000,000.00 do 10,000,000.00 July 19,1919 June 30,1924 10,000,000.00 July 22,1919 do 8,151,060.52 July 31,1919 do 5,536,867.71 Oct. 1,1919 Oct. 1,1925 3,941,803.61 Oct. 15,1919 Oct. 15,1925 do....... June 30-Dec. 30. Do. Do. do June 20^Dec. 20. do Do. do Dec. 30,1919 June 30-Dec. 30. Do. do Oct. 1,1919 Apr. 1-Oct. 1. Oct. 15,1919 Apr. 15-Oct. 15. 57,629,731.84 Roumania 5,000,000.00 5,000,000.00 2,913,589.66 June 27,1919 do Aug. 13,1919 June 30,1922 June 30,1923 June 30,1924 Aug. 8,1919 June 30,1922 June 30,1919 do do June 30-Dec. 30. Do. Do. 12,913,589.66 Russia Serbs, Croats, and Slovenes. 406,082.30 5,000,000.00 5,000,000.00 10,000,000.00 50,350.28 281,205.51 4,646,465.20 do June 13,1919 Aug. 30,1919 June 30,1923 do June 30,1924 Dec. 20,1919 ..-:-dO Apr. 15,1920 Apr. 15,1924 Apr. 29,1920 June 30,1925 do do Aug. 30,1919 do June 30,1919 Apr. 15,1920 June 30,1920 Do. Do. Do. Do. Do. Apr. 15-Oct. 15. June 30-Dec. 30. 24,978,020.99 Total 563,032,739.63 The Treasury holds these obligations as custodian and was not concerned in their acquisition. Interest has been paid promptly on the Belgian and Latvian obligations. The sum of $1,176,454.11 interest has been received from Poland and has been credited on account o t payment of interest accrued from December 30, 1919, to June 20, <> 1920, on obligations dated June 3, 1919, and July 19, 1919, for $10,000,000 each and on account of interest accrued from December 30,1&19, to June 30,1920, on obligations dated June 3, 1919, and Jul}^ 22, 1919, for $10,000,000 each, and on those dated July 31, 1919, for $8,151,060.52. The sum of $10,179.87 has been received on account of interest accrued on the Eussian obligation for the period from June 30, 1919, to December 30, 1919. Since the first interest date of the French obligations is February 1, 1921, and that of the notes dated April 29, 1920, for $4,646,465'.20 of the Kingdom of the Serbs, Croats, and Slovenes is December ,30, 1920, no interest on these notes is payable until the dates indicated. Interest on the other notes has not been paid. Foreiign obligations have been received from the American Eelief Administration on account of relief rendered pursuant to act ap- 67 SECRETARY OF THE TREASURY. proved February 25,1919, and are held by the Treasur}^ as custodian, as follows: Country. Armenia Czechoslovakia Esthonia Finland Principal amount payable. Date. $8,028,412.15 6,348,653.56 1,785,767.72 June 30,1919 do Aug. 11,1919 3,289,276.98 4,992,649.19 June 30,1919 June 1,1920 do do June 30,1919 June 1,1920 Do. June 30-Dec. 30. June 30,1919 do June 30,1919 June 30. Maturity. Interest runs from— June 30,1921 June 30,1919 do June 30,1923 June 30,1921. Aug. 11,1919 Interest payable. June 30. Do. Do. 8,281,926.17 2,610,417.82 Latvia Lithuania Poland... . 822,136.07 do 10,000,000.00 . 10,000,000.00 31,671,749.36 ..do. do.„ do do do June 30,1922 .June 30,1923 do Do. do do do Do. Do. Do. 51,671,749.36 xlussia Total ' 4,465,465.07 July 1,1919 June 30,1921 July 1,1919 Do. 84,014,527.92 No interest has been received on these obligations. There has been received from the Secretary of the Navy an obligation of the Eepublic of Poland for $2,266,709.66, dated April 22,1920, maturing March 27, 1926, bearing interest at the rate of 5 per cent from March 27, 1920, payable annually on the 30tli day of December. Foreign currencies. Currencies needed by the United States in France, Great Britain, and Italy for our Avar expenditures in those countries were provided by the respective foreign Goyerntaents under an arrangement whereby the dollar equivalent of the amounts so provided was made available to the respective foreign Governments for use to meet their war expenditures in the United States, and thus the needs of these Governments for advances from the United States were reduced by a corresponding amount. During the fiscal year ended June 30, 1919, this plan was also extended to Belgium. A small amount of Belgian currency Avas provided under the arrangement during the fiscal year ended June 30, 1920. I n view, however, of the condition of the exchanges and the comparatively small requirements for Belgian and Italian currencies during the past fiscal year, these, with the exception of the small amount of Belgian currency, were obtained by United States disbursing officers by the use of checks in the usual course. The following tabulation shows the amount of foreign currencies placed at the disposal^ of the United States and the dollar equivalents paid therefor in the United States for the period from 68 REPORT ON T H E FINANCES. the beginning of the operation of the arrangement during the month of January, 1918, up to November 15, 1920: Country. Relgium France Great Britain Italy Total. Francs. ... .. 12,500,000.00 5,711,941,418.08 Pounds sterling. 100,572,387 13 1 Lire. 97,583,742.51 -Dollar equivalent. 1,197,555.56 1,025,438,235.88 449,496,227.55 14,425,092.25 1,490,557,111.24 As shoAvn by the final report of the United States Liquidation Commission of the War Department, dated May 31, 1920, a contract of general settlement was made between the United States War Department and the French GoA^ernment, by the terms of Avhich the latter acknowledged an indebtedness of $177,149,866.86 and the War Department an obligation to France of 1,938,604,417.25 francs. Negotiations between the Treasury and French representatives regarding the manner and form of mutual payments and the rate of exchange to be applied to the extent that amounts due from the respective Governments shall be agreed to be set off are not completed. Negotiations, are also pending between, the various departments of this Goverhment and various ^foreign Governments concerning mutual claims. Pending final settlement of these matters and for use in connection therewith and for current necessities, the balances Avith the Tresor Public, Paris, as a depositary of public moneys of the United States, to the credit of United States disbursing officers and of the Treasurer of the United States amounted, according to latest reports received, to an aggregate of 658,699,767.87 francs, equiAT-alent at the rate of exchange used for accounting purposes to ^42,927,767.41. . On the basis of the Treasury daily statements, the total balances of foreign currencies as of November 15,1920, standing to the credit of disbursing officers of the United States and the Treasurer of the United States, including the balances Avith the Tresor Public, were equivalent at the accounting rates of exchange to $50,189,337.39. During the fiscal year the Treasury paid off certificates of indebtedness, amounting to 155,000,000 pesetas, issued by it under the 250,000,000 pesetas credit, which had been arranged in August, 1918, by a representative of the Treasury with a syndicate of SpanisK banks. This was the only foreign indebtedness incurred by the United States during the war. At that time Spanish exchange was at a premium of about 40 per cent. By reason of the drop in the rate of Spanish exchange resulting, in part, from the arrangement of this credit, the Treasury was able to obtain in the exchange market at SECRETARY OF THE TREASURY. 69 par or less the pesetas necessary to be bought in order to pay the certificates. The transaction gave a substantial profit to the Government. Expenditures reported by foreign Governments. Under the Libert}^ loan acts the Treasury Avas authorized for the . j:)urpose of more effectually providing for the national security and defense and prosecuting the w^ar, to establish credits for foreign Governments and to purchase their obligations at par. The foreign Governments were therefore required by the Treasury to state the purposes to be served in order to enable the Treasury to determine Avhether they Avere germane to the purposes indicated by the Liberty loan acts and whether and in what amount credits should be given. The Treasury did not, of course, make expenditures for the foreign Governments. I t paid to them the purchase price of the securities; and they made the expenditures. After this was done they made further statements to the Treasury showing the actual application of the proceeds of the loans. As the progtam authorized by Congress for foreign loans was substantially closed in April, 1919, and the making of advances for commitments incurred prior to that time is now practically at an end, statements are attached as Exhibits 26 to 32, pages 338 to 347, showing the amounts advanced to foreign Governments and the expenditures reported by them to November 1, 1920. These have been tabulated by the following iDcriods, viz: 1. 2. 3. 4. 5. April 6 to December 31, 1917. January 1, to June 30, 1918.. July 1 to November 30, 1918. December 1, 1918, to June 30, 1919. June 30, 1919, to NoA^ember 1, 1920. They have also been summarized to show the total advances and the expenditures reported for the entire period classified by {a) the five periods above referred to, (b) the individual Governments. They giA^e total expenditures from April 6,1917, as reported by the British Government to June 30, 1919, by the French Government to January 31, 1920, by the Italian Government to August 31, 1919, by the Belgian Government to February 28, 1920, and by the Eussian Government to December 31, 1917, and in addition certain specific expenditures as reported up to November 1, 1920. Under arrangements which were entered into about September 1, 1917, purchases were made by the missions of the various foreign Governments under the general supervision of a purchasing commission, originally composed of Bernard M. Baruch, Eobert S. Brookings, and Eobert S. Lovett, established by agreement between the Secretary of the Treasury and the respective foreign Governments .70 REPORT ON T H E FINANCES. for the purpose of coordinating governmental buying in the United States. Proposed purchases of each Government were considered in relation to the requirements of the United States and of the allied Governments before being approved. Purchases of food were made with the approval of the Food Administration and those of fuel (coal and oil) with that of the Fuel Administration. On March 4, 1918, by order of the President, the work of the commission was integrated with that of the W a r Industries Board. Under date of December 14, 1918, the arrangements between the commission and the foreign Governments were terminated and the functions of the former which then remained were taken over by the Treasury Department. These had come substantially to an end by June 30, 1919. From the inception of the commission the coordination which it was able to bring about became increasingly effective each month, and on May 15, 1918, an arrangement was made with the W a r Trade Board, whereby the issue of export licenses to the foreign Governments Avas withheld except for purchases which had been approved by the commission. This arrangement continued until the export restrictions were withdrawn by the W a r Trade Board, in December, 1918. I n Europe the Interallied Council on W a r Purchases and Finance, created in the autumn of 1917 with the view of considering and coordinating the demands of the Allies upon the American Treasury, continued in operation until after the armistice. I n initiating, soon after America entered the war, the Purchasing Commission in the United Stajtes and the .Interallied Council on War Purchases and Finance in Europe, the Treasury broke new ground and took important first steps toward coordination of. the demands of the Allies upon the American Treasury and the American market with each other and with the requirements of the United States. Finding their sanction only in the Treasury's circumscribed activities, they were, howcA^er, necessarily limited in power and scope, and their functions to a large extent were properly superseded by other and more comprehensive instrumentalities so soon as the latter were created. After the signing of the armistice, it was the belief of the Treasury that its further loans to foreign Governments should be reduced so far as possible, and that they should finance themselves in our financial markets. Steps were taken as rapidly as possible to relax governmental supervision and to induce the respective Governments to act independently. The consequence Avas that the Belgian, British, French, and Italian Governments all found means during the period to obtain funds here from private lenders, on treasury bills and on long-time obligations; their transactions with the United States Treasury formed a smaller proportion of their entire transactions; and important maturities, including that of the Anglo-French loan of $500,000,000 on October 15,1920, have been met without the assist SECRETARY OF THE TREASURY. 71 ance of the United States Treasury. Payments in dollars by various of our departments to the British Government have amounted since July 1, 1919, to something like $70,000,000, and are probably not yet complete; and payments to the British Government for sterling furnished by it for the use of the United States Government in meeting commitments for ,war expenditures in England amounted during the year ended November 15,1920, to about $48,000,000. • I n considering the statements it must be borne in mind that the amounts shown under the various headings do not for the most part include expenditures of dollars obtained by foreign Governments otherwise than frdm the American Government's loans and expenditures in Europe, and therefore do not represent total disbursements. Furthermore, purchases of commodities here are included in the item of exchange, particularly for the earlier part of the war. I n the ordinary course of trade, all transactions in these would have been reflected in a net balance of trade which would have been settled through the importation of gold or the sale of exchange except in so far as it might have been capitalized through the purchase of American securities held abroad, or of securities of the foreign Governments offered in the United States or adjusted by transfer of bank balances or otherwise. I n the early stages of the war, all commodity purchases by Great Britain were thus merged in exchange except purchases of munitions and sugar. Therefore, the exchange item in the British statement of expenditures reflected purchases of wheat, food, cotton, leather, and oil under Government control, as well as all transactions of individual buyers in the United States, and the amounts shown under specific headings included only commodities bought under Government control after centralized purchases and finance were established. The amount expended by France for exchange was of a less complex character than the disbursements shoAvn under the same heading for Great Britain. After March, 1917, imports into France were in general prohibited until after the armistice. • I n some cases, however, imports from the United States were authorized and in such cases the Bank of France undertook to provide funds sufficient to pay for them. Prior to November .30, 1918, the dollar funds provided by the Bank of France constituted the major part of the French exchange payments. There are also included under this heading certain sums expended in New York in purchasing drafts on Paris or in making payments for cotton. Some purchases on French account were paid for by drafts on London; this being particularly true in the earlier part of the period. The purchases of these drafts are included in the British item of expenditure and the amount of transactions as estimated from tim.e to time for the French and British Governments forms part of the reimbursement by the French to the 72 .REPORT ON T H E FINANCES. British. I t will readily be apparent that completely to analyze the total purchases of exchange is impossible. I t was consistently the aim of the Treasuiy Department to have whole classes of transactions, such as the buying of wheat and food, taken out of the general exchange market, so far as possible, to be provided for by direct payments, and'to determine, as completely as possible, the character of the remaining exchange transactions. The system of governmental supervision and control Avliich, under the Executive order of January 26, 1918, became effective OA^er exchange transactions on February 16, 1918, and other steps pursued made it possible to exercise a close scrutiny on items of exchange purchases until the end of June, 1919, when control of exchange by this Government Avas terminated. I t will be recalled that the " unpegging" of their exchanges by the British, French, and Italian GoA^ernments took place in March, 1919. The items of reimbursements included in the statements of expenditures consist principally of payments by France and Italy to Great Britain for cereals, sugar, meats, and munitions and for neutral freights, and other disbursements made to neutrals, and of payments by Belgium to Great Britain for horses, petrol, oats, flour, and certain relief supplies furnished by Great Britain out of supplies obtained actually or constructively from the United States. The expenditures for silver represent principally sales to the British under the provisions of the Pittman Act for the purpose of strengthening the metallic reserA^e of the currency of India. Such sales were not, howcA^er, paid for entirely out of United States Treasury adA^ances. The British authorities received $71,353,249.99 for rupees made aA'^ailable to the Federal Eeserve Bank'of NCAV York, and the sum of $9,999,658.07 in gold Avas shipped to this country from India. The interest item includes, Avith the exception of Cuban and Greek interest and of the partial payments of $3,265,802.51 mentioned on page 57 on account of Eussian interest, the amount received by the United States on its advances to foreign Governments.. The contributions for relief in the statements of British, French, and Italian expenditures include an item of $16,000,000, which each contributed toAA^ard the relief of the people of Austria. The French expenditures also include part of the amount provided by the French (jOA^ernment toAvard the relief of the people of France and Belgium. Almost the whole of the advances to Eoumania and Serbia, and considerably more than half of those to Belgium 'and the Czecho-Slovak Eepublic were for relief. The Treasury's program of advances for relief during the period between NoA^ember 30, 1918, and June 30,1919, was largely based upon reports from the American Eelief Administration, which represented that they Avere necessary as a military measure to prevent the spread of anarchy; and a considerable part Avere made upon the condition that SECRETARY OF THE TREASURY. 75 they should be expended through the American Eelief Administration. ' / • The British Governnient made to its allies from August 1, 1914^ to March 31,1920, loans of £1,850,500,000, of Avhich £876,500,000 Avere lent after April 1, 1917, and the French Government, from August 1^ 1914, to December 31, 1919, made loans to its allies of 7,575,000,000 francs. I n January, 1919, Norman H. DaAds was appointed by the President finance commissioner, representing the Secretary of the Treasury in Europe and acting as financial adviser to the American peace mission until July, 1919. Early in that year Albert Strauss and Thomas W. Lament were designated as special representatives of the Secretary and Avere associated with Mr. Davis as financial advisers to the peace mission. I n the following fall Albert Eathbone, then Assistant Secretary, acted on behalf of the Secretary of the Treasury as financial adviser associated with the Peace Mission, and after the return of the mission as the United States representative on the committee on organization of the Eeparations Commission. Upon the organization of the" commission he participated in its deliberations as the unofficial representative of the United States, being succeeded by Eoland W. Boyden early in April, 1920. THE INITJRNATIONAL FINANCIAL SITUATION. The international financial situation during the year has had the close attention of the Treasury. At the date of this report the foreign exchanges are substantially loAver than they Avere a year ago. As compared with our currency, those of almost all countries are at a discount. This is indicated by the table following showing the discount or premium reached by certain foreign currencies on the first of each month, beginning with November 1,1919, and ending with November 1,1920. N o v . 1,1919, Dec. 1,1919, J a n . 2,1920, F e b . 2,1920, Mar. 1,1920, A p r . 1,1920, M a y 1,1920, J u n e 1,1920, J u l y 1,1920, A u g . 2,1920, S e p t . 1,1920, Oct. 1,1920, N o v . 1,1920 discount discount discount discount discount discount discount discount discount discount discount discount discount (per c e n t ) . (per c e n t ) . (per c e n t ) . (per c e n t ) . ( p e r c e n t ) . (per c e n t ) . ( p e r c e n t ) . (per c e n t ) . (per c e n t ) . (per c e n t ) . (per c e n t ) . (per c e n t ) . (per c e n t ) . Great Britain France .Belgium Italy Germany Sweden . . . Norway Denmark Holland Switzerland Spain. India Japan Brazil Argentina Chile P e r u (cable r a t e s ) 14.47 41.55 37.72 52.12 86.30 11.00 15.67 21.08 . 5.94 7.50 .10 1 29. 63 11.81 20.63 .24 M.39 2.19 18.06 47.77 44.97 58.03 89.79 16.79 19.78 25.75 5.15 5.44 11.97 1 39.66 11.41 5.22 11.86 11.76 1.37 22.17 51.92 51.45 60.88 91.39 19.78 24.07 28.73 7.01 7.46 .52 1 42.75 1.90 14.47 11.58 14.41 2.60 29.42 62.33 62.44 67.88 95.21 ' 28.54 35.26 41.60 5.77 10.21 6.74 1 29.63 2.11 18.32 1 1.27 1 13. 03 2.60 29.26 63.52 62.07 71.61 95.71 30.97 36.19 44.03 8.58 15.91 10.62 1 41. 98 4.12 21.77 12.17 1 9..04 3.83 19.40 64.61 62.23 74.92 94.03 19.29 27.24 • 31.90 7.64 8.60 8.81 1 43.52 4.62 17.55 11.74 111.70 2.54 1 Premium. 21.30 69.02 66.94 76.68 92.69 20.71 28.54 36.64 9.20 7.98 11.40 1 41.20 .10 19.09 1.45 15.05 12.69 19.40 59.74 57.98 69.38 88.99 19.59 33.02 36.94 8.88 6.99 15.80 1 28. 09 12.91 20.23 .14 13.72 12.69 18.83 56.99 55.13 69.12 88.91 17.91 39.18 39.18 11.84 6.01 14.40 1 18. S3 1 3.17 27.57 1.67 19.73 12.54 23.82 60.57 58.13 72.59 90.38 , 21.64 41.23' 41.42 15.72 12.18 20.88 1 14.97 12.67 33.27 7.51 6.91 12.54 • 26.80 63.99 61.61 75.70 91.47 25.00 47.01 46.64 20.65 14.77 22.54 15.71 12.67 41.44 10.50 4.89 12.54 28.03 65.03 63.26 78.34 93.07 25.93 47. 95 48.32 22.89 16.84 24.04 1.31 12.91 45.66 15.21 14.89 12.54 29.34 67.25 65.28 81.01 94.58 27. 80 49.74 49.44 24.50 18.81 28.24 11.27 12.16 46.06 17.76 22.87 10.61 O o H SECRETARY OF THE TREASURY. 75 Foreign trade. The foreign trade of the United States in recent years, measured in terms of dollars on the basis of prevailing prices over the years indicated, has shown a vast growth. I n the decade preceding the war it had shown a steady upward movement, and in 1913, the last calendar year before the European war, the exports of merchandise had risen to $2,484,018,292 and the imports Were $1,792,596,480, an excess of exports of $691,421,812. I n the last year of the Avar the exports of merchandise were A^alued at $6,149,087,545 and the imports at $3,031,212,710, resulting in an excess of exports of $3,117,874,835. I n 1919, the first calendar year after hostilities ceased, the exports Avere valued at $7,920,425,990 and the imports at $3,904,364,932, showing an excess of exports of $4,016,061,058. To the end of September of this calendar year the exports were valued at $6,080,990,920, or at the rate of nearly eight and one-quarter billions for the year, and the imports were $4,358,405,643, indicating an excess of exports for the nine months of $1,722,585,277. The apparent excess exports for the calendar years 1918 and 1919 and the current year to the end of September show a value of $8,856,521,170. I t is notable that approximtately 50 per cent of the'exports of merchandise for the last calendar year before the war and for the period indicated since the beginning of 1918 consisted of agricultural commodities, while a smaller per cent of the imports were of such commodities. For the fiscal year ended June 30, 1914, of the total exports of merchandise valued at $2,364,579,148, $1,113,973,635 covered agricultural commodities; while, of the total imports of $1,893,025,657, $924,246,616 represented agricultural commodities; and of the latter amount over $231,000,000 were of such noncompetitive products as coffee, tea, tropical fruits and nuts, oils, and cocoa, and over $101,000,000 were of sugar, of which commodity we produce only approximately 25 per cent of our needs. I n that year, therefore, our exports of competitive agricultural products exceeded our imports of such commodities, without including sugar, by over a half billion of dollars. I n the calendar year 1919, of the total exports of merchandise of $7,920,425,990, more than half, or slightly^ OA^er $3,972,000,000, represented agricultural commodities, including approximately $1,000,000,000 of breadstuffs, over $1,100,000,000 of unmanufactured cotton, approximately $1,160,000,000 of meat and dairy products, and nearly $260,000,000 of tobacco; while these imports were valued at only slightly over $1,600,000,000 of which more than $435,000,000 were of noncompetitive products such as coffee, tea, oocoa, and fruits and nuts, $132,916,292 of oils, and over $394,000,000 of sugar. The excess of agricultural exports for that year was more 76 REPORT 01^ T H E FINANCES. than $2,300,000,000 and the excess of exports of competitiA^e products^ much larger. I t need scarcely be added that the increase in the physical volume of trade for 1919 or the current 3'ear Avas veiy much lower than the corresponding increase in the value of the trade. The figures during and since the war reflect the great upward movement of prices. I t is difficult to indicate the ph^^sical A'olume of trade and its increases. A surA^ey made in 1919 of domestic exports of certain commodities constituting a large fraction of our total exports for the 5-yearperiod 1914-1919 on A^alues adjusted to a preAvar basis rcA^eals an increase of about 23 per cent when compared Avith such exports for 1910-1914, as against an increase of 97 per cent Avith no adjustment of values. This comparison Avould not apply to the Avhole mass of exports, for the reason that the percentages of the aggregate values of the selected articles to the total values of domestic exports for the fiscal A^ears 1916, 1917, and 1918 are considerably below the aA^erage percentage shoAvn for the articles selected for the 5-3^ear period preceding the war to the total values of exports for that period. A more recent and exhaustive survey indicates in an even more striking manner the Avide difference betAveen prcAvar and postwar A^alues of commodities exported from this country. The latter survey, using as a basis 100 commodities ahd the fiscal years 1911-1914, inclusive, shoAvs an increase of 31 per cent for the fiA^e-year period 1914-1919 on A^alues adjusted to a prcAvar basis, as contrasted Avith an increase of 217 per cent Avith no such adjustment. I t Avould not be safe to assume that the stated percentage of increase in physical A^olume is indicatiA^e of the groAvth in the total physical A^olume; but it affords evidence that the extraordinary growth in export values of the postAvar period OA^er the prcAvar period is largelj^ the result of the rise in valuation. Th^e difference betAveen the physical volume of trade and the A^alue of the trade is frequently OAT^erlooked in discussions of foreign commerce, but it is eAddently of prime importance and has a significance in many directions. Financing foreign trade. ^ From January 1,1919, to September 30,1920, our exports to Europe amounted to $8,484,433,858 and our imports from Europe to $1,741,114,553, the excess of goods exported being $6,743,319,305. This surplus appears to have been paid for in part by the great loans made by the Treasury to foreign Governments pursuant to the Liberty bond acts; b}^ credits granted by the United States Grain Corporation, the War Department, and the United States Shipping Board; by the appropriation by Congress of $100,000,000 for European relief; b}^ loans by the War Finance Corporation to banks and SECRETARY OF THE TREASURY. 77 -exporters in this countiy to assist in financing exports; and by immigrants' remittances, new loans to Europe, the shipment of gold, the sale in this market of foreign securities and the repurchase in our market of American securities formerly held in Europe. Eegarding such repurchase of securities, the Secretary made the folloAviiig statenient on February 12, 1920: '^ * '•' it is interesting to observe that tbe extreme depression in blgligrade investment securities in tbis country at the present time is, to a very Important extent, the result of heavy selUng of such securities in our markets from foreign sources. This, as Secretary Glass said in his annual report, is one of the processes which is stimulated by the very position of the exchanges which it tends to correct. By absorbing these high-grade investment securities the American people are furnishing capital to Europe at a time of Europe's need and are giving this help in just the way thac Europe helped America in the period of America's growth and of her own monetary troubles. In the days of the infancy of the Republic, in the days of our Civil War, and of the period of reconstruction after the Civil War, of the monetary panics which we suffered at frequent intervals until the establishment of our Federal Reserve System, America suffered greatly for lack of capital and credit and because of her depreciated currency and later her inelastic currency. In those days Europe came to America's -aid, not by Government loans, not with any comprehensive plan, but by the investment of private capital upon attractive terms in American enterprises and in the purchase of American securities at bargain prices. Europe profited enormously by these investments, and America profited, too, be^^^ause she obtained the capital she needed at the price that the capital was worth to her. Honest and energetic business men in both countries Avent to work in their own way and solved the problem on business terms. Y'^et in those days Europe was far better able to meet the relatively small demands of America than is America now, burdened as she is by Government expenditures. since the beginning of the war to the aggregate amount of about $36,700,000,000, to meet the stupendous demands of Europe to-day. I am confident that the :Solution of Europe's problems will be found by the wisdom and courage of European statesnjen in facing the monetary difiiculties imposed upon them by the Great War and by the enlightened, sympathetic, and friendly cooperation of the business men and Avorkmen of America and Europe Avhen peace is restored and the hope and fear of Government interferences are removed. Notwithstanding these payments there remained on September 15, 1920, according.to the best available estimates, an unfunded balance of probably $3,000,000,000 to $3,500,000,000 due from Europe, and this balance has probably increased since September 15, 1920. Inasmuch as other items probably roughly offset each other, this balance may fairly be said to represent the goods sent to Europe and the services furnished by our people in addition to the aid rendered by the Government itself. The liquidation of Europe's large indebtedness to this country, commercial and governmental, will present serious problems, and t h e liquidation of part of it will extend over many years. I t will be effected doubtless by the further return of securities, by expenditures of travelers abroad, by payments for serAdces, by in 78 REPORT ON THE FINANCES. creased foreign investments, and in very large measure, of necessity, by the importation of commodities. Unless our exporters and bankers can arrange with our investors for the necessary cooperation there should be considered with the utmost care the question how far it is Avise to continue piling up an export balance which is neither paid for nor funded. As encouragement to the funding of the export balance, the Treasury favored the passage of the act approved December 24, 1919, under Avhicli regulations gOA'^erning the organization of corporations to promote foreign trade have been promulgated by the Federal EeserA^e Board. I n the changed conditions of the world to-day, it is important that no step be taken which will interfere with the payment b}^ foreign nations of their indebtedness to us by sending us commodities. . If America is to sell her surplus products to the nations of the world, she must be prepared to accept payment through the shipment of goods. Anything which obstructs this operation will, in the circumstances, affect the prosperity of this Nation and work injury to humanity in nia.ny parts.of the world. I n this connection I can do no better than to quote the folloAving excerpt from the message of the President to the Congress dated December 2, 1919: A fundamental change has taken place with reference to the position of America in the world's alfairs. The pj-ejudice and passions engendered by decades of controA^ersy between two schools of political and economic thought— the one believers in protection of American industries, the other believers in tariff for revenue only—must be subordinated to the single consideration of the public interest in the light of utterly changed conditions. Before the war America was heavily the debtor of the rest of the Avorld, and the interest payments she had to make to foreign countries on American securities held abroad, tlie expenditures of American travelers abroad and the ocean freight charges she had to pay to others about balanced the value of her prewar favorable balance of trade. During the war America's exports have been greatly stimulated, and increased prices have increased their value. On the other hand, she has purchased a large proportion of the American securities previously held abroad, has loaned some $9,000,000,000 to foreign Governments, and has built her own ships. Our favorable balance of trade has thus been greatly increased and Europe has been deprived of the means of meeting it heretofore existing. Europe can have,, only ithree Avays of meeting the favorable balance of trade in peace times: By imports into this country of gold or of goods, or by establishing new credits. Europe is in no position at the present time tp ship gold to us, nor could we contemplate large further imports of gold into this country without concern. The time has nearly passed for international governmental loans, and it will take time to develop in this country a market for foreign securities, xlnything, therefore, which would tend to prevent foreign countries from settling for our exports by shipments of goods into this country could only have the effect of preventing them from paying for our exports and therefore of preventing the exports from being made. The productivity of the country greatly stimulated by the Avar must find an outlet by exports to foreign countries, and any measures taken to prevent imports will inevitably curtail exports, force curtailment of production, load the banking machinery of the country with SECRETARY OF THE TREASURY. 79 credits to carry unsold products, and produce industrial stagnation and unemployment. If we A\^ant to sell, we must be prepared to buy. Whatever, therefore, may have been our views during the period of growth of American business concerning tarilf legislation we must now adjust our own economic life to a changed condition growing out of the fact that American business is full groAvn, and that America is the greatest capitalist in the world. No policy of isolation will satisfy the growing needs and opportunities of America. The provincial standards and policies of the past, which haA^e held American business as if in a strait-jacket, must yield and give Avay to the needs and exigencies of the new day in which Ave live, a day full of hope and promise for American business, if we will but take advantage of the opportunities that are ours for the asking. The recent war has ended our isolation and thrown upon us a great duty and responsibility. The United States must share the expanding world market. The United States desires for itself only equal opportunity with the other nations of the world, and that through the process of friendly cooperation and fair competition the legitimate interests of the nations concerned may be successfully and equitably adjusted. The position of the Treasury on another important means of financing exports, namely, the sale of foreign securities in this country, was expressed in the following public statement which was issued by the Secretary on January 24,1920, in response to an inquiry as to whether this department exercised any supervision over such issues: During the war the Capital Issues Committee undertook to determine whether it was compatible with the national interest that certain, issues should be made. The Avork of that committee came to an end shortly after the armistice. During the war, including that portion of the post-armistice period during which the United States Government was financing the requirements of the Allies, the Treasury was unwilling that their Governments should compete Avith it by the issue of securities in our markets. Latterly, the attitude of the Treasury has been favorable to the issue under proper safeguards in our markets of sound investment securities of foreign Governments, and of States, municipalities, and private borrowers, when emanating from those countries with Avhich the international exchange is favorable to the United States, and it may be assumed without inquiry that the Treasury does not object to such issues. But the elfort must be to sell the securities, and procure the investment in them of new savings, and not to dislodge United States Government securities by inducing the holders to sell and exchange them. The principal need of most of the countries of Europe is for capital here^ rather than for bank credit. By maintaining doubtless necessary embargoes on the export of gold, the principal countries of Europe prevent their people from making payment in cash of their international debit balance, thus necessitating the settlement of that balance by investment of American capital in Europe. In the position of most of the European exchanges, resulting from these gold embargoes, even transactions which under normal conditions would be regarded as self-liquidating, and therefore appropriately to be financed by means of bank credit, will not readily be liquidated in dollars. The requirement of Europe for credit, therefore, should be met by the sale of capital issues to investors rather than by the manufacture of bank credit which could only result in unhealthy inflation of our own domestic credit structure. Neither the Capital Issues Committee nor the Treasury has ever undertaken to authorize, approve, or pass upon the merits of any issue of securities what- 80 REPORT ON TH:E FINANCES. •ever, whether of private companies, municipalities, State, or Governments, and the fact that any such issue was not objected to raust not in any case be construed as carrying authorization, approval, or recommendation. The use of the name of the United States Government or of any department of the Government in connection with the issue of any such securities is unauthorized. An estimate of financial obligations of foreign Governments offered in the United States from August 1, 1914 (as disclosed from unofficial information in possession of the Treasury Department), was sent by the Secretary of the Treasury to the President of the Senate under date of J a n u a r y 27, 1920, in response to Senate resolution No. 214, of October 17, 1919. A copy of this estimate is attached as Exhibit 33, page 349. Suggested international flnancidl conference. I n the latter part of January, 1920, the Secretary receiA'ed a letter from the Chamber of Commerce of the United States of America requesting an expression of the • Treasury's opinion on a memorial signed by 44 prominent American citizens, recommending the holding of an international conference to consider the international financial situation. The Secretary's reply Avas as folloAvs: WASH-TKGTON, January 28, 1920. SIR: I have the honor to acknowledge receipt of the letter of January 22, 1920, signed by yourself and Messrs. A. C. Bedford, John H. Fahey, and Harry A. Wheeler, to whom, as a committee designated by the Chamber of Commerce of the United States, was referred a communication transmitting a memorandum signed by 44 prominent American citizens, addressed to the United States Government, the reparations commission, and the Chamber of Commerce of the United'States, recommending that the Chamber of Commerce of the United States designate representatives of commerce and finance to meet with those of other countries for the purpose of examining'the situation as set out in the -communication and recommending such action as may be advisable. In compliance with your request for an expression of opinion from the Treasury in respect to the observations and recommendations contained in the memorial, I may first state that the views and policy of the Treasury in respect to the international financial situation are set forth in the inclosed extracts from my annual report (pp. 11 to 14, inclusive). With much that is contained in the memorial the Treasury is in hearty .accord. Concerning the need of increased production and decreased consumption, the need of balancing governmental budgets and taking effective measures to deflate currency and credit, concerning the need of prompt and proper determinations by the reparations commission which will make possible the resumptioii of industrial Ufe in Germany and the restoration of trade with Germany, there can be no doubt. The people of the United States are being called upon by taxes and othervA^se not only to meet the Government's expenditures, but to reduce the war debt. :So far as the countries of Europe are concerned, the adoption of similar policies is a matter for the Governments of those countries and for the reparations <!ommission. SECRETARY OE THE TREASURY. 81 In an effort to alleviate the situation the United States Government has done aU that was considered advisable and practicable. Since the armistice we have extended to, foreign Governments the foUowing financial assistance: Direct advances $2,380, 891,179. 65 Funds made availabls to those Governments through the purchase of their currencies to cover our expenditures in Europe 736, 481, 586. 76 Army and other governmental supplies sold on credit (approximately) 685, 000, 000. 00 Relief (approximately) 100,000, 000. 00 Unpaid accrued interest up to Jan. 1, 1920, on Allied Government obligations 324, 211, 922. 00 Total 4, 226, 584, 688. 41 The Treasury is opposed to further governmental aid beyond that outlined in my annual report, and in my recent communication to the Ways and Means Committee of Congress Avith respect to the extension of interest on the Allied Government obligations held by the Government of the United States and to the supplying of relief to certain portions of Europe. The Governments of the world must now get out of banking and trade. Loans from Government to Government not only involve additional taxes or borrowings by the lending Government Avith the inflation attendant thereon, but also a continuance by the borrowing Government of control over private activities Avhich only postpones sound solutions of the problems. The Treasury is opposed to governmental control over foreign trade and finance and even more opposed to private control. It is convinced that the credits required for the economic restoration and revival of trade must be supplied through private channels; that as a necessary contribution to that end the Governments of the Avorld must assist in the restoration of confidence, stability, and freedom of commerce by the adoption of sound fiscal policies; and that the reparations commission must adopt promptly a just and constructive policy. The memorial which Avas simultaneously circulated in Europe differs in its scope and character from the one presented in the United States. The European memorial contains some passages omitted in the American memorial which apparently advocate further governmental financial assistance, and also requests the respective Governments to designate representatives to attend the proposed conference, which would give it an ofiicial character. The Treasury has not looked with favor upon certain features of the memorial nor upon the proposed conference, being apprehensive lest the memorial and such a conferenc'e should serve to cause confusion and revive hopes (Avhich, I am certain, are doomed to disappointment) that the American people through their Government will be called upon to assume the burdens of Europe by United States Government loans. Such matters as the suggestion of further governmental loans by the United States, the cancellation of some or all of the obligations of European Governments held by the United States Grovernment (as contemplated by a passage contained in the European memorial but omitted from the American memorial), and the deferring of obligations of foreign Governments held by the United States to liens created in favor of logins hereafter made for reconstruction purposes, are clearly not appropriate for consideration, in such a conference as is contemplated by'the memorial. 13799—n 1920 6 82 REPORT ON TB:E FINANCES. The existing world-wide infiation of currency, credit, and prices is a consequence of the fact that for a period of four or five years the peoples of this earth have been consuming and destroying more than they have produced and saA-ed, and against the wealth so destroyed the warring nations have been issuing currency and evidence of indebtedness. The consequence of the world's greatest Avar is profound and inescapable. It has affected all the nations of the civilized world, as well those who participated actively in the war as those who did not. The inflation exists in the neutral countries of Europe and in the Orient. It exists where there was no war debt, whei'e the Avar debt was badly handled, and to some degree where the war debt was well handled. The problems to the cure of which the distinguished gentlemen are directing their attention have been the subject in one form or another of daily study of the Treasury Department since the outbreak of the war, and especially since the signing of the armistice. These problems have at all times been complex and . difficult, and simple solutions haA^e never been possible, because they involve some factors which are not susceptible of solution by any comprehensive plan. The process of healiug the wounds inflicted by the war must necessarily be slow and painful, involving as it does not only, the physical restoration of industry and agriculture but as well the restoration to habits of industry of masses of men accustomed by the war to unsettlement. We must necessarily, and to a great extent, depend upon and encourage the independent activity and resourcefulness of each person affected to repair his own fortunes, with the assistance of his business connections in other eountries, and also upon each individual to return to a normal life of industry and economy. From the moment of the cessation of hostilities the Treasury of the United States has pursued a policy of looking toward the restoration as promptly as possible of normal economic conditions, the removal of governmental controls and interferences, and the restoration of individual initiative and free competition in business. It has insisted upon strict economy in governmental expenditure and upon the maintenance of taxes at a level which, with the salvage of war materials and supplies, etc., will insure the prompt retirement of the floating debt of the United States and the establishment of a fund adequate for the retirement of the funded debt in the course of a generation. The Treasury long since, with the cooperation of the Federal ReserA-e Board, removed the embargo on the export of gold, thus enabling American citizens and, indeed, the nations of the world, to the extent that they find credit here, to finance their purchases throughout the world in cash. Rightly or wrongly, a different policy has been pursued in Europe. European Governments have maintained, since the cessation of hostilities, embargoes upon the export of gold. The rectification of the exchanges noAV adverse to Europe lies primarily in the hands of European Governments. The normal method of meeting an adverse international balance is to ship gold. The refusal to ship gold prevents the rectification of an adverse exchange. The need of gold embargoes lies in the expanded currenc:\' and credit structure of Europe. Relief would be found in disarmament, resumption of industrial life and activity, and the imposition of adequate taxes and the issue of adequate domestic loans. The American people should not, in my opinion, be caiiea apon to finance^ and Avould not, in my opinion, respond to a demand that they finance, the requirements of Europe in so far as they result from the failure to take these necessary steps for the rehabilitation of<? credit. Such things as international bond issues, international guaranties, and international measures for the stabilization of exchange are utterly, impracticable so long as there exist inequalities of taxation and domestic financial policies in SECRETARY OF TPIE TREASURY. " . 8 3 the various countries iuA^olved; and wlien these inequalities no longer exist such devices Avill be unnecessary. It is unthinkable that the people of a country Avhich has been called upon to submit to so drastic a program of taxation as. that adopted by the United States, Avhich called for financing from current taxes a full one-third of the war expenditures, including loans to the Allies, should undertake to remedy the inequalities of exchange resulting from a less drastic policy of domestic taxation adopted by the other Governments of the Avorld. The remedy for the situation is to be found not in the manufacture of bank credit in the United States for the movement of exports, a process Avhich has already proceeded too far, but ill the movement of goods, of investment securities, and, in default of goods or securities, then of gold into this country from Europe; and in order that such securities may be absorbed by investors our people must consume less and save. The United States could not, if it AVOU d, assume the burdens of all the earth. It can not undertake to finance the requirements of Europe, because it can not shape the fiscal policies of the governments of Europe. The Government of the United States can not tax the American people to meet the deficiencies arising from the failure of the governments of Europe to balance their budgets, nor can the Government of the United States tax the iVmerican people to subsidize the business of our exporters. It can not do so by direct measures of taxation, nor can it look with composure upon the manufacture of bank credit to finance our exports Avhen the requirements of Europe are for Avorking capital rather than for bank credit. Lamentable as Avould be the effects upon our industrial life and upon Europe itself of the continued maintenance of an exchange barrier against the importation into Europe of commodities from the United States, this country can >not continue to extend credits on a sufficient scale to coA^er our present SAvol.en trade balance against Europe, AAdiile paying cash (gold and silver) to the countries of Central and South America and the Far East AAath which it has an iidverse balance on its OAVU and international account. The consequence of the maintenance by Europe of this barrier Avill be to force the United States to do business Avith those countries Avith AAdiich it is able to do business on a cash basis. The only other policy Avhich the United States could adopt would be the policy of reestablishing embargoes on goid and silver and of inflating its OAA'U currency to the same extent that the currencies of Europe are inflated, Avith a viCAV tO' loAvering its exchange to a parity Avith theirs. This Avould involve taxing the Avhole people for the benefit of our exporters and the benefit of Europe and submitting to have imposed on the United States domestic financial policies adopted by Europe but quite contrary to those heretofore adopted by the United States. It Avould mean a Avorld-Avide inflation, the abandonment of the gold standard, and, ultimately, chaos. If the peoples and governments of Europe live Avithin their incomes, increase their production as much as possible, and limit their imports to actual necessities, foreign credits to cover adverse balances would most probably be supplied by private investors, and the demand to resort to such impracticable methods as governnient loans and bank credits Avould cease. There is no more logical or practical step toward solving their own reconstruction problems than for the AlUes to give value to their indemnity claims against Germany by reducing those claims to a determinate amount which Germany may be reasonably expected to pay, and then for Germany to issue obligations for such amount and be set free to AA-ork it out. This Avould increase . Germany's capacity to pay, restore confidence, and improve the trade and com- 84 REPORT ON T H E FINANCES. merce of the world. T h e maintenance of claims Avhich can not be paid causes apprehension and serA-es no useful purpose. • \ P r i v a t e investors can only make loans to the extent of their savings in excess of domestic capital requirements, a n d then will only m a k e them to thie extent t h a t they have confidence in the securities or obligations offered. T h e adoption of the measures indicated should a d d to the confidence of the private investor. If the Chamber of Commerce of the United States considers it advisable a n d desirable to designate representatives to attend an unofficial conference, t h e T r e a s u r y does not desire to offer any objection, provided the scope a n d character and limitations of such a conference, as Avell a s the impossibility of United States Government action, a r e clearly understood. Cordially yours, HOMER L . FERGUSON, CARTER GLASS. Esq., President Chamber of Commerce of the 'United States of America, Washington, D. G. The Brussels Conference. Subsequently the suggestion that an international financial conference be convened was addressed to.the Council of the League of Nations. An invitation to such a conference was extended to the United States by Sir Eric Drummond, secretary general of the league, under date of April 15, 1920, as follows: [Soci6t6 des Nations. Leagiie of Nations.] ST;NDERLAND H O U S E , CURZON STREET, London, W. I., April 15, 1920. YOUR EXCELLENCY : T h e council of t h e League of Nations a t i t s meeting held in London on F e b r u a r y 11-13 passed the folloAving resolution: "ARTICLE I. T h e League of Nations shall convene an international conference with a view to studying the financial crisis and to look for the means of remedying it a n d of mitigating the dangerous consequences arising from it. "ART. I I . A commission composed of members of t h e council nominated by the president is instructed to summon the States chiefly concerned to this conference and to convene it a t the earliest possible date." In accordance with instructions received from the Council of t h e League of Nations I have the honor to forward to you hereAvith, for transmission to the United States Government, a note and inclosure containing a n invitation to be represented a t t h e conference or to be associated with it in i t s Avork. In view of the urgency of the matter, I am directed to ask you to be good enough to telegraph t h e substance of this note and inclosure to your Government with a request t h a t the League of Nations may be informed of the reply a t as early a date as may be possible. I have t h e honor to be, Your obedient servant, ERIC DRUMMOND, Secretary General. H i s Excellency t h e Hon. J O H N AV. I>AVIS. etc., American Embassy, Grosvenor Gardens, London. S. W. SECRETARY OF THE TREASURY. 85 INVITATION. The Council of the League of Nations begs to inform the Government of the lollowing resolution adopted during the meetings of the council held in London February 11-13, 1920: "ARTICLE I. The League of Nations shall convene an international conference, with a vieAv to studying the financial crisis and to look for the means of remedying it and o^ mitigating the dangerous consequences arising from it. "ALRTICLE I L A commission composed of members of the council nominated by the president is instructed to summon the States chiefly concerned to this conference and to convene it at the earliest possible date." This conference Avill be held at Brussels about the end of May, 1920. The council invites the follOAving countries to send delegates to this conference: Argentine Republic. Australia. Belgium. Brazil Canada. Chile. CzechoslOA^akia. Denmark. France. Greece. Holland. India. . Italy. Japan. NeAv Zealand. Norway. Poland. Portugal. Roumania. 3erb-Groat-Slovene State. . South Africa. Spain. Sweden. Switzerland. United Kingdom. "" " . Other States members of the league Avill be invited to send to the council as soon as possible any proposals Avhich they Avould like to have considered by the conference. The council of the league is informing the United States Government of the proposed conference and is inviting them to send representatives to the conference or to be associated with the work of the conference. The council may invite States not included in the above list to communicate to the conference full information regarding their financial and economic situation, and if necessary it Avill decide under Avhat conditions these States may be heard. The council therefore has the honor to invite the Government to send to the conference'not more than three delegates conversant with public finance and banking as well as with general economic questions. The council requests that the names of these delegates may be notified to the secretary general of the League of Nations. The council will nominate the president of the conference and will supply the necessary personnel for the secretariat. The exact date of the meeting will be announced by the secretary general. The council suggests that in order to facilitate the preparations for the conference the Government should forward to the secretary general as soon as possible any suggestions for dealing with the present financial difiiculties which it may desire to submit to the conference, .together with a statement indicating any steps it may have taken for dealing with the situation. It is suggested that the general expenses in connection with the organization of the financial conference should be met by the League of Nations and the expenses and salaries of the delegations by their respective Governments. 86 REPORT ON THE FINANCES. , ACCOMPANYING MEMORANDUM. T H E LEAGUE OF NATIONS, SUNDERLAND HOUSE, CURZON STREET, London, W. A., April 15, 1920. The secretary general of the League of Nations is instructed by the council of the League of Nations to communicate to the United States Government the text of an iUAatation to an international financial conference which the council o is addressing to the States members of the League of Nations. The Avorld is at this moment in a condition of economic and financial disorder Avith results AAdiich are at present so serious and may in the future become so dangerous that the League of Nations can not ignore them Avithout failing in its most essential duties. In taking the initiatiA^e of convening a financial conference to meet at 'Brussels Avithin the next few weeks, the council of the league fully realizes the difficulty of the problem under consideiation. and it does not ask the conference for a complete solution. It desires, that the present situation should be discussed from an international point of Alew, and the delegates meeting at Brussels will be invited to conduct the debate on a higher plane than the mere consideration of the special problems and interests of each State. The purpose of the conference is not to recast the economic system of the AA^orld, but to obtain suggestions for its improA^ement by the impartial examination of the present situation and the formulation of practical conclusions by the best qualified experts in each country. Recognizing the economic and financial importance of the United States, the council of the League of Nations expresses the earnest hope that the United States Government Avill Avish to avail itself of the opportunity of the United States being represented at the conference or of being associated with its work. The following reply was made: The Government of the United States acknowledges receipt of the text of an invitation, addressed by the Council of the League of Nations to the States members of the league, to an international financial conference to be held at Brussels,' and transmitted to this Government under date of April 20, 1920, by the secretary general of the League of Nations through the American ambassador to England, expressing the hope that the United States Government will wish to avail itself of the opportunity of being represented at the conference or being associated Avith its AA'ork. The United States is intensely interested in the restoration of stable conditions throughout the Avorld and hopes that an exchange of views and information by experts may assist in the betterment of existing conditions. It is not clear to this Government Avhether the suggestion as to the United States taking part in the conference refers to the appointment of an official delegation representing the Government:, or the appointment of unofficial delegates. This Government Avould not see its Avay to appoint an official delegation, but the Secretary of the Treasury AAdll be glad to designate one or more unofficial representatives to attend the conference. While these delegates will not be authorized to bind or commit'tliis Government in any Avay, they will be authorized to take part in the discussions of the conference, for the purpose of giving information as to the financial and economic conditions in this country and for the purpose of obtaining similar information in respect to the other countries. The conference was postponed from time to time, but was finally set for September 24, 1920; Roland W. Boyden, the unofficial repre SECRETARY OF THE TREASURY. 87 sentative of the United States on the Reparation Commission,, was designated as the unofficial representative of the Treasury at the conference. The following is an extract from the cable instructions sent Mr. Boyden in connection with the conference: * * * * * * * I have, Avith consent of Department of State, designated you an unoflBcial representative to attend the conference and to report concerning the same. You are authorized to take such part as you may deem advisable in the discussions of the conference for the purpose of giving information as to the financial and economic conditions in this country and for the puri)ose of obtaining similar information in respect to other countries, but you are not authorized to bind or commit this Government in any Avay. Replies to a questionnaire and supplementary memorandum issued by the League of Nations have been sent to the secretariat of the League of Nations through Departnient of State and embassy in London. Suggest you communicate Avith embassy for purpose of obtaining this material. Understand committee in charge of conference desires head of each delegation to make brief statement of financial and economic conditions in his country. You are authorized to make such statement on behalf of the United States in case you consider it advisable to do so. Understand advisory committee on matters relating to the conference has proposed that questions of reparations and cancellation of Avar debts be not dealt Avith at the conference except in form of statement from chairman, and that such statement Avould not be open to discussion. We understand Germans and Austrians are noAv expected to attend conference, and assume, in view of their presence, abOA^e-mentioned questions Avill not be brought up. It is view of United States Treasury that such matters as further governmental loans by United States, cancellation of some or all of obligations of European Governments held by United States Government, and deferring of obligations of foreign Governments held by the United States to liens created in favor of loans subsequently made for reconstruction purposes, are clearly not appropriate for consideration of conference. You are, therefore, not authorized to enter into discussions regarding the obligations of foreign Governments held by the United States or further advances by this Government to other Governments. These matters, together AA^ith the exchange of the demand obligations held by the United States Government for long-time obligations, and the deferring of the collection by the United States of interest during the reconstruction period, are, in my opinion, matters resting exclusively betAveen the Treasury of the United States and the treasuries of the respective Governments Avhose obligations we hold. Referring to proposed agenda, you Avill note that information contained in replies to questionnaire covers many of the matters referred to. This Government has no external debt. Information concerning currency and external loans is set forth in replies to questionnaire. Federal taxes imposed by existing legislation are calculated to yield an annual revenue of about $4,000,000,000. It is the policy of the Treasury that taxes in this amount should continue to be raised, but that incidence of taxation should be someAvhat changed with view to acceleration of production and accumulation of capital. AA^ith exception of tariff of duties upon imports and restrictions upon importation of certain dyestuffs, and with exception also of certain restrictions, upon exchange transactions with territory under control of so-called bolshevik government of Russia, foreign trade and the exchanges are unrestricted, and it is present policy of this Government that they should continue unrestricted. It is policy of Treasury and of existing legislation that Federal Government besrin forthwith paying off 88 REPORT ON THE FINANCES. its war debts; measures are being taken to halt increase of infiation of credit and to encourage production and saving.. In opinion of Treasury, these ends can best be attained in this country by avoiding so far as possible governmental restriction and control and by leaAlng private enterprise free to produce surplus necessary for reducing our national debt and for supplying Europe with materials requisite for its reconstruction. Attention should be called to fact that in addition to taxes imposed by Federal Government, State and local taxation is estimated to amount to not less than $2,000,000,000 annually. It should be remembered also that although European Governments are indebted, to this Government in amount approaching $10,000,000,000 there remains in hands of Eurojpean holders investment in property in United States amounting to several billion dollars. Final reports of the proceedings of the conference liaA^e not been received at the time this report goes to press. Excerpts from certain of the resolutions adopted unanimously are as follows:. FROM R E S O L U T I O N S PROPOSED BY C O M M I T T E E ON P U B L I C FINANCE. Thirty-nine nations have in turn placed before the International Financial Conference a statement of their financial position. The examination of these statements brings out the extreme gravity of the general situation of public finance throughout the world, and particularly in Europe. Their import may be summed up in the statement that 3 out of every 4 of the countries represented at this conference and 11 out of 12 of the European countries anticipate a budget deficit in the present year. Public opinion is largely responsible for this situation. The close connection between these budget deficits and the cost of living, Avhich is causing such suffering and unrest throughout the Avorld,. is far from being grasped. Nearly every Government is being pressed to incur fresh expenditure, largely on palliatives which aggravate the very evils against, which they are directed. The first step is to bring public opinion in every country to realize the essential facts of the situation and particularly the need of reestablishing public finances on a sound basis as a preliminary to the execution of those social reforms which the world demands. Public attention should be especially drawn to the fact that the reduction of prices and the restoration of prosperity is dependent on the increase of production, and that the continual excess of Government expenditure over revenue represented by budget deficits is one of the most serious obstacles to such increase of production, as it must sooner or later involve the following consequences : (a) A further inflation of credit and currency. (b) A further depreciation in the purchasing power of the domestic currency, and a still greater instability of the foreign exchanges. (c) A further rise in prices and in the cost of living. The country which, accepts the policy of budget deficits is treading the slippery path which leads to general ruin; to escape from that path, no sacrifice is too great. It is, therefore, imperative that every Government should, as the first social and financial reform, on which all others depend: , (a) Restrict its ordinary recurrent expenditure, including the service of the debt, to such an amount as can be covered by its ordinary revenue. (&) Rigidly reducing all expenditure on armaments in so far as such reduction is compatible with the preservation of national security. (0) Abandon all unproductive extraordinary expenditure. SECRETARY OF THE TREASURY. 89 (d) Restrict even productive extraordinary expenditure to the lowest possible amount. , The supreme council of the allied powers in its pronouncement on the 8th of March declared that "Armies should everyAvhere be reduced to a peace footing ; that armaments should be limited to the lowest possible figure compatible with national security and that the League of Nations should be invited to consider, as soon as possible, proposals to this end." The statements presented to the conference show that, on an average, some 20 per cent of the national expenditure is still being devoted to the maintenance of armaments and the preparations for Avar. The conference desires to affirm with the utmost emphasis that the Avorld can not afford this expenditure. Only by a frank policy of mutual cooperation can the nations hope to regain their old prosperity; and in order to secure that result the whole resources of each country must be devoted to strictly productive purposes. The conference accordingly recommends most earnestly to the council of the League of Nations the desirability of conferring at once Avith the several Governments concerned, with a view to securing a general and agreed reduction of the crushing burden Avhich, on their existing scale, armaments still impose on the impoverished peoples of the world, sapping their resources and imperilling their recovery from the ravages of war. The conference hopes that the assembly of the league which is about to meet will take energetic action to this end. While recognizing the practical difficulties in the way of immediate action, in all cases, the conference considers that every Government should abandon at the earliest practicable date all uneconomical and artificial -measures which conceal from the people the true economic situation. Such measures include: (a) The artificial cheapening of bread and other foodstuffs, and of coal and other materials, by selling them below cost price to the public, and the provision of unemployment doles of such a character as to demoralize instead of encouraging industry. (b) The maintenance of railway ^fares, postal rates, and charges for other Government services on a basis which is insufficient to cover the cost of the serAdces given, including annual charges on capital account. In so far as, after every eft'ort has been made, it is impossible to' cut doAA^n expenditure within the limits of existing revenues, fresh taxation must be imposed to meet the deficit and this process must be ruthlessly continued until the revenue is at least sufficient to meet the full amount of the recurrent ordinary expenditure. The conference considers that the relative advantages of the various possible means of increasing the national revenue, Avhether by direct or indirect taxation or by a capital levy (to be devoted to the repayment of debt), depend upon the special economic conditions obtaining in each country, and that in consequence each country must decide for itself on the methods which are best suited to its OAVU internal economy. ^ If the above principles are accepted and applied, loans will not be required for recurrent ordinary expenditure; borrowing for that purpose must cease. In a number of countries, hoAvever, although the ordinary charges can be met from revenue, heavy extraordinary expenditure must at the present time be undertaken on capital account. This applies more especially in the case of those countries devastated during the Avar, AA^hose reconstruction charges can not possibly be met from ordinary receipts. The restoration of the devastated areas is of capital importance for the reestablishment of normal economic conditions; and loans for this purpose are not only unavoidable but justifiable. But in vieAv of the shortage of capital it will be difficult to secure the sums required even for this purpose, and only the most urgent schemes should be pressed forward immediately. 90 " REP0.RT ON TFIE FINANCES, The means by which loans are raised are no less important than the purposes to which vthey are destined. In future the loans which are required for urgent capital purposes must be met out of the real savings of the people. But those savings have, as it Avere, been pledged for many years ahead by the credits created during the war, and the first step to raising fresh money must be to fund the undigested fioating obligations Avith which the markets are burdened. Those principles apply both to internal and to external borrowing, and in regard to the latter, we suggest that it would be in the general interest for the creditor countries to giA^e such facilities as may be possible to the debtor countries to fund their floating obligations at the earliest possible date. * * M: * * * * FROM R E S O L U T I O N S PROPOSED BA^ C O M M I T T E E ON I N T E R N A T I O N A L TRADE. The International Financial Conference affirms that the first condition for the resumption of international trade is the restoration of real peace, the conclusion of the wars which are still being Avaged, and the assured maintenance of peace for the future. The continuance of the atmosphere of war and of preparations for Avar is fatal to the development of that mutual trust which is essential to the resumption of normal trading relations. The security of internal conditions is scarcely less important, as foreign trade can not prosper in a country whose internal conditions do not inspire confidence.. The conference trusts that the League of Nations will lose no opportunity to secure the full restoration and continued maintenance of peace. The International Financial Conference affirms that the improvement of the financial position largely depends on the general restoration as soon as possible of good Avill between the various nations, and in particular it indorses the declaration of the supreme council of the 8th March last " t h a t the States which have been created or enlarged as the^ result of the war should, at once reestablish full and friendly cooperation and arrange for the unrestricted interchange of commodities in order that the essential unity of European economic life may not be impaired by the erection of artificial economic barriers." The conference recommends that Avithin such limits and at such time as may appear possible each country should.aim at the progressive restoration of that/ freedom of commerce which prevailed before the Avar, including the withdraAval of artificial restrictions on and discriminations of price against external trade. The International Financial Conference expresses its conviction that the instability of exchanges constitutes a great hindrance to the resumption of normal international trade. The International Financial Conference vi'-ould Avelcome any action which can be taken by the League of Nations to enable the countries, which under present conditions can not purchase the necessary supplies for their reconstruction, temporarily to obtain commercial credits on an approved basis for this purpose. The International Financial Confei'ence expresses the conviction that the repair, improvement, and economical u.ye of the transport systems of the Avorld, and particularly of countries affected by the war, are of vital importance to the restoration of international trade. FROM R E S O L U T I O N S PROPOSED BA^ COMAIITTEE ON CURRENCY AND E X C H A N G E . ^^ 3|€ 5fC Jj* s|C •!» 5jC 1. It is ,of the utmost importance that the growth of inflation should be stopped. * * * 2. Governments must limit their expenditure to their revenue (we are not considering here the finance of reconstructing deA^astated areas). SECRETARY OF TH.E TR.l-^ASURY. 91 3. Banks, and e.specially banks of issue, should be freed from political pressure and should be conducted solely on the lines of prudent finance. * * •=' 4. The creation of additional credit should cease, and Governments and municipalities should not only not increase their floating debts but should begin to repay or fund them by degrees. ^= * * 5. Until credit can be controlled merely by the normal influence .of the rate of interest it should only be granted for real economic needs. * * ' =•' 6. Commerce should as soon as possible be freed from .control and impediments to international trade removed, * * * 7. All superfluous expenditure should be avoided. * * * 8. It is highly desirable that the countries Avhich have lapsed from an effective gold standard should return thereto. '-^ * * 9. It is useless to attempt to fix the ratio of existing fiduciary currencies to their nominal gold value. ''' * * 10. Defiation, ^f and Avhen undertaken, must be carried out gradually and Avith great caution. * * * 11. AVe can not recommend any attempt to stabilize the value of gold, and we gravely doubt Avhether such attempt could succeed. =•' * * 12. We believe that neither an international currency nor an international • unit of account Avould serve any useful purpose. * ^'^ * 13. We can find no justification for supporting the idea that foreign holders of bank notes or bank balances should be treated differently to native holders. 14. In countries Avhere there is no central bank of issue one should be established. * -^ * 15. Attempts to limit fluctuations in exchange by imposing artificial control on exchange operations are futile and mischievous. * * * 16. A committee should be set up both for continuing the collection of -the valuable financial statistics that have been 'furnished for this conf^^ence and also for the'further investigation of currency policy. FROM RESOLUTIONS PROPOSED BY C O M M I T T E E ON I N T E R N A T I O N A L CREDITS. The committee is of opinion that in principle the resources out of Avhich this assistance is to be provided should be found from the savings of the lending countries and raust not result in undue increase of the fiduciary circulation— that is to say, in the creation or extension of a disproportion betAveen means of payment and the genuine requirements of business. The committee believes, on the other hand, that this assistance can only be effectively accorded to countries Avhich are prepared to assist one another in the restoration of economic life and to make every effort to bring about within their OAA-U frontiers the sincere collaboration of all groups of citizens and to secure conditions Avhich give to work and thrift liberty to produce their full results. The committee does not believe that, apMrtfrom particular decisions dictated by national interests or by considerations of humanity, credits should be accorded directly by Governments. It appears to the committee that one of the chief obstacles to the granting of credits is the absence in borrowing counrries of sufficient security for ultimate i-epayment. The committee therefore studied Avith attention, in the light of the general considerations enumerated above, all the proposals presented with a vieAv to creating guarantees AAliich would provide satisfactory security for exporters. The committee has been forced to recognize that no single system could by itself suffice to provide for the many different needs of the various countries, 92 REPORT ON THE FINANCES. and that it is necessary to indicate a series of measures sufficiently elastic to be adapted afterwards tc every variety of circumstances. EUROPEAN RELIEF. Although the Treasury s t r o n g ^ held the opinion that this Government should, at the earliest possible moment, discontinue lending money to other Governments and that the reconstruction of Europe could not be accomplished by loans from Government to Government, the department nevertheless was forced to the conclusion that certain limited measures by this GoA^ernment were necessary for the purpose of keeping the destitute populations of Europe alive through last Avinter. The Secretary of the Treasury accordingly vi^rote the chairman of the Committee on Ways and Means of the House of Repre^sentatives as follows, under date of December 18, 1919 : WASHINGTON, December 18,1919. MY DEAR CONGRESSMAN : Reports and urgent advices received from reliable sources as to the shortage and utter lack of food in certain portions of Europe are so serious that I feel it my duty to lay some of the facts before Congress. Although the shortage of food in Europe as a Avhole is less this AAdnter than last, there is in parts of Europe (especially Austria, Poland, and Armenia) a most dangerous shortage of food, clothing, and fuel. In these places there has not been sufficient recoA^ery of economic life to enable the people to produce enough to meet their requirements or to enable them to buy or to borroAv sufficient food and elothing to keep them alive. In certain sections whole populations are noAv dangerously Aveak and hopeless from hunger. The death rate caused by starvation is already increasing to an alarming extent, and unless something is done great numbers will die from starvation or cold. It is unnecessary to elaborate the gra\'e effects which this may have on the social order and the economic fabric, not only in the places where these conditions exist, but in the AAdiole of Europe and even the Avorld. The British Government has informed this Government that it is prepared to share Avith us to the extent of its ability in the relief of Austria, Avhich, according to our information, is in the most desperate condition. As you are aAvare, the Treasury has strongly held the opinion that this Government should, at the earliest possible moment, discontinue lending money to other Governments. I have urged tlnit private initiative should be restored and that credits for purchases in .the United States should be obtained through private channels. In discussing in my annual report the international financial situation I said that " Ave are prone to overlook the A^ast recuperative poAA^er inherent in any country Avhich, though devastated, has not been depopulated, and the people of which are not sUi/rved. afterwards.'' I am reluctantly convinced now that in order to meet the urgent necessity of keeping the destitute populations of Europe alive through this Avinter there must be taken at once measures for their relief. The resources and efficiency of the private charities of this country are not adequate to the necessities AA^hich can not in the nature of tlie case be financed through ordinary private channels. I therefore have the honor to request that your conimittee afford me the opportunity of laying before it any information Avhich it may desire and AA^hich I am able to furnish, in order that appropriate legislation may be considered at once. SECRETARY OF T H E TREASURY. 93 The emergency is of such magnitude; the dictates of humanity are so pressing ; the possible effects of the present situation upon the social, economic, and financial rehabilitation of Europe, and consequently upon the trade and prosperity of the Avorld, in Avhich the United States has so great a stake, may be of such consequence that I do not hesitate from the standpoint of humanity and public policy to assume the responsibility of appealing to the humane and practical sentiments of the Congress to take immediate steps to furnish from our surplus the food necessary to save the situation. We can not and must not noAv fail to supply some food on credit to save human lives and safeguard civilization, for Avhich we have already expended so many lives and billions of dollars. Cordially yours, CARTER CTLASS. Hon. JOSEPH W . FORDNEY, Chairman of Ways and Means Committee, House of Representatives, Wasliington, D. G. January 7, 1920, the Secretary again wrote to the chairman of the Committee on Ways and MeanSj as follows: WASHINGTON, January 7, 1920. MY DEAR CONGRESSMAN : With reference to my letter of December 18 to you, calling your attention to the desperate situation in certain portions of Europe Avhere urgent relief is required, and requesting an opportunity to lay before your committee further information and proposals for legislation Avhlch Avill enable this GoA^ernment to assist in alleviating that situation, I have the honor to submit herewith a summary of the many reports and dispatches from various reliable sources as to the situation in those parts of Europe Avhere relief is so urgently necessary; namely, Poland, Austria, and Armenia. I also have the honor to submit a proposed legislative authorization which, in my opinion, would enable this country to give the assistance which is imperatively required, Poland.—According to the best information obtainable, the minimum grain requirement necessary to carry Poland until the next harvest, and which can not be filled anywhere but in the United States, is 300,000 tons. This deficiency is due to a partial failure of the wheat crop and to a lack of fuel for thrashing. Poland is at present living under a hand-to-mouth regime, which can be remedied only by a steadyfloAvof imports from the only available surplus stocks of food; namely, those in the United States. The potato crop, Avhich is the staple food of the poorer classes, has been destroyed by frosts to the extent of 50 per cent in many districts, as it is impossible properly to care for potatoes in transit due to delays in transportation. Poland has been.unable to procure clothing since the beginning of the Avar, and the result is that during the past five years practically all clothing has been Avorn out and has not yet been replaced. The food, situation in Poland is so serious that the European Children's Relief Fund has felt obliged to loan Poland small quantities of flour from the stocks intended for child feeding. The assistance to the children of Poland rendered through this fund, Avhich feeds 1,300,000 children daily, is claimed by its administrators there to have been a powerful means of averting revolutions up to this time, and the failure of the Polish Government properly to ration its adult population has already caused demon?itrations by the Reds in WarsaAV. The cost of supplying the 300.000-ton grain minimum would be approximately $50,000,000. It is possible that a portion of this requirement may be met through private charity and that the British Government raay be able 94 REPORT ON THE FINANCES. to supply some tonnage for the t^'ansportation of this grain from the United States. In so far as this outside aid is received, the assistance to be furnished by the United States would be diminished. Austria.—In Austria the acute misery and suffering are probably greater than in Poland. Two-tenths only of the present Austrian State are selfsupporting, in food, and the remaining eight-tenths, even before the war, produced food to supply themselves for six months of the year at most and were dependent for the remaining six months upon importations. Consequently, the situation to-day, especially in Vienna, has become exceedingly grave, due to a shortage of coal and food. There is every indication that unless some relief is afforded immediately the population can not Avithstand the strain of conditions that are already well-nigh intolerable. Coal and food rations for domestic consumption have been reduced below a safety minimum, and it is only a question of days before existing stocks will be exhausted, AA^hen even the present reduced rations Avill become impossible unless new supplies are obtained. Already the forests in the neighborhood of Vienna are being cut dOAvn for fuel, as are also many of the Avooden dAvellings. Famine riots have broken out in some Austrian tOAvns during the past months, and although the population of Vienna has shoAATi admirable patience this city and large parts of Austria are faced Avith the danger of a complete breakdoAvn, which, according to the chancellor. Dr. Renner, must unavoidably occur by the end of January unless outside assistance is obtained. What th^ effect of a general social breakdown in Austria would be can, of course, only be conjectured. That it Avould be confined to Austria, hoAveA^er, seems highly improbable, and if it spread to Germany, Poland, and possibly all of Europe the result would be no less than a general disintegration of political cohesion in Avestern Europe. Such an event Avould be fraught AAdth the most serious consequences'for the United States, and Avould certainly leave in its wake severe suffering and thousands of deaths among the poorer classes of the people. The British Government has definitely proposed to join, to the extent of its ability, Avith the United States Government in furnishing relief to Austria. The British Government has explained, however, that with the present depreciation in its exchange, it could not supply dollars for the purchase of food iu the United States, but it can no doubt supply the requisite tonnage and some relief supplies obtainable in the United Kingdom. The total estimated requirements for Austrian relief are $100,000,000, but the British participation should reduce the amount of relief to be supplied from the United States to Austria to about $70,000,000. Armenia.