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ANNUAL REPORT OF THE
SECRETARY OF THE TREASURY
ON

THE STATE OF THE

FINANCES
FOR THE FISCAL YEAR
ENDED JUNE 30

1926
IVith Appendices

WASHINGTON
GOVERNMENT PRINTING OFFICE
1927

ecu
TREASURY DEPARTMENT

D o c u m e n t No. 2971
Secretary

^50

CONTENTS
Page

Introduction
1
Recommendations for legislation
5-17
Taxation
.
...
.
5
Extension of the Federal reserve ba.nk charters
10
Banking legislation
'
12
Disposition of sequestrated German property and payment of mixed
claims
15
Receipts
. . 18-26
Trend in receipts
19
The revenue act of 1926
..
21
Txix reduction
24
Expenditures
26-34
Total expenditures..
27
Functional distribution
.
28
Prospect of reduction...
33
The surplus
...1
.
.
....
34
The public debt
.....
38-46
Sunimary of transactions since July 1, 1925
38
3M per cent Treasury bonds of 1946-1956
........
.
40
Treasury certificates of indebtedness and Treasury notes
41
Purchase of third 434's for the sinking fund
.
.....
42
Review of the last seven years.
.
.i
.;
43
Treasury financing and the credit situation
.
46-55
Short-term
financing.
___.
.__
46
Long-term
financing..
i__.
53
Obligations of foreign governments.__._.
•
55
World War Foreign Debt Commission..
57-79
Summa;ry of activities
.
,
57
Negotiations with the several countries..
.
._._ J...
.
73.
Armenia
.
-73
Austria
..
; ..._._
...
:
74
Belgium
...
.
. .
. • 74
Czechoslovakia
1
...
74
Estonia
_
._._.
74
France
'.
74
Greece__ - .
'.i-.
.
75
Italy—-I................
76
.Latvia.....
1__ _ _ . _ . _ . . . . . .
:..
76
Liberia
.
...
77
Nicaragua
.
77
Rumania
..
77
Russia
78
Yugoslavia
....
78
The currency...
..
t
79-97
The composition of United States currency
... .
79
Improvements in the supply of paper currency
81
. Gold
.
....
.....
.
...
84
Silver
_.__.....
...
..
95
Funds administered by the Treasury
..
;
98-105
Adjusted service certificate fund
.
^_^____
98
District of Columbia teachers' retirement fund
^
.
99
United States Government life insurance fund
100
Civil service retirement and disability fund
101
Foreign service retirement and disability fund
._
103
Library of Congress trust fund
104

/(b9 3

III

CONTENTS
"

•

Page

Other financial operations
105-137
Federal farm loan system
_.
105
Federal land banks
.
105
Joint-stock land banks..
106
Federal intermediate credit banks
106
General
....
107
Federal reserve banks as fiscal agents of the United States
109
Depositaries of Government funds
118
Customs
120
Bureau of Internal Revenue
^
124
Checking accounts of Government corporations and agencies
128
War Finance Corporation
.
129
Railroads
^
130
Section 204
....
131
Section 209
131
Section 210.
.
.
132
Director General of Railroads
133
Securities owned by the United States Government
.
134
Surety bonds
.
135
Miscehaneous functions
. . . . 137-167
Activities for prohibition law enforcement
., 137
Prohibition Unit reorganization and policy
138
Legislation.
.
143
Narcotic law enforcement
.
144
The Coast Guard
.
1
144
Public Health Service
146
Public buildings
-_._,_
154
Bureau of Supply
160
Purchases and issues
160
General Supply Committee
162
Bureau of Engraving and Printing
.
165
Administration and organization
168-172
Changes in Treasury organization
168
Budget and Improvement Committee
168
Enrollment and disbarment of attorneys and agents
169
Personnel
170
Number. .
.
170
Classification
170
Retirement of civil service employees
171
Finance tables
172-179
Condition ofthe Treasury, June 30, 1926
172
Receipts and expenditures on the basis of daily Treasury statements
(unrevised)
175
Receipts and expenditures for the fiscal years 1925 and 1926, and
estimated receipts and expenditures for the fiscal years 1927 and
1928, on the basis of daily Treasury statements (unrevised)
176
Pubhc debt expenditures and receipts for the fiscal year 1926 and
estimates for the fiscal years 1927 and 1928, on the basis of daily
Treasury statements (unrevised)
179
EXHIBITS
THE PUBLIC DEBT

Description of and regulations concerning public debt
Exhibit 1. Brief description of Liberty bonds and Treasury bonds
Exhibit 2. Brief description of Treasury notes, certificates of indebtedness,
Treasury savings certificates, and war-savings certificates
....
Exhibit 3. Department Circular No. 368. General regulations governing
full-paid interim certificates
1
......
Exhibit 4. Fourth supplement to Department Circular No. 225. Receipt
. of Liberty bonds. Treasury bonds, and Treasury nt)tes for estate or
inheritance taxes

183
184
186
193

CONTENTS

Offerings
Page

Exhibit 5. Department Circular No. 367, offering for subscription 3 ^
per cent Treasury bonds of 1946-56
Exhibit 6. Department Circular No. 364, offeririg for subscription S%
per cent Treasury certificates of indebtedness, series. TD-1926
Exhibit 7. Department Circular No. 370, offering for subscription 3H
per cent Treasury certificates of indebtedness, series TJ-1927

194
196
198

Purchases for cumulative sinking fund .
Exhibit 8. Department Circular No. 363. Purchase of third Liberty loan
434 per cent bonds for the cumulative sinking fund
Exhibit 9. Department Circular No. 366. Purchase of third Liberty loan
434 per cent bonds for the cumulative sinking fund

199
201

Redemptions of Treasury savings and ivar-savings certificates
Exhibit 10. Department Circular No. 361. Redemption of Treasury savings certificates, series of 1921, dated January 3, 1921
Exhibit 11. Department Circular No. 362. Redemption of war-savings
certificates, series of 1921

203
204

OBLIGATIONS OF FOREIGN GOVERNMENTS

Countries with settlements ratified since November 16, 1925
Exhibit 12. Statement by Secretary Mellon before the Ways and Means
Committee concerning the settlements of the indebtedness of Belgium,
Czechoslovakia, Estonia, Italy, Latvia, and Rumania
.
206
Exhibit 13. Press statement by Secretary Mellon comparing the debt settlements made by Italy with Great Britain and the United States
213
Exhibit 14. Letter from Secretary Mellon to the President calling atten- «
tion to some practical factors involved in the settlement of the indebtedness of Italy
.
1
.
214
Exhibit 15. Press statement by Secretary Mellon commenting upon the
prospect for the approval of the Italian debt settlement in the Senate..
216
Exhibit 16. An act to authorize the settlement of the indebtedness of
Italy to the United States
216
Exhibit 17. Statement of amounts payable to the United States on account of the proposed refunding bonds to be issued by Italy
218
Exhibit 18. An act to authorize the settlement of the indebtedness of
Belgium to the United States
.
219
Exhibit 19. An act to authorize the settlement of the indebtedness of
Estonia to the United States
•.
220
Exhibit 20. Statement of amounts payable to the United States on account
of the proposed refunding bonds to be issued by Estonia
222
Exhibit 21. An act to authorize the settlement of the indebtedness of
Latvia to the United States
223
Exhibit 22. Statement of amounts payable to the United States on account
of the proposed refunding bonds to be issued by Latvia
.
224
Exhibit 23. Agreement for the funding of the indebtedness of Rumania to
the United States
.
225
Exhibit 24. Press statement by the World War Foreign Debt Commission
giving the terms of the agreement for the settlement of the indebtedness
of Rumania to the United States
230
Exhibit 25. An act to authorize the settlement of the indebtedness of
Rumania to the United States
231
Exhibit 26. Statement of amounts payable to the United States on account of the proposed refunding bonds to be issued by Rumania
232
Exhibit 2,7. An act to authorize the settlement of the indebtedness of
Czechoslovakia to the United States
234
Exhibit 28. Statement of amounts payable to the United States on account of the proposed refunding bonds to be issued by Czechoslovakia..
235