—Although the population of Armenia is small, the situation there is desperate, and the winter season Avill see many deaths unless adequate food, medical supplies, and clothing are received from outside sources. It has been estimated that a bare minimum program of 7,500 tons of flour, together Avith other necessities, amounting in all to $500,000 monthly, will be required to meet the situation, and if deliveries are not maintained after the severe winter Aveather sets in orphanages Avill close and great numbers of deaths Avill result. At present there are 700,000 destitute people being kept alive by this program, and partial aid is being furnished to many others. As there are private charitable funds available for Armenia, it is probable that the amount of relief which the United States Government would be called upon to furnish to Armenia Avould not exceed $1,000,000. In addition to the three above-mentioned countries or territories where the requirements are most urgent, it may be necessary to furnish some supplies to SEGRETARY OF THE TREASURY. 95 Other sections of Europe (outside the boundaries of Germany) where the situation is not now so desperate but where food supplies will be required to carry them through until the next harvest. It is estimated that ^$25,000,000 Avouldi suffice for this purpose. In this summary of conditions no attempt has been made to cover all the ground or even touch on all the aspects of the situation in the countries mentioned. Data in the form of consular dispatches and telegrams from various official and unofficial American representatives abroad exist in abundance to substantiate the foregoing summary of the dire need of the people of these countries for immediate relief. In conclusion I may say that Avhile it is impossible now to estimate definitely just Avhat will be required, I am of the opinion, from the information so far obtainable, that a minimum of $125,000,000 and a maximum of $200,000,000 Avould suffice to supply "the portion of relief to be assumed by this Government,, pi-ovided Congress should grant the necessary authorization to participate in alleviating this serious and desperate situation. As any relief undertaking, so far as concerns the United States, Avould be primarily a question of supplying food, and as it is advisable that the purchases of food for Europe should be handled and coordinated in such a manner as not to increase the prices of food in the United States, I am recommending, in the proposed legislation that the United States Grain Corporation be empoAvered to purchase, sell, and deliver food and relief supplies for Europe upto the amount of $150,000,000, and that for the supplies so furnished credit may be extended by the Grain Corporation. If this amount proves insufficient to meet the minimum requirements, the Treasury Avill again submit the matter to Congress for such action as it may deem expedient. If you desire further information than that contained herein. Assistant Secretary Davis and Mr. Hoover, who are most conversant with this situation,, will be glad to appear before your committee on the 10th instant at 10.30 a. m. Cordially yours. CARTER CSTLASS. Hon. JOSEPH W . FORDNEY, Chairman of Ways and Means Committee, House of RepresentoMves. S U G G E S T E D D R A F T O F A BILL PROVIDING FOR THE RELIEF OF POPULATIONS IN EUROPE AND IN COUNTRIES CONTIGUOUS THERETO. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That for the participation of the Government of the United States in the furnishing of foodstuffs and other relief supplies and for the transportation thereof to populations in Europe and countries contiguous thereto, the United States Grain Corporation is authorized, with the approval of the Secretary of the Treasury and to an amount not exceeding $150,000,000, to buy or contract for the purchase of Avheat of the crops of 1918-1919 and flour produced therefrom and other food and food products and relief supplies necessary for the purposes of this act, and to sell, consign, or contract for the sale, and to deliA^er or contract for the delivery of the same, for cash or on credit, at such prices and on such terms or conditions as may be necessary to carry out the purposes of this act and to relieve populations in the countries of Europe or countries contiguous thereto: Provided, That an audited itemized report of the receipts and expenditures of the United States Grain Corporation for the purposes authorized by this act shall be submitted to Congress not later than December 31, 1920. 96 REPORT ON THE FINANCES. The following statute entitled "An act providing, for the relief of populations in Europe and in countries contiguous thereto suffering for want of food," was subsequently enacted by the Congress and approA^ed by the President March 30, 1920: Be it enacted by the Senate and House of Representatives of -the United States of America in Congress assembled. That, for the participation of the Government of the United States in the furnishing of foodstuffs to populations in Europe and countries contiguous thereto suffering for the want of food, the United States Grain Corporation is hereby authorized, with the approval of the Secretary of fhe Treasury, to sell or dispose of flour now in its possession, not to exceed five million barrels, for cash or on credit, at such prices and on such terms or conditions as may be necessary to carry out the purposes of this act and to relieve populations in the countries of Europe or countries contiguous thereto suffering for the want of food: Provided, That an audited, itemized report of the receipts and expenditures of the United States Grain Corporation for the purposes authorized by this act shall be submitted to Congress not later than the first Monday in December, 1920. Under this authority the Grain Corporation, with the approval of the Secretary of the Treasury, sold flour on credit to the Governments of Armenia, Austria, the Czecho-Slovak Republic, Hungary, and Poland. At the date of this report the obligations received by the Grain Corporation from these Governments have not been turned over to the Treasury. They are understood, however, to aggregate approximately $57,000,000 in face amount. T H E DOMESTIC CREDIT S I T U A T I O N . The efforts of the Federal Reserve Board and the Federal reserve banks to control credit and avoid undue expansion of loans are clearly indicated in the statements issued from time to time by the board. The fundamental fact is that, notwithstanding the increased rates of discount and the endeavor to discourage the use of credit for speculative and nonessential purposes, the year has been marked by an unprecedented Increase in loans at the Federal reserve banks, at member banks, and banking institutions generally. Instead of a curtailment of credit, there has been a tremendous expansion. The situation was outlined by the Federal Reserve Board in its public statement of October 17,1920, which is as follows: In vicAv of the representations which have recently been made to the board as to the unavailability of credit in agricultural sections the board requested information concerning credit conditions throughout the country from the chairmen and governors of Federal reserve banks at their usual autumn conference here this week. The board is advised that credit has been steadily available for the successive seasonal requirements of agriculture, as well as for the needs of commerce and industry, and that there is no ground for expecting that its availability for these purposes will not continue. The present improved -^^ffiit situation is due in part to the timely steps taken last spring, following SECRETARY OF THE TREASURY. 97 conferences betAA^'een the board and governors and directors of Federal reserve banks to provide credit for crop moving requirements, and in part to the subsequent improvement in transportation reported from all districts except in a few localities. Between January 2 and October 1 of the present year about 800 leading member banks from all sections of the country Avhich report their condition to th^ board weekly and AAdiich represent approximately 70 per cent of member bank resources, have incceased their loans for- agricultural, industrial, and commercial purposes by an amount exceeding $1,800,000,000. This great increase, in the credit extended to their customers has in> the main been made possible by the accommodation extended member banks by the Federal reserve banks. During the same period, the 12 Federal reserve banks have increased their holdings of agriculturtil and commercial paper by more than $500,000,000, and from January 23 to October 1, 1920, increased their issues of Federal reserve notes by over $460,000,000. At the same time. Federal reserve banks having surplus funds' have extended accommodation to Federal reserve banks in agricultural and live-stock districts by means of discounts, aggregating on October 1, over $225,000,000. The disturbances in price and demand which have recently manifested themselA^es in markets for various agricultural and other commodities, not oniy in the United States but in other countries as well, are inevitable and unavoidable consequences of the economic derangements occasioned by the World War. The United States continue to have a heavy volume of exports although foreign demand for certain agricultural staples has somewhat decreased. But the chief market for our raAv and manufactured products is at home, and our present huge crops of immense value may be expected gradually and in regular course to move from producers to consumers. The recent census, reckoning our population at 105,000,000, emphasizes ancAv our OAVU capacity as consumers irrespective of the demands of other countries. I n response to the Senate resolution adopted May 17,1920, the Federal Reserve Board under date of May 25, 1920, made the following statement of its attitude toward the expansion of credit and the use of credit for crop-moving purposes: WASHINGTON, May 25, 1920. SIR: On May 17, 1920, the Senate adopted the follOAving resolution: " Resolved, That the Federal Reserve Board be directed to advise the Senate what steps it purposes to take or to recommend to the member banks of the Federal Reserve System to meet the existing infiation of currency and credits and consequent high prices, and Avha.t further steps it purposes to take or recommend to mobilize credits in order to move the 1920 crop." In response the board desires to say that it has recognized for many months past that the expansion of bank credits in this country Avas proceeding at a rate not warranted by the production and consumption of goods, It has repeatedly admonished the Federal reserve banks that influence should be exerted upon the member banks to induce them to avoid undue expansion of loans and to keep their volume of outstanding credits within moderate bounds. Beginning six months ago, the rates of discount on various classes of paper at the Federal reserve banks were advanced. During the latter part of January the present rates Avere put into effect. These advances, Avhile undoubtedly checking credit transactions Avhich otherwise would have been made, have not been ^ entirely effective in bringing about the reduction in loans desired and which might normally have been expected during the early months of the year. 13799—FI 1920 7 98 REPORT ON THE FINANCES. Liquidation during these months is entirely natural and healthy, and is necessary in order that the banks may be prepared to meet the demands made upon them during the crop making and harvesting seasons, but there has been no such liquidation, and, on the contrary, commercial loans have steadily increased. Thus it appears that the public has anticipated demands for banking credit which are usually made later on in the year. The average reserves of the Federal reserve banks are noAv a little over 42^ per cent, as against 45 per cent at the beginning of the year and about 51 per cent 12 months ago. The Federal advisory council, which is composed of one member from each Federal reserve district, elected annually by the board of directors of the Federal reserve bank, is required by section 12 of the Federal reserve act to meet in. Washington at least four times each year. The council is authorized • " t o confer directly, with the Federal Reserve Board, on general business conditions; to make oral or Avritten representations concerning matters within the jurisdiction of said board; to call for information and to make recommendations in regard to discount rates, rediscount business, note issues,-resen^e conditions in the A^arious districts, the purchase and sale of gold or securities by reserve banks, open-market operations by said banks, and the general affairs of the reserve banking system." Upon receipt of a notice that the council Avould hold its regular meeting on May 17, the board, extended an invitation to the three class A directors of each Federal reserve bank, AVIIO are the representatives of the stockholding banks, to come to Washington at the same time for conference Avith the Federal Reserve Board and the Federal advisory council. This conference was held on the 18th instant, and it Avas developed at the meeting that the present credit expansion is due in great part to the abnormally high prices of goods and commodities hoAV prevailing throughout the country, and to the congestion of foodstuffs and essential raw materials at or near points of production because of lack of transportation facilities. The board is convinced that if the unsold portions of last year's crops can be brought to market hefore the new crop matures, the liquidation of credits which are noAv tied up in carrying the old crops Avill be sufficient to offset to a considerable degree the credit demands Avhich will be made upon the banks in moving the crop of 1920. At the conference above referred to the board's viCAVs Avere outlined by its governor substantially as folloAvs: The member banks should lean less heavily upon the Federal reserve banks and rely more upon their OAvn resources, unnecessary and habitual borroAvings should be discouraged, and the liquidation of long-standing, nonessential loans should proceed. Banks Avere cautioned, hoAA^ever, that drastic steps should be avoided and that the methods adopted should be orderly, for gradual liquidation Avill result in permanent improvement, while too rapid deflation Avould be injurious and should be avoided. The board pointed out the necessity for extending such credits as may be necessary to promote essential production, especially of foodstuffs, and that if for any reason it should prove impracticable to increase essential production, there should be greater economy in consumption and more moderation in the use of credit. The problem of the banking system of the country is to check further expansion and to bring about a normal and healthy liquidation without curtailing essential production and Avithout shock to industry, and,' as far as possible, without disturbance of legitimate commerce and business. In order to effect this it seems necessary to distinguish betAA^een essential and nonessential loans; but the Federal Reserve Board feels it Avould be a most difficult task, Avhich it should not undertake, to. attempt by general rule of country-wide appli- SECRETARY OF THE TREASURY. 99 cation to make this distinction. During the Avar there was a broad underlying principle that essentials must be " necessary or contributory to the conduct of the war," but notAAuthstanding the sharp outline of this principle much difficulty was experienced by the various Avar boards in defining essentials and nonessentials. All the more difficult would it be for the Federal Reserve Board to make such a general definition in the present circumstances. Section 13 of the Federal reserve act defines the eligibility of paper for discount by the Federal reserve banks and lays dOAvn a general rule that any paper maturing Avithin the time prescribed and " issued or draAvn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes " is eligible. No expressed condition is made regarding the essential or nonessential character of the transactions giving rise to notes which may be offered for discount ahd the Federal Reserve" Board is not required, and properly could not be expected, generally to adopt such a crite^'Aon of eligibility. It is too much a matter of local conditions and local knowledge to justify at this time any general country-wide ruling by the board even if such a ruling were deemed helpful. On the other hand, there is nothing in the Federal reserve act which requires a Federal reserve bank to make any investment or to rediscount any particular paper or class of paper. The language of both sections 13 and 14 is permissive only. Section 4 of the ^Federal reserve act, however, requires the directors of a Federal reserve bank to administer its affairs " fairly and impartially and without discrimination in favor of or against any member bank," and subject to the provisions of law and the orders of the Federal Reserve Board to extend " to each member bank such discounts, advancements, and accommodations as may be safely and reasonably made with due regard for the claims and demands of other member banks." Thus the directors of a Federal reserve bank have the power to limit the volume and character of loans which in their judgment may be safely and reasonably made to any member bank. The recent amendment to paragraph (d) of section 14 distinctly authorizes each Federal reserve bank on its own account, without reference to action taken by any other Federal reserve bank, to establish a normal discount or credit line for each member bank, and permits the imposition of graduated rates on discount lines in excess of the normal line. This amendment, however, does not repeal or modify sections 4 and 13, and a Federal reserve bank is still free to decline to discount any paper which in its judgment does not constitute a desirable investment for it or which in its opinion would not constitute a safe and reasonable investment within the meaning of section 4. It is the viCAv of the board, however, that while Federal reserve banks may properly undertake in their transactions Avith member banks to discriminate between essential and nonessential loans, nevertheless that discrimination might much better be made at the source by the member banks themselves. The individual banker comes in direct contact with his customers; he is better qualified than anyone else to advise the customer, because of his familiarity, not only Avith the customer's business, but with the general business conditions and needs in his immediate locality. In making loans he is bound by no general rule of law as to the character of the purpose for which a loan is being asked. He is entirely free to exercise discretion, and can make one loan and decline another, as his judgment may dictate. He can estimate with a fair degree of accuracy the legitimate demands for credit which are liable to be made upon him, as well as the fluctuations in the volume of his deposits. He knows what industries sustain his community, and is thus qualified to pass upon the essential or nonessential character of loans offered him. He knows, or should know, 100 REPORT ON TPIE FINANCES. what rediscount line he may reasonably expect of his Federal reserve bank, and he ought not to regard this line as a permanent addition to his capital.With knoAvledge of the limitations or penalties put upon his borrowings from the Federal reserve banks the banker may be depended upon to use a more discriminating judgment in granting credit accommodations to his customers, and that judgment he must exercise if the present situation is to be remedied fundamentally. It is true that under existing conditions the volume of credit required in any transaction is much greater than Avas the case in prcAvar times; but it is also true that the resources of the member and nonmember banks Avould be ample to take care of the essential business of the country, and to a large extent of nonessentials as Avell, if there Avere a freer fioAv of goods and credit. If '• frozen loans " Ave>e liquefied, and if commodities Avhich are held back either for speculative purposes or because of lack of transportation facilities should "go to the markets, and if large stocks of merchandise should be reduced, the resultant release of credits Avould have a most beneficial effect upon the general situation. In the meantime everything must be done to expedite the release of these credits and to restrict nonessential credits in future. While the problem of credit regulation and control is national and even international in its scope, yet in the last analysis it is merely an aggregation of individual problems, and the proper Avorking out of the situation must depend upon the'public and upon the banks Avhich deal Avith the public. The public must be made to realize the necessity of economy in expenditures and in consequent demands for banking • credit. The banks themselves are best able to impress the importance of this policy upon the public. For the further information of the Senate the board quotes from the report of the Federal advisory council made to it on May 18, signed by James B. Forgan, president. " The council 'has given consideration to the matters included in your communication of April 17 and begs to reply thereto in the following manner, following the order set out by you: "(a) Causes of continued expansion of credits and of Federal note issues." There are many contributing causes, of which the follOAving may be regarded as paramount: 1. We recognize, of course, that the first cause is the great Avar. 2. Great extravagance, national, municipal, and individual. 3. Inefficiency and indifference of labor, resulting in lessening production. 4. A shortage-of transportation facilities, thus preventing the normal movement of commodities. > 5. The vicious circle of increasing Avages and prices. (b) "How can the reserve position of the Federal reserve banks be-materially strengthened before the seasonal demand sets in next fall Avithout undue disturbance of the processes of production and distribution? " By urging upon member banks through the Federal reserve banks the Avisdom of showing borroAA^ers the necessity of the curtailment of general credits, and especially for nonessential uses, as Avell as continuing to discourage loans for capital and speculative purposes; by checking excessiA^e borroAvings through the application of higher rates. (c) " If steps can not be taken at this time leading to a more normal proportion betAveen the volume of credits and the volume of goods, Avhen can they be taken?" In our opinion steps should be taken UOAA^ as outlined in answer to the last question. SECRETARY OF THE TREASURY. 101 (cZ) " What is the effect upon the general situation of the increased Treasury borroAvings and what should be the policy of the Federal reserve banks in establishing rates of discount on paper secured by certificates of indebtedness?" It is obvious that the borroAvings of the Treasury have the same effect upon the general credit situation as those of other borroAA'Crs. The council would suggest the Avisdom of congressional relief from the burden of Government financing by a policy of rigid economy; the revision of the tax laAvs fdr the sake of a more equitable (^listribution of the burden AAdthout reducing the revenue; the enactment of the budget system, the budget to include provision for. the gradual payment of the short-time obligations of the Treasury. These Avould of necessity preclude uuAAise appropriations, such as the proposed soldiers' bonus. In vicAV of the large volume of Treasury certificates of indebtedness carried by member banks at the instance of the Treasury Department, Ave believe that rates established by the Federal reserve banks on paper secured by them should not be materially greater than the rates borne by the certificaties. The board feels assured that the banks of the country noAv realize. the necessity of more conservatism in extending credits and of a reasonable reduction in the volume of credits noAV outstanding. The board will not hesitate, so far as it may be necessary, to bring to bear all its statutory pOAvers in regulating the volume of credit, but Avishes to point out that the more vital problems relating to the movement of the 1920 crop are physical rather than financial. This Avas the unanimous vicAv of those present at the conference on the 18th instant, at Avhich the folloAving resolution Avas adopted: " The^Avhole country is suffering from infiation of prices Avith the consequent infiation of credit. From reports made by the members of this conference, representing every section of the country, it is obvious that great sums are tied up in products Avhich if marketed Avould relieve necessity, tend to reduce the price level and relieve the strain on our credit system. " This congestion of freight is found in practically all of the large railroad centers and shipping ports. It arises chiefly from inadequate transportation facilities available at this time, and is seriously crippling business. We are informed that the per ton-mile of freight increased in three years—1916, 1917, and 1918—47 per cent, while the freight cars in service during the same period increased 1.9 per cent. /'A striking necessity exists Avhich can only be relieved through the. upbuilding of the credit of the railroads. This must come through adequate, and prompt increase in freight rates. Any delay means the paying of greater cost directly and indirectly, and places a burden on the credit system Avhich in the approaching time for seasonal expansion may cause abnormal strain. Even under the load of Avar inflation, high-price ICA^^I, and extravagances the bank reserves would probably be sufficient if quick transportation could be assured during the time of the greatest strain. ''Therefore be it resolved. That this conference urge as the most important remedies that the Interstate Commerce Commission and the United States Shipping Board give increased rates and adequate facilities such immediate effect as may be Avarranted under their authority and that a committee of five, representing the various sections of the country, be appointed by the chairman to present this resolution to the Interstate Coinmerce Commission and the United States Shipping Board, with such verbal presentation as may seem appropriate to the committee." Much Avill depend upon the restoration of the normal efficiency of railroad and steamship lines. If adequate transportation facilities can be provided, the 102 REPORT ON THE FINANCESo board sees no occasion for apprehension in connection with the movement of crops now being grown. Respectfully, W. P. G. HARDING, Governor. The PRESIDENT OF THE SENATE. SOLDIERS' BONUS. The Treasury's attitude on the proposed soldiers' bonus has already been indicated. I t is stated in greater detail in the testimony of the .Secretary and the Fiscal Assistant Secretary before the Committee on Ways and Means of the House of Representatives on March 11, 1920. The Secretary's opinion was asked as to the wisdom of an issue of bonds in an amount of from $1,000,000,000 to $2,000,000,000 in order to pay a bonus, the probable effect it would have upon prices, upon credit, and upon the issues of bonds and notes now outstanding. H e expressed his views as follows: The proposal to expend a sum ranging from $1,000,000,000 to $2,000,000,000 is a very serious one for the people of the Nation at this time, and the proposal to meet such an expenditure by the sale of bonds presents or suggests very grave possibilities. I am not alarmed as to the conditions of the Nation's finances at present. I ^ do not think that the situation is critical. I believe that with economy on the part of individuals throughout the Nation, Avith the avoidance of waste and extravagant living, with economy on the part of Congress in making appropriations, and prudence in handling our financial problems, this Nation, in spite of disturbed European conditions and their effects here, can proceed in an orderly fashion." I think, however, that to fioat bonds in the amount of $2,000,000,000, or to meet such an additional expenditure out of taxes, will present very grave problems and might: bring disaster. I do not knoAV hoAv we could fioat bonds for $2,000,000,000 at rates of interest borne by the existing bonds, and I do not knoAv just what Avould happen if we undertook to float bonds for $2,000,000,000 at a higher rate of interest. I assume that there would be very great difficulty in floating bonds at existing rates of interest. I do not know that Ave could sell $2,000,000,000 Avorth of bonds even at a higher rate of interest. I am confident that if such volume of bonds were floated it Avould depress the value of the obligations' of the Grovernment now held by 20,000,000 br 30,000,000 of our citizens; to what point, of course, I can not say. I think that it Avoiild lead to a further credit expansion, which has been one of the factors in the upAvard mo^vement of prices. It Avould, therefore, add to the cost of living of the 110,000,000 people of the Nation; and one of the many results of.this Avould be that laborers would say, "The cost of living is rising and Ave must have more wages." The vicious price and Avage" circles would persist and extend. . AVe are prudently doing Avhat Ave can to bring about something like a gradual return toward a stable condition of industry and finance.^ I am not prepared to say that we shall ever reach the prcAvar normal; but I imagine everybody wishes the country to return to a stable condition. We are having difficulty enough at present in effecting this result. A proposal to fioat bonds as suggested Avould, in my judgment, not only counteract any effort in that direction, but would produce a very grave situation which I am not sure Ave could handle. SECRETARY OF THE TREASURY. 103 If the Congress deems it wise to ,extend aid to the soldiers the less harmful way of meeting the expenditures A\^ould be by increasing taxes. Taxes in themselves tend toward economy if they are properly laid, because they take so much out of the control of individuals for the time being, and they would not cause further credit expansion. But existing taxes are burdensome and in . some cases very disturbing to industry. Instead of increasing them Ave should survey the present tax system with a vicAV to its modification or simplification, with a vicAV to raising the Iiecessary revenue Avith as little inconvenience as possible to taxpayers. If we have to find ncAv sources of revenue, or if Ave increase present taxes, Ave shall further burden industry, probably curtail production, and in any event increase the cost of living. The proposal Avould mean an addition to the cost of living, Avhatever method of financing it you employ. I can not escape the conclusion that it would add to the burden of every man, woman, and child in this Nation if you undertake to meet the expenditure by taxes; and it will add even more if you undertake to do so by increasing the credit structure of the Nation. That, in brief, is the Avay the matter presents itself to my mind. *' * * In the jam confronting us we ought to be careful, very careful, about adding .to the burden of the people, about increasing prices, adding to the cost of living of 110,000,000 of people and depressing the bonds, bought by 20,000,000 people, arousing apprehension on the part of the holders. A complete record of the testimony of the Secretary and the Fiscal Assistant Secretary is annexed hereto as Exhibit 35, page 362. I n his letter of May 18, 1920, to the chairman of the Committee on Ways and Means, the Secretary again emphasized the Treasury's opposition to a soldiers' bonus, however financed. That letter is quoted on page 27 of this report under the heading of " Taxation." The military and naval forces of the United States' performed their duty during the war nobly and well. I n defense of the liberty of their own land and of free institutions everywhere, they proved themselves worthy followers of the patriots who founded this Nation. They can never be compensated in money or in any other material thing. Their reward lies in their knowledge of patriotic duty rendered, in the glory of achievement, and in the gratitude of all the people of the Nation. The sick, the wounded, the crippled and their dependents, and the dependents of the dead, of course, must be given every necessary attention and generous treatment. That is the Government's imperative duty; the cost is not to be reckoned. But the granting of a general indiscriminate bonus would place such a burden upon the people of this country, including the soldiers and sailors themselves and their families, that, I am sure, if the full bearing of the proposal upon the welfare of America were realized by the members of our heroic Army and Navy, they would be among the first to discountenance and reject it. 104 REPORT ON THE FINANCES; RECEIPTS AND E X P E N D I T U R E S D U R I N G T H E WAR PERIOD. On the basis of the daily Treasury statements, the total expenditures of the GoA^ernment, exclusiA^e of the principal of the public debt and postal disbursements from postal revenues, for the period from April 6, 1917, to June 30, 1920, were $38,830,812,895.93. The receipts during this period from taxes and sources other than borrowed money were $16,078,844,097.10, or slightly in excess of 41 per cent of the expenditures, although they do not include the September 15 and December 15, 1920, installments of taxes levied on 1919 incomes and profits. The expenditures include capital outlays as well as items which have been permanently absorbed. The receipts also include certain sums which by law are coA'^ered into the Treasury as miscellaneous receipts, but which, for statistical purposes, more properly should be offset against expenditures. No deduction has been made for loans to foreign Governments or for iuA^estments, such as ships, stock of the Emergency Fleet Corporation, stock of the Housing Corporation, and loans to railroads. Foreign loans made up to June 30, 1920, aggregated $9,523,000,000. Excluding this sum, the total disbursements of the Government from the beginning of the war to June 30, 1920, were $29,307,000,000, about 55 per= cent of which, on the basis of these unadjusted figures, was met out of tax receipts and revenues other than borrowed money. Cost of the war. Since the armistice, particularly in the fiscal year 1920 and in the current year, large sums Avere, in accordance with law, deposited in the Treasury as miscellaneous receipts which, for statistical purposes, should be offset against war expenditures instead of being added to receipts. To get an accurate Adew of the relation between tax receipts and expenditures and the net cost of the war, it is necessary to make certain adjustments in the figures. For example, the proceeds of sales of surplus war supplies are included in the miscellaneous receipts. They.are not receipts for this purpose. They represent the return of money already included in expenditures. They should be deducted from expenditures and thus the net cost to the Government of the articles covered would be ascertained. Some of the war salvage receipts were used to augment appropriations under sanction of law, before the passage of legislation requiring items of this character to be deposited in the Treasury as miscellaneous receipts. I n these cases the proceeds from such sales were deposited in the Treasury and corresponding deductions made from expenditures. During the fiscal 3^ear 1920 the United States Grain Corporation returned to.the Treasury $350,000,000 on account of its capital stock. I n the official figures tliis item appears as having gone out of the Treasury as an expenditure in the purchase of the stock and as having coine back SECRETARY OF THE TREASURY. 105 as a miscellaneous receipt upon its payment. The payment should simply be deducted from expenditures. Certain repayments were made by foreign Governments on the principal of their obligations held by the United States, by way of adjustment of accounts. They should be treated for the purposes of this calculation as a reduction of the total loans to foreign Governments. The total miscellaneous receipts, including Panama Canal tolls, deposited in the Treasury from April 6, 1917, to June 30, 1920, were $1,950,000,000. If it is assumed that $325,000,000 would have represented the amount of these receipts on a peace basis for this period of three years and three months, the balance of the miscellaneous receipts would be $1,625,000,000. This should be deducted from total expenditures and eliminated from miscellaneous receipts. If it is further assumed that the expenditures on a peace basis during the fiscal years 1917, 1918, and 1919 would have been at the rate of $1,000,000,000 a year, and during the fiscal year 1920 at the rate of $1,500,000,000 a year, the total, on a peace basis from April 6, 1917, to June 30,1920, would have been $3,750,000,000. Deducting this sum and the miscellaneous receipts of $1,625,000,000 from the total expenditures, exclusiA^e of the principal of the public debt, we get $33,455,000,000, which would be the approximate net cost of the war, including loans to foreign Cxovernments less repayments. Excluding such loans, the estimated net cost on this adjusted basis would be $24,010,000,000. The receipts require similar adjustment for the purpose of this analysis. To ascertain the amount received from war taxes, there must be deducted from the total receipts the proceeds of loans, the miscellaneous receipts of $1,625,000,000, and the estimated rcA^enues on a peace-time basis. The remainder, $10,703,000,000, would be the approximate aniount of war taxes during the period under review. This amount is 32 per cent of the estimated net expenditures on account of the war, including the net amount of loans to foreign Governments, and 44.57 per cent exclusive of such loans. Based on this analysis, the following statement of the net war expenditures and Avar-tax receipts from the period of April 6, 1917, to June 30, 1920, is giA^en: Estimated net loar expenditures, Apr. ^6, 1917, to June SO, 1920 {on basis of daily Treasury statements). Total expenditures exclusive of the principal of the pubhc debt- $38, 830, 000,000 Estimated " miscellaneous receipts" which should be offset against expenditures and eliminated from receipts $1,625,000,000 Estimated expenditures on a peace basis . 3, 750, 000, 000 5, 375, 000, 000 Estimated net war expenditures 33, 455, OOO' 000 106 REPORT ON THE FINANCES. Estimated net war-tax receipts, Apr. 6, 1917, to June 30, 1920 (on basis of daily Treasury statements). Total receipts exclusive of principal of the public debt '.- $16,078,000,000 Estimated *' miscellaneous receipts" eliminated from receipts and offset against expenditures '-.-: $1,625,000,000 Estimated tax receipts on a peace basis— 3, 750, 000, 000 : 5, 375, 000, 000 Estimated net AA^ar-tax receipts : 10, 703,000, 000 There is attached to this report as Exhibit 36, page 410, a statement shoAving the receipts and expenditures for the fiscal year 1920 on the basis of the daily Treasury statements, and also as Exhibit 37, page 412, giving the cash expenditures for the fiscal 3^ears 1917, 1918, 1919, and 1920, classified according to departments and establishments. Exhibit 38, page 413, shows classified disbursements and receipts, exclusive of the principal of the public debt, from April 6, 1917, to October 31, 1920. SECURITIES OAVNED BY T H E UNITED STATES GOA^ERNMENT. A detailed statement of securities owned by this. Government as of June 30, 1920, with a face value of $11,101,589,306.30, was published for the first time at the close of the fiscal year and is attached to this report as Exhibit 21, page 319. I t was compiled on the basis of the face value of the securities. Some of them are not held in the custody of the Treasury, and the tabulation, therefore, was made up in part from reports received from other departments and establishments. These securities are closely related to the public debt, since they result for the most part from the expenditure of funds obtained through loans, the ordinary expenditures of the Government during the period of their acquisition having been in excess of the receipts tvom all sources other than the principal of the public debt. They may be classified as follows: (1) Obligations of foreign Governments, (2) capital stock of w^ar emergency corporations, (3) railroad securities, (4) Federal land bank securities, and (5) miscellaneous. The first are of three kinds, viz, (a) those acquired by the Treasury, under authority of the Liberty bond acts, in the amount of $9,445,006,855.18, on the basis of advances, less repayments; (b) those received from the Secretary of W a r on account of sales of surplus war supplies, amounting to $563,032,739.63; and (c) those received from the American Relief Administration on account of relief, in the amount of $84,014,527.92. The total is $10,092,054,122.73, or approximately 91 per cent of the aggregate securities ..owned. The holdings of capital stock of war emergency corporations, which at one time amounted to $1,125,000,000, showed a material decrease by June 30, 1920, as the result of steps looking to liquida SECRETARY OF THE TREASURY. 107 tion taken by the Housing Corporation, the Grain Corporation, and the War Finance Corporation. The total reduction was $734,417,623.43, leaving net investments on this account of $390,582,376.57. Thei^e has been further liquidation since the close of the fiscal year by the Grain Corporation, in the amount of $100,000,000. The railroad securities, aggregating $444,847,105, may be classified as (a) those purchased from the revolving fund appropriation under authority of section 7 of the Federal control act, approved March 21, 1918, as amended, in amount of $110,578,755 (not including securities purchased by the Director General of Railroads from the operating revenues of railroads under the provisions of section 12 of the Federal control act) ; (b) those acquired by the Director General by way of reimbursement for motive power, cars, and other equipment ordered for carriers under Federal control, amounting to $329,203,750; and {c) obligations acquired as the result of new loans to railroads from the $300,000,000 revolving fund appropriation under section 210 of the transportation act, 1920, in the sum of $5,064,600. The other securities consist of capital stock and bonds of the Federal land banks, aggregating $174,040,510, and of $65,192 of bankers acceptances of short maturities received by the Secretary of War on account of sales of surplus war supplies. F o r the most part, the securities shown in the statement are held in custody for the Secretary of the Treasury by the Treasurer of the United States, the Assistant Treasurers, or the Federal reserve banks. Appropriate custody accounts and records are kept in the section of investments under the superAasion of the Coinmissioner of Accounts and Deposits. The facilities of the Treasury have been extended to other departments and establishments, which have been invited to deposit their holdings with it, in order to obtain greater safety and to permit the publication of complete reports. Certain trust funds, such as those of the Governnient life insurance fund, and of the Alien Property Custodian, with the iuA^estment of which the Treasury is charged, are not shoAv^n in the statenient of securities, inasmuch as they are not beneficially owned b}^ the United States. R E T I R E M E N T S OF L I B E R T Y BONDS A N D VICTORY N O T E S . Five per cent bond purchase fund. Purchases of Liberty bonds and Victory notes for the bond-purchase fund were continued during the fiscal year 1920, but ceased on June 30,1920. Section 15 of the second Liberty bond act, as amended by section 6 of the third Liberty bond act and the Victory Liberty loan act, authorized the Secretary of the Treasury, until the expiration of one year after the termination of the war, to buy an 108 REPORT ON THE FINANCES. nually bonds and notes issued under authority of the second Liberty bond act, as amended, including bonds issued upon conversion of bonds issued under the first Liberty bond act or the second Liberty bond act, as amended, at such prices and upon such terms and c(^nditions as he might prescribe, up to 5 per cent of the par amount of bonds or notes of any series outstanding at the beginning of the bond-purchase fund year. The Treasury's purchases under this authorization have been made from time to time, at average cost, through the Federal reserve bank of NeAv York, and from the W a r Finance Corporation. These agencies in turn made purchases in the open market, when it Avas deemed necessary, to stabilize market prices and to protect the Government's credit. These operations undoubtedly sustained and strengthened the market for Liberty bonds and Victory notes and so redounded to the benefit of all holders of these issues. The securities bought liaA^e been canceled and retired. On April 18, 1920, the folloAving statement was issued b}^ the Secret a r y Avitli reference to purchases for the bond-purchase fund to June 30, 1920, and thereafter for the cumulatiA^^e sinking fund: The authorization conferred upon the Secretary of the Treasury by Congress to make purchases of Liberty bonds and Victory notes for the r per cent bond-purchase fund expires one year after the termination of the Avar. The continuance of a technical state of Avar beyond the period contemplated at the time the authority was conferred has presented to the Secretary of the Treasury the practical problem of determining what his future course should be Avith respect to the bond-purchase fund. Secretary Glass, in his annual report, said, " Purchases of bonds under authority of section 6 of the act of April 4, 1918 (bond-purchase fund), are not included as an item of estimated expenditure (for the fiscal year beginning July 1, 1920) ; this authority expires one year after the termination of the Avar, and the Secretary reserves decision with respect to such purchases after July 1, 1920." Congress created in the Victory Liberty loan act a 2^ per cent sinking fund to commence July 1, 1920; In viCAv of the fact that on July 1 more than a year Avill have elapsed since the fiotation of the last Liberty loan and of the further fact that unless Government expenditures should be greatly decreased or taxes increased, continued purchases for the bond-purchase fund could only be financed by the issue of additional certificates of indebtedness, thus increasing the floating debt whiledecreasing the funded debt, my present intention is not to treat the tAVO fundsas- cumulative, but to discontinue purchases for the bond-purchase fund on and after July 1, 1920, and to make purchases thereafter only for the sinking fundi created under the Victory Liberty loan act. The approximate amount of thebond-purchase fund quota for the period ending .lune 30, 1920, will be taken over from the War Finance Corporation or, to a limited extent, purchased in the market, and in either case canceled and retired. Hereafter such purchases as the Treasury may have to make for the bondipurchase fund or the sinking fund under the general program above announced Avill be occasional and not habitual. ^ I am confirmed in the determinations above set forth by the fact that the^ natural market in Liberty bonds and Victory notes has UOAV reached such dimensions that the purchases for the bond-purchase fund have ceased to' be a 109 SECRETARY OF THE TREASURY. •dominating factor. The recent liquidation which has brought the bonds and notes, to new^ IOAV levels seems to find its chief source in selling by industrial and other corporations Avhich Avere large purchasers during the Liberty loan campaigns and Avhich are UOAV under pressure to find funds for their current husiness, in a period Avhen necessary measures of credit control make further expansion of,bank loans both difficult and expenslA^e. This offers a unique op-, 'portunity to investors, large and small, the quotations for the bonds and notes toeing extremely attractive to investing institutions and private investors. I believe that the time has come when the disappearance of the Governni'ent from the market, except as an occasional purchaser within tlie limitations above outlined, Avill have a beneficial effect upon the rnarket for the bonds and notes, both by reducing the Treasury's current borrowings on Treasury certificates and stimulating the interest of investment bankers and the public In the market for Liberty and Victory securities. Pursuant to this announcement, no purchases for the 5 per cent bond-purchase fund have been made since June 30, 1920, and those made prior to that date, after April 18, 1920, represented chiefly accumulations taken over from the W a r Finance Corporation. The aggregate par value of Liberty, bonds and Victory notes retired by the bond-purchase fund between April 15, 1918, and June 30, 1920, when purchase ceased, was $1,764,896,150, and the aggregate paid therefor was $1,677,566,210.26, or, on an average, •slightly more than 95 per cent of the par value. The following is a summary of the purchases: Summary statement of bond purchases to June 30, 1920. • Loan. First Liberty loan converted 4 per cent and 4.1 per cent bonds, 1932-1947... . . . Second Liberty loan 4 percent and 4J per cent bonds, 1927-1942 Third Liberty loan 4^ per cent bonds, 1928 Fourth Liberty loan 4^ per cent bonds, 1933-1938 Victory loan,4| per cent and 3 | percent notes,1922-i923. Total Par amount purchased. Amount paid. S36,912,000 $34,722,342.29 478,688,000 433,308,100 566,987,050 .249,001,000 Accrued interest paid. S532,112.62 452,358,913.01 414,067,698.57 530,548,515.45 245,868,740.94 6,896,021.63 3,679,624.35 6,523,811.37 8,500,393.93 1,764,896,150 1,677,566,210.26 21,131,963.90 • I n accordance Avitli the requirements of section 6 of the third Liberty bond act, a detailed statement of the complete operations will be submitted to the Congress in a separate report. Now that operations have been completed, attention may be called to the reasons which actuated the Treasury in making its purchases. The bond-purchase fund was discussed at length by the Secretary of the Treasury in connection with the third Liberty loan and subsequent Liberty loans and was an important factor in the success of those loans. Of late, however, there seems to have been some misapprehension on the subject. The considerations which moved the Treasury in recommending that the bond-purchase fund' authority be granted, and 110 REPORT ON TliE FINANCES. which guided it in the exercise of the authority, are set forth in the testimony of the Secretary of the Treasury before the Committee on Ways and Means of the House of Eepresentatives in connection with the third Liberty bond bill, on March 27, 1918, as follows: Very careful and earnest attention to the situation which has developed since the last Liberty loan has convinced me that the United States must do what each of the warring countries in one form or another does, and prepare itself to support the market for its bonds. No measure of this sort, hOAvever, can be of any value unless the fund provided for the purpose is a large one. Every effort must be made to reach the people who have money to invest or those who will have and who can be induced to save and pay for the bonds for which they subscribe. In connection with every issue, hOAvever, it will be found that the patriotism of some has outrun their ability to pay for the bonds, so that either those Avho buy them and get tired of holding them do not want to hold them, or those who from necessity or for other reasons are obliged to sell them, will offer their bonds in the market; and it puts the Government at a very great disadvantage if there is no means of sustaining the market to a reasonable extent so as to steady it * * *. Inevitably during the period of the war, after each Liberty loan has been closed, we have been forced to face the facts that there will be more sellers than buyers of the bonds. The present bill Avould authorize the Treasury to retire the excess. That is, it Avould authorize through the sinking fund a repurchase ^of such an amount of the bonds as the sinking fund Avould permit and Avould take up the surplus offerings, and the amount provided, I think, Avould be sufficient for the purpose. With such a sinking fund and the secondary distribution which the War Finance Corporation can bring about, there will not be such a desire to sell the bonds, because the very fact that they can sell them will make people feel more confident about holding them. There is a curious feeling in the breast of the average man that if he buys a Government bond, even though he contracts to lend his money to the Government, nevertheless if he gets tired of his investment and wants to get his money back, that he ought to be able to sell the bond at par regardless of the fact that the Government is not under any obligation to redeem that bond before maturity. It is extraordinary the extent to which that feeling exists. People would not have that feeling about a corporation which sold its bonds, or about any indiAddual who gave his note. They would not expect them to be redeenied at par before maturity. It is a perfectly unreasonable feeling, but one of the things Ave have got to reckon with. I believe that the provision for this sinking fund will relieve the situation somewhat. This sinking fund, by the way, ought not to be a mandatory sinking fund but discretionary; that is, the Secretary ought to be permitted within the limits of 5 per cent of the bonds issued to buy back bonds. it is a most difficult thing, but a thing which we must face, to try to keep Government bonds measurably around par. We have got to continue Government borroAAdngs at a reasonable rate of interest. I think that some such thing as this sinking fund will be much cheaper for the Government than to increase the interest rate; at least Ave Ought to try it. The reason I say it is cheaper is this: Suppose Ave need three billions, and the sinking fund on the entire outstanding bonds for the year—assuming Ave had ten billions outstanding—at 5 per cent Avotild be $500,000,000. -It only means that we should have to sell a few more bonds and then buy them back and keep the rate of interest up, and it does not hurt us any. We are just taking back some of the bonds. * * * This 5 per cent each year is intended to apply during the war only. * * * Ill SECRETARY OF THE TREASURY. It is also interesting to note, in view of the widespread contention that purchases should have been made at par rather than at the market, that this A^ery proposal was rejected by the Committee on Ways and Means, when the matter of granting the authority was under consideration. The Secretary of the Treasury in his testimony before the committee said in this connection: I do not think it would be a wise thing for us to attempt that—that is to say, to purchase the bonds at par—because I think if we were to state that we had $100,000,000 that the Government would invest in these bonds at par, for instance, that Avould be simply an invitation to the people to sell their bonds to the Government at par and you would exhaust the fund in short order. Bonds purchased from repayments of foreign- loans. In accordance with the provisions of section 3 of the first Liberty bond act, and section 3 of the second Liberty bond act, repayments by foreign Governments on account of the principal of their obligations bought under authority of these acts have been applied to the purchase^ and retirement of Liberty bonds. The face A^alue of those secured to November 15, 1920, was $119,109,050. They were bought for $114,538,818.16, or slightly less than 95 per cent of the par value. These operations are fully set forth in the separate detailed statement of all expenditures under the Liberty bond acts. The purchases may be summarized as follows: Bonds purchased as the result of payment of foreign loam^s to Nov.. 15, 1920. Loan. Third Liberty loan 4\ per centcoupon bonds Third Liberty loan 4^ per cent registered bonds Fourth Liberty loan 4^ per cent coupon bonds Total Principal amount purchased. Amount paid. Amount of accrued interest paid. $80,758,750 $76,472,985.84 8,407,550.00 8,407,550 29,942,750 29,658,282.32 $927,529.20 6,909.62 553,567.76 119,109,050 114,538,818.16 1,488,006.48 Bonds purchased with franchise tax paid by Federal reserve banlcs. Section 7 of the Federal reserve act provides that the net earnings derived by the United States from the Federal reserve banl?:s, as franchise tax, shall in the discretion of the Secretary be used to supplement the gold reserve held against outstanding United States notes, or applied to the reduction of the outstanding bonded indebtedness. These earnings for the calendar year 1919 have been applied to the purchase, at the market, of $2,922,450 par amount of second Liberty loan 4:| per cent bonds, at a cost of $2,703,850.74, with accrued interest of $20,814.43, the latter amount being chargeable as interest on the public debt. These bonds have been canceled and retired. 112 REPORT ON THE FINANCES. Bonds retired on account of gifts. From time to time various persons, for patriotic or other reasons, present Liberty bonds and Victory notes to the Government. These are redeemed at par and retired, and the proceeds are covered into the Treasury as miscellaneous receipts. The aggregate amount presented and retired to November 15, 1920, is $12,850, as follows: Bonds retired account of gifts, November 15, 1920. Par amount. Loan. First Liberty loan 4J'per cent coupon bonds Second Liberty loan 4 per cent coupon bonds Second Liberty loan 4 per cent registered bond Second Liberty loan 4J per cent coupon bondss Third Liberty loan 4 | per cent coupon bonds Third Liberty loan 4J per cent registered bonds Fourth Liberty loan 4 | per cent coupon bonds Total coupons Total registered Grand total $350.00 700.00 7,000.00 2,150.00 800.00 500.00 1,350.00 Accrued Accrued interest interest matured. unmatured. $6.22 2.35 44.59 2.93 5.71 9.81 7.02 $51.00 42.49 40.10 35. 24 5,350.00 7,500.00 168.83 24.23 54. 40 12,850.00 168.83 ^ 78.63 Bonds retired on account of forfeitures to the United States. WhencA^er Liberty bonds or Victory notes are forfeited to the United States for any reason and deposited in the Treasury, they are canceled and retired. Up to November 15, 1920, there have been retired on this account $3,550 of bonds and notes, as follows: Bonds i^etired account of forfeitures to the United States to Nov. 15, 1920. Loan. Par amount. First Liberty loan 3^ per cent coupon bond "-. First Liberty loan 4^ per cent conA'erted coupon bond Third Liberty loan 4^ per cent coupon bonds Fourth Liberty loan 4^ per cent coupon bonds Victory Liberty loan 4f per cent coupon notes Total $50 50 700 2,650 100 3,550 Bonds retired on account of estate and inheritance taxes. Under section 14 of the second Liberty bond act, as amended by the third Liberty bond act and the Victory Liberty loan aet, 4J per cent Liberty bonds and 4f per cent Victory notes are receivable by the United States at par and accrued interest in payment of any estate or inheritance taxes. Such securities are canceled and retired, and the face amount, with any accrued interest, is covered into the Treasury as receipts on account of Federal estate (or inheritance) taxes. The value of those received to November 15,1920, is $9,781,750, as follows: 113 SECEETARY OF THE TREASURY. Acceptanoe of Liberty bonds and Victory notes in payment of estate or inheritance taxes to Nov. 15, 1920. . Paramount of bonds. Loan. First Liberty loan converted 4^ per cent icoupon bonds [First Liberty loan converted 4 | per cent registered bonds... Second Liberty loan converted 4^ per cent coupon bonds... •Second Liberty loan converted 4^ per cent registered bonds. Third Liberty loan 4i per cent coupon bonds. .Third.Liberty loan 4i per cent registered bonds Fourth Liberty' loan 4^ per cent coupon bonds Fourth Liberty loan 4^ per cent registered bonds' Victory Liberty loam 4f per cent coupon notes Total coupon Total registered Grand total .^ Interest paid. $159,400.00 3,800.00 2,120,950.00 456,700.00 3,477,600.00 613,650.00 2,799,950.00 131,600.00 18,100.00 $1,839.57 31.85 23,144.63 4,180.25 38,512.74 5,676.59 25,633.92 865.27 197.29 8,576,000.00 1,205,750.00 89,328.15 10,753.96 19,781,750.00 1100,082.11 1 Subject to adjustment because of items in transit. ^Summary of retirements to Nov. 15, 1920—par amount of bonds or riotes {including cumulative sinking fund). ^ per cent bond purchase fund (to June 30,1920) Purchases on account of sinking fand Purchases Avith payments on foreign loans (Purchases with earnings of Federal reserve banks 'Gifts 1 Forfeited ._^-^---— ^Estate or inheritance t a x e s - — ' Total $1, 764, 896,150 15, 040, 2.50 119,109, 050 2,922,450 12, 850 ^ 3,550 9, 781, 750 1, 911, 766, 050 CUMULATIAnE S I N K I N G F U N D . The cumulative sinking fund established by section 6 of the Victory Liberty loan act approved March 3, 1919, became effective July 1, 1920. The law permanently appropriates, for the current fiscal year -and for each fiscal year thereafter until the debt is discharged, an .^amount equal to the sum of "(1) 2^ per centum of the aggregate amount of such bonds and notes outstanding on July 1, 1920, less ;an amount equal to the par amount of any obligations of foreign 'Governments held by the United States on July 1, 1920, and (2) i;he interest which wo.uld have been payable during the fiscal year for which the appropriation is made on the bonds and notes purchased, redeemed, or paid out of the sinking fund during such year •or in previous years." On this basis the constant appropriation annually for sinkingrfund purposes is $253,404,864.87, deriAxd as folloAvs: -Aggregate amount Liberty bonds and Victory notes out^ standiug:July 1, 1 9 2 0 - : $19, 581, 201, 450. 00 Xess par amount obligations of foreign Governments pur^chased under the several Liberty loan acts and held by the United States on July 1, 1920 9, 445, 006,855.18 ' Difeerence — 2^ per cent thereof 13799—FI 1920 8 10,136,194, 594. 82 253, 404,864. 87 114 REPORT ON THE FINANCES. To this sum there will be added each year the interest which would have been payable on any bonds or notes paid, redeemed, or purchased, for sinking-fund account during the year or in previous fiscal years.. The cumulatiA^e sinking fund, it is calculated, Avill retire the funded, war debt of the United States, less the aniount representing the foreign obligations held by the United States on July 1,1920, in about 25years. Under other provisions, of the Liberty loan acts any repayments of the principal of the foreign obligations must be applied to- , the retirement of Liberty bonds. The floating debt is not covered by the sinking fund, but is to be retired out of current revenues. TheprcAvar debt also is not covered, but the only important items .thereare of indeterminate maturities after specified dates, which may beretired after such dates from time to time as the condition of theTreasury may warrant. The cumulatiA^e sinking fund was created for the retirenient of the funded war debt in the order of its maturity, a course which, should in the long run benefit most the holders of all the Liberty bonds, because of its tendency to proAdde for the earliest maturing obligations without undue refunding operations and the fact .that, the earlier maturing obligations are most likely to sell on the highest interest basis. During the current fiscal year the operation of thesinking-fund proAdsions has been seriously limited by the extraordinary payments required to be made on account of the railroads,, which, as set forth elsewhere in this report, have likewise limited the Treasury's progress in the retirement of the floating debt. Substantial sinking-fund purchases during the first part of the fiscal year would therefore have increased the floating debt or prevented its reduction, and would thus have tended to substitute floating debt for funded debt. The market for Liberty bonds and Victory notes,, moreover, has been in a state of approximate equilibrium since thesinking-fund provisions became operatiA^e, and it has not been neces-^ sary to give support by Government purchases. U p to November 15,1920, sinking-fund purchases have accordingly been moderate in amount, as appears from the following table: July August September October __•_ November 1-15 Total: , i— ^. — — - — ^-. —- $5, 261, 250 , -— — 3, 425, OOO 6, 354, 000 15, 04.0, 250 I t is hoped, however, that with some relief from the heaviest railroad expenditures and from other extraordinary payments, the Treasury will, during the balance of the fiscal year, and at least after the beginning of the calendar year 1921, be able to proceed to apply the SECRETARY OF TFIE TREASURY. • 115 remainder of the cumulative sinking fund for the current fiscal year to the retirement of the debt. Purchases for the sinking fund are made in the open market at the prevailing market prices, chiefly through the Federal reserve bank of New York, as fiscal agent, and are therefore reflected in the controlling market prices and redound to the benefit of all holders of Liberty bonds and Victory notes. PROPOSALS FOR R E F U N D I N G T H E L I B E R T Y L O A N S . There has been no little discussion during the year of the necessity of taking governmental action to improve the market prices of the outstanding issues of Liberty bonds and Victory notes. Many of the proposals have been utterly untenable as, for example, that all outstanding issues be given the circulation privilege, or be converted into interest-bearing currency. I t is unnecessary to do more than suggest the disastrous possibilities of adding $20,000,000,000 of potential currency to the country's circulation. More insistent suggestions have been either that the Liberty bonds be conA^erted into tax-exempt obligations or that they be exchanged for securities bearing a higher rate of interest. The Treasury has consistently and vigorously declared its opposition to any such schemes. I t opposed on public grounds the cash bonus proposals for soldiers. I t CA^en more strongly opposes bonus proposals of this sort for capital. The obligation of the United States is to pay the principal of the Liberty loans at maturity and the interest in the meantime. That obligation will be met. As financial conditions become stabilized, moreover, the market prices of Liberty bonds and Victory notes should inevitably ap-. predate without imposing upon the country the additional burden of higher interest rates on the $20,000,000,000, or thereabouts, of funded Government obligations. Most competent judges have little doubt that the outstanding Liberty bonds and Victory* notes will gradually return toward par in the near future, and that they will perhaps go to a premium before their maturity. There has, in fact, been a considerable recovery in the market prices of both Liberty bonds and Victory notes during the past few months notwithstanding the general credit stringency and the prevailing scarcity of capital.. The most fundamental objections to the suggestions that the Liberty loans should be refunded at this time in order to improve their market prices are that the funding is unnecessary, that it would tend to perpetuate the war debt, and that it would upset the Treasury's well-considered program of debt reduction. The Liberty bonds and Victory notes are now funded obligations and do not require to be refunded at this time. There are many instances of the refunding of loans at or near maturity, at a lower rate of interest, but there are few instances of their refunding before maturity at a higher rate 116 REPORT ON TFIE FINANCES. of interest. Such an operation Avoiild not be a refunding in any proper sense. T h e maturities of the Liberty bonds and Victory notes, AAdth the options to the Treasury of redemption prior to maturity, were carefully arranged Avith a view to give the Treasury adequate control over the debt, and to make it practicable for the country to fOUOAV an orderly program of retirement. To refund the Liberty loans noAv into a long-term consolidated loan could only tend to perpetuate the war debt and relieve the healthy pressure for its retirement. The Treasury has from time to time been called upon to express its views Avith respect to specific refunding proposals, particularly in connection with the bill introduced by Senator Frelinghuysen to provide for the exchange of the several issues of Liberty bonds for fully tax-exempt long-term consolidated bonds bearing interest at 3^ per cent. On April 10, 1920, the Secretary addressed the f OIIOAVing letter to Senator Frelinghuysen in response to his request for a statement of the Treasury's attitude on the bill: WASHINGTON, April 10, 1920. MY DEAR SENATOR: I received your letter of April 6, 1920, hi which you request a statement of the Treasury's views as to S. 4119, introduced by you " to authorize an issue of bonds in exchange for bonds of the first, second, third, and fourth Liberty loan issues." I have carefully examined the bill and note that AA'^hat you propose is, in substance, the refunding of the Liberty loans into one consolidated loan, maturing in 50 years, bearing interest at 3^ per cent, and carrying substantially complete exemption from taxation. It is my considered judgment that the bill which you propose offers no satisfactory solution of the problem of the present depreciation in the market prices of Liberty bonds, and that it should not be enacted into law. I should like to call your attention, in the first place, to the fact that Avhile the bill would authorize an issue of bonds to the amount of $30,000,000,000, the total face amount of the bonds of the first, second, third, and fourth Liberty loans outstanding on March 31, 1920 (on the basis of daily Treasury statements), Avas only $15,616,872,038. Inasmuch as the bill provides that the bonds whicb it authorizes shall be issued solely for the purpose of retiring bonds of the first, second, third, and fourth Liberty loans, it is obvious that the authority which it proposes to confer is almost twice as large as would be appropriate for the purpose. As to tbe merits of the bill, I feel that from the point of view of the Treasury it is neither necessary nor desirab/e to attempt to consolidate the outstanding bonds of the Liberty loans into one loan. In this connection I am inclosing for your information a copy of Form L. and C. 400, recently issued by the department, which summarizes in convenient form the terms of the several issues of Liberty bonds, including their exemption from taxation. As you will see upon examining this summary, the maturities, redemption dates, and interest payment dates for the several issues were determined by the Treasury Avith great care, in order to spread maturities over a considerable period of years and provide sufficient redemption privileges in the intervals betAveen maturities to permit the convenient handling of the retirement or refunding of the several issues. The interest payment dates, moreover, Avere carefully fixed with a view SECRETARY OF THE TREASURY. lit to spreading the heavy interest payments over the several months of the year. In my opinion, therefore, no consolidation of tbe Liberty issues is necessary from the point of view of fiscal convenience; in fact, I believe it would be a serious mistake to attempt to consolidate the maturities of either principal or interest into one loan. The Treasury is also definitely opposed to the issue of further obligations of the United States bearing full exemptions from taxation for what it regards as fundamental reasons of social and economic policy. Its position in this respect was fully set forth in Secretary McAdoo's testimony before the Committee on Ways and Means of the House of Representatives on August 28-29, 1917, in connection with the second Liberty bond act. I am inclosing, for your information, a copy of an extract form this testimony. The chief objection to the total exemption from taxation is that its value depends largely upon the wealth of the individual investor and is greatest in tbe case of the wealthiest investor. Such an exemption from taxation, moreover, Avould materially cut down the revenues of the Government of the United States at a time when it can not afford to dispense with any of the receix>ts which would otherwise accrue on account of taxes. I think that as a practical matter, moreover, the enactment of the bill proposed by you would be without important effect upon the market prices of 4^ per cent Liberty bonds. Fully exempt 3i per cent bonds of the first Liberty loan are selling in the neighborhood of 97. Fully exempt 3 | per cent Victory notes are selling in the neighborhood of the same price, and every 4 | per cent Victory note carries with it the continuing right to convert it into a fuhy exempt 3f per cent Victory note; yet on December 31, 1919, of a total issue of about $4,500,000,000 only $940,000,000 consisted of 3f per cent Victory notes. I should not expect to see any very large proportion of the 4^ per cent bonds converted into 3i per cent exempt bonds. I should expect that the passage of your bill and the carrying out of the plan would reduce the market value of the present 3^ per cent bonds to about the level now established for the 41 per cent bonds rather than bring up the market price of the 4^ per cent bonds to the level of that of the 3^ per cent bonds. There are only about a billion and a half dollars of tax exempt first 3is and there are some fourteen billion dollars of taxable 4|s. If all the holders of 4^ per cent bonds had an option to ^convert them into 3i per cent bonds fully exempt, that option would probably have the effect of depreciating the price of 3is rather than appreciating the price of 4is. The number of persons with wealth sufficient to make the value of the total exemption from surtaxes compensate them for the surrender of an amount equal to three-fourths of 1 per cent per annum is limited. The present market price of the 3^ per cent bonds is in no small measure due to their relative scarcity. This scarcity value would, of course, disappear the moment an option to convert was given to the holders of ten times their amount of 4 | per cent bonds. The proviso in section 1 of the bill, \Adiich would subject .the proposed bonds to the normal income tax in the event that the normal tax should be reduced to the rate in force on January 1, 1914, Avould effect a complete reversal of fhe Government's established policy. All the Liberty bonds and Victory notes are now exempt from the normal Federal income tax, and the Treasury believes that this exemption from normal tax should not be withdrawn, since it is fair to al? holders, with no undue advantages to large holders, and is an important factor in maintaining the market prices of all the issues. I do not believe, therefore, that your bill offers any real solution of the problem of the market prices of Liberty bonds. As the Treasury views it, the present depreciation of Liberty bonds on the market is due chiefly to the fact thnt of thp .118 REPORT ON THE FINANCES. 20,000,000 Americans who putriotically subscribed 'during the period of the war, large numbers haA^^e not been willing or able to exercise such control over their personal expenditure as would enable them to retain their bonds after the cessation of hostilities. Liberty bonds, like other bonds, are subject to market influences, including the laAv of supply and demand, and their market quotations have declined in consequence of the failure of the great investing public to save in proportion to the enormous expenditure of capital during and since the Avar. Many patriotic people bought Liberty bonds under the.impulse of patriotism who have been unwilling since the war was over to continue to lend their money to the Government and have forced their holdings on the market more rapidly than others could save funds to invest, with consequent depreciation in market prices. The remedy for this condition is for the people to work and save, to keep their holdings of Liberty bonds as investments, and to purchase additional Government securities with their savings. The present market prices of Liberty bonds are causing no loss to real investors who are holding their bonds as permanent investments; they are not suffering because others see fit to sell their bonds now for less than they are worth, and neither these investors nor those who wish to sell their bonds have any ground for expecting a donation from the United States in the form of additional tax exemptions or other privileges. The United States is under no obligation to guarantee the holders of Liberty bonds against variations in monej^-market conditions or to guarantee a market at par for the bonds. To make valuable gifts to the people who subscribed for their bonds on definite terms for a definite .period of time AA^ould, in my opinion, be subversive of all decent principles of Government. The Treasury is as much opposed to a bonus to bondholders as to a bonus to other special classes in the community. As you doubtless kiiow, the Government is already doing everything in its power to protect the market for Liberty bonds and the interests of Liberty bond holders by means of purchases for the 5 per cent bond-purchase fund provided by existing law. These purchases, Avhich have greatly tended to sustain and strengthen the market for the bonds, have been made under the authority of section 15 of the second Liberty bond act, as amended by section 6 of the third Liberty bond act, which authorized the Secretary of the Treasury to purchase annually until the expiration of one year after the termination of the war up to 5 per cent of the bonds of each series outstanding at not exceeding par and accrued interest. To November 30 last, as shown by Secretary Glass's report to Congress, a copy of which is inclosed, $1,043,080,500 principal amount of Liberty bonds had been purchased, the principal amount paid therefor being $993,363,526.15. The authority thus conferred by Congress has been exercised by the Treasury for the sole purpose of stabilizing the market, and in my judgment very important results have been achieved, redounding to the benefit of .all holders of Liberty bonds. The Treasury has not profited by the action of those Liberty bondholders who have forced their bonds on the market nor by its purchases of those bonds. It has been obliged to borrow at higher rates of interest the money to make the purchases which have been forced on it for tfhe protection of the holders of Liberty bonds and of the Goverjiment's credit. In this connection, and with particular reference to the provisions of section 2 of S. 4119, I feel that I should call your attention to the provisions of section 6 of the Victory Liberty loan act, approved March 3, 1919, creating a 2^ per cent cumulative sinking fund which goes into operation on July 1, 1920, and is. calculated to retire the Liberty bonds and Victory notes outstanding on that date Avithin approximately 25 years (except for an amount equivalent' to the obhgations of foreign governments held by the United States on said date). This cumulative sinking fund was established pursuant to the recommendation SECRETARY OF THE TREASURY. 119 -of Secretary Glass in his letter of February 10,'1919, to the Committee on Ways and Means, and received the careful consideration of the Congress in •connection Avith the Victory Liberty loan act. In view of the provision for the sinking fund Avhich has already been made, therefore, no necessity exists for the sinking fund proposed in S. 4119 except, of course, in so far as it might be designed to retire the new bonds proposed to be issued under the bill. As t o the Liberty bonds and Victory notes outstanding, the ground has already *foeen covered. Very truly yours, D. F. HOUSTON, -Secretary. Hon. JOSEPH S. FRELINGHUYSEN, United States Senate, Washington, D. G. Many other specific proposals have contemplated the refunding of the outstanding bonds and notes into obligations bearing a higher rate of interest. Several bills designed to effect this have been introduced in the Congress. The following letter, which is typical of the Treasury's replies to other similar proposals, was sent by the Secretary of the Treasury under date of April 22, 1920, to a correspondent who suggested this course: WASHINGTON, April 22, 1920. DEAR SII* : I received your letter of April 17, 1920, as to the market prices 'Of Liberty bonds. The Treasury is not contemplating the issue at this time of :any new United States bonds, and you Avere misinformed if you heard that the United States was about to issue new bonds bearing interest at a higher rate than the Liberty bonds. There is at the present time no outstanding privilege •of converting first Liberty loan 3^ per cent bonds into bonds bearing a higher rate of interest, although first 4's and second 4's are still convertible into 4-^ •per cent bonds pursuant to the extended conversion privilege described in Treasury Department Circular No. 137, dated March 7, 1919, as amended and supplemented June 10 and November 1, 1919, copies of which are inclosed. Your suggestion that Liberty bonds be made legal tender is, in the opinion of the Treasury, entirely untenable. The currency needs of the country are being •amply provided for by the operation of the Federal Reserve System, and to ,give Liberty bonds the legal-tender quality Avould make them so much spending imoney, produce unprecedented inflation of the currency, and fundamentally upset prices. • The Treasury is also definitely opposed to the proposal that the Liberty feonds be exchanged for bonds bearing a higher rate of interest and beliCA^es that it offers no solution of the problem of the depreciation in the market prices •of Liberty bonds. As the Treasury views it, the Liberty bond problem is chiefly one of quantity. Unfortunately, many holders of Liberty bonds who patriotically subscribed for them and held them during the war have since regarded them as so much spending money and throAvn them on the market more rapidly than others could save funds to invest, with consequent depreciation in market prices. People generahy have been spending money freely and saving relatively little, so that there has not been sufficient capital saved to overcome the pressure upon the market from those who bought bonds as patriots but not as investors. In these circumstances, to add a fraction to the rate of interest •home by the bonds would have no important or lasting effect upon their market prices, while it Avould have an injurious effect upon the Government's credit and burden the Government and the taxpayers with higher interest charges •over a long period of years. The Government could not, of course, manufac 120 REPORT ON TFIE FINANCES. ture savings or create buyers for its securities simply by increasing the interest rate on the outstanding bonds. The only effect of such a course would be todepreciate all other securities automatically and establish a high-interest level for many years which Avould be burdensome to the development of the country. The present market prices of Liberty bonds are causing no loss to real investors who are holding their bonds as permanent investments; they are not suffering because others see fit to seU their bonds now for less than they are worth, and neither these investors nor those Avho wish to sell their bonds have any ground for expecting a donation from the United States in the form of additional interest on the bonds. The United States is under no obligation to guarantee the holders of Liberty bonds against variations in money-market conditions or to guarantee a market at par for the bonds. To make a gift of a higher rate of interest to the people who subscribed for their bonds on definite terms for a definite period of time would, in my opinion, be subversive of all decent principles of Government. To limit such a gift to original subscribers Avould be impracticable; to extend it to market purchasers would be utterly indefensible. The Treasury would vigorously oppose any donation of this character. Very truly yours, D. F . IBomsT&N, Secretary. MARKET PRICES OF LIBERTY BONDS AND VICTORY NOTES. The year under review has been marked by considerable fluctuations in the market prices of Liberty bonds and Victory notes, as will appear from the following table: Highest and lowest market prices for Liberty bonds and Victory notes from Oct.-l, 1919, to Nov. 1, 1920. F i r s t 3^'s. • F i r s t 4's First-second 4Fs. F i r s t 4Vs. Second 4's. 1919. October—High Low November—High L o w . . •. December—High Low SlOO.95-$100. 98 S95. 40-S95. 60 $95.6S-$95. 70 $101. 90-$lO2.00 100.02- 100.08 95.00- 95.20 95. 00- 95.20 100.90 100. 86- 101.00 95. 00- 95. 50 95.00- 95. 20 101.00 99.90- 99.94 93. 90- 94.10 94.10- 94. 20 100.76 99. 84- 100. 00 94.10- 94.30 94.30- 94. 50 101.00 99.00- 99.08 92. 70- 92. 90 93.10- 93. 28 100.96 $94. 20-$94. 26 93.00- 93.16 93.10- 93.18 91.12- 91.16 92.10- 92. 20 91. 20- 91.28 1920. January—Hieh. Low February—High Low..... March—High Low'. '. April—High. Low ". May—High: . Low June—High...... Low..... July—High Low.... August—High Low ' September—High Low October—High : L6w For above period: High.-.. Low 100.10- 100. 20 98.16- 98.20 98.20- '98.24 94.00- 94. 40 97.60- 97.70 94.48- 94.60 96.90- 97.00 92.30- 92.54 92.50- 92.60 90.00- 90.20 92.18- 92.26 91.00- 91.08 91.50- 91.60 90.80- 90.90 91.02- 91.06 89.80- 89.84 91.14- 91.18 89.88- 89.94 93.18- 93.24 91.14- 91.20 93. 40- 93.50 91. 48- 91. 52 91. 32- 91.36 90. 20- 90. 40 90.80-91.00 89. 90- 90.10 91. 30- 91. 80 8 1 80- 85.00 86. 50- 87.00 83.00- 83.50 86.30- 87.00 85. 20- 85. 70 86.20- 86.50 85.00 85. 40- 85. 80 84. 30- 84. 40 88.00- 90.00 84. 48- 84.56 90.24- 90. 30 87.30 93. 70- 93. 90 91. 48- 91. 52 91. 60- 91. 80 90. 80- 91.00 91. 40- 91. 60 90. 40- 90. 80 91. 40- 91. 70 85. 60- 86. 00 87. 84- 88.00 84.00-85.00 87.04- 87. 60 85. 50- 85. 60 86:30- 86. 50 85. 60- 85. 70 85. 60- 85.80 84. 58- 84. 64 89.00- 89.50 85. 40- 85. 48 90.10- 90.14 88.14- 88. 28 100. 96- 100. 98 89.80- 89.84 95. 40- 95. 60 83.00- 83.50 95. 68- 95. 70 84.00- 85.00 1 Not quoted. ' 101.00 100. 50 99.50 , 99.50 99.50 97.00^ 97.40 98.00- 98.50 97.00 94.96- 1 • •. i ! i i 1 95.00 91.00 98.00 94.50 96.00 95.60 97.54- 97.90 96.00 97.66- 97. 70 96.00 96.0093.00- 101.90- 102.00 91.00 92. 4690. 2490. 4089. 4689. 8089.0089. 6081. 2086.5081. 7086.0081.0085. 7081.4684. 7084.10- 92.50 90. 28 90. 50 89. 50 90.00 89.10 89. 90 84. 40 87.50 81. 90 86.50 8'1.50 86. 20 84.60 84. 90 84.20 88. 20 84.30- 84:38 89. 20- 89. 80 87.00 94.20- 94.26 81. 70- 81.90 121 SECRETARY OF THE TREASURY. Highest and lowest market prices for Liberty bonds and,Victory notes from Oct. 1, 1919, to Nov. 1, 1520—Continued. Second 4i's. 1919. October—High LOWN ' November—High.., Low December—High.. Low : 1920. January—High Low February—High... Low March—High Low , !S94.36-$94.40 93. 02- 93.16 93.22- 93.30 91.44- 91.50 92.90- 93. 00 91.20- 91.22 Third 4i's. Fourth 4i's. Victory 4|'s. Victory 3t's. $96.22-$96.26 $94.34-$94.36 $99.90-$99.92 95.14- 95.18 9 3 . 2 4 - 9 3 . 2 8 99.48- 99.50 95.14- 95.20 93.40- 93.46 99.46- 99.50 93.66- 93.70 91. 44- 91.50 99. 00- 99. 04 94.78- 94.86 93. 00- 93.10 99.34- 99.40 93.30- 93.36 91.24- 91.28 98.84- 98.86 April—High Low May—High Low June—High Low July—High Low August—High Low , a, e p t e m b e r — H i g h . . Low October—High Low 92.7290.1890. SOSO. 7090.8289.4089.8884.5087.5082.0086.5084.8085.9284.2084.8884. I S SS. 5484. 0889.6687.12- 92.78 90.22 91.00 89.74 90.88 89.44 89.^90 84.70 87.56 82.10 86.60 84.90 86.00 84.26 84.92 84.24 88.60 84.22 89.68 87.24 94.80- 94.86 92.94- 92.98 93.60- 93.70 92.20- 92.24 93.06- 93.10 92.10- 92.16 92.94- 92.98 90. OO- 90.04 OI. 40- 91.56 86.30- 86.36 90.20- 90.30 88.46- 88.56 90. l o - 90.20 s s . 50- 88.56 88.76- 88.80 87.60- 87.70 90.64- 90.67 87.86- 87.98 91. 08- 91.10 88.84- 92.8490.7491.1489.8490.1489.6089.8684.5088.1882.6486.OOSS. 1086.14-. 85. OOSS. 3 0 84.5488.4484. goso. 5286.28- For above period—High. Low , 94.36- 94.40 82.00- 82.10 96. 2 2 - 96.26 86.30- 86.36 94.34- 94.36 82.64- 82.66 92.90 90.78 91.34 89.86 90.20 89.64 90.00 84. 70' 88.20 82.66 87.00 85.20 86.16 85. 04 85L34 84.56 88.50 84.98 89.54 86.76 99.1498.0297. 9697.3497.6497.1697.8496. 0296.5494.8295.969S. 2095.9695.5295.6895.3496.5695.3496.6695.82- 99.18 98.06 98.00 97.36 97.70 97.20 97.90 96.08 96.60 94.86 96.00 95.28 96.00 95.54 95.70 95.38 96.60 95.36 96.70 95.86 99. 90- 99.92 94.82- 94.86 $99:92-$99.96 99.48- 99.50 99.46- 99.50 99.00- 99. 04 99.42- 99.48 98.84- 98.88 99.2098. 0297.9697.3497.5897.1697.8696.0096.3094. 7295.9695.2095.96'95.5295.6895.3496. 5695.3296.ssgs. 8 2 - 99.30 98.06 98.00 97.36 97.60 97.20 97.96 96.06 96.44 94.80 96.00 95.26 95.98 95.54 95.70 95.38 96.58 95.34 96.62 95.89 99.92- 99.96 94. 72- 94.80 These fluctuations have been the subject of considerable public discussion. They clearly result from the operation of the economic law of supply and demand. Maiiy persons have disregarded this fact, and, simply because it was the Government's securities involved, urged artificial support and devices which would disrupt any sound financial program. The matter has constantly received the careful thought of the Treasury. I t was a problem even during the war. The following statement, for example, was made by the Secretary of the Treasury before the Committee on Ways and Means of the House of Eepresentatives on February 18,1918, at the hearing on the bill to create the W a r Finance Corporation: The only sound and sure way to protect the market price of Government bonds is to teach the people to save, so that they may become true investors in bonds and not merely subscribers for bonds. Yet there will be on every issue subscribers who find tbemselves unable to pay for their bonds or through necessity, T^isfortune, or otherwise are obliged to sell them. And there will always be those, few in. number I am glad to believe, whose patriotism is of the surface sort and who take the credit of appearing as subscribers but are unwilling to make the necessary sacrifices to enable them to become permanent investors in the bonds. Last and least, there are those sympathizers with the enemy who deliberately sell their bqnds with a view to the injury that they may do to the credit of the United States. I have studied with interest various measures Vbich have been introduced in Congress and plans which have been presented to me for preventing Liberty bonds from going below par. Most of these, I am 122 REPORT ON THE FINANCES. • - ^ sorry to say, have been, though very well meant, ill considered and calculated to destroy the success of the Government's financial plans. Any prohibition upon the sale of Liberty bonds would restrict subscriptions to such an extent as td jeopardize the success of future loans, and would be an act of bad faith toward those who bave subscribed to the past loans and may be unable to hold their bonds. Any attempt to peg the price of Liberty bonds at par would be unwise and subject to legitimate criticism as turning the Government's longterm 20 or 25 or 30 year bonds into demand obligations. The only way in which that could be done would be for the Government to stand ready to redeem them at par at any time: The purpose of borrowing on time by the Government is exactly the same purpose which animates the manufacturer or mei;chant to horrow for a definite period in reference to his needs, with a view to paying hack the obligation at maturity, and the man who lends the money has no right to expect a borrower to pay it back in advance upon his demand at any time. There is always a different reasoning, however, about the Government. Many people seem to think that if they lend their money to the Government for 10 years and the Government agrees to take it for 10 years and pay the principal in full upon maturity and interest in the meantime, if they get tired and want to sell their bondS' the Government ought to stand ready to take them back immediately; in other words, to stand ready to convert a 10-year obligation into a demand obligation. They would never think of expecting that of a manufacturer or an individual or a banker who borrowed the money for a definite length of time. And yet many people have the idea that the Government, because it borrows their money for 10 or 20 years, or whatever period it may be, and agrees to pay it back at maturity at par with interest meanwhile at the •stipulated rate; must stand ready to respond to their demand and redeem the honds before maturity at par merely because they want it. The great mass of the •purchasers of Liberty bonds not only are buying them with a view to holding them primarily because they are a good investment, but also because they ^patriotically want to help the Government; and I must say I have been immensely gratified with the splendid spirit shown by the people throughout the United States in buying Government bonds. I think I may say that out of the last two Liberty loans, when we sold over five billion eight hundred million •dollars of bonds, there probably has not been resold up t o date in the market •more than one hundred million of these bonds. If the Government attempted to make only demand loans, it would not be possible to pay them, and we should put ourselves in position to face some extraordinary calamity. If the Government attempted to pay those loans on demand it might be bankrupted. Then, again, I think that if you undertook to peg the market at par :you would encourage people to turn their bonds back to the Government when they get a little tired of holding them. Those people are not sufficiently Informed about the importance of holding on as long as they can, and if they find that they can turn them back at par they would do so quicker, whereas if they may be penalized for selling before maturity they may not be •so anxious to sell. Practically to attempt to maintain Government bonds at par involves the idea of issuing interest-bearing currency. It is impossible to peg the price of $6,000,000,000 or $10,000,000,000 of any security. The price of •Government bonds will fluctuate as the price of other securities fluctuates. The man who holds on to his bonds and now watches calmly a downward variation in the price of his bonds will see the time come when the variation will be the other way and his bonds. wiU sell at a premium. It is highly SECRETARY OF THE TREASURY. 123 desirable that violent and unnecessary fluctuations in price should be avoided and that all possible measures should be taken to stabilize the price of Liberty bonds. The Treasury's views as to the depreciation in market prices have been frequently set forth. I n the spring of 1920 the discussion of t h e question became particularly acute by reason of wide fluctuations in the prices. People who had no thought of selling their bonds were disturbed by constant agitation that the bonds be brought back t o p a r regardless of inexorable economic laws which no artificial means could control without working greater injury. To clarify the situation, the position of the Treasury was stated in the following announcement, dated May 20, 1920: Liberty bonds and Victory notes are^ selling below par partly because many of the people who bought them in a spirit of patriotism found themselves after the war was over unable or unwilling to continue to save and treated them as spending money. They are selling below par partly because the war and post-, armistice conditions have resulted in a world-wide shortage of capital and . credit which has greatly' increased the price of money. The expansion of credits . and increase in prices and the correlative decrease in the buying power of money necessarily carry with them a decrease in the market value of the promise to pay a fixed sum of money at a future date with interest at a fixed rate. This has nothing at all to do with .the question whether the money will be paid at that future date or not. No one doubts that it will be. The obligation of the Government of the United States carries with it no risk whatever. It is c'fertain of payment. The market price of that obligation is practically an indication of the pure interest rate at any given time, that is to say, of the present value of the promise to pay a given sum at a future date with interest in the meanwhile. It is simply an economic law that the decrease in the buying power of money or, to put it the other way around, the increase in the prices of commodities carries with it necessarily a depreciation in the present value of the promise to repay money at a future date. During the past year or more Liberty bonds and Victory notes have been gradually shifting from the hands of those who borrowed to buy them and were finable or unwilling to save and pay for them into the hands of permanent investors whose holdings are taken out of the banks and put away .in safe deposit vaults. One evidence of this is the tremendous decrease in banks' holdings of and loans upon Government war securities during the past year. Another Indication of the steady absorption which is proceeding is the fact that the principal of amount of Liberty bonds and Victory notes which are held in registered form instead of coupon form has increased 55 per cent or 60 per cent •since original issue ahd is steadily increasing. From all parts of the country I hear reports from banks that their customers' purchases of Liberty bonds and Victory notes have, during the past few months, for the first tim-e exceeded their sales. This indicates that real investors all over the country are absorbing the securities which are being sold, in consectuence of stringent credit conditions, by corporations and others who purchased out df patriotism or as a secondary reserve against future requirements. The necessity of those business companies and business men who are being forced to sell their securities at bargain prices in the present credit stringency ts the opportunity of investors. 124 REPORT ON THE FINANCES. Just as expansion is accompanied by a decrease in the buying power of moneys and consequently of the value of an obligation to repay money at a future date,„ so deflation will be accompanied by an increase in the buying power of money and consequently of the promise to pay money at a future date. Dear money results in part from- the effort to prevent further expansion. Naturally enough,., its first effect is to force the best securities in the world on the market becausethey are the easiest to realize upon. As the inevitable deflation takes place and*, the price of money approaches normal again the market price of Liberty and Victory securities will, of course, appreciate in accordance with inexorable: economic laws. In the long run, therefore, the raising of discount rates in the effort to prevent further inflation will help Liberty bond and Victory note values, although, the first effect of those steps has been to some extent to force them on themarket out of weak hands. Deflation means increased buying power of money and of the present value of the promise to pay.money at a future date. There can be no doubt that Liberty bonds and Victory notes are, as they always were, the safest investment in the world, and that the present abnormal o credit position affords a unique opportunity to those who have or can savemoney for investment in these securities. The Savings Division also has made every effort to assist thepeople to understand the intrinsic value of the securities and the benefits, both to the Government and to themselves, of holding them.. The following statement issued by it in May, 1920, was given widecirculation: ' '• 0 YOUR LIBERTY BOND. The United States Government borrowed money from you to finance the war.. You hold the Government's promise to pay you back. This promise is called a. Liberty bond or Victory note. On this bond is stated the conditions under which the Government borrowed the money from you. For instance: If you hold a bond of the third Liberty loan it states that om April 15 and October 15 of each year until maturity you will receive interest dn» the amount you paid for the bond. Other issues bear other rates of interest and other maturity dates, all of which are clearly stated on the bond. Now, if you keep your bond until the date when the Government pays you in> full for it, you do not need to worry if, in the meantime, the price is low oneday or high the next. You and Uhcle Sam are living up to your agreement with.each other and neither will lose by it. On the other hand, if you sell your Liberty bond now you will find that theman you sell it to wih not give you a dollar for every dollar you paid for it.. The price has been brought down because so many people are offering to sell their bonds. If the market is flooded with tomatoes you can buy them cheap,, but if everybody is clamoring for tomatoes and there are few to be had, theprice goes up. The same is true of Liberty bonds. Short-sighted people are dumping them on the market and wise ones are buying them. The best advice that can be given to the owner of a Liberty bond is this: Hold the bond you bought during the war; it is as safe and sound as the UnitedStates Government itself. Buy as many more at the present low rate as you can afford. If you hold them to maturity, you are bound to make the difference between what they sell' at now and their face value. You will also receive good interest on your investment. . Hold on to your Liberty bonds and buy more. SECRETARY OF THE TREASURY. 125 Other suggestions for stabilizing market prices of Liberty ahd Victory notes have been that they be refunded into consolidated iong-term bonds with full exemption from taxation, or for bonds ibearing a higher rate of interest (discussed elsewhere in this report), and t h a t they be accepted in payment of income and profits taxes, or ^that they be drawn by lot for redemption at par. The Treasury's objections to the use of Liberty bonds in payment 'of income and profits taxes are set out in the letter of the Secretary t o the chairman of the Committee on Ways and Means of the House of Eepresentatives, dated May 15, 1920, which is, in part, as follows: It would, in my judgment, be a mistake to accept Liberty bonds in payment 'Of any part of the present Federal taxes for 1921 (except estate taxes, as authorized under existing law). The Government's necessities are so urgent t h a t the whole amount of its revenues must be applied to meet its current dis'bursements, including, so far as possible, the reduction of its floating debt. To accept payment of even 25 per cent of the taxes in Liberty bonds would add to the Government's financial burdens, and the difference would have to be inade 'Up by an addition to the floating debt, an operation which could not in the end •benefit the outstanding bonds. After all, the thing which will most benefit the .market for Liberty bonds., is the retirement of the floating debt. The bill in •question, however, would'reverse this process and in effect convert funded debt into floating debt. It is also important to bear in mind that Liberty bonds are widely distributed •among persons of small means, who are not themselves heavy taxpayers and are not so" largely held by corporations and persons of great wealth. A provision at this time permitting them to be accepted in payment of income and profits taxes ^would, in these circumstances, result in making it possible for corporations ahd nvealthy persons to reduce the ainount of their taxes by buying Liberty bonds in t h e market at a discount and turning them in to the Government at a profit. "The acceptance of Liberty bonds in payment of income and profits taxes would mot correspondingly benefit the great majority of holders. The effort in the Liberty loan campaigns and since has been, moreover, to ^ireach the savings of the people and place the Government's war debt in the /hands of millions of people who would become to that extent capitalists and spermanent investors. If we are to reach promptly a sound economic position, the people's taxes and their current outgo should be met out of their current .^dncbme. To accept the Government's funded war debt in payment of current taxes would be a step toward further undoing the work of the Liberty loan organization in seeking out funds for permanent investment from savings. This •objection does not lie against the acceptance of Liberty bonds in payment of -estate taxes, which, economically speaking, are capital taxes; but to accept Liberty bonds, which are or should be capital investments, in payment of an iincome tax would be a mistake. The depreciation of Liberty bonds in the .market is due largely to the reaction which the country underwent after .-armistice day and the tendency to treat them as spending money for current purposes. This is a tendency w-hich the Government should discourage, not ^encourage. It is a matter of the utmost importance for our future welfare that the Government should exercise the most rigid economy and retire the war debt with the utmost rapidity. The proper course to be pursued in that respect is to 126 REPORT ON TFIE FINANCES. retire first the debt of shor'test maturity. This in the long run will be most advantageous to the holders of the Liberty bonds of longer maturity, because they will be relieved to that extent of apprehension of further financing to meet the floating debt and earlier maturing funded debt. The retirement of the floating debt and, later on, of a substantial portion of the Victory notes, which mature in May, 1923, will do more to bring Liberty bonds to par or better than almost anything else. In the long run Liberty bondholders would only be injured by the reverse process of diverting to the retirement of the funded debt the proceeds of income and profits taxes, which should be available for current expenditures and the retirement of the floating debt. The objection to the plan of drawing by lot is set forth in the Secretary's letter, dated J u l y 14, 1920, to a correspondent, extracts from which are quoted: With respect to the suggestion that the Government make drawings of Liberty bonds by lot for redemption at par, in order to stabilize the market for such bonds, in my judgment such a ^lan would be neither wise npr administratively feasible. The plan, in effect, introduces the lottery scheme into Government financing. Aside from this objection, it would introduce a speculative element into the Liberty bond market, since unquestionably many brokers and others would engage extensively in buying in Liberty bonds between redemption dates on the chance of being able to sell them to the Government at a profit. Furthermore, the plan would be likely to have the effect of dislodging bonds in the hands of investors willing and able to hold them to maturity. It would introduce the psychology of selling into the Liberty bond market, instead of the psychology of saving and holding for permanent investment. The securities of the Government of the United States are premier securities in the world to-day and should depend for their appeal upon their sound investment value, and not upon a lottery scheme intended to enlist the temporary interest of the speculative element in the community. * * * The dissipation of the funds made available from taxes for the retirement of the public debt by the purchase of the Government's securities from certain fortunate holders at more than the market prices would result in the exhaustion of the sinking fund and leave the market unprotected and at the mercy of speculators in the intervals between drawings. It would exhaust the fund for the benefit of those who were most fortunate in the drawings and would in general redound to the benefit of speculators in the bonds and notes rather than support the market for holders in general. As the Treasury views it, the Liberty-bond problem is chiefly one of quantity. Unfortunately, many holders of Liberty bonds, who patriotically subscribed for and held them during the war, have since regarded them as so much spending money and thrown them on the market. People generally have been spending money freely and saving too little, so that there has not been sufficient capital accumulated to overcome the pressure upon the market from those who bought bonds as patriots but not as investors. The holders of Liberty bonds who save and hold their bonds as investments will not, in the opinion of the Treasury, have occasion to regret it, nor will they suffer by reason of the present depreciation in market prices. SECRETARY OF THE TREASURY. 127 , Liberty bonds, like other bonds, are subject to market influences,, including the law of supply and demand, and their market quotations have declined in consequence of the failure of the great investing public to save in proportion to the enormous expenditure of capital during and since the war. Many patriotic people bought Liberty bonds and Victoi'y notes under the impulse of patriotism who have been unwilling, since the war was over, to continue to lend their money to the Government and have forced, their holdings on the market more rapidly than qthers could save funds to invest, with consequent depreciation in market prices.- The remedy for this condition is for people to work and save, to keep their holdings of Liberty bonds as investments, and to purchase additional Government securities with their savings. LOANS ON L I B E R T Y BONDS. There has been an insistent demand from different sources during the year that the Treasury take some action to secure loans on easy terms for holdeirs of Liberty bonds and Victory notes. The Treasury has consistently taken the position that the problem was a banking one, to be worked out through the banks and the Federal Eeserve System. The question was definitely presented from one angle in a bill (S. 3680) to provide for loans to holders of Liberty bonds through the postal savings banks. At the request of the Committee on Finance of the Senate, the Treasury indicated its views on this bill in the following letter to the chairman of the committee: WASHINGTON, January 17, 1920. MY DEAR SENATOR : I have the honor to acknowledge receipt of your committee's letter of January 10, 1920, inclosing a copy of S. 3680, a bill to provide for the purchase and redemption of Liberty bonds in the denomination of $50 and $100, through the postal savings banks, and requesting a statement of the Treasury's suggestions touching the merits of the bill and the propriety of its passage. The Treasury definitely feels that the plan proposed by the bill would be too difficult of administration to be successful, and that even if it were possible to administer the plan it is open to fundamental objections of policy. \ The bill provides for making loans to holders of Liberty bonds through the postal savings banks at the coupon rate. It makes no discrimination, and it would not be administratively practicable to discriminate between those holders who desire loans.for legitimate purposes and those whose need for loans arises from wasteful, or speculative expenditure. For the Government to go into the banking business and make loans at less than the current rate on Liberty bonds would be contrary to every sound principle of economics and finance. The Government ought not to go into the banking business. If it did, it ought, not to make loans at less.than the market rate. The Government, moreover, has no surplus funds to lend, and the funds for inaking any such loans, over and above available resources of the postal savings system, would have to be provided by hew Government borrowings in the market. 12'8 REPORT ON THE FINANCES. The Government is already doing everything in its power to protect the (market for Liberty bonds and the interests of Liberty bondholders by means of purchases for the 5 per cent bond-purchase fund provided by existing law. The .Treasury's purchases of Liberty bonds have been made, as you know, under the authority of section 15 of the second Liberty bond act as amended by section 6 of the third Liberty bond act, which authorized the Secretary of the Treasury to purchase annually up to 5 per cent of the bonds of each series outstanding at not exceeding par and accrued interest. To November . 30 last $l,0'43,080-,500 principal amount of Liberty bonds had been purchased, the principal amount paid therefor being $993,363,526.15. A copy of my special report of these operations to November 30, 1919, is inclosed herewith. The authority thus conferred by Congress has been exercised for the purpose of stabilizing the market, and in my judgment very important results havff been achieved redounding to the benefit of all holders of Liberty bonds. The effect of such large purchases obviously would be to sustain and strengthen the market for the bonds. On the other hand, for the Treasury to pay more than the market price for its purchases for the 5 per cent bond-purchase fund, or to use the fund for the purposes of a plan like that proposed, in the bill, would tend to exhaust the fund for the benefit of those who were most expeditious in realizing on their holdings, leaving the market otherwise unprotected. The Treasury's purchases of Liberty bonds have been made to protect the market for the bonds and the Government's credit. It is unfortunate that so many of the patriotic subs.cribers to the Liberty loans, who purchased bonds of maturities extending from io to 30 years, found themselves unable or unwilling to continue to extend credit to the Government during the life of the bonds and forced their holdings upon the market after the cessation of hostilities, which had, of course, increased their intrinsic value. The Treasury has not profited by their action or by its purchases of these bonds. It has been obliged to borrow a t higher rates of interest the money, to make the purchases which have been forced upon it for the protection of the holders of the bonds and of the 'Government's credit. The whole plan for the stabilization of the market value of Government bonds through the 5 per cent bond purchase fund was, as you no doubt recall, fully <iiscussed by Secretary McAdoo before the Committee on Ways and Means, at the hearings on the third Liberty bond bill and the fact of the creation of the' fund was advertised in the circulars -describing the bonds of the third, fourth, and Victory loans and was an important,factor in the su'ccess of those loans. I think it is also important to note, in connection with the plan proposed by the bill, that extremely heavy demands have recently forced the Federal reserve banks to increase their rediscount rates in order to protect the country from the serious consequences of an overexpanded credit structure. The demand for capital and credit unfortunately appears to exceed the supply, which can only be replenished out of the savings of the people. A situation of this sort, under inexorable economic law, forced higher rates for money and it is impracticable to discriminate in the matter of rates between those holders of Liberty bonds who are trying to save and pay off the loans which they made to buy them, and those who seek to use their bonds as a means of obtaining cheap money for speculative or other wasteful purposes. It is true that subscribers for ^"Liberty bohds were urged to borrow and buy them; but it is also true that they were urged to save and pay for them. Those who only obeyed the first injunction—to borrow and buy, and have neglected the second—to save and pay, have done only a portion of their duty and have ho claim at this late date to have the Government carry their bonds at a low rate of interest at the expense of the general welfare. SECRETARY OF TFIE TREASURY. . 129 The plan proposed in Senate bill 3680 would have a tendency to convert Liberty bonds held by small bondholders into ready cash at Government expense, and thereby discourage thrift, encourage spending, and further increase prices and the cost of living. The great effort of the Liberty loan campaigns has been to reach the investor and get him not only to buy Liberty bonds but to save and keep them as investments. By enabling small bondholders to secure from the 'Government cash up to 90 per cent of the face value of their bonds, the bill would tend to undo the work of the Liberty loan campaigns. In this connection it is important to note that, as shown in my annual report for the .year 1919, on pages 72-77, the outstanding bonds of the $50 denomination on June 30, 1919, amounted to nearly $2,000,000,000 and the outstanding bonds of the $100 denomination on the same date to about $2,500,000,000. Liberty bonds of all other denominations, moreover, are exchangeable by the holders without <2harge for bonds of the $50 and $100 denominations. To the extent that the plan succeeded, therefore, it would be likely to require the use of a large volume of Government', funds in order to make the loans on the bonds. . It is, of course, impossible to forecast what proportions the loans would assume, but they would doubtless exceed the available funds in the postal savings banks, whose resources are already largely invested in Liberty bonds, under the supervision of the Board of Postal Savings Trustees. The proposed plan apparently makes no provision for advancing Government funds, but once initiated the available resources of the postal savings banks would, no doubt, soon be exhausted, and it would be difficult for the Government to withhold accommodations from' some holders of its bonds which had already been extended to others. The use of Goyernment funds for the purpose of making small loans on Liberty bonds would also be essentially class legislation, and by necessitating governmental expenditure, or further Government loans, would impose additional burdens on the whole community for the benefit of a portion of the community. The provision that bonds pledged with postal savings banks and not redeemed within six months be sold at par and accrued interest or retained, by the postal savings banks in lieu of deposits would, for all practical purposes, be inoperative under present conditions. So long as Liberty bonds are selling at a discount, it would be impossible to dispose of them at par, with the result that they would be held by the postal savings banks indefinitely, with consequent depletion of their cash reserves. Apart from this the plan apparently makes no provision whatever for closing out the borrower's equity in case of default. From the point of view of administration the plan offers many difiiculties, .some of which chiefly concern the Post Office Department. While the Treasury, of course, is not in a position to speak for the Ppst Office Department, one serious objection immediately suggests itself in that post offices generally do not have sufficient safekeeping facilities to make it feasible for them to hold and maintain cleposits of Liberty bonds received under the plan. The plan •directly affects the Postal Savings System and would require careful consideration from that point of view. Many difficulties also arise in connection with the plan for adjusting interest on the loans by retaining the maturing coupons on the bonds deposited; this method works only in cases where the loan is both originally made on an interest date and repaid on an interest payment date. If the loan is paid on any other date, and is ,not exactly of six months' duration, the Government would lose the accrued interest represented by the next maturing coupon, which it is proposed to return to the borrower; and from the borrower's point of view, if the loan is originally made between interest dates, the <JOvernment by retaining and collecting the next maturing coupon may secure 13799—FI 19209 130 o REPORT ON THE FINANCES. interest which accrued during a period when the bond was held by the borrower, with consequent injustice to the borrower. The Treasury feels that the existing banking and credit machinery of the country is adequate to provide for loans upon Liberty bonds in small amounts at reasonable rates without imposing these additional burdens upon the Treasury and the Postal Savings System. Very truly yours, CARTER GLASS. Hon. BOIES PENROSE, . Chairman Committee on Finance, United States Senate, Washington, D. G. The agitation for governmental action to secure loans on Liberty bonds and Victory notes through the Federal Eeserve System at low rat.es of interest and on easy terms w^as presented to the Treasury in definite form by the Massachusetts Real Estate Exchange. The Treasury replied in two letters of July 1, 1920, and Au'gust 28, 1920^ as follows: WASHINGTON, July 1, 1920. DEAR SIR : I received your letter of June 28, 1920, regarding market prices of Liberty bonds and the action of Federal reserve banks in raising discount rates. The Federal reserve bank discount rates are fixed, not by the Treasury but by the Federal reserve banks, subject to review and determination by the Federal Reserve Board, and have recently been increased and brought more intoline with prevailing commercial rates, in order, to red^uce speculation and corr rect our expanded credit situation. The demand for capital and credit unfortunately appears to exceed the supply, which can only be replenished out of the savings of the people. A situation of this sort, under inexorable economic law, forces higher rates for money. The United States is under no obligation toguarantee the holders of Liberty- bonds against fluctuations in the market rate for money or variations in the money market conditions, or to guarantee a market at par for the bonds. The interest rate and life of the bonds were fixed in the bonds, but no commitment was made as to the discount rate at the Federal reserve banks. It would be intolerable if the Federal Reserve System^ should, a year after the Victory Liberty loan was floated, be prevented from exercising the normal and necessary control over our expanded credit situation by an increase in discount rates, in order to enable those subscribers for the Liberty loans who have not paid for their bonds, or can not continue to hold them without borrowing, to carry them indefinitely at the people's expense through the Federal Reserve System. Such subscribers have no c'.aim at thislate date to have their bonds carried at a low rate of interest at the expense of the general welfare. So far as the Treasury is informed, however, there has been no effort by the Federal Reserve Board or the Federal reserve banks to force liquidation of loans secured by Liberty bonds or Victory notes, as distinguished from other loans, and from the Treasury point of view, of course, it is desirable that bondholders should keep their bonds as investments rather than be forced to sell: them on the market. The Federal reserve banks, moreover, are still maintaining a preferential rate in favor of loans secured by Liberty bonds and Victory notes. In this connection, I inclose for your information a copy of Gov. Harding's letter of May 24 to Senator Owen and a copy of the Federal Reserve- SECRETARY OF THE TREASURY. 131 Board's letter of May 25 to the President of the Senate, which set forth the general policy of the Federal Reserve Board with reference to the reduction of loans. The depreciation in the market prices of Liberty bonds is the result chiefly of market conditions and does not reflect any change in the intrinsic value of . the bonds to investors. Liberty bonds, like other bonds, are subject to market influences, including the law of supply and demand, and their market quotations have declined in consequence of the great scarcity of capital and credit, and the failure of the investing public to save in proportion to the enormous expenditure of capital during and since the war. Many patriotic people bought Liberty bonds and Victory notes under the impulse of patriotism who proved to be unwilling, once the war was over, to continue to lend their money to the Government and forced their holdings on the market more rapidly than others could save funds to invest, with consequent depreciation in market prices. The remedy for this condition is for people to work and save, to keep their holdings of Liberty bonds as investments, and to purchase additional Government securities. with their savings to .the utmost of their ability. At current market prices the outstanding Liberty bonds offer a great opportunity to investors, and there are many indications that their, absorption by real investors is progressing. Very truly yours, . D. F. HOUSTON, Secretary. WILLIAM S. FELTON, Esq., , • President, Massachusetts Real Estate Exchange, 20 Pemberton Square, Boston, Mass. WASHINGTON, August 28, 1920. SIR: I have received your letter of July 31 with further reference to the market prices of Liberty bonds and the action of the Federal reserve banks in raising discount rates. I note that you agree that the present excess of the demand for capital and credit over the supply, which can only be replenished out of the savings of the people, forces higher rates for money and makes necessary a curtailment of nonessential loans; but that you urge that the Federal reserve banks should rediscount loans secured by Liberty bonds at a slightly higher rate than is borne by the bonds themselves, when such bonds are in the hands, of the; original subscribers and the loans are not new loans, but are renewals of loans made when the bonds were purchased, provided that such loans be reduced at each maturity in reasonable amounts, under penalty of a much higher rate of interest. As stated in the Treasury's letter of July.l, 1920, Federal reserve bank discount rates are fixed not by the Treasury but by the Federal reserve banks, subject to review and determination by the Federal Reserve Board. In my judgment, however, it would be neither wise lior administratively feasible for Federal reserve banks to attempt to make any such discrimination in favor of loans secured by Liberty bonds in the hands of original subscribers. It is true that to meet the Government's urgent war necessities subscribers for Liberty loans were urged to borrow and buy Liberty bonds. It is also true that they were urged to save and pay for them. The interest rate and life of the bonds were fixed in the bonds, but no commitment was made as to the rate of interest at which holders of the bonds might borrow on the security of the bonds, nor as to the discount rates on such loans at Federal reserve banks. Those subscribers who obeyed the first injunction—to borrow and buy Liberty bonds—but have neglected the second—to .save and pay for them—have done only a part of their duty to the Government. It is now over a year since the 132 REPORT ON THE FINANCES. Victory Liberty loan was floated, and subscribers to the various Liberty loans have had ample time to save and pay for their bonds and nbtes. Aside from the inevitable practical difficulties involved in the administration of the plan which you suggest, therefore, such s.ubscribers have no claim at this late date to have their bonds carried at a lower rate of interest than other holders of Liberty bonds and Victory nptes. The raising of discount rates and the efforts to curtail nonessential loans should in the long run help Liberty bond and Victory note values by preventing further inflation. Deflation means an increase in the buying power of money and of the present value of the promise to pay money at a future date. As the inevitable deflation takes place, and the price of'money becomes normal again, market prices of Liberty bonds and Victory notes should appreciate in accordance with inexorable economic law. Very truly yours, ^' D. F. HOUSTON, Secretary. WILLIAM S. FELTON, Esq., President, Massachusetts Real Estate Exchange, 209 Washington Street, Boston, Mass. L I B E R T Y LOAN T R A N S A C T I O N S . From the beginning of the war to June 30, 1920, there had been issued on account of subscription, conversion, exchange, transfer, or otherwise. Liberty bonds and Victory notes in the gross amount of $37,037,928,550. During the same period $17,456,727,100 of Liberty bonds and Victory notes were retired. This left outstanding on June 30, 1920, bonds and notes of the par value of $19,581,201,450, including delivered and deliverable items. These figures indicate the magnitude of the Treasury's operations in connection with the five great popular war loans. The vast transactions are summarized in Exhibits 39 to 51, pages 417 to 440. These show the payments of the .^principal of the loans received by the Treasurer, the principal retired, and the securities outstanding; a summary of all issues and retirements of bonds and notes; recapitulations of the first, second, third, fourth, and Victory Liberty loan transactions; a statement and analysis of the war securities account; bonds and notes outstanding by denominations; denominational exchanges; conversion transactions; final allotments of subscriptions; and subscriptions allotted by States. Against total subscriptions of $24,072,257,550, bonds and notes amounting to $21,435,370,600 were allotted. The cash payments received by the Treasurer on account of allotted subscriptions aggregated $21,432,944,521, including $26,071 representing part payments. The Treasury had delivered up to June 30, 1920, bonds and notes to the par amount of $21,432,902,900, leaving an undelivered item against allotted subscriptions of $15,550 in Victory notes. Bonds and notes aggregating $4,492,956,200 had beendssued on conversion up to the close of the fiscal year. These included the conversion of $333,421,950 of 4 | per cent Victory notes into 3 | per cent SECRETARY OF TFIE TREASURY. 138 Victory notes and the conversion of $98,399,400 of 3 | per cent Victory notes into 4 | per cent Victory notes. The extension of the conversion privilege accorded 4 per cent bonds of the first Liberty loan converted and of the second Liberty loan under authority of the Victory Liberty loan act continues in effect. There were outstanding on June 30, 1920, $65,803,050 of the first 4's out of the total of $568,318,450 originally issued,.and there remain of the second 4's $240,003,250 of an original issue of $3,807,865,000. Registered bonds and notes aggregating $1,538,534,900 have been issued against a corresponding face amount of coupon bonds and notes surrendered for exchange. Coupon bonds and notes of the aggregate face amount of $345,065,750 have been issued upon exchange for an equivalent amount of registered bonds and notes. There were delivered against original subscriptions $2,188,965,350 registered bonds and notes. On June 30, 1920, there were outstanding $3,515,713,500 of these securities, a net increase of $1,326,748,150. This gain in the registered issues is gratifying. I t indicates that the holders of Liberty bonds and Victory notes are realizing the advantages, from the standpoint of safe-keeping, of the registered over the coupon securities. This is particularly important in view of the great number of them outstaiiding in the hands of persons unaccustomed to investments and without available facilities for safe-keeping. Coupon bonds and notes amounting to $4,192,053,750 have been presented for denominational exchange. Permanent bonds to the amount of .$2,627,781,850 had been issued in exchange for temporary bonds up to June 30, 1920. Transfers of registered, bonds and notes from one registered holder to another aggregated $187,317,600. The number of bonds and notes handled by the Treasury indicate the great volume of these transactions. The Division of Loans and Currency received into stock a total of 174,553,049 pieces, with an aggregate value of $54,615,012,100. There have been withdrawn from stock 147,310,203 worth at par $42,941,154,05,0. There have been retired 72,816,761 with a face value of $20,567,903,600. There remain on hand 35,597,662 pieces worth at par $14,696,092,600, of which 27,242,846 pieces, amounting to $11,673,858,050, were in the Treasury vaults, and 8,354,816 pieces, amounting to $3,022,234,550, on hand in Federal reserve banks. There were outstanding on June 30, 1920, 66,138,626 pieces in the face amount of $19,351,015,900. Deducting from this amount an unadjusted item of $850 and adding $230,186,400 of permanent bonds issued in exchange for temporary bonds, but not yet delivered, brings the total amount of Liberty bonds and Victory notes outstanding on June 30, 1920, to $19,581,201,450. The great number of bonds and notes outstanding is an index to the distribution of the loans. The Treasury's record of denomina- 134 REPORT ON THE FINANCES, tional exchanges indicates an important movement from the lower to the higher denominations. This doubtless is due primarily to sales of the lower denominations and their subsequent surrender to the Treasury for higher denominations. Notwithstanding the great amount of the smaller denominations which have been sold, the aggregate number of $50 and $100 bonds and notes outstanding continues large. On June 30, 1920, 30,456,794 of the $50 denomination were outstanding, in the aggregate face amount of $1,522,839,700.. On the same date there were 23,436,472 of the $100 denomination outstanding in the total amount of $2,343,647,200. The number of the $500 Liberty bonds and Victory notes outstanding at the close of the fiscal year was 3,611,476 in the amount of $1,805,738,000; the number of the $1,000 denomination, was 8,028,471 of the face value of $8,028,471,000. Since the original deliveries in coupon Liberty bonds and Victory notes there has been a net decrease of $871,167,000 in the $50 denomination and a net decrease of $730,386,000 in the $100 denomination through denominational exchanges. On the other hand, there has been a net increase of $1,681,218,000 in the $1,000 denomination. The final allotments of subscriptions of Liberty loans by Federal reserve districts corrected to October 31, 1920, are given in Exhibit 50, page 439. These figures are final with respect to the first, second, third, and fourth loans. All adjustments for those loans have been made and incomplete subscriptions and part payments thereon declared in default. The final statistics differ in no important particular from prior allotment statements except for that of the fourth Liberty loan, which shows a reduction of some $28,000,000 from previous figures. This is caused chiefly by the reduction in the amount of subscriptions reported by the War Department as made by members of the military forces. The W a r Department has only recently corrected its reports to the Treasury, and shown that a number of Army subscriptions previously reported by the W a r Department did not, as a matter of fact, result in official subscriptions. The annual report of the Secretaiy of the Treasury for 1919 showed the allotted subscriptions of Victory notes as of September 30, 1919. The exhibit referrred to gives the allotments for the Victory loan as of October 31, 1920, when they amounted to $4,497,818,750. The figures are still subject to minor adjustments. Because of the public interest in the subscriptions allotted by States in the several Liberty loans, there is attached a table, which appears as Exhibit 51, page 440. For the first and second loans, the Federal reserve bank of Richmond did not maintain records by States. Allotments for the States in that district consequently are not given for these two loans. The statement is incomplete for the sixth Federal reserve district for the third loan. SECRETARY OF THE TREASURY. 135 Pursuant to the provisions of Treasury Department Circular No. I l l , dated April 6,1918, offering the third Liberty loan for subscription, the Secretary of the Treasury has declared forfeited all delinquent third Liberty loan subscriptions filed with an official agency, together with all payments made thereon and all right and interest in the bonds allotted. This forfeiture was declared by Treasury Department Circular No. 183, dated February 20, 1920, attached as Exhibit 52, page 441. Accordingly, all forfeited installment payments are covered into the,Treasury to the credit of miscellaneous receipts. Under the provisions of Treasury Department Circular No. 121, dated September 28, 1918, offering the fourth Liberty loan for subscription, similar action has been taken as to all delinquent subscriptions to the fourth Liberty loan by Treasury Department Circular No. 200, dated J u l y 30, 1920, given as Exhibit 53, page 443. Delinquent subscriptions to the first and second Liberty loans were previously declared in default as reported in 1919.' ' Additional regulations were issued during the year in Department Circulars Nos. 142 and 182, dated November 15, 1919,.and February 14, 1920, respectively, with respect to assignments of United States registered bonds and notes and are appended as Exhibits 54 and 55, pages 445 and 446. The regulations relative to transportation charges and risks on bonds and notes presented for exchange or transfer were amplified by Supplement to Department Circular No, 141, dated April 30, 1920, and those with respect to assignments in case of death by Second Supplement to Department Circular No. 141, dated October 12,1920, attached as Exhibits 56 and 57, pages 447 arid 449. For convenience of the public, the department has summarized the terms and conditions and salient features of the several Liberty loans. This information is contained in Form L. and C. 400, as revised Juhe 30,1920, is printed as Exhibit 58, page 451. P E R M A N E N T COUPON LIBERTY BONDS. With one exception, the issues of coupon Liberty bonds were originally delivered during the war in temporary form with coupons attached covering only four interest payments. The exception was the issue of 3^ per cent bonds of the first Liberty loan, which were delivered in permanent form with all coupons to maturity. Notes of the Victory Liberty loan and registered bonds of all of the Liberty loans also were delivered in permanent form. The expedient of issuing temporary bonds resulted from the department's experience in the first Liberty loan. That operation clearly showed that, with the growing issues of war securitieSj the policy of delivering in the first 136 REPORT ON THE FINANCES. instance long-term bonds with all coupons attached presented insuperable mechanical difficulties and at the same time involved much waste owing to subsequent conversions and exchanges. With the approach of maturities of the last coupons of the temporary bonds it became necessary for the Treasury to take the second and final step and to provide for the exchange of these for permanent bonds with coupons to maturity. The undertaking was a great one because of the number of pieces outstanding. Plans were evolved for the exchange over a period sufficient to permit the issuing of bonds without inconvenience to the Treasury or to the holders. Regulations governing the matter are contained in Department Circular No. 164, dated December 15, 1919, and two supplements, dated March 13 and August 27, 1920 (Exhibits 59, 60, and 61, pp. 454 to 461). The form of application is given in Form L. and C. 305 (Exhibit 62, p. 462). The folloTying public statement was published under date of March 23, 1920: As already announced by the Treasury and the several Federal reserve banks, exchanges of the temporary 4^ per cent coupon bonds of the third Liberty loan for permanent bonds with all subsequent coupons attached began on Monday, March 15, 1920, and are now being carried on, chiefly through the several Federal reserve banks, as fiscal agents of the United States, with the cooperation of the banking institutions of the country. Detailed information concerning the exchanges is given in Treasury Department Circular No. 164, dated December 15, 1919. The temporary coupon bonds of the third Liberty loan had no interest coupons attached for interest accruing after March 15, 1920, arid therefore became exchangeable by their terms on and after that date for new bonds with all subsequent coupons to- maturity. Full supplies of the permanent third 4i's are available, and it is hoped that the exchanges will proceed as promptly as possible, in such a way as to meet the convenience of holders of temporary bonds and banking institutions as well as the Treasury Department. The next interest payment on the third Liberty loan does not occur, however, until September 15, 1920, and it is understood that in the meantime, up to about September 6, 1920, the temporary third 4i's will still be recognized as good deliveries in the market, so that there is no necessity for any imm^ediate rush by bondholders to exchange their temporary bonds for permanent bonds. The Treasury has made ample provision in connection with these exchanges of temporary for permanent bends whereby recognized banking institutions in the United States who make no charge for their services may effect exchanges for themselves and their customers without expense or risk on account of the transportation of the temporary bonds surj-endered or of the permanent bonds issued upon exchange. Adequate provision has also been made whereby incorporated banks and trust companies may make over-the-counter exchanges. Pull information as to these arrangements is available at the respective Federal reserve banks. In view of the liberal arrangements which have thus been made for effecting the exchanges, and in view of the fact that no charge for the exchange is imposed by the United States, the Treasury confidently appeals to the banking institutions of the country to handle exchanges of temporary for permanent bonds without expense to the holders, and thus complete their SECRETARY OF TFIE TREASURY. 137 patriotic service in connection with the war loans by carrying out this last, and mechanically the largest, operation related to our war financing without imposing charges for their own services. Holders of temporary bonds will, it is hoped, consult their own banks and avail themselves of their assistance in effecting the exchanges for permanent borids. Deliveries of permanent bonds in exchange for temporary bonds will be made within the United States by the Federal reserve banks and the Treasury De^ partment at the risk and expense of the United States, whether or not submitted through banking institutions, but the arrangements for the transportation of temporary bonds surrendered for exchange at the expense and risk of the United States are available only when presented through recognized banking institutions to the Federal reserve banks. In other words, holders of temporary bonds who surrender their bonds direct to a Federal reserve bank or" the Treasury Department for exchange will be obliged to make their own arrangements for the transportation and insurance of the temporary bonds surrendered. First Liberty loan converted 4 per cent bonds, second Liberty loan 4 per cent bonds, first Liberty loan converted 4^ per eent bonds, and second Liberty loan converted 4^ per cent bonds are all expected to be available in permanent form for delivery in exchange for temporary bonds within the next month or six weeks, and exchanges of these bonds will be handled in substantially the same manner as exchanges of the third Liberty loan bonds. Inasmuch as the temporary first 4^'s and second 4i's have coupons attached covering interest to June 15 and May 15, 1920, respectively, they need not,be exchanged for permanent bonds until those dates; in fact, before June 15 and May 15, 1920, respectively, the permanent first 4i's and second 4i's are required chiefly for delivery upon conversion and exchange of temporary first 4's and second 4's, which have no coupons attached for interest accruing after December 15 and November 15, 1919, respectively, but whose exchange has been postponed awaiting the preparation of the permanent 4i's, in order that both conversion and exchange might be effected simultaneously. As repeatedly, announced, the first 4's and second 4's are still convertible into 4^ per cent bonds, pursuant to the terms of the extended conversion privilege, and holders of temporary 4 per cent bonds are therefore urged to submit their bonds for both exchange and conversion. As already announced, in the absence of written instructions to the contrary, temporary 4 per cent bonds presented for exchange for permanent bonds will be deemed to be presented also for conversion into 41 per cent bonds. The temporary 4^ per cent bonds of the fourth Liberty loan still have one unmatured coupon attached, due October 15, 1920. Exchanges of temporary fourth Liberty loan bonds will therefore not begin until approximately October 15, 192^0, when it is expected that adequate stocks of permanent bonds will be available, so as to permit exchanges to be carried on in substantially the same manner as exchang-es of third Liberty loan bonds. Temporary first second 4i's do not become exchangeable until December 15, 1920. The first 3i's and both series of Victory notes were issued originally in permanent form. All 4 per cent and 4^ per cent registered Liberty bonds are already in permanent form and need not be exchanged for other bonds. Holders of temporary 4 per cent and 41 per cent coupon Liberty bonds are therefore strongly urged to present their temporary bonds for exchange for registered bonds instead of for coupon bonds in permanent form, and in that event will promptly receive registered bonds upon exchange. The exchanges of temporary for registered bonds may be made at any time, and need not await the completion" of the permanent coupon bonds. Substantially tlie same facilities are available 138 REPORT ON THE FINANCES. for exchanges of temporary bonds for registered bonds as for exchanges for permanent coupon bonds, and holders of the temporary bonds should have no difficulty in arranging with their own banks for exchanges into registered bonds without expense. I t was the Treasury's intention to have the permanent bonds ready for distribution on the date of the maturity of the last coupori of the temporary bonds, or as early as possible during the six months fol. lowing. This made it possible for holders to make the exchange in advance of the first interest payment date after the maturity of the last coupon on temporary bonds. The last coupon of the third Liberty • loan 4 | per cent bonds matured on March 15,1920. Exchanges began on that date at the Treasury and at the Federal reserve banks and have proceeded without interruption.' Deliveries of the first Liberty loan converted 4 | per cent and second Liberty loan converted 4^ per cent bonds in permanent form were commenced in the spring, of 1920. They were available before the interest payment dates on May 15 for the second loan and June 15 for the first loan. The 4 per cent bonds of the second Liberty loan and the first Liberty loan converted presented an unusual problem because usually conversion into 4^ per oent bonds was also involved. As the last coupons of the second Liberty loan 4 per cent bonds matured on November 15, 1919, and those of the first Liberty loan converted 4 per cent bonds on December 15, 1919, provision was made to cover the current six months' period by the delivery of special 4 per cent coupons. The final coupon attached to the temporary bonds of the fourth Liberty loan matured October 15, 1920, and it is expected that deliveries of the permanent bonds will commence toward the close of the present calendar year. Those of the first Liberty loan second converted will be ready for delivery on December 15, 1920, the date of maturity of the final coupon attached to the temporary bonds of that loan. I n these exchanges the Treasury has assumed all expenses and risks of transportation of temporary bonds surrendered when transactions are conducted through Federal reserve banks and recognized banking concerns. The return of all permanent bonds issued upon exchange for temporary bonds is at Government risk and expense, within the limits of the United States. To facilitate exchanges, the Treasury has authorized advance deliveries to incorporated banks and trust €ompanies. All such consignment stocks have been secured by the pledge of collateral security with the Federal reserve banks in accordance with Form L. and C. 304 (Exhibit 63, p. 464). The following table shows the approximate number and amount of temporary coupon bonds and the number and amount of permanent bonds delivered to October 31,1920: 139 SECRETARY 01^ THE TREASURY. bonds delivered Temporary coupon bonds. Permanent , to Oct. 31, 1920. Number ol pieces. 1 Amount.^ Number of pieces. Amount. S420,264,500 1,126,478 §268,707,850' 4,610,049 10,125,967 2,025,111,500 2,651,118,150 15,862,494 4,944,937,SOQ First 4's \ First 4^'s/ First second 4^'s Second 4's \ Second 4i'sj Tliird 4i's Fourth 4.>'s..... 8,622,833 13,246,111 20,901,538 2,442,800 2,730,338,350 2,933,426,850 5,308,266,900 Totai 45,038,640 11,394,739,400 2,258,301 9,857 1 Approximate. Eliminating the bonds of the fourth loan and of the first second converted, deliveries of which have not yet commenced, the table indicates that while something over 81 per cent par amount of the temporary bonds have been exchanged for permanent bonds, only about 66 per cent of the number of pieces have been so exchanged. The Treasury has made every effort to reach holders of temporary bonds. I n addition to public announcements from the department and the Federal reserve banks, placards were prepared advising holders of these securities as to the necessity of exchanging them. These were transmitted to post offices, other public buildings, and banks and trust companies for public display. A copy of the placard and the Treasury's letter to the banks and trust companies dated August 18,1917, are attached as Exhibit 64, page 466. Original deliveries of coupon bonds of the several Liberty loans in temporary form aggregated 81,530,097 pieces, with a value of $17,119,906,500, deliveries against subscriptions and against conversions being included. Because of conversions, denominational exchanges, and exchanges of coupon for registered bonds, the number of pieces in temporarjr form was reduced to about 45,000,000 pieces. Consequently, it will not be necessary to incur the expense of preparing and delivering approximately 36,500,000 pieces in permanent forni. • GOVERNMENT SAVINGS S E C U R I T I E S . The Savings Division has general supervision of a small savings organization in each of the 12 Federal reserve districts. Its work and its field service have, during the past year, been along the lines outlined in the Annual Eeport of the Secretary of the Treasury for 1919, on pages 62 and 63. I n general, the efforts of the Savings Division have been directed to the following ends: (1) To develop and protect the secondary market for all war issues of Government securities. (2) To sell Government savings securities. (3) To make permanent the habits of regular saving and investment in United States Government securities. I n the accomplishment of these pur 140 REPORT ON THE FINANCES. poses, the division has developed its activities along the following lines: (1) Schools.—The division is cooperating with leading educators of the country to the end that instruction in sound economic principles shall become an inherent part of the American school systemI t has received fine support from the schools in promoting thrift,, saving, and investment in small Government securities. The principles of saving are being taught and thrift stamps and war-savingsstamps are being sold in a large majority of the schools of the country. Several of the State departments of education have included chapters on saving and investment in their State courses of study. Many new editions of school textbooks now contain material on Government securities and the practice of sound investment. At their annual meeting in iSalt Lake City in Julj^-, 1920, the National Education Association appointed a committee of seven State superintendents to confer with the division with the view o'f shifting the responsibility of the educational phases of this movement to the school authorities, and thus relieving the Savings Division of much of the detail work it has heretofore had to assume. I t is lioped that by the end of the current fiscal year the active direction of the school savings work will have been transferred in large measure to the school authorities. (2) Industries.—Government savings associations have been organized in various industries throughout, the country. I n many plants the per capita investment of the employees in savings stamps has shown a steady increase. The partial paynient plan, which enables employees to buy Liberty bonds and Victory notes at the current market prices, is also being widely used. Numerous labor organizations have passed resolutions presenting to their membership the advantages of Government securities. The resolutions adopted by the American Federation of Labor, for exairiple, were as follows: RESOLUTIONS ADOPTED BY T H E A M E R I C A N FEDERATION OF LABOR. Whereas wage earners have become familiar with the merits of securities issuecJ by the United States Government, in denominations small enough for saving^ which are known as savings stamps and Treasury savings certificates; and Whereas w^age earners should adopt some form of easy saving for their individual benefit as well as the good of the entire country, through a practical method that is guaranteed to take care of the future and estabhsh regular and systematic investment of small amounts; and Whereas wage earners have the opportunity to affihate themselves with the Government savings associations that are now being formed under the auspices of the Treasury Department: Therefore, be it Resolved, That the American Federation of Labor in convention assembled, at Montreal, Canada, June, 1920, reiterate its former indorsement and approval of the plan of the Savings Division of the United States Treasury Department ^ now being operated in each of the Federal reserve districts; and be it further SECRETARY OF THE TREASURY. 141 Resolved, That aU the international unions and Federal unions be urged to advocate thrift stamps. Government savings stamps, and Treasury savings certificates as the best and safest method for saving and investment that their membership can adopt, as against the schemes of private coi^porations which are now attempting to take advantage of the Government's savings program and the saving habit formed during the war by introducing thrift systems in industry through which they will make profit from the savings of the workers; and be it further Resolved, That this convention in view of the current lowHiiarket prices of Liberty bonds and Victory notes advises all international and Federal unions -as well as State federations of labor and central bodies to urge their respective memberships to purchase Government securities at current market prices either for cash or on the installment plan and to hold their bonds until maturity; and be it further Resolved, That the members of the various unions be requested to urge their •employers and local banks to provide partial-payment facilities for the purchase of Government securities at market prices; and be it further Resolved, TYi^t copies of this resolution be sent to President Woodrow Wilson; Secretary of the Treasury, Hon. David F. Houston; the other members of the •Cabinet; United States Senators and Congressmen; governors of the different States and Territories; and the directors of the Federal reserve districts,, with the request that steps be taken to extend and advertise the opportunities which the Government has provided for the practice of thrift and saving on a small, •easy payment plan for all the people, and especially the wage earners. (3) ^¥omen'^s organisations.—Women's organizations have cooperated to the same end and have urged the application of the budget idea to personal and household management. Outlines provided by the division have been made the basis of economic study by women's d u b s and are being incorporated in regular club programs. (4) Publicity,—Information has been furnished to newspapers and periodicals. Articles have been continuously supplied and printed in labor papers, trade and technical journals, house organs, fraternal publications, the religious press, farm journals, educational papers, and in those reaching Government employees, bankers, and railroad men. Special appeals have been made to foreign-born residents. They were issued in more than a dozen languages and reprinted in foreign-language newspapers. Advertising copy, with ac<3ompanying cuts, has been suggested to commercial, banking, and brokerage firms to bring before the investing public the opportunities' offered by Government securities. Through publicity a strenuous campaign has been carried on against promoters of wildcat stocks and other securities of doubtful or speculative character. I n addition to other publicity, the division has issued monthly a posterette carrying the calendar of the current month, with appropriate slogans relative to the wisdom of saving and safe investment. This is furnished to factories and industrial plants for posting in conspicuous places and occasionally to 35,000 schoolrooms. The normal circula- 142 REPORT ON THE FINANCES. tion of these posters is 125,000 copies, and they are frequently repro-^ duced in newspapers, house organs, and various trade journals. A clip sheet carrying a cartoon and news items dealing with savings,, the dangers of investment in wildcat securities, and the advantages, of investment in Liberty bonds at present market prices is also issued monthly to a selected list of about 3,000 publications. Electrotypes of cartoons showing the dangers of extravagance and the advisability of investment in Government securities are sent to advertisers and publishers on request. Savings secuHties for 1920. The same types of war-savings securities were issued for 1920 aswere issued in 1919, as follows: Thrift stamxps, 25 cents, noninterest bearing. War-savings stamps, $5 maturity value. War-savings certificates, with spaces for 20 war-savings stamps. Treasur}^ savings certificates, with maturity value of $100 and $1,000. ^ A full announcement concerning the 1920 Avar-savings securitieswas made in the Secretary's public statement of December 22, 1919,. Avliich is as follows: The Treasury is distributing to-day circulars announcing the issue of the 1920 war-savings securities, which will be on sale by the first of the year at" post offices and other agencies, consisting principally of incorporated banks and trust companies. In view, especially, of the gratifying increase in recent months in the sale of the 1919 securities following the postwar reaction, it isanticipated that during the coming year, the 1920 securities will be purchased in large volume and that the Government's movement for tlirift, saving, and investment in Government securities will continue to show good results. Fromthe beginning of the movement in December, 1917, up to December 15, 1919, the Treasury has received from the sale of the war-savings securities a cash' total of .$1,128,480,731. The 1920 securities consist of the 25-cent thrift stam.p, which bears no interest and is used to evidence payments on account of war-savings stampsand certificates, the $5 war-savings stamp, and the registered Treasury savings certificates in denominations of $100 and a $1,000 maturity value. The issue price of the war-savings stamp is $4.12 in January and increases 1 cent a month to $4.23 in December. The issue price of the $100 certificate is $82.40^ in January and increases at the rate of 20 cents a month to $84.60 in December. The $1,000 certificate will be sold for $824 in January, and the price increasesat the rate of $2 a month to $846 in December. The 1920 securities will be substantially the same in terms and conditions asthose of the 1919 issue, but some alterations have been made in the forms. The 1920 war-savings stamp, for example, will be carmine in color, will bear thehead of George Washington, and the size will approximate the larger stamp < used in 1918. A change has also been made in the terms of the 1920 Treasury savings certificates as compared with the 1919 issue, in that the 1920 certificates are redeemable at the Treasury, beginning with the second calendar month.. SECRETARY OF THE TREASURY. 143 after the month of purchase, without the 10 days' demand required by the terms of the 1919 Treasury savings certificates. Post offices are not required, however, to make payment of war-savings certificates until 10 days after receiving written demand for payment. As in 1919, war-savings certificates of the 1920 series bearing their full complement of 20 war-savings stamps, may be exchanged for registered Treasury savings certificates, series of 1920, of the $100 denomination, and owners of war-savings certificates who clesire the protection of registration are urged to exchange their war-savings certificates for a Treasury savings certificate rather than to seek registration of the war-savings certificates at a post office. In addition to its other advantages, the Treasury savings certificate gives the benefit of central registration at the Treasury and the provision for payment by the Treasury itself. The latter provision will be of advantage and facilitate payment in case of change of residence, since a registered war-savings certificate can be redeemed only at the post office at which it was registered. Two other circulars are being distributed which offer, beginning January 2, 1920, a 1918 issue of Treasury savings certificates in the $100 denomination, and continue after December 31, 1919, the issue of 1919 Treasury savings certificates in the denominations of $100 and $1,000, in both cases not for cash sale but only in exchange for 1918 and 1919 war-savings certificates, respectively. It is anticipated that many holders of the 1918 and 1919 V7ar-savings certificates will find it advantageous to change their holdings into these Treasury savings certificates, whose terms and conditions are substantially the same as those of the 1920 issue, except for their earlier maturity dates. In addition to the advantages mentioned above in the case of exchange of 1920 war-savings certificates for Treasury savings certificates, these circulars offer other inducements in the opportunity for consolidating holdings and also for changing ownership in the manner provided in the circulars. Holders of one or more war-savings certificates of the 1918 or 1919 issue which bear war-savings stamps having a total maturity value of $100 or some multiple of $100—i. e., $200, $300, $400, etc.—may exchange the certificates for the same maturity value of Treasury savings certificates of the corresponding issue. When two or more war-savings certificates are offered for exchange, each one need not bear its full complement of 20 war-savings stamps, provided the total value of the stamps aggregates $100 or some multiple of it. In the matter of ownership the regulations provide in eff'ect that the Treasury savings certificates taken in exchange may be made out in favor of new and different owners, if the owners of the war-savings certificates so request. The" exchanges may be made at first and second class post offices or other post offices specially designated by the'Postmaster General, at Federal reserve banks, and at the Division of Loans, and Currency of the Treasury, but not at banks and trust companies generally. No change was made in 1920 a n the thrift stamps used in 1919; They are undated and noninterest-bearing securities. The 1920 war savings stamps and certificates are identical in terms with those of the 1919 issue, except for the fact that they mature on January 1, 1925, instead of January 1, 1924. The form, however, was changed. The 1920 stamps are larger in size than the 1919 issue, red in color, and bear the portrait head of Washington. I n view of difficulties in the Bureau of Engraving and Printing it became necessary to issue the $100 denomination of Treasury savings certifi- 144 . REPORT ON T H E FINANCES. cates, series of 1920, printed in orange instead of carmine, as stated in the annual report for the year 1919. The terms of the 1920 issue appear in Department Circular No. 170, dated December 10, 1919, attached hereto as Exhibit 65, page 468. Further regulations governing the issue and sale of war-savings certificates and Treasury savings certificates during 1920 are contained in Department Circulars Nos. 169, 171, and 172, all dated December 10, 1919; No. 178, dated January 15, 1920, as to holdings in excess of the lawful limit; No. 181, dated February 10,1920, as to sales stations; and supplement to circular No. 172 of December 10, 1919, dated April 10,1920, which are attached as Exhibits (56 to 71, pages 476 to 507. Those governing the surrender of 1919 war-savings securities were prescribed in Treasury Department Circular No. 173, dated December 10, 1919 (Exhibil 72, p. 507) ; those relating to redemptions of war-savings certificates contributed to religious, philanthropic, or charitable organizations in Department Circular No. 166, dated November 15, 1920 (Exhibit 73, p. 511) ; and those further defining rights of holders of warsavings certificates and Treasury savings certificates in supplement to Department Circular No. 108 and in supplement to Department Circular No. 149, respectively, both dated August 20, 1920 (Exhibits 74 and 75, pp. 513 and 514). Cash receipts from the sale of stamps and Treasury savings certificates, using the figures in the daily Treasury statement for the last day of each month from the first month of their issue to October 31, 1920, have been as follows: 1917, December 1918, J a n u a r y February .March AprU May JuneJuly AugustSeptember October November December ..__• 1919, J a n u a r y February March April May .June July August September October _. ...- ^ . - —^ 1 - ^ - $10, 236, 4.5L 32 24, 559, 722.15 41,148, 244. 22 53, 967, 864. 49 60, 972, 984.12 57, 956, 640.12 58, 2.50, 485. 00 211, 417, 942. 61 129, 044, 200. 62 97, 614, 581. 4S 89, 084, 097. 31 73, 689, 846. 00 63, 970, 813. 47 70, 996, 041.14 15, 816, 539. 27 10,143, 081. 68 9, 572, 728. 48 6, 558,198. 33 5, 269, 535. 51 5,176, 865. 12 6, 201,164. 07 6, 111, 944. 78 7, SIQ, 467. 60 SECRETARY OF THE TREASURY. 1919, November December 1920, January February .___ March Aprn May 1 June July 1 ' August September October 145 j : ; ^ - — —— ._ Total $8, 020,436. 67 9,124, 292.13 8, 987, 462. 59 5, 221, 213. 48 6, 063, 359. 22 4, 815, 4.37. 69 8, 552, 962.19 3,107, 909. 72 2, 359, 274. 53 2, 231, 509. 77 1, 814, 705. 89 1,889, 750. 48 1,172, 264, 753. 25 REDEMPTIONS. Total from beginning of campaign to September 30, 1920 Series as follows: 1918 1919 1920 $372, 287, 319. 61 340; 333, 563. 88 27, 602, 456. 94 4, 351, 298. 79 A copy of the circular letter of March 13, 1920, sent by the Secre-; tary of the Treasury to the banking institutions of the country to ask their cooperation in the work of the savings movement and the sale of savings securities, is as follows: WASHINGTON, March 13, 1920. DEAR SIR : The prosperity, progress, and welfare of the American people are so vitally dependent on thrift, economy, and saving that I deem it highly important and appropriate to address an emphatic appeal to you indorsing and supporting a recent statement by my predecessor urging the' cooperation of the banks and trust companies of the country in the Treasury's program for saving and investment in Government securities. An effective and patriotic service can be rendered by the banking institutions, with many compensating advan^ tages to themselves, by becoming agents and wholeheartedly promoting the distribution of thrift and savings stamps and Treasury savings certificates. The Treasury savings movement is on a firm and permanent basis. The sale of savings securities during the last half of the year 1919 showed encouraging progress, and redemptions were on a lower level. In view of the exigencies of the present economic situation it is obvious that the movement is fundamental, and in order that the fullest measure of success may be obtained the movement must be assisted directly and actively by the banks and trust companies through the agency service. The war has left us with many financial and economic problenas, and the Treasury savings program can help materially in their solution. Aside frorn the fact that the proceeds from the sales of the securities will assist in serving the cash requirements of the Treasury, the movement is of the very essence of fundamental economics, affording a tangible means of combating high prices and extravagance and the ills that follow in their train. Economy must be the watchword of the Government and the people in public and private finance, and we can not expect the return of a normal healthy condition unless the people produce more, save more, and spend less. That is the doctrine of the savings 13799—FI 1920 10 146 REPORT ON THE FINANCES. movement. It can be vitalized and reduced to reality only if all agencies of the country which are capable of reaching the millions of investors, or those who should be investors, however small, will lend their cooperation. The unique position which the banking institutions occupy between the Treasury on the one hand and the people on the other gives them a strategic advantage of great importance. Even considerations of self-interest should impel the banking institutions to assume their acknowledged and rightful leadership with sufficient vigor and force to arouse the American people and to turn them from the perils of heedless extravagance to the habits of saving and thrift made imperative by this reconstruction period. With this statement of the situation, it is confidently expected that every banking institution in the country will qualify at once to handle Government savings securities. In responding nobly and loyally now as they did during the war they will serve their country, their community, and themselves. Agency provisions and application blanks may be obtained from the Government savings organization of the Federal reserve bank in each district. Cordially yours, D. F. HOUSTON, Secretary of the Treasury. To the PRESIDENT OF THE BANK OR TRUST COMPANY ADDRESSED. Although sales of savings securities have decreased since the war because of the lack of the war appeal and the discontinuance of the spectacular campaigns, the reaction from the habit of saving, and the natural tendency to turn funds from war-savings securities to Liberty bonds and Victory notes at the present attractive prices, the demand for war-savings securities still continues strong in many parts of the country. While sales have declined, redemptions have also materially decreased, and the evidence is constantly accumulating that the people appreciate the value of these securities as investments. As the security markets become more settled, there is every reason to expect that the savings securities, bearing interest at 4 per cent compounded quarterly, exempt from State and local taxes and from the normal Federal income tax, and redeemable substantially on demand, will prove increasingly attractive. The Treasury is committed to the continuance of its savings program, and feels that with the approach of the first large maturity of war-savings certificates—that of the series of 1918—on January 1, 1923, it is of real importance that the movement become established on an enduring peace-time basis and that its continuity be assured. There is no good reason Avhy, as time goes on, this undertaking should not play an increasingly important part in the current financing of the Government. Savings securities for 1921. The same types of savings securities will be issued for 1921 as were issued in 1920, with the following additions: Treasury savings stamp, $1, noninterest bearing. Treasury savings card for affixing Treasury savings stamps. Treasury savings certificates with a maturity value of $25. SECRETARY OF THE TREASURY. 147 The new Treasury savings stamp will be bright red in color, imprinted on green tint, and will bear the portrait head of Hamilton. The certificate of the maturity value of $25 will be similar in design to those having a maturity value of $100 and $1,000; each denomination will be of a different color, imprinted on green tint. Both the stamps and certificates will be identical in terms with those of the 1920 issue, except for the fact that they will mature on January 1^ 1926, instead of January 1, 1925. The 1921 war-savings stamp will be larger in size than the 1920 issue, orange in color, imprinted on green tint, and will bear the portrait head of Lincoln. No change will be made in 1921 in the thrift stamps. The terms of the issues for 1921 will appear in detail in formal Treasury Depattment circulars, to be issued at a later date. T H E WAR F I N A N C E CORPORATION. The activities of the W a r Finance Corporation, created to meet conditions of the war or growing out of the war, are drawing to a close. By reason of the developments of the past year, the corporation is approaching the period of actual liquidation. I t is already in process of liquidation. I t long ago ceased making loans under its original authority for purposes "necessary or contributory to the prosecution of the war." Such loans stopped after the signing of the armistice except to make advances to carry out previous commit^ ments and to assist the railroads by reason of the failure of the appropriation for the Eailroad Administration upon the adjournment of the Congress in March, 1919. The cessation of these activities marked the close of the corporation's direct war functions, leaving only the collection of the princiiDal and interest on these loans. To meet conditions growing out of the war in relation to foreign trade, and in order to promote commerce with foreign nations, the corporation was authorized by the Congress, in the Victory loan act, approved March 3,1919, to make loans to finance exports. This provision of law empowered the corporation to make advances, fully and adequately secured, to American exporters of domestic products or to banks 'financing such exports. The maximum maturity of such loans was five years and the aggregate advances made by the cor:poration for these purposes could not exceed the sum of $1,000,000,000 outstanding at any one time. The corporation was not called upon to exercise this power until December, 1919. Previous to that date inquiries and applications, though man}^ in number, came from concerns which could not offer adequate security, or proposed terms not contemplated by the law. In the late autumn of 1919, applications reached the corporation in 148 REPORT ON T H E FINANCES. increasing numbers in a form which could be considered as coming within the meaning of the statute. From December 26, 1919, when the first loan to promote exports was made, to November 15, 1920, the corporation had made total loans in this connection of $46,347,654.27, of which $2,855,146.63 had been repaid, leaving outstanding on that date $43,492,507,64. The following is a summary of the amounts advanced up to November 15, 1920, to assist in the, exportation of domestic products, classified b}^ commodities and countries of destination: Commodities. Agricultural implements Condensed milk Cotton Electrical equipment and supplies Grain, flour and foodstuffs.. Locomotives . . Countries. Amount. Great Britain, France, and Belgium England and ^France.'. " Czeclio-Slovalcia .Great Britain. South Africa, Australia, France, Belgium, and Italy. Belgium Poland $4,000,000.00 5,000,000.00 9,322,117.27 10,796,537.00 Total 12,229,000.00 5,000,000.00 46,347,654.27 Suspension of active operations. The War Finance Corporation was a war agency. Its general powers expire six months after the termination of the war. The special powers conferred upon it under the Victory loan act, authorizing assistance in financing of exports, expire one year after the termination of the war. These special powers were granted after the armistice, when business had suffered a recession in consequence of the cancellation of war orders and when there was a fear that exports might decline and unemployment exist. The corporation continued to exercise its special powers in a relatively small way until there was a certainty that there would be no sudden upsetting of the business situation of the country by diminishing exports. On May 10, 1920, at my request, the corporation suspended the making of further advances in aid of exports except in pursuance of commitments theretofore made. There has been no change in the general situation since that date that would justify the resumption of activities on the part of the corporation. This power was granted to serve a certain purpose and to be exercised during the period of readjustment immediately following the armistice. The purpose has been fulfilled. While a technical state of war exists, a year and eight months have elapsed since this special and temporary authority was granted by the Congress. I t was assumed at that time that peace would have been established long ago and the power terminated. There is no more warrant to resume operations of the War Finance Corporation than there would have been to continue its activities at the time they were suspended. The requests for resumption are discussed in the beginning of this report. SECRETARY OF THE TREASURY. 149 The following is a copy of the Secretary's public statement, dated May 10, 1920, announcing the suspension of the corporation's activities: At my request the War Finance Corporation has suspended the making of further advances in aid of exports, except pursuant to commitments heretofore made. The general powers of the corporation expire six months after the termination of the war, and the special powers conferred upon it under the Victory loan act expire one year after the termination of the war. The continuance of a technical state of war long after the time contemplated when this legislation was enacted and when the conditions which gave rise to it have ceased to exist has presented a problem of no small concern. The act creating the corporation was passed during the war. In general terms, it was Intended that the corporation should assist business and agencies in activities, for the successful prosecution of the war. After the armistice, when business had suffered a recession in consequence of the cancellation of war orders, and when there was a fear that exports might decline and unemployment exist, an amendment to the act was passed authorizing the corporation to assist in the financing of exports. Now, more than a year later, and after direct Govern^ ment loans to European Governments have for all practical purposes been discontinued, business is prosperous and involuntary unemployment is negligible. The export business not only has not declined but has actually increased. Ih the calendar year 1918 total exports amounted to $6,149,000,000. They rose iri the calendar year 1919 to $7,922,000,000, and for the first quarter of this year they greatly exceeded those of the first quarter of last year. Obviously, private interests are not failing to finance exports. In the circumstances it does not seem necessary now that the Government should continue to intervene to -stimulate exports, particularly as it is compelled to resort from time to time to temporary borrowing in part to meet its present obligations. i In existing circumstances, it seems clear that the Government should enter the borrowing field as seldom as possible and then for the lowest possible sumS; It would be a question whether the Government should continue to aid and stimulate exports, considering their present volume privately financed, even if the Treasury had surplus funds. It seems clear to me that it should not continue to do so when the Treasury has to resort to borrowing from time to time, The entire capital stock of the 'War Finance Corporation, $500,000,000, has been issued and is held by the Treasury. This and its reserve fund of about $25,000,000. are invested to the extent of about $422,000,000 in United States bonds, notes, and certificates of indebtedness, and to the extent of about $103,000,000 in other loans and investments. Consequently, if the corporation continues to make loans in aid of exports, it can do so only by calling upon the Treasury of the United States to redeem securities of the United States in which the capital furnished by the United States is invested, or by selling bonds of the War Finance Corporation to the public. These bonds, although not guaranteed by the United States Government, would nevertheless be marketable only on account of the ownership of the entire capital by the Government. I n compliance with this request, the directors of the corporation at a meeting held oh May 10, 1920, adopted the following resolution: Resolved, That at the request of the Secretary of the Treasury, and pending further action by this, board, tli,e making by the corporation of further advances for export purposes, except pursuant to existing commitments, be suspended. 