CONTENTS
Countries with unratified agreem.enis

• '

l-age

Exhibit 29. Agreement for the funding of the indebtedness of France to
the United States
.
.
,
.
Exhibit 30. Press statement by the World War Foreign Debt Commission giving the terms of the agreement for the settlement of the indebtedness of France to the United S t a t e s . . . . .
.
Exhibit 31. Statement of amounts payable to the United States bn account of the proposed refunding bonds to be issued by France
Exhibit 32. Press statement by Secretary Mehon concerning the BritishFrench and the American-French debt settlements
Exhibit 33. Agreement for the funding of the indebtedness of the Kingdom of the Serbs, Croats, and Slovenes to the United States
Exhibit 34. Press statement of the World War Foreign Debt Commission
giving the terms of the agreement for the settlement of the indebtedness of the Kingdom of the Serbs, Croats, and Slovenes to the United
States.....
.
.
Exhibit 35. Statement of amounts payable to the United States on account of the proposed refunding bonds to be issued by the Kingdom of
the Serbs, Croats, and Slovenes
.
Exhibit 36. Statement by Secretary Mellon, before the Ways and Means
Committee concerning the settlements of the indebtedness of. France
and the Kingdom of the Serbs, Croats, and Slovenes

236
241
242
243
244

249
250
251

Miscellaneous
Exhibit 37. Total amounts to be received by the Treasury on account of
principal and interest under the debt settlements made with foreign
governments
.
.
.
Exhibit 38. Press statement of the British account with the United States
in connection with war loans
Exhibit 39. Speech of Secretary Mellon before the Union League Club at
Philadelphia on March 24, 1926, concerning the fiscal restoration of
Europe
.
.
Exhibit 40. Letter from Secretary Mellon replying to Mr. Frederick W.
Peabody's letter urging cancellation of the so-called war debts

255
256
256
259

RAILROADS

Exhibit 41. Summary of the liquidation of the Government's liabifity
growing out of Federal control
:
.
Exhibit 42. Appointment of Andrew W. Mehon as Director Genera] of
Railroads
:
.
Exhibit 43. Designating arid appointing Andrew W. Mehon, Director General of Railroads, and his successor in office as the agent provided for in
section 206 of the act of Congress, approved February 28, 1920
...

263
264
265

DISPOSITION OF GERMAN PROPERTY HELD BY THE ALIEN PROPERTY
CUSTODIAN AND THE SETTLEMENT OF MIXED CLAIMS

Exhibit 44. Press statement by Acting Secretary of the Treasury Winston
giving the Treasury plan for the disposition of German property held by
the AUen Property Custodian and the settlement of mixed claims
._
Exhibit 45. Letter from Secretary Mehon to the President of the Senate
in response to Senate Resolution 199, concerning alien property
Exhibit 46. Press statement by Secretary Mellon concerning factors in the
settlement of German property held by the Ahen Property Custodian
and the payment of mixed claims
Exhibit. 47. Reply of Secretary Mellon to Representative Ohver's suggestion of a substitute for the plan proposed by the Treasury for the disposition of German property held by the Alien Property Custodian and
the payment of mixed claims
_-

266
269
272

273

CONTENTS

VII

MISCELLANEOUS'
•Pase

Exhibit 48. Address of Undersecretary of the Treasury Winston before the
fifty-second annual convention of the American Bankers' Association
at Los Angeles oh October 6, 1926,'on the public diebt of the United
States
:
^
Exhibit 49. Address.by Undersecretary of the Treasury Winston before the
Bankers'. Club of Kansas City, October 11, 1926, on currency stabihzation in Europe
Exhibit 50." Press statement by.Secretary Mellon on the tariff question..
Exhibit 51. Summary of principal changes in taxes and tax rates in the
revenue act of 1926
Exhibit 52. Individual income tax: Surtax rates, 1913 law-192& law
Exhibit 53. Bases of statements showing Government receipts and
expenditures
.
...
Exhibit 54. Department Circular No. 154, revised. Acceptance of United
States bonds and notes as security in lieu of suretv or sureties on penal
bonds
.
1
.._.-.Exhibit 55. An outline of the duties of the Secretary of the Treasury and
the various offices and bureaus in the.Treasury Department._...

274
280
285
291
294
296
298
309

ABSTRACTS OF REPORTS OF BUREAUS AND DIVISIONS
Treasurer of the United States...
• ......
..
;
333
Comptroller of the Currency
.
:
.
.-_ 336-346
National banks organized, consolidated, insolvent, in voluntary
liquidation, and in active operation..
..
336
Condition of national banks
.
..
339
Banks other than national
;
341
All reporting banks
l
342
Director of the M i n t . . . .
.
. . . 346-350
Institutions of the mint service
. 346
Coinage . . .
...
.
346
Gold operations
....
^
...
347
Silver operations
..
347
Refineries
.
347
Commemorative coins
348
Stock of coin and monetary bullion in the United States
348
Production of gold and silver.
.
'.
348
Industrial consumption of gold and silver
.
349
Import and export of domestic gold coin
...
349
Appropriations, expenses, and income
;
349
Deposits of gold and silver, income, expenses, and employees, by
institutions, fiscal year 1926
.
350
Bureau of Internal Revenue
.
350-362
Receipts from internal-revenue taxes
.
350
Cost of administration
' 351
Income Tax Unit
.
352
Revenue agents' reports
352
Adjustment of claims
352
Additional revenue
353
Personnel
...
353
Miscellaneous Unit
354
Capital stock tax
.
354
Estate tax
.
....
354
Miscellaneous taxes
i..
355
Tobacco taxes
.
355
Accounts and Collections Unit
356
General counsel
..
357
Appeals division
^'
357
Interpretative division I
:
.
358
Interpretative division II
358
Civil division
..
359
Penal division
•'.
359
Prohibition U n i t . . . .
.___
360
Bureau and field personnel . . .
«
362