150 REPORT ON THE FINANCES. The power of the corporation to suspend further loans and other operations, except as incident to liquidation, wag sustained in the following opinion from the Attorney General, dated May 10,1920: WASTii^GTOi^, May 10,1920. MY DEAR MR. SECRETARY : I beg to acknowledge receipt of your letter of May 6, 1920, in which you request the expression of my opinion upon the following questions of law: 1. Is the board of directors of the War Finance Corporation vested under existing law with discretion to suspend further loans and^ other operations except as incidental to liquidation? 2. May the funds of the W^ar Finance Corporation not needed for the payment of its debts, for commitments already made, or for its operating expenses, be used under existing law to retire a substantial portion of its outstanding .capital stock? B. May the Secretary of the Treasury assent to such retirenient? The War Finance Corporation was created by the act of April 5, 1918 (40 ;Stat., 506). By that act the management of the corporation is vested in a board 'Of directors consisting of the Secretary of the Treasury and four other persons (sec. 3), who are "created a body corporate and politic in deed and in law," which shall have succession for a period of 10 years (sec. 1). The corporation is vested with the powers usually incidental to corporate existence, and the i board of directors is given the customary powers of appointing and fixing the compensation of officers and employees necessary for the transaction of its business, defining their duties, requiring bonds of them, dismissing them at .pleasure, and prescribing by-laws regulating the manner in which the business of the corporation shall be conducted (sec. 6). By sections 7 to 9 the corporation is authorized and empowered, subject to •certain restrictions, (1) to make advances to any bank, banker, or trust com13any which shall have made after April 6, 1917, and shall have outstanding any loan to any person conducting a going business in the United Staters whose operations shall be necessary or contributory to the prosecution of the war or w-hich shall have rendered financial assistance to any such persons by the pur-' -chase after April 6, 1917, of his bonds or other obligations; (2) in exceptional cases to make advances directly to such person, but only for the purpose of conducting such business in the United States and only when, in the opinion of i t s board of directors, such person is unable to obtain funds upon reasonable terms through banking channels or through the general public; (3) to make .advances to any savings bank, banking institution, or trust company which receives savings deposits or to any building or loan association whenever the corporation shaU deem such ^advances to be necessary or contributory to the prosecution of the war or important in the public interest. Loans of this •character can not be made after the expiration of six months after the termination of the war. By section 21, added by the amendment of March 3, 1919 (40 Stat., 1309, 1313), the corporation is authorized and empowered, subject to certain restrictions,' to make advances, in order to promote commerce with foreign ^nations through the extension of credits (1) to any person engaged in the United States in the business of exporting therefrom domestic products to foreign countries if such person is, in the opinion of the directors, unable to obtain funds upon reasonable terms through banking channels; (2) to any t)ank, banker, or trust company in the United .States which, after the taking <elfect of this section, makes an advance to any such person for the purpose of .assisting in the exportation of such products. Loans of this character can not he made after the expiration of one year after the termination of the war. SECRETARY OF THE TREASURY. 151 It is Obvious that, within the time limitations imposed by these provisions, the determination of the question whether the conditions justifying the exercise of these powers still exist, and, furthermore, whether, assuming their existence, these powers should continae to be exercised is a matter which is left to tlie decision of the board of directors. I have no doubt, therefore, that they have the power l o determine at any time to suspend further loans and operations. Your first question must therefore be answered in the affirmative. But I am also of the opinion that the War Finance Corporation has no power to use funds on hand, even though they are not needed for the payment of debts of the corporation, for commitments already made or for its operating expenses, to retire a part of its outstanding capital stock. It is true that corporations have, in the absence of constitutional or statutory prohibition, inherent power to buy, to sell, or to retire their oAvn stock (Johnson County v. Thayer, 94 U. S., 631, 643; Allen i;. Francisco Sugar Co., 193 Fed., 825; Sanford v. First National Bank of Marysville, Kans., 238 Fed,, 298; First Trust Co. V. 111. Central R. R. Co., 256 Fed., 830, and many other cases). But I believe that the act creating the War Finance Corporation contains certain provisions which are inconsistent with the existence of any such power in it. Section 15 provides that "all the net earnings of the corporation not required for its operations.sTiaZJ be accumulated as a reserve fund until such time as the corporation liquidates * * *. Such reserve fund shall, upon the direction of the board of directors, with the approval of the Secretary of the Treasury, be invested in bonds' and obligations of the United States issued or converted after September 24, 1917, or, upon like direction and approval, may be deposited in member banks of the Federal Reserve System or in any of the Federal reserve banks, or be used from time to time, as well as any other funds of the corporation, in the purchase or redemption of any bonds issued by the corporation." It seems to me clear that under this section the War Finance Corporation can use its net earnings for the purposes enumerated and no other, and it does not seem to me reasonable to suppose that Congress intended that the corporation should have power to use its capital for a purpose for which it could not use its reserve fund or surplus. But there is a further and even stronger objection to the retirement of the stock in the way suggested. It is self-evident that a corporation can not buy its own stock for the purpose of retiring it without the consent of the stockholders from whom it is bought. In this case the United States is the owner of all the stock of the corporation, and it has not consented to sell its stock nor authorized the Secretary of the Treasury to do so in its behalf. It is true that by the act of April 5, 1918, he is given certain broad powers of supervision over the conduct of the business of the corporation. Thus the board of directors can not make calls on the United States to pay its stock subscriptions (sec. 2), nor pass by-laws (sec. 6), nor buy, sell, or deal in bonds or other obligations of the United States (sec. 11), nor fix the rate of interest which its own bonds shall bear or the terms on which they shall be sold (sec. 12), nor the manner io which the reserve fund shall be invested without the approval of the Secretary of the Treasury (sec. 15). But no inference can be drawn from the bestowal of these powers on him that he is authorized to consent to the sale to the corporation of the, stock owned by the United States. Y\uir second and third questions must, therefore, be ansAvered in the negative. Respectfully, .\. MITCHELL PALMER. Att01 "ney Geneiat. I'he SECRKTXVRY OF THE TREASURY, Washington. D.C. 152 REPORT ON THE FINANCES. The corporation immediately advised all applicants having no definite commitments that there had been a change in policy and that their • applications could not be given further consideration. Some applicants voluntarily waived part of advances to which the corporation had been committed, while proposed loans to others to whom commitments had been made contingent upon the fulfillment of certain conditions as to time, etc., were canceled because the applicants did not meet the conditions. This resulted in a reduction of the tptal amount of commitments from $69,201,920 to $48,149,574.27. Of the latter sum $46,347,654.27 had been advanced up to November 15, 1920. The remainder is awaiting the perfection of documents and must be advanced, if at all, not later than March 1, 1921. Of the total advances there has been repaid to November 15, 1920, the sum of.$2,855,146.63; $13,644,045.64 will be due prior to July 1,1921; $10,051,925 will be due between July 1,1921, and September 15,1922; $9,000,000 will be due in the calendar year 1923,- and $10,796,537 will be due during the calendar year 1925; total, $46,347,65°4.27. U p to April 16, 1920, when, as stated elsewhere in this report, the Secretary announced that the purchases on account of the bond-purchase fund would cease after June 30, 1920, the W a r Finance Corporation was the chief agency from which the Treasury purchased Liberty bonds and Victory notes for the bond-purchase fund. The corporation terminated its relation with the Treasury in this connection at the close of the fiscal year, when $65,849,650 par value of Liberty bonds and Victory notes were sold by the corporation to the Treasury at average cost for the purposes of the bond-purchase fund. With the cessation of the corporation's active operations in aid of financing exports, it had no further use for the greater part of its funds. I t needed funds only for the payment of its debts, commitments, and operating expenses. The Treasury felt that it would be desirable, in these circumstances, for the corporation to consider the retirement of a substantial part of its capital stock, all of which is owned by the United States, if that were permissible under the law. The opinion of the Attorney General of May 10, 1920, quoted above, however, held that under existing law the stock could not be retired in this manner. Most of the funds of the corporation, however, were invested in Government securities. I t seemed unnecessary for the Treasury to continue to pay interest on such securities to a Government corporation which was now largety inactive as far as the em-. ployment of its funds was concerned. As it was not possible to retire the stock, the Treasury requested the corporation to present its Government securities for payment and cancellation and to accept in return a cash credit on the books of the Treasurer. To this the corporation assented, and on June 30, 1920, sold to the Secretary of the SECRETARY OF THE TREASURY. 153 Treasuiy at par and accrued interest $301,204,000 of certificates of indebtedness and the Liberty bonds and Victory notes above described at average cost with interest. For these securities the corporation received a credit on the books of the Treasurer of $363,100,619;88 ori account of principal and $2,333,944.06 on account of accrued interest; or a total of $365,434,563.94. I n accordance with the mandatory provisions of the urgent de-^ ficiency act approved May 8, 1920, the corporation purchased from the United States Eailroad Administration at par and accrued interest $43,270,100 i^rincipal aniount of Liberty bonds and Victory notes, of which $35,835,350 has since been purchased by tlie Treasury from receipts on account of repayments of loans by foreign Governments. Of the proceeds of such sale, amounting to $36,344,136.81, including principal and accrued interest, the corporation invested on account of its reserve fund $32,854,450 in a special Treasury certificate of indebtedness. For the remainder, the Treasury gave the corporation a credit on the books of the Treasurer. On November 15, 1920, the corporation owned the following Government securities: Second 4^ per cent Liberty loan bonds, par value ^^$95,100. 0() Third 4i per cent Liberty loan bond®, par value 1, 964, 350. 00 Victory 3 | per cent Liberty loan notes, par value 1,100. 00 Victory 4 | per cent Liberty loan notes, par value : 5, 374, 200. 00 United States certificates of indebtedness, 6 per cent due Sept. 22, 1921 ..__ 32, 854, 450. 00 Total 40; 289, 200. 00 The $200,000,000 of one-year 5 per cent bonds of the corporation dated April 1, 1919, matured April 1, 1920. All of these bonds have been paid except $126,000, which were outstanding on November 15. 1920, awaiting 'presentation for redemption. Every effort is bein,g made to liquidate the outstanding loans of the corporation as rapidly as possible. The subjoined statement shows the condition of the corporation as of November 15,1920: Statement of condition of the War Finance Corporation at the close of business Nov. 15, 1920. ASSETS. Current assets: Due from the Treasurer of the United States' Loans: Public utilities Railroads— Industrial corporations Cattle loans Export loans $372, 718, 417. 76 Balance ontstanding. $21,132,995.52 52,828,210.00 973, 594. 58 803, 757. 95 43,492,507.64 119,231.065.69 154 REPORT ON T H E FINANCES. Bond investments: 4 i per cent Second Liberty loan bonds'___ 4 i per cent T h i r d Liberty loan bonds ' 3f per cent Victory Liberty loan notes * . 4 | p e r cent Victory Liberty loan notes ' $95,100. 00 1, 964, 350. OQ 1,100. 00 5, 374, 200. 00 $7^ 434, 750. 00 Reserve fund i n v e s t m e n t s : United States certificate of indebtedness Other assets:. Accrued interest receivable on loans Accrued interest receivable on loans {past due) Accrued interest receivable on reservefund investment Accrued interest receivable on Liberty loan bonds and Victory notes Public-utihty bonds ( p a r value $292,000) Fixed assets: Furniture and equipment Less allowance for depreciation— To Dec. 31, 1919 „ _ — _ $736.94 Jan. 1 to Nov. 15, 1920 775. 36 32, 854, 450. 00 1, 623, 621. 74 2, 383, 410. 72 297, 040. 23 122, 819.12 4, 426, 891. 81 58,-400.00 8, 861.^32 . 1, 512. 30 7, 349. 02 Total assets 536, 731, 324. 28 LIABILITIES. Capital and s u r p l u s : Capital stock (authorized and o u t s t a n d i n g ) . $500,000,000.00 Net earnings (surplus 1918-19) $20,376,643.07 Current year's earnings to Nov. 15. 1920— 16, 214, 272. 88 36, 590, 915. 95 Current liabilities: 1-year 5 per cent gold bonds, series A (matured) ' 126,000.00 Coupons on 1-year 5 per cent gold bonds. outstanding 6, 450. 00 Accrued rent and sundry expenses unpaid , (estimated) l— 7, 958. 33 140, 408. 33 Total --— 536, 731, 324. 28 NOTES.—The item of " Current assets " amounting to .$372,718,417.76, representing current cash due from T r e a s u r e r United States, includes the proceeds of the sale of Government obligations to the Secretary of the Treasury. All of the earnings of the corporation constitute a reserve fund (in accordance with section 15 of the W a r Finance Corporation a c t ) , therefore no reserves are set up against contingencies. 1 Purchased at par from the United States Railroad Administration by direction of act of Congress. SECRETARY OF THE TREASURY. ' 155 During the year numerous changes occurred in the organization of the corporation. The chairman was changed by the resignation of Secretary Glass and the appointment of the present incumbent. Eugene Meyer, jr., resigned as managing director on May 31, 1920. and was succeeded in the position of managing director by Director Angus W. McLean. On February 2, 1920, George E. Cooksey was appointed a director to fill out the unexpired term of Director Leonard, resigned. Upon the expiration of his term, on May 17, 1920, Mr. Cooksey was reappointed. W. P . G. Harding resigned as a director on March 8,1920, and was succeeded on that date by Franklin W. M. Cutcheon. Mr. Cutcheon retired as a director on May 17. 1920, when his term expired. I n view of the fact that the making of further loans was suspended, it has not been necessary to fill the two vacancies on the board of directors, the present three directors conrstituting a quorum. There has been considerable reduction of the staff of the corporation, which has never exceeded 45 persons. Exclusive of the directors, the present personnel is 18, which number will be reduced to 14 on or before December 31. Since April 1, 1920. the staff's monthly salary roll has been reduced from $8,575.61 to $4,538.61, which amount by the end of the calendar year will be further reduced to approximately $3,700. There is attached as Exhibit 76, page 515, a- statement showing in detail all of the outstanding loans of the War Finance Corporation. RAILROADS. Under the transportation act, 1920, approved February 28, 1920, as amended, the Secretary of the Treasury is required to make payments to carriers as defined in the act upon receiving proper certificates from the Interstate Commerce Commission {a) under section 204, for the reimbursement of deficits during Federal control: (b) under section 209, to make good the guaranty therein provided: and (c) under section 210, for loans from the revolving fund of $300,000,000 therein provided. Copies of said sections of the act, as amended, are attached as Exhibit 34, page 355. Section 20J^. I n response to a requesj: of the Treasury for an estimate, the Inter:state Commerce Commission has stated that in its opinion the total amount of payments to be made under section 204 will not exceeci :$10,000,000. The following certificates have been received from the commission in connection with section 204 of the act, and the amounts, less those certified, to be due from the respective carriers 156 REPORT ON T H E FINANCES. to the President (as operator of the transportation systems under Federal control) have been paid up to November 15, 1920: Date of certificate. 1920. Apr. 6 30 May 20 June 3 10 12 17 17 25 28 28 July 1 2 7 9 16 23 26 Sept. 18 Gross amount certified. Carrier. Midland Ry Randolph & Cumberland R. R. Co — Liberty White R. R. Co Nevada, California & Oregon Ry. Co. Jefferson & Northwestern Ry. Co New Mexico Central Ry. Co Electric Short Line Ry. Co Georgia, Florida & Alabama Ry. Co... Shearwood Ry. Co : Gainesville & Northwestern R. R. Co. Wisconsin & Michigan R. R. Co Randolph & Cumberland R. R. Co Montana Western Ry. Co : Bartlett Western Ry Midland Ry Ocilla Southern R. R. Co Lorain & Southern R. R. Co Franklin & Pittsylvania R. R. C o . . . . . Little Cottonwood Transportation Co. Total Amount paid. §40,000.00 5,000.00 2,500.00 29,189. 21 60,000.00 60,699.52 36,708.25 000.00 . 25, 9,540.33 7,100.34 33,364.56 18,214.06 23,501.20 17,546.73 58,769. 67 26,279.10 5,187.38 21,751.06 39,073. 32 §40,000.005,000.00 2,500.0020,000.00' 52,949.05 50,000.00 36,000.0025,000.008,282.31 6,500.00' 27,670.13 7,500.0023,501. 20' • 14,428.8* 22,917.21 8,822.82: 5,187.384,488.87 32,150. 62 519,424.73 392,898.43; .- There were received from the Interstate Commerce Commission^ in connection with section 204, further certificates similar iri tenor (except that relating to Little Cottonwood Transportation Co.), but by reason of • the qualification contained in such certificates t h e Comptroller of the Treasury, whose decisions relating to expenditures under appropriations are binding on 'the Secretary of t h e Treasury, decided that the Secretary was not authorized to draw warrants in payment thereof. The comptroller's decision is as follows: W A S H I N G T O N , Oetober 22, 1920. T h e H o n o r a b l e T h e SECRETARY o r T H E TREASURY. SIR : I have your letter of October 11 requesting decision whether you a r e authorized under t h e pi'ovisions of p a r a g r a p h (g) of section 204 of t h e t r a n s portation a c t of F e b r u a r y 28, 1920 (41 S t a t , 461), to make payment on & certificate t r a n s m i t t e d to you by t h e Secretary of t h e I n t e r s t a t e Commerce Commission in t h e following f o r m : INTERSTATE COMMERCE COMMISSION, Washington. (Certificate No. B-27.) CERTIFICATE OF REIMBURSEMENT OF DEFICIT UNDER FEDERAL CONTROL, SECTION 204 ( g ) , T R A N S P O R T A T I O N ACT, 192 0. . To t h e SECRETARY OF T H E TREASURY OF T H E UNITED STATES : P u r s u a n t to section 204 of t h e T r a n s p o r t a t i o n Act, 1920, t h e I n t e r s t a t e Commerce Commission lias ascertained from a n n u a l a n d special reports made to it ' by t h e Knoxville, Sevierville & E a s t e r n Railway Co., a carrier as defined in section 204, t h a t t h e Knoxville, Sevierville & E a s t e r n Railway Co., during t h e period; of F e d e r a l control, taken a s a whole, sustained a railway operating SiECRETARY OF THE TREASURY. 157 <ieficit, and hereby certifies that under the provisions of paragraphs (f) and (g) of said section 204 there is payable to the said Knoxville, Sevierville & Eastern Railway Co. the sum of twenty-nine thousand seven hundred and fiftymne dollars and eighty-four cents ($29,759.84). The commission also hereby certifies that the amount due from the said Knoxville, Sevierville & Eastern Railway Co. to the President (as operator pf the transportation systems under Federal control) on account of traffic balances and other indebtedness is nine thousand five hundred and forty dollars and •eighty-seven cents ($9,540.87). • This certification is made subject to the proviso that the commission may certify to the Secretary of the Treasury of the United States such other additional amounts as it .may determine to be payable to the said Knoxville, Sevierville & Eastern Railway Co. in accordance with the provisions of section 204 of said act. Dated this 8th day of October, 1920.' By the commission, Division 4. ® GEORGE B . MCGINTY, Secretary. Paragraph (c) of section 204 of the Transportation Act, 1920, provides: "(c) As soon as practicable after March 1, 1920, the commission shall ascertain for every carrier, for every month of the period of Federal control during which its railroad or system of transportation was not under Federal operation, its deficit in railway operating income, if any, and its railway operating in'Come, if any (hereinafter called 'Federal control r e t u r n ' ) , and the average of its deficit in railway operating income, if any, and of its railway operating income, if any,- for the three corresponding months of the test period taken together (hereinafter called 'test-period return') * * *." Paragraphs (d) and (e) of said section direct the commission to state an account of the monthly credits due to the carrier or the United States, as the case may be, based upon a comparison of the Federal control return with the test-period return as ascertained under the provisions of paragraph (c). Paragraph (f) provides that if the sum of the amounts credited to the carrier exceeds the sum of the amounts credited to the United States the difference shall be payable to the carrier. ^ From the provisions of these paragraphs it \yill be seen that while credit is to be given to the carrier or the United States on the basis of the return for each month of the Federal control period, taken separately, the amount payable to the carrier, if any, embraces the whole period and is based on the difference between the sum of the monthly credits to the carrier and the sum of the monthly, credits to the United States. It would seem clear, therefore, that ho amount is payable to the carrier under the provisions of this section until the difference between the sum of the credits to the carrier and the sum of the credits to the United States has been ascertained by the commission. With reference to the case of the carrier who operated its railroad or system of transportation for less than a year during, or for none of, the test period, paragraph (f) provides that there shall be payable to such carrier its deficit in railway operating income for that portion (as a whole) of the period of Federal control during which it operated its own railroad or system of transportation. Manifestly nothing is payable under this provision until the amount of the deficit for the whole period has been determined by the commission. Paragraph (g) of said section 204 provides: " ( g ) The commission shall promptly certify to the Secretary of the Treasury the several amounts payable to carriers under paragraph (f). The Secretary of the Treasurv is hereby authorized and directed thereupon to draw warrants in 158 REPORT ON TFIE FINANCES. favor of each such carrier upon the Treasury of the United States for the amount shown in such certificate as payable thereto. Ah amount sufficient to pay such warrants is hereby appropriated out of any money in the Treasury not otherwise appropriated." The act of May 8, 1920, 41 Stat., 590, provides: " The Interstate Commerce Commission in certifying to the Secretary of the Treasury the amount payable to any carrier under paragraphs (f) and (g) of section 204 of the transportation act, 1920, also shall certify to the Secretary of the Treasury such sums, if any, as may be due from such carrier to the President (as operator of transportation systems under Federal control) on account of traffic balances or other indebtedness. The amount so certified to be due the President, upon his request, shall bc deducted by the Secretary of the Treasury from the amount so certified to be due such carrier and thereupon .shall be transferred from the appropriation made in paragraph (g) of the said section 20^ and credited by him to the appropriation made in section 202 of the transportation act, 1920. Such deductions shall be consider^ as a payment pro tanto of such indebtedness to the Government.*' Paragraph 1 of the certificate now under consideration is not in the language of the law and probably was written with the intention that it should not be taken as an ascertainment by the commission of the aniount due. It might be construed as a sufficient authority for payment by you if it stood alone and was not qualified by the provisions of paragraph 3. But you are not authorized, however, under the lav/ to accept a qualified certificate. At^hen the commission certifies to you under authority of paragraph (g) of section 204 that an amount set forth in the certificate is payable to a carrier under paragraph (f) you are justified in assuming that the amount so certified has been ascertained in accordance with the provisions of paragraphs (c), (d), (e), and (f), but such certificate must be unqualified and without reference to any future certification of additional amounts, for paragraph (g) does not authorize such procedure. The specific question submitted by you is answered in the negative, and in no case are you authorized to make payment under the provisions of paragraph (g) of section 204 of the act in the absence of an unqualified certificate from the commission that the amount of the proposed payment is payable under paragraph (f). The certificate and accompanying 'papers are returned herewith. Respectfully, ^ W. W. WARWICK, Comptroller. Section 209. I n response to a request of the Treasury for an estimate, the Interstate Commerce Commission has stated that in its opinion, based upon the sworn monthly reports of Class I carriers, the total amount necessary to make good the guaranty provided by section 209 will aggregate approximately $600,000,000. Under the provisions of paragraphs (h) and (i) of this section, by which the commission is authorized to certify advances to be made to the carriers on account of the sum estimated to be necessary to make good the guaranty if the carriers should apply for such advances during the guaranty period of six months from March 1, 1920, the Treasury has received SECRETARY OF THE TREASURY. 159 from the commission up to NoA^ember 15, 1920, certificates for advances-as follows: Date of certificate. Carrier. Mar. 26,1920 Do Apr. 1,1920 Apr. 8,1920 Do.., Apr. 12,1920 Apr. 13,1920 ADP. 17,1920 Apr. 20,1920 Do , Apr. 26,1920 Do , Apr. 27,1920 Apr. 28,1920 May 4,1920 Do Do , Do May 10,1920 Do , Do.. Do Do Do Buffalo, Rochester & Pittsburgh Ry. Co Atlanta & St. Andrews Bay Ry. Co Denver & Salt Lake R. R. Co., W. R. Freeman ahd C. Boettcher, receivers. Kansas City, Mexico & Orient Ry. Co. of Texas Kansas City, Mexico & Orient R. R. Co., W. T. Kemper, receiver International & Great Northern Ry. Co., James A. Baker, receiver Gulf, Florida & Alabama Ry. Co., John T. Steele, receiver Electric Short Line Ry. Co Missouri & North Arkansas R. R. Co., C. A. Phelan, receiver Wicliita Northwestern Ry. Co Lehigh Valley Railroad Co Pittsburgh & West Virginia Ry. Co Wabash Ry. Co Delaware & Hudson Co Central New England Ry. Co • Minneapolis & St. Louis R. R. Co '.. New York. New Haven & Hartford R. R. Co Seaboard Air Line Ry. Co Aransas Harbor Terminal Ry Atlanta, Bilmingham & Atlantic Ry. Co Bullfrog Goldfield R. R Co Delaware & Northern R. R. Co. 1 1 Detroit,, Bay City & Western R. R. Co Georgia & Florida Ry., W. R. Sullivan, L. M. Williams, and J. F. Lewis, receivers.; Memphis, Dallas & Gulf R. R. Co -. Midland Ry , Central Vermont Ry. Co RutlJmd R. R. Co Chicago,' Milwaukee & St. Paul Ry. Co °. Lehigh Valley R. R. Co Fort Dodge, Des Moines & Southern R. R. Co. Nevada Copper Belt R. R. Co Ann Arbor R. R. Co Gulf, Texas & Western Ry. Co Moble& OhioR. R. Co Cumberland & Manchester R. R. Co New York, New Haven & Hartford R. R. Co Fort Dodge, Des Moines & Southern R. R. Co Central New England Ry. Co Georgia, Florida & Alabama Ry. Co Minneapolis & St. Louis R, R. Co " Wichita Northwestern Ry. Co Trinity & Brazos Valley Ry. Co., John A. Hulen, receiver Denver & Salt Lake R. R. Co., W. R. Freeman and C. Boettcher, receivers . Gulf, Florida & Alabama Ry. Co., John T. Steele, receiver Atlanta, Birmingham & Atlantic Ry. Co Chicago, Milwaukee & Gary Ry. Co Memphis, Dallas & Gulf R. R. Co Pemisylvania R. R. Co Delaware & Hudson Co Kansas City, Mexico & Orient Ry. Co. of Texas Kansas City, Mexico & Orient R. R. Co., W. T. Kemper, receiver Brooklyn Eastern District Terminal Chicago Junction Ry, Co Delaware. Lackawanna & Western R. R. Co Detroit, Bay City & Western R. R. Co Chicago, Peoria & St. Louis R. R. Co., B. Wilson and W. Cotter, receivers. Electric Short Line Ry. Co Waterloo, Cedar Falls & Northern Ry. Co •. Winston-Salem Southbound Ry. Co Chicago. Milwaukee & St. Paul Ry. Co Maine Central R. R. Co Randolph & Cumberland Ry. Co AtlEintic & Western R. R. Co. Great Northern Ry. Co Rutland R. R. Co • Shearwood Ry. Co Chicago & Erie R. R. Co Erie R . R . Co ....p Delaware & Hudson Co Gulf, Mobile & Northern R. R. Co Seaboard Air Line Ry. Co Gulf, Florida & Alabama Ry. Co., John T. Steele, receiver Lehigh Valley R. R. Co Marion & Rye VaUey Ry. Co Nevada Copper Belt R. R. Co Rapid City, Black Hills & Western R. R. Co May 11,1920 • May 14,1920 May 20,1920 Do May 21,1920 Do , May 22,1920 May 24,1920 May 26,1920 Do Do Do May 28,1920 May 29,1920 June 4,1920 Do Do , Do June 5,1920 June 8,1920 Do....... June 10,1920 Do.! Do Do June 12,1920 Do Do June 17,1920 Do , Do , Do June 19,1920 June 21,1920 Do , Do June^4,1920 Do Do June 26,1920 Do Do Do....... June 28,1920 Do June 29,1920 Do Do July 1,1920 Do Do Do Do $766,000' 30,000 215,000' 89,000 120,000365,00b 75,000 25,000v 200.000 ISAOOO 500,000 100,000 1,000,000^ 750,000' 457,000' 250,000' 923,0001,200,000 12,000' 150,000 2,500' 3,500' 25,000' 145,000' 50,000 20,000' 100,000' 125,000 2,265,000' 1,500,000 75,000' 10,000' 100,000' 45,000 550, ood' 8,000 2,504,000 62,500t 416,000 50,000' 300,000 5,000 205,000 160,000' 25,000 200,000' 28,534 25,000 8,000,000 630,000 154,000 126,000' 100,000 250,000 1,142,000 25,000 76,000 20,000 85,000 30,000 4,340,000 1,000,000 7,500 7,000 3,000,000 125,000 1,500 485,000 3,615,000 815,000 100,000 750,000 75,000 1,500,000 5,250 10,000 12,000 160 D a t e of certificate. REPORT ON T H E FINANCES. Carrier. W a b a s h R y . Co W i c h i t a N o r t h w e s t e r n R y . Co Gainesville M i d l a n d R y C e n t r a l R . R . Co. of N e w Jersey M i n n e a p o l i s & S t . L o u i s R . R . Co '... Ocilla S o u t h e r n R . R . ' C o . , J. A . J. H e n d e r s o n , M. W . G a r b u t t , a n d J. F . Grey, receivers V i r g i n i a S o u t h e r n R . R . Co Do July 8,1920 Carrollton & W o r t h v i l l e R . R . Co J u l y 9,1920 Chicago, M i l w a u k e e & St. P a u l R y . Co Bullfrog Goldfield R . R . Co Do : J u l y 10,1920 Gulf, T e x a s & W e s t e r n R y . Co J u l y 13,1920 C e n t r a l V e r m o n t R y . Co Chicago J u n c t i o n R y . Co 'Do Shearwood R y . Co Do J u l y 15,1920 D e l a w a r e , L a c k a w a n n a & W e s t e r n R . R . Co .do. Do F o u r c h e R i v e r Valley & I n d i a n T e r r i t o r y R y . Co Do Minneapolis, St. P a u l & Sault Ste. Marie R y . Co Do M t . J e w e t t , K i n z u a & Rit,erville R . R . Co Do J u l y 17,1920 D e t r o i t , B a y City & W e s t e r n R . R . C o . . - D e t r o i t T e r m i n a l R . R . Co Do Macon, D u b l i n & S a v a n n a h R . R . Co Do Norfolk & W e s t e r n R y . Co : Do , J u l y 19,1920 .Brooklyn E a s t e r n D i s t r i c t T e r m i n a l J u l y 20,1920 .Franklin & P i t t s y l v a n i a R . R . Co Norfolk S o u t h e r n R . R . Co -• Do J u l y 21,1920 P e n n s y l v a n i a R . R . Co J u l y 22,1920 E r i e R . R . Co F e r n w o o d , C o l u m b i a & Gulf R . R . Co Do-Monson R . R . Co Do J u l y 23,1920 Buffalo, Rochester & P i t t s b u r g h R y . Co Chicago, Milwaukee & S t . P a u l R y . Co Do Seaboard A i r L i n e R y . Co Do J u l y 24,1920 Chicago Great W e s t e r n R . R . Co Do Delaware & N o r t h e r n R . R . Co: J u l y 26,1920 Chesapeake W e s t e r n R y J u l y 27,1920 B o y n e City, Gaylord & A l p e n a R . R . Co ^ J u l y 28,1920 Georgia & F l o r i d a R y . , W . R . S u l l i v a n , L . M . W i l l i a m s , a n d J . F . L e w i s , receivers J u l y 29,1920 Gulf, Mobile & N o r t h e r n R . R . Co Do Gulf, T e x a s & W e s t e r n R y . Co J u l y 30,1920 Jefferson & N o r t h w e s t e r n R y . Co M e m p h i s , Dallas & Gulf R . R . Co : Do Missouri Pacific R . R . Co Do ;..:..-... J u l y 31,1920 B i r m i n g h a m & N o r t h w e s t e r n R y . Co Chicago, Milwaukee & G a r y R y . Co Do Aug. 3,1920 Chesapeake W e s t e r n R y Wilkes-Barre & E a s t e r n , R - R . Co Do A u g . 4 1920 Carrollton & W o r t h v i l l e R . R . Co K a n s a s City, Mexico & Orient R y . Co. of T e x a s Do.. N e w Y o r k , S u s q u e h a n n a & W e s t e r n R . R . Co .• Do Norfolk & W e s t e r n R y . Co •. - Do , Aug. 6,1920 N e w Y o r k , N e w H a v e n & Hartford R . R . Co Aug. 7,1920 Gulf, Mobile & N o r t h e r n R . R . Co D o . . . . . . . .Mobile & Ohio R . R . Co Muscatine, BurlingtOQ & S o u t h e r n R . .R. Co Do N e v a d a Copper .Belt R . R . Co ' Do P a r i s & M o u n t P l e a s a n t R . R . C o . , R . W . W o r t h a m , receiver Do R a n d o l p h & C u m b e r l a n d R y . Co Do W i c h i t a Falls & N o r t h w e s t e r n R y . Co., C. E . Schaff, receiver : Do A u g . 10,1920 A d i r o n d a c k & St. L a w r e n c e R . R . Co Chicago, Milwaukee & St. P a u l Ry*. Co ! Do Chicago R i v e r & I n d i a n a R . R . Co Do D o . : . . . . . Gulf, F l o r i d a & A l a b a m a R y . Co., J o h n T . Steele, receiver Missouri & N o r t h A r k a n s a s R . R . Co., C. A . P h e l a n , receiver. Do A u g . 12,1920 .Birmingham & N o r t h w e s t e r n R y . Co Central New England R y . C o . . 1 Do Maine Central R . R . Co : Do N a s h r i l l e , Chattanooga & S t . Louis R y ,. Do Norfolk S o u t h e r n R . R . Co Do P e m i s y l v a n i a R . R . Co Do Peoria & P e k i n U n i o n R y . Co Do. Aug. 13,1920 N e w Orleans, T e x a s & Mexico R y . Co W i c h i t a F a l l s &. N o r t h w e s t e r n R y . Co., C. E . Schaff, receiver Do Aug. 14,1920 A t l a n t a , B i r m i n g h a m & A t l a n t i c R y . Co Central R . R . Co. of N e w Jersey Do Chicago J u n c t i o n R y . Co Do C i n c i n n a t i , I n d i a n a p o l i s & W e s t e r n R . R , Co Do F e r n w o o d , C o l u m b i a & Gulf R . R . Co Do. H u n t i n g d o n & B r o a d T o p M o u n t a i n R . R . & Coal Co Do Missouri, K a n s a s & T e x a s R y . Co., C h a s . E . Schaff, receiver Do : • D o . . . . . . . Mt. J e w e t t , K i n z u a & Riterville R . R . Co N o r t h e r n Pacific'Ry. Co Do T e r m i n a l R. R . Association of S t . L o u i s Do J u l y 1,1920 Do . -Do July 6,1920 Do Do Amount. $2,000,000 5,000 4,300 1,330,000, 150,000 8,000 4,500 2,500 493,000 » 5,000 20,000 150,000 250,000 1,000 1,172,500 110,000 12,000 1,000,000 4,500 15,000 100,000 50,000 1,000,000 100,000 5,000 310,000 6,600;000 1,150,000 15,000 3,000 300,000 728,245 1,000,000 1,200,000 15,000 5,000 30,000 150,000 100,000 30,000 15,000 15,000 , 1,383,000 20,000 28,163 5,000 40,000 4,000 110,000 300,000 1,000,000 771,200 141,000 400,000 36,000 5,000 50,000 2,500 138,000 4,929 4,935,457 75,000 25,000 100,000 (8^000 128,000 750,000 300,000 240,000 30,000,000 225,000 500,000 74,800 • 100,000 1,816,411 500,000 50,000 10,000 82,715 700,000 1,500 5,000,000. 1.000,000 161 SECRETAEY OF THE TKEASUKY. Date of certificate. Carrier. Aug. 18,1920 Do Do Do Aug. 19,1920 Do Do Do Do Aug. 20,1920 Do Do. Do Do Do Do Aug. 21,1920 Do Do Aug. 23,1920 Ann Arbor R. R. Co Boston & Maine R . R Chicago Great Western R. R. Co Wichita Northwestern Ry. Co Baltimore & OhioR. R. Co Chicago, Indianapolis & Louisville Ry. Co Fourche River Valley & Indian Territory Ry. Co Gainesville & Northwestern R. R. Co Minneapolis & St. Louis R. R. Co Illinois Central R. R. Co Midland Ry Norfolk & Western Ry. Co Pittsburgh, Cincinnati, Chicago & St. Louis R. R. Co St. Louis-San Francisco Ry. Co Nashville, Chattanooga & St. Louis Ry Seaboard Air Line Ry. Co Gulf, Mobile & Northern R. R. Co Meridian & Memphis Ry. Co : Chicago. St. Paul, Minneapolis & Omaha Ry. Co Philadelphia & Reading Ry. Co Wichita FaUs & Northwestern Ry. Co., C, E. Schaff, receiver. Central of Georgia Ry. Co 1 Central Vermont Ry. Co .do. HawkiusviUe & Florida Southern Ry. ^o., R. B. Pegram, receiver , lUinois Central R. R. Co , International & Great Northern Ry. Co., Jas. A. Baker, receiver Kansas City, Mexico & Orient R. R. Co., W. T. Kemper, receiver Kansas Cit)'-, Mexico & Orient Ry. Co. of Texas , Kansas City Southern Ry. Co , Missouri, Kansas & Texas Ry. Co. of Texas, C. E. Schaff, receiver Missouri Pacific R. R. Co St. Jcseph & Grand Island Ry. Co Charleston & Western Carolina Ry. Co , Wabash Ry. Co Minneapolis, St. Paul & Sault Ste Marie Ry. Co Atlantic & Western R. R. Co ; , Bangor & Aroostook R. R. Co Chicago, Milwaukee & St. PaulRy. Co Pennsylvania R. R. Co New York, Now Haven & Hartford R. R. Co American Railway Express Co Atlantic Coast Line R. R. Co , Baltimore, Chesapeake & Atlantic Ry. Co Chesapeake & Ohio Ry. Co. Delaware, Lackawanna & Western R. R. Co New York, Philadelphia & Norfolk R. R. Co Pittsburgh & West Virginia Ry. Co Chicago & Erie R. R. Co Maryland, Delaware & Virginia Ry. Co New York, Susquehanna & Western R. R. Co Western Maryland, Ry. Co Atlanta^ Birmingham & Atlantic Ry. Co Atlanta & St. Andrews Bay Ry. Co. Birmingham & Northwestern Ry. Co CarroUton & WorthviUe R. R. Co Central New England Ry. Co Chicago & Alton R. R. Co Chicago & Eastera lUinois R. R. Co., Wm. J. Jackson, receiver Chicago, Milwaukee & Gary Ry. Co : Chicago, Peoria & St. .Louis R . R . Co., B. Wilson and W. Cotter, receivers. -. Cincinnati, Indianapolis & Western R. R. Co : Denver & Salt Lake R. R. Co^ W. R. Freeman and C. Boettcher, receivers.. Detroit, Bay City & Western R. R. Co Duluth, South Shore & Atlantic Ry. Co Erie R. R. Co Fernwood, Columbia & Gulf R. R. Co : Georgia & Florida Ry., W. R. Sullivan, L. M. Williams, ahd J. F . Lewis, receivers Georgia, Florida & Alabama Ry. Co do. Great Northern Ry. Co Gulf, Mobile & Northern R. R. Co Gulf & Ship Island R. R. Co Kansas, Oklahoma & Gulf Ry. Co Louisville & Nashville R. R. Co Lehigh Valley R. R. Co Maxton, Alma & South Bound R. R. Co Nevada Copper Belt R. R. Co New York, New Haven & Hartford R. R. Co Norfolk & Portsmouth Belt Line R. R. Co Norfolk Southern R. R. Co Seaboard Air Line Ry. Co Trinity & Brazos Valley Ry. Co., Jno. A. Hulen, receiver. 0- D o . . Aug. 24,1920 Aug. 25,1920 Do Do Do Do Do Do Do Do Do Do . Do Do Aug. 26,1920 Aug. 27,1920 Do...:... Do Do Do Aug. 28,1920 Do Do....... Do Do Do Do Aug. 30,1920 Do Do Do Aug. 31,1920 Do Do Do Do Do Do Do Do Do Do Do Do Do Do Do Do. Do. Do. Do. Do. Do. DoDo. Do. Do. Do. Do. Do.. Do.. Do.. 13799—FI 1920 11 Amount. $140,000 4,000,000 500,000 5,000 6,500,000 350,000 4,500 4.500 850,000 3,000,000 10,000 4,000,000 6,100,000 3,000,000 900,000 3,500,000 112,000 20,000 900,000 2,500,000 75,000 1,750,000 50,000' 475,000 65,000 5,000,000 1,000,000 50,000 117,000 , 600,000 2,870,000 7,100,000 220,000 220,000 1,577,000 2,135,000 8,000 284,000 1,536,000 8,400,000 4,000,000 19,700,000 2,500,000 159,300 1,640,000 2,000,000 256,000 75,000 450,000 85,000 250,000 500,000 100,000 15,000 5,000 3,000 531,670 700,000 1,500,000 35,000 162,000 100,000 50,000 25,000 281,500 5,500,000 10,000 100,000 20,000 20,000 2,000,000 75,000 245,000 100,000 2,000,000 2,000,000 3,000 5,000 2,366,000 30,000 75,000 75,000 75,000' 162 REPORT ON THE FINANCES. D a t e of certificate. Carrier. A u g . 31,1920 W h e e l i n g & L a k e E r i e R y . Co Do W i l k e s - B a r r e & E a s t e r n R . R . Co Oct. 9,1920 Chesapeake & Ohio R y . Co '. Do Norfolk S o u t h e r n R . R . Co Oct. 11,1920 Central of G eorgia R y . Co Do S p o k a n e , P o r t l a n d & Seattle R y . Co Do Mineral R a n g e R . R . Co Do W e s t e r n M a r y l a n d R y . Co Oct. 12,1920 F r a n k l i n & P i t t s y l v a n i a R . R . Co Do R a n d o l p h & C u m b e r l a n d R y . Co Do D e l a w a r e , L a c k a w a n n a & W e s t e r n R . R . Co Do M u s c a t i n e , B u r l i n g t o n & S o u t h e r n R . R . Co Do Gainesville & N o r t h w e s t e r n R . R . Co Do H o u s t o n & Brazos Valley R . R . C o ^ Geo. C. Morris, receiver Oct. 13,1920 Chicago, I n d i a n a p o U s & Louisville R y . Co Do Carrollton & W o r t h v i l l p R . R . Co Oct. 15,1920 Central R . R . Co. of N e w .lersey : Oct. 19,1920 A t l a n t a , B i r m i n g h a m & A t l a n t i c R y . Co. - D o . - . . - . - B a l t i m o r e & Ohio R . R . Co Do Peoria & P e k i n U n i o n R y . Co Oct. 21,1920 K a n s a s City, Mexico & Orient R . R . Co., W . T . K e m p e r , r e c e i v e r . . . Oct. 23,1920 U n i o n Stock Y a r d s Co. of O m a h a ( L t d . ) Oct. 25,1920 Maine Central R . R . Co Do.. Minneapolis & St. L o u i s R . R . C o . . . , Do Mt. J e w e t t , K i n z u a & R i t e r v i l l e R . R . Co Do Central V e r m o n t R y . Co • Do I n t e r n a t i o n a l & Great N o r t h e r n R y . Co., J a m e s A . B a k e r , r e c e i v e r . Oct. 27,1920 W a b a s l ] R y . Co N o v . 1,1920 Gainesville M i d l a n d R y N o v . 4,1920 Jefferson & N o r t h w e s t e r n R y . Co Do P h i l a d e l p h i a & R e a d i n g R y . Co Do L e h i g h VaUey R . R . Co Do San A n t o n i o , U v a l d e & Gulf R . R . Co., A . R . P o n d e r , receiver Do Great N o r t h e r n R y . Co. Do Brooklyn Eastern'District Terminal • N o v . 9,1920 C i n c h m a t i , I n d i a n a p o l i s & W e s t e r n R . R . Co Do K a n s a s , O k l a h o m a & Gulf R y . Co .' N o v . 13,1920 E r i e R . R . Co ^ Do Chicago & E r i e R . R . Co Total.. Amount. $500,000 100,000 1,060,000 75,000 700,000 200,000 70,000 500,000 6,000 5,000 700,000 10,000 3,900 37,000 150,000 1,500 2,000,000 206,000 7,500,000 20,500 150,006 65,000 550,000 200,000 3,000 200,000 450,000 500,000 7,000 15,000 2,000,000 1,500,000 25,000 1,500,000 20,000 50,00042,000 2,000,000 200,000 256,524,874 Payments under these certijScates have been made by the Treasury up to November 20, 1920, in the aggregate amount of $250,485,374. Up to that date the Treasury had not received frorri the Interstate Commerce Commission any certificate certifying the total amount necessary to make good to a carrier the guaranty provided by section 209. The commission did, however, certify a partial paj^^ment to a carrier which had not during the guaranty period applied for an advance under paragraph ( h ) . The Comptroller of the Treasury decided that the Secretary of the Treasury is not authorized, except in accordance with the provisions of paragraph ( h ) , to issue a Avarrant for a partial payment on account of the amount necessary to make good the guaranty to a carrier. The decision is as follows: WAS.HINGTON, Octobcr 7, 1920. The Honorable Tbe SECRETARY OF THE TREASURY. SIR: I have your letter of September 27 transmitting two certificates which have been submitted to you by Mr. B. H. Meyer, as chairman, Division 4, of the Interstate Commerce Commission. My decision is requested whether you are autliorized under tlie provisiohs of paragraph (g) of section 209 of the act of February 28, 1920 (41 Stat., 466), to make payment on^ the certificates as submitted. SECRETARY OF THE TREASURY. 163 .. The act in question provides, among other tilings, for the termination of federal control of railroads and systems of transportation on March 1, 1920. Section 209 of the act provides for certain guaranties to the carriers for a period of six months after terniination" of Federal control. With reference to said guaranties paragraphs (g) and (h) of the section provide: **(g) The commission shall, as soon as practicable after the expiration of the guaranty period, ascertain and certify to the Secretary of the Treasury the several amounts necessary to make good the foregoing guaranty to each carrier. The Secretary of the Treasury is hereby authorized and directed thereupon to draw warrants in favor of each such carrier upon the Treasury of the United States for the amount shown in such certificate as necessary to make good sucli guaranty. An amount sufficient to pay such warrants is hereby appropriated out of any money in the Treasury not otherwise appropriated. "(h) Upon application of any carrier to the commission, asking that during the guaranty period there may be advanced to it from time to time such sums, not in excess of the estiinated amount necessary to make good the guaranty, as are necessary to enable it to meet its fixed charges and operating expenses, the commission may certify to the Secretary of the Treasury the amount of and times at which such advances, if any, shy 11 be made. The Secretary of the Treasury, on receipt of such certificate, is authorized and directed to make the advances in the amounts and at the times specified in the certificate upon the execution by the carrier of a contract, secured in such manner as the Secretary may determine, that upon final determination of the amount of the guaranty provided for by this section such carrier will repay to the United States any amounts which it has received from such advances in excess of the guaranty, with interest at the rate of 6 per centum per annum from the time such excess was paid. There is hereby appropriated out of any money in the Treasury not otherwise appropriated a. sum sufficient to enable the Secretary of the Treasury to make the advances referred to in this subdivision." One of the certificates submitted, No. A-246, is as follows: " Interstate Commerce Commission, Washington. Certificate No. A-246. Certificate of Interstate Commerce Commission under section 209 (g), transportation act, 1920. ''To the Secretary of the Treasury of the United States: " 1. The Interstate Com'mercc Commission, hereinafter called the commission, hereby certifies that the Grand Trunk V/estern Railway Company, a corporation of the States of Michigan and Indiana, hereinafter called the carrier, is a carrier as defined in paragraph (a) of section 209 of the transportation act, 1920; that the carrier filed with the commission on or before March 15, 1920, a written statement that it accepted all of the provisions of the said section 209. " 2. The cominission has ascertained and hereby certifies to the Secretary of the Treasury that the amount of five hundred thousand dollars ($500,000) is necessary to make good to said carrier the guaranty provided by section 209 of the transportation act, 1920. " 3. This certification is made subject to the proviso that the commission may hereafter certify to the Secretary of the Treasury such additional amounts as m^ay be necessary to make good to the carrier the guaranty of said section 209 of the transportation act, 1920. " Dated this 25th day of September, 1920. " By the commission, Division 4. "(Signed) GEORGE B. MCGINTY, ^ecre^to-ri/." 164 REPORT ON THE FINANCES. The other certificate, No. A-247, is identical with this except that it relates to the Detroit, Grand Haven & Milwaukee Railroad Co. and is for $250,000. Your doubt as to the sufficiency of this certificate arises from the fact that paragraph 2 thereof does not state that $500,000 is the amount necessary to make good the guaranty. It is merely to the effect that said amount is necessary to make good the guaranty and it is qualified by paragraph 3, which reserves to the commission the right thereafter to certify " such additional amounts as may be necessary to make good to the carrier the guaranty." Considering the form in which this certificate is made and the amount stated therein it is apparent that said amount is not the amount ascertained by the commission to be necessary to make good the guaranty to this carrier, but is, in fact, only an amount estimated to be within the amount necessary to make good said guaranty. In other words, it is to be regarded as an advance or partial payment or payment on account on the carrier's claim under the guaranty. This raises the question whether the provisions of paragraph (g) authorize such advances or partial payments or payments on account. The direction in the statute is that the commission shall, as soon as practicable after the expiration of the guaranty period, ascertain and certify the several amounts necessary to make good the guaranty to each carrier, and that the Secretary of the Treasury shall draw warrants " for the amount shown in such certificate as necessary to make good such guaranty." From this language it would appear to be clear that paragraph (g) contemplates and authorizes only one payment in each case, said payment to be made after the commission shall have ascertained and certified the amount necessary to make good the guaranty. That such was the intent and purpose of this paragraph is further indicated by the fact that in the succeeding paragraph provision was made for advances during the guaranty period of such sums, not in excess of the estimated amount necessary to make good the guaranty, .as are necessary to enable the carrier to meet its fixed charges and operating expenses. Having thus provided for the fixed charges and operating expenses during the period of six months after termination of Federal control and having by release from Federal control and by authorizing increased rates enabled the carrier to make its own provision for caring for its financial obligations after the six months' guaranty period, I think it is but reasonable to assume that Congress intended that the payments authorized under paragraph (g) should be made only after a carrier had submitted its entire claim under the guaranty and the commission had ascertained the amount due thereon. The law providing' for the guaranty was enacted before the beginning of the guaranty period, and it must be assumed that all carriers affected thereby were aware of its provisions at the time it was passed. Therefore if any carrier neglected during the guaranty period to avail itself of the provisions of paragraph (h) or to have its records and evidence in proper shape for the presentation of its entire claim under paragraph (g) within a reasonable time after the termination of the guaranty period, the responsibility for delay in receiving final payment under the guaranty must rest with the carrier and not the Government. It is noted that, notwithstanding the fact that the advances authorized under paragraph (h) are in no case to be in excess of the estimated amount necessary to make good the guaranty, provision is made in said paragraph for securing the United States against the contingency of such advances being in excess of the amount of the guaranty as finally determined by the commission. Since it was deemed necessary to provide against overpayments resulting from erroneous estimates during the guaranty period, it must be assumed that similar provision would have been made in paragraph (g) if said paragraph had been SECRETARY OF THE TREASURY. 165 intended to authorize payments based on estimates. No such provision having been made, the only logical inference is that payments on estimates are not authorized under said paragraph. Reading paragraph (g) in the light of the other provisions of section 209 and considering the number of debit and credit items which may be involved in the determination of the amount payable upon final settlement under the guaranty, I am of opinion that the making of advances or partial payments undur said paragraph (g) is not within either the letter or the spirit of the law. I can find nothing in the law to justify a conclusion to the effect that said paragraph (g) authorizes any payment to a carrier before the amount due under the guaranty.has been ascertained by the commission. I think it is quite clear that the law does not give to the carrier the right to file its claim piecemeal and to have certificates for paj^ment made by the commission without limit as to number or time. If payment is authorized upon certificates made in the form hereinbefore set forth, then there is no legal requirement that any settlement made uncier the provisions of paragraph (g) be regarded as final, and there would be no end to the work of the commission in examining and reexamining the accounts of the carriers, as new items of claim might be presented for years to come. I can not believe that such was the intent or purpose of the law. I think the law contemplated the adjudication and final settlement of these claims as soon after the expiration of the guaranty period as practicable. The needs of certain carriers for funds is recognized, but this office may not construe the law to authorize the payment of public money except in such amounts and at such times as Congress has authorized by law, no matter how urgent the needs of claimants. Answering your question specifically, I have to advise that you are not authorized to issue a warrant upon a certificate in the form submitted in this case or upon any other certificate which does not show that the amount stated therein has been ascertained and' certified by the commission as the amount necessary to make good the guaranty. You ask also whether you are now authorized to make advances under paragraph (h) in cases in which application therefor was filed with the commission on August 31. In reply to this question you are advised that you are authorized to make advances under paragraph (h) on all applications filed with the commission prior to September 1, 1920, subject, of course, to all the conditions and requirements of said paragraph, one of which is that the advance must be necessary to enable the carrier to meet its fixed charges and operating expenses during the guaranty period. The carrier having applied in time is not responsible for such delay as may be necessary in action by the Interstate Commerce Commission or the Treasury Department. The certificates and accompanying papers are returned herewith. Respectfully, <• W. W. WARWICK, Comptroller. Section 210. As originally enacted, section 210 placed upon the Secretary of the Treasury the duty of prescribing the time, not exceeding five years from the making thereof, within which loans certified by the Interstate Commerce Commission should be repaid by the carriers, the security 166 REPORT ON T H E FINANCES. to be taken therefor, the terms and conditions of the loan and the form of the obligation to be entered into. By section 5 of the sundr}'^ civil appropriation act, approved June 5, 1920, section 210 was amended so as to provide that the time, not exceeding fifteen years from the making thereof, within which a loan is to be repaid, the security which is to be taken therefor and the terms and conditions of the loan shall be in accordance with the findings and certificate of the commission, which shall certif}^, among other things, that the applicant, in the opinion of the commission, is unable to provide itself from other sources with the funds necessary for the purposes mentioned. Up to November 15, 1920, the Treasury had received from the commission, in connection with section 210, certificates for loans,as follows: 1920. May 21 May 24 July July July 14 July 19 Ju y 21 Aulg. 5 Aug. 25 Aug. 27 Sept. 10 Sept. 15 Sept. 23 Sept. 30 Oct. 1 Oct. 6 Oct. 7 Oct. 8 Do.... Oct. 9 Do.... Oct. 11 Do.... Oct. 12 Do.... Do.... Oct. 19 Do.... Oct. 22 ^Do:... Oct. 27 Nov. 2 Nov. 4 Nov. 9 Do-... Boston & Maine R . R Salt Lake and Utah R. R. Co Carolina, Clinchfjeld and Ohio Ry Bangor and Aroostook R. R. Co Salt Lake and Utah .R. R. Co Atlanta, Birmingham and .^Vtlantic Ry. Co Central of Georgia R y. Co * Western Maryland Ry. Co Erie R. R. Co .' Great Northern Ry. Co Chicago and Western Indiana R. R. Co Seaboard Air Line Ry. Co Terminal Railroad Association of St. Louis The Chicago, Rock Island and Pacific Ry. Co Baltim.ore and Ohio R. R. Co Carolina, Clinchfield and Ohio Ry Chicago Great Western. R. R. Co Illinois Central R. R. Co The Virginian Ry. Co , Maine Central R. R. Co do Missouri Pacific R. R. Co '. Kansas City, Mexico and Orient R. R. Co., W. T. Kemper, receiver The Wheeling and Lake Erie Ry. Co do Long Island R. R. Co Central New England R;y. Co Chicago, Indianapolis &'.Louisville Ry. Co Erie R . R . Co... Pennsylvania R. R. Co Northern Pacific Ry. Co Delaware & Hud.son Co : Rutland R. R. Co Shearwood Ry. Co Chicago, Rock Island & Pacific .Ry. Co Total S5,000,000 64,600 2,000,000 200,000 235,400 200,000 815,000 300,000 8,000,000 17,910,000 8,000,000 6,073,400 89.6,925 2,000,000 3,000,000 1,000,000 276,000 4,440,000 2,000,000 653,000 1,000,000 8,871,760 2,500,000 1,460,000 1,000,000 719,000 300,000 200,000 1,840,700 6,780,000 6,000,000 1,125,000 61,000 29,000 7,862,000 102,812,785 Up to November 15, 1920, loans aggregating $81,621,085 have been made by the Treasury pursuant to these certificates. Under paragraph (d) of section 210, the Secretary of the Treasury is authorized to call upon the Federal Eeserve Board for advice and assistance with respect to any application or loan. The Secretary has availed himself of this privilege and has had great assistance SECRETARY OF T H E TREASURY. 16.7 from the board. The latter created a committee known as the Eailway Loan Advisory Committee to the Federal Eeserve Board. This committee has made recommendations to the board with respect to the form of obligation to be taken for each loan. At the request of the Secretary of the Treasury, it has also examined the various applications for advances under paragraph (h) of section 209, and has given the Secretary the benefit of its recommendations with respect to the security to be taken in connection with each advance. The committee and its secretary have also rendered invaluable assistance to the Secretary of the Treasury generally in the performance of the duties imposed upon him by the transportation act, 1920. D I S C O N T I N U A N C E OF T H E SUBTREASURIES. As a result of recent legislation, a Treasury organization of much historic interest will soon disappear. An act approved May 29, 1920, authorized the Secretary of the Treasury to discontinue the subtreasuries and to transfer any or all of their duties to the Treasurer of the United States, or to the mints or assay offices, or to the Federal reserve banks. The Independent Treasury was established by the act of August 6, 1846, after the short-lived subtreasury system of 1840-1841, as the outgrowth of the unsatisfactory fiscal and financial conditions then existing. The Second United States Bank had finally closed its doors in 1841, and the methods of the State banks which were being used as Government depositaries were considered unsound. The intent of the law was to effect a complete.divorce between the Government's finances and the banks. I t provided for the establishment of subtreasuries at Philadelphia, New York, New Orleans, Boston, Charleston, and St. Louis. Later the Charleston subtreasury was discontinued and additional subtreasuries were established at Baltimore, Chicago, Cincinnati, and San Francisco. These nine subtreasuries have continued in operation until the present time. The necessity for their existence, however, has steadily diminished as the relations betAveen the Government and the banks of the country have become closer, and has finally disappeared with the establishment and development of the Federal Eeserve System. Until the Civil War, the subtreasury system maintained a strict independence. Government securities were marketed independently of the banks and no banks were used as depositaries. The Government was practically its own banker and was expected to keep its own money and have no connection with banking institutions. With the establishment of the national banking system in 1863, however, and the unprecedented fiscal operations incident to the Civil W a r , this independence gradually began to disappear and national banks 168 • REPORT ON THE FINANCES. became depositaries of public mone^^s and financial agents of the Government. This change in the relations of the Government and the banks and in the position of the Independent Treasury developed in the intervening years and culminated with the passage of the Federal reserve act in 1913, under which the Federal reserve banks were established and • authorized to act as depositaries and fiscal agents of the United States. Since that time, the Federal Eeserve System has become so thoroughly established that not only are the subtreasuries no longer needed by the Treasury in connection with the fiscal operations of the Government or the collection and disbursement of the public moneys, but the Federal reserve banks are already performing many of the functions and duties previously performed only by the subtreasuries, The functions and duties performed by the subtreasuries have been, in general, as follows: The acceptance of gold coin and standard silver dollars for exchange. The acceptance of United States notes. Treasury notes, gold and silver certificates and subsidiary and minor silver coins for redemption. The issue of gold order certificates on gold deposits. The exchange of various kinds of money for other kinds of money. The cancellation and shipment to Washington of unfit currency and the laundering of unfit currency which permits of this process. The receipt from United States depositary banks of their surplus deposits of internal revenue, customs, money order, postal, and other Government funds. The receipt of deposits of postal savings funds, post-office funds, money-order funds, deposits on account of the 5 per cent fund for the redemption of national-bank notes, deposits of interest on public deposits, and deposits of fuiids by Government disbursing officers. The payment of United States coupons. The encashment of checks and warrants drawn against the Treasurer of the United States. The receipts of funds for transfer to some other point through another subtreasury there located. The keeping in custody of reserve and trust funds consisting of gold coin and bullion and standard silver dollars securing gold and silver certificates and United States notes. Believing that the work of the subtre.asuries could be performed more efficiently and economically by the Treasurer of the United States, the mints and assay offices, and the Federal reserve banks, the Secretary of the Treasury on April 18, 1919, designated a committee composed of representatives of the Treasury and the Federal SECRETARY OF THE TREASURY. 169 Eeserve Board, including C. S. Hamlin, of the Federal Eeserve Board, as chairman, the Comptroller of the Treasury, the Assistant Treasurer of the United States, the Chief of the Division of Loans and Currency, and the Chief of the Division of Public Moneys, to consider and report to the Secretary upon the question of the advisability of discontinuing any or all of the subtreasuries and the transfer of any or all of their duties and functions to the Treasurer of the United States, the Federal reserve banks, or other agencies. After'an exhaustive study of the duties performed b y t h e several subtreasuries and their relations to the Treasury Department, the banks,, and the public, and careful consideration of the extent to which the Federal reserve banks could assume the subtreasury functions, the committee submitted a report to the Secretary of the Treasury in the form of a tentative draft of a bill to provide for the discontinuance of the subtreasuries and the transfer of their duties and functions. After further investigation and deliberation, the Secretary recommended to the Congress that the nine existing subtreasuries be abolished and that provision be made to transfer their duties and functions to the Treasurer of the United States, the United States mints and assay offices, and the Federal reserve banks. I n accordance with that recommendation the following authority was incorporated in the legislative, executive, and judicial appropriation act, approved May 29, 1920: " . I N D E P E N D E N T TREASURY. Section 3595 of the Revised Statutes of the United States, as amended, providing for the appointment of an Assistant Treasurer of the United States at Boston, New York, Philadelphia, Baltimore, New Orleans, St. Louis, San Francisco, Cincinnati, and Chicago, and all laws or parts of laws so far as they authorize the establishment oc maintenance of ofiices of such Assistant Treasurers or of Subtreasuries of the United States are hereby repealed from and after July 1, 1921; and the Secretary of the Treasury is authorized and directed to discontinue from and after such date or at such earlier date or dates as he may deem advisable, such subtreasuries and the exercise of all duties and functions by such Assistant Treasurers or their offices. The office of each Assistant Treasurer specified above and the services of any officers or other employees assigned to duty at his office shall terminate upon the discontinuance of the functions of that office by the Secretary of the Treasury. The Secretary of the Treasury is hereby authorized, in his discretion, ta transfer any or all of the duties and functions performed or authorized to be performed by the Assistant Treasurers above enumerated, or their offices, to the Treasurer of the United States or the mints or assay offices of the United States, under such rules and regulations as he may prescribe, or to utilize any of the Federal. reserve banks acting as depositaries or fiscal agents of the United States, for the purpose of performing any or all of such duties and functidns, notwithstanding the limitations of section 15 of the Federal reserve act, as amended, or any other provisions of law: Provided, That if any moneys or bullion, constituting part of the trust funds or other speciaj funds heretofore 170 REPORT ON TFIE FINANCES. required by law to be kept in Treasury offices, shall be deposited with any Federal reserve bank, then such moneys or bullion shall by such bank be kept separate and distinct from the assets, funds, and securities of the Federal reserve bank and be held in the joint custody of the Federal reserve agent and the Federal reserve bank: Provided further, That nothing in this section shall be construed to deny the right of the Secretary of the Treasury to use member banks as depositaries as heretofore authorized by law. The Secretary of the Treasury is hereby authorized to assign any or all the rooms, vaults, equipment, and safes or space in the buildings used by the subtreasuries to any Federal reserve bank acting as fiscal agent of the United States. All employees in the subtreasuries in the classified civil service of the United States, who may so desire, shall be eligible for transfer to classified civil-service .positions under the control of the Treasury Department, or if their services are not required in such department they may be transferred to fill vacancies in any other executive department with the consent of such departraent. To the extent that such employees possess required qualifications, they shall be given preference over new appointments in the classified" civil service under the control of the Treasury Department in the cities in which they are now ^employed. . Acting under the authority conferred by this act, the Secretary on August 2, 1920, appointed a Treasury committee to consider the discontinuance of the subtreasuries and the transfer of their duties and functions, with particular reference to the individual problems presented by each of these institutions. On August 30, 1920, the Secretary promulgated, regulations with respect to the exchange, replacement, and redemption of United States paper currency through the Federal reserve banks, which had been prepared by a Treasury committee on currency appointed in June. Eegulations were issued on October 19, 1920, with respect to the exchange and redemption of United States coin and the performance by Federal resexve banks of other duties and functions heretofore performed by the subtreasuries. Circular letters under date of October 20® and October 21, 1920, have also provided, respectively, for the making of deposits for the 5 per cent redemption fund and for the transfers of excess balances by national-bank depositaries. I n accordance with the act, the Secretary has also taken steps to provide, so far as possible, for the employees of the subtreasuries. Every effort is being made to find employment in other Treasury offices in Washington or in the field for subtreasury employees not taken over by the Federal reserve banks. So far as possible, the custody of gold and silver coin and bullion in the trust funds and of reserve stocks of currency and coin formerly held by the subtreasuries is being transferred to the Treasurer of the United States and the mints and assay offices. Since it is necessary that the assets of each subtreasury be checked, examined, and transferred separately, the nine subtreasuries are being • discontinued in order. By Treasury Department Circular No. 209, SEGRETARY OF THE TREASURY. ,171 dated October 23,1920 (Exhibit 77, p. 521), the subtreasury at Boston was discontinued at the close of business on October 25, 1920. By Treasury Departnient Circular No. 210, dated October 27, 1920 (Exhibit 78, p. 522), the subtreasury at Chicago was discontinued at the close of business November 3, 1920. The subtreasury at New York is the next to be discontinued, probably about December 1, 1920. The remaining subtreasuries will be closed as rapidly as possible. I t is expected that all will have been discontinued by shortly after J a n u a r y 1, 1921. The closing, of the subtreasuries, with the transfer of their duties and functions, is being effected without interruption to busi^ ness and without interference with the financial operations of the Governnient. I t is believed that the change will result in substantial benefit to the banks and the general public and that a considerable saving will be effected to the Government, chiefly as the result of the greater econoniy in the use of Government balances and the reduction in operating expenses effected by abolishing the subtreasury establishments. I n this connection it is of particular interest to note the following description of the system of Government depositaries as it stands with the subtreasuries eliminated. DEPOSITS OF GOVERNMENT F U N D S . The fiscal year 1920 witnessed important changes in the Treasury's policies regarding the establishment and maintenance of depositaries of public moneys. Starting in 1864 with 204 national-bank depositaries, with total deposits at the end of that fiscal year of $39,980,756.34, the number and classes of Government depositaries have gradually increased. On June 30, 1920, there were 587 general national-bank depositaries, 116 limited national-bank depositaries, 9,475 special depositaries, 12 Federal reserve banks with 21 branches, 12 Federal land banks, 17 foreign depositaries, and 6 insular depositaries, with combined total deposits on that date of $358,391,340.97. With this marked growth in the number and classes of depositary banks, which were of great service to the Treasury during the war period, it became of prime importance as a measure of administrative economy strictly to regulate and closely to supervise the deposits. With the Government borrowing money to meet its current disbursements by the sale of Treasury certificates of indebtedness at rates of interest running as high as 6 per cent, the ordinary principles of business administration required the elimination of all idle or excessive balances which the Treasury might have with any of its various depositaries. A careful survey of the situation showed that no excessive or idle balances were being kept with Federal reserve banks and their 172 REPORT ON THE FINANCES. branches, or with foreign or insular depositaries. Deposits with special depositaries under the Liberty loan acts were, by their nature, self-limiting, and those with Federal land banks were temporary only. The situation as to balances with national bank depositaries, however, was different. Some of these balances had been established at a time when the Government's receipts exceeded its disbursements and deposits had been made to avoid a money stringency. .Others, had been established to enable the particular banks to transact Government business which they were no longer transacting. During the war period, additional general depositaries had been created for the purpose of supplying cash to disbursing officers of the Army and Navy and other disbursing officers connected with war activities. The fixed balances maintained with other general depositaries were considerably increased to care for Government business of a like nature. As we drew away from the period of the war, many of these activities were discontinued. The necessity for some depositaries ceased to exist. Large balances with others on account of war activities were ho longer necessary. Furthermore, with the establishment and growth of the Federal 'reserve system and the utilization of the Federal reserve banks and their branches as depositaries and fiscal agents of the Government, it has gradually developed that the greater part of the Government's disbursements are now made through the Federal.reserve banks and their branches. The practice of permitting the larger part of the revenues of the Government to be deposited with national banks delayed to a considerable extent the receipt of those revenues at the Federal reserve banks and branches for disbursement. I n addition, t h a t practice necessitated the tying up of considerable amounts of Government funds in the form of stationary balances with national bank depositaries as a basis for their handling the Government's receipts. The Treasury undertook, therefore, during the fiscal year a concerted effort to reduce its balances carried with national bank depositaries, both for the purpose of cashing checks knd as a basis for handling receipts, to the minimum amounts absolutely necessary for the transaction of essential Government business. To that end the Secretary formulated and announced in Treasury Department Circular No. 176, dated December 31, 1919 (Exhibit 79, p. 523), definite regulations-governing deposits of public moneys. The terms of that circular require that beginning March 1, 1920, all checks, including bank drafts, received by collectors of internal revenue, collectors of customs, depository postmasters, and other depositors of public moneys, shall be forwarded for deposit each day to the Federal reserve bank of the district in which the depositor's SECRETARY OF THE TREASURY. 173 head office is located (or in case the head office is located in the same 'city with a branch Federal reserve bank to such branch Federal reserye bank). Cash receipts only may be deposited with natiolialbank depositaries. The operation of this regulation made possible substantial reductions in balances carried with depositaries which had theretofore received revenues, and, in fact, the total elimination of some of them. I t was announced in this circular also that the Treasury would designate and maintain balances with national banks only at points where necessary to meet the requirements of Government officers for cash for pay-roll or other official purposes, and then only if there is no Federal reserve bank or branch located at or near the point,. Immediately upon the adoption of these definite policies the Government's account with each national bank depositary was subjected to a careful and thorough examination. The Government balance with each was adjusted in the light of these policies. As a result the Treasury was able during the fiscal year to discontinue 628 national-bank depositaries, including 566 which transacted no Government business whatever and carried a fixed balance of $1,000 each, and to reduce the total amount held by national-bank depositaries to the credit of the Treasurer of the United States from $45,492,512.64, as shown on the daily Treasury statement of June 30, 1919, to $12,644,214.62, as shown on the daily Treasurj^ statement of June 30, 1920. This reduction ahd withdrawal, amounting to over $30,000,000, made no disturbance whatever in the money market. Whenever requested to do so, the Treasury permitted depositaries affected by this action to repay the funds withdrawn to the Treasury in installments. At a time when the Treasury was borrowing money to meet its current disbursements at rates of interest running as high as 6 per cent, as before stated, the return of these balances to the Treasury was an important measure of administrative economy. I n conjunction with the adoption of these new policies the Secretary established a class of limited national-bank depositaries, for the sole purpose of receiving deposits made by United States courts and their officers,bypostmasters, orby other duly authorized Government officers for credit to their official disbursing accounts. These are not authorized to accept any other deposit, and they hold no funds to the credit of the Treasurer of the United States. One hun dred and sixteen limited depositaries were established during the fiscal year. On June 30, 1920, the amount held by them and general depositaries to the credit of Government officers other than the Treasurer of the United States was $11,567,054.19. / / 174 REPORT ON T H E FINANCES. Interest on Government deposits. Since June 1, 1913, Governmerit depositaries have been required to pay interest at the rate of 2 per cent per annum on daily balances. The amounts received from this source, exclusive of special depositaries under the Liberty loan acts, for the past eight fiscal years are as follows: 1913 1914 1915 ^ 1916 1917 1918 1919 1920 ',_; 1 - ^ v . $122, 218. 89 1, 409, 426. 07 1, 222, 706. 93 791, 671. 45 703, 771. 76 1,134, 569. 09 5, 507, 742. 43 2, 658, 768. 71 Special depositaries. The Treasury's valuable special depositary system was maintained throughout the fiscal year, in order to permit banking institutions purchasing Government securities, as offered from time to time, to make payment for them by credit, thereby retaining the proceeds of such sales in the form of depdsits until withdrawn from time to time as needed to meet current disbursements of the Government. Any incorporated bank or trust company is eligible for designation as such special depositary, in accordance with the provisions of Departnient Circular No. 92, as amended and supplemented, dated April 17, 1919. At the close of the fiscal year 1920 there were 9,475 special depositaries, of which 4,527 were national banks and 4,948 were State banks and trust companies, holding Government deposits amounting to $273,355,000. Interest on special deposits. In accordance with the department's regulations, the special depositaries also paid interest on Government deposits at the rate of 2 per cent per annum. The interest received from these during the fiscal year was $11,431,460.31. The total amount received from April 24, 1917, to June 30, 1920, was $43,352,542.13, as indicated, by semiannual periods and Federal reserve districts, in the following statement: 175 SEOKETAEY OF THE TEEASURY. Interest collected to June 30, 1920, by Federal reserve districts, on deposits in special depositaries on account of sales of Liherty bonds. Victory notes, and certiflcates of indebtedness, and income and profits tax payments, under acts of Apr. 2Ii, 1917, Sept. 24, 1917, Apr. Jt, 1918, Sept. 2J,, 1918, July 9, 1918, and Mar. 3, 1919. F e d e r a l reserve district. Boston New York Philadelphia Cleveland „ Richmond \ Atlanta Chicago St. L o u i s Minneapolis..., Kansas City Dallas S a n Francisco N e w Orleans b r a n c h . Total Julv 1 to Jan. 1 to A p r . 24 t o July 1 to J u n e 30, 1917. D e c . 31, 1917. J u n e 30,1918. .Dec. 31,1918. .?5,340.47 338,480.60 1,044.64 252.06 9,023.53 1,353.62 2,726.51 358,221.43 F e d e r a l reserve district. Boston ., New York., Philadelphia Cleveland Richmond Atlanta Chicago .'... s t Louis.. Minneapolis Kansas City Dallas :... San Francisco N e w Orleans b r a n c h Total S495, 044.28 2,418, 335. 72 200, 276.04 290, 482.56 81, 252.94 28, 189.21 300, 428.59 56, 412.34 32, 520.68 39, 634.27 35, 888.58 137 996.92 26', 332.71 S757,345.98 SI; 138,915.47 2,486j301.63 6,720,162.97 557,068.79 1,059,668.15. 803,219.84 872,392.10128,860.72 109,503.64 96,086.74 144,165.99 658,048.19 974,334.63 268,726. 24 403,488.76 168,309. 21 164,790. 29 150,897.61 332,145.49 80,191.52 268,329.88 486.34 377, 421.12 320.38 79,005.33 4,142,794.84 6,423,863.19 July Tto . Jan. 1 to Jan. 1 to J u n e 30,1919. D e c . 31,1919. J u n e 30,1920. 12,644,323.82 Total. S733, 867.20 2,968, 858.77 596,- 436.23 693, 750.48 242, 735.18 203; 550.98 1,10?; 399.81 369, 776.91 311, 793.53 309, 106.79 132, 651.09 590, 811.02 88; .140.55 $563,524.88 3,336,357.90 529,102.81 530,146.39 555,390.68 153;908.04 817; 172.84 264,058.53 171,863.85 159,047.57 182,127.50 246 486.13 4o;666.90 $254,689.51 1,887,688.21 171,509.48 352,082.30 140,635.35 82,811.99 355,685.31 100,947.90 104,223.41 95,489.75 118,843.58 176,914.98 40,084.52 S3,948,727.79 20,156.185.803,115,106.14 3,515,073.67 1,258,378.51 708,965.01 4,222,092.9a 1,463,410.68 953,500.97 1,086 321.48 819i 385.77 1,740,843.02 334,550.39 8,351,878.54 7,549,854.02 3,881,606.29 43,352,542. la United States de2')0sitaries in foreign countries. The Treasury continued to maintain depositaries in France, Great Britain, Italy, Spain, Belgium, and Canada for the use of disbursing officers of the Government, especially of the Army and Navy, to facilitate payments in foreign countries. These were designated under the authority vested in the Secretary of the Treasury by section 8 of the act of September 24, 1917, as amended and supplemented. The authority granted by this section, however, is restricted. The depositaries which may be designated thereunder are such as are necessar}^ to provide for current disbursements only. The act of September 24, 1918, authorizes the designation of depositaries in foreign countries with which may be deposited all or any part of the avails of any foreign credits or foreign currencies. The authority given by the first-named act expires six •months after the termination of the war between the United States and Germany. The authority of the last-named act is limited to the period of the war and two years after its termination. The 176 REPORT ON THE FINANCES. experience of the Treasury has been that it is not only convenient but practically necessary that there be Government depositaries in foreign countries and in the dependencies and insular possessions of the United States to furnish United States disbursing officers with adequate financial facilities, both as to disbursements and deposits. If the existing restricted authority is permitted to expire by limitation, without additional authority having been granted, imuch inconvenience and perhaps loss may be incurred. These contingencies may be provided for by the enactment of a statutory provision reading substantially as follows: The Secretary of the Treasury may designate such depositaries of public moneys in foreign countries and in'the Territories and insular possessions of the United States as may be necessary for the transaction of the Government's business, under such terms and conditions as to 'security and otherwise as he may from time to time prescribe. I trust that the Congress will give this matter its immediate consideration. CoUateral security for Government deposits. New regulations with respect to collateral security fpr deposits with national-bank depositaries were incorporated in Department Circular No. 176 (Exhibit 79, p. 523). I t was provided that on and after December 31, 1919, and until further notice, the following securities aiid no others will be accepted as security for deposits, of public moneys with national-bank depositaries: {a) Bonds, notes, and Treasury certificates of indebtedness of the United States, of any issue, including outstanding interim certificates or receipts for payments therefor; all at par. (&) Bonds of the Federal land banks, bynds of the War Finance Corporation, bonds of Porto Eico and the District of Columbia, and bonds and certificates of indebtedness of the Philippine Islands; all at par. (c) The 3^ per cent bonds of the Territory of Hawaii at 90 per cent of market value; and other bonds of said Territory at market value, not to exceed par. These institutions were required on or before June 30, 1920, to substitute securities of these classes for all others placed with the Treasurer as security for public deposits. This ruling affected $1,774,000 State, county, city, and other securities held by the Treasurer on December 31, 1919. Creation of Division of Deposits. To administer these definite policies as to Government depositaries, and to secure a closer, more economical, and more effective supervision, a division known as the Division of Deposits was established in SECRETARY OF THE TREASURY. 177 the Secretary's office oh Ma*y 19, 1920. The order creating it was as follows: There is hereby created and estabUshed in the office of the Secretary a division to be known as the Division of Deposits. The Division of Deposits is assigned to the general supervision of the Assistant Secretary in charge of fiscal offices, and will be charged with the administration of all matters pertaining to the designation of Government depositaries and the deposit of Government funds in Federal reserve banks, national banks, special depositaries under the Liberty loan acts, -foreign depositaries. Federal land banks, and the Philippine treasury. This division will also be charged with the duty of the supervision of all depositaries and of obtaining proper security for all Government deposits. It will also issue directions to all public officers as to the deposit of all public moneys collected by them, and will be charged generally with the administration of all matters pertaining to the foregoing. All previous orders inconsistent herewith are hereby revoked. F R A U D U L E N T DEALINGS I N SECURITIES. The attention of the Congress has several times been called to the necessity of enacting legislation to protect the people of the United States from grave injury growing out of the issue of securities of doubtful worth and in many cases of fraudulent character. The Treasury has during the year received numerous complaints that unscrupulous promoters are inducing patriotic subscribers to the war obligations of the Government, particularly those unaccustomed to investments, to exchange Liberty bonds and Victory notes for worthless or speculative securities, with consequent financial loss to many holders and prejudice to the national finances by the dislodging of Grovernment securities from the hands of investors. The Treasury Department has done its utmost under existing law to combat this evil and has waged through its Savings Division and many voluntary local and national organizations a campaign to educate the Liberty bond holders to the value of their bonds and the danger of dealing with irresponsible and wildcat concerns. On November 28, 1919, for example, the Secretary of the Treasury issued the following statement warning owners of Liberty bonds agairist unscrupulous stock promoters: The. Treasury again warns owners of Liberty boiids against stock promoters who are trying to persuade them to exchange their Government securities for stock in fraudulent ventures. Information which comes to the Treasury indicates that, particularly in sections of the country where new enterprises are being floated, a surprisingly large number of people are allowing themselves to be made the dupes of swindlers. It is a principle of investment that safety, goes normally with a relatively low rate of return, and the suggested high returns upon stocks which are being offered is enough to create suspicion. Where Liberty bond holders are urged to give up their securities fpr stocks of speculative character, good sense suggests the presumption that the offer Is 13^799—FI 1920 12 178 REPORT ON THE FINANCES. made because Liberty bonds are worth decidedly more than the stock. Experience in a great nuinber of cases shows that the stock is worthless, and the bond owner who makes the exchange is simply another victim to the army of sharpers who find easy booty in these days of reckless speculation. Self-interest and good business judgment should decide in favor of the holding of Liberty bonds, which are declared by those most experienced in investment to be the world's best security. The bond owner who continues his partnership with the- Government has the added satisfaction of knowing that by helping to maintain the urgently needed capital resources of the'country he is making his contribution to the solution of the reconstruction problem in which the Nation's welfare is as vitally concerned as by the war. It is the duty of citizens in every community to sound the warning against fraudulent operators in Government securities at this time, when we can ill afford to dissipate our resources for the profit of the unscrupulous few. Some progress has also been made by criminal prosecutions against persons dealing illegally in war-savings certificates, though as to Liberty bonds and Victory notes there has been no Federal legislation to give any basis for effective action. The consideration by the Congress of this matter is respectfully urged. by the Treasury. Action should be taken, it is believed, along the lines indicated in the letter of February 11,-1919, from the Secretary of the Treasury to the chairman of the Committee on Ways and Means of the House of Eepresentatives, and the exhibit attached, Avliich appears in the rej)ort of the Secretary of the Treasury for 1919 as Exhibit 69, page 426. There is much to be said also for the ena'ctment of legislation to make it a Federal crime to induce or solicit holders of Government securities to part with them by means of fraudulent" rejiresenta tions. The views of the department are further expressed in the following letter, dated J a n u a r y 10, 1920, to the chairman of the Committee on the Judiciary of the House of Eepresentatives: WASHINGTON, Ja,nuary 10, 1920. MY DEAR MR. VOLSTEAD : I am very much impressed by the importance of some sort of legislation on the lines proposed by the Capital Issues Committee to prevent or control fraudulent issues and prospectuses. The dissipation and freezing of capital in worthless or highly speculative enterprises has proceeded to such an extent that money can not be had for sound investment bonds at reasonable rates nor for foreign financing, and the Government's Liberty bonds are depreciated to an entirely unjustified extent. On February 11, 1919, I addressed a letter to Hon.