VIII

CONTENTS
Page

Division of Bookkeeping and Warrants.
363-367
Summary of receipts and expenditures
363
The general fund
363
Warrants issued during the fiscal year 1926 adjusted to basis of daily
Treasury statements (revised)
1
364
District of Columbia a-ccount of revenues and expenditures
365
Ahen Property Custodian account
366
Purchase of farm loan bonds
:
366
State bonds and stocks owned by the United States
__...!
366
Bureau of Engraving and Printing
.
367
Customs Service
. . . 369-371
Volume of business
.
369
Receipts
370
Expenditures and statistics
^
^
370
Enforcement activities
371
Seizures
v
'.
371
Special Agency Service, Customs
.
,372
Office of the Supervising Architect
373-377
Building operations during the fiscal year 1926
373
Projects completed
375
Projects in course of construction
...
375
Expenditures, contract liabilities charged against appropriations, and
unencumbered balances
377
Pubhc Health Service
.
....
377-386
ScientifiiC research
,
377
Division of domestic quarantine
•
380
Division of foreign and insular quarantine and immigration
380
Division of sanitary reports and statistics
.
382
Division of marine hospitals and relief.
383
Division of venereal diseases....
.
383
Division of personnel and accounts
.
385
Financial statement
386
Coast Guard
..
.
387-398
Summary of principal operations
387
Ice patrol to promote safety at sea
388
Winter cruising
1
388
. Cruises in northern waters
389
Northern Pacific hahbut
fishery
389
Anchorage and movements of vessels
.
390
Removal of derehcts
390
Regattas
1 390
Communications
:
.
390
Aviation
.
.
391
Ordnance
..."
392
Welfare
.
392
Recruiting..
.
392
Coast Guard Academy
393
Coast Guard repair depot
394
Repairs and improvements to vessels and stations
394
Enforcement of customs and other laws
I
.
395
Award of life-saving medals
..
396
Personnel
396
Floating equipment
.
.
..
396
Miscellaneous
_.
397
Division of Loans and Currency
.
398-405
Summary of activities
399
Issue and retirement of securities
400
Maintenance of individual registered accounts
401
Issue of interest checks
.
401
Claims
401
Safe-keeping of securities
401
Pubhcity
._
402
Destruction committee
402
Circulation
..
404
Register of the Treasury
.
.
..
406
Division of Pubhc Debt Accounts and Audit
.
..
408
Division of Paper Custody
.
.
410

CONTENTS

IX
Page

'Division of Deposits
..
;
410-413
N u m b e r of depositaries a n d a m o u n t of deposits . 1
..
411
General national-bank depositaries of public moneys
.
.
411
Limited national-bank depositaries of public moneys
412
Insular depositaries of public moneys
...i
..
412
Special depositaries of public moneys
.
.
412
Foreign depositaries of p u b h c m o n e y s . . .
412
Secret Service Division
..
413
Division of Printing
.
.
414-415
Printing a n d binding
. ..
i.
414
Postage
.
A 415
D e p a r t m e n t advertising
.
...:,
._
.
415
Disbursing Clerk
.
415
Bureau of Supply
.
416-425
Expenditures b y fiscal years 1923 t o 1926, b y appropriations
...
417
Purchases a n d issues of stationery supphes
.
.
419
General Supply Committee
.___
422
TABLES
RECEIPTS AND EXPENDITURES

General tables

T A B L E 1. Comparison of receipts for t h e fiscal years 1926 and 1925, on t h e
basis of warrants issued
.'
"
T A B L E 2. Comparison of expenditures for t h e fiscal years 1926 and 1925, on
t h e basis of warrants issued.
T A B L E 3. Ordinary receipts, a n d expenditures chargeable against ordinary
receipts, together with the,surplus or deficits, b y fiscal years from 1916
to 1926, on t h e basis of daily Treasury statements (unrevised)
T A B L E 4. Ordinary receipts, a n d expenditures chargeable against ordinarj'receipts, b y fiscal years from April 6, 1917, t o J u n e 30, 1921, a n d by
m o n t h s from July 1, 1921, t o October 31, 1926, on t h e basis of daily
Treasury statements (unrevised)
_.^
T A B L E 5. Receipts and expenditures of t h e Government for t h e fiscal years
1916 t o 1926, on t h e basis of daily Treasury s t a t e m e n t s (unrevised)
T A B L E 6. Expenditures of t h e Government, by m o n t h s , for t h e fiscal year
1926, classified according t o d e p a r t m e n t s a n d establishments, on t h e
basis of daily Treasury statements (unrevised)
T A B L E 7. Receipts and expenditures of t h e Government by fiscal years from
1791 t o 1926, on t h e basis of warrants issued

429
434
443

444
448
452
456

Special receipts and expenditures
T A B L E 8. Postal receipts a n d expenditures for t h e fiscal years 1791 t o 1926,
on t h e basis of reports of t h e Post Office D e p a r t m e n t
468
T A B L E 9. P a n a m a Canal receipts a n d expenditures for t h e fiscal years 1903
to 1926, on t h e basis of warrants issued
470
T A B L E 10. Sources of internal revenue for t h e fiscal years 1863 to 1926, on
t h e basis of reports of collections
471
T A B L E 11. Internal-revenue receipts, by States a,nd Territories, for t h e
fiscal years 1925 and 1926, on t h e basis of reports of collections
477
T A B L E 12. Merchandise imported a n d customs duties collected from 1890
to 1925, and recapitulation from 1867 t o 1925
.
479
T A B L E 13. Customs statistics, by districts, for t h e fiscal year 1926, on t h e
basis of reports of collections
485
T A B L E 14. Interest cohected b y ^ s c a l years, from J u n e 1, 1913, t o J u n e 30,
1926, on deposits of Government funds with national-bank, insular,
and foreign depositaries
.
488
T A B L E 15. Interest collected t o J u n e 30, 1926, by Federal reserve districts, .
on deposits in special depositaries on account of sales of Liberty bonds.
Victory notes, Treasury notes, a n d certificates of indebtedness, a n d
income a n d profits t a x p a y m e n t s , under acts of April 24, 1917, September 24, 1917, April 4, 1918, July 9, 1918, September 24, 1918, a n d March
3, 1919
488
11439—FI 1926

.X-

CONTENTS

' •

Estimates of receipts and appropriations
X

T A B L E 16. Estimated receipts for t h e fiscal years 1928 and 1927, a n d actual receipts for t h e fiscal year 1 9 2 6 . _ _ _ . .
:
T A B L E 17. Estimated receipts from customs, interrial revenue classified according t o source, a n d miscellaneous receipts classified according t o
departments and estabhshments for t h e fiscal years 1928 a n d 1927
T A B L E 1 8 . Estimates of appropriations for 1928 compared with appropriations for 1927
--.......
T A B L E ' 1 9 . Appropriations made by Congress for t h e fiscal years 1914 t o
1927, including estimated permanent a n d indefinite appropriations a n d
deficiencies for prior years
T A B L E 20. Appropriations, expenditures, a m o u n t s carried to surplus fund,
and unexpended balances for t h e fiscal years 1885 t o 1926

Page

489
490
491
493
496

CONDITION OF T H E TREASURY

T A B L E 2 1 . Condition of t h e United States Treasury a t t h e close of t h e
fiscal years 1926, 1925, a n d 1924, on t h e basis of daily Treasury s t a t e ments (revised)
.
THE PUBLIC

498

DEBT

Public debt outstanding
T A B L E 22. S t a t e m e n t of t h e p u b h c d e b t of t h e United States, J u n e 30,
1926
.
..__
.
....
T A B L E 23. P u b h c debt of t h e United States outstanding J u n e 30, 1 9 2 6 . .
T A B L E 24. Principal of t h e pubhc debt a t t h e end of each fiscal year, from
1853,to 1926, exclusive of gold certificates, silver certificates, currency
certificates, and Treasury notes of 1 8 9 0 . . T A B L E 25. Preliminary s t a t e m e n t of t h e public debt, October 3 1 , 1926
T A B L E 26. Treasury notes a n d certificates of indebtedness which m a t u r e d
during, t h e fiscal year 1926, outstanding June, 30, 1926, classified b y
issues a n d denominations
.,
:
^
T A B L E 27. Interest-bearing United States bonds, notes, arid certificates of
indebtedness outstanding J u n e 30, 1926, classified by issues a n d denominations
^
...
T A B L E . 28. U n m a t u r e d Liberty bonds. Treasury bonds, a n d Victory notes
outstanding from, June.30, 1919, t o August 3 1 , 1926, classified by denomination a n d form
...
.
..
T A B L E 29. United States interest-bearing debt outstanding a t t h e end of
each m o n t h from F e b r u a r y 28, 1917, t o August 3 1 , 1 9 2 6 . . .

500
502
510
511
512
513
516
518

Transactions i n the public debt
T A B L E 30. S u m m a r y s t a t e m e n t of, transactions in interest-bearing a n d
noninterest-bearing United States securities for t h e fiscal year ended
J u n e 30, 1926
.
.
..
.
.
T A B L E 3 1 . Interest-bearing United States bonds, notes, a n d certificates of
indebtedness issued during t h e fiscal year ended J u n e 30, 1926, classified
by issues a n d accounts
^
T A B L E 32. Treasury bonds a n d certificates of indebtedness issued through
each Federal reserve bank a,nd t h e Treasury D e p a r t m e n t during t h e
fiscal year ended J u n e 30, 1926____...
----T A B L E 33. Interest-bearing United States bonds, notes, a n d certificates of
indebtedness retired during t h e fiscal year ended J u n e 30,1926, classified
by issues a n d a c c o u n t s . .
.
.
T A B L E 34. S u m m a r y of transactions in interest-bearing Uriited States securities for t h e fiscal year ended J u n e 30, 1926
.
:
T A B L E 35. Transactions in interest-bearing pre-war bonds during t h e fiscalyear ended J u n e 30, 1926
.
.
.
....
T A B L E 36. Transactions in interest-bearing Liberty bonds arid Treasury
bonds during t h e fiscal year ended J u n e 30, 1926
T A B L E 37. Transactions in interest-bearing Treasury notes during t h e
'fiscal year iended J u n e 30, 1926
^_.
;
..
T A B L E 38. Transactions in interest-bearing certificates of indebtedness during t h e fiscal year ended J u n e 3 0 , 1 9 2 6
.
.

522
526
528
529
531
533
534
536
537

CONTENTS

Page

TABLE 39. Transactions in Treasury (war) savings securities during the
fiscal year ended June 30, 1926.
.
TABLE 40. Transactions in interest-bearing and noninterest-bearing United
States securities during the fiscal year 1926, classified by issues
TABLE 41. Interest-bearing United States securities outstanding June 30,
1926, and transactions in such securities from date of inception, showing
reconciliation of account of the Treasurer of the United States with
security account
TABLE 42. Transactions in the public debt of the United States for the
period July 1, 1917, to June.30, 1926
TABLE 43. Public debt retirements chargeable against ordinary receipts for
the .fiscal year 1926, and cumulative totals on June 30, 1925 and 1926..
TABLE 44. Public debt retirements for the fiscal years 1918 to 1926, on the
basis of daily Treasury statements (revised)
TABLE 45. Sources of debt increase an'd decrease for the fiscal years 1916 to
1926, on the basis of daily Treasury statements (unrevised)

538
540

545
548
551
554
560

Interest on the public debt
TABLE 46. Interest on the public debt ofthe United States payable, paid,
and outstanding unpaid, for the fiscal year 1926

561

Miscellaneous
TABLE 47. Registered interest-bearing bonds outstanding and number of
registered accounts, June 30, 1926, classified by issues, and amount of
interest payable, and number of checks drawn during the fiscal year
ended June 30, 1926
...
TABLE 48. Stock accountability of the Division of Loans and Currency for
United States and other securities for the fiscal year ended June 30,1926.
TABLE 49. Stock accountability of Federal reserve banks and other
Treasury agencies (exclusive of the Division of Loans and Currency) for
United States securities for the fiscal year ended June 30, 1926
TABLE 50. Retired and unissued United States securities on hand June 30,
1925, not previously reported (belonging to previous fiscal years and
delivered to the Register of the Treasury during the fiscal year ended
June 30, 1926)
.....

562
563
568

572

INSULAR AND DISTRICT OF COLUMBIA LOANS

TABLE 51. Insular and District of Columbia loans, changes during the
fiscal year ended June 30, 1926
TABLE 52. Insular and District of Columbia securities, retired and unissued, delivered to the Register of the Treasury during the fiscal year
ended June 30, 1926
.
.

572
574

SECURITIES OWNED BY THE UNITED STATES GOVERNMENT

TABLE 53. Securities owned by the United States Government, June 30,
1926

576

F O R E I G N OBLIGATIONS

TABLE 54. Principal amount of obligations of foreign governments originally acquired under the acts of Congress rrientioned and payments on
account of principal thereof; the funded indebtedness with payments on
account of principal thereof and the net principal outstanding as of
November 15, 1926; the accrued and unpaid interest on all such indebtedness as of the last interest period prior to or ending with November 15, 1926; and the total indebtedness as of November 15, 1 9 2 6 . . . . .
TABLE 55. Payments made by foreign governments on account of interest
on obligations held by the Treasuryl

579
580

RAILROADS

IABLE 56. Payments to carriers from November 1, 1925, to October 31,
1926, inclusive, provided for in section 204 of the transportation act of
1920, as amended, for reimbursement of deficits on account of Federal
control

581

XII

CONTENTS
Page

T A B L E 57. P a y m e n t s to carriers from N o v e m b e r 1, 1925, to October 3 1 ,
1926, inclusive, under t h e g u a r a n t y provided for in section 209 of t h e
transportation a c t of 1920, as amended, a n d p a y m e n t s by carriers to
the United States under t h e same section
T A B L E 58. Loans to carriers under section 210 of t h e transportation a c t
of 1920, as amended, and r e p a y m e n t s on such loans from November 1,
1925, to October 3 1 , 1926, inclusive, with loans outstanding October 3 1 ,
1925, a n d October 3 1 , 1926

581

582

DISTRIBUTION OF MONEY

T A B L E 59. Stock of money i n , t h e United States, classified by kind, a t t h e
end of each fiscal year from 1860 to 1 8 8 9 . . .
^...
.
T A B L E 60. Stock of money in t h e United States, classified by kind, a t t h e
end of each fiscal year from 1890 to 1926
T A B L E 6 1 . Stock of money, money in circulation, a n d a m o u n t of circulation per capita in t h e United States from 1860 to 1926

584
585
586

PERSONNEL

T A B L E 62. N u m b e r of employees, in t h e d e p a r t m e n t a l service of^ t h e
Treasury in Washington, by m o n t h s , from J u n e 30, 1925, to September
30, 1926
.._^.