- Claude Kitchin, chairman of the Ways and Means Committee, with which I inclosed a draft of a proposed law to be known as the Federal stock publicity act. This letter will be found in my annual report for the fiscal year 1919 at page 426. Also in my annual report, at page 95, I referred to the bili. The President, in his address to Congress on " The cost of living," delivered August 8,1919, said with reference to this legislation : "• May I not add that there is a bill now pending before the Congress which, if passed, would do much to stop speculation and -to prevent the fraudulent methods of promotion by which our people are annually fleeced of many millions of hard-earned money? I refer to the measure proposed by the Capital SECRETARY OF THE TREASURY. 179 Issues Committee for the. control of security issues. It is a measure formulated by men who know the actual conditions of business, and its adoption would serve a great and beneficent purpose." In a letter addressed to the Hon. William M. Calder, United States Senate, dated March 31, 1919, contained in my annual report for 1919, at page 46, I use the following language: " The oversold condition of the market for Liberty bonds thus created was i,C( e:it:!ated * * * by the wicked devices of bond sharps and swindlers who iGoiv :'.dvantage of the inexperience of many small investors in Liberty bonds whom the Treasury was, failing the necessary legislation, powerless to protect." The report on business conditions made by the Federal reserve agent at New York, in the second Federal reserve district, dated December 20, 1919, contains the following significant language: "The operations of dealers in poor or worthless stocks are particularly serious at a time of great expansion such as the present, not only because of the waste of capital involved, but because fraudulent issues are lost sight of in the general outpouring. Reports from the banks in certain parts of the district indicate that a large amount of Liberty bonds have been secured in exchange by promoters, who promise quick and rich returns in place of the interest carried by the bonds. Many sales for cash- are reported also, particularly to wage earners. An estimate of the amount of dubious issues on sale, secured from a source specializing in such miatters, puts the total at 'hundreds of millions.' " As usual, the victims of such transactions are those who are in the worst position from knowledge or experience to measure the worth of securities. Methods of sale include not only newspaper advertisements and offers through the mails, but solicitation by a highly organi.'ied corps of canvassers. In a number of cases the name of the Federal reserve bank is reported to have been used for the purpose of convincing prospective purchasers of the value of the stock offered. Usually the argument has been that the bank whose stock the canvasser is selling will become a member of the Federal reserve system, or that the paper to be handled by the newly organized ' finance corporation' will be discounted by the Federal reserve bank. Such statements should be sifted, with the greatest care, but usually the man approached by the canvasser is in no position to know the limitations set by law, both on Federal reserve membership and^ discounts. " Certain cases of apparently fraudulent intent have already been brought to the attention of the Federal or local prosecutors, but in the past most prosecutions have succeeded only when the fraud has been completed and the investor has lost his money. It is, therefore, essential that individuals buy only after seeking advice from trusted bankers or others who are equipped with sound information and gQOd sense on financial matters. In a number of progressive conmiunities the newspapers not only refuse to take dubious financial advertising, but have undertaken to warn their readers against unscrupulous vendors of stocks. Officers of banks can carry this public service further by giving advice to all inquirers, whether they are customers or not. Many bankers are already doing work of that sort." The proposed draft of the Federal stock publicity act, above referred to, was introduced as Ei. R. 188, and is now, I understand, before your committee. I beg to impress upon you the desirability of enacting legislation along the lines indicated in this bill. The situation is a grave one and needs remedial legislation. In the bill, as originally transmitted by me, the Treasury Department was given general jurisdiction over the subject matter, and the Secretary was au- 180 REPORT ON THE FINANCES. thorized to create a new bureau for the enforcement of the act. Upon reflection, however, I have reached the conclusion that it will probably be wiser to give jurisdiction over the matter to the Federal Trade Commission, especially in view of the fact that this commission has already taken jurisdiction, under its existing powers, over some important phases of this subject matter. As stated in my letter to Mr. Kitchin, above referred to, I approve the general plan of the proposed bill. Doubtless some amendments are necessary, but your committee will quickly be able to decide just what amendments or changes should be made. I gladly tender the assistance of all Tireasury officials to your committee, and beg to state that several gentlemen of expert knowledge and long experience in these matters have tendered their services to the Treasury gratuitously. I shall be very glad, indeed, to arrange to have these gentlemen also place their services at your disposal in working out legislation so vital to the interests of the Government and to the whole people of the United States. Very sincerely yours, CARTER GLASS. Hon. ANDREW J. VOLSTEAD, . , Chairman Committee on the Judiciary, , House of Representatives, Washington, D. G. GOLD. The monetary stock of gold in the United States, including coin and bullion, was estimated at $2,739,043,566 on November 1, 1920, a decrease of $133,481,500 as compared with November 1, 1919, and an increase of $851,772,902 as compared with August 1, 1914, at the beginning of the war in Europe. This represents a reduction of $352,994,133 from the estimated stock of June 1, 1919, one of the highest points. Somewhat less than one-third of the world's gold monetary stock, according to the estimates, is now held in the United States. Monthly estimates of the United States stock of gold, from November 1,1919, to November 1,1920, follow: Nov. 1, Dec. 1, Jan. 1, Feb. 1, Mar. 1, Apr. 1, M a y 1, 1919 19191920 1920 1920 1920 1920 ' . $2, 872, 525, 066 June 1, 1920 2,833,221,135 July 1, 1920 , 2, 787, 714, 306Aug. 1, 1920 2, 762, 905, 481 Sept. 1, 1920 2, 720, 767, 606 Oct. 1, 1920 2, 662, 284, 553 Nov. 1, 1920_ 2, 646, 615, 750 $2, 663, 730, 358 2, 687, 512, 862 2, 695, 337, 608 2, 688, 744,140 ^— 2,704,672,504 2,739,043,566 Production, High production costs in connection with a fixed sale value have continued to influence unfavorably the mining and reduction of gold, as evidenced by the continued decrease of output in practically all parts of the world. The United States stock has been affected in recent years, however, much more by withdrawals for export in settle-, ment of trade balances than by decreased production of new gold. SECRETARY OF TFIE TREASURY. 181 The full report by the committee appointed by the Secretary of the Treasury to investigate and consider the subject of the production of goid, rendered February 11, 1919, appears on pages 108-110 of the annual report for 1919. During the past year there has been further discussion of the problem, and a bill, H. E. 13201, has been introduced^ in the House of Eepresentatives— To provide for the protection of the monetary gold reserve by the maintenance of the normal gold production of the United States to satisfy the requirements of the arts and trades, by imposing an excise upon all gold used for other than monetary purposes, and the payment of a premium to the producers of newly mined gold, and providing penalties for the violation thereof. The Treasury is opposed to this bill, believing that the conclusions of the gold committee are sound and that it would be improper to subsidize the gold-mining industry. The producers of gold will, in the long run, benefit with the rest of the community from the ability of the country to maintain itself on a gold basis and, as the purchasing power of the dollar increases, it is to be expected that the production of gold will become more. remunerative and that the problem will tend to solve itself. The consumption of gold in the arts and industries in the United States materially increased in the calendar year 1919,^ the amount of new gold used, $56,135,951, being not far below the amount of the domestic production of the year, $60,333,400. Gold payments. Since the beginning of the war it has been the policy of the Treasury to conserve gold and discourage its circulation; and this policy has not changed with the cessation of hostilities or the removal of the embargo on the exportation of gold. I t is just as important as ever that gold, which is the foundation of our reserves and the backbone of all credit transactions, should be concentrated in the Federal reserve banks as reserve and for use in the settlement of balances growing out of international transactions. I t is the desire of the Treasury that^ the conservation of gold should continue and that there should be no revival of the use of gold coin or gold certificates for pay rolls and everyday transactions generally, in which it serves no useful purpose. The circulation of gold coin and gold certificates tends to dissipate the reserves. The circulation of gold coin involves a considerable loss due to abrasion, which is avoided by having the gold carried in the vaults of the Federal reserve banks and the Treasury. I n accordance with this policy, persons requesting gold arie invited to accept other currency instead, but gold has not been, and will not 182 REPORT ON TFIE FINANCES. ^ be, refused to persons who, after giving consideration to the Treasury's policy, demand it and are entitled to receive it by reason of the presentation and surrender of gold obligations. Wherever gold is demanded it is furthermore the Treasury's policy to pay out available, but not new, gold coin in the denomination of $20 and gold certificates of large denominations, and to avoid so far as possible the use of gold coin in denominations of $5 and $10 and gold certificates in the denomination of $10, though such denominations will not be refused if demanded. Payments of $2.50 gold pieces, however, will not be made, inasmuch as no gold has been coined in this denomination for many years, and there is no available supply in Treasury offices. I t is the view of the Treasury that the demands for gold coin for domestic use or for export should be satisfied by the issue of double eagles, of which an ample supply has been and will be maintained. Gold certificates. By the act approved December 24, 1,919, gold certificates were made legal tender in payment of all debts and dues, public and private. SILVER. The year just passed has been characterized by extraordinary fluctuations in the price of silver. I n November, 1919, even United States subsidiary silver coin reached the melting point, while less than six months later, in May, 1920, the price declined tp a point where the repurchase provision of the Pittman Act became operative and the Director of the Mint began to make purchases of domestic silver at the fixed price of $1 per ounce. , The price of silver rose with considerable regularity after the beginning of the fiscal year 1920, until a price surpassing all definitely known records was reached in New York on November 25, 1919, the rise being from $1.08 to $1.38|. The maximum price in London, 89^ pence, was attained on February 11, 1920, and it is understood that sales were made as high as $1.42 per ounce in San Francisco. The coining value of silver for United States dollars is $1.29+ per ounce, and for United States subsidiary silver coins $1.38+ per ounce. For a time, therefore, the price of silver was sufficiently high to menace the silver circulation. At about this time the Treasury, acting in cooperation with the Federal Eeserve Board and the Fed'eral reserve banks, arranged to release free standard silver dollars to be employed in regulating our exchanges with countries having silver monetary standards, and pursuant to these arrangenients about 13,000,000 of silver dollars went to the Orient, in addition to some 16,000,000 silver dollars which A.ent tjirough other sources between ^ SECRETARY OF THE TREASURY. 183 November, 1919, and May, 1920. A copy of the public announcement issued by the Federal Eeserve Board in this connection under date of December 6,1919, appears on page 596 of this report. The price of silver remained above the melting point for dollars until early in March, 1920, when it gradually began to recede until in May it went below the price of $1 fixed in the Pittman Act for the purchase of silver bullion to replace the standard silver dollars melted under that act. I n connection with the melting of standard silver dollars under the Pittman Act the Director of the Mint had received standing orders from the Secretary of the Treasury to bu}^ silver at the fixed price of $1 per oifnce 1,000 fine within the conditions and limitations fixed under the act, which included the requirement that the silver purchased must be the product both of mines situated in the United States and of reduction works so located. Prompt action was taken as soon as the price fell below $1 per ounce, and all purchases of silver by the Director of the Mint under the Pittman Act have been made with strict regard for the statutory requirement, in order to make certain that the benefits of the act inure to American producers, as contemplated by the Congress. With this in view, the Director of the Mint has insisted from the outset upon satisfactory proof of the domestic production and of settlement with the miner on the basis of $1 per ounce 1,000 fine. Purchases under the Pittman Act by the end of October had reached a total of about 22,000,000 fine ounces. Formal regulations governing sales of silver to the Director of the Mint under the Pittman Act were prescribed under date of August 30,1920. Copies of these regulations, together with the supplemental regulations of October 6,1920, are attached to this report as Exhibits 80 and 81, pages 538 and 543. I t will be noted that the regulations, of August 30 include as exhibits the public statements issued by the Director of the Mint on May 17, 1920, and June 18, 1920, announcing his readiness to purchase silver under the Pittman Act, and prescribing the preliminary forms for proof that the silver tendered satisfied the statutory requirement that the silver purchased must be the product both of mines situated in the United States and of reduction works so located. An additional 10,000,000 of standard silver dollars were melted during the year under the Pittman Act to provide metal for domestic subsidiary silver coinage. The following tables show various operations under the Pittman Act relating to the melting of silver dollars from April 23, 1918, the date of its passage, to October 31, 1920: TABLE I.—Silver doUars melted. Silver dollars melted, of which $3,177,554 represented dollars in Treasury, and the balance was made available by the retirement of silver certificates (of the total dollars melted 11,000,000 were for use in manufacturing subsidiary silver coin, 1,000,000 m fiscal year 1919) $270,121,554 184 REPORT ON THE FINANCES. TABLE II.—Silver certificates toithdrawn from circulation and retired. Denominations: $1 $2 _ $5 _ $10 _ $20 $50 (issues in excess of retirements) $100 ^ $500 , $1,000 , . ; ^ Total face value- : Amount. $172, 870, 717 38, 935, 078 78,906,185 817,470 7, 583, 700 734,150 39,500 2,000 1,000' 298,421, 500 TABLE III.—Federal reserve bank notes issued from Apr. 30,1918, to Oct. 31,1920.. Denominations: $1 $2 $5 _$10 $20 ^ $50 '. , Net issue. $160,489,136 40, 024, 364 29, 280, 735 net decrease— 854,890 do 665,100 195, 600 Total Less notes redeemed but not assorted by denominations Notes outstanding Oct. 31, 1920 228, 469, 845 1, 610, 900 226, 858, 945 The Federal reserve bank notes which have been issued, as stated in Table I I I , are secured as follows: United States loan of 1925, 4 per cent United States consols of 1930, 2 per cent United States Panama loan, 1916-36, 2 per cent United States Panama loan, 1918-38, 2 per cent Special certificates of indebtedness, 2 per cent__ Total L $2, 593, OOO 13, 888, 400 383, 500 — 285, 300 259, 375, OOO 276, 525, 200 As stated in the annual report for 1919, the announcement of May 6, 1919, coupled with the removal on that day of all restrictions onexport of si!lver, had the effect of freeing the silver market from the control of war prices. As the result of the repurchase provisions of the Pittman Act, however, the price of silver which is the product, of domestic mines and reduction works has become stabilized at about $1 per fine ounce, the fixed price provided for purchases by the mint,, and a separate price has become established for foreign silver, so long as the world price does not exceed $1 per ounce. The maximum^ and minimum prices of silver, by months, from May, 1919, t o October, 1920 (for other than domestic product of the United States,. after May, 1920), were as follows: 185 SECRETAEY OF THE TREASUEY. Date. May June July August September October November Deceniber 1919, ... Maximum. Minimum. $1. 215 1.1425 1.09375 1;1675 1.2125 1.2575 1.3825 1.3525 Date. $1.0125 January 1.085 ' February March 1.035 April 1.0825 May 1.12 1.1725' June July 1.23625 August.' 1.305 September October 1920. , .., , , Maximum. Minimum. SI.37875 1.35875 1.33 1.28125 1.11625 1.005 .9575 1.0225 .955 .9225 SI.3075 1.30 1.1825 1.12 1.0025 .815 .90125 .935 .9225 .76876 Silver purchases, by months, under the terms of the Pittman Act, approved April 23, 1918, have been as follows: 1920: May June July August September October ^ ' 1 Total- Fine ounces. 332, 088 6,168, 505 3, 288,856 __^__ 3,429,277 ___.._ 3, 815, 733 4, 634, 860 21, 669, 319 Standard silver dollar transactions from April 23, 1918, to June 30,1920, have been as follows: Dollars melted, Apr. 23, 1918, to June 30, 1920 270,121, 554 Dollars transferred to Federal reserve bank of New York for credit in Treasurer's account .55,000,000 DoUars exported, Nov. 25, 1919, to May 11, 1920 29, 287,142 Probable additional export of dollars, which were separately reported only during the above-mentioned period; at other times included with subsidiary silver coin 1, 506, 387 30,793,529 Net number of dollars released from Treasury stock, Apr. 23, 1918, to June 30, 1920 (on basis of daily statements)— 355,915,083 Net withdrawal of silver certificates, Apr. 23, 1918, to June 30, 1920 (on basis of daily statements) ' $329, 612, 722 Net reduction of reserve for Treasury notes of 1890 '. 213,024 Net reduction of free stock of dollars (in general fund) 26,089,337 Total 355, 915, 083 T H E FEDERAL F A R M LOAN S Y S T E M . The Federal farm loan system, under the direction of the Federal Farm Loan Board, functioned normally for the first half of the fiscal year. Thereafter the pending suit challenging the constitutionality of the Federal farm loan act had its effect upon the lending operations of the banks as usually conducted and it was necessary to 186 REPORT ON THE FINANCES. adopt special means to meet the situation. The 12 Federal land banks made loans to 19,659 farmers in the aggregate sum of $61,961,980 during the six months ended December 31, 1919. The loans by Federal land bank districts for this period were as follows: Loans closed by Federal land banks during the six months ended Dec. 31, 1919. District. -Federal l a n d b a n k . N u m b e r of A m o u n t of loans. loans. Springfield, Mass Baltimore, M d . . . Columbia, S. C . . Louisville, K y . . . N e w Orleans, L a St. L o u i s , Mo St. P a u l , M i n n . Omaha, N e b r . . . Wichita, K a n s . . . Houston, T e x . , . B e r k e l e y , Calif.. Spokane, W a s h . . 1,002 1,218 1,388 1,536 ' 2,050 2,001 2,549 878 1,234 2,462 896 2,445 $3,225,800 3,288,300 3,651,445 5,521,700 4,189,125 4,942,615 9,500,000 5,072,100 4,132,900 8,002,015 3,172,100 7,263,880 Total 19,659 61,961,980 The funds for lending operations covering the six months' period ^ended December 31, 1919, had been procured by an advance sale of farm-loan bonds in the preceding June following tbe conclusion of the Victory Liberty loan campaign. The suit challenging the constitutionalitj^ of the Federal farmloan act was instituted in July, 1919, in the United States district court in the western district of Missouri; The case was heard before the judge of that district on October 30,1919, and an immediate decision rendered sustaining the act in its entirety. ^From that decision appeal was taken to the United States Supreme Court, before which the case was argued January 6, 1920. On April 30, 1920, the Supreme Court ordered a reargument of the case and set that argument for October 11, 1920. On October 14, 1920, the case was reargued and finally submitted to the Supreme Court, and now awaits t h e decision of that tribunal. The Federal land banks have no funds beyond their capital with which to make farm loans except such as they derive from the sale of farm-loan bonds. The natural and inevitable effect of the pendency of litigation challenging the validity of the act, and especially the tax-exemption feature of the bonds, was to depress the market for such bonds below a price at which they could be sold and permit continued lending* operations. As early as February, 1920, the Federal F a r m Loan Board directed that all applications for loans be taken subject to a favorable decision of the pending litigation. I n the initial process of receiving applications for loans and carrying them through to completion, there is of necessity a large volume always in hand, and notwithstanding SECRETABY OE THE TREASURY. 187' the precaution of taking applications subject to the decision of the court the Federal land banks found themselves, when the reargument of the test case was ordered, with a very large volume of applications in hand which had been carried to the point of appraisal and actual approval by the executive committees of the several banks. These amounted to bona fide commitments on behalf of the banks. I n addition, many of the banks had used their comniercial credit practically to the limit in an effort to meet the normal dem'ands of their borrowing constituencies. The continuance of the case from April 30 to October 11 made it apparent that those applications which had bee.n approved could not be closed for a period of six or eight months and that short-time obligations of the banks could not be met by the sale of bonds. Believing that this situation justified public intervention. Congress by the joint resolution approved May e26, 1920, authorized the purchase by the Treasury of a limited amount of farm-loan bonds to meet the emergency confronting the S3i^stem. Previous sales of bonds by the Federal land banks had been at the rate of 4^ per cent, but as the Treasury was paying in excess of 5 per cent for the money at the time the joint resolution became operative, it was deemed proper that the bonds should bear the maximum interest rate payable under the Federal farm loan act, namely, 5 per cent. Pursuant to the resolution, the Secretary of the Treasury has authorized purchases and the Treasury has purchased 5 per cent bonds of the several Federal land banks in the aggregate sum of $39,450,000, and the same are now held in the Treasury. The effect of these purchases by the Treasury v^as to enable the banks to close all of their more pressing commitments and liquidate their own short-time paper. The absolute integrity of the security on which loans had been made under the farm-loa,n system is fully borne, out by another 3^ear's experience, and the fi.nancial solidity of the banks has been made more manifest. Each of the banks has liquidated its initial operating deficit and has a substantial surplus. RetiremeM of Government-owned stoch. On November 15, 1919, the aniount of stock of the Federal land banks Owned by the Government, as the result of original subscriptions, was $7,693,240. During the following 12 months the baiiks retired this stock in the aggregate amount of $860,560, reducing that in the several Federal land banks held b}^ the Government on November 15, 1920, to $6,832,680. 188 REPORT ON THE FINANCES. Earnings. From Noveniber 1, 1919, to October 31, 1920, the net earnings of the 12 Federal land banks amounted to $2,753,717.74, of which $564,725 had been carried to reserve account, $803,846.68 distributed in dividends paid by 10 of the banks upon stock owned by farm-loan associations and individuals, $106,346.18 carried to suspense account, and $1,278,799.88 carried to undivided profits. Joint-stock land banhs. No joint-stock land banks have been chartered since the date covered by the last annual report. These banks were affected in the same way as the Federal land banks by the pendency of the litigation challenging the constitutionality of the act, and their lending operations have been practically suspended since the beginning of the present calendar year. During the year, 27 joint-stock land banks were in more or less active operation, making loans in the aggregate of $29,262,470 to 3,148 borrowers. Liquidation of joint-stoch land banks. Under an amendment to the Federal farm loan act approved May 29, 1920, provision was made for the voluntary liquidation of jointstock land banks, and in certain cases for the acquisition of their assets and the assumption of their liabilities by Federal land banks. Pursuant to this law three joint-stock land banks have gone into voluntary liquidation: The Colonial Joint Stock Land Bank of Norfolk, Va., and the Union Joint Stock Land Bank of Eichmond, Va., each pf which was organized to do business in the States of Virginia and North Carolina. Neither of these banks had made bond issues and neither had outstanding liabilities. Their assets, in the form of farm mortgages, were acquired—those in Virginia by the Federal Land Bank of Baltimore and those in North Carolina by the Federal Land Bank of Columbia. The Guaranty Joint Stock Land Bank of Wichita similarly went into voluntary liquidation, its assets being acquired and its outstanding bonds being assumed by the Federal Land Bank of Wichita, with the approval of the Federal Farm Loan Board. Tax exemptions of farm-loan bonds. I recommend that the exemptions from taxation be withdrawn from farm-loan bonds issued bj^ joint-stock land banks in the future. These banks are organizations of private capital for commercial pur- SECRETARY OF THE TREASURY. 189 poses in which the profits accrue to the benefit of investing stockholders, as distinguished from the Federal land, banks, which are mutual institutions, in which borrowing farmers are virtually the only stockholders receiving diyidends, and, in the contemplation of the act, will be ultimately the only stockholders. Tax exemptions in the case of joint-stock land banks amount to a gift at the expense of the Government and the taxpayers generally, and the privilege should not be continued with respect to these private-mortgage companies, organized for private profit. This fact is emphasized in this period of high taxes when the Government has established the policy of subjecting its own securities to partial taxation and when the Treasury can not afford to dispense with any of the receipts which otherwise would accrue on account of taxes. I t may be contended that the joint-stock land banks may make larger loans than the Federal land banks, under the provisions of the law, and that in this particular they occupy a field peculiar to themselves. I t is sometimes further contended that the joint-stock land banks may make loans for purposes and to persons beyond the power of the Federal land banks. Obviously the latter banks may make these loans if the Congress grants the necessary authority. I n other words, the Federal land banks, owned by borrowing farmers, who are the beneficiaries of their profits, can, if authorized by the Congress, make any loan which the joint-stock land banlcs are now permitted to negotiate. Consequently, if the withdrawal of the taxexemption feature from farm-loan bonds issued by joint-stock land banks in the future were accompanied by an increase in the powers of the Federal land banks to make any loan which is now authorized by joint-stock land banks, there would be no curtailment of the financial benefits to agriculture provided by the act. I n view of the absence of compensating benefits for the loss in revenue resulting from the extension of the tax-exemption privilege to securities issued by institutions organized on an investment basis by private capital for private gain, I think it is clear that section 26 of the Federal farm-loan act should be amended so as to withdraw the tax-exemption privilege from farm-loan bonds issued by joint-stock land banks. I n this connection it should be borne in mind, however, that the joint-stock land banks now in operation were organized under sanction of law and with the approval of the Government. I n any legislation withdrawing the tax-exemption feature from farmloan bonds issued by joint-stock land banks, it would appear to be necessary, however, to make provision to safeguard joint-stock land bank bonds already issued as well as the interests of existing jointstock land banks. 190 ' REPORT ON THE FINANCES. SEED-GRAIN LOANS TO F A R M E R S . During the past year the administration of the seed-grain loans made during 1918 and 1919, as the result of war conditions, to farmers in certain drouth-stricken areas bf the West has advanced steadily under, the joint direction of the Treasury. Department and the Department of Agriculture. These loans were made through the Federal land banks of Wichita, St. Paul, and Spokane, as financial agents of the Government, acting under the supervision of the Federal F a r m Loan Board, pursuant to joint circulars issued from" time to time by the Treasury Department and the Department of Agriculture. ^ The creation and scope of the plan under which these loans were made and the progress in administering them during 1918 and 1919 are set forth in detail in the annual reports of the Secretary of the Treasury for those years. Loans vvere made in certain sections of the West to about 15,000 farmers who were without means of obtaining commercial credit to enable them to obtain seed grain for planting. If this aid had not been extended, some farms would probably have been abandoned and others lain idle, to the prejudice of the food, supply of the Nation and the national securit}^ and defense in time of war. There were three distinct plantings covered by these loans: (1) The first fall planting in 1918; (2) the second fall planting in 1918 (restricted, however, to farmers whose first fall planting had failed) ; and (3) the spring planting in 1919. Upon obtaining a loan from the United States for any of these three plantings, the borrower was required to execute a guaranty fund agreement under the terms of which those farmers whose crops proved successful, as defined therein, were required to contribute to a guaranty fund. The proceeds from the guaranty funds were to be applied, under the direction of the F a r m Loan Board, on the loans of those farmers whose crops had proved failures and who, therefore, Avould be unable to repay their loans from the proceeds of the crops. I n this way a cooperative fund was created in connection with each of the three classes of loans for the mutual benefit and protection of the unsuccessful farmers and the United States. Loans for fall planting were made in the Wichita, St. Paul, and Spokane districts; second fall planting loans were made only in the Wichita district; and spring planting loans were made only in the St. Paul and Spokane districts. As the appropriation under which these loans were extended expired June 30, 1919, all the loans under the plan adopted were closed by that time. There remained, however, the arduous task of collecting the principal and interest from the individual farmers as the loans matured, together with the contributions to the guaranty funds SECRETARY OF THE TREASURV. 191 in accordance with the ternis of the guaranty fund agreements. I t was mainly with these features of the seed-grain loans that the Treasury has been concerned during the past year. In view of the large number of loans made and the evident difficulties incident to collecting them, it may fairly be said that the work has progressed even more satisfactorily than could have been anticipated, and with a fair prospect of completion in the near future. While the auiounts contributed to the guaranty funds have not yet been applied upon the indebtedness of those borrowers whose crops proved failures, the preliminary arrangements are progressing steadily, and it is hoped that a final settlement may be reached and the loans closed within the next few months. The prompt and satisfactory manner in which this large undertaking has been carried on by the Federal land banksconcerned, as well as the effective cooperation of the Federal Farm Loan Board in supervising the activities of the land banks, has gone far to insure early completion of the operation and is a substantial testimonial to the efficiency of the farm loan organization. As repayments of these loans began to come in, it was necessary,, because of the large number involved, to institute some uniform method of accounting for the receipts. On September 18, 1919, letters were sent to the Federal land banks of Wichita, St. Paul, and Spokane prescribing a method of accounting for the receipts in payment of these loans and for depositing them with the Federal reserve banks of Kansas City, Minneapolis, and the Spokane branch of the Federal reserve bank of San Francisco, respectively,, as depositaries of the Government. Under date of September 2, 1919, Joint Circular No. 5 (Exhibit 82, p. 545) was issued by the Treasury Department and the Department of Agriculture supplementing previous regulations relative to expenses incurred by Federalland banks in the administration of these loans. As stated in the previous annual report, it developed during the summer of 1919 that, where the yield per acre would not exceed 4 bushels, it would barely pay the reasonable cost of harvesting and marketing, leaving no return to the farmer for his labor, and that the destitute farmer would probabty abandon his farm and go elsewhere to labor for wages, unless he was permitted to retain the proceeds for the immediate needs of himself and his family. By letters dated August 13, 1919, to the Federal land bank of Spokane,, and Septeniber 10, 1919, to the Federal land banks of St. Paul and Wichita, signed by the Secretary of the Treasury and the Secretary of Agriculture, the Federal land banks were authorized in "such cases to release the Government's lien upon the receipt of a certificate from an agent of the Department of Agriculture. Pursuant to these letters the Federal land banks have executed releases of the 192 REPORT ON THE FINANCES. mortgages held by the United States covering the crops planted by virtue of these loans, as follows: Bank. Wichita Spokane State. Kansas Oklahoma Texas New Mexico Montana Washington Amount of note secured byNumber. the mortgage released. 642 68 16 1 876 16 $168,126 12,909 3,281 120 270,768 5,585 I t should be remembered that the release of these mortgages did not relieve the borrowers from their obligation to pay the principal and interest of their notes. The Secretary had no authority to discharge the borrowers ^from this obligation as distinguished from the lien on the crops planted. The Congress only could grant such release. Since it appeared that many farmers who had sustained crop failures, as defined in the joint circulars, would be unable to pay their notes in whole or in part and that the continued obligation to do so might cause severe hardship, the Congress authorized the cancellation of the indebtedness in such cases by the following provision of law, which was incorporated in the Agricultural appropriation act for 1921, approved May 31, 1920: That a yield of 5 bushels or less per acre of wheat on lands owned by those in the drought-stricken regions who borrowed money from the Government of the United States for the purchase of wheat for seed be, and the same is hereby, declared to be a failure, and the borrower whose yield was 5 bushels or less per acre be, and he is hereby, released from repayment of the amount borrowed by him from the Government: Provided, That nothing herein shall release the borrower who signed a guaranty fund agreement and whose crpp was not a failure, from making the contribution provided for in such agreement, but said guaranty fund shall be used as stipulated in the agreement to the settlement of the loans to those whose crop was a failure. The act authorizes the discharge of loans only for wheat planting, so that loans made to farmers for the planting of rye or other grains are not released, and as the act makes no provision for refunding payments made prior to the date on which the law became effective by borrowers whose crops had failed, such borrowers will be unable to obtain any benefits from the present legislation. Pursuant to the provisions of this act, a circular entitled " Joint Circular No. 6," dated August 10, 1920, prescribing " Eegulations relative to release of farmers' seed-grain loans for wheat planting in drought-stritken areas " (Exhibit 83, p. 545), was issued by the Treasury Department and the Department of Agriculture. Under the 193 SECREI:ARY OF T H E TREASURY. terms of this circular applications for release of seed-grain loans for wheat planting may be filed with the Federal land bank from which the loan was received. These applications will be examined and, if the statements therein contained are true, will be approved and certified by the Federal land bank and forwarded to the F a r m Loan Board which, in turn, will examine the application and transmit it, with its recommendation thereon, to the Treasury Department for approval. A copy of the form prepared by the Treasury Department to be used in making these applications for release is appended as Exhibit 84, page 547. Upon approval of the application, the Federal land bank will forthwith be authorized to cancel and deliver up the borrower's note and deliver a release of the mortgage given as security for the note. I t is provided in the joint circular that the release of the mortgage shall not operate to waive the right of any insurance company to any lien thereunder which it may have acquired by virtue of any policy of insurance taken out by any of the Federal land banks pursuant to Joint Circular No. 4. No refunds of payments made prior to May 31, 1920, are authorized under the circular. Pursuant to this circular the notes of those borrowers who have ° sustained a crop failure as defined in the agricultural appropriation act for 1921, and whose obligations remain unpaid are being canceled and the mortgages on their crops held by the banks as financial agents of the Government are being released. While it is too early as yet to determine finally the exact amount which the United States will realize as repayments on these loans, the collections to date, including the collections covering the principal and interest of the notes and the contributions to the guaranty funds, probably approximate the total amount which the Government may expect to receive. The following table shows the total disbursements made through the Federal land banks of Wichita, St. Paul, and Spokane in the form of loans to farmers, together with the amount^ received up to October 20, 1920, as collections in payment of the loans, including the contributions to the guaranty funds: Table showing disbursements and receipts covering seed-grain loans to farmers. Disbursements in form of loans. Bank. Wichita St. Paul Spokane Total 13799—FI 1920 13 Receipts in payment ofloans. "^ Principal of note. Interest on note. Contributions to guaranty funds. $1,801,955 358,370 1,950,129 $1,341,630 66,823 9,780 $72,235 1,746 469 $243,456 443 24 $1,657,321 69,012 10,273 4,110,454 1,418,233 74,450 243,923 1,736,606 Total. Wi•ij 194 ^ . REPORT ON THE FINANCES. As this table indicates, the majority of farmers in the Wichita district, i. e., Oklahoma, Texas, and a portion of Kansas, were favored with full harvests and were, therefore, able to pay not only their individual indebtedness, but also to make substantial contributions to the respective guaranty funds. I n the St. Paul and Spokane districts, particularly the latter, unprecedented drouths, however, resulted in almost complete failures in these sections. I t is for this reason that the collections made in these districts compare rather unfavorably with the amounts collected by the Wichita bank. Under the terms of the guaranty-fund agreements, the contributions to the respective funds are to be applied in the first instance in payment of the obligations of those borrowers whose crops have proved to be failures. As the contributions to the guaranty funds will be insufficient to meet the total amount still due on the notes of those borrowers whose crops have proved unsuccessful, the contributions to the guaranty funds collected eventually will be received by the Government on the administration of these funds. I t may be said, therefore, that of loans approximating in all slightly over $4,000,000 the Government may expect to realize in return a little less than $2,000,000. I n view of the widespread assistance which these loans gave to the farmers in the sections involved, and the encouragement which they furnished to the communities as a whole through the realization that the Federal Government was interested in and desirous of assisting them to meet the problems growing out of war-time conditions, it may fairly be said that the cost to the United States is insignificant and is amply justified as a war emergency action. B U R E A U O F INTERNAL REVENUE.^ Internal-revenue collections for the fiscal year ended June 30,1920,. aggregated $5,407,580,251.81, as compared with $3,850,150,078.56 for the preceding fiscal year, an increase of $1,557,430,173.25. This increase in collections is due principally to an increase of $1,356,152,100.90 in the collections of income and profits taxes, which aggregate for the.fiscal year 1920, $3,956,936,003.60, as compared withi $2,600,783,902.70 for the fiscal year 1919. The larger collections of income and profits taxes is due, in part,, to the, fact that the provisions contained in the revenue act pf 1918 1 The figures concerning Internal-revenue receipts as given in this chapter differ fromsuch figures carried in* other Treasury statements showing the financial condition of the Government, because the former represent collections by internal-revenue oflacers throughout the country, including deposits by postoaasters of amounts received from sale of internal-revenue documentary stamps, while the latter represent the deposits of these collections in the Treasury or depositaries during the flscal year concerned, the differences, being due to the fact that some of the collections in the latter part of the flscal year can not be deposited or are not reported to the Treasury as deposited until after June 30,. thus carrying them into the following flscal year as recorded in the statements showing: the condition of the Treasury. SECRETARY OF' T H E TREASURY. . 195 for installment payments of income and profits taxes thrcAv forward from the fiscal year 1919 to the fiscal year 1920 the collections of the third and fourth installments of those taxes arising out of income in the calendar year 1918. A considerable part of the increase, however, is due to the assessment throughout the year of additional income and profits taxes on the basis of the audit and verification of returns for 1918 and prior years. As a result of this work an aggregate of $376,977,667.49 was actually assessed during the fiscal year 1920. Satisfactory progress has been made in auditing the large accumulation of income and profits tax returns for 1918 and prior years. Of the 1918 returns about 3,500,000, or more than 80 per cent of the total number, were examined in the offices of the 64 collectors of internal revenue. Returns of income of $5,000 or more are forwarded to Washington for audit and verification by the bureau. The force engaged on this work is organized as the income tax unit of the bureau, the personnel of which was increased during the year from 2,672 to 4,317. The output of completed cases for each employee has also increased. Special attention is now being paid to the claims of taxpayers for refund of income and profits taxes erroneously assessed, and the time required to consider and finally adjudicate such claims is being gradually reduced. The administration of the income and profits tax law has been facilitated by the greater proficiency which officers and employees of the bureau have acquired by experience and through special courses of training organized and conducted by the bureau. Taxpayers have been aided in familiarizing themselves with the requirements of the law by the issuance of a regular service of information containing the decisions and rulings of the department arising out of the settlement of specific cases. , The appellate function in income and profits tax cases, formerly discharged by the Advisory Tax Board, which was discontinued as announced in the last annual report, has been performed during the last year by a group of expert internal-revenue officers. The functioning of this committee in the careful consideration of difficult cases has tended to prevent unnecessary litigation and is believed to have impressed taxpayers with the avowed policy of the bureau to act in an open-minded and fair manner in determining tax liability in every case. I n the. offices of the collectors of internal revenue a program of reorganization has been consummated, involving the establishment of branch offices in the principal cities and towns throughout the country, where taxpayers may secure such assistance in the transaction of their tax business as has heretofore been available only at the offices of collectors of internal revenue. At the end of the fiscal 196 REPORT ON T H E F1NAN(JKS. year there were 318 such offices open for the convenience of taxpayers. In order to make these offices of practical value to the public, special effort has been made to improve the general efficiency of the field personnel. A correspondence study department, with over 3,000 emplo3^ees regularly enrolled, has been engaged in the instruction of these student workers in the many subjects concerning which deputy collectors and other field employees should have complete knowledge. The added efficiency of this important branch of the service is reflected in the fact that a t o t a r of $42,213,889 in delinquent and additional taxes was collected during the year as compared with corresponding collections of $20,560,334 during the preceding fiscal year. This amount is independent of the large additional assessments based on the office audit of income-tax returns. PROHIBITION ENFORCEMENT. The obligations imposed upon all citizens by the national prohibition act, approved October 28,1919, have been respected in large measure, and the far-reaching economic and social changes"sought by that legislation are now in progress. The opportunity for individuals to obtain intoxicating liquors has been removed from the course of public and lawful business to the clandestine, criminal activities of a prohibited traffic. The activities of the Bureau of Internal Eevenue, which was charged with the duty of adininistering the national prohibition act, have beeri directed primarily toward the encouragement by educational methods of this general observance of the law. The act has been carefully studied. Interpretative regulations and general information have been issued as quickly as possible and given the most effective distribution. The cooperation of moral agencies of all kinds has been sought in order that correct public opinion on the subject might be stimulated. In States where prohibition laws are in effect and the local officials cooperate with the Federal officers the enforcement of the national prohibition act is not difficult and is a complete success. However, there are some States which have no prohibition laws, and in some of these there is but little cooperation on the part of local officials. I n such instances the Bureau of Internal Eevenue encounters many difficulties. More definite activities of the bureau, ancillary to this general purpose, have been the organization and management of a force of investigators, who have been engaged in cooperation with State and local authorities in the detection of violations and the prosecution of offenders. I n the brief time which has elapsed since the law went into effect this work has developed into considerable proportions, with 12 field^ departments and 948 investigators at the close of the year. This force will be augmented as may be necessary and under SECRETARY OF THE TREASURY. ' 197 such appropriations as Congress may provide for the purpose. I t is obvious, however, that crimes and misdemeanors under this legislation do not differ essentially from those offenses which it is the province of State and municipal officers of peace and justice to detect and discourage by punishment. I t is to be expected, moreover, that as all citizens become more and more'accustomed to the restrictions and obligations imposed by the law the temptation to violate its provisions will diminish. Certainly with the passing of the generation familiar with the public and habitual use of intoxicating beverages the demand for this illicit commodity will be abated. Eecognition of the increasing importance of alcohol in industry, science, and the arts, as well as of the legitimate use of alcoholic preparations for other essential purposes, led to the inclusion in the national prohibition act of permissive provisions under which such commodities may be manufactured, distributed, and used, subject to control and regulation. The administration of these provisions of the law has been most difficult. The bureau has sought to interpose no unnecessary obstacle to lawful activities, economic or social, involving the manufacture and use of alcohol and has desired especially to encourage the manufacture of industrial alcohol. On tihe other hand, it is through the abuse of permits issued by the bureau under the provisions.of th^e act that many violations of the law, serious and difficult of detection, are consummated or attempted. Despite all safeguards with which the bureau has been able to surround the issuance of these permits, the aggregate volume of alcohol and intoxicating liquors withdrawn from bond indicates by comparison with recognized degitimate requirements that considerable quantities have been diverted to illicit purposes. The development of the bureau's organization and procedure and closer cooperation with the legitimate permittees should result in a modification of the present necessarily restrictive regulations affecting these important American industries without endangering in any way the enforcement of the prohibitive features of the law. I t m^y confidently be expected that the same effective control which was exercised for the purpose of revenue over the manufacture and sale of beverage alcohol for many years before the national prohibition act became law will be brought about for the higher purpose of law enforcement and the moral and economic welfare of the people within a reasonable time. WAR-RISK INSURANCE. Much progress was made during the fiscal year in improving the executive, administrative, and clerical organization of the Bureau of W a r Eisk Insurance and the service rendered* by it to its great number^ of beneficiaries. The organization was divided into 10 198 REPORT ON THE FINANCES. major administrative units, as follows: Insurance, compensation and insurance claims, niarine and seamen, allotment and allowance, medical, legal, finance and administrative, liaison, school teachers' retirement, and personnel. These divisions-functioned with continuing improvement. Within the director's immediate staff a statistical unit was established for the purpose of creating and maintaining administrative control records of every activity of the bureau. These records iridicate accurately the bureau's progress froiA day to day and clearly point out weak spots requiring immediate attention. T7ith the assistance of daily control records it has been possible to coordinate the various activities of the bureau, consolidate many of its functions, and avoid duplication of effort. , Military and naval compensation. The military and naval compensation cases considered during the year related mainly to disability claims, rather than death claims, as during the previpus year. The war-risk insurance .a^ct was amended by the act approved December 24,. 1919 (Exhibit 85, p. 550), which greatly increased the amount of compensation payable for disability. The amendment necessitated the readjustment of virtually all disability claims. ^ Under the law, only men who are compensable—that is, whose disability is 10 per cent or greater—are entitled to medical care and treatment. Experience has shown that this works a hardship upon man}^ men who were disabled by reason of their military service but whose disabilitiies have not been rated as high as 10 per cent. These men are nevertheless in need of medical care not only to relieve their present condition but to prevent their disabilities from becoming aggravated. The attention of the Congress is drawn to this situation. The bureau has approved a total of 44,546 claims for compensation on account of death resulting from service and 184,405 claims for compensation on account of disabilities incident to service. During the month of June, 1920, payments were made by the bureau in this connection as follows: , 42,945 death awards 134,408 disability awards—^ Accrued awards For medical care And in payment of burial awards ., L _, Making a total of $1, 395, 588. 49 8,152, 361. 70 5, 675. 96 375, 896. 02 — 32, 749.18 9, 962, 271. 35 Military and naval insurance. Much progress was made during the year in perfecting the organization of the Insurance Division and in placing its work upon SECRETARY OF THE TREASURY. 199 a plane of efficiency equal to that of modern commercial institutions. This result has been attained by systematizing and simplifying procedure and by the use of many labor-saving devices and office appliances. Duplication has been eliminated and the former volume of work has been maintained, and even increased, with a concurrent re•duction in personnel of more than 50 per cent. The amendatory act of December 24, 1919, increased the classes of beneficiaries of war-risk insurance by adding uncles, aunts, nephews, -nieces, brothers-in-law, sisters-in-law, and persons who have stood in loco parentis to the insured for a period of one year or more prior to his enlistment or induction into the service. United States Govermnent life insurance. The first permanent United States Goverriment life insurance policies, representing conversions of term insurance policies, were issued and delivered on May 1, 1920. During the year 152,979 applications for United States Government life (converted) insur-ance wxre approved for an aggregate amount of $511,821,500 of in•surance. A total of 540,458 premium paynients (including monthly, •quarterly, semiannual, and annual) were received, aggregating :$10,047,463.61. Liberty bonds aggregating $19,921,100 were held on -JSTovember 15,1920, as investments for the United States Governihent -Life Insurance Fund. The amendment of December 24, 1919, provided that United States -Government life (converted) insurance might be paid at maturity in ^one lump sum or in 36 or more monthly installments, at the option of the insured. This option was not extended to the war-risk term insurance. Summary of insurance operations. The Bureau has written— 4,631,993 war-risk term policies covering insurance to the amount of (including some duplicate applications) $40,284,892,500.00 The gross premium remittances on war-risk term policies from all sources approximating ; 298, 864, 307. 07 128,300 claims for insurance on account of death are represented by insurance to the amount of 1,141,818,133.48 While 3,257 claims for insurance on account of permanent and total disability involve insurance to the amount of— 28, 536, 540.00 During the month of June, 1920, the total disbursements on , insurance claims amounted t o — : 7, 670,084. 56 I n spite of the efforts of the bureau to reach all of the more than 4,000,000 discharged soldiers, sailors, and marines to advise them of their insurance rights and privileges under the war-risJi insurance 200 REPORT ON THE FINANCES. act and the steps necessary to reinstate or convert their original insurance— The war-risk term insurance in force on June 30, 1920, amounted to, $3,472, 624, 000 The United States Government life insurance (converted policy) in force on the same date amounted to 511, 821, 500 Making an approximate total liability of 3, 984, 445, 500 With the exception of those whose health will not permit reinstatement under the regulations, the total original amount of warrisk term insurance, being approximately $40,284,892,500 on June 30, 1920, may be regarded as a remote potential liability. I t can scarcely be regarded as a probable or prospective liability. The ex-service men and women are reinstating their insurance at the rate of approximately $100,000,000 a month. If reinstatements continue at this rate, and should ex-service men and women be allowed the privilege of reinstating during the next five years, there would be, in addition to the present war-risk term ' insurance of $3,472,624,000, approximately $6,000,000,000, making a total of about $9,472,624,000.. The average policy of United States Government life insurance (converted term insurance) amounts to $3,345.70. Assuming that reinstatements of term insurance and conversions thereof will continue at the present rate, the amount of permanent United States Gbvernment life insurance in force at the expiration of five years would be approximately $3,643,347,850. This amount represents, in the circumstances stated, the theoretical prospective insurance liability under converted policies five years hence. Of the $40,284,892,500 war-risk term insurance written, there is a definite liability due to death and disability claims of $1,170,354,673.48 to be paid in installments over a period of 240 months, o.r in the case of total and permanent disability during the lifetime of the insured. The sum of $298,864,307.07 has been collected in war-risk term insurance premiums. This leaves a net current liability over premium payments of $871,112,366.41. . I n times of peace, premiums for term insurance ordinarily would be sufficient to pay all normal claims; but in the case of war-risk insurance it is to be remembered that many who are retaining their term policies are not normal risks, and also, that the war-risk term insurance, as well as United States Government life (converted) insurance, provides for permanent and total disability without additional premiums. Therefore it is unlikely, that the term insurance premiums collected will, in fact, be sufficient to cover the actual liabilities. SECRETARY OF THE TREASURY. 201 I t is believed that.premiums collected on converted policies (the United States Government life insurance) will be sufficient to pay all claims. Military and naval allotments and family aUowances. Amendments of original awards of allotments and allowances constituted one of the most important problems of this feature of the bureau's work during the year. Adjustments of the claims of enlisted men who had been discharged from the service involved much correspondence, which is now decreasing as the allotment and allowance work approaches an end. Applications and aioards for family aUowances for the period Oct. 6, 1917, to June 30, 1920. Applications received Number of awards made for men having dependents Number of exemption cases submitted , - Amount of allotments paid Amount of allowances paid^ 4, 473, 700 2,090, 893 111, 903 $288, 704, 689. 73 265, 986, 936. 52 Total disbursements 554, 691, 626. 25 The current work of this division has greatly decreased since the armistice, but it is still of considerable volume. Payments for the month of June, 1920, amounted to— Allotments. Allowances Total ^ ^ ' :_i . $1, 027,166'. 29 1, 334, 491. 43 2, 361, 657. 72 Marine and seamen''s insurance. As insurance' provided for American vessels and their cargoes and for masters and crews of American vessels covered war risks only, it was possible to terminate these features of the Bureau's work soon after the signing of the armistice. The rates for both types of insurance were withdrawn on January 4, 1919. From September 2, 1914, when the Bureau was created, to June 30, 1920, the marine section wrote insurance on American hulls and cargoes aggregating $2,067,291,993. The net premiums received amounted to $46,741,508.96 and salvage $63,734.88. The net profit of these operations, representing the excess of premiums and salvage over expenses and paid and estimated losses was $17,030,197.11. The seamen section, from its beginning on June 12,1917, to June 30, 1920, wrote insurance on the lives of masters, officers, and crews of American vessels aggregating $322,782,391.82. The amount of net 202 REPORT ON THE FINANCES. premiums received was $843,563.49. The net profit on the policies covering these risks, representing the excess of premiums over expenses and paid and estimated losses, was $470,700.81. Medical Division. The work of the Medical Division has greatl}^ increased during the fiscal year. To keep abreast of the work it has been necessary to augment both the professional and the clerical personnel. At the be- " ginning of the fiscal j^ear there were 35 medical officers and 196 clerical employees, and at the close there vfere 72 medical officers and 478 employees. At the beginning of the fiscal year there was an arrearage of approximately 39,000 cases awaiting action; on June 30, 1920, the arrearage was only 4,444 cases, less than one average day's work. At the beginniiig of the fiscal year the average output of cases per diem was approximately 1,000; at the end of the fiscal year it was 5,257. The Medical Division acted upon 1,088,201 cases during the fiscal yeaf. These figures do not indicate the total number of men whose cases were acted upon, but the number of times that cases received attention. Out of the 3,800 men suffering major amputations during the war, 3,616 have already been supplied with artificial limbs. Of these 1,249 were arms and 2,367,were legs. The number of patients in hosjoitals increased from 3,279 on June 30, 1919, to 17,471 at the close of the fiscal year. During that period there were admitted to hospitals 48,983 patients, of whom 34,791 were discharged. Analyzing these figures, it is found that at the beginning of the fiscal year of the patients in hospitals, 864 were general, 1,362 were tuberculous, and 1,053 were neuro-psychiatric. At the close of the fiscal year, 6,411 were general patients, 6,018 were tuberculous, and 5,042 were nervous and mental patients. Of the clainis made during the year 66.65 per cent were rated as temporary partial disability, 20.87 per cent as temporary total, 3.72 per cent as permanent partial, and 1.97 per cent as permanent total. Ninety-three and twenty one-hundredths per cent of the total number of cases were rated at 10 per cent of disability or greater; that is, were com-' pensable; and 6.29 per cent at less than 10 per cent of disability; that is, noncompensable. 'Of the total number of claimants of the bureau, 2,629 have died during the year. By an understanding with ^ the Federal Board for Vocational Education an interchange of physical examination reports was arranged. This materially'assisted the bureau in the speedy adjudication of claims and proved of great benefit to the claimants themselves, in that they were obliged to make only one contract to secure SECRETARY OF THE TREASURY. 203 a medical examination either for the purposes of the Bureau of W a r Eisk Insurance or those of the Federal Board for Vocational Education. Every endeavor was made to provide physical examinations' and medical treatment based upon the latest and best medical records, and arrangements were perfected whereby examinations and treatment were provided for claimants with the minimum of annoyance and disturbance of their personal affairs. The Medical Division has! maintained arrangements with the medical departments of the Army and Navy, whereby patients requiring further treatment when discharged from the service are immediately transferred from the Army or Navy ,hospital to a hospital for patients of the Bureau of W a r Eisk Insurance. I n the fulfillment of its medical responsibilities to its claimants the Bureau of W a r Eisk Insurance has maintained constantly a -sympathetic attitude toward the claimant and his dependent relatives -and has at all times endeavored to administer its several functions with justice both to the claimant and to the Government. Personnel. The bureau has made marked progress during tho fiscal year in •solving its difficult and extensive personnel problems. The force has "been greatly reduced, placed upon a permanent civil-service basis, and mobilized to meet the needs of the bureau. The maximum number of persons employed at any one time during t h e fiscal year was 15,480 and the minimum number was 7,862, the latter being the total on June 30, 1920. The output of work, nevertheless, increased. The volume during the last quarter of the fiscal year was very much greater than in any preceding quarter and the bureau was on a more current basis. The total number of employees of the bureau on Noveniber 1, 1920, was 6,833, including the field force and additional medical personnel. The personnel program of the director contemplates a reduction in force to approximately 6,000 by January 1, 1921. • . • \i E N E M Y OR A L L Y OF E N E M Y I N S U R A N C E C O M P A N I E S A N D O T H E R FOREIGN INSURANCE COMPANIES. Federal supervision and. regulation of foreign insurance companies doing business in the United States was continued throughout the year. I t was performed through the Bureau of W a r IRisk Insurance under authority of an Executive order issued under the trading with the enemy act. During the year applications of 12 companies to do business in the United States were approved and the necessary .licenses issued. 204 REPORT ON T H E FINANCES. S O L D I E R S ' A N D S A I L O R S ' CIVIL RELIEF ACT AND BONDS.^ The department continued the administration of Article I V of the act approved March 8, 1918, generally known as the soldiers' and sailors' civil relief act. Under this law, the Government undertakes to protect payments of premiums in commercial companies on certain policies on the lives of men in the military and naval services to the extent of $5,000 insurance on any one life. Premiums due life insurance companies in such instances are certified by the Bureau of W a r Eisk Insurance to the Secretary of the Treasury, and, to secure the payment of such premiums, the Secretary issues bonds of the United States registered in the names of the respective insurers. To June 30,1920, the Bureau of War Eisk Insurance approved 7,745 applications for benefits under this law. These approved applications protected $12,526,956.29 of insurance in private companies and societies on the HA^CS of men in the military and naval services. The amount of premiums guaranteed was $362,399.50. Some of the premiums were paid by the insured, and to the extent of such aggregate payments it was unnecessary to issue bonds as a guaranty. To October 31,1920, $195,400 of bonds had been issued to guarantee the payment of such premiums, of which $29,400 had been canceled and $166,000 were outstanding on that date. DISTRICT OF COLUMBIA SCHOOL-TEACIIERS' RETIREMENT ACT. The administration of certain provisions of the act approved January 15, 1920, providing retirement for the school-teachers of the District of Columbia, was vested in the Secretary of the Treasury. The law provided for the deduction and withholding. from the basic salaries of every teacher in the public schools of the District of an amount sufficient, with interest thereon at 4 per cent per annum, compounded annualiy, to purchase an annuity under the provisions of the act. I t also authorized the investment of the fund arising from such deductions. By Treasury Department Circular No. 190, dated May 25,1920 (Exhi|bit 86, p. 557), the Director of the Bureau bf War Eisk Insurance was authorized to administer, under the direction of the Secretary of the Treasury, the duties conferred upon the Secretary by the retirement act, except those relating to the investment of the fund created thereunder. The commissioner of the public debt was authorized by the circular to perform, under the direction of the Secretary of the Treasury, the duties conferred upon the Secretary with respect to the investment of the fund. These arrangements continued until June 30, 1920, when, in accordance with the terms of the act approved June 5, 1920, the administration of the law was transferred to the Commissioners of the District of Columbia. the° SECRETARY OF THE TREASURY. 205 duties with respect to investments being transferred to the Treasurer of the United States. Such transfer and the future investment of the fund were covered in Treasury Department Circular No. 205, dated July 6, 1920 (Exhibit 87, p. 559). Liberty bonds aggregating $48,350 on Noveniber 15, 1920, were held, as investments for the District of Columbia Teachers' Eetirement Fund. HOSPITALIZATION. The signing of the armistice, with the resulting rapid demobilization of the military forces, threw an extraordinary burden upon the hospital facilities of the United States to provide medical care and treatmicnt for beneficiaries of the Bureau of W a r Eisk Insurance. The United States Public Health Service constituted, with a few minor exceptions, the only civil agency of the Federal Government operating a general medical service. The Secretar}^ of the Treasury consequently designated the service as the principal instrumentality for the performance of the hospitalization work of the Bureau of War Eisk Insurance. This arrangement was confirmed by the Congress in the act of March 3, 1919, which authorized additional hospital facilities for the care of the beneficiaries of the Public Health Service and added to these beneficiaries patients of the Bureau of War Eisk Insurance; and by the provisions of the sundry civil appropriatiori act for the fiscal year ending June 30, 1921, making appropriation for the care and treatment of patients of the War Eisk Insurance Bureau. Under the direction of the Secretary of the Treasury, on October 6, 1919, the War Bisk Insurance Bureau and the Public Health Service prepared an estimate of the urgent hospital needs and a program to supply adequate hospital facilities to meet these needs. The estimate disclosed that there was an immediate need of 7,700 beds for war-risk insurance patients in addition to the other patients of the Public Health Service. Acting as the medical agency of the War Eisk Insurance Bureau, the Public Health Service adopted as temporary expedients the following: 1. The expansion of existing facilities by such alterations, additions, or modifications as were immediately feasible. 2. The acquirement through congressional action of certain base hospitals at Army camps which were capable of utilization. 3. The transfer to the Public Health Service of certain hospitals leased by the W a r and Navy Departments. 4.. The purchase, lease, and remodeling of other institutions. 6. The making of contracts for the treatment of patients in nongovernmental hospitals. 206 REPORT ON THE FINANCES. From October, 1919, the number of patients requiring hospital care increased with great rapidity, until on June 30, 1920, it reached a total of approximately 20,000, without any prospect apparent of an abatement of increasing demands. To meet this situation the Public Health Service had to find not only sufficient hospital facilities, already greatly overtaxed in this country prior to the war, and to find, and in many cases traiuo. the professional personnel needed to man these hospitals, but it also had to develop the administrative machinery required, tohandle this large and growing organization and to make contact with sick and disabled former service men and women for the purpose of securing the medical examinations necessary to ascertain the cliar-^ acter of treatment needed, to distribute them to hospitals, and for the other manifold purposes to which this task gave rise. For reasons of administration, the United States was divided by the Public Health Service into 14 districts, in each of which it opened an office and placed a district supervisor. The creation of this extensivemachinery to permit the Public Health Service to reach the disabled soldiers and sailors and provide them with the care and treatment of which they stood in need required time. The expansion of the field agencies of the service went on rapidly, and Avas supplemented in its early stages, particularly in sparsely settled portions of the country., by physicians retained on a fee basis directly by the Bureau of W a r Eisk Insurance. As the organization was developed the services of these physicians were made available to the Public Health Service in an effort to coordinate their activities under the supervision of that service. Since the inception of this work, approximately 130,000 patients entitled to treatment under the war-risk insurance act have been cared for in hospitals, making a total of nearly 5,000,000 hospital relief days, the unit of computation. Over 500,000 out-patient treatments have been furnished^—that is, treatment of cases not requiring confinement in a hospital. About 500;000 medical examinations have been completed. I n addition, special services and attentions of various kinds have been afforded. For example, about 22,000 patients have been given dental treatment. At the present time over 2,000 patients are being given occupational therapy and over 3,000 physiotherapy each week. Thousands of patients have been furnished prosthetic appliances of many different kinds. To carry on this work the Public Health Service has necessarily assembled a large personnel. The medical force (exclusive of designated examiners who act on a fee basis) now numbers approximately 2,700. A dental corps has been organized, comprising about 130 officers. There is in the service a corps of approximately 1,200 SECRETARY OF THE TREASURY. 207 female nurses. A reconstruction service has been formed, and there are now in the employment of the service about 400 reconstruction aids. A dietetic service has been provided which includes 125 trained dietitians. An inspection service has been instituted for general supervision of the field activities of the service, and a number of officers are kept constantly in the field investigating complaints and making reports. This inspectJLon service covers not .only the hospitals operated directly by the Public Health Service, but also civilian institutions receiving patients under contract with that service, so that the department may endeavor to see that the care and treatment furnished in such hospitals do not fall below the proper standard. I n cooperation with the American Eed Cross, which has devoted itself to the work with great zeal, there has been organized an extensive and effective medical social service, ministering to the needs of the discharged disabled soldier and sailor in many ways. The Public Health Service has ^siipplied the Federal Board for Vocational Education with the medical personnel necessary to carry on the medical functions of the board, and, up to a short time ago, supplied the Bureau of W a r Eisk Insurance with similar personnel to constitute the Medical Division of the bureau for the execution of the medical functions of the warrisk insurance act carried on in the bureau. I n order to assist the Public Health Service to meet the tremendous task suddenly placed upon it by the demobilization of the armed forces of the Nation following the cessation of hostilities, the Congress in the sundry civil appropriation act for the present fiscal year authorized the utilization by the Director of the Bureau of War Eisk Insurance of such governmental facilities as might be made available, beginning July 1, 1920, in hospitals of the Army and Navy and in the National Homes for Disabled Volunteer Soldiers. I n pursuance of this authorization there have been made available about 1,600 beds in hospitals of the Army, about 1,600 beds in hospitals of the Navy, and about 1,000 beds' in the soldiers' homes. I t is estimated by the Director of the W a r Eisk Insurance Bureau that by January 1, 1921, there will be available in the soldiers' homes approximately 4,000 beds. This includes a hospital of 1,000 beds at Johnson City, Tenn., for tuberculous patients, and another of 1,000 beds at Marion, Ind., for patients suffering from mental and nervous disorders. The work of making these beds available in the hospitals of the Army and Navy arid in the National Homes for Disabled Volunteer Soldiers was intrusted by the Congress to the Bureau of W a r Eisk Insurance, and has been performed by the Medical Division of that bureau in conjunction with the agencies of the Public Health Service, including the district supervisors of that service. The Chief 208 REPORT ON T H E FINANCES. of the Medical Division of the Bureau of War Eisk Insurance is a member of the hospital board of the Public Health Service. Under regulations approved by the Secretary of the Treasury, the Surgeon General of the Public Health Service and the Director of the Bureau of War Eisk Insurance, acting conjointly, assemble through their respective organizations the data as to beds made available in hospitals operated by, controlled by, or under contract with the Public Health Service, in Army and Navy hospitals, and in soldiers' homes, and transfer this information at frequent intervals to the offices of the district supervisors of the Public Health Service who are charged with the distribution of patients. I n addition to its duties in this connection, the Medical Division of the Bureau of War Eisk Insurance transmits to district supervisors requests for medical examinations required in connection with claims for compensation and insurance under the war-risk insurance act, receives and reviews the reports of such examinations, and makes an advisory determination for the Director of the Bureau of War Eisk Insurance of the extent of disability found, which is based upon a table of ratings established under the war-risk insurance act for that purpose. Such ratings are transmitted to the Compensation and Insurance Claims Division, and when confirmed or modified by the director of the bureau determine the payment of insurance or the amount of compensation due. Every effort has been made to coordinate closely the work of the Medical Division of the Bureau of War Eisk Insurance and the work of the Public Health Service. I t was recently decided by the Secretary that the medical work in the Brireau of War Eisk Insurance should be performed through a medical personnel, appointed in that bureau. The reorganization of the Medical Division of the bureau in accordance with this plan is now actively in hand and is nearing completion. I n undertaking this task, the force was recruited in large part from the medical personnel assembled and trained by the Public Health Service and assigned to duty in the Bureau of War Eisk Insurance. The personnel thus taken over continued the exercise of their functions without interruption or material change. In carrying out this emergency hospitalization program it has been necessary to utilize many temporary facilities and to adopt many temporaiy expedients, which will be discontinued as rapidly as they can be replaced by measures of a more desirable and permanent nature. I t has been necessary to act expeditiously and to organize on a constantly expanding scale. I t is estimated that within the course of another year approximately 30,000 patients will require hospitalization, and to meet this immense increase in the number of patients within a period so short requires the unremitting efforts of every SECRETARY OF THE TREASURY. 209 person engaged in the task. According to the best estimates available, it will cost approximately $50,000,000 to carry on this hospital program during the coming fiscal year for patients of the Bureau of War Eisk Insurance. J HOSPITAL CONSTRUCTION. The Public Health Service now has in buildings either owned or leased by the service over 12,500 available hospital beds. Under commitments already made it is expected in the course of the next few months that this available bed capacity will be increased to a number in excess of 15,000. In addition there will be added to the permanent bed capacity of the Government 1,000 beds for neuropsychiatric patients in the soldiers' home at Marion, Ind., and 1,000 beds for tuberculous patients in the soldiers' home at Johnson City, Tenn. These two homes have. been converted into hospitals exclusively. This will make a total of 17,000 Government beds in the near future. There are also at other soldiers' homes, either now available or shortly to be made available, approximately 2,000 bed^; in Army and Navy hospitals there have been reported as available a total of-3,270 beds. The use of beds in hospitals of the Army and Navy has been adopted as a temporary expedient until more satisfactory facilities can be constructed. The use of beds in soldiers' homes should be of a more pernianent nature, provided patients in these homes are kept entirely separate and are separately treated from persons who seek these homes for domiciliary purposes. I should point out with respect to the hospitals operated directly by the Public Health Service that some are Government buildings on leased grounds transferred to the service by the Army or Navy; some are institutions leased by the Army and Navy and turned over to the Treasury Departnient by transfer of lease; some are buildings of temporary construction hastily put up by the Army at the beginning of the war; some are priv.ate institutions leased by the Public ' Health Service direct under the act of March 3, 1919; and others are hospitals bought or constructed especially for the service. The leases in some cases will expire after certain fixed periods following the declaration of peace, and are not renewable by their terms. The buildings of many of the hospitals are far from satisfactory for the use to which they are being put, and should be either substantially altered and repaired or abandoned as soon as more satisfactory institutions become available. Some of the leases carry a purchase clause, in pursuance of which the buildings may be bought if of a character desirable for permanent acquisition, provided the Congress sees fit to make the appropriations necessary. 13799—FI 1920 14 210 REPORT ON THE FINANCES. The hospital facilities which the department now has are not so distributed geographically as to meet desirably the needs of the patients of the Bureau of War Eisk Insurance. I t is obvious that the supply of beds must be sufficient in number, of the requisite character, properly maintained, and so distributed throughout the country as to permit of their use in the various sections.of the United States.' I n meeting the future needs for hospital facilities, the correct policy, in my judgment, is to hospitalize all patients, as far as practicable, in Government hospitals and that beds be provided accordingly. This policy is clearly indicated by the experience of the department with regard to the character of service afforded patients in Government-operated hospitals and hospitals treating patients under contract with the Public Health Service: Should this policy be adopted by the Congress, it will be necessary not only to supply the number of beds necessary to equal the difference between the number of patients now iri hospitals and the beds now available in Government-operated hospitals, but it will be necessary, in addition, to.increase the figure in order to provide such distribution of beds as will correct the present inconvenient geographical distribution and to provide for growing demands. I t will be readily appreciated that it is injurious to the patients in many instances, as well as expensive to the Government, to have to move them great distances in order to provide the character of care and treatment required in the individual case. Further than this, it will be necessary to increase the number, as rapidly as practicable, by the number of beds required to replace those in leased hospitals of the Public Health Service, the leases of which are not renewable, and in those hospitals which are of an undesirable character and the use of which should, therefore, be discontinued as speedily as possible. As previously stated, there are at the present time approximately 20,000 patients now undergoing hospital treatment provided by the Treasury Department. After careful consideration of (1) the number , of patients of the Bureau of W a r Eisk Insurance and the Public Health Service now in hospitals; (2) the present Government hospital facilities; (3) the imminent necessity of replacing some of the undesirable hospitals; (4) the increase in the number of patients within the past year giving further support to the estimate that 30,000 hospital beds will be needed by the end of the next .12 months; and (5) the geographical distribution of the ex-service population of the country, it is believed that there is immediate and urgent need for 4,800 additional beds for tuberculous patients, 4,500 additional beds for patients suffering from mental and nervous disorders, and 900 additional beds for general medical and surgical patients. I n round numbers, 10,000 I SECRETARY OF THE TREASURY. i • , • . 