588

A P P E N D I X TO R E P O R T ON T H E F I N A N C E S
R E P O R T OF T H E T R E A S U R E R :

Receipts a n d expenditures for 1925 and 1926
:.
P a y w a r r a n t transactions
..
.
Cohection items
__:
Panama C a n a l . . . . i
.
^
Receipts a n d expenditures on account of t h e Post Office D e p a r t m e n t .
Transactions in t h e public debt
Public debt retirements chargeable, against ordinary receipts
P a y m e n t of interest on registered bonds of t h e United States
Net earnings derived from Federal reserve banks
Redemption of United States notes in gold
Reserve and t r u s t funds
:
;
Stale of t h e Treasury, general fund—Cash in t h e vaults
Net available cash balance, 1915 to 19261
Gold in t h e Treasury
.
Securities held in t r u s t
Bonds held as security for postal-savings funds
Bonds a n d other obligations held in special t r u s t funds
Postal-savings bonds and investments therein
•.•—
Withdrawal of bonds to secure circulation
.
Lawful mdney deposits for retirement of bank circulation
,
Depositaries of t h e United States
Public moneys in depositary banks
--Restoration of depositary balances
United States paper currency issued a n d redeemed
United States paper currency issued fiscal years 1925 and 1926
United States paper currency redeemed fiscal years 1925 and 1 9 2 6 . .
United States paper currency prepared for issue a n d a m o u n t issued..
Pieces of United States paper currency outstanding 1925 a n d 1 9 2 6 - .
P a p e r currency outstanding, for fiscal years 1925 and 1926
_
Paper currency held in t h e reserve vault
Ratio of small denominations to all paper currency
Interest on public moneys held in depositary banks
Gold fund. Federal Reserve Board
-_Metallic stock of money in t h e United States
.
Issue, exchange, a n d redemption of money
Redemption of Federal reserve and national currency
..
Shipments of currency from Washington, 1925'and 1926
_
Deposits of gold bullion a t mints a n d assay offices, 1924-1926
District of Columbia sinking fund
Recoinage, 1925 a n d 1926
General account of t h e Treasurer of t h e United States
.

591
593
593
594
594
595
596
596
596
597
597
597
598
598
599
600
600
603
603
603
603
604
604
604
605
6.06
606
607
607
609
609
609
610
610
611
615
616
616
617
617
617

CONTENTS

XIII

Tables accompanying the report of the Treasurer
Page

T A B L E 1.—General distribution of t h e assets and liabilities of t h e Treasury,
J u n e 30, 1926.
.
T A B L E 2.—Available assets and liabilities of t h e Treasury a t t h e close of
June, 1925 and 1926
T A B L E 3.—Distribution of t h e General Treasury balance, J u n e 30, 1926.
T A B L E 4.—Assets of t h e Treasury other t h a n gold, silver, notes, and cer•tificates a t t h e end of each m o n t h , from July, 1923
^
T A B L E 5.—Assets of t h e Treasury a t the end of each m o n t h , from July,
1923T A B L E 6.—Liabhities of the Treasury a t t h e end of each m o n t h , from
July, 1923
.
---^
T A B L E 7.—United States notes of each denomination issued, redeemed, and
outstanding a t the close of the fiscal years, 1923, 1924, 1925, a n d 1926.
T A B L E 8.—Treasury notes of 1890 of each denomination redeemed and outstanding a t the close of t h e fiscal years 1923, 1924, 1925, a n d 1 9 2 6 . . .
T A B L E 9.—Gold certificates of each denomination issued, redeemed, and
o u t s t a n d i n g a t t h e close of t h e fiscal years 1923, 1924, 1925, a n d 1926.
T A B L E 10.—Silver certificates of each denomination issued, redeemed, and
outstanding a t the close of t h e fiscal years 1923, 1924, 1925, a n d 1926.
T A B L E 11.—Amount of United States notes. Treasury notes, gold a n d
silver certificates of each denomination issued, redeemed, a n d o u t standing a t the close of each fiscal year, from 1923
T A B L E 12.—Old demand notes of each denomination issued, redeemed,
and o u t s t a n d i n g June 30, 1926
.
._._
T A B L E 13.—Fractional currenc}^ of each denomination issued, redeemed,
and outstanding June 30, 1926
T A B L E 14.—Compound-interest notes of each denomination issued, redeemed, a n d outstanding June 30, 1926
T A B L E 15.—One and two year notes of each denomination issued, redeemed, and outstanding June 30, 1926
....
T A B L E 16.—Seven-thirty notes redeemed and outstanding J u n e 30, 1926.
T A B L E 17.—Refunding certificates, act of Februarj^ 26, 1879, redeemed and
o u t s t a n d i n g June 30, 1926
...
T A B L E 18.—Federal reserve a n d national banks designated depositaries of
public moneys, with the balance held J u n e 30, 1926
.
T A B L E 19.—Number of b a n k s with semiannual d u t y levied, b y fiscal years,
and n u m b e r of depositaries with bonds as security a t close of each fiscal
year from 1915
.
T A B L E 20.—Checks issued by t h e Treasurer for interest on registered
bonds during the fiscal year 1926
T A B L E 21.—Interest on 3.65 per cent bonds of t h e District of Columbia
paid during the fiscal year 1926
T A B L E 22.—Coupons from United States bonds, certificates, and notes
paid during t h e fiscal year 1926, classified b y .loans
T A B L E 23.—Checks drawn by t h e Secretary and paid b}^ t h e Treasurer
for interest on registered bonds and notes of the United States during
t h e fiscal year 1 9 2 6 . . .
T A B L E 24.—Coupon interest on United States bonds paid by check during
fiscal year 1926
.......
T A B L E 25.—Money deposited in t h e Treasury each m o n t h of t h e fiscal year
1926 for t h e redemption of national-bank notes
.
T A B L E 26.—Amount of currency counted into t h e cash of t h e National
Bank Redemption Agenc}^ and redeemed notes delivered by fiscal
years from 1917 to 1925, and by m o n t h s during t h e fiscal year 1926
T A B L E 27.—Currency received for redemption by t h e National Bank
Redemption Agency from t h e principal cities and other places, by
fiscal years from 1917, in thousands of dollars
T A B L E 28.—Mode of p a y m e n t for currency redeemed a t t h e National
Bank Redemption Agency, by fiscal years, from 1917
^._
T A B L E 29.—Deposits, redemptions, assessments for expenses, and t r a n s fers and r e p a y m e n t s on account of t h e 5 per cent redemption fund of
national and Federal reserve banks, by fiscal years, from 1917
T A B L E 30.—Deposits and redemptions on account of t h e retirement of
circulation, by fiscal years, from 1917
T A B L E 31.—Expenses incurred in t h e redemption of national and Federal
reserve currency, b y fiscal 3^ears, from 1917

619
620
621
621
622
622
623
624
625
626
627
628
628
628
628
629
629
629
631
632
632
633
634
634
634
635
636
636
636
637
637

XIV

( ONTENTS

Psge
T A B L E 32.—Amount of national bank notes redeemed and assorted during
t h e fiscal year 1926, a n d t h e assessment for expenses of redemption
638
T A B L E 33.—Amount and n u m b e r of pieces of Federal reserve notes and
Federal reserve bank notes redeemed during t h e fiscal year 1926, a n d t h e
assessment for expenses of redeniption
639
T A B L E '34.—General cash account of t h e National Bank Redemption
Agency for t h e fiscal year 1926, and from July 1, 1 8 7 4 . .
6^
T A B L E 35.—Average a m o u n t of national-bank notes outstanding and t h e
redemption, by fiscal years, from 1875 (the first yesiv of t h e a g e n c y ) . . .
641
T A B L E 36.—Federal reserve notes, canceled and uncanceled, forwarded by
Federal reserve banks and branches, counted and delivered to t h e
Comptroller of t h e Currenc}!" for credit of Federal reserve agents
641
T A B L E 37.—Number of notes of each kind of currency and denomination
redeemed and delivered by t h e National Bank Redemption Agency during t h e fiscal 5^ear 1926
.
.'...__
642
T A B L E 38.—Amount of money outside of t h e Treasury, t h e a m o u n t held
by Federal reserve banks and agents, a n d the a m o u n t in circulation, etc.,
on t h e first day of each m o n t h from Jul}^, 1924
644
T A B L E 39.—Total a m o u n t expended on account of t h e P a n a m a Canal, t h e '
receipts from tolls, etc., a n d t h e proceeds of sales of bonds to t h e close
of t h e fiscal year 1926
.
644
R E P O R T OF T H E D I R E C T O R OF THE

MINT:

Operations of t h e mints and assa}^ offices
Institutions of t h e m i n t service . . .
Coinage
Gold operations
•
.
Silver operations
Refineries
.
Improvements
^.
....
Commemorative coins
Stock of coin and m o n e t a r y bullion in t h e United States
. Production of gold and silver
.
Industrial consumption of gold and silver
._
I m p o r t and export of domestic gold coin
.
Appropriations, expenses, and income
:
Deposits of gold and silver, income, expenses, and employees, by institutions, fiscal year 1926
Coinage..
.
:.
......
Issue of fine gold bars for gold coin and gold bullion
'
Receipts and disbursements of gold bullion and balances on h a n d . . . .
Purchase of minor coinage m e t a l for use in domestic coinage
Minor coin distribution costs
'
Minor coins outstanding
.
..
•Operations of t h e assay d e p a r t m e n t . _ _ _ _
Operations of t h e melting and refining and of t h e coining departments,
fiscal year 1926
.
._
Refining operations
.....1
Ingot melts m a d e
Fineness of melts for gold and silver ingots
Commercial and certificate bars m a n u f a c t u r e d . . .
:..._
Bullion gains and losses
:
Wastage and loss on sales of sweeps
Engraving d e p a r t m e n t
.
Dies manufactured
.
.
Medals s o l d . :
.
Employees.
:
.
.
Work of t h e minor assay offices
'
:
:
Assays m a d e
..
Laboratory, Bureau of t h e M i n t
.
._
Assay Commission's a n n u a l test of coins
Tables, report Director of t h e Mint
.

645
645
645
646
646
646
. 646
647
64.7
648
648
648
648
649
649
650
651
652
652
652
652
653
655
656
656
657
658
658
659
659
660
660
661
661
662
663
666

R E P O R T OF THE COMPTROLLER OF THE C U R R E N C Y :

Legislation recommended
.
.
National-bank failures.
.
Bank failures other t h a n n a t i o n a l .
.
...
.
Public debt. United States bonds, national bank, and other circulation
.
.

713
715
718
718

CONTENTS
R E P O R T OF T H E COMPTROLLER OF T H E C U R R E N C Y — C o n t i n u e d .

United States circulation bond transactions.'
.
._
'
Redemption of national and Federal reserve bank c i r c u l a t i o n . . ^
National banks of issue
.
Profit on national-bank circulation
..L_
Organization and liquidation of national banks
• Domestic branches of national banks
;
Condition of national b a n k s a t d a t e of each report called for during
t h e year
.
Condition of national banks J u n e 30, 1926
Resources
.
..
Liabilities
National-bank liabilities on account of bills p a y a b l e and rediscounts.
Loans and discounts of national banks
C o m p a r a t i v e s t a t e m e n t of loans and discounts, including rediscounts
m a d e by national banks during last three fiscal y e a r s .
C o m p a r a t i v e changes in demand and time deposits, loans' and discounts, United States Government and other bonds and securities,
and t h e a m o u n t of lawful reserve of national banks since J u n e 30,
1922
.
United States Government bonds held .by national banks in reserve
cities and States
^
:
I n v e s t m e n t s of national banks
^
Savings depositors and deposits in national b a n k s
.
Per capita individual and savings deposits in all reporting banks
Earnings, expenses, a n d dividends of national b a n k s
National b a n k s classified according to capital stock
National-bank examiners
_.
Convictions of national-bank officers and others for violations of
t h e national banking laws during t h e year ended October 31, 1926.
Federal reserve banks
....
Federal reserve bank discount rates
..
Discount rates prevailing in Federal reserve b a n k and b r a n c h cities._
R a t e s for money in New York
.
New York clearing house
Clearing-house associations in t h e 12 Federal reserve b a n k cities and
elsewhere...
_Banks other t h a n national
— ._
S t a t e (commercial) banks
Loan and t r u s t companies
i
Principal items of resources and liabilities of loan and t r u s t companies in J u n e of each ye^r, 1914 t o 1926
Stock savings banks
.
M u t u a l savings banks
1
1
Depositors and deposits in m u t u a l and stock savings banks
P r i v a t e banks
All reporting banks other t h a n national
'Principal items of resources and liabilities of all reporting b a n k s
other t h a n national, on or a b o u t J u n e 30, 1922 to 1926
-_.
Resources and liabilities of all reporting b a n k s in t h e United States,
Alaska, and insular possessions
i
S u m m a r y of the combined r e t u r n s from all reporting b a n k s in t h e
United States, Alaska, and insular possessions, J u n e 30, 1926
I n d i v i d u a l deposits in all reporting banks
Resources and liabihties of all reporting banks, J u n e 30, 1 9 2 2 - 1 9 2 6 . .
Gash in all reporting banks
Money in t h e United S t a t e s - - .
-. Banks in the District of Columbia
..
Earnings, expenses, and dividends of b a n k s other t h a n national in
the District of Columbia
.
Building and loan associations in tlie District of Columbia
Building and loan associations in the United States
Failures of building and loan associations, 1920-1925
—
Monetar}^ stocks in t h e principal CDuntries of t h e world
Federal land b a n k s
.
.
Joint-stock land b a n k s
.
Federal intermediate credit b a n k s

XV
Page

720
722
723
723
724
725
73Ci
732
732
732
734
735
740

740
741'
744
750
752
754
766
767
773
777
779
780
782
785
785
785
788
789
791
792
793
795
798
800
803
803
804
814
814
815
816
819
819
820
821
822
823
824
825
826

XVI

CONTENTS,

R E P O R T OF T H E C O M P T R O L L E R OF T H E C U R R E N C Y — C o n t i n u e d .