211 • additional beds are almost immediately required. At an estimated cost o'f $3,000 per bed for construction and $500 per bed for equipment, jan appropriation of $35,000,000 for this purpose would be requirjcd at this time. Sho|uld the Congress decide further to utilize buildings already owned by the Government and erected on the grounds of soldiers' homes in different sections of the country, the amount of this appropriation could be reduced accordingly. There are highly desirable grounds surrounding and belonging to soldiers' homes in different sections qf the United States upon which hospitals could be erected if these j properties were made available for the purpose, thus reducing the expense of purchasing grounds for the erection of hospital jbuildings. Furthermore, if the Congress should see fit to authorize the extension of the privilege of existing Army and Navy hospitals for the use of W a r Eisk Insurance patients, the total of the appropriation above suggested could be further reduced. The requisition of Army and Navy hospitals for this purpose is inadvisable •except as to such as are both new and desirable. Another matter which should be taken into consideration in connection with the hospital construction program is the possibility which has recently developed by the passage by the New York State Legislature of ari act to provide for the construction of a 1,000-bed hospital for neuropsychiatric patients of the Bureau of War Eisk Insurance, to be ileased to the Government for 10 years at an annual rental of one-tenth of the entire cost, but containing a limitation to the effect that only patients who are citizens of New York State shall be admitted to the hospital. If this act of the New York State Legislature should be amended by removing this limitation and by adding the usual I purchase clauses which would admit of the application of rent payments or a percentage thereof toward the purchase of the institution, jthe program for hospital needs for neuropsychiatric patients .couldjbe modified substantially. I should present for the consideration (If the Congress the advisability of encouraging other States to construct hospitals at their own cost to be leased upon completion to the Government for the care and treatment of these patients, with the provision that the United States would have the privilege of buying the hospitals and of being credited in the purchase price with sums Ipaid in rentals. I n this way the Government could purchase such hospitals as, in the light of experience, might be needed permanently, and could release to the States for their use such hospitals as maiy prove to be needed only for a period of years. The 20,000 patients now receiving hospital care may be classified, roughly, as one-third tuberculous, one-third suffering from mental and nervous disorders, and one-third general medical and surgical 212 REPORT ON T H E FINANCES. cases. An analysis of the character and distribution of the present bed supply shows that the general medical and surgical cases are provided for in a reasonably satisfactory way, and it is believed that such cases, if necessary, can in great part be cared for adequately under contract in civilian institutions, since their ailments do not ordinarily require prolonged hospitalization. On the other hand, the care and treatment of tuberculous and neuropsychiatric cases constitute the more permanent phases of the hospital construction pro-, gram. I t is not possible, upon the basis of present knowledge and experience, to state when the maximum number of neuropsychiatric and tuberculous cases will be reached. The indications are that this may not occur in the near future. I t will be affected by possible future legislation, such, for instance, as the pending proposal to extend the privilege to claim compensation payments under the warrisk insurance act beyond the time now fixed in that act. Such an extension would serve to admit a greatly increased number of patients to care and treatment by the Government. I t has been estimated by the Director of the Bureau of War Eisk Insurance that the maximum will not^be reached for these classes of patients until the years 1927 to 1929'. I n addition to the immediate construction program involving an appropriation of approximately $35,000,000, the Government must make provision for the care of these two groups of patients in the years to come. I t is my belief that in appropriating funds to care for the patients of these two services it would be wise to frame the authorization in a broad and general way, since this is an undertaking in a new and uncharted field which has, in the few months since its inception, afforded but very limited experience by which the Government may be guided. The legislation should authorize the use of funds for building units or additions of wards to existing State or private institutions, and should contain provision for the conclusion of long leases with such institutions as meet the required standard. The appropriation should, therefore, in my judg- . ment be so framed as to provide additional hospital facilities (1) by purchase, gift, or lease of existing plants or parts of plants; (2) by construction on sites now owned by the Government or on sites acquired by purchase, condemnation, gift, or otherwise; and (3) by remodeling or extension of existing plants and their equipment, owned or to be acquired by the United States, I n summarizing the need for the construction of hospitals to meet the requirements of ill and disabled ex soldiers and sailors, to whom the country owes so much, I should point out that, according to the best estimates obtainable, there will probably be need for a total of something like 30,000 permanent beds in the United States. I t seems fitting in every sense that the National Government should adequately provide for the needs of these men, and I know of no way in which i SECRETARY OF THE TREASURY. 213 this' c|an be° done except by the construction of permanent, suitable institutions, particularly for those who suffer from tuberculosis or nervojus and mental disorders. The Nation earnestly desires that the medical and hospital needs of her heroic sons be met in a manner that will show America's appreciation of the glorious service they rendered to their country. I am satisfied that this need can not be met unless adequate provision be made in permanent governmental institutions. The estimates which are being submitted to the Congress contemplate an expenditure of approximately $35,000,000 for the construction of hospitals to meet the imperative demands of the situation, and in miy judgment this sum is by no means excessive to care for this real emergency and immediate obligation of the Federal Government. I earnestly urge that the Congress appropriate the necessary funds for this purpose at the earliest practicable moment. PUBLIC HEALTH. In addition to the extensive and important work conducted for the patients of the Bureau of War Eisk Insurance, as previously discussed, the Public Health Service continued to perform, with unremitting care throughout the year, its usual functions in the interest of th^ health of the people. These included the protection of the Natiolii against the introduction of epidemic diseases from foreign countries and the spread of sickness from State to State, as well as the continuation of scientific studies of medical treatment, diseases, sanitation, etc. The service pursued its customary activities in cooperaltion with the State and local health authorities of the country. I Precautions against foreign epidemics. With the resumption of maritime intercourse among the nations of the world following the war, the prevention of the introduction of pestilential diseases into the United States from foreign countries becarae a problem for serious consideration by the Public Health Service. Devasted and famine conditions in many parts of Europe furnished fruitful soil for the propagation and spread of diseases throughout Europe and their introduction into this country unless strict precautionary measures were taken at ports of departure or entry of vessels engaged in trade with America. Officers of the Public Health Service were detailed during the fiscal year in increased numbers for duty in foreign countries to detect outbreaks of diseases, in order that proper quarantine restrictions might be exercised. The officers stationed in foreign ports are rendering valuable reports. Up to the present time, the service has been eminently successful in preventing the introduction of disease into the United Irritates. i ' -^ ' 214 REPORT ON THE FINANCES. Transfer of State quarantine stations. I t was a fortunate coincidence that, with the increasing menace of disease conditions abroad, the three remaining States under which estate quarantine stations were maintained transferred their quarantine facilities to the Public Health Service. During the fiscal year ended June 30, 1920, Congress appropriated funds for the payment for the quarantine stations at New York City, Baltimore, Md.,. and those in the State of Texas, and the necessary legal steps are now being taken to effect the transfer of these properties from State to Federal jurisdiction. This is a move of much importance in the direction of safeguarding the health of the country. I t enables trie quarantine procedure now being carried out at other stations to be made applicable at these places. This action now makes possible uniform practice at all the quarantine stations of the United states, with a resultant increase in quarantine efficiency and a decreased burden on maritime coinmerce. National leprosarium, Eealizing the menace which existed in the presence and migration of persons afflicted with leprosy in various States throughout trie country, the Congress, on February 3,1917, appropriated $250,000 tor the establishment of a national leprosarium to be maintained under the jurisdiction of the Public Health Service and granted autriority for the erection of suitable buildings to carry out the purposes ot trie act. bince the date of the passage of the law repeated efforts were made to obtain a suitable site for the institution. A number.of satisfactory locations were given serious consideration, but local opposition to the establishment of a leprosarium finally resulted in the abandonment of these projects. Within the last few months, however, arrangements have been perfected and necessary legislation enacted by the Legislature of the State of Louisiana, whereby its leper colony located at Carville, in that State, has been turned over to the Public Health Service to be operated as a national leprosarium. Final steps are being taken to consummate this transfer and to open the institution under Federal control. Heretofore persons afflicted with leprosy frequently have become charges of States of which they were not legal residents. I t is manifestly unfair to such communities that they should be charged with the expense and care of these patients and be subjected to the risk of the spread of the disease among their people. With the establishment of this Federal home, however, it is believed much can be done to relieve the States of this unjust burden. ! . SECRETARY OF THE TREASURY. 215 I n connection with the treatment of lepers it should be riientioned that as a result of investigations of leprosy the Public Health Service hasi developed a method for the treatment of the disease which gives extremely encouraging results. Should further observations of this treatment bear out present indications the Federal home for lepers will not only be the means of segregating persons suffering from one of the diseases most dreaded by man, but will also hold out in cases which have not advanced too far a very material hope for recovery. National health program. The efficient formulation and effective execution of an adequate national health program is of vital importance to the happiness and prcjgress of the people of the United States. I n the previous annual repjort of the Secretary of the Treasury attention was invited to the nedessity of the development of a comprehensive plan to meet the urgent after-the-war health needs. I t has been possible to make but little progress in this direction because of the lack of the necessary appropriations. Nevertheless, the Public Health Service already has made a beginning along certain lines and has employed the limited funds placed at its disposal by the Congress to the very best advantage practicable in developing the contemplated program. For exam.ple, an appropriation of $50,000 to enable the service to codperate with the States in studies in and demonstrations of rural hygiene has been used to such advantage that, instead of the expenditure by States of an equivalent sum, such expenditures have been five times the amount contributed to the work by the Federal Government; that is to say, $250,000. That does not include much larger •sums for the same purpose expended by municipalities and private •corporations which have authorized the issuance of bonds or directly expended sums in the neighborhood of $800,000. I n view of the encouraging results which have followed these very moderate expenditures, it is felt that a substantial increase, should be made in these funds which go far toward making rural life more attractive and healthful. The service has not been able to undertake its work in child hygiene along the extensive lines that are desirable. I t has used the money appropriated, however, in intensive studies of the conditions of -child hygiene in such a manner as to demonstrate the unusual value t o ithe country of health work in this field. As a result, three States are now establishing departments of child hygiene along lines recommended by the Public Health Service. These investigations have shoAvn so many adverse conditions which are easily preventable affecting the health of children that there can be no question as to the necessity for the Public Health Service continuing the work in a larger way. 216 REPORT ON THE FINANCES. In organizing its work on industrial hygiene the service has made intensive.studies of many occupations, but what is of larger interest in this field is the fact that it has assumed sponsorship for a national code of industrial hygiene whereby minimum standards for the protection of the health of workers will be established. I t appears quite essential that the Public Health Service should be provided with adequate funds with which to support and conduct investigations. I n this connection the Surgeon General calls attention to the fact that one-fifth of all deaths take place in children less than 5 years of age, that pneumonia is annually the cause of one-tenth of all deaths in the United States, that tuberculosis claims 150,000 persons annually, that 7,000,000 or 8,000,000 cases of malaria occur yearly with an estimated economic loss ranging from $800,000,000 t o ' $1,000,000,000, and that the recent epidemic of influenza carried off in the space of six weeks some 500,000 lives. Plague has made its appearance in the United States, and these outbreaks are drawn to the attention of the Congress in the hope t h a t additional appropriations will be granted to the Public Health Service for combating the disease. The service is also in need of additional funds for the purpose of collecting information with respect, to the presence of disease in the United States. I t is important t h a t a'Central national agency assemble this very important ^information ctirrently and distribute it to State and local authorities for the purpose of taking the necessary steps to prevent the scourge of interstate epideriiics. The attention of the Congress is further invited to the request of the Surgeon General for adequate appropriation and authority to publish and distribute additional health material for the use of the public. COAST GUARD. After distinguished service as a part of the Navy, to which it was temporarily transferred in accordance with law during.the war,, the Coast Guard has operated under the direction of the Treasury since August 28, 1919, pursuant to Executive order of that date. I t is gratifying to record that the department's expectations with respect to the loyal, effective, and courageous performance of war-time duties by this historic service were fully realized. Its integrity, efficiency, and best traditions were sustained in a marked degree, and the record is a creditable one, of which officers and men may well be proud. . The Secretary of the Navy, in his annual report for the fiscal year ended June 30, 1919, had the following to say with regard to t h e operations of the Coast Guard as a part of the Navy during the war:.. * * * Its vessels and personnel made a valuable addition to our forcesafloat and its experienced ofiicers and men proved .their v/orth in service with* those of the regular Navy and Naval Reserve Force. SECRETARY OF TFIE TREASURY. 217 I n I speaking of the performances, of the Coast Guard cutters in European waters the Secretary of the Navy also said: SixjCoast Guard cutters were employed, in convoy and escort duty in European waters, the Ossipee, Seneca, Yamacrato, Algonquin, Manning, and Tampa forming a ipart of our forces based on Gibraltar, which escorted hundreds of vessels between the Mediterranean and Great Britain. It was while engaged in this duty that the Tampa was lost, with all her gallant oflicers and.men, sunk at night in the English Channel by mine or torpedo. Only a short time before Rear Admiral Niblack had commended the Tampa in the warmest terms, recalling that it had steamed an average of 3,566 miles a month, being under way more than 50 per cent of the time; had escorted 18 convoys, and had been kept in a state of high efficiency with an excellent ship spirit. This was typical of the serviqe of the Coast Guard cutters in the war zone and of the excellent record made I by the Coast Guard wliile operating with the Navy. I wish to express my appreciation of the hearty cooperation of its officers and men and of the way in which experience demonstrated the wisdom of the legislation which in time of war makes available the addition of this branch to our fighting forces. I t is my pleasure and privilege to express the Treasury's grateful appreciation of the achievements-of the service during the war and to commend the officers and men for the splendid record they have written into the Nation's history. Rescue and salvage. Like other branches of the public service affected by postwar conditions, the Coast Guard has been compelled to do its work during the past year with a personnel far short of actual requirements Nevertheless, the aid given to shipping in the face of these difficulties, and others, among which may be mentioned a winter season of more than ordinary severity, has far exceeded that of any former 3^ear in the history of the establishment. The value of the vessels (including cargoes) assisted by service stations and.cutters during any former year did not exceed $20,000,000; the value of such property aided during 1920 was somewhat in excess of $65,000,000. The instances of service performed within the same period were approximately 2,700 and the number of lives saved or persons rescued from peril was 2,417. There was not a single day during the year in which service of some sort vv^as not performed having for its object the saving of life or property or the relief of human distress. Ice patrol to promote safety at sea. The patrol of the ice regions in the North Atlantic Ocean, in accordance with the terms of the International Convention for Safety at Sea, which was temporarily suspended for the seasons of 1917 and 1918 on account of military exigencies, was resumed during the past year. The service was rendered by the Coast Guard cutters Seneca., 218 REPORT ON T H E FINANCES. Ossipee., and Androscoggin^ principally off the Grand Banks and along the trans-Atlantic steamship lane, where, during certain periods, the low visibility, due to rain,, fog, and mist, renders floating icebergs a constant menace to navigation. Through the protective work of the cutters, daily reports were made to the B[ydrographic Office of the Navy and warnings circulated by wireless for the information of shipping. Winter cruising. Winter cruising for the purpose of rendering aid to distressed navigators upon dangerous or storm-swept coasts of the United States, which was omitted for the season of 1918-19 on account of international conditions, was resumed during the year upon order of the President, designating the Ossipee, Androscoggin, Gresham, Acushnet, Seneca, Manning, Apache, Pamlico, Seminole, Itasca, and Yamacraw for the duty. These vessels, individually and collectively, made a commendable record, the number of persons rescued from peril in the course of the fleet's operations reaching nearly a thousand and the value of property saved (ships and cargoes) reaching far into the millions of dollars. This record was made in spite of a seriously crippled personnel, the cutters having been frequently undermanned, due to the inability of the service to offer attractive inducements for enlistment. Cruises in northern waters. During the year an arrangement was entered into between this department, the Navy Department, and the Department of Commerce whereby each department was to assign vessels to perform jointly the customary annual patrol of the waters of the North Pacific Ocean, Bering Sea, and Southeastern Alaska. Four vessels of the Coast Guard (the Bear, Unalga, Algonquin, and Bothwell), three vessels pf the Navy, and four of the Department of Commerce (contributed by the Coast and Geodetic Survey), were assigned to this duty. The cruise conducted last year in Alaskan Avaters was made by the Coast Guard cutters Unalga and Bear. The first-named vessel sailed in April and the other in May of 1919, and the cruise continued for several months. A notable feature of this cruise was a six weeks' fight riiade by officers and crew of the Unalga in combating a virulent epidemic of the Spanish influenza among the natives at Unalaska, in the Nushagak Eiver district, and elsewhere. I n the prosecution of this work the personnel of the Unalga were called upon to sacrifice every personal comfort, to risk health, and even seriously to hazard their lives. But for their self-sacrificing endeavors the native population in several localities would practically have been wiped out. SECRETARY OF THE TREASURY. 219 Anchorage and movements of vessels. I n accordance with Title I I of the act approved June 15,1917, proTiding, in part, that— Whenever the President by proclamation or Executive order declares a national emergency to exist by reason of actual or threatened war, insurrection, or invasion, or disturbance of the international relations of the United States, the Secretary of the Treasury may make, subject to the approval of the Presi•dent, rules and regulations governing the anchorage and movement of any vessel, foreign or domestic, in the territorial waters of the United States, may inspect such vessel at any time— the Secretary of the Treasury continued to exercise jurisdiction over the anchorage and movements of vessels in the harbor of New York and vicinity, in Hampton Eoads and the harbors of Norfolk and Newport News, in that portion of the Delaware Eiver lying between the northerly limits of Philadelphia Harbor and the southerly limits of Newcastle, Del., and in the waters of St. Marys Eiver from Point Iroquois on Lake Superior to Point Detour ori Lake Huron, except those waters included in the St. Marys Falls Canals, at all of which places rules and regulations had been previously promulgated under authority of the above-mentioned act. With the resumption of peacetime commerce, it has been found necessary to amend the regulations a.t the various ports to meet the new conditions. The Board on Anchorage and Movements of Vessels, consisting of representatives of the Treasury, War, and Navy Departments, held public hearings at New York, Philadelphia, and Norfolk- in order to determine what m.odifications of the rules and regulations in effect at the respective ports were deemed advisable, and, as a result of these hearings, the regulations have been amended to meet most effectively and satisfactorily the present needs and requirements regarding the anchorage and movements of vessels. The personnel and equipment of the Ooast Guard were utilized in the enforcement of the rules and regulations, officers of that service being detailed as captains of the port a t New York, Philadelphia, Norfolk, and Sault Ste. Marie. International yacht races. Beginning July 15 and concluding July 27, 1920, there were held off the entrance to New York Bay, under the auspices of the New York Yacht Club, the international yacht races in which the British yacht Shamroch I V competed with the American yacht Resolute for the America'^s cup, the possession of which carries 'with it the yachting supremacy of the world. Similar races have been held in previous years in the same locality and under the same auspices. These events are of world-wide interest, and to witness them there invariably assembles a large fleet of vessels, bearing thousands of 220 REPORT ON T H E FINANCES. spectators. Under authority of law the Secretary of Commerceissues suitable regulations to promote the safety of life on navigable waters during regattas and, under the same authority, requests theservices of vessels of the Coast Guard to enforce these regulations. Accordingly, at the request of the Secretary of Commerce, therewas assembled a fleet of eight Coast Guard vessels to patrol theinternational yacht races of 1920. This duty imposed great responsibilities upon the Coast Guard patrol force. They were required to regulate the movements of the numerous vessels of every size and^ description that gathered to witness each race, so as to prevent accidents that might imperil the lives of the thousands of spectatorsafloat, and also to regulate those movements so that the coriipeting yachts might have an unobstructed course and that the spectatorsmight receive every proper consideration in their desire to obtain a good view of this important sporting event. I t readily will be understood that this task called for excellent organizatioii and the exercise of the best of judgment. The work of the Coast Guard patrol force was performed with entire success and won the commendation o f those under whose arrangements the international yacht races o f 1920 were conducted. Coastal communication. The coastal telephone system has been improved and extended during the year, as the exigencies of the service have required. Theutility of this activity of the Coast Guard for the peace-time dutiesof the service long ago became an established fact, and it more than. justified the anticipated advantages to be derived from it as a protective agency of the Government along our coasts during the war. Aviation. A ' Coast Guard aviation station has been located at Morehead' City, N. C. The establishment of this station has been accomplished' at practically no expense to this department. The buildings a n d equipnient were turned over to the Coast Guard by the Navy Department. The aircraft in use are the Navy H-S flying boats. T h e application of these aircraft to the problems of saving life and property along the seacoasts and in locating floating derelicts off the coasts is now possible, and experiments to demonstrate further t h e effectiveness of aircraft for these purposes have been outlined for the ehiployment of this station* I t is proposed to establish similar stations as funds become available. Legislation. During the year considerable beneficial and constructive legislation affecting the Coast Guard was enacted by Congress, perhaps t h e bECRETARY OF THJ-: TREASURY. 221 joiost far-reaching beirig that contained in the act of May 18, 1920, ^entitled, "An act to increase the efficiency of the commissioned and -enlisted personnel of the Army, Navy, Marine Corps, Coast Guard, Coast and Geodetic Survey, and Public Health Service," providing for increases in pay. I t hardly could be expected that the service would immediately reap the benefits afforded by this legislation, but i t is hoped that, as industrial and economic conditions throughout the -country resume a more normal state, the advantages offered may result in stimulated recruiting. Retention of the Coast Guard in the Treasury. The transfer of the Coast Guard from the jurisdiction of the Treasury to the jurisdiction of the Navy has been periodically agitated for many years. The proposal was revived shortly before the Coast Guard was returned to the Treasury under the Executive order •of August 28, 1919, and its consideration has been continued since. I n the past the Treasury has opposed almost uniformly the enactment oi legislation for this purpose and the Congress always has refused to sanction the proposal. I n the present consideration of the matter, the views of the Treasury have been made known to the appropriate committees of the Congress. Eecent discussions of the subject have brought forth no new material facts which in ariy way would warr a n t the Treasury in departing from its position. After very careful consideration of the matter, I am of the firm opinion that the Coast Guard in time of peace has no relation to the Navy and should ^ot be transferred to the Navy, but should remain in the Treasury. The department is attached to this historic service which hag come down through the years with fine traditions and achievements. I t has made a noble record under the Treasury. The department's position in this matter, however, is not based upon any selfish reluctance to be relieved of duties it has performed and powers it has ^exercised for so many years, for, as pointed out elsewhere in this report, the Secretary is willing that services that have no direct relat i o n to the Treasury be released from the department and transferred to ©ther jurisdictions. I t is based, on.the contrary, upon what is 'believed to be the best interests of the public service as well as of t h e Coast Guard. A brief discussion^of the origin and activities of the Coast Guard may serve to show why this establishment should not be transferred to the Navy. The Coast Guard is a consolidation of the old EevenueCutter and Life-Saving Services, and as the successor to the EevenueCutter Service is older than the Navy and almost as old as the Government itself. I t was created in 1790 at the second session of the First Congress, upon the recommendation of Alexander Hamilton,, the first Secretary of the Treasury, as the result of the need for the 222 REPORT ON T H E FINANCES. . services of a coast patrol for the enforcement of the customs laws^ and as an organized armed force for the protection of the seacoast.. During its life of 130 years its functions have been increased, and to-day they may be summarized as follows: 1. Protection of the customs revenue. ' . 2. Assistance to customs officers in the performance of their duties. 3. Aid to vessels in distress and the saving of life and property. 4. Destruction or removal of wrecks, derelicts, and other floating: dangers to navigation. 5. Medical aid to American vessels engaged in deep-sea fisheries. 6. Enforcement of laws and regulations governing anchorage of vessels in navigable waters. 7. Enforcement of laws relating to quarantine and neutrality. 8. Suppression of mutinies on merchant vessels. 9. Enforcement of navigation and other laws governing merchant vessels and motorboats. 10. Enforcement of law to provide for safety of life on navigable waters during regattas and marine parades. 11. Protection of game and the seal and other fisheries in Alaska^ etc. . 12. Enforcement of the sponge-fishing law. 13. International ice patrol off the Grand Banks, 14. Service as a part of the Navy in time of war or when the President shall direct. Many additional tasks fall to the Coast Guard, and it is generally recognized that all departments may call upon it for any special work of a maritime nature which is not specifically assigned or for which resources are not elsewhere obtainable. From the beginning the Coast Guard has been an invaluable p a r t of the Treasury organization in connection with the collection of the customs revenue and in the administration of the Customs Service. Apart from the humanitarian nature of other important duties of the Coast Guard, it may be stated that the Customs Service has at least an indirect interest in the relief of distressed vessels laden with importations for the United States. Furthermore, it should be said that while nowadays there is little or no smuggling in large cargo lots, it is believed that the very existence of the Coast Guard prevents such smuggling. With the advent of prohibition, it has been found necessary for the Coast Guard to be very vigilant in connection with smuggling by means of small boats. If this service is withdrawn from the Treasury and placed under the xontrol of another jurisdiction where it may disappear as a separate unit or not always be subject to the request of the Treasury for specialized service, it is possible that smuggling might be resumed on a large scale, thereby causing loss to the revenue. I n that event it is also likely that , SECRETARY OF THE TREASURY. 223 smugglers might be particularly active with respect to violations of the prohibition act, the enforcement of which is imposed upon the Treasury. I t is true that some of the functions of the Coast Guard have no direct relation to the Treasury, but it is also true that such functions have no relation to the Navy. The Coast Guard is not a naval service in any sense, except in time of war, when properly the law provides that it shall be transferred to the jurisdiction of the Secretary of the Navy. The functions of the Coast Guard and those of the Navy normally are fundamentally different. The similarity ends when it is stated that the Navy is a fleet under military discipline and the Coast Guard possesses a fleet under military discipline. The question must be determined, not by the fact that both are floating services, but by the character of their duties. I n the judgment of the Treasury there is no more reason to transfer the Coast Guard to the Navy in , time of peace than there is to transfer the merchant marine to the Navy in time of peace. The Coast Guard is an intensive organization and, particularly in its work relating to the conservation of life and property from the perils of the sea, demands special equipment, special trainingv, and special qualifications. Its duties are not of an occasional nature, but call for vigorous prosecution at all times. I believe that they are of such character as to dictate that they remain under the supervision of a civilian department. I t is very greatly to be feared that the absorption of the Coast Guard by the Navy in all probability would result eventually in the extinction of essential Coast Guard duties, to the great disadvantage and loss to the Government and the maritime interests of the Nation. I t is obvious that the Navy does not need the Coast Guard in time of peace; it is equally obvious that the Treasury does need it. in the performance of duties vested in this department by law. I t seems clear that the permanent union of the two services would be an anomaly. The Congress is earnestly requested to withhold approval of any legislation designed to effect such a transfer. I n submitting this recommendation, I desire to enter an urgent plea that the Congress grant the authority and appropriations which are necessary to increase the efficiency and to extend the usefulness of the service. I t appears to be felt by some proponents of the transfer that the Coast Guard would fare better at the hands of the Congress if placed within the jurisdiction of the Navy Department instead of the Treasury Department. I do not entertain that notion in any degree. I do not believe that the Congress would look with any more favor upon requests for appropriations coming from the Coast Guard as a part of the Navy than from the Coast Guard as a unit in the Treasury. I n this spirit I invite attention in the following paragraphs to imperative needs of the service, with the confident 224 REPORT ON T H E FINANCES. hope of favorable action. The Coast Guard contributes most essential and important service to the welfare of the Nation, accentuated and increased in value at the present time by the great growth of our commerce and merchant marine. Unless its obvious requirements are met in the near future, it can not be expected to fulfill its mission with the same degree of efficiency and effectiveness that has characterized its performances in the past. Its pressing needs consist of suitable recognition of the personnel, appropriations to keep the vessels in perfect condition, provision for additional ships to replace those not worth repairing, and adequate funds for the Coast Guard Academy. The service must be made attractive to men of courage and skill and its vessels and stations must be kept in perfect condition to meet every call of distress from the sea, and it should be noted that its vessels are compelled to go to sea in weather conditions that cause other vessels to seek port. I t is an arduous and hazardous service. Commissioned personnel. The limited opportunity for advancement in the commissioned personnel grades, due to the comparatively small number of officers in the service, the absence of the higher grades which officers of long years of experience should attain, and the fact that promotions can be made only upon the occurrence of vacancies on the active list, are matters of serious concern. They have a direct bearing on the efficiency of the Coast Guard. These limitations can not fail to arouse some sense of injustice among fine and experienced officers of long service, and they operate especially to the disadvantage of younger men, who are prevented from reaching command rank until well along in life. Provision should be made for adequate periodical advancement in grade regardless of vacancies. This is a matter of the first importance. I earnestly hope that the Congress will recognize this serious obstacle to the improvement of the Coast Guard, and by appropriate legislation provide for promotion among the commissioned grades along lines more nearly parallel to those in the Navy. Vessels and stations. . I t is essential that early steps be taken to provide at least four or five additional vessels of such type and size as will best meet the present and future requirements of the service in rendering aid and protection to the increased and increasing marine commerce of the country. Five vessels are now under contract, and there is promise of their delivery within the next few months, but even these will not supply the deficiency which before long will result from the withdrawal of some of the older vessels from the heavy work of the service for lighter duty. The Bear, for example, which has done excellent SECRETARY OF THE TREASURY. 225 service in the Arctic for many years, is very old and should be replaced by a modern vessel better adapted to the present needs and conditions. The physical condition and the equipment of some of the vessels are not satisfactory. These conditions are due to the lack of sufficient funds to keep the vessels in a state of good repair and to provide them with all requisite facilities. During the past year or so the Coast Guard has been able to obtain from the Navy a number of vessels of the Eagle and subchaser type, but these are not wholly suited to the needs of the service. Vessels adapted to the special work the Coast Guard is called upon to perform should be provided. I n some instances they should be larger than the present class of vessels and have greater speed and more comfortable quarters. Many of the shore stations of the service have reached a state of dilapidation. Eepairs of considerable magnitude are absolutely essential in some cases and in others the station buildings will have to be replaced by new ones. I t is earnestly hoped that the Congress will make the appropriations needed to relieve these condixions and, in addition, to establish a number of new stations authorized by law but deferred on account of the lack of fund-s. Coast Guard Academy. . Steps should be taken without delay to improve conditions at the Coast Guard Academy. A board was recently convened to canvass this matter. I t was instructed to present a carefully considered plan for the improvement of buildings and grounds and to suggest the necessary additions to equipment. This academy need not be large but it should be a model of its kind. CUSTOMS. Customs receipts largely increased during the fiscal year. They aggregated $328,633,392, or $142,391,956 more than in the preceding fiscal year, and $29,720,157 more than in the fiscal 3^ear ended June 30, 1914, immediately prior to the outbreak of the war in Europe. Collections from duties and tonnage, covered into the Treasury, which represent the " official customs receipts" for 1920, amounted to $323,536,559. This was only $10,146,886 less than the " official customs receipts" of 1910, the largest collections in any fiscal year in the history of the service. The number of vessels which entered and cleared foreign was 89,115, as compared with 83,874 during 1919; the entries of merchandise during 1920 numbered 6,061,369, as against 5,061,450 for the preceding fiscal year; and the drawback paid increased 13799—FI 1920 15 226 REPORT ON T H E FINANCES. $12,474,815 during the s^ame period. The removal of many of the war restrictions that had been placed upon transoceanic travel also resulted in a large increase in the number of passengers arriving in the United States as evidenced by 201,038 baggage declarations and $2,456,565 in head-tax collections, as compared with 95,063 baggage declarations and $877,776 head tax co.llected in 1919. The value of imports for 1920, inclusive of Porto Eico, amounted to $5,238,621,668, an increase of $2,142,901,600 over that of 1919, while the value of exports, inclusive of Porto Eico, amounted to $8,111,039,733, an increase of $878,757,047 over that of 1919. Notwithstanding the large increase in the volume of business transacted, the total expense of conducting the service was $10,098,808 or $48,768 less than that of 1919. By reason of the large collections and the econoniic administration of the service, the cost of collecting $1 decreased from $0.0579 for 1919 to $0.0307. The enormous volume of business was transacted with a steadily, decreasing force of emplo3^ees. On J a n e 30, 1920, there were 6,633 employees, a reduction of 1,427 from the number employed in 1910, the highest point in the customs business in the history of the Government in the amount of duties collected and, up to that time, in the volume and value of imports. The enforcement of the Federal prohibition law along the seaboard and the Mexican and Canadian borders imposed an added burden. The service was obliged to handle this burden without sufficient funds. A large number of seizures, arrests, and prosecutions were made in connection with attempts to smuggle intoxicating liquors into this country, and every possible means was taken to stamp out violations of this character; but with the limited force available for searching vessels and patrol work along the seacoast and frontiers it is safe to assume that the quantity of liquors seized is sniall in comparison with the quantity smuggled into the country. Moreover, the increase in the volume of customs business necessitated the return of a considerable number of employees whose services had been largely devoted to prohibition enforcement work to their regular customs assignment. The need for a larger force and' a more adequate equipment for the customs enforcement of the prohibition act is even more urgent than it was last year, and it probably will be necessary to provide for* increased' customs force throughout the country. THE MINT SERVICE. The demands of the country for coins were very great during the fiscal year and imposed a large burden upon the Mint Service. The number of pieces coined is the most accurate measure of its accomplishment. I n 1915, when the mints were operated upon the normal SECRETARY OF THE TREASURY. 227 basis of an eight-hour day, the coinage aniounted to 148,000,000 pieces; during the year under review the mints made 810,000,000 pieces. The funds at the disposal of the department for new equipment for the mints have been advantageously utilized: Every modern device available for efficient work has been installed in the coinage mints. This constructive advance has been met by the interested and skillful efforts of the officers and men. A year of creditable service has resulted. The newly finished building for the New York Assay Office was damaged by an explosion on September 16, 1920. Emergency repairs, immediately made, permitted the business of the office to proceed with but little interruption. As a result of the presence of mind and discipline of the men and the heads of the departments d u r i n g the crisis of the disaster, no loss of the precious metals stored in the assay office or in process was sustained by the Government. The building was not injured structurally, the damage being confined to the exterior stone facing, ornamental iron grilles, metal window sash, skjdights, metal screens, marble finish of lobby, interior doors, and plaster, throughout the building. The work of restoration will probably take from four to five months and will cost, it is estimated, $75,000. Proposed neio mint. I t is recommended that the Congress consider the advisability of establishing a coinage mint in Chicago. A mint in that city would better adjust the facilities of coinage to present business conditions in tlie country;, assist in meeting the demand for coinage, particularly in the Middle West and South; facilitate the^distribution of coins to those points; reduce the expense of shipping, the cost-of which is now burdensome to the Government and to banks by reason of the remoteness of existing mints from new business centers; and relax the present excessive pressure on the existing mints. There are three coinage mints, located at Philadelphia, San Francisco, and Denver, the last to be established being that at Denver. The first coiiiage^ was issued from the Denver Mint in 1906. The following shows the coinage at that time as compared with the present: Coinage of three mints in 1906 Coinage of the same three mints in 1920— Pieces. .— 174,000,000' .810, 000, 000 To produce the latter amount of coin it was necessary to operate the three mints on an overtime basis the greater part of the year. This condition has prevailed for the past three years. Overtime operations and every available improvement in the equipment of 228 REPORT ON T H E FINANCES. the mints have not kept pace with the increased demands for coinage^ It is physically impossible to extend to present business conditions the facilities that were provided 15 years ago. The process of expandT ing the output of the present mints has reached the utmost limits of safety. Neither men nor' machinery can sustain greater pressure. The output of the Philadelphia Mint, even .upon an overtime basis much of the year, could readily be absorbed by neighborhood transactions. During the year just closed it has been necessary for the Government to pay the cost of shipping coins from San Francisco and Denver to New York and other eastern ^Doints. Should Congress authorize the establishment of a mint at Chicago, the business interests of the entire country would be served. I t is further suggested that the vaults of a mint at Chicago could be used for the storage of Government funds previously in the custody of the subtreasury now discontinued. BUREAU OF ENGRAVING A N D P R I N T I N G . The bureau^delivered 402,711,759 sheets of finished work during the year, embracing currency, permanent Victory Liberty loan gold notes and bonds, certificates of indebtedness, farm-loan bonds, war-savings stamps and thrift stamps, and postage and internalrevenue stamps. The value of the delivered, sheets expressed in mone}^ aggregated the remarkable sum of $27,738,032,147.91. The work of the bureau has been carried on under extreme pressure, and it has been with difficulty, owing to the large demands, that the currency and bond requirements of the Government have been met. The work of supplying permanent Liberty loan bonds of the various issues has now progressed to the stage that only the fourth Liberty. loan issue is to be replaced, and the work on this issue is well under way and. will be finished during the fiscal year 1921. The replacement issue of bonds for which the temporary bonds are being exchanged is necessarily slow, owing to the fact that only one bond is secured from a plate printed impression. During the present fiscal year 17,760,682 sheets of these large permanent bonds were produced, 8,000 sheets of 2 per cent and 4 per cent United States registered bonds, and 1,889,997 sheets of Victory Liberty loan gold notes. I t has been necessary to operate three shifts of employees throughout the entire year. I t became necessary during the year to install an electrolytic plant in the engraving division in order to supply enough engraved plates to keep the plate-printing division in steady operation. The engraving division produced 10,367 engraved plates during the year by the usual methods. The installation of this plant was made under the supervision and direction of representatives of the Bureau of Stand- SECRETARY OF THE TREASURY. 229 ards. A maximum output of 20 plates in a given day has been reached. At the present time one of the power-press sections of the Lareau consisting of 27 presses is equipped and supplied with plates made by the method of electro deposition, and the results obtained meet fully all expectations. The impressions from these plates are found to be superior in beauty and finish to that of the regular transferred steel plates, and the life of the plate compares favorably with that of the older method. The photolithographic section has been enlarged and reorganized with better equipment and a much improved service, and modern lithographic presses have been installed and the output increased without a large corresponding increase in cost. • '' PUBLIC BUILDINGS. The first so-called omnibus public-building act of any magnitude was enacted into law in 1902, and contained a section authorizing the remodeling, enlargement, and extension of certain specified Federal buildings which had become congested by reason of the growth of the public service, and from other causes. Each succeeding publicbuilding act has contained a similar section. There has been no general public-building legislation since 1913, the act which passed the House of Eepresentatives in 1916 having failed of passag'e in the Senate, and during this interval there has been jio possibility of affording relief from congestion in public buildings, although there has been a wonderful growth in the public business and a corresponding increase in the number of employees to handle it. I n the post-office workrooms an average per emplo3^ee of 100 square feet, or a space 10 feet square, to accommodate the employee and his furniture, including aisle space, is considered ideal. The Postmaster General has reported that where this space is reduced below 60 square feet per emploj^ee there is a resulting loss in efficiency which increases in proportion as the space is diminished. There is a large number of 'post-office workrooms in Federal, buildings in which the space per employee is less than 60 square feet; in some of them as small as 24 square feet per employee. These conditions have been brought to the attention-of the proper committees. Because-of the congestion in public buildings it is not uncommon to find branches of the public service occupying rented quarters in cities in which there are large Federal buildings. Quite independently of the action Congress ma}^ conclude to take with respect to authorizing the construction of additional Federal buildings, steps should, be taken to protect the present investment of the Government in its Federal buildings by im.prov]ng and adapting the buildings to the increased activities of. the public service. I therefore add my "^^ 230 REPORT ON T H E FINANCES. recommendation to that of the Postmaster (xeneral that legislation be enacted Avhich will furnish such relief as the exigencies of the situation may require. Suspended building operaMons. TVitli the view of conserving the Government's resources, this department ordered the jDostponement during the war of the letting of contracts for the construction of public buildings in all but very urgent cases. About 150 buildings were affected by this order. I t was intended to resume building operations as soon as hostilities ceased. The order for the resumption of building operations was given within a few days after the armistice was signed, but it was found Avlien bids were taken that construct.ion costs had increased meanwhile to such an extent,that the buildings could not be constructed within the respective limits of cost therefor fixed by the Congress. Sites have been acquired, plans prepared, and appropriations made in full or in part for most of the buildings referred to, ' but there.the matter rests until the Congress increases the limits of costs for such of the buildings as it desires to have constructed. National archives building. For several successive years my predecessors have brought to the attention of the Congress the need for a national archives building. This need is emphasized more than ever now that records of the war have been brought to this city from overseas and from various points in this country, and added to the vast accumulation of papers of permanent or historical value now insecurely cared for by the several executive departments and independent establishments of the Government. While there appears to be an abundance of space for office purposes in temporary buildings constructed by the Government to meet war-time conditions, no fireproof space is available for the care of records, the destruction of which would cause great < loss to tile Government and much embarrassment and delay to all concerned in the transaction of the public business. Confronted on the one hand by the great need for a. national archives building and on the other hand with the abnormally high cost of construction, this department submitted to the Congress during the period covered by this report for an appropriation sufficient to a,cquire a site and construct so much only of the contemplated building as Avoiild be used for storage purposes. I t is proposed to construct this portion of reinforced concrete, and to leave its exterior facing to be placed when building costs reach a lower level and demands upon the Government's resources have become less pressing. SEGRETARY OF THE .TREASURY. 231 Contractors'^ war claims. The legislation which was enacted in the fall of 1919 for the relief of contractors and subcontractors for the construction, etc., of Federal buildings, whose contracts were based on bids submitted prior to the entrance of the United States into the war, but completed after April 6, 1917, restricted the claims which might be presented to those arising from three causes, viz, increased cost of labor and materials due to war conditions, losses due to delays caused b}^ the United States Priority Board or other governmental activities, and to commandeering by the United States Government of plants or materials. The scope of the relief afforded by this act was enlarged by amendatory legislation contained in the deficiency appropriation act of March 6, 1920, so as to include any and all loss (exclusive of profits) sustained by contractors and subcontractors in fulfilling their contracts due, in the opinion of the Secretary of the Treasur^^, to war conditions. ' The settlement of these claims is progressing as rapidly as the nature of the examinations required and the sufficiency of the sustaining proofs will permit. Supervising Architect. The work of the Supervising Architect is chiefly administrative in character. His office supervises not only the professional and technical work involved in the drawing of plans for the construction," repair, and remodeling of public buildings and the overseeing of such construction work, but also the maintenance and operation of the great public building system of the United States. The personnel of the office should include men of high attainments in the architectural, engineering, and related professional fields. I t should be coordinated and organized under the leadership of a trained executive in the person of the head of the office. The present title of the chief seems to suggest that the occupant must be an architect and to indicate that professional skill is the exclusive requirement; but the fact is that primarily and essentially the position demands executive ability of high order. The office is now vacant and the acting head, who is not an architect and who for several years has efficiently and effectively performed the necessary duties, would have been appointed Supervising Architect long ago had it not been that such appointment did not seem to be consistent with the title of the office. I n view of the nature of the functions and responsibilities of the Supervising Architect, it is believed that the title of the office should be changed to that of Commissioner of Public Buildings. Such change would not prevent the appointment of an architect or a man trained in another profession, on the one hand, and would not 232 ' REPORT ON T H E FINANCES. restrict it to any one technical class, on the other. I t is respectfully recommended that the title of the office be changed accordingly. THE INTER-AMERICAN HIGH COMMISSION. The Second Pan American Financial Conference was held in Washington from January 19 to 24, 1920. Upon invitation of the President, the ministers of finance and other representatives of Mexico and the Central and South American countries attended the conference to discuss with the Secretary of the Treasury the financial and commercial problems of the American Eepublics. The International High Commission was charged with the preparation of the plans and arrangements for the conference. A staff of legal and economic experts collected and analyzed material of interest to the delegates and prepared reports on the financial and economic conditions and the public debt of the Latin-American Eepublics, as well .as reports on maritime and land transportation and cable and radiotelegraphic communication between those countries and the United States. The material thus compiled served as a basis for authoritative information during the conference for the use of the official representatives and 300 financial and industrial leaders of the United States invited to confer with the foreign delegates. A review of the purposes and achievements of the Second P a n American Financial Conference is contained in my report to the President. I n order more definitely to indicate the constituency and sphere of work of the International High Commission, the Second Pan American Financial Conference changed, by resolution adopted on January 23,1920, the name of the commission to " Inter-American High Commission." I n public act 238 of the Sixty-sixth Congress the recommendation of the change of name was given effect in the United States, beginning July 1,1920. Although the executive council of the commission and the staff of the United States section were for the greater part of the year engaged in the preparations for the financial conference, careful attention was given to the ordinary tasks of the commission. One of the most important matters with which the commission has had to deal is the adoption of the International Trade-Mark Convention of 1910 and the establishment of two registration bureaus provided for by the convention—one bureau at Havana and the other at Eio de Janeiro. The bureau at Havana was opened in August, 1919, and is in actual operation? The Congress, by the act approved March 19, 1920, has given effect to certain provisions of the convention enabling the Commissioner of Patents to open a register for trade-marks transmitted to him by the Havana bureau. Efforts are being made by the commission to secure the ratification by the requisite number SECRETARY OF T H E TREyiSURY. 233 of countries of the southern group in order to establish the bureau at Eio de Janeiro. Meanwhile arrangements have been made whereby all the ratifying countries may be served by the Havana bureau. The successful realization of the purposes of the convention will confer exclusive benefits on all the industries of this country which have occasion to protect their good will. Another matter which engaged the commission's attention during the past year was the ratification of the commercial travelers' convention proposed at Buenos Aires in 1916. The convention contemplates the substitution of a national fee for all local license fees paid in the Provinces of some American countries. I t further provides for the free admission of samples without value, and for the admission of those with value under bond for payment of dut}^ in case tliey^ are not withdrawn. The convention has been ratified by Uruguay, Guatemala, Salvador, Panama, Venezuela, and Paraguay, and has been signed by Ecuador, Nicaragua, and Argentina. Other countries have approved the treaty in principle. The principle of arbitration of commercial disputes between citizens of the United States and citizens of other American countries has made progress. I t has occupied a prominent and permanent place in the program of the commission. The purpose is to facilitate the settlement, on a basis which would inspire complete confidence in our manufacturers and merchants, of any commercial disputes which might arise between them and their customers in Latin American countries. The first agreement of this character was entered into between the United States Chamber of Commerce and the National Chamber of Commerce of Argentina on April 10, 1916, and similar agreements have since been made between the United States Chamber of Commerce and the National Chambers of Commerce of Uruguay, Ecuador, Panama, Guatemala, Paraguay, Peru, Venezuela, and Brazil. / The commission has continued its interest in the subject of greater uniformity of the classification of merchandise for statistical purposes to permit of more accurate comparison of statistics of export and import trade. The basis of this classification is the Brussels convention of 1913 on the uniforniit37^ of classification which was adopted b}^ the commission at Buenos Aires in 1916. The uniform system has been adopted by Salvador, Guatemala, Honduras, Bolivia, Panama, Paraguay, and Peru, and is favorably considered b}^ several other countries. I n the field of uniformity of law, the efforts to diminish the diversity between our legislation and that of the several Latin American Eepublics with respect to checks and bills of exchange have met with . considerable success. The basis for uniformity on this point are The 234 REPORT ON T.HE FINANCES. . Hague rules adopted at the international convention at The Hague in 1912, which were modified at the meeting of the commission at Buenos Aires. Venezuela embodied in its new commercial code the modified form of the uniform rules on bills of exchange, and the legislatures of four other countries have before them, in various stages of progress, analogous revisions of their commercial code. The executive council intends to direct its efforts to secure the adoption of uniform warehouse receipts, conditional sales and bills of lading acts. I n the uniform fiscal and customs regulations a number of minor changes have been made, the cumulative effect of which is the facilitation of the course of international commerce. As more maritime transportation facilities are made available for the growing volume of our trade with Central and South America and the West Indies, the significance of these modifications will be discernible in increasing degree by each commercial community. In addition to dealing with the subjects designated by the First Pan American Financial Conference for special treatment, and the execution of the program adopted at the Buenos Aires meeting, the commission has been charged by the Second P a n American Financial Conference with the investigation of new questions, including an analysis of the laws and regulations governing the organization of corporations and the treatment of foreign corporations in the various American Eepublics, the study of methods of avoiding the simultaneous double taxation of individuals and corporations in the various American countries, and the consideration of the creation of an inter-American tribunal for the adjustment of questions of a commercial or financial nature involving two or more countries. I n view of the growing importance of the commission's work, it is recommended that the sum of $25,000 heretofore appropriated for the expenses of the United States section be increased to $30,000 for the next fiscal year. GENERAL SUPPLY COMMITTEE. During the past year the General Supply Committee has rendered an important service, not only in contracting for supplies but also in the handling of all surplus materials and equipment falling jnto disuse in the District of Columbia, as well as maintaining a record of, and acting in an informative capacity with reference to, surplus articles located throughout the country. Experience has demonstrated that the functions of the General Supply Committee should be expanded so as to include the purchase, storage, and distribution by the committee of all common supplies used by two or more executive departments or independent establish- SECRETARY OF THE TREASURY. 235 ments of the Government in the District of Columbia. I t would seem proper to make the committee a central bureau in some department other than the Treasury, as suggested elsewhere in this report. Such bureau should consist of three divisions: (1) The division of contract, to handle the present contract duties of the General Supply Committee; (2) the division of purchase; (3) the division of stores, which would include the present division of property transfer of the committee. A bureau of this character would be able to buy at the most opportune time direct from manufacturers, and in quantities which Avould insure minimum prices. Competition would be broadened by the consolidation of quantities and the submission ,of proposals for specified quantities for delivery at a given time ihstead of a great number of individual orders for indefinite quantities covering a stated period. A suitable warehouse should be prpvided, stocked with all articles in common use for distribution to the Government service in the District of Columbia and to such points outside of the District of Columbia for use by the various field services desiring to obtain their supplies from the bureau. The creation of a central warehouse from which common supplies could be promptly furnished the services would, obviate the necessity for open-market and exigency purchases, which, in the aggregate, are large and nearly alwa3^s at prices much higher than if secured by a central agency. The records of the Contracting Division of the General Supply Committee for the fiscal year 1920 show that the reported purchases made by executive departments and independent establishments of the Government under contracts negotiated by the Secretary of the Treasurj^ through the committee amounted to $7,627,064.82. Because certain establishments are not required by iaw to report purchases and others have failed to report fully, the total aniount of purchases for the year probably exceeded $10,000,000. ^The Division of Property Transfer of the committee, under the provisions of the Executive order of December' 3, 1918-, and the act of February 25,1919, serves as a clearing house for surplus articles of the Government agencies in the District of Columbia. I t takes over all surplus material, supi^lies, and equipment; classifies, warehouses, repairs, and reissues them from time to time to the Federal Goviernmeiit service and the municipal government of the District of Columbia as their needs arise. The division received during the fiscal year materials to the value of $1,339,759.60 and had on hand July 1, 1919, materials valued at $476,753.20. The amount issued during the year was $760,355.74. This includes $133,913.72, or I7f per cent, as discounts allowed for usage. The invoice value of material, supplies, and equipment condemned as unserviceable and unfit for further Government use was $36,026.20. The total net proceeds from the sale 236 ^ REPORT ON T H E FINANCES. of this material at public auction amounted to $17,928.37. The invoice value of unissued supplies was $1,020,130.86 on June 30, 1920. In order that the executive agencies of the Government might utilize existing surplus materials, supplies, and'equipment fa.lling into disuse throughout the United States, as Avell as in the District of Columbia, because of the cessation of war activities, Corigress, by section 5 of the deficiency act approved July 11, 1919, required the heads of such agencies to ascertain whether such surplus existed before purchases were made from commercial dealers. On August 27, 1919, the President issued an Executive order which designated the General Supply Committee as the central agehcy of information, for this jourpose, simplif3dng the procedure and consolidating the data for the service of administrative officers. Eeports of surplus are submitted to the General Supply Committee by the various departments. This inforniation is compiled on card records and made instantly available for reference. Under the Executive order administrative officers, before making purchase, are required to consult the General Suppl3^ Committee, which immediately furnishes information as to the location of existing surplus. At the date of this report the records of the Division of Property Transfer of the committee show 19,427 separate items listed. The quantities of individual items reported surplus are in many cases ver3^ large. The temporar3^ isolated buildings used for the storage of surplus property received under the provisions of the Executive order of December 3, 1918, are flimsy of construction, and a dangerous risk from fire and theft. Economical and efficient administration is rendered difficult. Eapid deterioration of these structures add to the present cost of operation, and will render them unfit for the housing of valuable Government property unless considerable sums are expended from time to time. The committee is greatly in need of suitable warehouse facilities. CHECKING ACCOUNTS ADMINISTRATION OF GOVERNMENT MAINTAINED WITH. CORPORATIONS TREASUI^ER OF AND THE RiilLRCAD UNITED STATES. The United States Shipping Board Emergency Fleet Corpora-, tion, the United States Housing Corporation, the War Finance Corporation, the United States Grain Corporation, the Eussian Bureau of the War Trade Board, the several Federal land banks, and the Eailroad Administration have maintained checking balances with the Treasurer of the United States in the manner outlined in previous annual reports of the Secretary of the Treasur3^ The following table shows the amount of checks drawn by these agencies and paid by the Treasurer from the dates of the estab- SECRETARY OF T H E 237 TREASURY. lishment of the accounts to October 31, 1920, and the balances on deposit with the Treasurer on the latter date: ; • Checks paid by the Treasurer of "the ignited States. Eraergencj'- Fleet Corporation United States Housin,8; Corporation.. War Finance Corporation Uniteci States Grain Corporation. Russian Bureau of the War Trade Board Federal land banks •. Railroad Administration Dates. From— To- 2«,1918 27,1918 2,1918 31,1918 Oct. 31,1920 do do do 13,333,773.99 Nov. 30,1918 15,313,261.31- June 2,1920 1,811,786,554.72 Apr. 13,1918 Sept. ,28,1920 Oct. 31,1920 do S5,964,931,879.22 135,282,058.24 2,997,964,687.63 901,967,229.41 Feb. Tulv Jurie Oct. Balances with the Treasu]-er of the United States Oct. 31,1920. 383,939,466.33 2,9.19,446.39 371,809,520.05 32,000,000.00 0) 1,359,950.61 28,774,524.79 o 1 Closed Sept. 28, 1920. At the request of the Director General of Eailroads, the Treasurer of the United States was designated as his agency for the payment of the principal and interest of certain certificates of indebtedness issued in connection with Federal control of the roads described in the annual report for 1919. The Treasurer has paid these directly and through the Federal reserve banks. The Eailroad Administration established a credit of $288,526,150.13 with the Treasurer. Payments amounted to §^288,399,222.46. The balance, $126,927.67, was returned to the Director General on February 19, 1920. . The total payments made by the Treasurer for these Government corporations and the Eailroad Adniinistration to October 31, 1920, were $12,128,978,666.98. The plans evolved by the Treasury for handling the accounts and disbursements of these agencies have been operated to the entire satisfaction of all concerned. The funds have been assured absolute security, and appropriated moneys running into large amounts have not been withdraivn from the Treasury until needed to pa3^ obligations of the Government, thus reducing the amount of Government borrowings, with the consequent saving in interest charges. H A N D L I N G OF GOVERNMENT F U N D S BY DISBURSING OFFICERS. The exigencies growing out of the enormous payments which the Government has been required to make on account of the war have necessitated revision of some of the regulations of long standing relative to the handling of public funds by Government disbursing agents. With a view to meet this situation Department Circular No. 195 (Exhibit 88, p. 561) was issued on June 18, 1920, superseding Department; Circular No. 102, dated December 7, 1906, as amended. I t was the aim of the department in promulgating this circular to throw the proper safeguards around the handling of public moneys by Government agents and to prevent excessive 238 " REPORT ON T H E FINANCES. holdings of cash by disbursing officers. As the Treasury has been a heavy borrower of funds to meet its current needs, the loss on account of interest on idle funds is obvious. On the other hand^ it bp; been necessary to keep in mind the requirements of all departments and to insure the prompt payment of public creditors. I t is believed that Treasury Department Circular No. 195 establishes a liberal poli.C3^ in matters of detail and at the same time safeguards and reduces to a minimum the amount of public moneys in the hands of disbursing agents. , . PROVISION FOR GOVERNMENT D I S B U R S E M E N T S I N T H E P H I L I P P I N E I S L A N D S . o Under the provisions of Treasury Department Circular 194, dated June 18, 1920 (Exhibit 89, p. 565), all balances standing on the books of the treasury of the Philippine Islands at the close of business on September 30, 1920, to the credit of United States disbursing officers were transferred to the official credit of such disbursing officers with the Treasurer of the United States. Disbursing officers sta-. tioned in the Philippine Islands were directed, beginning October 1, 1920, to draw checks on the Trieasurer of the United States for disbursements in the Philippine Islands, the checks to bear the restriction : In current fnhcls, a t par, but only at t.he treasury of the Philippine Islands, Manila, P. I. This plan is in accordance with the scheme under which Government disbursing officers in the continental United States carry their balances with the Treasurer of the United States, instead of with local depositaries. I t obviates the necessity of maintaining large cash balances with the treasury of the Philippine Islands for the credit of each disbursing officer. I t is now necessary to maintain only a cash balance in the Treasiirer's a-ccount sufficient to meet the checks of disbursing officers drawn on the Treasurer of the United \ States which are being presented for payment. Arrangements have been made whereby the treasury of the Philippine Islands can secure restoration of the Treasurer's balance by cable when additional funds are needed to meet current payments. The reduction in the cash balance maintained with the treasury of the Philippine Islands serves to reduce the aggregate amount of Governnient balances with depositaries, with a consequent saving in interest. o N E W C U R R E N C Y DESIGNS. The Congress was advised in the Annual Eeport of the Secretary of the Treasury for 1919 of the adoption of a distinctive characteristic for each denomination of all forms of paper currenci^ De- SECRETARY OF THE TREASURY. ^ "239 nominational portraits were prescribed for this purpose. I n February, 1920, it was decided, to revise other features of the designs in order to insure the highest possible degree of safety in the issues and to promote economy in printing. The latter consideration is quite important, not onl3^ from the standpoint of expense, but also from that of production. The greatl3^ increased demands for currency.have throAvn an unprecedented strain upon the Bureau of Engraving and Printing. I t has not been possible to produce currency in sufficient quantities to supply the demand and the result is that the condition of the currency in circulation is not satisfactory. A committee, consisting of the Commissioner of the Public Debt, the Chief of the Secret Service, and the Chief of the Engraving Division of the Bureau of Engraving and Printing, was appointed to stud3^ the subject. The committee will consider designs submitted by the Director of the Bureau of Engraving and Printing and will give particular attention to the protective features of such designs and of distinctive paper. While the committee has not yet presented its report, it may be stated that the new designs will include the denominational portraits adopted a year ago and, in addition, distinctive backs for each denomination of all issues. The legends required b3^ law are to be placed on the face of the notes and not on the back. I n addition to the usual safeguards in the way of denominational marks, latlie and other engraved work, denominations will be indicated in large colored numerals. TREASURY ORGANIZATION. The Treasury has endeavored to perfect its scheme of organization during the year by such changes and improvements as were possible under existing law. The Bureau of Internal Eevenue, the Bureau of War Eisk Insurance, the Public Plealth Service, and other individual units have been organized or reorganized to meet added responsibilities. During the fiscal year efforts were made to meet the situation in the fiscal bureaus and divisions where the work has so greatly increased and where it was apparent that the prewar machinery was not entirely adequate for permanent purposes. The great growth of these activities required the creation of. additional coordinating and supervisory organization. This was brought about by the establishment of the offices of Commissioner of the Public Debt and Commissioner of Accounts and Deposits, and the coordination and supervision of the activities of the several auditors under the administrative control of the Comptroller of the Treasury. These three supervisory officers function under the immediate direction of the fiscal Assistant Secretary. They are the supervisory intermediaries between the fiscal Assistant Secretar3'^ and the bureaus and divisions concerned. The 240 REPORT ON THE .FI.NANCES. ariiangement has not only relieved the fiscal ilssistant Secretar3^ of many details and left him free to devote more time to the larger jiroblems of administration, but it has also accomplished a logical coordination of related activities and the elimination of duplicated work. This reorganization concerns three fundamental operations of the fiscal service: (1) Transactions in the public debt, including the issue, exchange, conversion, and redemption of securities; (2) the receipts and disbursements of the Government, including the issue of warrants, the payment of warrants and checks, and the deposits of the public funds; and (3) the auditing of accounts. Commissioner of the Public Debt. In the very beginning of the war the Secretary of the Treasur3^ realized that the public-debt operations of the Government would be of such magnitude that it would be utterly impossible to handle the entire matter from Washington. I t was necessary that the machinery be decentralized as far as practicable. To prevent inevitable congestion in the Treasuiy the 12 Federal reserve banks, as fiscal agents of the Government, were made the headquarters of their re- • spective districts for the handling of subscriptions to the severa] loans* the delivery of securities against payments, and the conduct of transactions in securities subsequent to their original delivery. Each bank constructed the requisite machinery to handle these operations throughout its district. This use of the Federal reserve banks as fiscal agents removed from the Treasur3^ direct connection with original subscriptions, changed the procedure with respe:t to subsequent transactions, and eliminated much of the established routine. An efi"ectiye field macliiner3^ to conduct these operations was thus created. After the completion of the Victory Liberty loan, the last of the great popular war loans, the department gave its attention to the perfection of the pernianent organization in Washington to handle transactions in the public debt.' The branches.of the.Treasury immediately concerned in the issue, exchange, conversion, and redemption of Government securities and the payment of interest, together with the large bookkeeping operations connected with these activities, are the Division of Loans and Currency and the Office of the Eegister. The war has thrown a great burden upon these agencies. The public debt has increased from the neighborhood of $1,000,000,000 to more than $24,000,000,000, and at one period during the war it exceeded $26,000,000,000. The number of employees in the Division of Loans and Currency before the war was 84; the number on Sexitember 30, 1920, was 2,275. The number of employees iri the Beg- SECRETARY OF THE . TREASURY*. 241 ister's Office before the war was 2 1 ; the number on September 30, 1920, was 962. The increase in the public debt and the increase in the personnel serve to indicate the growth of the undertaking and the magnitude of the work involved. The two offices mentioned, by mutual agreement and with the Secretary's approval, had consolidated much procedure and eliminated much duplication during the war. The Division of Loans and Currency controlled the issues of securities, although their distribution to subscribers and ma,n3^ subsequent transactions were made at the Federal reserve banks. Eetired securities were received by the division and subjected to examination before being delivered to the register. A section of accounts in the division reflected the transactions in the public debt. The register's contact with transactions, was remote, but canceled securities finally reached him. I t was clear that the existing organization could not continue permanently. To insure appropriate controls over issues and retirements, to avoid duplication in effort, and to provide for proper administration of the public-debt service the office of Comniissioner of the Public Debt was created and a commissioner appointed in November, 1919. He was giveii administrative supervision, under the general direction of the Fiscal Assistant Secretary, of all transactions affecting the public debt. He was charged with the coordination and supervision of the Division of Loans and Currency, the Office of the Eegister of the Treasury, and the Division of Public Debt Accounts and Audit', which was created in January, 1920, as a result of this reorganization. Subsequentl3^ the audit section of the Division of Loans and Currency was transferred to and consolidated Avith the register's force. The unit in the register's office conducting the examination of registered bonds and notes issued by the Division of Loans and Currency was transferred to the Division of Loans and Currency and established as a final examination unit. The same check over registered issues remains. The Division of Loans and Currency is now charged with all issues of securities, whether against paid subscriptions or against other securities surrendered. The Eegister of the Treasury is charged with the receipt from the Division of Loans and Currency, the Federal reserve banks, the Treasurer of the United States, and the Postmaster General of all securities canceled for any purpose whatever. The Division of Public Debt Accounts and Audit is charged with the controlling accounts of all public-debt transactions performed by the Division of Loans and Currency, the Eegister of the Treasury, and the Federal reserve banks, as well as those performed by the Treasurer of the United States and the Postmaster General. An administrative 13799—FI 1920 16 242 REPORT ON THE FINANCES. audit has been established under the Commissioner of the Public Debt to insure accurac3^ of operations and the proper accounting for securities. A complete organization has thus been erected with proper checks and safeguards in the Division of Loans and Currency for handling issues, maintaining registered accounts, and paying the interest thereon; in the office of the register for receiving and verifying paid and otherwise canceled securities, including interest coupons; and in the Division of PubJic Debt" Accounts and Audit for recording public-debt transactions and bringing the various operating agencies into proper relation. This new plan of organization has resulted in economy and in increasing the efficiency of the services concerned. The Commissioner of the Public Debt, b3^ having supervision over these related activities, has eliminated much duplication of work in the publicdebt transactions. To insure the permanence of this reorganization of the public-debt work the office of the Eegister of the Treasury, now established by law as a bureau, should be changed, to a division in the Secretary's office. The' annual estimates submitted for the next fiscal year contemplate the continuance of this new plan to meet greatly increased duties and responsibilities. I t is hoped that it will receive the sanction of the Congress. Commissioner of Accounts and Deposits. The Office of Commissioner of Accounts and Deposits was created in Januar37, 1920, on account of the large increase in the accounting transactions of the Treasury in connection with receipts and expenditures and the deposit of public funds throughout the country. The commissioner, under the Fiscal Assistant Secretary, was given administrative supervision over the Division of Bookkeeping and Warrants and the Division of Public Moneys and their relations to the office of the Treasurer of the United States. He was later given supervisory direction over the Division of Deposits which was created on May 19, 1920, as a part of this reorganization. The commissioner likewise was given control of all accounts of investments of the Government and was made responsible for the proper custody with the Treasurer of the United States, the Assistant Treasurers of the United States, and the Federal reserve banks of all investments and securities for which the Secretary is responsible, other than those related to the public-debt operations. On August 27, 1920, the work formerly performed in the Division of Public Moneys relating to the covering of moneys into the Treasury was transferred to the Division, of Bookkeeping and Warrants, and the employees engaged upon these duties were detailed to the latter division. This eliminated SECRETARY OF THE TREASURY. 243 duplication of work and coordinated all aspects of this particular activity within the Division of Bookkeeping and Warrants. The commissioner has made much progress in coordinating, simplif3nng, and expediting the interrelated work of the divisions under his supervision. I n the absence of a budget S3^stem the Treasur3^ has been handicapped, parti cula rl3^ during the war and since, b3^ the lack of information with respect to prospective Government expenditures. I t has been necessar}^ for the department to make the shrewdest guess possible in the circumstances and to formulate plans a.ccordin2:ly. The coordination of these accounting and bookkeeping offices dealing with receipts and disbursements has made it possible for the Treasur3^ to assemble the most trustworthy data obtainable upon which to base its estimates. The accounting offices. I n order to obtain more expeditious auditing results and to co(/rdinate the work of the accounting offices as far as possible under existing law, the Secretar37, on October 25, 1918, placed all of the anditing offvces under the administrative supervision and direction of the Comptroller of the Treasitr3^ The comptroller is the chief accounting officer of the Government and has the power to i*evise any settlement made b3'' an auditor. The auditors must construe the statutes in the first instance and then apph' that construction which is approved by the comptroller. The latter may direct an officer forthwith to settle an3^ account pending before the auditor, but with this statutory power over the settlement of accounts, the comptroller, previous to the order of the Secretaiy mentioned, had no administrative control over the auditing offices. The war greatly increased the work of these offices and it was necessar37 to coordinate their activities under the control of a responsible accounting officer. This was as far as the department was able to go without additional authorit37 of law. In exercising this administrative power the comptroller has accomplished definite results in the way of expediting much important work and simplifying complicated methods. The present organization consists of six se^iiregated auditing burt'aus. unrelated one to the other except by such coordination as the . comptroller has been able to bring about under the Secretar3''s order. There is no question as to the pressing need of remodeling the organization and by law placing the direct administrative supervision over all accounting offices in the hands of one central authority. This requires the consolidation of the accounting offices into a single unit. I t would be accomplished under the budget scheme. If unfortunately there should be any delay in the creation of a budgetary system, there should be no postponement of the reorganization of 244 REPORT ON TFIE FINANCES. the accounting offices. authorize this reform. I t is sincerely hoped that the Congress will Audit of Army foreign accounts. Under the plan of administrative control at present exercised b3'^ the Comptroller of the Treasury, the audit of the foreign-service accounts of the Arm3r has been completed for the pay periods prior to March 1, 1920, embracing such accounts as were rendered to the Treasuiy prior to July 1, 1920. Accounts arising and received since those dates will be absorbed in the routine work of the office of Auditor for the War Department, the Foreign Service Division of that office having been abolished on October 1, 1920. The supervision which brought this result was begun July 1, 1920. During the following three months 1,749 accounts were examined and disposed of, as against 5,864 for the three prior fiscal 37ears, covering a working period of 30 months. The relative accomplishment is thus seen to be in the proportion of 1,749 to 586, the latter being the average number of accounts settled in previous periods of equal length. The total achievement in the audit of foreign accounts by working periods, number of accounts received and settled, and amounts involved in settlements, is shown by the following figures: Accounts Accounts received. settled. W o r k i n g period. ]918 1919 1920 J u l y , Ausjust, a n d S e p t e m b e r , 1920 Total - Amounts audited. 1,058 2,594 3,889 72 184 2,240 3,440 1,749 S7,385,032.94 341,450,613.15 843,895,962.51 483,852,862.87 7,613 7,613 1,676,584,471.47 SALARIES. The attention of the Congress is invited to the pressing need of the readjustment of the salaries of Government officers and employees. The great business of the Federal Government has grown in magnitude through increased and increasing activities, particularly as a result of the war. No one will dispute the fact that the Government should pa3^ a living wage to every employee and that the amount should be in due relation to the value of the services rendered. If»the business of the departments is to proceed along efficient and economical lines the salaries in the public service and the opportunities for promotion must be sufficient to offer a career to men and women of ability. In many of the supervisory grades particularly, the compensation paid is unattractive and far below the standards of private enterprise. I t is of the highest importance that the Government secure and retain in certain positions of great re SECRETARY OF TFIE TREASURY. 