Pag»

National agricultural credit corporations
Liquidation of t h e Iowa national agricultural credit corporations
United States Postal Savings System
School savings banking
Savings b a n k s in principal countries of t h e world
Resources of leading foreign banks of issue
Expenses of t h e Currency Bureau
.

827
828
828
833
834
838
838

R E P O R T OF C O M M I S S I O N E R O F I N T E R N A L R E V E N U E :

Collections
.
Cost of administration
Housing of t h e bureau
.
, Income T a x Unit
^
Revenue agents' reports
i
Adjustment of claims
Additional revenue
.
Organization changes
Decentralization
Policy and procedure changes
Clearing division
Records division
Service division
.
Information service
Personn el
.
.
..
:
I m p r o v e m e n t s planned
Miscellaneous T a x U n i t
Personnel a n d p a y roll
.
Taxes collected
Appeals a n d review section
Capital $tock-tax division
Estate-tax division
Miscellaneous division
Tobacco division
Accounts and Collections Unit
Division of procedure and accounts
Division of field allowances
Disbursement division
Prohibition Unit
Collections
.
Office of chief counsel
..
.
Narcotic, division _ .
.
Industrial alcohol a n d chemical division
Audit division
Office of t h e General Counsel
,
ApjDeals division . . . .
.
.
I n t e r p r e t a t i v e Division I
I n t e r p r e t a t i v e Division I I
Penal division...
Civil division
•
. S u m m a r y of, suits a n d prosecutions
Bureau and field personnel
.
Tables........
..
.
. I m p o r t a n t decisions of Federal courts in internal revenue cases

841
843
843
843.
844
844
845
846
848
849
850'
851
851
851
851
852
852
853
853
853
854
855
. 857
86086.3
863
865
866
867
869 860
869
871
873875
876
878
870
882
884
887
887
889
896

R E P O R T OF T H E R E G I S T E R :

Federal reserve b a n k s as fiscal agents
-..
Canceled securities received for credit
R e t i r e d securities canceled on account of reduction of principal of t h e
public debt
Final a u d i t .
Securities printed a n d issued
.
Numerical records
Functional apportionment
Medical rehef room service
1
i
Library service
General condition
-..
Statistical s t a t e m e n t s
1
;

915
915
916
916
916
.917
917
918918
. 919
921

SECRETARIES OF THE TREASURY AND PRESIDENTS UNDER
WHOM THEY SERVED
NOTE.—Robert Morris, the first financial oflQcer of the Government, was Superintendent of Finance from
1781 to 1784. Upon the resignation of Morris, the powers conferred upon him were transferred to the "Board
of the Treasury." Those who finally accepted positions on this board were John Lewis Gervais, Samuel
Osgood, and Walter Livingston. The board served until Hamilton assumed oflQce in 1789.
Secretaries of Treasury

Presidents

WashingtonAdams
Jefferson
Madison

Monroe
Adams, J. Q.
Jackson
.

Van BUI en.
Harrison
Tylerl......

Polk..
Taylor...
Fillmore..
Pierce
Buchanan.

Alexander Hamilton, New York
Oliver Wolcott, Connecticut
Oliver Wolcott, Connecticut
Samuel Dexter, Massachusetts
Samuel Dexter, Massachusetts
Albert Gallatin, Pennsylvania......
Albert Gallatin, Pennsylvania '
George W. Campbell, Tennessee
Alexander J. Dallas, Pennsylvania..
Wm. H. Crawford, Georgia
W m . H . Crawford, Georgia
Richard Rush, Pennsylvania ^
Samuel D. Ingham, Pennsylvania ^.
Louis McLane, Delaware
Wm. J. Duane, Pennsylvania
-.
Roger B. Taney, Maryland *
Levi Woodbury, New Hampshire...
Levi Woodbury, New Hampshire *.
Thomas Ewing, Ohio
Thomas Ewing, Ohio e...
Walter Forward, Pennsylvania i
John C. Spencer, New York «
...
Geo. M. Bibb, Kentucky
Geo. M. Bibb, Kentucky
_...
Robt. J. Walker, Mississippi'
Wm. M. Meredith, Pennsylvania...
Wm. M. Meredith, Pennsylvania...
Thos. Corwin, Ohio
James Guthrie, Kentucky
'.
.
Howell Cobb, Georgia'»
1
Philip F. Thomas, Maryland..
;
John A. Dix, New York

T e r m of service

From—
S e p t . 11,1789
F e b . 3,1795
M a r . 4,1797
1,1801
Jan.
M a r . 4,1801
M a y 14,1801
M a r . 4,1809
F e b . 9,1814
6,1814
Oct.
Oct. 22,1816
M a r . 4,1817
M a r . 7,1825
M a r . 6,1829
A u g . 8", 1831
M a y 29,1833S e p t . 23,1833
J u l y 1,1834
M a r . 4,1837
M a r . 6,1841
A p r . 5,1841
S e p t . 13,1841
M a r . 8,1843
J u l y 4,1844
M a r - .5,1845
M a r . 8,1845
M a r . 8,1849
J u l y 10,1850
J u l y 23,1850
M a r . 7,1853
M a r . 7,1857
D e c . 12,1860
J a n . 15;1861

ToJ a n . 31,1795
M a r . 3,1797
D e c . 31,1800
M a r . 3,1801
M a y 13,1801
M a r . 3,1809
A p r . 17,1813
Oct. 5,1814
Oct. 21,1816
M a r . 3,1817
M a r . 6,1825
M a r . 5,1829
J u n e 20,1831
M a y 28,1833
S e p t . 22,1833
J u n e 25,1834
M a r . 3,1837
M a r . 3,1841
A p r . 4,1841
S e p t . 11,1841
M a r . 1,1843
M a y 2.1844
M a r . 4,1845
M a r . 7,1845
M a r . 5,1849
J u l y 9,1850
J u l y 22,1850
M a r . 6,1853
M a r . 6,1857
D e c . 8,1860
Jan." 14,1861
M a r . 6,1861

:^» While holding the oflSce of Secretary of the Treasury, Gallatin was commissioned envoy extraordinary
and minister plenipotentiary April 17, 1813, with John Quincy Adams and James A. Bayard, to negotiate
peace with Great Britain. On February 9,1814, his seat as Secretary of the Treasury was declared vacant
because of his absence in Europe. William Jones, of Pennsylvania (Secretary of the Navy), acted ad
interim Secretary of the Treasury from April 21, 1813, to February 9, 1814.
» Rush was nominated March 5,1825, confirmed and commissioned March 7,1825, but did not enter upon
the discharge of his duties until August 1, 1825. Samuel L. Southard, of New Jersey (Secretary of the
Navy), served as ad interim Secretary of the Treasury from March 7 to July 31, 1825.
» Asbury'Dickens (Chief Clerk), ad interim Secretary of the Treasury June 21 to August 7. 1831.
* McClintock Young (Chief Clerk), ad interim Secretary of the Treasury from June 25 to 30, 1834
" McClintock Young (Chief Clerk), ad interim Secretary of the Treasury from March 4 to 5, 1841
« McClintock Young (Chief Clerk), ad interim September 13, 1841.
7 McClintock Young (Chief Clerk), ad interim March 1 to, 7, 1843.
8 Spencer resigned as'Secretary ofthe Treasury May 2,1844; McClintock Young (Chief Clerk), ad interim
from May 2 to July 3, 1844.
0 McClintock Young (Chief Clerk), ad interim March 6 to 7, 1849.
10 Isaac Toucey, of Connecticut (Secretary of the Navy), acted as Secretary of the Treasury ad interim
December 10 to 12, 1860.