245 sponsibility individuals of the highest integrity, of wide experience, and of exceptionally ability. The public business in higher degree even than private enterprise needs the service of persons of talent. If it is not available the people's interests will suffer. The Government need not pay salaries as high as those given in many industrial establishments, but it should pay enough to retain able and experienced servants. I t should pay enough to enable them to live decently, to save something, and to work without undue apprehension as to the future of their families. Democracy for us is the best form of government, but it is a difficult one: Its performance will depend in no small measure on the quality of its administrators. If these are mediocre our democracy, it is true, is not likely to fail, but its performances will probably be below the high standard to which it aspires and which it should set. The question of the readjustment of salaries and the reclassification of positions is a very large one. I t involves the corisideration of the Government service as a whole, as well as the standards^of pay in private life. I n the circumstances the Treasury, of course, has been unable to make an3^ special study of the matter and has no concrete suggestions to offer. I t has cooperated with the Joint Commission on the Eeclassification of Salaries, created by the Congress, in rendering such assistance as was possible. I n response to the request of the Chief of the Bureau of Efficiency, it has likewise placed information respecting salaries and employments in this department at the disposal of that bureau. I n the estimates submitted for the next fiscal year the department has not undertaken to make a general revision of the salary scale. That matter already is under consideration by the Congress. Eecommendations have been submitted, however, for increases in some salaries where it was thought such increases were imperatively necessary. I t ma3^ be that in any general readjustment of salaries these increases should be greater. Unquestionabl3^ there are other salaries which should be increased, but the determination of the amount, it was felt, should await the standardization and reclassification that the Congress plans to make. The present pay rolls are haphazard and clearly need revision. That is particularly true of many statutory salaries. I t is earnestly recommended that the Congress act upon this important question at the present session. UNDERSECRETARY OF THE TREASURY. Two additional Assistant Secretaries of the Treasury, of temporary tenure, were authorized in the urgent deficiency act approved October 6, 1917. These positions will continue until the close of the war and six months thereafter. I t is respectfully recommended that. 246 REPORT ON T H E FINANCES. in lieu of the two additional Assistant Secretaries, there be created, beginning July 1, 1921, the position of Undersecretary of the Treasury, at $10,060 per annum. The duties and responsibilities,of the Treasuiy have been increased manyfold as a result of the war. This department is chief heir to the burdens growing out of the war. Taxes are greater than ever before, and the public debt is more than 24 times the debt before the war. Every function and activit3^ of the Treasury has grown in magnitude; and in importance. To perform the duties effectively and efficiently the Secretary of the Treasury must have the help of men who are executives of exceptional ability. I t is believed that after the close of the current fiscal 3^ear it will be possible for the Secretary adequately to supervise the bureaus and the divisions of the department through three Assistant Secretaries, provided the office of Undersecretar3^ is created. The number of Assistant Secretaries may be decreased by one if the Congress authorizes the transfer of the Bureau of W a r Eisk Insurance, Public Health Service, the Office of the Supervising Architect, the General Supply Committee, and the Prohibition Unit from the Treasury as recommended below. The functions of an Undersecretary of the Treasury, who should be appointed by the President, by and with the advice and consent of the Senate, would be to serve as chief adviser to the Secretar3^ in matters of fiscal policy and to assume supervision of the budget if that function is committed to the Treasury. The Secretary of the Treasury will need the services of an assistant who will specialize in matters of financial policy and who will be able to devote his undivided time to such questions uninterrupted by administrative control of present bureaus and divisions. The supervision of the latter is likewise a matter of very great importance and requires men of large ability in the capacity of Assistant Secretaries. Eecommendation for this new position is incorporated in the estimates for the fiscal year 1922 and it is hoped that it will receive the approval of the^ Congress. There can be nothing of greater concern to the people of America than the efficient management of the public Treasuiy which can not be accomplished without a competent staff to assist the head of the department. The estimates also include recommendations for increases in the salary of the assistant secretaries and the assistant to the Secretaiy from $5,000 to $7,500 per annum. The figure mentioned is far below the value of the services rendered in these positions. I t is not made higher because it was believed that the Congress would not grant a greater increase in advance of the general standardization and reclassification of salaries. These positions demand men of execu- SECRETARY OF THE TREASURY. 247 tive skill and great ability and it is urgently recommended that at least this increase in salary be granted. ACTIVITIES W H I C H SHOULD BE SEPARATED FROM T H E TREASURY. There are some activities of the Treasury having little or no relation to the fiscal operations of the Government which could appropriately be transferred elsewhere, relieving this department of large administrative burdens. These are the Bureau of War Eisk Insurance, the Public Health Service, the Office of the Supervising Architect, the General Supply Committee, and the prohibition unit of the Bureau of Internal Eevenue, The Bureau of War Eisk Insurance and the Public PIea:lth Service are associated in serving the former service men who are beneficiaries of the war-risk insurance act. These t^vo services and closely related activities should be placed in one department under the immediate supervision of the same assistant secretary. This department is glad to have been connected with the service which they are rendering; but it has no relation, however, to the financial operations of the Government. I n the interest of good organization, it would appear that both bureaus should be transferred to another department. The Bureau of War Eisk Insurance is an outgrowth of the war. I t was established, on the recommendation of the Secretary of the Treasur3^, when the war broke out in Europe in 1914, to grant insurance on American vessels and cargoes for protection against^ the risks of war. I t was originall5^ placed under the Treasuiy because it was a temporary operation and the customs service of this department was available to act as its field force. I n June, 1917, its powers were enlarged to include the granting of insurance on the lives of masters, officers, and crews of American vessels against the hazards of war. These functions are now ended. While the activities of the bureau in these directions involved large aggregate amounts, their administration w^as a simple process. The act of October 6, 1917, however, granting allotments and allowances, compensation, insurance and medical care and treatment to members of the military and naval forces, greatl3^ expanded the functions of the bureau and. made it the largest single administrative unit in the service of this Government and probably of any other. Its operations will continue for many years to come. As the bureau has no connection with the fiscal affairs of the Treasuiy, it could properly be transferred to another jurisdiction. The Public Health Service is an ancient institution in the Treasuiy, vvhere it has been located from the date of its creation. It had its origin in the old Marine-Hospital Service which was authorized 248 REPORT ON T H E FINANCES. by the act approved July 16, 1798. In 1902 its name Avas changed to the Public Health and Marine-Hospital Service, and by the act approved October 14, 1912, it became known as the Public Health. Service. During its life of 122 years, the service has grown from a small institution designed to furnish medical care to sick and disabled seamen of the American merchant marine to a great national health agency, operating the maritime quarantine stations of the United States, protecting the Nation against foreign epidemics, preventing the interstate spread of disease, cooperating with State and local health authorities in the .control of sickness and the improvement of the health of the people, and, under recent authority,'giving medical care and treatment to disabled ex-service men and women who are beneficiaries of the war-risk insurance act. I n suggesting the association ^of the Bureau of War Eisk Insurance and the Public Health Service in the manner mentioned above, it is not meant to imply that their work is on a comparable basis, except in so far as it relates to the care of ex-service men and women. This function in the Public Health Service forms only a part of its important duties. Backed by fine traditions and a proud record, it operates a general medical and surgical service that is nation wide in scope. Its supervision is an administrative problem of large proportions and obviously has no relation to the fiscal functions of the Government. The Treasury should relinquish control. The Office of the Supervising Architect likewise has always been in the Treasury. I t was provided for by section 235 of the Eevised Statutes. The office is charged with the construction, repair, furnishing, equipment, and maintenance of public buildings, including post offices, courthouses, customhouses, assay offices, subtreasuries, marine hospital, and quarantine stations, in which quarters are provided for the several branches of the public service located outside of Washington. The extent of its operation is reflected in the statement that the number of completed and occupied public buildings at this time is approximately 1,200 and their total cost, including sites, was over $323,000,000. The Office of the Supervising Architect performs an essential and important function, but it has no relation to distinctly Treasury work. Fpr that reason it should be transferred to' another department. The General Supply Committee is of more recent origin. I t is' an important activity and performs an essential service. The work, however, has no relation to the fiscal service and could with propriety be transferred from the Treasury. The national prohibition act is a penal statute and relates only indirectly to taxes. When this responsibility was placed upon the SEGRETARY OF TFIE TREASURV. 249 Commissioner of Internal Eevenue he already was carrying a heavy and unusual burden. This will be increased if the revenue act is revised. The dut3^ of searching out and prosecuting offenders under the prohibition law should not be imposed upon an agency that should devote its attention exclusively, as far as possible, to the collection of taxes. If that part of the work which relates to the de-. tection and prosecution of crime should be transferred to some other department, the features of the laAv which relate to taxes and penalties, as distinguished from fines arid punishment AA^hich may be imposed through the courts, could be left with the Treasury. I t is perhaps seldom that departments voluntarily suggest that they be relieved of large powers they are exercising and interesting and important duties they are performing. I t is natural that they should cling to their responsibilities. I t is hoped that this recommendation will have all the more force because it is unusual. Officials of the Treasury concerned Avith the superAdsion of the activities mentioned above are interested in the work and realize its tremendous value to the Nation; and the bureaus and offices themselves are strongly attached to this department. These are considerations of sentiment which I likewise entertain. Very grave problems, however, face the Treasur3^, and matters of this kind must be decided by the requirements of proper and logical organization. Burdens growing out of the war naturally have fallen principally upon this department. They Avill continue and will not end until the war debt has been redeemed. The groAvth of the fiscal work of the Treasury has been unprecedented. The department should be given the opportunity of centering its attention upon its primary functions and should not be encumbered with large activities unrelated to fiscal operations. That is the basis for these proposals. They are offered particularly in contemplation of the establishment of a budget system. If the budget bureau is placed in the Treasury, which I believe is clearly the correct policy, it would seem to be extremely important that this department be relieved of administrative burdens involved in the supervision of the spending services herein discussed. I t is hoped that the Congress will give the question serious consideration. If the transfers are made, it will be possible to eliminate one Assistant Secretary from the Treasuiy organization suggested in this report. PERSONNEL. The magnitude of the burdens imposed upon the Treasuiy during and since the war is reflected in the growth of its personnel. Every war activity found its reflex in this department. The Treasury touched every operation of war. Here the money was provided to 250 REPORT ON T H E FINANCES. meet any and all demands, and here the bills were paid and the accounts audited. Every, increase in appropriations meant more work for the Treasuiy, and every added expenditure augmented the burden. The groAA th of the work was due to the incAntable expansion of fiscaL operations, and also to ncAv activities assigned to the department, such, for instance, as the Bureau of War Eisk Insurance. When war was declared on April 6, 1917, the number pf employees in the Treasury Department' in Washington Avas 8,138. On December 31, 1917, the force had^groAvn to 13,182; to 20,080 on June 30, 1918; to 29,526 on December 31, 1918; to 32,246 on" June 30, 1919; and to 35,267 on October 31, 1919, when the highest point was reached. The number has since gradually decreased, until on September 30, 1920, the total was 29,955. In the 11 months from October 31, 1919, to September 30, 1920, there was an aggregate reduction of 8,402, and an aggregate increase of 3,090, making a net reduction of 5,312 in the personnel of the department at Washington.^ EverA^ effort has been made to reduce the force as rapidly as the work would permit, and this program of retrenchment Avill continue. Much of the temporary Avar work of the Treasury continued after the signing of the armistice. That has now disappeared, or will soon do so, but the war placed upon the TreasurA^ duties and responsibilities that will last for many 3^ears to comie. For that reason the personnel in certain of the department's activities will continue relatively large as compared Avith prewar standards. That is particularl3^ true with respect to the Bureau of Internal Eevenue, the Division of Loans and Currency, the Eegister's Office, the Public Health Service, and the Bureau of War Eisk Insurance. The Bureau of War Eisk Insurance, at the outbreak of the war on April 6, 1917, had 23 people on its rolls. The act of October 6, 1917, enlarging the functions of the bureau., necessitated an unprecedented enlargement in the force. As the work poured in, the number rose in rapid strides. The inaximum of 17,336 was reached on March. 6, 1919. That was more than twice the total number of employees for the entire Treasuiy Department in Washington at the outbreak of the Avar. There has since been a rapid reduction in the force of the bureau. On September 30, 1920, the number employed was 7,059. a decrease of 10,277 from the peak on March 6, 1919. • The Washington force of the Public Health Service consisted of 45 employees at the outbreak of the Avar, while on September 30, 1920, the number was .565. This increase was due to the added responsibilities of the Public Health Service in rendering medical care and treatment to patients of the Bureau of War Eisk Insurance. The Bureau of Engraving and Printing, charged with the duty of printing and engraving the securities of the GoA^ernment, almost SECRETARY OF THE TREASURY. 251 doubled its force daring the Avar. I n the beginning, the bureau had 4,411 people on its rolls. The number was raised until on October 31, 1918, it reached 8,402. Since that date the force has been considerably reduced, and on September 30, 1920, the total nuniber of eniplo3^ees Avas 6,874, a decrease of 1,528 persons. The great transactions in the public debt have necessaril3^ caused large additions to the personnel of the Division of Loans and Currency and the Office of the Eegister of the Treasury. The force in the Division of Loans and Currency rose from 84 at the beginning of the Avar to 2,930 on February 29, 1920, the largest number reached at any time. On Septeniber 30, 1920, the number had been reduced to 2,275. At the outbreak of the war, the force of the Eegister of the Treasury consisted of 21 employees. The tremendous expansion of the/work of the office necessitated a gradual increase in the personnel until on March 31, 1920, the number reached 1,140. Since that date the force has been reduced, the number on September 30, 1920, being 962. The Avork of the Treasurer's office in connection Avith the receipts and expenditures of the Government Avas likewise greatly augmented. The force Avas increased from 562 in the beginning to 1,341 on November 30, 1919. On September 30, 1920, the number employed in that office Avas 1,286. To collect the great amount of taxes imposed in recent years the force of the Bureau of Internal Eevenue has necessarily been greatly extended. In addition to the collection of taxes, the bureau Has been charged with the enforcement of the prohibition act. That has further increased its personnel. On September 30, 1920, the bureau's employees in Washington numbered 6,301, as compared Avith 604 at t h e outbreak of the war. These statements cover the personnel in Washington. At the beginning of the Avar the field force of the several Treasur3^ services numbered approximately 30,000. On September 30, 1920, it had been raised to about 45,000. These figures cl^o not include the enlisted men in the Coast Guard, who on September 30,1920, numbered 3,562. The increase in the field force occurred chiefly in the services of the Bureau of Internal Eevenue ^and-the Public Health Bureau. On April 6, 1917, the Bureau of Internal Eevenue had approximately 4,500 employees in the field service, while on September 30,1920, the field force reached 13,067. On April 6, 1917, there were 2,044 employees in the field service of the Public Health Bureau; on September 30, 1920, the .number Avas approximately 18,250, of which number about 1,500 are surgeons and consultants Avho are part-time emplovees. The following table indicates the offices in which the larger 'increases in the Washington force occurred and shows the number of 252 REPORT ON T H E FINANCJES. emplo3^ees at the beginning of the war, the greatest num.ber reached, and the number employed on September 30, 1920: Treasury Department, Washington. Bm'eau or office. Loans and Currencj'Register of Treasury Treasurer ofthe United States. Engraving and Printing Internal Kevenue AA'ar Risk Insurance Chief cleric Auditor for War Department.. Auditor for N a w Department Public Health Largest numl^er emNumber pl05'"ed. employed at boginning Date. of war. .Number. 84 21 564 4,502 607 23 335 207 100 45 2,930 i; 140 1.341 8;402 6,301 . 17,336 1,084 1,072 318 565 Feb. 29, .1920 Mar. 31,1920 Nov. 30, 1919 Oct. 31,1918 Sept. 30,1920 Mar. 6,1919 Mar. 31,1920 Jan. 31,1920 Sept. 30,1920 .....do Nuiliber emDecrease ployed from Sept. 30, peak. 1920. 2,275 962 1,280 6,874 6,301 7,059 1,055 982 . 318 565 655 178 55 1,528 10,277 29 90 A table shoAving the number of employees in the Treasury Department in Washington, by months, from January, 1917, to September. 1920, is attached to this report as Exhibit 90, page 6^S. R E T I R E M E N T OF CIVIL-SERVICE E M P L O Y E E S . Under the provisions of the act a|)proved May 22, 1920, providing for the retirement of employees in the classified ciAdl service, 236 employees of the department in Washington were retired, with annuity, under the age limitations, and 11 retired without annuity. The total compensation of those retired, excluding piece-rate workers, amounted to $295,635.51. Four hundred and twenty-nine emplo3'^ees of the various field services of the department were retired with annuity and 24 field employees were retired without annuity. The total amount of compensation of retired field employees was $443,795. Two hundred and six emplo37'ees of the departmental service and 371 employees of the field service of the department, who had reached the retirement age were retained for a period not to exceed two years. The average age of the retired employees in the department was 75 years, while the average age of those retained for tAvo years was 71 years. The average age of field employees retired was 76, while that of the field emplo3^ees retained was 73 years. Employees throughout the department who had reached the age of retirement did not generally avail themselves of the provisions of the act as readily as had been expected. This, no doubt, was due to the fact that the annuity granted by the act was so low that the average employee could not comfortably maintain himself upon the amount. Employees who had worked for years to secure a retirement lav7 were unwilling in many cases to accept its provisions. i n dealing with retirement cases a policy was adopted throughout the department to make the good of the service the real test as SECRETARY OF THE TREASURY. 253 to whether an employee who had reached the retirement age should be retired or retained. A committee was selected to work out the details connected Avith this undertaking. An exhaustive study Avas made of each case and decision Avas based upon the merits as shown by the facts presented. The committee recommended that the best interests of the service would be subserved by retiring all employees who had reached the age of 80 years. Their recommendation in this regard was approved and retirements were made accordingly. I n exercising the discretion allowed by the statute, every effort was made in each indiAddual case to carry out the intent of the law with respect to both retirements and retentions. The retirement act required the Secretary of the Treasury to make deductions from appropriations for salaries, pa3^, or compensation for transfer to the " Civil service retirement and disability fund." The regulations covering such deductions were issued in Department Circular No. 197, dated June 25, 1920 (Exhibit 91, p. 572.) Department Circular No. 196, dated June 25, 1920 (Exhibit 92, p. 577), covered the question of forms of pay rolls and retirement deductions. SPACE PROBLEMS OF T H E DEPARTMENT. One of the pressing problems confronting the Treasury is the imperative need of adequate and safe housing facilities for its manifold activities. Before the war the department had become greatly congested. The sudden expansion due to war-time activities created an unprecedentedly acute situation, and buildings of all kinds were utilized to provide shelter for many new functions. The offices of the Treasury were strewn over the city of Washington. With the cessation of hostilities the condition somewhat improved, but man37' of the new tasks are permanent in their nature, as the aftermath of the war falls chiefly on the Treasury. Some activities are still expanding, and may continue heavy for years to come. These include, for example, the collection of taxes by the Internal Eevenue Bureau; the enforcement of national prohibition; the extensive work of the Division of Loans and Currency, the office of the Eegister of the Treasury and the Bureau of Engraving and Printing in connection with the public debt, and particularly the war debt; and the storage and custod3^ of supplies transferred to the General Supply Committee under Executive order of December 3, 1918. A securities building fitted to house the public-debt service and other Treasury offices dealing with' securities is particularly necessary. The Bureau of Internal Eevenue is housed in six separate buildings and the DiAQsion of Loans and Currency in five widely separated buildings. Many of these are wholly unsuited for office work and are of nonfireproof construction. The supplies in the custody 254 REPORT ON T H E FINANCES. of the General Supply Committee, valued at about $1,750,000, are stored in 51 barracks buildings in Potomac Park. They are of flimsy construction, and in the event of fire the entire group would be endangered.^ Valuable documents and papers in the custody of the Treasury are housed in temporary v^ooden structures erected during the period of actiA^e warfare for the housing of temporar3'' war-time organizations. These records are irreplaceable. The Treasury has also repeatedly called, the attention of the Congress to the necessity of a modern Treasur3^ vault in Washington, originally estimated to cost in the neighborhood of $1,250,000, to replace the antiquated AMults UOAV used, to safeguard the GoA'ernment's reserA^es and securities. The Treasury's appeals for new vault facilities-were renewed and given additional emphasis in connection with the recent legislation authorizing the discontinuance of the subtreasuries. I t is of the first importance that an appropriation for this purpose be made at this session of Congress, in order that construction of the vault may proceed without further delaA^ The problem of adequate space to meet the needs of the department has demancied almost constant attention. A recent surA''e3^ indicates that, exclusiA^e of the Bureau of EngraAnng and Printing and the Hygienic Laborator3'', the office and filing space of the permanent buildings occupied b3^ the department aggregates only 1.039,037 square feet, while the requirements are 2,107,400 square feet, leavinir a deficiency of more than 1,000,000 square feet. In other Avords, tho permanent buildings occupied bA^ the TreasurA?' meet less than 50 per cent of the permanent space requirements. The erection of permanent fireproof structures for the accommodation of these important agencies is an imperative necessit3^, and it is hoped that the matter will have the immediate consideration of the Congress. PANAMA CANAL. The general fund of the Treasuiy was charged during the fiscal A^ear 1920 Avith $9,465,056.54 on account of the Panama Canal, including $6.,031,463.72 for maintenance and construction work and $3,433,592.82 for fortifications and miscellaneous expenditures. The general fund Avas credited during the 3^ear with $9,039,670.95 receipts from tolls, etc., making a net expenditure for the A^ear of $425,385.59. The total amount expended for canal construction, fortifications, maintenance, etc., from the general fund to June 30, 1920, exclusiA^e of reimbursements from sales of. bonds, was $322,939,563.56, wdiile the amounts received from Panama Canal bonds, including premiums thereon, issued in 1907, 1908, 1909, 1911, and 1912, was $138,600,869.02, making the total expenditures on account of the Panama Canal to the close of the fiscal year 1920 $461,540,432.58. SECRETARY OF T H E TREASURY. 255 FINANCES. The folloAving statements showing receipts, disbursements, estimates, and the condition of the Treasury are submitted: E E C E I P T S AND DISBURSEMENTS.^ Fiscal year 1920. The receipts and disbursements of the Government during the fiscal year ended June 30, 1920, AA^ere as follows: (See details on pages 262 to 272.) G E N E R A L "FUND. Receipts into the general fund, including trust-fund receipts, but excluding postal rcA^enues: Customs Internal revenue— Income and excess-profits taxes $3, 956,936,003. 60 Miscellaneous. 1, 442, 213, 241. 46 Sales of public lands Miscellaneous.Panama Canal tolls, etc • • 5,399,149,245.06 1, 910,140. 20 971,409,074. 63 = . -. 9,039, 670. 95 6,705,044,690.09 ' . 630, 252. 46 Deduct difference arising in adjustment of receipt accounts. Total ordinary receipts Disbursements,^ from the general fund for current expenses and capital outlays, including trust-fund disbursements, but excluding Postal Service paid from postal revenues: For ciAdl establishment— Legislative establishment Executive proper, including Tariff Commission and Alien Property Custodian State DepartmentTreasury Department proper . Bureau of War Risk Insurance Public buildings, construction, sites, equipment, and maintenance War Department proper Department of Justice Post Office Department proper Additional compensation, Postal Service : , Navy Department proper $323, 536, 559. 25. 6, 704,414, 437. 63 ^19, 739, 707. 70 1, 603, 633. 41 13, 590, 288. 51 149, 413, 542. 85 ^ 74^ ggg, 559. 30 14; 027, 068. 17 8, 734, 269. 52 18, 667, 245. 63 2, 680, 470. 81 35,698,400. 00 2,797,152.07 1 "Disbursement's," as used in the following table.s, in addition to actual expenditures, Include unexpended balances to the credit of disbursing officers, o 2 Exclusive of allotments of pay. 256 REPORT ON T H E FINANCES. Disbursements, etc.—Continued. For civil establishment—Continued. Interior Department proper Department of Agriculture Department of Commerce Department of Labor United States Shipping Board Federal control of transportation systems, and transportation act, 1920.. Federal control of telegraph a n d telephone systems War Finance Corporation. Food and Fuel Administrations Council of National Defense Housing Corporation European food relief Wheat guarantee fund State, War , and Navy Department buildings Interdepartmental Social Hygiene Board Interstate Commerce Commission Federal Trade Commission Federal Board for Vocational Education.. . . . . . ^ ; Employees' Compensation Commission. • Smithsonian Institution and National Museum , Other independent offices Purchase of obligation? of foreign Governments Purchase of farm-loan bonds Expenses of loans District of Columbia $28,199,495. 23 66, 611,066. 69 35, 765, 045. 92 6,125, 231.15 469, 094,549. 35 1,038, 614, 901.18 12,018, 557. 68 150,000,000. 00 ^ 1 , 633, 859.11 107, 758. 20 ^ 2,038, 712. 77 93, 236,117. 80 350,000. 000. 00 2, 483, 462. 33 1., 791, 071. 03 5, 847, 961. 96 1, 021, 653. 58 34, 984, 423. 90 2,239,80L95 797, 017. 44 3, 237,498. 91 421, 337, 028. 09 26, 887, 356. 25 22,122, 776. 85 20, 413, 421.77 13,131,103, % \ 35 For War Department— For Military Establisliment, as follows— Support of the Army, $770,793,635.70; Military Academy, $1,071,370.05; fortiRcations, $231,402,870.28; arsenals, $1,016,429.18; registration and selection for military service, $2,877,182.21;. military posts and miscellaneous, $19,163,460.59 1, 027, 225, 248. 01 For rivers and harbors 49, 873, 930. 42 For war miscellaneous, civil, including national homes, $6,091,465.63; soldiers' deposit fund, $4,940,741.34; cemeteries, parks, claims, etc.. $6,702,816.83... 17,735,023.80 . . , _ 2 jL^ 094, 834, 202. 23 For Panania Canal 6, 031,463. 72 1 Excess of repayments. 2 includes allotments of pay. SECRETARY OF THE TREASURY. 257 £)i8bursement8, etc.—Continued. For .\aval Establishment, including construction oi" new vessels, machinery, armament, equipment, improvement at navy yards, aud miscellaneous. ^ $629, 893,115. 87 For Indian Service 40,516,831.94 Forpensions 213,344,204.11 For interest on the public debt 1,024,024,440. 02 6,139, 748, 22L 24 Add difference arising in adjustment of miscellaneous accounts Total ordinary disbursements 6,141, 745, 240. 08 Excess of ordinary receipts 562, 669,197. 55 Publicdebt—receipts and deposits: First Liberty loan 2 |23o. 00 Second Liberty loan 2 920. 00 Third Liberty loan 498,492.50 Fourth Liberty loan 5,078,726.00 Victory Liberty loan 1,027,542,058.-23 War-savings certificates 73, 240,467. 03 -Certificates of indebtedness 14,728,725,- 968. 53 Deposits to retire Federal reserve bank notes and national bank notes. 17,071, 987. 50 Deposits for postal-savings bonds 189, 400. 00 Total public-debt receipts. 1 997,018.84 "' ;^ 15,852, 345,949. 79 'Public debt—redemptions and purchases: First Liberty loan, converted at 4 per cent. 14,862,000.00 First Liberty loan, converted at 4J per cent 17, 475, 700. 00 . Second Liberty loan 10,007, 700. 00 Second Liberty loan, converted a t 4 i per cent 231,142, 700. 00 Third Liberty loan 296,338, 250. 00 Fourth Liberty loan. 405, 221,500. 00 Victory Liberty loan notes 249,006, 500. 00 Loan of 1908-1918 416,140. 00 War-savings certificates '... 199,818,880. 44 Certificates of indebtedness 15, 588,704,458. 53 Federal reserve bank notes and national bank notes retired 23,424,164. 50 Miscellaneous redemptions, public d e b t . . 26, 277. 78 Total public-debt disbursements 17,036, 444,271. 25 Excess of public-debt disbursements over public-debt receipts. 1,184,098,321. 46 Excess of total disbursements over total receipts. 1 Includes allotments of pay. 13799—FI 1920 17 . .621,429,123. 91 2 Deduct, counter entry. ^. 258 REPOET ON THE FINANCES. SUMMARY O^ GENERAL FUND TRANSACTIONS, Fiscal year ended June 30, 1920. Receipts. Disbursements Ordinary receipts, .including trust-fund receipts, but excluding postal revenues $6,704,414,437. 63 Disbursements ^ for current expenses and capital outlays, including trust-fund disbursements, but excluding postal service paid from postal revenues. $6,141,745,240.08 Public debt—receipts and deposits 15,852,345,949. 79 Public debt—redemptions and purchases 17,036,444,271. 25 Total receipts into the general fund 22,556, 760, 387. 42 Excess of disbursements over receipts. 621,429,123. 91 Grand totals 23,178,189,51L 33 23,178,189, 511. 33 General-fund balances: Balance per Daily Treasury Statement June 30, 1919 1, 251, 664,827. 54 Deduct net excess of disbursements over receipts in June reports subsequently received 25,499, 892. 28 1, 226,164, 935. 26 Pay warrants issued in excess of receipts, fiscal year 1920. , $621,429,123. 91 Less excess of unpaid warrants June 30, 1920, over such amount on June 30,1919. 9,556, 884. 62 611, 872, 239. 29 Decrease in book credits of disbursing officers' and agencies with Treasurer, June 30, 1920, OA'^er such amount on June 30, 1919. 254, 345, 675. 64 • 866, 217, 914. 93 Balance held by the Treasurer of the United States June 30,1920 359,947,020.33 POSTAL SERVICE. ' [Exclusive of Post Office Department proper, which is included in "civil establishment."] Postal-revenue receipts :.:...... Postal service paid from postal revenues ^ Excessof receipts..... $437,150,212. 33 418, 722, 295. 05 18,427,917.28 . UNITED STATES NOTES (GREENBACKS). Issues to replace worn and mutilated notes : $319, 836,000. 00 Worn and mutilated notes retired '. 319,836,000. 00 The redemptions during the year of the notes unfit for circulation necessitated the issue of a like amount thereof to maintain the outstanding aggregate of the notes as requiriBd by law. 1."Disbursements," as here used, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. ' 2 Exclusive of $35,698,400 paid for additional compensation, Postal Service, from the Treasury. 259 SECRETARY OF T H E TREASURY. GOLD R E S E R V E F U N D . Balance in reserve fund June 30, 1919 Balance in reserve fund June 30, 1920. $152, 979, 025. 63 152, 979,025. 63 The redemptions of notes for gold from the reserve fund during the year were: United. States notes, $3,585,390. As the redeemed notes were exchanged each day for gold in the general fund, the reserve was maintained at the fixed sum required b y law, including $2,979,025.63 tax on additional circulation received under act of May 30, 1908. TRUST FUNDS. (Held for the redemption of the notes and certificates for which they are respectively pledged.) Gold coin and bullion Silver dollars. „ Silver dollars, 1890,. „ $584,723, 645 118,257,883 1,656,227 Gold certificates outstanding. $1, 375,659,569 Less amount in the Treasury 790,935,924 Net. 584,723, 645 Silver certificates outstanding. Less amount in t h e Treasury. Net ;.„ 124,240,400 5, 982,517 118,257,883 Treasury notes (1890) outstanding. . Less amount in the Treasury Net. . , 1,659,000 2,773 1,656,227 704, 637, 755 704, 637, 755 GOLD SETTLEMENT FUND, FEDERAL RESERVE BOARD. Goldcoin , $1,184,275,551.87 SINKING FUND. There were no transactions during the fiscal year 1920 on account of the sinking fund created by the act of February 25, 1862, which was repealed by the act of March 3, 1919, section 6. The same section created a cumulative sinking fund beginning with the fiscal year 1921. 260 REPORT ON T H E FINANCES. CONDITION OF THE TREASURY J U N E 30, 1920. The public debt of the United States at the close of the fiscal year 1920 is set forth in detail, as follows: Interest-bearing debt: Loan of 1925, 4 per cent Consols of 1930, 2 per c e n t . Panama Canal loan, 2 per cent Panama Canal loan, 3 per cent ? Postal savings bonds, 2^ per cent Conversion bonds, 3 per cent Certificates of indebtedness War savings certificates First Liberty loan, 3^ per cent First Liberty loan converted, 4 per c e n t . . First Liberty loan converted, 4 i per c e n t . . First Liberty loan second converted, 4^ percent Second Liberty loan, 4 per cent Second Liberty loan converted, 4^ per cent Third Liberty loan, 4^ per cent. Fourth Liberty loan, 4J per cent Victory Liberty loan, 3i and 4 i per c e n t . . Debt on which interest has ceased: Funded loan of 1891 Loan of 1904 Funded loan of 1907 Loan of 1908-1918 .' Refunding certificates Olddebt Certificates of indebtedness, m a t u r e d . . . . $118,489,900. 00 599,724,050. 00 74,901,580. 00 50,000,000. 00 11,539,360. 00 28,894,500. 00 2,768,925,500. 00 827,419,021. 36 1,410,074,400. 00 65,803,050. 00 473,089,200. 00 3,492,150.00 240,003, 250. 00 ^ 3,085,303,750. 00 3,662,715,800. 00 6,394,354,500. 00 4,246,365,350. 00 ,. $24,061,095,36L 36 20,800. 00 13,050. 00 384,400. 00 519,860.00 10,410. 00 898,680.26 4,900,500.00 6,747,700.26 Debt bearing no interest: United States notes (greenbacks), less gold reserve Bank notes, redemption account Old demand notes Fractional currency 193,701,990.37 29,478,280.00 53,012. 50 6,842,067. 04 230,075, 349. 91 Total interest and noninterest bearing debt, exclusive of certificates and notes offset b y coin and bullion (gross debt) CASH IN THE TREASURY J U N E 30, 24,297,918,411.53 1920. [From revised statements.! Reserve fund: Gold coin and bullion 152,979,025. 63 Trust funds: Gold coin and bulHon Silver dollars Silver dollars of 1890.. 584,723,645. 00 118,257,883. 00 1,656,227.00 704, 637, 755. 00 SECRETARY or THE TREASURY. Gold settlement fund, Federal Reserve Board: Gold coin and bullion General fimd: In Treasury offices— Goldcoin Standard silver dollars United Statesnotes...., Federal reserve notes. Federal reserve bank notes National-bank notes Certified checks on banks Subsidiary silyer coin Minorcoin Silver bullion (at cost) Unclassified (unassorted currency, etc.) Public debt paid, awaitiug reimbursement 261 $1,184, 275,551.87 $249,981,700.36 14, 935, 674. 00 9,567,164.00 27, 622, 296. 00 353,402. 00 1,629, 666. 80 475, 834. 81 6, 605, 093. 65 1,076,790.26 19, 516, 565.10 5,833,638.84 1,242,633.03 . In Federal land banks In Federal reserve banks. In transit 338,840,458.85 5, 950,000.00 30,483,519.22 8, 545,005. 29 39,028, 524. 51 In special depositaries— Account of sales of certificates of indebtedness:..... In national-bank depositaries— To credit of Treasurer of the United States To credit of other Government officers. In transit In treasury of Philippine Islands— To credit of Treasurer of the United States To credit of other Government officers. 273,428,577.33 11,863,207.11 15,138,161. 88 11, 598,446. 06 38, 599, 815. 05 1 1,986,669.06 2,785,579. 60 In foreign depositaries— To credit of Treasurer of the United States 798, 910. 54 8,301,507.40 704, 947, 793. 68 Deduct current liabilities— National-bank note 5 per cent fund $21,332, 789.12 Less notes in process of redemption 21, 332, 789.12 Treasurer's checks outstanding Post Office Department balance....... Board of trustees, Postal Savuigs System balance.. Balance to credit of postmasters, clerks of court, etc.". I Credit balance. 466, 273. 36 35, 838, 627. 79 7,791,054.64 33, 974,101.19 262 REPORT ON T H E FINANCES. General fund—Continued. Deduct current liabilities—Continued. Undistributed assets of insolvent national banks Deposits for— $1,168, 284. 92 Redemption of Federal reserve notes (5 per cent fund, g o l d ) . . . Redemption of Federal reserve bank notes (5 per cent fund) Retirement of additional circulating notes, act of May 30,1908. Miscellaneous redemption accounts 237,195, 574. 39 9,449, 759. 00 138, 860. 00 18, 978, 238. 06 $345, 000, 773. 35 Balance in t h e Treasury, J u n e 30, 1920, as per Financial Statement of t h e United States Government 359, 947,020.33 Comparison of receipts, fiscal years 1920 and 1919. 1920 Customs $323,536,559.25 Internal revenue: Income and excess proflts taxes 3,956,936,003.60 Miscellaneous 1,442,213,241.46 Sales of public lands 1,910,140.20 Consular fees 1,671,174.00 Profits on coinage, bullion dePosits, etc 12,369,612.23 Payment of interest by Pacific railways 8,016.58 Tax on circulation of national banks 4,468,704.85 Interest on obligations of 3,751,433.43 t"* Iforeign Governments Principal payments on for71,045,188.47 r^;eign loans 16,656,276.09 Interest on public deposits... Premium on .war-risk insur10,427,122.66 ance 290.98 Night services, custom service Customs fees, fines, penalties, ' 1,095,786.26 etc nterest on loans to ..railroad 2,963,873.33 companies Sale of war supplies, War De300,285,959.76 partment Payment by German Government under terms of 3,346,675.40 armistice Sale of German war supplies.. Emergency shipping fund, 'construction of barges, e t c . . Interest on advance pay2,498,022.36 ments to contractors Donation of royalty on ma1,304.61 chine guns Decrease of capital stock United States Grain Cor350,000,000.00 poration From operations and disposal of properties, United States 3,419,235.54 Housing Corporation Sale of explosive plant, Nitro, 1,400,000.00 W.Va Forest Service, cooperative 2,044,592.13 fund , Proceeds of militia property 14,687.05 lost or destroyed 641,584.90 Earnings of radio service — 1919 f .Increase, 1920. 8183,428,624.78 $140,107,934.47 2,^600,762,734.84 1,239,468,260.01 1,404,703.12 1,159,144.69 ;1,356,173,268.76 202,744,981.45 505,435.08 512,029.31 11,963,244.27 406,367.96 9,148.03 3,806,646.42 $1,131.45 662,058.43 318,410,794.61 322,162,228.04 7,570,000.00 23,709,714.84 63,475,188.47 4,225,398.48 286,929.93 6,201,724.18 7,053,438.7 286,638.9£ 249,901.63 1,345,687.89 2,871,584.86 92,288.47 13,802,217.12 286,483,742.64 14,777,254.41 3,910,175.75 18,123,929.81 3,910,175.75 3,860,000.00 3,860,000.00 1,973,541.14 Decrease, 1920. 524,481.22 715,580.14 716>884.75 350,000,000.00 3,419,235.54 1,400,000.00 2,044,592.13 28,917.69 221,131.19 14,230.64 .420,453.71 263 SECRETARY OF T H E TREASURY. Comparison of receipts, fiscal gears 1920 /md 1919—Continued. 1919 1920 •Navy hospital and clothing funds, fines, forfeitures, etc.. Sales of ordnance materials, etc Land fees ...... Sales of war supplies, Navy Department Sales of naval vessels Revenues of national parks... Fees on letters patent Depredations on publiclands. Deposits for surveying public lands Oregon and California landgrant fund Proceeds of town sites, etc., Reclamation Service Foresi-reserve fund Immigrant fund Naturalization fees Proceeds of seal and fox skins. Ala.ska fund ! Judicial fees, fines, penalties, etc Suri)lus postal revenues, prior years Estimated increased postage. Sales of Government i)roperty Rent of public buildings, • grounds, etc Sales of lands and buildings.. Sales to Indians Franchise tax (surplus earnings of Federal reserve banks) ' District of Columbia, general receipts Funds contributed for river and harbor improvements.. Reimbursements on account of expenditures made for Indian tribes..issessments on Federal rereserve banks, for salaries, etc AsseSvSments on national banks for expenses of examiners Liquidation of capital stock, Federal land banks Discount on bonds purchased. Sale of farm loan bonds Interest on farm loan bonds.. Miscellaneous Panama Canal tolls, etc $942,099.42 $741,465.47 $200,633.95 1,233,013.96 1,609,351.29 4,162,016.20 1,196,570.93 412,780.36 8,986,649.41 3,009,737.54 219,320.55 2,605,780.80 94,376.62 133,815.41 2,022,770.99 57,061.77 8,986,649.41 3,009,737.54 85,505.14 5&3,009.81 37,314.85 101,213.16 41,092.16 60,121.00 245,737. 73 155,217.64 90,520.09 77,15^.19 4,871,877.84 2,919,245.. 55 491,538.50 1,241,648.25 213,121.83 • 55,362.49 4,512,173.93 1,175,293.49 387,795. 50 309,803 ..35 .. 247,943.63 21,792.70 359,703.91 1,743.952.06 103; 743.00 931,844.90 .3,077,945.57 1,731,360.05 1,346,585.52 300,000.00 4,913,000.00 12,647,092.24 18,000,000.00 71,906,000.00 15,477,857.80 429,751.42 347,986.96 226,362. 65 ' 3,639,.063. 52 238,935.00 241,577.85 2,703,893.63 $2,929,002.24 34,821.80 17,700,000.00 66,993,000.00 2,830,765.56 3,209,312.10 109,051.96 i5,'2i5.'26 2,703,893.63 11,446,050.58 10,661,285.44 784,765.14 2,428,920.65 2,282,588.00 146,332.65 77,077. 70 303,624.07 3,229,366.98 2,614,778.42 614,588.56 1,181,196.05 1,065,121.65 116,074.40 610,299.00 66,461.707.27 626,321.00 22,878,516.48 6,345,000.00 3,619,992.25 4,775,111.21 6,777,046.55 6,159,825.00 6,762,636.10 9,039,670.95 Decrease, 1920, Increase, 1920. 226,546.37 16,022.00 43,583,190.79 6,345,000.00 2,539,832.75 1,987,524.89 2,262,624.40 TRUST FIINDS. Department of State: Miscellaneous trust funds. War Department: ' Army deposit funds Soldiers' Home permanent fund ' Miscellaneous trust funds Navy Department: Navy deposit fund Marine Corps deposit fund Interior Department: Proceeds bf Indian lands. Indian moneys, proceeds of labor Miscellaneous trustfunds. Personal funds of patients, St. Elizabeths Hospital Pension money, St. Elizabeths. Hospital Navy pension fund... 10,971.93 16,239.94 1,634,119.85 839,641.16 408,576.66 2,040.00 714,009.89 5,268.01 794,478.69 305,433.23 2,040.00 '62,065.19 47,029.60 78,140.67 99,696.77 2,416,492.24 2,275,347.37 141,144.87 24,633.828.12 813,152.76 13,972,533.67 56,280.92 10,661,294.45 756,871.84 236,806.73 77,917.51 158,889.22 67,607.77 1.993.52 75,824.80 2,009.09 15,035.59 21,566.10 I •8.217.03 15 57 264' REPORT ON. THE FINANCES. Comparison of receipts, fiscal years 1920 and 1919—Continued. District of Columbia: Miscellaneous trust fund deposits. Wasnington redemption fund Police and firemen's relieffund Other trust funds Total Deduct— Moneys covered by warrant in year subsequent to the deposit thereof... AddMoneys received in fiscal year b u t not covered by warrant. Ordinary receipts 1920 • 1919 Increase, 1920. $674,542.12 $545,242.44 $129,299.68 ' 199,945.20 196,231.96 3,713.25 166,325.98 27,946.82 165,533.49 7,241.93 792.49 20,703.89 6,705,044,690.09. 4,654,284.192.43 2,500,679,819.20 Decrease, 1920. $449,919,321.54 1,735,493.29 1,638,786.71 96,706.58 6,703,309,196.80 4,652,645,405.72 2,500,583,112.62 449,919,321.54^ 2,500,583.112.62 450,549,574.00' 1,105," 240.83 1,735,493.^9 6,704,414,437.63 4,654,380,899.01 630,252.46- Public debt: , 1230.00 First Liberty loan 8,485.38 Second Liberty l o a n . . . . . 1920.00 2,404.00 Third Liberty loan 498,492.50 932,106,419.03 Fourth Liberty loan 5,078,726.00 6,959,504,587.00 Victory Liberty loan 1^027,542,058.23 3,467,844,971.77 Certificates of indebted14,728>-725,968.53 • 16,955,327,890.00 ness 73,240,467.03 War-savings certificates 738,247,741.07 189,400.00 Postal savings bonds 289,260.00 17,071,987.50 22,644,757.50 Bank-note fund. . Public debt receipts.... 15,852,345,949.79 29,075,976,515.75 8,715.38 3,324.00931,607,926.53 6,954,425,861.002,440,302,913.54 2,226,601,921.47 665,007,274.04 99,860.00 5,572,770.00' 13,223,630,565.96 Total receipts, exclusive of postal Postal revenues 22,556,760,387.42 437,150,212.33 33,730,357,414.76 364,847,126.20 2,500,583,112.62 72,303,086.13 13,674,180,139.96 Total receipts, including nostaf 22,993,910,599.75 34,095,204,540.96 2,572,886,198.75 13,674,180,139.96 1 Counter entries. Comparison of disbursements,^ fiscal years 1920 and 1919. 1920 1919 Increase, 1920. Decrease, 1920. ClYlL ESTABLISHMENT. Legislative: House of Representatives. Legislative, miscellaneous Public Printer Library of Qongress B o t a n i c GardPTi Total legislative xecutive proper: Salaries and expenses Rehef, etc., American citizens in Europe European food relief United States Tariff Temporary government National security and defense, executive $2,587,742.45 7,059,051.93 222,937.77 8,918,954.07 877,159.04 73,862.44 $2,034,463.06 5,303,885.99 232,614.23 8,232,838.68 743,153 .31 59,880.88 $553,279.39 1,755,165.94 19,739,707.70 16,605,836.15 3,143,548.01 239,357.80 220,053.26 19,304.54 8 5,466.80 93,236,117.80 79 581 58 47,097.37 269,394.89 199,578.35 200,000.00 200,000.00 8 23,298.38 7,703,083.69 6S6,"ii5'.39* 135,005.73 ,13,981.56 93,18^,420.43 $9,676.4e 9,676.46 85,048.38 69,.S16.54 7,726,382.07 3 "Disbursements," as used in these tables, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. 8 Excess of repayments. •SECRETARY OF THE TREASURY. 265 Com.parison of disbursements,''• fiscal years 1920 and 1919—Continued. 1920 1919 $152,907.92 554,453.63 $104,555.04 715,954.04 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—con. Executive proper—Contd. Bureau of Efficiency Civil Service Commission Expenses, trading with the enemy act War Trade Board War Industries Board Committee on Public Information Alien Property Custodian Wheat guarantee fund... Bituminous Coal Commission Total executive proper. 2 1.47 2 273,875.82 16,669.66 2 351,711.76 803,945.08 350,000,000.00 2,739,340.03 1,179,018.29 $161,500.41 1.47 6,643,547.17 1,922,471.71 6,369,671.35 1,939,141.37 3,091,052.39 375,073.21 350,000,000.00 21,258.66 21,258.66 444,839,751.21 $48,352.88 21,497,674.97 443,347,153.05 Department of State: Salaries and expenses Foreign intercourseDiplomatic salaries.. Consular salEiries Contingent expenses of foreign missions Post allowances Contingencies of consulates Emergencies arising in the Diplomatic and Consular Service Relief of American citizens in Mexico and Germany Representation of interests of foreign'^ govern ments. Rehef of Americai seamen Payment to Panam; National security an defense .. Miscellaneous items Trust funds . 2 6,621.00 19,218.84 177,278.74 250,000.00 113,470.11 250,000.00 63,808.63 2,698,516.97 692,409.21 4,838.35 11,358,857.41 550,337.31 13,247.11 142,07L90 Total Departmen of State . 13,590,288.51 20,248,594.49 2,436,107.88 1,417,142.61 1,036,168.73 380,973.88 1,389,459.79 2,382,926.36 1,282,029.96 2,196,842.98 107,429.83 186,083.38 1,648,211.58 569,633.31 1,170,698.47 772,388.27 477,513.11 . 932,436.30 1,099,458.45 1,350,666.49 272,439.34 83,389.80 113,437.51 20,005,076.81 202,754.96 167,022.15 1,078,227.15 30,047.71 25,839.84 8,660,340.44 8,408.76 9,094,413.86 Treasury Department: Salaries, Secretary's ofiic 636,256.89 1,564,355.97 928,099.08 and divisions thereof .J Contingent fund for Sec 1,560.67 retary 5,235.42 3,674.75 International High Com 4,990.27 mission... 17,992.16 22,982.43 Contingent expenses ( 371,881.72 department 497,215.19 869,096.91 Second Pan America; 43,922.05 43,922.05 Finance Conference.. Customs ServiceCollecting custom 151,08L30 revenues 10,174,397.04 10,023,315.74 Refunding excess ( 3,273,608.04 deposits. 4,059,021.46 7,332,629.50 Debentures or drav 11,882,019.22 backs 7,953,233.41 19,835,252.63 Compensation in lie 2,105.60 6,355.00 8,460.60 of moieties Miscellaneous refun s 57,605.39 8,336.76 49,268.63 Internal Revenue Ser^ ice— Expenses of collec • 7,217,128.29 ing . 27,367,040.12 20,149,911.83 8,657,206.41 9,997,134.91 Refunds an d reliefs 18,654,341.32 279,190.62 Miscellaneous .. . 299,415.18 20,224.56 Enforcement of n • tional prohibitic . 2,065,603.38 acts , . 2,065,603.38 » "Disbarsements," as u; >d in these tables, in addition to actual expenditures, include unexpended balances to the credit of d .bursing officers. 2 Excess of repayments. 266 REPORT ON THB FINANCES. Comparison of disbursements,^fi,scalyears 1920 and 1919—Continued. 1920 1919 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—con. Treasury Department—Con. Suppressing counterfeiting and other crimes... Accounting oflSices Miscellaneous ofiices Public Health Service Epidemic diseases Promoting health of militai-y forces War Risk InsurancesSalaries and expenses. Losses Military and naval compensation Military and naval family allowance... Military and naval insurance National security and defense Grovernment life insurance fund Federal Farm Loan Board— Salari es and expenses. Engraving and printing.. Paper, etc., for United States securities Preparation and issue of F'ederal reserve notes... Expenses of loans Charges on bullion sold... Loss on silver dollars melted or broken u p . . . Coast Guard Revenue vessels Independent Treasury... Mints and assay offices... Public buildings— Sites, construction, and equipment Current maintenance. Expositions Salaries and expenses, national-bank examiners.. National security and defense Increase of compensation. Miscellaneous items Special f u n d s Philippine special funds Night services, Customs Service Porto Rico special funds Total Treasury Department War Department: Salaries and expenses Additional employees Pubhc buildings and grounds Iricrease of compensation. Total War Department Navy Department: Salaries and expenses Additional employees Temporary office buildings Increase of compensation. Total Navy ment $301,082.64 3,171,624.62 1,989,771.68 21,421,519.61 495,792.75 2 5^ 762.58 $292,381.11 2,908,621.96 1,249,764.27 6,286,720.75 183,554.30 $8,701.53 263,002.66 740,007.41 15,134,798.86 312,238.45 47,153.43 $52,916.01 15,472,890.11 521,790.82 12,872,729.78 7,499,346.96 2,600,160.33 103,278,296.60 11,493,837.10 91,784,459.50 30,594,051.37 193,444,460.92 2 85,090,030. 27 2 126,430,622.28 2 32,262. 21 3,063,940.79 10,182,404.13 6,977,556.14 162,850,409.55 41,340,592.01 3,096,203.00 10,182,404.13 .196,046.01 5,779,500.57 212,673.00 5,326,285.79 453,214.78 690,712.35 662,659. 53 28,052.82 92,261.08 22,122,776.85 25,479.63 291,522.71 28,594,377.10 497,290.09 199,261.63 6,471,600.25 471,810.46 10,236,301.63 88,638.71 635,326.64 1,545,234.77 43,850,645.28 11,207,131.15 289,023.95 636,253.40 1,552,793.67 43,850,645.28 970,829.52 200,385.24 926.76 7,558.90 6,918,375.13 7,108,693.04 48.57 10,184,242. 67 6,672,167.18 436,525.86 48.57 16,626.99 3,265,867.54 1,339,669.41 1,031,356.85 308,312.56 2 295,744.87 12,215,722.78 405,687.70 5,259,195. 75 3,747,009.01 638,010.58 8,468,713.77 856,380.07 1,016,86L61 160,481.54 33,098.28 284,986.04 251,887.76 286,503.53 953,521. 03 667,017.50 260,451,047.17 289,914,682.25 2,541,022.83 3,960,223.77 3,481,678.48 14,951,889.70 681,565.72 1,551,457. 20 682,674. 03 1,046,262. 29 505,194. 91 8,734,269.52 20,162,504. 50 505,194. 91 939,970.35 1,000,454.41 1,682,03180 1,102,402. 48 208,222. 08 648,505. 23 6,844,007.03 144,936. 73 503,568. 50 2,797,152. 07 9,773,378.04 503,568.50 206,266,784.41 5,554,940.62 '232,'322."88 235,729,519.49 940,655. 65 ' 10,991,665.93 1,108. 31 11,933,429.89 742,061.45 101,948.08 6,635,784.95 Depart7,479,794. 47 1 "Disbarsements," as used in these tables, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. 2 Excessof repayments. 8 Exclusive of allotments of pay. ISECRETARY OF THE TREASURY. 267 Comparison of \ lisbursenients} fiscal years 1920 and 191.9—Continued. 1920 1919 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—con. interior Department: Salaries and expenses^. office of Secretary : General Land Offlce PubHc Lands Service... Payment of unpaid taxes on lands involved in; O r e g o n & Californisj R. R. forfeiture suit...' National security andi defense Indian Offlce Pension Offlce. Patent Offlce ; Bureau of Education Colleges for agriculturo and the mechanic arts^ Geological Survey. 1 Bureau of Mines ' Fuel yards, District oi Columbia , Offlce of Superintendenj of Capitol Building am: Grounds ..,. National parks ;. Territorial governments!. St. Elizabeths Hospital..:. Other beneficiaries..'... . , Construction, etc., of rail roads in Alaska : . Increase of compensatioi . Miscellaneous items ; , Special f u n d s Reclamation fund.. . Five, three, and twi > per cent fimds,sal(31 of lands i. Proceeds, town sites, Alaska j. Revenues of nationi^ I parks a n d Hd; Springs, .A.rk ;, Deposits for surve:y • ing public lands. J . Public schools, Ala! • ka fund ,. Miscellaneoas trust fund ! Total Interior Deparl ment $28,569. 90 3,203. 77 $1, 111, 137.12 673,251. 40 3,049,492.10 $1,139,707.02 676,455.17 2,421,560.86 25,234.81 25, 234.81 55 921. 29 3oo; 975.13 1,277, 559. 32 1,643, 383. 75 496, 569. 60 396,921.80 297,068. 98 1,302,962. 94 1,505,618.40 383,648.83 341,000.51 137,765.35 112,920.77 2,500, 000.00 1,442, 446.04 2,704, 282. 23 2,500,000.00 1,292,711.19 1,582,573.27 149,734.85 1,121, 708. 96 2 213,900. 20 1,077,409.22 895,237.48 977,549.34 28,472.37 1,085,952.72 345,201.29 1,042,117.89 765,481. 46 103,568.75 694,351.38 . 292,227.71 6,240,053.20 2,086,548.36 346,697.20 5,284,698.43 1,046,571.90 652,798.91 764,538.02 4,209,530.59 3,444,992.57 85,073.42 85,073.42 24,008.87 24,008.87 $627,931. 24 3,906. 15 25,403. 62 1,291,309.42 146,880.41 212,067.88 391,601.34 52,973.58 75,09t). V. 955,354.77 1,039,976.46 306,101.71 23,308.12 83,985.67 128,362.16 63,064.24 65,297.92 48,592.13 187,865.06 49,667.14 121,842.67 66,022.39 1,075.01 28,199,495.23 29,120,861.52 4,937,261.66 5,858,627.95 1,777,469.72 1,763,754.67 13,715.05 114,854.21 320,886.80 467,260.08 343,511.15 151,718.46 146,960.83 169,168.34 320,299.25 Post Office Department: Salaries and expenses.... Deficiency in postal revi nues i.. Increase of compensatio i. Miscellaneous i t e m s . . . . . . Additional compensatio i. Postal Service ,.. 35,698,400.00 Total Post Office D i partment ,. 38,378,870.81 Federal control of telegra]] i and telephone systems. ."\.. 12,018,557.68 60,677.55 228,656.94 35,698,400.00 2,405,945.11 36,201,582.64 228,656.94 12,018,557.68 Department of Agriculture Salaries and miscellaij 31,038,012.63 6,643,142.93 ous I .. 7,681,155.56 Animal Industry, e c450,820.27 3,164,127.56 3,614,947.83 penses ; .. Meat inspection, Anin' il 283,915.56 3; 470,027.85 3,753,943.41 Industry ,. 300.006.86 1,194,978.60 Entomology, expenses^.. 894,971. 74 1,072.94 366,917.23 Soils, expenses J,.. 367,990.17 ""248,'94i."66' 1,868,541.18 Markets, expenses J,. 1,619,599.58 337,355.36 2,502,460.62 Plant Industry, expens )s. 2,165,105. 26 1 "Disbarsements," as u\ ed in these tables, in addition to actual expenditures, include unexpended balances to the credit of d sbursing officers. 2 Excess of repayments. ] . • 268 REPORT ON THE FINANCES. Comparison of disbursements,^ fiscal years 1920 and 1919—Contiaued. 1920 1919 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—contd. Department of AgricultureContinued. Purchase of seeds Biological Survey, expen.ses Crop Estimates, expenses. Proouring, etc., nitrate of soda .Public Roads, expenses.. Stimulating agriculture and facilitating distribution of products Forest Service Acquisition of lands for protection of watersheds, navigable streams Cooperative construction, rural post roads, etc. National security and defense Bureau of Chemistry States Relations Service, expenses Cooperative extension work Weather Bureau, expenses... ' Increase of compensation. Cooperative work, .Forest Service Special f u n d s Payments to States and T e r r i t o r i e s . from National Forests fund Roads and trails for States Miscellaneous special funds Total Department of Agriculture Department of Commerce: Salaries and expenses Bureau of Standards Census Office Foreign and Domestic Commerce Coast and Geodetic Survey Lighthouse Estabhshment Bureau of Fisheries Bureau of Navigation National security and defense Increase of compensation. Fish hatcheries.. •. Steamboat - Inspection Service Miscellaneous items Total Department of Commerce $348,930.18 $235,991.89 $112,944,29 649,680. 20 223,136.96 501,639.72 222,944.42 1-48,040.48 192. 54 2 5,085,659.49 402,091.52 2 10,834,014.49 435,522.06 5,748,955.00 1,199,286.09 6,554,915.39 8,377,361.94 3,296,563.89 $33,430.54 7,178,075.853,258,351.50 487,897.97 663,271.43 1,151,169.40 24,555,179.83 3,665,693.92 20,889,485.91 119,229.30 893,745.66 872,868.68 818,474.74 75,270.92 3,057,075.57 2,916,336.05 140, 739. 52 4,471,593.71 2,568,066.29 1,903,527. 42 1,512,657.06 2,812,614.59 1,523,035.18 1,164,160.68 1,648,453.91 . 1,635,903.65 10,378.12.1,214,633.79 876,334.39 193,552.49 465,828.06 280,459.13 185,368.93 78,749.67 70,128.44 8,62L23 66,611,066.69 36,888,371.28 38,187,190.21 375,495.14 1,736,478.76 13,667,102.58 370,786.74 1,593,100.15 1,121,351.36 4,708.40 143,378.61 12,545,751.22 355,371.36 1,0 753,639.38- 860,273.94 504,902.58 1,820,607.18 1,002,802.93 817,804.25 8,896,988.95 1,354,342.31 257,587.30 3,563,705.59 2,213,087.16 38,200.29 6,662,179.05 1,029,189.00 216,820.83 1,734,705.08 635,372.69 10,412.97 2,234,809.90 325,153.31 40,766.47 1,829,000.51 1,577,714.47 27,787.32 969,643.68 11,533.04 782,795.45 4,115.31 186,848.23 7,417.73 35,765,045.92 15,668,534.14 20,096,511.78 8,464,494.80- Department of Labor: 400,080.70 Salaries and expenses •225,838.78 174,241.92 Bureau of Labor Sta117,493.64 419,242.89 301,749.25 tistics 108,919.63 720,243.45 611,323.82 Bureau of Naturalization, 132,984.13 133,748.28 266,732.41 Bureau of Immigration... 19,223.14 2,550,117.13 2,530,893.99 Regulating immigration. 96,918.03 231,918.03 135,000.00 Immigrant stations 52,077.60' 318,435.87 "266,358.27 Children's Bureau 1 ''Disbursements," as used in these tables, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. •'' Excess of repayments. SECRETARY OF T H E TREASURY. 269 Comparison of isbursements,^ fiscal years 1920 and .ZPiP—Continued. 1919 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—con. Department of Labor—Con. Employment Service National Security and| Defense War Emergency Em-| ployment Service War Labor Administration I Increase of compensation Miscellaneous J Total Department oi Labor j Department of Justice: Salaries and expenses.. J. Salaries of justices, assist/ ant attorneys, etc I. Court of Claims |. National security and de fense I. Salaries, fees, etc., marshals , Fees of witnesses Salaries and fees, distric attorneys Fees of jurors Fees of clerks Fees of commissioners. Support of prisoners.. Pay of bailiffs Miscellaneous expensed, United States courts. . Detection and proseci • tion of crimes J.. Penitentiaries J.. Increase of compensatio i. Miscellaneous items... J.. Total Department Justice $390,485.02 $390,485. 02 144,023.89 $1,968,708.53 $1,824,684.64 290,130.24 5,480,201.23 5,190,070.99 190,371.27 618,415.57 79,666.72 1,022,474.06 220,020.26 306. 25 298,395.31 79,360.47 6,125,231.15 13,290,490.61 1,076,231.00 1,058,250.93 905,910.27 152,340.66 3,365,206.95 78,143.02 1,896,459.41 ^ 71,555.70 1,468,747.54 6,587.32 38,325.82 1,435,210.38 2,216,195. 85 1,176,202.12 1,728,284.20 1,160,475.50 487,911.65 15,726.62 886,500.60 1,229,347.15 124,604.89 280,850.20 1,431,777.82 231,493.06 690,227.42 1,191,395.76 315,112.37 284,435.85 706,970.56 244,127.65 196,273.18 37,951.39 556,822.03' 467,801.94 89,020.09 2,681,574.64 2,141,156.97 762,752.88 408,040.70 2,000,836.07 1,520,697.93 309,423.65 287,100.77 680,738.57 620,459.04 453,329.23 120,939.93 18,667,245.63 15,216,025.43 5,054,832.48 832,102.79 8,241,490.46 1,396,884.56 724,807.26 ^190,507.48 ^ 3,585.65 12,634.59 1,603,612.28 .Independent bureaus an 1 offices: I Interstate Conimer( e Commission.. .. 159,310.58 5,688,651.38 5,847,961.96 Federal control of tran i689,376,515.97 portation systems, aii i 349,238,385.21 1,038,614,901.18 transportation ac 1920. 197,419.22 72,293.55 269,712.77 Smithsonian Institutio] 359,233.70 47,976.03 407,209.73 National Museum.. \ Rock Creek Parkwf 231,059.22 231,059.22 Commission I .. 8,079.80 120,094.94 Zoological Park...^ | .. 112,015.14 Salaries,etc., FederalE i276,624.23 2,331,760.03 2,608,384.26 serve Board I .. Council of National E j 446,281.23 554,039.43 107,758.20 fense ! .. 295,000,000.00 150,000,000.00 145,000,000.00 War Finance Corporati )n Board of Mediation ai d 26,116.85 Conciliation J,.. 26,116.85 2 4.460 00 Capital Issues Committ ?-e. 142,402.31 146,862.31 Advisory Committee i )r 1,388.31 229,886.11 Aeronautics J... 228,497.80 U n i t e d States Eiiployees' Compensate m 1,536,434.80 703,367.15 Commission J... 2,239,801.95 Board for Vocational Ii i3,549,442.64 31,434,981.26 ucation \... 34,984,423.90 United States Shippi ig Board— I 797,280.67 334,369.57 462,911.10 Salaries and expen es. Emergency shippj .ig 1,865,715,419.34 1,398,477,282.75 467,238,136.59 fund 1... National security a,nd 3,295,375.84 4,688,877.50 defense 1,393,501.66 ^ ''Disbursements," as used in these tables, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. 2Excess of repayments. 270 REPORT ON THE FINANCES. Cohiparison of disbursements,^ fiscal years 1920 and 1919—Continued. 1920 1919 Increase, 1920. Decrease, 1920. CIVIL ESTABLISHMENT—con. Independent bureaus and offices—Continued. Food and Fuel AdministrationsSalaries and expenses. Control of food and fuel . National security and defense '... Bureau of Industrial Housing and Transportation Interdepartmental Social Hygiene Board Federal Trade Commission.' State, War, and Navy Department Buildings. Special fund, Alaskan relief Other independent offices Total independent bureaus and offices District of Columbia: Salaries and expenses Special funds— "V^^ater department... Washington Aqueduct Miscellaneous special funds Trust f u n d s Miscellaneous trustfund deposits Washington redemption fund Pohce and firemen's relief fund Other trust funds $120,127.41 $7,133,467.03 $7,013,339.62' 100,000,000.00 100,000,000. oa 2 1,753,986.52 10,511,117.05 2 2,038,712.77 70,483,879.32 1,791,071.03 1,720,122.93 12,265,103. 57 72,522,592. 09" $70,948.10 1,021,653.58 1,595,737.29 2,483,462.33 1,662,668.93 820,793.40 18,753.95 266,310.05 3,841.47 1,706,547,527.95 2,723,531,915.72 723,233,293.92 18,547,698.98 14,745,056.78 3,802,642.20 710,488.48 558,680.17 161,808.31 149,499.86 233,028.18 83,528.32- 9,403.21 53,471.15 44,067.94 22,595.42 123,917.05 / 574,083. 71 142,393.001,740,217,68L6& 644,771.98 601,673.35 194,721.37 201,473.05 6,751.6& 147,143.92 9,693.97 164,736.57 7,314.49 • 2,379.48 17,592.6& 20,413,42L77 16,565,433.74 3,999,928.62 151,940.5» Total civil establishment . . 8 2,682,879,579.01 3 230 890 247 95 1 ROI nf;5 9(^1 « i 2,049,063,920.75 Total District of Columbia 43,098.63 WAR DEPARTMENT. Military EstabUshment. Quartermaster Corps Pay, etc., of the Army •> Medical Department Ordnance Department Engineer Department Signal Service Aviation Military Academy Mihtary posts National Guard Civilian mihtary training camps Registration and selection for mihtary service Increase of compensation Miscellaneous items Special fund; ordnance material, powder, etc Panama Canal, fortifications, etc '. Total Mihtary Establishment 3,903,234,343.87 1,126,870,539. 38. 178,173,480.19 2,103, 790,245. 93 311,956,142.39 59,103,102. 61 503,637,960.31 462,718.11 2,346,525.32 314,446,879.73 360,210,631.87 9,330,216.38 286,506,697. 68 43,304,345.72 8,035,732. 05 2 24,356,590.23 1,971,370.05 991,295. 09 1,675,918. 61 4,217,681,223.60 1,487,081,171.25 187,503,697.17 2,390,296,943. 61 355,260,488.11 67,138,834. 66 479,281,370.08 2,434,088.16 3,337,820.41 2 3,980,711.08 172,007.59 1,104,902. 84 932,895. 25 2,877,482.21 16,067,158. 45 2,555,889.33 15,037,579.62 3,828,656.97 2. 542,109. 76 12,160,097. 41 2,620. 66 2 23,895. 87 3,433,592.82 1,027,225,248.01 5,656,629. 69 1 12,238,501. 48 13,779. 57 26,516. 53 3,433,592. 82 9,208,524,279.29 21,369,020.09 8,202,668,05L 37 1 "Disbursements," as used in these tables, in addition to actual expenditures, include unexpended balances to the credit of disbursing officers. 2 Excess of repayments. « Exclusive of purchase of obhgations of foreign governments aud purchase of farm-loan bond«, heretofore classed as "special." ' •* Includes payment of allotments by Bureau of War Risk Insurance. 5 Included in Panama Canal disbursements in 1919. SECRETA.RY OF THE TREASURY. 271 Comparison of disbursements,^ fiscal years 1920 and 1919—Continued. Increase, 1920. 1919 1920 Decrease, 1920. •WAR DEPARTMENT—con. War, miscellaneous, civil. National cemeteries National parks National homes for disabled soldiers State homes for disabled soldiers Soldiers' Home interest account Monuments Bridge across Potomac River, Georgetown, D . C '. Judgments of courts War claims and rehef acts Miscellaneous items Increase of compensation Special funds: W a g o n r o a d s , etc., Alaska fund Miscellaneous s p e c i a 1 funds .' Trust funds: Pay of the Army, deposit. fund .' Soldiers' Home permanent.fund Miscellaneous trust funds;. Total war, miscellaneous, civil..., $2,840,840.96 150,217.48 $3,074,749.07 203,910.09 4,996,881.19 3,870,724.52 1,094,584.44 590,398.28 504,186.16 102,566.77 4,809.07 101,274.66 23,300.00 1,292.11 440,000.00 369,442.48 618,092.25 331,539.19 817,618.93 467,000.00 1,021,486.51 60,782.31 346,765.38 341,032.36 •- 85,916.67 32,506.42 53,410.15 92,660.62 740.97 91,919.65 755,658.91 4,185,082.43 566,160.96 308.40 282,451.55 191. 60 17,735,023.80 11,456,798.84 7,278,586.83 34,800,217.64 12,860,335.75 25,451,141.49 5,765,018.33 9,349,076.15 7,095,317.42 2,213,377.03 1,862,146.50 351,230.53 4,940,74L34 848,612.51 500.00 • $233,908.11 53,692. 61 $1,126,156. 67 18,490.93 27,000.00 652,044.03 557,309.94 15,226.19 "'"476," 586." 57" 1,000,361.87 Rivers and harbors. Improving rivers „ Improving harbors Special funds for rivers and harbors Total rivers and harbors , 49,873,930.42 33,078,306.32 16,795,624.10 Total War Department 1,094,834,202.23 9,253,059,384.45 45,443,23L02 8,203,668,413.24 NAVY DEPARTMENT. Naval Establishment. 220,214,251.18 463,584,589.89 Increase of the Navy •. 243,370,338.71 50,105,032.19 96,239,138.34 . 46,134,106.15 Bureau of Yards and Docks.. 2,315,284.65 20,863,626.52 18,548,341.87 Bureau of Navigation , Bureau of Construction anil 51,816,086.16 68,374,542.27 Repair 16,558,456.11 139,299,134.86 221,043,0.17.51 81,743,882.65 Bureau of Ordnance , 34,763,520.53 24,811,485.39 59,575,005.92 Bureau of Steam Engineering Bureau of Supplies and A(;138,094,561.95 194,594,135.00 counts 56,499,573.05 Bureau of Medicine and SUJ:7,054,459.83 15,859,690.25 8,805,230.42 gery 30,238,637.36 8 73,018,960.12 Marine Corps 3 42,780,322.76 2,273,014.11 4,553,839.87 Naval Academy 2,275,825.76 108,248,238.66 3 297,601,541.65 Pay of the Navy 3 189,353,302.99 62,720,345.84 Aviation 38,935,299.94 101,655,645.78 200,366.27 125,815.57 Judgments, Court of Claima. 74,550.70 363,623,257.42 General account of advances. 2 140,050,309.08 503,673,566.50 301,528.61 Miscellaneous items „. 521,395.40 *2i9,"866.'79 National security and de52,965.47 626,275.44 573,309.97 fense. ,.. 644,731.53 Increase of compensation 4,207,810.15 3,563,078.62 Special funds: 2,336,276.96 2 1,159,746.99 1,176,529.97 Naval hospital fund 8,599.10 171,118.58 Fines and forfeitures 179,717.68 34,207,982.08 27,836,529.17 Clothing fund 2 6,371,452.91 Trust funds: Pay, Marine Corps, de11,078.20 posit fund 72,739.67 83,817.87 1 "Disbursements," as used in these tables, in addition to actual expenditures, include unexpended, balances to the credit of disbursing officers. 2 Excess of repayments. 3 Includes payments of allotments by the Bureau of War Risk Insurance. 272 REPORT OlsT T H E FINANCES. Comparison of disbursements,^ fiscal years 1920 and 1919—Continued, 1920 1919 I n c r e a s e , 1920. Decrease, 1920. 1 NAVY DEPARTMENT—con. Naval Establishment—Con. Trust funds—Continued. P a y o f t h e N a v y , deposit fund Prize m o n e y $87,048.93 138.52 $55,317.00 11.21 $31,731.93 127.31 Total N a v a l E s t a b l i s h ment. .. 629,893,115. 87 2,009,272,388. 53 6,234,231.41 1,360,574.47 624,044.20 729,921.66 1,131,820. .36 630,110. S3 758,574.20 228,754.11 1,290,781.27 4,373,455.28 5,061,970.89 27,076,084.17 1,272,809.45 4,105,871..56 4,269,161.52 22,424,908. 77 17,971.82 267,583.72 792,809.37 4,651,175.40 / 40,516,831.94 34,593,256.69 5,958,294. 42 34,719.17 $1,385,613,504.07 INDIAN SERVICE. C u r r e n t a n d c o n t i n g e n t expenses Fulfilling t r e a t v s t i p u l a t i o n s . Miscellaneous supports I n t e r e s t on I n d i a n trust-fund accounts S u p p o r t of I n d i a n schools Miscellaneous expenses T r u s t funds . Total Indian Service... P u r c h a s e of obligations of foreign G o v e r n m e n t s . . Purchase of farm loan b o n d s . P a n a m a Canal Pensions Interest on t h e p u b l i c d e b t . . . , 421,337,028.09 26,887,356.25 6,031,463.72 213,344,204.11 1,024,024,440. 02 6,139,748,221.24 Deduct r e p a y m e n t s received i n fiscal y e a r b u t n o t covered b y w a r r a n t Add r e p a y m e n t s covered b y v / a r r a n t i n year s u b s e q u e n t t o t h e d e p o s i t thereof ... Total ordinary b u r s e m e n t s 2. 3,477,850,265.56 96,662,398. 59 12,265,775.08 221,614,781.44 615,867,337.32 18,952,075,835.61 1,449,091.98 3,446,110. 82 6,138,299,129.26 18,948,629,724.79 3,446,110.82 3 511,456.20 6,141,745,240.08 18,952,141,180.99 6,066.63 28,652. 54 3,050,513,237.47 69,775,042.34 6,234,311.36 S, 270,577.33 408,157,102. 70 1,966,846, m . 36 14,779,173,725. 73 1,966,846,111.36 14,777,176,706.89 1,997,018.84 65,345.38 dis- P u b h c debt: F i r s t L i b e r t y loan, con14,862,000.00 v e r t e d a t 4 p e r cent F i r s t L i b e r t y loan, con4,003,050.00 17,475,700. 00. verted at 4\ per c e n t . . . 8,000,000.00 10,007,700.00 Second L i b e r t y loan Second L i b e r t y loan, con172,357,600.00 231,142,700.00 verted at 4J per c e n t . 201,660,500.00 296,338,250.00 T h i r d L i b e r t y loan 165,000.000.00 405,221,500.00, F o u r t h L i b e r t y loan 249,006,500.00 Victory L i b e r t y loan 416,140.00 63,009,460.00 L o a n of 1908-1918... Certificates of i n d e b t e d 15,58cS,704,458.53 15,046,532,900.00 ness, various r a t e s . . 199,818,880.44 134,047,603.63 W a r saving's certificates 1-year T r e a s u r y note^, 3 19,150,000.00 p e r cent . 23,424,164. 50 23,717,892.50 Bank-note fund -, 80,550.00 22,950.00 . F u n d e d loan of 1907 Miscellaneous redemp6,453.00 3,327.78 tions T o t a l p u b l i c d e b t disbursements 17,036,444,27L 25 Total disbursements, exclusive of p o s t a l . . . . 23,178,189,51L 33 P o s t a l Service, p a y a b l e from 418,722,295.05 postal r e v e n u e s . . . . . Total disbursements, i n c l u d i n g postal 23,596; 911,806.38 1,966,846,111.36 14,777,242,052.27 14,862,000.00 13,472,650.00 2,007,700.00 58,785,100.00 94,677,750.00 240,221,500.00 249,006,500.00 62,593,320.00 542, .171,558. 53 65,771,276.81 19,150,000.00 293,728.00 57,600.00 3,125. 22 15,837,566,009.13 1,280,976,035.34 82,097,773. 22 34,789,707,190.12 3,247,822,146.70 14,859,339,825. 49 362,504,274. 24 56,218,020.81 35,152,2.11,464.36 3,304,040,167.51 14,859,339,825.49 1 "Disb!irsern.3ats," as used in these tables, in addition to actual expenditures, include unexpended balaaces to the credit of the disbursing oificers. 2 Exclusive of principal of the public debt and Postal Service. SECRETARY OF THE TREASURY. 273 The followmg tabulation summarizes the estimated receipts and expenditures for the fiscal year 1921 and, on the basis of the latest information received from the various departments, shows the estimated results at the close of the year: FISCAL Y E A R 1921. Balance in the Treasury June 30, 1920 Estimated receipts: Ordinary $5,739, 565,000 Publicdebt 60,193,375 $359, 947, 020. 33 Total $5, 799,758,375 Estimated expenditures: Ordinary 4, 851, 298, 931 Public debt (including $2,509,550,500 certificates of irid^btedness': outistanding June 30,' 1920, maturing within the year, but not including Pittman. Act certificates) 3,063,443, 584 • Total 7,914, 742, 515 Excess of estimated expenditures over estimated receipts 2,114,984,140.00 Estimated deficit in the general fund June 30, 1921 , 1, 755,037,119. 67 Estimated amount necessary for balance in the general fund June 30, 1921 250,000,000. 00 Estimated gross deficiency June 30,1921 2,005,037,119. 67 The following is a summary of the estimated receipts and expenditures for the fiscal year 1922 and, on the basis of the latest information from the various departments, shows the estimated results at the close of the year: FISCAL Y E A R 1922. Estimated deficit in general fund June 30, 1921 (as above) Estimated receipts: Ordinary $4, 859,530,000 Public debt. , 60, 200,000 Total 13799—FI 1920 : 18 .$1,755,037,. 119. 67 $4,919,730,000 274 REPORT ON TFIE FINANCES. Estimated expenditures: Ordinary (exclusive of expenditures on account of increased compensation of Government employees, of expenditures on account of additional compensation in the Postal Ser\dce, and of expenditures on account of new construction in the Navy). . $3, 897, 419, 227 Publicdebt 465,854,865 Total $4,363,274,092 Excess of estimated receipts over estimated expenditures $556,455, 908; 00 Estimated deficit in the general fund June 30, 1922 1,198, 581, 211. 67 Estimated amount necessary for balance in the general fund June 30, 1922. 250, 000, 000. 00 Estimated gross deficiency June 30, 1922. 1, 448, 581, 211. 67 The estimates of receipts and expenditures for,the two fiscal yc^.nrp are given in further detail in the following.tables. It is obvious t h a t the hope, expressed earlier in this report, of a more favorable outcome on June 30, 1922, can be realized only if the appropriations and expenditures are reduced substantially below the estimates given in the tables. NOTE.—The estimates do not include possible miscellaneous receipts on account of further reduction of capital stock of the United States Grain Corporation or reduction of capital stock of the War Finance Corporation, inasmuch as payments on these accounts would be made principally from deposits carried to the credit of said corporations with the Treasurer of the United States. Fiscal year 1921. RECEIPTS. Ordinary receipts: From customs From internal revenue— Income and profits tax Miscellaneous $350,000,000 $3, 200,000,000 1,500,000,000 4, 700,000, 000 2,000,000 676,000, 000 11, 565, 000 From sales of public lands Froba iniscellaneous sources From Panama Canal tolls, etc. Total estimated receipts, exclusive of public debt Public debt: Liberty bonds and Victory notete War-savings securities Deposits to retire Federal reserve bank notes and national-banknotes Postal-savings bonds Total estimated public debt receipts Grand total estimated receipts 5,739,565,000 20, 575 50,000,000 10,000,000 172, 800 60,193, 375 5, 799, 758, 375 SECRETAIIY OF THE TREASURY. 275 EXPENDITURES. For civil establishment: ' Legislative establishment Executive proper, including Tariff Commission and Alien Property Custodian•. State Department Treasury Department proper Public buildings, construction, sites, equipment, and maintenance. , War-risk insurance, $307,763,638, less premium credits $110,000,000.......... War Department proper Department of Justice Post Office Department proper. : Postal deficiency. :.. Navy Department proper Interior Department proper. Department of Agriculture Department of Commerce Department of Labor. Shipping Board European food relief Cduiicil of National Defense. Federal control of transportation systems, and Transportation Act, 1920 : Housing Corporation .'. State, War, and Navy Department buildings Federal Board for Vocational Education Interdepartmental Social Hygiene Board Federal Trade Commission Employees' Compensation Commission Interstate Commerce Commission Railroad Labor Board Federal control of telegraph and telephone systems. Other independent offices. Expenses of loans. Increase of compensation, all departments Purchase of obligations of foreign Governments Purchase of farm loan bonds Investments of Government life insurance fund District of Columbia Total civil establishment. For War Department: Military Establishment. Rivers and harbors Miscellaneous—War, Civil.. For Panama Canal. For Navy Department: Naval Estabhshment, exclusive of building program N a v y building program. $18,861, 774 2,110, 730 10, 207, 950 145,587,641 16,300,000 197, 763, 638 5,788,000 16, 000, 000 2, 097, 220 36, 895, 000 2, 500, 000 41,000,000 80, 000, 000 24, 399, 000 5, 075, 531 63,130, 000 1,758,830 • 149, 500 1,078,505.007 1,065,000 2, 031, 548 94, 614, 200 1, 377, 595 1, 019, 000 2, 394, 000 4, 620,114 450, 000 980, 000 1, 915,182 12,399, 559 35, 000, 000 132, 703, 326 15,000, 000 16, 948, 969 21,659,766 2, 092, 308, 080 $725,742, 000 52,000, 000 40, 000, 000 817, 742, 000 13, 526, 851 430,535,000 218,187,000 648, 722, 000 276 REPORT ON THE FINANCES.. For Indian Service For pensions For interest on the pubhc debt $32,000,000 272,000,000 975^ OQO, 000 .' » Total estimated ordinary expenditures Public debt: War savings securities Certificates of indebtedness outstanding June 30, 1920, exclusive of Pittman Act certificates....... .., '. Retirement of bank notes Sinkingfund......... . Purchase of bonds and notes from net earnings of Federal reserve banks Purchase of Liberty bonds from repayments of foreign loans Redeinption of bonds and notes received for estate and inheritance taxes.'. Miscellaneous redemptions of the debt 4,851,298,931 $150,000,000 2,509, 550, 500 15,000,000 253,404,865 55,000,000 . 70,138, 219 10,000,000 350,000 Total estimated public debt expenditures .. 3,063,443,584 Grand total estimated expenditures 7,914, 742,, 515 Estimated excess of receipts over expenditures, exclusive of public debt, fiscal year, 1921 Estimated excess of total expenditures over total receipts, fiscal year, 1921 888,266,069 2,114, 984, HO Postal Service. The Post Office Department estimates that the postal revenues for the fiscal year 1921 will be $467,500,000, with expenditures for the Postal Service for the same period of $504,395,000, an estimated deficiency of $36,895,000. Fiscalyear 1922. RECEIPTS. Ordinary receipts: From customs From internal revenue— Income and profits taxes Miscellaneous ' $350, OOO; 000 $2, 625,000,000 1,375,000,000 From sales of public lands From iniscellaneous sources. From Panama Canal tolls, etc Total estimated receipts, exclusive of public debt Publicdebt: War-savings securities ^ 50,000,000 Deposits to retire Federal reserve bank notes and national-bank notes 10,000,000 Postal savings bonds 200,000 Total estimated public-debt receipts Grand total estimated receipts ' 4,000,000,000 2,000,000 493,000,000 14, 530,000 4,859, 530,000 60, 200j 000 4,919,730,000 SECRETARY OF THE TREASURY. 277 EXPENDITURES.^ For civil establishment: Legislative establishment Executive proper, including Tariff Commission and AUen Property Custodian State Department. Treasury Department proper. Public buildings, construction, sites, equipment, and maintenance War-risk insurance, $297,184,788, less premium credits, $90,000,000 War Departinent proper Department of Justice Post Office Department proper Postal deficiency. Navy Department proper Interior Department proper Department of Agriculture Department of Commerce Department of Labor Shipping Board.. Council of National Defense Housing Corporation Federal Board for Vocational Education Interdepartmental Social Hygiene Board.. °. Federal Trade Commission Railroad Labor Board. Employees Compensation Cominission Interstate Commerce Commission State, War, and Navy Department buildings Other ihdependent offices District of Columbia Expenses of loans. Investment of Government life insurance fund Total civil establishment» For War Department: Military Establishment Rivers and harbors Miscellaneous—War, Civil For the Panama Canal. For Navy Department:^ Naval Esiablishmeht, exclusive of building program............ Navy building program , $18,494,381 2, 762, 713 12,664,819 223,599,707 18,971,100 207,184,788 6,968,000 18,000,000 2,327,020 68,500,000 2,860,000 65,000,000 100,000,000 25,170,000 10, 762,163 140, 692, 500 224, 500 1, 240,403 83,345,200 2, 242, 924 1,030,000 511,000 2,821,000 5, 504,000 2,132,830 - 2,178, 570 23, 650, 525 7, 250,000 20,909,314 . 1,076, 997,457 $810, 000,000 75,000,000 40,000,000 925,000,000 15,875, 770 483,896,000 172,000,000 I Do not include any estimated expenditure on account of increased compensation of Government employees, nor on account of additional compensation in the Postal Service. 8 The Secretary of the Navy states that this estimate does not include any estimated expenditures for new construction. 278 REPORT ON THE FINANCES. For Indian Service :..! For pensions For interest on the.public debt' Total estimated ordinary expenditures Public debt: Sinking fund War-savings securities Retirement of Federal Reserve bank notes and national-bank notes Purchase of bonds and notes from net earnings of Federal Reserve banks Redemption of bonds and notes received for estate and inheritance taxes... . Miscellaneous redemptions of the debt $36,000,000.00 265,000,000.00 922, 650,000.00 '. 3,897, 419, 227.00 $265,754, 865.00 125,000,000.00 15,000,000.00 50,000,000.00 10,000,000.00 100,000.00 Total estimated public debt expenditures 465, 854,865.00 Grand total estimated expenditures 4, 363, 274,092.00 Estimated excess of receipts over expenditures, exclusive of public debt, fiscal year 1922. 962,110,773.00 Estimated excess of total receipts over total expenditures, fiscal year 1922, without taking into account estimated gross deficiency, June 30, 1921 556, 455, 908.00 Estimated gross deficiency, fiscal year 1 9 2 1 . . . . . . 2, 005,037,119. 67 Estimated gross deficiency, fiscal year 1922 1, 448, 581, 211. 67 Postal Service:. The Post Office Department estimates t h a t the postal revenues for the fiscal year 1922 will amount to $495,500,000, with expenditures for the Postal Service for the same period of $564,000,000, an estimated deficiency of $68,500,000. Estimates of appropriations,^ fiscal year 1922. The estimates of appropriations for the fiscal year 1922, as submitted by the Government departments and offices, are as follows: Legislative establishment.. Executive establishment: Executive proper Department of State. Treasury Department War Department proper State, War, and Navy Department Buildings, expenses.. . . i Navy Department proper Department of Interior Post-office: D e p a r t m e n t . . . . . . . . . . . . . . . . . . Department of A g r i c u l t u r e . . . . . . . . . . . . . . . Department of Commerce...... ...... Department of Labor Department of Justice $9,324,040. 75 $1,347,279.90 1,593, 680.00 89, 931,244.32 6,968,592.00 2,719,168.00 3,050,340.00 7,724,305.00 2,399,020.00 41,989,38400 6,862,880.,00 1,976,430.00 875,440.00 ... 167, 437, 763. 22 » These estimates of appropriations do not include^ any estimates for the following: The Railroad Administration; increased compensation of Government employees; newconstruction program in the Navy. SECRETARY OF THE TREASURY. Judicial establishment Foreign intercourse Military establishment: Support of the Army Military Academy National Guard .- 279 $1, 680,215.00 11, 983, 848. 94 $618, 003,070.20 6,464,432. 73 74,808,000. 00° 699,275,502.93 Naval Establishment, includingincrease ofthe Navy, $184,000,000. 658, 522,231.47 I n d i a n Affairs. 11, 989, 703. 67 Pensions 265,190,000.00 Public Works: Treasury Department, public buildings and works $6, 650, 731. 29 War Department—= Mihtary— Fortifications.... 35,676,533.66 Arsenals 8, 283, 623. 00 Military posts... 71,476, 981. 67 Rivers and harbors.. 68,097,865. 00 Other : ci^dl public works 1,599,925.00 —^ 185,134, 928. 33 Panama Canal. 16,187,255.40 Navy Department 20, 993,500. 00 Department of Interior, including reclamation fund 28, 704, 284. 50 Department of Commerce 7,875, 250.00 Department of Labor 829, 500.00 Department of Justice 740,000.00 — 267,115, 449. 52 Postal Service, payable from postal revenues 585,406, 902. 00 (Deficiencies payable from general fund.) Miscellaneous: ^ Legislative9,967, 593. 20 Executive 1,102,182.00 Treasury Department 305,429,854. 50 War Department 36, 351, 644. 00 Department cf Interior. 17,026,220.25 Department of Commerce 15,235, 351.00 Department of Labor , 8,029,635.75 Department of Justice 15,135, 637. 30 District of Columbia 25,039,044.99 United States Shipping Board 147, 898, 520.00 United States Employees' Compensation Commission.. 2,926,840.00 ., \ . Council of National Defense. 225, 000.00 ' : , National Advisory Committee for Aero>^ nantics 489,906.00 Smithsonian Institution and National Museum.. •.:: . .<^ 813,42Q,00 Interstate Commerce Commission... 5, 574j 500. 00 Board of Mediation and Conciliation 35,000. 00 Federal Trade Commission 1,055,000.00' Interdepartmental Social Hygiene Board.. 2,246,924. 00 280 REPORT ON T H E FINANCES. Miscellaneous—Continued.' Federal Board for Vocational E d u c a t i o n . . United States Housing Corporation Rock Creek and Potomac Parkway Commission Railroad Labor Board Federal Power Commission $78, 000,000. 00 1, 240,403. 00 "^ 300, 000. 00 550,000. 00 482,065. 00 $675,154,740.99 Permanent annual appropriations: Interest on public debt Refunds— Customs and internal revenue Other refunds Sinking fund Miscellaneous 922, 650, 000. 00 31, 997,000. 00 9, 818,400. 00 265, 754, 864. 87 70, 556, 096. 00 •' Total estimated appropriations for 1922 Deduct: Postal Service payable frorn postal revenues (Deficiencies payable from general fund.) Total estimated appropriations ior 1922, to become a charge upon the general fund 1,300,776,360.87 4, 653,856, 759. 36 . 585,406, 902. 00 4, 068, 449, 857. 36 ESTIMATES FOR 1922 AND APPROPRIATIONS FOR 1921. Comparison of the estimates for 1922 with the appropriations for 1921 shows an increase in the 1922 estimates of $855,407,372.68, as exhibited in the table following, without, however, including in the figures for 1921 the railroad guaranty, repayments under revolving-fund appropriations, repayments to appropriations, and appropriations of unexpended balances, the efl^ect of which on the appropriations for that year is shown on pages 47 to 49 of this report. Statement of estimates of appropriations for 1922 compared with appropriations for 1921. [Excluding postal service payable from the postal revenue.] Departments, etc. Legislative '. Executive: Executive proper Ahen Property Custodian Tariff Commission Civil Service Commission Pepartment of State: Department of State proper Foreign intercourse. Treasury Department: Treasury Department, exclusive of public buildmgs <^.... Public buildings construction War-risk insurance. , 1921 appropria1922 estimates, mcluding Including perma- tioiis, permaii'ent nent annual. annual. Increase, 1922 estimates over 1921 appropriations (+);'decrease (—). -f S3,055,532.00 819,292,433.95 $16,236,901.95 436,800.00 564,582.00 500,000.00 948,079.90 701,320.00 455,000.00 300,000.00 597,475.00 1,593,680.00 12,089,848.94 1,100,160.00 9,399,-5.37.91 -t493,520.00 ^- 2,690,311.03 249,635,048.82 6,650,731.29 172,543,050.00 125,381,876.13 5,616,071.00 181,324,400.00 -fl24,253,172.69 -I- 1,034,660.29 - 8,781,350.00 -f -I-f 264,520.00 109,582.00 200,000.00 350,604.90 281 SECRETARY OF THE TREASURY. Statement of estimates of appropriations for 1922 compared ivith appropriations for 79:^7—Continued. Departments, etc. War Department: War Department proner Military Establishment— (Estimates for Mihtary Establishment for 1922, S814,787,641.26; appropriations for 1921, $419,881,986.37.) Army Military Academy National Guard Fortifications , Arsenals Military posts and miscellaneous , Rivers and harbors Miscellaneous war, civil items , Navy Department: Navy Department proper , Naval Estabhshment— (Estimates for Naval Establishment for 1922, $692,713,427.47; appropriations for 1921, $437,302 564.40.) Naval Establishment,, exclusive of building program Navy building program Department of the Interior: Department of the Interior, exclusive of Indians and pensions Pensions Indians Post Office Department: Post Office Department, exclusive of Postal Service Department of Agriculture Department of Commerce Department of Labor Department of Justice Independent offices: Smithsonian Institution and National Museum Interstate Commerce Commission Federal Trade Commission United States Shipping Board Housing Corporation Interdepartmental Social Hygiene Board... Council of National Defense Federal Board for Vocational Education National Advisory Committee for Aeronautics Board of Mediation and Conciliation Railroad Labor Board Federal Power Commission Pilgrim Tercentenary Commission V Emplovees Compensation Commission Rock Creek and Potomac Parkway Commission State, War, and Navy Department Buildinjis.: : Indigent in. Alaska rehef fund District ofColumbia Interest on the pubhc debt Expenses ofloans Increase of compensation, estimated Panama Canal Sinking fund Total ordinary. 1922 estimates, 1921 appropriaincluding' prema- tions,including , permanent nent annual. annual. Increase, 1922 estimates over 1921 appropriations (+);. decrease (—). $6,968,592.00 $5,760,020.00 + $1,208,572.00 638,078, 070.20 6,464, 432.73 54,808, 000.00 35,676, 533.66 8,283, 623.00 71,476,981.67 75,342, 465.00 41,128, 869.00 368,633,165.00 2,142,212.70 28,000,200.00 18,833,442.00 2,258,800.00 14,166.67 26,197,300.00 32,600,128.83 4-269,444 905.20 -f- 4,322 220.03 4- 26,807,800.00 -f 16,843 091.66 + 6,024,823.00 + 71,462,815.00 + 49,145,165.00 4- 8,528, 740.17 3,050,340.00 2,824,430.00 225,910.00 508,713,427.47 184,000,000.00 333,302,564.40 104,000,000.00 4-175,410,863.07 4- 80,000,000.00 65,650,809.75 265,190,000.00 35,464,703.67 32,816,586.58 279,150,000.00 33,814,722.22 4- 32,834,223.17 - 13,960,000.00 4- 1,649,981.45 2,399,020.00 53,739,384.00 29,976,481.00 10,835,565.75 18,606,792.30 2,206,329.24 144,748,294.00 19,942,528.80 4,912,430.00 15,288,786.55 + -f + + 873,420.00 6,574,500.00 1,055,000.00 147,898,520.00 1,240,403.00 2,246,924.00 225,000.00 83,438,000.00 810,820.00 4,693,100.00 955,000.00 442,600.00 1,065,000.00 1,015,000.00 75,000.00 94,707,000.00 44- 62,600.00 881,400.00 + 100,000.00 489,906.00 35,000.00 550,000.00 482,065.00 200,000.00 35,000.00 450,000.00 125,000.00 .400,000.00 2,654,940.00 2,926,840.00 192,690.76 91,008,910.00 10,033,952.20 .5,923,135.76 3,318,005.76 -M47,456,020.00 4175,403.00 4- 1,231,924.00 -I150,000.00 - 11,269,000.00 4- 289,906.00 4+ 4- 100,000.00 357,066.00 400,000.00 271,900.00 300,000. 00 200,000.00 + 100,000. 00 2,719,168.00 25,000.00 26,419,644.99 922,650,000.00 7,250,000.00 16,187,255.40 265,754,864.87 1,965,772.00 25,000.00 • 19,478,604.87 975,000,000.00 12,499,182.96 35,000,000.00 9,281,851.00 2.53,404,864.87 4 753,396.00 + 6,941,040.12 - 52,3.50,000.00 - 5,249,182.96 - 35,000,000.00 + 6,905,404.40 + 12,350,000.00 4,088,449,8.57.36 3,213,042,484.68 4-855,407,372.68 282 REPORT ON THE FINANCES. Exhibit of appropriations for 1921. Appropriations made for the fiscal year 1921 and for prior years during the second session of the Sixty-sixth Congress, including revised estimated permanent and indefinite appropriations, and appropriations for the Postal Service payable from postal revenues |4, 704,277, 558.18 Deduct: Postal Service for 1921 payable from the postal re venues...: $504,399,000.00 Postal deficiencies of prior years, payable from postal revenues.. .,. 19,069,269.65 Deficiencies and supplementals for prior years 967,766,803.85 1,491,235,073.50 Total appropriations for 1921, exclusive of deficiencies and Postal Service payable from postal revenues, and excluding also the railroad guaranty, repayments under revolving fund appropriations, repayments to appropriations, and appropriations of unexpended balances, the effect of which on the appropriations for 1921 is shown on pages 47 to 49 of this report.... 3, 213, 042, 484. 68 I take very special pleasure in caUing attention to the attached condensed annual reports of the various bureaus and divisions of the Treasury Department and to the tables accompanying the report on the finances. D. F . HOUSTON, Secretary. T O the SPEAKER OF THE H O U S E OF REPRESENTATIVES. I .EXHIBITS ACCOMPANYING THE REPORT ON THE FINANCES. 283 EXHIBITS. to 00 EXHIBIT 1. CERTIFICATES O F INDEBTEDISTESS, TOTAL I S S U E S AND T H E AMOUNT I S S U E D THROUGH EACH F E D E R A L R E S E R V E BANK FROM A P R . 6, 1 9 1 7 , TO OCT. 3 1 , 1920. Federal reserve district. Authorizing act and series. Date of issue. Date of maturity. Rate. Total amount. Boston. Issued in anticipation of the first Libertv loan: . Apr." 24, 1917 Do Do Do Apr. 25,1917 May 10,1917 May 25,1917 June 8,1917 June 30,1917 July 17,1917 July 30,1917 do Total. Issued in anticipation of the second Libertv loan: Apr.2-!, 1917 Do Do Sept. 24,1917 Do Do Total.. Philadelphia. Cleveland. Richmond. Atlanta, §208,205.000 200.000,000 200,000,000 . 200,000,000 815,800.000 12,167,000 11,200,000 18,200,000 $136,150,000 98,512,000 125,300,000 100,500,000 §14,000,000 10,000.000 9,000,000 10,400,000 S14,000,000 15,000,000 10,800,000 19,100,000 S5,350,000 2,753,000 2,000,000 3,600.000 §8,000,000 2,605,000 1,700,000 1,000,000 868,205,000 57,367,000 460,462,000 43,400,000 58,900.000 13,703,000 13,305,000 O o H W Aug. Aug. Sept. Sept. Oct. Oct. 9.1917 28,1917 17,1917 26,1917 18,1917 24,1917 Nov. 15,1917 Nov. 30,1917 Dec. 15,1917 do Nov. 22,1917 Dec. 15,1917 300,000,000 250,000,000 300,000,000 400,000,000 38.5,197,000 685,296,000 2,320,493,000 Total. Issued in anticipation of the third Liberty loan: Sept. 24,1917 Do Do Do Do Sept. 24, 1917, as amended Apr. 4, 1918 New York. Jan. Feb. Feb. Mar. Apr. 22,1918 8,1918 27,1918 20,1918 10,1918 Apr. 22,1918 May 9,1918 May 28,1918 June 18,1918 July 9,1918 Apr. 22,1918. July 18,1918 400,000,000 500,000,000 500,000,000 543,032,500 551,226,500 517,826,500 3,012,085,500 175,000,000 162,938,000 204,347,000 212,100.000 179,475,000 543,683,000 12,800,000 9,882,000 8.830,000 20,000,000 24,000,000 13,600.000 33,700,000 24,157,000 25,113,000 34,209,000 38,863,000 26,471,000 2,800,000 7,235,000 3,180,000 7,004;000 8,323,000 11,472,000 4,300,000 4,848,000 2,280,000 8,289.000 6,535,000 5,883,000 1^ 132,044,000 1,467,543,000 89,132,000 182,513,000 40,014,000 32,135,000 Ul 22,500,000 30,000,000 33,000,000 38,000,000 38,000,000 26,000,000 34,000,000 44,500,000 48,400,000 46,000,000 7,000,000 12,131,000 18,148,000 16,234,500 11,219,000 9,507,000 12,391,000 14,814,000 14,557,000 17,095,000 19.400.000 15,140,000 12,171,000 22,174,000 30,149,000 33.010,000 20,025,000 29,134,000 35,369,000 53,690,000 39,731,000 209,685,000 241,322,000 172,666,500 193,709,500 215,448,000 36,468,000 222,486,000 35,000,000 39,133,500 11,097,000 11,209,000 214,417,000 1,255,308,000 196,500,000 238,033,500 75,829,500 79,573,000 > o Issued in anticipation of the fourth Liberty loan: t^ Sept. 24, 1917, as amended Apr. 4,1918— Series IV-A. Series IV-B Series IV-C SeriesIV-D Series IV-E SeriesIV-F Series IV-G.,. June July July Aug. Sept. Sept. Oct. 25,1918 Oct. 24,1918 9,1918 Nov. 7,1918 23,1918 Nov. 21,1918 6,1918 Dec. 5,1918 3,1918 Jan. 2,1919 17,1918 Jan. 16,1919 1,1918 Jan. 30,1919 839,646,500 753,938,000 584,750,500 575,706,500 639,493,000 625,216,500 641,069,000 4,659,820,000 Total., Issued in anticipation of the Vic= tory Liberty loan: V Sept. 24, 1917, as amended Apr. 4,1918— Series V-A Series V-B Series V-C Series V-D Series V-E Series V-F 1 Series V-G Sept. 24, 1917, as amended Apr. 4, 1918, and Mar. 3, 1919— Series V-H SeriesV-J Series V-K Total.. 53,000,000 53,100,000 36,872,500 38,400,000 42,061,000 45,778,000 46,808,500 80,000,000 66,550,000 55,927,000 52,500,000 74,088,000 59,321,500 52,182,500 19,013,000 15,073,500 16,886,000 14,397,000 18,957,000 18,449,000 15,208,000 17,233,500 16,021,500 13,168,500 14,968,500 16,205,500 15,872,000 21,387,500 381,152,500 1,680,989,000 316,020,000 440,569,000 117,983,500 114,857,000 i Dec. Dec. Jan. Jan. Jan. Feb. Feb. 5,1918 19,1918 2,1919 16,1919 30,1919 13,1919 27,1919 Mar. 13,1919 Apr. 10,1919 May 1,1919 6,1919 20,1919 3,1919 17,1919 1,1919 15,1919 29,1919 613,438,000 572,494,000 751,684,500 600,101,500 687,381,500 620,578,500 532,381,500 47,901,000 45,010,500 60,154,500 49,090,500 48,800,000 48,421,500 41,909,000 222,830,000 199,117,000 300,977,500 203,609,500 265,844,500 217,497,500 174,501,500 44,128,000 40,409,500 53,300,000 43,533,500 46,173,000 43,323,500 38,247,000 50,700,000 52,000,000 66,250,000 50,400,000 60,786,500 59,100,000 51,225,000 17,963,500 20,552,000 19,571,000 18,753,500 20,836,500 18,977,500 17,501,000 11,600,000 16,349,500 15,265,500 12,288,000 16,262,500 15,482,000 14,977,500 Aug. 12,1919 Sept. 9,1919 Oct. 7,1919 542,197,000 646,025,000 591,308,000 48,454,000 43,705,000 42,346,500 183,111,500 275,355,000 212,301,000 36,758,000 39,160,500 35,301,500 53,300,000 •62,000,000 49,000,000 15,764,500 18,843,500 18,734,000 13,175,500 13,274,500 14,636,500 475,792,500 12,255,145,000 420,334,500 554,761,500 187,497,000 143,311,500 May May June June July July July 6,157,589,500 TotaL. Loan certificates of 1920: Sept. 24, 1917, as amended Apr. 4, 1918, and Mar. 3, 1919— Series A, 1920 SeriesB,1920 Series C, 1920 Series D, 1920 SeriesE, 1920 SeriesF, 1920 Series G, 1920 Series H, 1920 312,844,500 273,219,500 211,714,000 207,287,000 210,068,500 216,264,500 249,591,000 64,590, 56,273, 48,267, 49,509, 57,424, 54,710, 50,378, Aug. 1,1919 Jan. 2,1920 Aug. 15,1919 Jan. 15,1920 Sept. 2,1919 Feb. 2,1920 Dec. 1,1919 Feb. 16,1920 Apr. 1,1920 July 1,1920 Apr. 15,1920 July 15,1920 Oct. 15,1920 do. May 17,1920 Nov. 15,1920 4f 533,801,500 532,152,000 573,841,500 162,178,500 200,669,500 83,903,000 170,633,500 102,865,000 41,935,500 43,855,500 45,765,500 14,535,500 11,253,500 6,615,500 15,496,500 8,718,000 192,326,000 201,904,600 252,679,000 43,165,000 104,682,000 33,039,500 94,127,600 37,239,000 36,264,500 36,276,000 27,155,000 11,601,000 13,500,000 3,744,000 9,756,000 7,248,000 45,330,000 45,319,000 39,088,500 7,978,500 13,348,500 5,500,000 7,100,000 10,814,000 9,790,500 8,951,000 10,493,500 7,193,500 3,127,000 1,650,000 4,693,000 2,965,500 14,858,000 15,427,500 19,312,000 9,272,500 4,101,000 2,271,000 5,123,000 2,063,000 2,360,044,500 188,175,500 959,162,500 145,544,500 174,478,500 48,864,000 72,428,000 O I w i > Ul d 00 Certificates of indebtedness, total issues and the amount issued through each Federal reserve banh from Apr. 6, 1917, to Oct. 31, 1920—Continued. 00 F e d e r a l reserve district. A u t h o r i z i n g act a n d series. L o a n certificates of 1921: Series A , 1921 Series B , 1921 Series C, 1921 •. D a t e of maturity. D a t e of issue. Jan. 3,1921 J a n . 15,1921 Aug. 16,1921 J u n e 15,1920 J u l y 15,1920 A u g . 16,1920 Rate. 55i6 Total Issued i n a n t i c i p a t i o n of income a n d profits t a x e s , 1918: Sept. 24, 1917.. Do '. Do Do Sept. 24, 1917, as a m e n d e d A p r . 4, 1918 . . Do Total. Boston. New York. §176,604,000 126,783,500 157,654,500 §12,470,000 8,852,000 14,042,000 §81,370,500 55,808,500 57,704,500 §5,300,000 9,742,000 12,426,000 §14,624,000 7,990,000 15,057,500 §2,382,000 1,550,000 5,567,000 §2,981.500 1,485,000 4,262,500 461,042,000 35,364,000 194,883,500 27,468,000 37,671,500 9,499,000 8,729,000 Philadelphia. Cleveland. Richmond. Atlanta. O N o v . 30,1917 J u n e 25,1918 Jan. 2,1918 do F e b . 15,1918 do Mar. 1.5,1918 . . . - , d o 4 4 4 4 691,872,000 491,822,500 = 74,100,000 110,962,000 20,921,000 16,16.3,500 8,790,500 6,735,500 494,070,500 239,954,000 14,007,500 10, 252, .500 11,492,000 34,796,000 4,680,000 10,474,500 115,230,500 70,059,500 15,402,500 55,615,500 2,415,000 8,948,500 1,917,000 2,725,500 1,555,000 .5,551,000 1,269,000 826,000 A p r . 15,1918 M a y 15,1918 4 4 71,880,000 183,767,000 6,071,500 24,578,000 12,000,500 61,188,000 14,511,500 19,583,000 10,587,000 18,547,500 2,049,000 2,767,000 2,749,500 1,055,500 H 1,624,403,500 83,260,000 831,47.3,000 9.5,537,000 285,452, .500 20.822,000 13,006,000 w 157,552,500 794,172,500 392,381,000 12,025,500 88,728,000 36.276,500 44,766,000 350,847,500 165,622,000 10,523,500 29,283,500 19,744,000 29,968,500 112,500,000 78,641,.50e 4,205,000 12,4.58,000 10,652,000 3,412,000 11,487,000 6,533,500 407,918,500 526,139,500 238,711,500 326,468,000 511,444,000 ^,015,000 32,21.5,500 8,924,500 14,188,000 35,538,500 227,964,000 212, ,337,000 78,557,500 129,2.54; 000 242,504,000 18.874,000 18; 680,500 8,031,000 14,730,000 21,129,000 46,187,000 62,280,000 33,894,000 30,551,000 41,418,500 8,&31,500 23,208,000 8,264,000 10,7.53,000 14,147,500 3,920,000 13,228,000 6,984,000 15,152,000 10,697,500 256,911,500 1,451,852,000 141,001,.500 435,440,500 92,519,000 71,414,000 do :. do-....... Total Issued in a n t i c i p a t i o n of Income a n d profits t a x e s , 1919: Sept. 24, 1917, as a m e n d e d A p r . 4,1918— T a x series, 1919 . . Series T ' Series T - 2 S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918, a n d Mar. 3, 1919— Series T - 3 . Series T - 4 Series T - 5 Series T-n Scries T - 7 Total amount. Aug. 20,1918 N o v . 7,1918 J a n . 16,1919 J u l y 15,1919 Mar. 15,1919 J u n e 17,1919 4 4^ Mar. 15,1919 J u n e 3,1919 do J u l y 1,1919 do June Sept. Dec. Sept. Dec. 4^ - 1 16,1919 15,1919 15.1919 15,1919 15,1919 t 4i 4i 3,354,787,500 O > o Ul Issued i n a n t i c i p a t i o n of i n c o m e a n d profits t a x e s , 1920: Sept. 24,1917, as a m e n d e d — Series T - 8 . Series T - 9 Series T-10 Series TM3-1920 Series TJ-1920 Series TD-1920 Series TM4-1920 /^ J u l y 15,1919 Mar. 15,1920 Sept. 15,1919 - - - . : d o do Sept. 15,1920 Dec. 1,1919 Mar. 15,1920 Dec. 15,1919 J u n e 15,1920 Jan. 2,1920 Dec. 15,1920 F e b . 2,1920 Mar. 15,1920 4^ 4i ^1 4| 4* 323,074,500 101,131,500 657,469,000 260,322,000 728,130,000 703,026,000 304,877,000 3,078,030,000 Total Issued i n a n t i c i p a t i o n of i n c o m e a n d profits t a x e s , 1921: Sept. 24, 1917, as a m e n d e d — Series TM-1921 ... . Series TJ-1921 .' Series TM2-1921 Serias TM3-1921 Series TS-1921 Series TM4-1921 Total Special issues t o secure F e d e r a l reserve b a n k n o t e s : S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918 a n d A p r . 23, 1918 Special issue, p a y a b l e i n foreign currency: Sept. • 24, 1917, as a m e n d e d A p r . 4,1918, J u l y 9,1918, a n d S e n t 24 1918 Special s h o r t - t e r m issues: Sept. 24, 1917, as a m e n d e d A p r . 4,1918, a n d Mar. 3,1919. 12,369,500 5,563,000 • 54,586,500 10,482,000 50,222,500 48,300,000 lO;416,000 29,070,000 8,788,000 53,802,000 22,544,000 58,000.000 46,119,500 28,013,500 7,394; 000 2,999,500 10,339,500 9,196,500 15,379,500 11,858,000 7,093,500 12,441,.500 3,706,000 .5,618,000 11,221,000 22,256,500 14,600,500 9,276,000 187,623,500 1,358,566,000 191,939,500 246,367,000 64,260,500 79,119,500 Ul Mar. 15,1920 J u n e 15.1920 J u l y 15,1920 Sept. 15,1920 . do Oct. 15,1920 Mar. 15,1921 J u n e 15,1921 Mar. 15,1921 do Sept. 15,1921 Mar. 15,1921 C) (2) ll 6 5| 2 201,370,500 242,517,000 74,278,000 106,626,500 341,969,500 124,252,500 10,202,000 18,475,000 3,786,500 5,424,000 21,329,500 10,059,000 59,982,000 93,629,500 34,583,000 60,233,500 181,370,500 40,566,500 5,131,500 23,200.000 4,508,000 6,138,500 26,936,000 13,822,500 17,420,500 25,132,500 6,164,500 9,831,000 29,205,000 14,393,000 5,981,.500 7,064,000 2,195,000 1,884,000 9,138,500 4,204,000 2,582,500 4,498,000 1,726,000 1,092,500 4,537,500 2,227,500 o 1,091,014,000 69,276,000 470,365,000 79,736,500 102,146,500 30,467,000 16,664,000 o 259,375,000 21,436,000 59,276,000 30,280,000 23,299,000 12,260,000 15,664, oon pi w H > 5 112,091,700 }. « 1 Various, begiiming Aug. 20,1918. 2 One year from date of issue. 116,450,500 25,582,500 412,319,000 90,410,000 281,882,500 324,189,000 107,732,500 13,446,000 5,704,000 " 31,752,000 18,521,500 47,722,000 52,782,500 17,695,500 ( 2,2^.4, 44, 4i, I 5,5*, 6. Ul ll4,630,345,108.53 450,000,000 9,291,500,000 3 Various, beginning Nov. 27, 1918. 4 VariouSj beginning Feb. 25, 1919. 242,000,000 856,000,000 136,000,000 38,000,000 d pi 6 Pesetas 543,900,000. 8 Various. fcO 00 -a Certificates of indebtedness, total issues and the amount issued through each Federal reserve banl from Apr. 6, 1917, to Oct. SI, 75^0—Continued. Federal reserve district. Authorizing act and series. Date of issue. Issued in anticipation of the first Liberty loan: Apr.24,1917 Apr. Do May Do May Do June Date of maturity. 25,1917 June 30,1917 10.1917 July 17,1917 25,1917 July 30,1917 8,1917 de Total. Issued in anticipation ofthe second Liberty loan: Apr.24,1917 Aug. 9,1917 Nov. 15,1917 Do. Aug. 28,1917 Nov. 30,1917 Do Sept. 17,1917 Dec. 15,1917 Sept. 24,1917 Sept. 26,1917 . . . . d o Do Oct. 18,1917 Nov. 22,1917 Do Oct. 24,1917 Dec. 15,1917 Total. Issued in anticipation of the third Liberty loan: Sept. 24, 1917 Jan. Do Feb. Do Feb. Do Mar. Do Apr. Sept. 24, 1917, as amended Apr. 4, 1918 .Apr. 22,1918 8,1918 27,1918 20,1918 10,1918 Apr. May May June July 22,1918 9,1918 28,1918 18,1918 9.1918 22,1918 July 18,1918 Total.. Issued in anticipation of the fourth Liberty loan: Sept. 24, 1917, amended Apr. 4, 1918— Series IV-A. Series IV-B. Series IV-C. Series JV-D. June July July Aug. 25,1918 9,1918 23,1918 6,1918 Oct. Nov. Nov. Dec. 24,1918 7,1918 21,1918 5,1918 Rate. Minneapolis. Kansas City. Dallas. San Francisco. Cliicago. St. Louis. §16,400,000 24,893,000 16,600,000 19,800,000 §10,400,000 7,045,000 7,200,000 8,100,000 §2,500,000 4,500,000 2,400,000 5,200,000 §8,000,000 9,500,000 7,200,000 5,600,000 §7,000,000 5,525,000 2,400,000 3,300,000 §20,000,000 7,500,000 4,200,000 5,200,000 77,693,000 32,745,000 14,600,000 30,300,000 18,225,000 36,900,000 15,600,000 15,095,000 21,169,000 35,629,000 32,963,000 18,141,000 7,900,000 4,188,000 4,874,000 11,000,000 12,710,000 5,028,000 3,700,000 2,025,000 2,000,000 7,000,000 9,541,000 5,205,000 4,700,000 7,100,000 4,542,000 ' 2,430,000 4,619,000 2,367,000 9,000,000 10,595,000 10,600,000 12,038,000 2,178,000 I 7,217,000 13,000,000 7,520,000 9,030,000 23,000,000 20,000,000 13,408,000 138,597,000 45,700,000 29,471,000 38,0a9,000 I 39,347,000 85,958,000 30,359,000 42,352,000 59,168,000 64,414,000 65,850,000 18,090,000 20,064,000 25,709,000 22,842,000 21,181,000 10,750,000 15,000,000 17,000,000 16,000,000 15,600,000 12,000,000 21,411,000 23,736,500 26,116,500 25,000,000 21,000,000 25,000,000 33,500,000 30,250,000 39,500,000 13,084,000 14,076,000 19,000,000 15,000,000 16,602,500 Treasury Department. 63,212,000 25,698,500 15,000,000 20,260,500 13,162,500 23,540,500 1,559,000 325,355,000 133,584,500 9,350,000 128,524,500 90,925,000 172,790,500 11,895,000 131,481,500 101,203,000 83,310,500 87,292,500 34,654,000 31,280,500 25,9.52,500 24,056,000 20,000,000 22,100.000 16,800,000 12,260,000 28,410,500 30,031,500 23,369,000 25,126,000 18,481,500 14,452,000 10,156,000 7,579,500 48,000,000 39,000,000 38,000,000 37,750,000 11,938,000 35,653,000 4,327,000 4,581,000 00 00 Series I V - E . Series I V - F . Series" I V - G . Sept. 3,1918 Sept. 17,1918 Oct. 1,1918 Jan. 2,1919 Jan. 16,1919 Jan. 30,1919 A u g . 1,1919 A u g . 15.1919 S e p t . 2,1919 Dec. 1.1919 A p r . 1.1920 A p r . 15.1920 -do.. May 17,1920 Total. J u n e 15,1920 J u l y 15,1920 A u g . 16,1920 305,020,000 65,316,000 21,115,000 20,778,500 19,050,500 18,403,500 20,000,000 18,500,000 20,040,000 8,833,500 7,363,000 5,714,000 8,043,000 5,951,500 10,939,000 13,106,000 42,400,000 40,000,000 45,000,000 40,000,000 45,400,000 40,000,000 35,800,000 18,000,000 18,310,000 14,615,500 16,750,000 13,000,000 20,107,500 14,358,000 12,879,000 14,359,000 35,450,000 27,850,000 38,575,000 "4," 666* 666 245,288,000 218,880,^500 187,745,000 101,546,000 390,475,000 23,397,500 79,723,000 70,582,000 63,193,500 15,238,000 18,359,000 6,313,500 11,086,000 14,080,000 21,700,000 20,569,000 17,975,500 8,728,000 4,277,500 3,135,500 4,11.5,500 4,237,000 17,514,000 17,300,000 16,000, boo 8,300,000 6,265,000 3,979,500 2,413,500 1,341,000 20,000,000 20,238,500 16,000,000 10,000,000 5,929,000 1,948,000 3,451,000 4,309,000 16,185,000 14,429,000 23,179,000 11,916.500 4,986; 000 3,092,000 1,836,000 2,014,500 38,175,000 37,300,000 43,000,000 14,250,000 9,841,000 6,214,500 11,435,500 7,836,000 278,575,000 84,738,000 73,113,000 81,875,500 77,638,000 8,052,000 7,400,000 25,132,000 10,044,500 20,250,500 5,625.000 3,702; 500 6,285,500 2,214,500 721,500 2,093,000 5,187,500 5; 795,000 6,000,000 2.567.000 1; 192; 500 2,544, O'OO 16,750,000 7,900,000 11,422,000 12,000,000 55,427,000 15,613,000 5,029,000 16,982,500 6,303,500 36,072,000 12,000,000 25,913,000 22,816,000 21,200,000 663,204,000 186,963,000 127,560,000 176,866,000 6,1919 20,1919 3,1919 17,1919 1,1919 15,1919 29,1919 97,235,500 83,189,500 108,647,000 97,774,500 103,048,500 91,677,500 82,044,000 24,231,500 21,319,500. 30,927,000 26,445,500 29,678,500 27,405,000 .21,225,500 24,500,000 22,265,000 26,500,000 27,760,000 24,600,000 23,610,000 18,720,000 A u g . 12,1919 S e p t . 9,1919 O c t . 7,1919 82,656,500 99,886,000 107,256,500 22,219,000 21,761,500 20,075,000 953,415,500 May May June June July July July 4,140,000 327,500 4,000,000 i 5,645,000. 3,085,000 Q Jan. Jan. Feb. Feb. July July Oct. Nov. 2,1920 15,1920 2,1920 16,1920 1,1920 15,1920 15,1920 15,1920 Total. L o a n certificates of 1921: Series A, 1921 - Series B , 1 9 2 1 . . Series C, 1921 83,320,000 17,200,000 17,700,000 21,500,000 Total.. L o a n certificates of 1920: S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918, a n d M a r . 3, 1919— Series A , 1 9 2 0 . . . Series B , 1920. Series C, 1920 Series D , 1920 S e r i e s E , 1920 S e r i e s F , 1920 Series G, 1920 •Series 11,1920 3,000,000 3,000,000 2,817,000 25,501,500 24,178,500 21,360,000 Total., Issued i n a n t i c i p a t i o n of t h e V i c t o r y L i b e r t y loan: S e p t . 24, 1917, as a m e n d e d A p r . 4,1918— Series V - A Dec. 5,1918 Series V - B , Dec. 19,1918 Series V - C , J a n . 2,1919 SeriesV-D J a n . 16,1919 Series V - E J a n . 30,1919 Series V - F F e b . 13,1919 Series V - G F e b . 27,1919 S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918, a n d M a r . 3, 1919— SeriesV-H M a r . 13,1919 Series V - J A p r . 10,1919 SeriesV-K M a y 1,1919 11,295,500 I 49,500,000 46,350,000 11,898,500 46,420,000 9,457,000 88,279,000 88,878,500 82,759,000 Jan. 3.1921 Jan. 15; 1921 Aug. 16,1921 2,200,000 O H W ^ • 1,000,000 6,400,000 ......... > c^ n pi K! to 00 CD Certificates of indebtedness, total issues and the amount issued throng leach Federal reserve bank from Apr. 6, 1917, to Oct. 31, 1920—Continued. to CD O F e d e r a l reserve district. A u t h o r i z i n g a c t a n d series. D a t e of issue. D a t e of maturity. Rate. Chicago. Issued i n a n t i c i p a t i o n of income a n d profits t a x e s , 1918: S e p t . 24, 1917 Do Do '. Do S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918 Do N o v . 30,1917 J u n e 25,1918 Jan. 2,1918 do Feb. 15,1918 do Mar. 15,1918, dn A p r . 15,1918 M a y 15,1918 .do-, -dc. S t . Louis. K a n s a s City. Dallas. San Francisco. §30,139,500 48,054,500 15,709,000 13,286.500 §3,833,000 11.168,500 1,661,500 2,063,500 §1,743,000 5,2.30,000 1,255,000 720,000 §1,072,000 17,075,000 49S, 500 824,500 §5.388,500 15; 180,000 1,505,500 1,022,000 §4,012,000 19,632,000 7,404,000 6,416. 000 15.742,OGO 40;002;500 901,500 3,075,000 850.090 1,600:000 1,028,000 538,500 1,092,000 4,762,500 4,297,500 6,069,500 21,036,500 j 28,950,500 47,831,000 Total. Issued In a n t i c i p a t i o n of i n c o m e a n d profits t a x e s , 1919: S e p t . 24, 1917, as a m e n d e d A p r . 4,1918— T a x series, 1919 Series T Series T - 2 Sept. 24, 1917, as arriended A p r . 4, 1918, a n d M a r . 3, 1919SeriesT-3 .'. Series T - 4 : .". Series T - 5 Series T - 6 Series T - 7 , Minneapolis. 11,398,000 Treasury Department. O Aug. 20.1918 N o v . 7,1918 J a n . 16.1919 J u l y 1.5,1919 Mar. 15,1919 J u n e 17,1919 Mar. 15,1919 J u n e 3,1919 ...-do J u l y 1,1919 ....'do. June Sept. Dec. Sept. Dec. 22,003,000 103,828,000 42,045,000 4,712,000 17,109,500 4,335,500 1,829,000 10,229; 500 3,030,000 3,662,500 7,443,500 4,101,000 4,173,000 12.103,000 4,350,000 16,272,500 38,164,000 17,050,000 48,301,500 79,163.000 63,326;500 46.516,000 58;624,000 6,437,000 12,854,500 6,906.500 11.203.500 11;963; 500 3,502,000 10,468,500 2,600,600 10,000.000 10,000;GOO 1,820,000 7,681,500 2,502. ."iOO 8,222,000 6,551,500 3,417,500 15,815,500 3,0.36,000 6,221,500 12,823, .500 9,649,000 30,201,500 1.5,684,500 12,134,000 27,001,000 463,807,000 75,522,OOU 51,650,500 41,984,500 61,940,000 166,166,500 w H »=J M 16,1919 15,1919 15,1919 15,1919 15,1919 §8,666,666 g i7,'543,'666 CQ 19,045,500 Total., 44,588,500 Issued i n a n t i c i p a t i o n of income a n d profits t a x e s , 1920: Sept. 24, 1917, as a m e n d e d — Series T - S - : '. Series T - 9 Series T-10 Series TM3-1920 Series TJ-,1920 J u l v 15,1919 S e p t . 15,1919 do Dec. 1,1919 Dec. 15,1919 Mar. Mar. Sept. Mar. Jime 15.1920 15; 1920 15,1920 15,1920 15,1920 65,290, .500 24,097,500 35,172,000 42,493,500 100,789,000 11,198,500 3,614,500 12,232, .500 9,191,500 29,692,500 8,866,500 4,750,000 7,750,000 5,133,000 12,803,.500 7,670,000 2,835,000 4,165,000 6,264,500 20,025,000 8,681,000 3,491,500 8,232,500 13,088,500 31,803,000 24,651,500 10,000,000 21,500,000 21,776,000 57, .554,000 5,645,000 Jan. Feb. Series TD-1920 Sprips TM4—1920 2,1920 2,1920 D e c . 15,1920 Mar. 15,1920 Total Issued i n a n t i c i p a t i o n of i n c o m e a n d profits t a x e s , 1921: S e p t . 24,1917, as a m e n d e d — Series TM-1921 Series TJ-1921 Spripc; TM*? 1Q91 Series TM3-1Q21 Series TS-1921 Series T M 4 1921 . M a r . 15,1920 M a r . 15,1921 J i m e 15,1920 J u n e 15,1921 J u l y 15,1920 M a r . 15,1921 S e p t . 15,1920 . . . - . d o do S e p t . 15,1921 Oct. 1.5,1920 M a r . 15,1921 S e p t . 24, 1917, as a m e n d e d A p r . 4,1918, a n d Mar. 3, 1919.. 23,234,000 9,421,500 15,515,000 8,959,500 13.036,500 16,000,000 8, .506,500 14,868,50p 38,400,OOC 25,250,000 29,000,000 395,437,500 98,685.000 63,787,500 69,996,000 88,671,500 199,031,500 34,645,000 21,926,000 27,433,000 8,177,000 9,330,500 24,459,500 15,234,000 6.806,000 9,793,500 2,300,000 1,046,500 9,900,500 4,621,000 3,257,500 2,278,500 l,032..50f 1,864,50C 3.986,500 2,050,000 7,235,500 11,412,500 2,210, .500 1,686,500 9,313,500 4,744,500 4,719,500 4,000, .50.0 496,000 1,945,000 2.692,500 3;008,500 16,063,000 15,600,000 7,100,000 6,150,000 19,100,000 9,322,000 40,063,000 106,560,000 34,467,500 14,469,500 36,603,000 16,861,000 73,335,000 40,063,000 4f 6 tl 6 55 Total Special issues t o secure Federal reserve b a n k n o t e s : S e p t . 24, 1917, as a m e n d e d A p r . 4, 1918, a n d A p r . 23, . 1918 Special issues p a y a b l e in foreign currency: SeDt. 24, 1917, as a m e n d e d • A p r . 4, 1918, .Tuly 9, 1918 a n d S e p t . 24 1918 . Special s h o r t t e r r h issues: 77,484,500 50,110,500 4! 4^ V Ul o 0) 2 39,612,000 17,068,000 8,480,000 12,820,000 8,300,000 pi 10,880,000 > 5 112,091,700.00 } I 2,2^,4, 4 | , 4^, ll,511,000,000 (.. 90,000,000 192,500,000 120,000,000 195,000,000 472,000,000 1,036,345,108.-53 I 5,5^,6. RECAPITULATION. Ul Issues. L o a n certificates: I n a n t i c i p a t i o n of t h e first L i b e r t y l o a n I n a n t i c i p a t i o n of t h e second L i b e r t y loan I n a n t i c i p a t i o n of t h e t h i r d L i b e r t y loan I n a n t i c i p a t i o n of t h e fourth L i b e r t y l o a n . . . • I n a n t i c i p a t i o n of t h e V i c t o r y L i b e r t y loan Series of 1920 Series of 1921. . . . . . . T o t a l loan certificates... . 1 Various, beginning Aug. 20, 1918. 2 One year from date of issue. NewYork. Cleveland. Richmond. Atlanta. Total amount. Boston. §868,205,000.00 2,320,493,000.00 3,012,085,500.00 4,659,820,000.00 6,157,589,500-00 2,360,044,500.00 . 461,042,000.00 §57,367,000 132,044,000 214,417,000 381,162,500 475,792,500 188,175,500 35,364,000 §460,462,000 1,467,643,000 1,255,308,000 1,680,989,000 2,256,145,000 959;162,500 194,883, .500 §43,400,000 89,132,000 198,500,000 316,020,000 420,334,500 145,544,500 27,468,000 §58,900,000 182,513,000 238,033,500 440,569,000 654,761,500 1.74,478,500 37,671,500 §13.703,000 40;014,000 75,829,500 117,983,600 187,497,000 48,864,000 9,499,000 §13,305,000 32,136,000 79,673,000 114,857,000 143,311,600 72,428,000 8,729.000 19,839,279,500.00 1,484,312,500 8,273,493,000 1,238,399,000 1,686,927,000 493,390,000 464,338,600 3 Various, beginning Nov. 27,1918. < Various, beginning Feb. 25, 1919. Philadelphia. 5 Pesetas 543,900,000. 6 Various. to CD Certificates of indebtedness, total issues and ihe amount issued through each Federal reserve banlc from Apr. 6, 19t7, to Oct. 31, 1920—Continued. RECAPITULATION-Continued. Total a m o u n t . Issues^. T a x certificates: I n anticipation I n anticipation I n anticipation I n anticipation of of of of income income income income and and and and profits profits profits profits taxes, taxes, taxes, taxes, 1918 1919 1920 1921 T o t a l t a x certificates Special issues t o secure F e d e r a l reserve b a n k n o t e s Special issues p a y a b l e i n foreign c u r r e n c y Special s h o r t t e r m issues G r a n d t o t a l , all issues L o a n certificates: I n a n t i c i p a t i o n of I n a n t i c i p a t i o n of I n a n t i c i p a t i o n of I n a n t i c i p a t i o n of I n a n t i c i p a t i o n of Series of 1920 Series of 1921 . . the the the the the first L i b e r t y l o a n •. second L i b e r t y loan third Liberty loan fourth L i b e r t y l o a n V i c t o r y L i b e r t y loan T o t a l l o a n certificates . . . T a x certificates: I n anticipation I n anticipation I n anticipation I n anticipation of i n c o m e of i n c o m e of i n c o m e of i n c o m e T o t a l t a x certifioates and and and and taxes, taxes, taxes, taxes, 1918 1919 1920 1921 ; Special issues t o secure F e d e r a l reserve b a n k n o t e s Special issues p a y a b l e i n foreign c u r r e n c y Special sihort t e r m issues G r a n d t o t a l , all issues New York. §1,624,403,500.00 3,354,787,500.00 3,078,030,000.00 1,091,014,000.00 §83,260,000 256,911,500 187,623,600 69,276,000 §831,473,000 1,451,852,000 1,358,566,000 470,365,000 §95,537,000 141,001,600 191,939,600 79,736,500 §285,452,500 435,440,500 246,367,000 102,146,500 §20,822,000 92,519,000 64,260,600 ao, 467,000 §13,006,000 71,414,000 79,119,500 16,664,000 9,148,235,000.00 597,071,000 4,112,256,000 508,214,600 1,059,406,600 208,068,500 180,203,500 259,375,000.00 112,091,700.00 14,630,345,108.63 21,436,000 59,276,000 30,280,000 23,299,000 12,260,000 15,664,000 450,666,666 9,291,500,000 242,000,000 856,000,000 136,000,000 38,000,000 43,989,326,308.63 2,552,819,600 21,736,525,000 2,018,893,500 3,635,632,500 849,718,600 698,208,COO Cleveland. Richmond. Atlanta. Treasury Department. Minneapolis. Kansas City. §32,745,000 45,700,000 133,584,500 186,963,000 245,288,000 84,738,000 15,613,000 §14,600,000 29,471,000 89,350,000 127,560,000 218,880,500 73,113,000 5,029,000 §30,300,000 38,039,000 128,524,500 176,866,000 187,745,000 81,875,500 16,982,600 §18,225,000 39,347,000 90,925,000 83,320,000 101,546,000 77,638,000 6,303,600 $36,900,000 85,968,000 172,790,500 305,020,000 390,475,000 168,052,000 36,072,000 §10,605,000.00 744,631,500 568,003,500 660,332,500 417,304,600 1,195,267,600 130,613,500.00 162,934,000 463,807,000 395,437,500 106,560,000 22,703,000 75,622,000 98,585,000 34,467,500 11,398,000 51,650,500 63,787,600 14,469,500 21,036,500 41,984,500 69,996,000 36,603,000 28,950,500 61,940,000 88,671,500 16,861,000 47,831,000 166,1.56,500 199,031,500 73,335,000 44,688,600.00 34,645,000.00 40,063,000.00 1,128,738,500 231,277,500 141,305,500 169,620,000 196,423,000 486,354,000 119,296,600.00 39,612,000 17,068,000 8,480,000 12,820,000 8,300,000 10,880,000 1,511,000,000 90,000,000 192,500,000 120,000,000 196,000,000 472,000,000 112,091,700.00 1,036,346,108.63 5,171,617,000 i . n s 2 977 nnn 9nn 289.nnn 9fi2 772 .^(V) 817 n27 .5nn 2.164.501..500 1..39S ,34fi SnS .(^.^ St. L o u i s . §77,693,000 138,697,000 325,355,000 663,204,000 953,415,500 278,575,000 - 55,427,000 • 2,492,266,500 profits profits profits profits Philadelphia. Boston. Chicago. Issues. ' ' ' to CD- ' ' Dallas. ' ' S a n Francisco, O . o tei 11,895,000.00 65,316,000.00 23,397,500.00 7,400,000.00 12,000,000.00 Ul 293 SECRETARY OF THE TREASURY. E X H I B I T 2. CERTIFICATES OF INDEBTEDNESS, PAR AMOUNT IS SUED,RETIRED, AND OUTSTANDING TO OCT. 3 1 , 1920. D a t e of issue. D a t e of maturity. L o a n certificates: A p r . 25, 1917. M a y 10,1917. M a v 25, 1917: J u n e 8,1917.. A u g . 9,1917-. A u g . 28,1917. Sept. 17,1917. Sept. 26,1917. Oct. 18,1917.. Oct 24,1917... J a n . 22,1918.. F e b . 8,1918.... F e b . 27,1918.. Mar. 20,1918.. A p r . 10,1918.. A p r . 22,1918.. J u n e 25,1918J u l y 9,1918. - .Tuly 23,1918. A u g . 6,1918-. Sept. 3,1918.Sept. 17,1918Oct. 1.1918... Dec. 5,1918... Dec. 19,1918.. Jan. 2,1919... J a n . 16,1919.. J a n . 30,1919.. F e b . 13,1919.. F e b . 27,1919.. Mar. 13,1919.. A p r . 10,1919.. May 1,1919... A u g . 1,1919.. A u g . 15,1919. Sept. 2,1919-Dec. 1,1919... A p r . 1,1920... A p r . 15,1920.. Do May 17,1920. .Tmiel5,1920J u l v 15,1920.A u g . 16,1920. J u n e 30,1917 J u l y 17,1917 J u l y 30,1917 do N o v . 15,1917 N o v . 30,1917 Dec. 15,1917 do N o v . 22,1917 Dec. 15,1917 A p r . 22,1918 M a y 9,1918 M a y 28,1918 J u n e 18,1918 J u l y 9,1918 J^u l' y 18,1918 Oct. 24,1918 N o v . 7,1918 N o v . 21.1918 Dec. 5.1918 Jan. 2.1919 J a n . 16.1919 J a n . 30,1919 M a y 6,1919 M a y 20,1919 J i m e 3,1919 J u n e 17,1919 Julv 1,1919 J u l v 15,1919 J u l y 29,1919 A u g . 12.1919 Sept. 9,1919 Oct. 7.1919 Jan. 2.1920 J a n . 15.1920 Feb. 2,1920 F e b . 16,1920 J u l y 1.1920 J u l y 15,1920 Oct. 16,1920 N o v . 15.1920 J a n . 3.1921 J a n . 15.1921 Aug. 16,1921 Series. IVrA.. IV-B.. rv-c... IV-D.. IV-T^] - . , IV-F. . IV-G.. V-A.-. V - B . .. V-C... V-D - - V - E . .. V-F... V-G.... V-H... V-J.... V-K... A-1920B-1920C-1920-. D-1920. E-1920. r-1920G-1920H-1920. A-1921 B-1921. C-1921., Total Issued. Retired. Outstanding Oct. 31,1920. §258,205.000.00 §268,205, 000,00 200,ooo; 000. OOl 200,000, 000.00 200,000, 000.00 200,000, 000.00 200,000, 000.00 200,000, 000.00 000,00 300,000, 000.00 300,000, 250,000, 000. GO 250,000, 000. GO 000.00 300,000, 000, GO 300,000, 400,000, 000. GO 400,000, 000,00 000.00 385,197, 000.00 385,197, 685,296, 000. GO 685,296, 000.00 400,000, 000.00 400,000, 000.00 500,000, 000. GO 500,000, 000.00 500,000, 000.00 500,000, 000.00 543, 032; 000.GO 1 §500. 00 543,032, 500.00 500. OOl 551,216, 500. GO 110,000.00 551,226, 517,826, 500.00| 517,826, 500.00 839,646, 000. GO 1 500.00 839,646, 500. GO 753,925 000. GO 1 13,000.00 753,938, 000.00 500.00 584,745; 000. G O 1 5, 500.00 584,750, 575,698, 000.00 1 8,500.00 575,706, 500. GO 000. OOI 639,491, 000,00 1 2,000.00 639,493, 625,216, 500.GO 625,216, 500. GO 641.069 000. GO 641,069, 000.00 613;435 500.GO 1 2,500.00 613,438, 000. GO 572,492; 500.GO 11,500.00 572,494, 000.00 751,684, 500.00 751,684, 500.GO 600,100, 000. GO 11,500.00 600,101, 500. GO 687,381 500.00 687,381, 500.00 500. GO 620,577: 500.GO 11,000.00 620,578, 532,376: 000.00 15,500.00 532,381, 500. GO 000. GO 542,197; 000. G O 542,197, 646,025, 000.00 646,025, 000. GO 591,308 000. GO 591,308, 000.00 533,799; 000, GO 12,500.00 533,801, 500. GO 000.GO 532,145 000. GO 1 7,000. 00 532,152. 573,824; 000,00 117,500.00 573,84i; 500. GO 1 2,000.00 162,178, 500. OOl 162,176, 500.00 1 27,500.00 200,669, 500. OOi 200,642, 000. GO 83,889, 000.00 1 14,000.00 83,903, 000. ooi 167,965, 000. GO 1 2,668, 500.00 170,633, 500, OOi 9,032, 000.00 93,833,000.00 102,865, 000.00 176,604,000.00 176,604, 000. GO 126,783,500.00 126,783, 500. GO 157,654, 500. GO 157,654.500.00 19,839,279,500. 00 19,281,613,500.00 557,666,000.00 T a x certificates: N o v . 30, 1917. J u n e 25, 1918 J a n . 2,-1918... do.. F e b . 15,1918.. do.. Mar. 15,1918.. do.A p r . 16,1918.. do-M a y 16,1918. - . . . . . d o . . A u g . 20, 1918. J u l y 15, 1919 N o v . 7, 1918-. Mar. 15, 1919 J a n . 16, 1919.. J m i e 17, 1919 Mar. 15,1919.. J u n e 16, 1919 J u n e 3. 1919-. Sept. 15, 1919 Dec. 15, 1919 Do Sept. 15, 1919 J u l y l , 1919.. Dec. 15, 1919 Do J u l y 15, 1919.. Mar. 15, 1920 Sept. 15, 1919-, . . . - d o - Sept. 16, '1920' Do Dec 1, 1 9 1 9 . . , Mar, 16, 1920 Dec. 15,1919.-, J u n e 16, 1920 Rate Tax T-l T-2 T-3 T-4 T--5 T-6 T-7 T-8 T-9 T-10 TM3-1920TJ-1920.-- 691, ,872,000.00 491: ,822.500.00 74: 100,000. OOi 110: 962,000.00 71; 880,000.00 183, 767,000.00 157 552,500.00, 794; 172,500. GO 392 381,000. GO 407: 918,500.00 526; 139,500.00 238, 711,500.00 326, 468,000.00[ 511, 444,000.00 323, 074,500.00 101 131,500.00 657; 469,000.00 260, 322,000.00 728, 130,000.00 1 I s s u e s on w h i c h i n t e r e s t h a s ceased. 691,872, ,000.00 491,8I9; 500.00 13,000.00 74,100; 000.00 110,962, 000.00 71,880, 000. GO 183,767, 000.00 157,524, 000.00 128,500,00 794,172, 500.GO 392,353, 500.00 ""1'27," 566." 66 407,918, 500.00 526,139, 500.00 238,707, 500.GO 14,000.00 326,468, 000.00 511,444, 000.00 323,043, 500. GO 131,000.00 101,129, 000.00 12,500.00 656,300, 500.00 11,168,500.00 260,315, 500.00 16,500,00 727,961, 500. OOl 1168,500.00 294 REPORT ON T H E EUsTANCES. Certificates of indebtedness, par amount issued, retired, and outstanding to Oct. 31,1920— Continued. Date of issue. Date of maturity. Series. Tax certificatesContinued. Jan. 2,1920-... Feb. 2, 1920... Mar. 15,1920... June 15,1920 July 15,1920... ' Sept. 15,1920.. Do Oct. 15, 1920 . Dec. 15,1920 Mar. 15,1920 Mar. 15,1921 .Tune 15,1921 Mar. 15,1921 do Sept. 15,1921 Mar, 15,1921 TD-1920.... TM4-1920--TM-1921.... T.T-1921 T-M-2-1921. T-M-3-1921. T-S-1921.... T-M-4-1921 - Rate. 4? 6 5i 6 5f Issued, Retired. §703,026,000.00 304,877,000.00 201,370,500.00 242,517,000.00 74,278,000.00 106,626,500.00 341,969,500.00 124,252,500.00 Outstanding Oct. 31, 1920. §12,000,000.00 §691,026,000.00 112,500.00 304,864,500.00 201,370,500.00 242,517,000.00 74,278,000.00 106,626,500.00 341,969,500.00 124,252,500.00 9,148,235,000.00 7,364,742,500.00 1,783,492,500,00 Total Special issues to secure Federal reserve b a n k notes: Various dates Various Special issues payable, in foreign currency: Various dates . . . . d o Short-term specials: do Various dates. 2 259,375,000.00 112,091,700.00 259,375,000.00 112,091,700.00 Vari- 14,630,345,108.53 14,597,490,658.53 ous. 32,854,450.00 1 Issues on which interest has ceased. RECAPITULATION. Certificates. Loan issues Tax issues To secure Federal reserve bank notes Special issues payable in foreign currency Snort-term specials Total .Issues. Retirements. Outstanding Oct. 31, 1920. §19,839,279,500.00 §19,281,613,500.00 §567,666,000.00 ' 9,148,235,000.00 7,364,742,500.00 1,783,492,500.00 259,375,000.00 259,375,000.00 112,091,700.00 ii2,661,700.66 14,630,345,108.53 14,697,490,658.53 32,854,450.00 43,989,326,308.53 41,355,938,358.53 2,633,387,950.00 SECRETARY OE THE TREASURY. EXHIBIT 295 3. [Department Circular No. 167. Loans and Currency.1 U N I T E D STATES OF AMERICA—FOUR AND ONE-QUARTER P E R CENT T R E A S U R Y C E R T I F I C A T E S OF I N D E B T E D N E S S , S E R I E S T M 3-1920. DATED AND BEARING INTEREST FROM DECEMBER 1, 1 9 1 9 . D U E M A R C H 15^ 1 9 2 0 . The vSecretary of the Treasury-; under the authority of. the actapproved September 24, 1917; as amended; offers for subscription; at par and accrued interest; through the Federal Reserve Banks, Treasur}^ certificates of indebtedness; Series T M 3-1920; dated and bearing interest from December 1, 1919; payable March 15; 1920, with interest at the rate of four and one-quarter per cent per annum. Applications will be received at the Federal Reserve Banks. Bearer certificates with one interest coupon attached will be issued in denominations of $500, $1;000; $5;000; $10;000; and $100;000. Said certificates shall be exempt; both as to principal and interest, from all taxation now or hereafter imposed b}^ the United States; any StatC; or any of the possessions of the United StateS; or by an}^ local taxing authority; except (a) estate or inheritance taxes, and (6) graduated additional income taxes, commonl}^ known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association; or corporation; shall be exempt- from the • taxes provided for in clause (b) above. Certificates of this series will be accepted at par; with an adjustment of accrued interest; during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury; in payment of income and profits taxes payable at the maturity of the certificates. The certificates of this series do not bear the circulation privilege. The right is reserved to reject any subscriptions and to allot less than the amount of certificates applied for and to close the subscriptions a;t any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before December 1, 1919; or on later allotment. After allotment and upon payment Federal Reserve Banks will issue interim receipts pending delivery of the definitive certificates. Qualified depositaries will be permitted to make payment b}^ credit for certificates allotted to them for themselves and their customers up to an amount for which 'each shall have qualified in excess of existing deposits when so notified by Federal Reserve Banks. Treasury certificates of indebtedness of any and all series now outstanding and not overdue; maturing on or before February 2, 1920 (with any unmatured coupons at- 296 REPORT ON T H E FINANCES. tached); will, be accepted at par with an adjustment of accrued interest in pa3^ment for any certificates of the Series T M 3-1920 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasur}^ to the Federal Reserve Banks of the respective districts. CARTER GLASS, Secretary of tlie Treasury. TREASURY DEPARTMENT OFFICE OF THE SSCRITARY; Novemher 24, 1919. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. •ExfllBIT 4. [Department Circular No. 168. Loans and Currency.] U N I T E D STATES OF AMERICA—FOUR AND ONE-QUARTER P E R CENT T R E A S U R Y C E R T I F I C A T E S OF I N D E B T E D N E S S , S E R I E S D 1920. DATED AND BEARING I N T E R E S T FROM DECEMBER 1, 1 9 1 9 . D U E F E B R U A R Y 1 6 , 1 9 2 0 . The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series D 1920, dated and bearing interest from December 1, 1919, payable February 16, 1920, with interest at the rate of four and one-quarter per cent per annum. Applications will be received at the Feaeral Reserve Banks. Bearer certificates, without coupons, will be issued in' denominations of $500, $1,000, $5,000, $10,000, and $100,000. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereaiter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except {a) estate or inheritance taxes, and (6) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships; associations, or corporations. The intere.st on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (Jb) above. If any notes should be offered for subscription by the United States after the offering and before the m.aturity of such certificates, and the subscription price of such notes or the first installment thereof be payable on a date occurring at or before the maturity of such certificates, then on aiid after such, date (a) such certificates will be accepted at par with an adjustment of accrued interest in payment on the subscription price, v/hen payable, at or before the SECRETARY OF THE TREASURY. 297 maturity or redemption of such certificates, of any such notes subscribed for by and allotted to holders of such certificates; and (6) upon ten days' public notice given in such manner as may be determined by the Secretary of the Treasury the certificates of this series may be redeemed as a whole at par and accrued interest. The certificates of this series do not bear the circulation privilege and will not be accepted in payment of taxes. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before December 1, 1919, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be )ermitted to make payment by credit for certificates allotted to it or itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of any and all series now outstanding and not overdue, maturing on or before February 2, 1920 (with any unmatured interest, coupons attached), will be accepted at par with an adjustment of accrued interest in payment for any certificates of the Series D 1920 now offered which shall be subscribed for and allotted. • As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt, of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. f CARTER GLASS, Secretary ofthe Treasury. TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, • November 24, 1919. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. EXHIBIT 5. [Department Circular No. 174. Loans and Currency.] UNITED STATES OF AMERICA—FOUR AND ONE-HALF P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES T J - 1 9 2 0 . DATED AND BEARJNG INTEREST FROM DECEMBER 15, 1919. DUE JUNE 15, 1920. The Secretary of the Treasury, under the authority pf the act approved Septem.ber 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series T J-1920, dated and bearing interest from December 15, 1919, payable June 15; 1920; with interest at the rate of four and one-half per cent per annum, semiannually. Applications will be received at the Federal Reserve Banks. Bearer certificates with one interest coupon attached will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. 298 REPORT ON THE FINANCES. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereaiter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority; except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized h j said act approved September; 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5;000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. Certificates of this series will be accepted at par; with an adjustment of accrued interest; during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury; in payment of income and profits taxes payable at the maturity of the certificates. The certificates of this series do not bear the circulation privilege. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before December 15; 1919; or on later allotment. After allotment and upon payment Federal Reserve Banks will issue interim receipts pending delivery of the definitive certificates, xiny qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall have qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of any and all series now outstanding and not overdue, maturing on or before March 15, 1920 (with any unmatured coupons attached), will be accepted at par with an adjustment of accrued interest in payment for any certificates of the Series T J-1920 now offered which shall be subscribed for and allotted. As fiscal agents.of the United StateS; Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. CARTER GLASS, Secretary of the Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY; December 8, 1919. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your di.strict. SECRETARY OF T H E TREASURY. EXHIBIT 299 6. [Department Circular No. 177. Loans and Currency.] U T N I T B D STATES OF AMERICA—FOUR AND T H R E E - Q U A R T E R S P E R CENT T R E A S U R Y CERTIFICATES OF I N D E B T E D N E S S , S E R I E S T D-1920. DATED AND BEARING INTEREST FROM JANUARY 2, 1920. DUE D E C E M B E R 15, 1920. The Secretary of the Treasury, under the authorit}^^ of the act approved September 24, 1917, as amended, oft'ers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness, Series T D-1920, dated and bearing interest from January 2, 1920, payable Deceniber 15, 1920, with interest at the rate of four and three-quarters per cent per annum. Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000; and $100,000. The certificates will have two interest coupons attached; payable June 15 and December 15, 1920. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, aiw State, or any of the possessions of the United States, or by any local taxing authorit}^, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or coiporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal ofwhich does not exceed in the aggregate $5,000, owned by any individual, partnership, association; or corporation; shall be exempt from the taxes provided for in clause (b) above. Certificates of this series will be accepted at par. with au adjustment of accrued interest; during such time and under such, rules and regulations as shall be prescribed or approved by the Secretary ol the Treasury; in payment of income and profits taxes payable at the maturity of the certificates. The certificates of this series do not bear the circulation privilege.; The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before Januar}^ 2, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any ampunt for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of any and all series now outstanding and not overdue, maturing on or before February 2, 1920, will be accepted at par with an adjustment of accrued interest in pa3^ment for any certificates of the Series T D-1920 now offered which shall be subscribed for and allotted. 300 REPORT ON THE FINANCES. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. CARTER GLASS, Secretary ofthe Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, December 29, 1919. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal .Reserve Bank of your district. ^ • ' EXHIBIT 7. [Department Circular No, 180. Loans and Currency.] UNITED STATES OF AMERICA—FOUR AND ONE-HALF P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES T M 4— 1920. DATED AND BEARING INTEREST FROM FEBRUARY 2 , 1920. DUE MARCH 15, 1920. The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series T M 4-1920, dated and bearing interest from February, 2, 1920, payable March 15, 1920, with interest at the rate of four and one-half per cent per annum. Applications will be received at the Federal Reserve Banks. Bearer certificates with one interest coupon attached will be issued in denominations of $500, $1,000, $5,000, $;L0,000, and $100,000. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except {a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (&) above. Certificates of this series will be accepted at par, with an adjustment of accrued interest, during such time and under such ri;iles and regulations as shall be prescribed or approved by the Secretary of the Treasury, in pa37'ment of income and profits taxes payable at the maturity of the certificates. The certificates of this series do not bear the circulation privilege. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued inter est for certificates allotted must be made on or before February 2, 1920, or on later allotment. After allotment and upon payment Fed SECRETARY OF THE TREASURY. 801 eral Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary willbe permitted to- make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series C 1920, maturing February 2, 1920, Series D 1920, maturing February 16, 1920, and Series T9, maturing March 15, 1920 (with any unmatured coupons attached), will be accepted at par with an adjustment of accrued interest in payment for any certificates of the Series T M 4—1920, now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. CARTER GLASS, Secretary ofthe Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, January 26, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. EXHIBIT 8. [Department Circular No. 185. Loans and Currency.] UNITED STATES OF AMERICA—FOUR AND THREE-QUARTERS P E R CENT TREASURY CERTIFIC ATE S OF INDEBTEDNESS, SERIES T M-1921. DATED AND BEARING INTEREST FROM MARCH 15, 1920. DUE MARCH 15, 1921. The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series T M-1921, dated and bearing interest from March 15, 1920, payable March 15, 1921, with interest at the rate of four and three-quarters per cent per annum, payable semiannually. Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates will have two interest coupons attached, payable September 15, 1920, and March 15, 1921. Said certificates shall be exempt, both as to priacipal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 302 REPORT ON THE FINANCES. 24, 1917; and amendments theretO; the principal of which does n o t exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. Certificates of this series will be accepted at par, with an adjust- . ment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved b}^ the Secretary of the Treasury, in payment of income and profits taxes payable at the maturit}^ of the certificates. The certificates of this series do not bear the circulation privilege. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before March 15, 1920; or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit ior certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of any and all series maturing on March 15, 1920, and, pursuant to an arrangement between the Treasury and the War Finance Corporation, bonds of that Corporation maturing April 1, 1920, with unmatured coupons attached; will be accepted at par with an adjustment of accrued interest in payment for any certificates of the series T M-1921 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts mdicated 'by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary ofthe Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, March 10, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. Treasury certificates are being offered for subscription in decreasing amounts and at, increasing intervals. If in the intervals between pubhc offerings you desire to'purchase certificates of any outstanding issue, you should make apphcation to your own bank'or, if it can not obtain them for you, to the Federal Reserve Bank of your district. Other issues of Treasury certificates now outstanding are as follows: Series T J 1920, 4^ per cent, due June 15, 1920. Series T 10, 4J per cent, due September 15, 1920. Series T U 1920, 4 | per cent, due December 15, 1920. SECRETARY OF T H E TREASURY. EXHIBIT 303 9. [Department Circular No. 188. Loans and Currency.] UNITED STATES OF AMERICA—FOUR AND THREE-QUARTERS P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES E 1920. DATED AND BEARING INTEREST FROM APRIL 1, 1920. DUE JULY 1, 1920. The vSecretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series E 1920, dated and bearing interest from April 1, 1920, payable July 1, 1920, with interest at the rate of four and three-quarters per cent per annum. Applications will be received at the Federal Keserve Banks. Bearer certificates, without coupons, will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxeS; and (b) graduated additional income taxeS; commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized b}^ said act approved September 24, 1917, and amendments thereto, the principal ofwhich does not exceed in the aggregate $5,000; owned by any individual; partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of this series do not bear the circulation privilege and will not be accepted in payment of taxes. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before April 1, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified b}^ the Federal Reserve Bank of its district. Pursuant to an arrangement between the Treasury and the War Finance Corporation, bonds of that corporation, dated April 1, 1919, due April 1, 1920, will be accepted at par in payment for any certificates of the Series E 1920 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated b}^ the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. Secretary ofthe. Treasury. TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, March 29, 1920. 304 To THE REPORT ON THE FINANCES. INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. EXHIBIT 10. [Department Circular No. 189. Loans and Currency.] UNITED STATES OF AMERICA—TREASURY CERTIFICATES OF INDEBTEDNESS. DATED AND BEARING INTEREST FROM A P R I L 15, 1920. SERIES F 1920, 5 P E R CENT, DUE JULY 15, 1920. SERIES G 1920, 5i P E R CENT, DUE OCTOBER 16, 1920. The Secretary of the Treasury, under the authority of the act approved September 24, 1917; as amended, ofl'ers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness, in two series, both dated and bearing interest from April 15, 1920, the certificates of Series F 1920 being payable on July 15, 1920, with interest at the rate of five per cent per annum, and the certificates of Series G 1920 being payable on October 15, 1920, with interest at the rate of five and one-quarter per cent per annum semiannually. Applications will be received at the Federal Reserve Banks. Bearer certificates without coupons will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates of said series shallbe exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States,, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, tfie principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation; shall be exempt from the taxes provided for in clause (b) above. The certificates of these series do not bear the circulation privilege, and will not be accepted in payment of taxes. The right is reserved to reject any subscription and to allot less than the amount of certificates of either or both series applied for and to close the subscriptions as to either or both series at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before April 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits when so notified by the Federal Reserve Bank of its district. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts SECRETARY OF THE TREASURY. 305 indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary ofthe Treasury. TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, April 12, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. EXHIBIT 11. [Department Circular No. 192. Loans and Currency.] UNITED STATES OF AMERICA—FIVE AND ONE-HALF P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES H 1920. DATED AND BEARING INTEREST FROM MAY 17, 1920. DUF} NOVEMBER 15, 1920. The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended; offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series PI 1920, dated and bearing interest from May 17, 1920, payable November 15, 1920, with interest at the rate of five and one-half per cent per annum. > Applications will be received at the Federal Reserve Banks. Bearer certificates, without coupons, will be issued in denominations of $500, $1,000, $5,000; $10,000; and $100;000. ' Said certificates shall be exempt; both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority; except (a) estate or inheritance taxeS; and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profit of individuals; partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917; and amendments theretO; the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of this series do not bear the circulation privilege and. will not be accepted in payment of taxes. The right is reserved to reject any subscription and to alldt l^ss than the amount of certificates applied for and to close the subscr.iptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before May 17, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. 13799—FI 1920 20 306 REPORT ON T H E FINANCES. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary of the Treasury. TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, May 12, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription far you, or you may make subscription direct to the Federal Reserve Bank of your district. E X H I B I T 12. [Departraent Circular No. 193. Loans and Currency.] U N I T E D S T A T E S OF A M E R I C A — T R E A S U R Y C E R T I F I C A T E S OF INDEBTEDNESS. DATED AND BEARING INTEREST FROM JUNE 1 5 , 1 9 2 0 . S E R I E S A 1 9 2 1 , 5f P E R C E N T , D U E J A N U A R Y 3 , 1 9 2 1 . SERIES T J-1921, 6 P E R CENT, DUE JUNE 15, 1921. The Secretary of the Treasury, under ^ the authority, of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness, in two series, both dated and bearing interest from June 15, 1920, the certificates of Series A 1921 being payable on January 3, 1921, with interest at the rate of five and three-quarters per cent per annum, and the certificates of Series T J-1921 being payable on June 15, 1921, and bearing inteiest at the rate of six per cent per annum payable semiannually. Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000,^ and $100,000. The certificates of Series A 1921 will be issued without coupons. The certificates of Series T J-1921 will have two interest coupons attached, payable December 15, 1920, and June 15? 1921. The certificates of both said series shall be exempt; both as to principal and interest; from all taxation now or hereafter imposed oy the United StateS; any State, or any of the possessions of the United States^ or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of these series do not bear the circulation privilege. The certificates of Series A 1921 will not be accepted in payment of taxes. The certificates of Series T J-1921 will be accepted at par, with an adjustment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved by the SECRETARY OF THE TREASURY. 307 Secretar}^ of the Treasury, in payment of income and profits taxes payable at the maturity of the certifLcates. The right is reserved to reject any subscription and to allot less than the amount of certificates of either or both series applied for and to close the subscriptions as to either or both series at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before June 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certifiicates. Aii}^ qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness di Series T J-1920, maturing June 15; 1920; of Series E 1920; maturing Jiily 1; 1920; and of Series F 1920, maturing July 15, 1920, will be accepted at par, with an adjustment of accrued interest, in payment for any certificates of the Series A 1921 or T J-1921 now offered which shall be subscribed for and allotted. 'As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary ofthe Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, June 10, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. If you desire to purchase certificates of the above issues after the subscriptions close, or certificates of any outstanding issue, you should make application to your own bank, or if it can not obtain them for you, to the Federal Reserve Bank of your district. E X H I B I T 13. [Department Circular No. 199. Loans and Currency.] UNITED STATES OF AMERICA—TREASURY CERTIFICATES OF INDEBTEDNESS. DATED AND BEARING INTEREST FROM JULY 15, 1920. SERIES B 1921, 5f P E R CENT, DUE JANUARY 15, 1921. SERIES T M 2 - 1 9 2 1 , 5f P E R CENT, DUE MARCH 15, 1921. The vSecretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription; at par and accrued interest; through the Federal Reserve Banks, Treasury certificates of indebtedness, in two series, both dated and bearing interest from July 15, 1920, the certificates of Series B 1921 being payable on January 15, 1921; with interest at the rate of five and threequarters per cent per annum payable semiannually; and the certificates of Series T M 2-1921 being payable on March 15, 1921, and bearing interest at the rate of five and three-quarters per cent per annum. Applications will be received at the FederaL Reserve Banks. 308 . REPORT ON THE FINANCES. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates of Series B 1921 will be issued without coupons. The certificates of Series T M 2-1921 will have one interest coupon attached, payable March 15, 1921. The certificates of both said series shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by -the United States, any State, or any of the possessions of the United StateS; or by any local taxing authority, except (a) estate or inheritance taxes, and. (6) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of these series do not bear the circulation, privilege. The certificates of Series B 1921 will not be accepted in payment of taxes. The certificates of Series T M 2-1921 will be accepted at par, with an adjustment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury, in payment of income and profits taxes payable at the maturity of the certificates. The right is reserved to reject any subscription and to allot less than the amount of certificates of either or both series applied for and to close the subscriptions as to either or both series at any time without notice. Payment at par and accrued interest for certificates allotted must be made oil or before July 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series F 1920, maturing July 15, 1920, will be accepted at par, with an adjustment of accrued interest, in payment for any certificates of the Series B 1921 or T M 2-1921 now oft'ered w.hich shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and t o m a k e allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary ofthe Treasury. TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, July 9, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. If you desire to purchase certificates of the above issues after the subscriptions close, or certificates of any outstanding issue, you should make apphcation to your own bank, or if it can not obtain them for you, to the Federal Reserve Bank of your district. •' SECRETARY OF T H E TREASURY. 309 •U. EXHIBIT 14. [Department Circular No. 201. Loans and Currency.] UNITED STATES OF AMERICA—SIX P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES C 1921. DATED AND BEARING INTEREST FROM AUGUST 16, 1920. DUE AUGUST 16, 1921. The Secretary of the, Treasury,. under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal'Reserve Banks, Treasury ^certificates of indebtedness. Series C 1921, dated and bearing interest from August. 16, 1920, payable August .16, .1921, with interest at the rate of six per cent per annum payable semiannually. . • Applications will be received at the.FederalReserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates will have two interest coupons attached, payable February 16, 1921, and August 16, 1921. Said certificates shall be exempt, both as to principal and interest,, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority-; except (a) estate or inheritance taxes, and (&) . graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal ofwhich does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of this series dp not bear the circulation privilege and will not be accepted in payment of taxes. The right is. reserved to reject any subscription and to allot less than the ainount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted rnust be made on or before August 16, 1920, or on later allotmerit. After allotment and.upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. .Any qualified depositary wfll be permitted to make payment by credit tor certificates allotted to it for itself and its customers up to a-ny amount for which it.shall be ualified in excess of existing deposits, when so notified by the Federal ..eserve Bank of its district, As .fiscaf agents of the Uiiited States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated.by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. S ' / . D. , F. HOUSTON, Secretary of the Treasury. ^ TREASIIRY DEPARTMENT, O F F I C E OF THE SECRETARY, • August 9, 1920. . " ' ' ! 310 REPORT ON T H E FINANCES. To THB INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. If you desire to purchase certificates of the above issue after the subscriptions close, or certificates of any outstanding issue, you should make apphcation to your own bank, or if it can not obtain them for you, to the Federal Reserve Bank of your district. EXHIBIT 15, [Department Circular No. 204. Loans and Currency.] UNITED STATES OP AMERICA—TREASURY CERTIFICATES OF INDEBTEDNESS. DATED AND BEARING INTEREST FROM SEPTEMBER 16, 1920. SERIES T M 3-1921, 5 | P E R CENT, DUE MARCH 16, 1921. SERIES T S-1921, 6 P E R CENT, DUE SEPTEMBER 16, 1921. # The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription at par and accrued interest, through the Federal Reserve Banks, Treasur}^ certificates of indebtedness, in two series, both dated and bearing interest from September 15, 1920, the certificates of Series T M 3-1921 being payable on March 15, 1921, with interest at the rate of five and three-C[uarter& per cent per annum, and the certificates of Series T S-192^1 being payable on September 15, 1921, and bearing interest at the rate of six per cent per annum, payable semiannually. Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates of Series T M 3-1921 will have one interest coupon attached payable March 15, 1921, and the certificates of Series T S-1921 two interest coupons attached, payable March 15 and September 15, 1921. The certificates of both said series shall be exempt, both as to rincipal and interest, from all taxation now or hereafter imposed y the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (&) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the incoine or rofits of individuals, partnerships, associations, or corporations, 'he interest on an amomit of bonds and certiftcates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (&) above. Certificates of these series wiil be accepted at par, with an adjustment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury, in payment of income and profits taxes payable at the maturity of the certificates, respectively. The certincates of these series do not bear the circulation privilege. The right is reserved to reject any subscription and to allot less than the amount of certificates of either or both series applied for and to close the subscriptions as to either or both series at any time without notice. Pajnuent at par and accrued interest for certificates alloted must be made on or before September 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve E P SECRETARY OF THE TREASURY. 311 Banks ma}^ issue interim receipts pending delivery of the definitive certificates. Any qualified depositary wfll be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series T 10, maturing September 15, 1920, and of Series G 1920, maturing October 15, 1920, will be accepted at par, with an adjustment of accrued interest, in payment for any certificates of thc Series T M 3-1921 or T S-1921 now oft'ered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasuiy to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary of the Treasury,. ' TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, September J , 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. If. you desire to purchase certificates of the above issues after the subscriptions close, or certificates of any outstanding issue, you should make application to your own bank, or if it can not obtain them for you, to the Federal Reserve, Bank of your district. EXHIBIT 16. [Department Circular No. 206. Loans and Currency.] UNITED STATES OF AMERICA—FIVE AND THREE-QUARTERS P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES T M . 4 - 1 9 2 1 . DATED AND BEARING INTEREST FROM OCTOBER 1 6 , 1 9 2 0 . DUE MARCH 16, 1921. The Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, ofl"ers for subscription, at ar and accrued interest, through the Federal Reserve Banks, 'reasury certificates of indebtedness, Series T M 4-1921, dated and bearing interest from October 15, 1920, payable March 15, 1921, with interest at the rate of five and three-quarters per cent per annum. Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates will have one interest coupon attached payable Ma;rch 15, 1921, Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by tne United States, any State, or any of.the possessions of the United States, or by any local taxing authority, ^except (a) estate or inheritance taxes, and (&) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount oi bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal ofwhich ? 312 REPORT ON THE FINANCES. does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (6) above. Certificates of this series will be accepted at par, with an adjustment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury, in payment of income and profits taxes payable at the maturity of the certificates. The certificates of this series do not bear the circulation privilege. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and .accrued interest for certificates allotted must be made on or before October 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be. qualified in excess of existing deposits, when so notified by^ the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series G 1920, maturing October 15, 1920, and of Series H 1920, maturing November 15, 1920, will be accepted at par, with an adjustment of accrued interest, in payment tor any certificates of the Series T M 4-1921 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary of the Treasury: TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, October 8, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal Reserve Bank of your district. If you desire to purchase certificates of the above issue after the subscriptions close, or certificates of any outstanding issue, you should make application to your own bank, or if it can not obtain them for you, to the Federal Reserve Bank of your district. EXHIBIT 17. o [Department Circular No. 211. Loans and Currency.] UNITED STATES OF AMERICA—FIVE AND THREE-QUARTERS P E R CENT TREASURY CERTIFICATES OF INDEBTEDNESS, SERIES D 1921. DATED AND BEARING INTEREST FROM NOVEMBER 16, 1920. DUE MAY 16, 1921. The Secretary pf the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness. Series D 1921, dated and bearing interest from November 15, 1920, payable May 16, 1921, with interest at the rate of five and three-quarters per' cent per annum semiannually. SECRETARY OF THE TREASURY. 313 Applications will be received at the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates will have one interest coupon attached, payable May 16, 1921. Said certificates shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessipns of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the. principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above. The certificates of this series do not bear the circulation privilege aiid will not be accepted in payment of taxes. The right is reserved to reject any subscription and to allot less than the amount of certificates applied for and to close the subscriptions at any time without notice. Payment at par and accrued interest for certificates allotted must be made on or Def ore November 15, 1920, or on later allotment. After allotment and upon payment Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment b}^ credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series H 1920, maturing November 15, 1920, will be accepted at par, with an adjustment oi accrued interest, in payment for any certificates of the Series D 1921 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. D. F. HOUSTON, Secretary of the Treasury. TREASURY DEPARTMENT, O F F I C E OF THE SECRETARY, November 8, 1920. To THE INVESTOR: Almost any banking institution in the United States will handle your subscription for you, or you may make subscription direct to the Federal^ Reserve Bank of your district. Special attention is invited to the terms of subscription as stated above. If you desire to purchase certificates of the above issue after the subscriptions close, or certificates of any outstanding issue, you should make application to your own bank, or if it can not obtain them for you, to the Federal Reserve Bank of your district. 314 REPORT ON T H E FINANCES.. EXHIBIT 18. O F F E R TO R E D E E M B E F O R E MATURITY, T R E A SURY C E R T I F I C A T E S OF I N D E B T E D N E S S , S E R I E S A 1920. WASHINGTON, December 10, 1919. STATEMENT BY SECRETARY GLASS. The Secretary of the Treasury has authorized the Federal Reserve Banks, on and after Monday, December 15, and until further notice, to redeem in cash before January 2, 1920, at the holder's option, a i par and accrued interest to the date of such optional redemption, Treasury certificates of indebtedness of Series A 1920, maturing January 2, 1920. EXHIBIT 19. OFFERTO REDEEM BEFORE MATURITY, TREASURY CERTIFICATES OF I N D E B T E D N E S S , S E R I E S B 1920. WASHINGTON, December 30, 1919. STATEMENT BY SECRETARY GLASS. The Secretary of the Treasury has authorized the Federal Reserve Banks, on and after Friday, January 2, 1920, and. until further notice, to redeem in cash before January 15, 1920, at the holder's option, at par and accrued interest to the date of such optional redemption. Treasury certificates of indebtedness of Series B 1920, maturing January 15, 1920. EXHIBIT 20. O F F E R T O R E D E E M BEFORE MATURITY, T R E A SURY CERTIFICATES OF I N D E B T E D N E S S , S E R I E S D 1920. WASHINGTON, February ly 1920. STATEMENT BY SECRETAEY HOUSTONo The Secretary of the Treasury has authorized the Federal Reserve Banks, on and after Saturday,. February 7, 1920, and until further notice, to redeem in cash before February 16, 1920, at the holder's option, at par and accrued interest to the date of such optional redemption. Treasury certificates of indebtedness of Series D 1920, maturing February 16, 1920. EXHIBIT 21. STATEMENT OF THE PUBLIC DEBT OF THE UNITED STATES, JUNE 30, 1920. INTEREST-BEARING DEBT. Bonds: 2 % consols of 1930 4 % l o a n of 1925 2 % P a n a m a s of 1916-36 2 % P a n a m a s of 1918-38 '. 3 % P a n a m a s of 1961 A 3 % c o n v e r s i o n b o n d s of 1946-47 2^'% postal savings b o n d s (1st t o 18th series) Amountissued. Amount retired. !S646,250,150.00 162,315,400.00 54,631,980.00 30,000,000.00 50,000,000.00 28,894,500.00 11,539,360.00 S46,526,100. 00 43,825,500.00 5,677,800. 00 4,052,600.00 1,989,455,550.00 36,996,750.00 Amount outstanding. S599,724,050.00 118,489,900.00 48,954,180.00 25,947,400.00 50,000,000.00 28,894,500.00 11,539,360.00 Ul O S883,549,390.00 First Liberty loan Z \ % b o n d s of 1932-47 C o n v e r t e d 4 % b o n d s of 1932-47 C o n v e r t e d 4 ^ % b o n d s of 1932-47 Second c o n v e r t e d 4 ^ % b o n d s of 1932-47. % $1,410,074,400.00 65,803,050.00 473,089,200.00 3,492,150.00 O 1,952,458,800.00 Second Liberty loan 4 % b o n d s of 1927-42 C o n v e r t e d 4 ^ % b o n d s of 1927-42. 3,807,865,000.00 482,558,000.00 240,003,250.00 3,085,303,750.00 3,325,307,000.00 T h i r d L i b e r t y loan— 4 i % b o n d s of 1 9 2 8 . . . , F o u r t h L i b e r t y loan— 4 i % b o n d s of 1933-38. 4,175,650,050.00 512,934,250. 00 3,662,715,800.00 6,984,576,000.00 570,221, 500.00 6,394,354,500.00 I 15,334,836,100.00 Notes: Victory Liberty loan 4 ^ % n o t e s of 1922-23.. 3f% n o t e s of 1922-23.. 14,495,371,850.00 tl d 249,006,500.00 pi 13,427,969,700.00 818,395,650.00 1 4,246,365,350. 00 Certificates of i n d e b t e d n e s s : TaxSeries T-10 Series TD-1920 Series TM-1921 .. Series TJ-1921 LoanSeries E-1920. Series F-1920. 657,469,000.00 703,026,000.00 201,370,500.00 242,517,000.00 657,469,000.00 703,026,000.00 201,370,500. 00 242,517,000.00 1,804,382,600.00 200,669,500. 00 83,903,000.00 47,019,500.00 4,887,500.00 153,650,000.00 79,015,500.00 I I n c l u d e s n o t e s deliverable a m o u n t i n g t o S15,550; does n o t i n c l u d e p a r t i a l pa3^ments received a m o u n t i n g t o S15,180. CO Statement of the Public Debt of the United States, June 30, 1920—Continued. Amountissued. Certificates of indebtedness—Continued. Loan—Continued. Series G-1920 Series H-1920 SeriesA-1921 Pittman Act. Special War sa\dngs secm-ities: 2 War sa\dngs certificates, series 1918 War savings certificates, series 1919 and 1920. §170,633,500.00 102,865,000.00 176,604,000.00 Amount retired. §1,600,000.00 CO Amount outstanding. S169,033,500.00 102,865,000. 00 176,604,000. 00 $681,168,000.00259,375,000.00 24,000,000.00 259,375,000.00 24,000,000.00 $2,768,925,500.00 996,858,184.83 167,399,288.40 688,126,780.24 139,292,241.12 308,731,404.59 28,107,047.28 827,419,021.36 O M A T U R E D D E B T ON W H I C H I N T E R E S T HAS CEASED—PAYABLE ON P R E S E N T A T I O N . Funded loan of 1891, continued at 2%, called for redemption May 18,1900, interest ceased Aug. 18, 1900 : Funded loan of 1891, matured Sept. 2,1891 Loan of 1904, matured Feb. 2,1904 ' Funded loan of 1907, matured July 2, 1907 , Refunding certificates, matured July 1,1907 Old debt matmed at various dates prior to Jan. 1,1891, and otheritems of debt matured at various dates subsequent to Jan. 1,1861 Certificates of indebtedness, at various interest rates, matured Loan of 1908-18 1,000.00 19,800.00 13,050.00 384,400. 00 10,410.00 898,680.26 4,900,500.00 519,860.00 c 6,747,700.26 Total matured debt outstanding on which interest has ceased D E B T B E A R I N G N O I N T E R E S T — P A Y A B L E ON P R E S E N T A T I O N . Obligations required to be reissued when redeemed: IJnited States notes Less gold reser\ e Obligations that will be retired on^presentatipn;. Old demandno'tes. National-bank notes and Federalreserve bank notes assumed by the United States on deposit of lawful money for their retirement Fractional currency Total debt bearing no intisrest outstanding. Total gross debt ? O 24,061,095,361.36 Total interest-bearing debt outstanding 346,681,016.00 152,979,025.63 193,701,990.37 53,012. 50 29,478,280.00 6,842,067. 04 . 230,075,349. 91 24,297,918,411.53 Ul Matured interest obligations, etc.: Matured interest obligations outstanding ^ Discount accrued (partly estimated) on war savings securities, series of 1918 &. Discount accrued (partly estimated) on war savings securities, series of 1919 s. Treasury warrants outstanding Disbursing officers' checks outstanding Balance held by the Treasurer of the United States as per Daily Treasury Statement for June 30, 1920 Add: Net excess of receipts over disbursements in June reports subsequently received.. Net debt, including matured interest obligations, etc. 84,141,024.03 70,869,628.84 3,880,485.52 16,756,579.65 217,270,621.96 392,918,340.00 24,690,836,751.53 357,701,682.23 2,245,338.10 359/947,020.33 24,330,889,731.20 2 On basis of cash receipts and repayments by the Treasm-er ofthe United States, and include thrift stamps. 3 The total gross debt June 30, 1920, on the basis of daily Treasmy statements was $24,299,321,467.07 and the net amount of public debt redemptions and receipts in transit, etc., June 30, 1920, was $1,403,055.54. * The unpaid interest due on Liberty loans is estimated in ca.ses where complete reports have not been received. 5 Accrued discount calculated on basis of exact accrual at rate of 4 per cent per annum compounded quarterly, with due allowance for cash redemptions to date. 6 No deduction is made on account of obligations of foreign Governments or other investments. Issues of soldiers' and sailors' civil relief bonds not included in the above: Total issue to June 30," 1920, was 1195,400, of which $600 had been retired. Ul O Pi H > pi O M H W ;> Ul d pi CO CO Detail of outstanding interest-bearing issues as shown above. 00 Authorizing act. Title. Bonds: Consols of 1930.. Loan of 1925.... Rate of interest. Date of issue. Mar. 14, 1900. Jan. 14, 1875.- 2%.. 4%.. Apr. 1, 1900 Feb. 1, 1895 Panama Canal loan of 1916-1936. June 28, 1902, and Dec. 21, 1905.. 2%-- Aug. 1, 1906 Panama Canal loan of 1918-1938. Panama Canal loan of 1961 .do. Aug. 5,1909, Feb. 4,1910, and Mar. 2, 1911. Dec. 23, 1913 June 25, 1910 2%.-. 3%... Nov. 1, 1908 J u n e l , 1911 Conversion bonds Postal Savings bonds (1st to 18th series). First Liberty loan— 3^% bonds of 1932-47 Converted 4% bonds of 193247. Converted 4i% bonds of 193247. Second converted 4i% bonds of 1932-47. Second Liberty loan— 4% bonds of 1927-42 Converted 4i% bonds of 192742. Third Liberty loan— 4i% bonds of 1928 Fourth Liberty loan— 4i% bonds of 1933-38 Notes: Victory Liberty loan— 4i% notes of 1922-23. 31% notes of 1922-23. Certificates of indebtedness: Series T-10 Series TD-1920 Series TM-1921 Series TJ-192i LoanSeries E-1920 Series F-1920 3%-.. 31%. 4%-. June 15, 1917. Nov. 15, 1917. 4i%-. May 9, 1918.. 4i%. Oct. 24, 1918-. Sept. 24, 1917 Sept. 24, 1917, as amended. 4i%- Nov. 15, 1917May 9, 1918... 4i%-. Payable after Apr. 1,1930. Payable after Feb. 1,1925. /Redeemable after Aug. 1, 1916.. \Payable Aug. 1, 1936 /Redeemable after Nov. 1, 1918.. \Payable Nov. 1, 1938 Payable June 1,1961 Interest payable. Jan. 1, Apr. 1, July 1, Oct. 1. Feb. 1, May 1, Aug. 1, Nov. 1. y Do. Do. Mar. 1, June 1, Sept. 1, Dec. 1. Jan. 1, 1916-17 -... Payable 30 years from date of issue... Jan. 1, Apr. 1, July 1, Oct. I. 1 year from date of issue. J a n . 1, July 1. Jan. 1, July 1,1911-20 /Redeemable \Payable 20 years from issue Apr.24, 1917 Apr. 24, 1917; Sept. 24, 1917. Apr. 24, 1917; Sept. 24, 1917, as amended. ....do -do-, When redeemable or payable. .-..do o Redeemable dn or after June 15,1932. June 15, Dec. 15. Payable June 15, 1947 Redeemable on or after Nov. 15,1927. JMay 15, Nov. 15. Payable Nov. 15, 1942 Payable Sept. 15, 1928 Mar. 15, Sept. 15. .do.. 4i%. Oct. 24, 1918.. /Redeemable on or after Oct. 15,1933. JApr. 15, Oct. 15. \Payable Oct. 15, 1938 .do., -do.. 4|%31%. May 20, 1919. do Redeemable June 15 or Dec. 15,1922.. ijune 15, Dec. 15. Payable May 20, 1923 :........ Sept. 15, 1919.. Jan. 2, 1920-..Mar. 15,1920.. June 15, 1920.. Sept. 15, 1920-. Dec. 15, 1920.. Mar. 15, 1921.. June 15, 1921.. Mar: 15, Sept. 15. June 15, Dec. 15. Sept. 15, Mar. 15. Dec. 15, June 15. A p r . l , 1920.. Apr. 15, 1920. J u l y l , 1920.. July 15, 1920, At maturity. Do, Sept. 24, 1917, as amended. do ....do-... -...do Sept. 24, 1917, as amended. ..--dQ tf%.. 4f%-. 5%... o > o fe (72 • Series G-1920. Series H-1920., Series A-1921. Pittman Act Special. War savings securities do... May 17,1920 June 15,1920 Various dates, 1918-19. .do., -do.. .doSept. 24,1917, as amended, and Apr. 23, 1918. Sept. 24, 1917, as amended :. Various... Various dates, 1919 ....do 4%i., Jan. 2, 1918 Jan. 2, 1919 Jan. 2, 1920 3i%-. J u l y l , 1918 Soldiers' and sailors' civil rehef bonds. Mar. 8, 1918. 5i% 5i% 51% 2% Do. Oct. 15, 1920 Do.Nov. 15, 1920.. Do. Jan. 3,1921 One year from date of issue or re- Jan. 1, July 1. newal. At maturity. At maturity [Redeemable on or 10 days after demand. Payable Jan. 1,1923 ; Do. Payable Jan. 1, 1924. [Payable Jan. 1,1925 Mature July 1, 1928; may be called Jan. 1, July 1. 1 year after termination of war. 1 If held to maturity war savings securities yield interest at 4 per cent per annum compounded quarterly for the average period to maturity on the average issue price. Stamps do not bear mterest. Thrift i Securities owned by the United States Government. [Compiled from latest reports received by the Treasury.] June 30,1920. Obligations of foreign Governments, under authority of acts approved Apr, 24,1917, and Sept. 24, 1917, as amended (on basis of cash advances, less repajnnents of principal): Italv $1,631,338,986.99 Belgium $338,735,000.00 Liberia 26,000.00 Cuba 9,500,000.00 Roumania 23,205,819.52 Czechoslovakia 59,524,041.10 Russia 187,729,750.00 France 2,945,330,800.00 Great Britain , 4,212,835,992.01 Serbia 26,780,465.56 Greece 10,000,000.00 Total : Foreign obligations received from the Secretary of War on account of sale of surplus war supplies: Belgium. $4,159,491.96 $27,588,581.14 Lithuania Czechoslovakia.. 20,621,994.54 57,629,731.84 Poland 12,213,377.88 12,913,589.66 Esthonia Roumania 400,000,000.00 406,082.30 France Russia 2,521,869.32 24,978,020.99 Latvia Serbs, Croats, and Slovenes. Total.. Foreign obligations received from the American Relief Administration on account of relief, pm'suant to act approved Feb. 25,1919: Armenia $8,028,412.15 Latvia Czechoslovakia 6,348,653.56 Lithuania Esthonia : 1,785,767.72 Poland Finland 8,281,926.17 Russia Total.. O H W fe H , 445,006,855.18 i Ul 563,032,739.63 $2,610,417.82 822,136.07 51,671,749.36 4,465,465.07 84,014,527.92 CO <:0 C a p i t a l stock of W a r E m e r g e n c y C o r p o r a t i o n s : Capitalstock ofthe Emergency Fleet Corporation. C a p i t a l stock of t h e H o u s i n g Corporation, i s s u e d . . . Less a m o u n t retired CO $50,000,000.00 $70,000,000.00 3,500,000.00 O 66,500,000-,(M) 5, ooo; OOt 8> C a p i t a l stock of t h e Sugar E q u a l i z a t i o n B o a r d C a p i t a l s t o c k of t h e U n i t e d S t a t e s G r a i n Corporation, a u t h o r i z e d a n d issued.Less a m o u n t r e t i r e d $500,000,000.00 350,000,000.00 C a p i t a l s t o c k of t h e W a r F i n a n c e Corporation, a u t h o r i z e d a n d issued Less c a s h deposited w i t h t h e T r e a s u r e r U . S, to credit of W a r F i n a n c e Corporation. $500,000,000.00 380,917,623.43 150,000,000.00 Obligations of carriers a c q u i r e d u n d e r section 7 o f t h e F e d e r a l c o n t r o l act, a p p r o v e d M a r c h 21,1918