XVII

XVIII

UNDEESECRETARIES OF THE TREASURY

Secretaries of the Treasury and Presidents under whom they served—Continued
^Secretaries of Treasury

Presidents

Lincoln..

Salmon P. Chase, Ohio"
Wm. P . Fessenden, Maine i ^ . . . . ^ . .
Hugh McCulloch, Indiana
Hugh McCulloch, Indiana »3
Geo. S. Boutwell, Massachusetts
Wm. A. Richardson, Massachusetts
iBenj. H. Bristow, Kentucky^*
Lot M. Morrill, Maine
.,
Lot M. Morrill, Maine
John Sherman, Ohioi*
Wm., Windom, Minnesota
Wm. Windom, Minnesota
Chas. J. Folger, New Yorkis
Walter Q. Gresham, Indiana
Hugh McCulloch, Indiana
Hugh McCulloch, Indiana
Daniel Manning, New York
Chas. S. Fairchild, New Y o r k . . . . j .
Chas. S. Fairchild, New York
Wm. Windom, Minnesota i^
Chas. Foster, Ohio
Chas. Foster, Ohio
John G. Carlisle, Kentucky
John G. Carlisle, Kentucky
Lyman J. Gage, Illinois
Lyman J. Gage, Illinois
L. M. Shaw, Iowa
George B. Cortelyou, New York
Franklin MacVeagh, Illinois
W. G. McAdoo, New York
Carter Glass, Virginia
David F. Houston, Missouri
Andrew W. Mellon, Pennsylvania...
Andrew W. Mellon, Pennsylvania...

JohnsonGrant...

Hayes.
Garfield.
Arthur..

Cleveland.

Harrison, Benj.
Cleveland..
McKinley..
Roosevelt..

Taft....
Wilson.
Harding..
Coolidge..

Term of service
From—
Mar. 7,1861
July 6,1864
Mar. 9,1865
Apr. 16,1865
Mar. 12,1869
Mar. 17,1873
June 4,1874
July 7,1876
Mar. 4,1877
Mar. 10,1877
Mar. 8,1881
Sept. 20,1881
Nov. 14,1881
Sept. 25,1884
Oct. 31,1884
Mar. 4,1885
Mar. 8,1885
Apr. 1,1887
Mar. 4,1889
Mar. ^ 7,1889
Feb. 25,1891
Mar. 4,1893
Mar. 7,1893
Mar. 4,1897
Mar. 6,1897
Sept. 15,1901
Feb. 1,1902
Mar. 4,1907
Mar. 8.1909
Mar. 6,1913
Dec. 16,1918
Feb. 2,1920
Mar. 4,1921
Aug. 3,1923

To-^
June 30,1864
Mar. 3,1865
Apr. 15,1866
Mar. 3,1869
Mar. 16,1873
June 3,1874
June 20,1876
Mar. 3,1877
Mar. 9,1877
Mar. 3,1881
Sept. 19,1881
Nov. 13,1881
Sept. 4,1884
Oct. 30,1884
Mar. 3,1885
Mar. 7,1885
Mar. 31,1887
Mar. 3,1889
Mar. 6,1889
Jan. 29,1891
Mar. 3,1893
Mar. 6,1893
Mar. 3,1897
Mar. 5,1897
Sept. 14,1901
Jan. 31,1902
Mar. 3,1907
Mar. 7,1909
Mar. 5,1913
Dec. 15,1918
Feb. 1,1920
Mar. 3,1921
Aug. 2,1923

" George Harrington, District of Columbia (Assistant Secretary), ad interim July 1 to 4, 1864
" George Harrington (Assistant Secretary), ad interim March 4 to 8, 1865.
13 John F. Hartley, of Maine (Assistant Secretary), ad interim from March 5 to 11, 1869.
" Charles F. Conant, of New Hampshire (Assistant Secretary), ad interim June 21 to 30 [July 61,81878" Henry F. French, of Massachusetts (Assistant Secretary), ad interim March 4 to 7, 1881.
16 Charles E. Coon, of New York (Assistant Secretary), ad interim September 4 to 7, 1884; Henry F .
French, of Massachusetts (Assistant Secretary), ad interim September 8 to 14, 1884; Charles E. Coon ad
interim September, 15 to 24, 1884.
" A. B. Nettleton, of Minnesota (Assistant Secretary), ad interim January 30 to February 24, 1891.

UNDERSECRETARIES OF THE TREASURY AND PRESIDENTS
AND SECRETARIES UNDER WHOM THEY SERVED
Presidents

Harding
Coolidee .

Undersecretaries »

Secretaries

Mellon
Mellon
Mellon

S. Parker Gilbert, jr.. New Jersey
S. Parker Gilbert, jr., New Jersey
Garrard B. Winston, Illinois

i Office established act June 16,1921.

Term of service
From—
July 1,1921
Aug. 3,1923
Nov. 20,1923

ToAug. 2,1923
Nov. 17,1923

ASSISTANT SECRETARIES OF T H E TREASURY

XJX

ASSISTANTS TO THE SECRETARY OF THE TREASURY ^ .A.ND
PRESIDENTS AND SECRETARIES UNDER WHOM THEY SERVED
Presidents

Washington
Wilson

Secretaries

Hamilton
McAdoo

Term of service

Assistants to the Secretaries

From—
Tench Coxe, Pennsylvania
Sept. 11,1789
George R. Cooksey, District of Colum- Mar. 6,1917
bia.

ToMay 8,1792
Mar. 4,1921

Glass.
Houston.

1 Office established Sept. 2, 1789; abolished act May 8,1792; reestablished act Mar. 3,1917. Appointed
by the Secretary.

ASSISTANT SECRETARIES OF THE TREASURY AND PRESIDENTS
AND SECRETARIES UNDER WHOM THEY SERVED
Presidents

Tavlor.
Filmore
Pierce

Buchanan

Lincoln .

Johnson
Lincoln

Johnson
Grant

Hayes
Grant
Hayes.
Garfield

Secretaries

Meredith
Meredith
Corwin.
Corwin
Guthrie.
Guthrie
Cobb.
Cobb-.
Thomas.
Dix.
Chase
Fessenden.
McCulloch.
. . McCulloch.
Chase
Fessenden.
McCulloch.
McCulloch.
Fessenden
McCulloch.
McCulloch.
McCulloch
Boutwell.
Richardson.
Bristow.
McCulloch
Boutwell
Richardson
Bristow.
Bristow
Morrill.
. . Sherman.
Bristow . . . . . . . . .
Morrill
...
Sherman.
Windom.

Assistant Secretaries i

Term of service

Charles B. Penrose, Pennsylvania
Allen A. Hall, Pennsylvania

From—
Mar. 12,1849
Oct. 10,1849

ToOct. 9,1849
Nov. 15,1850

William L. Hodge, Tennessee

Nov. 16,1850

Mar 13,1853

Peter G. Washington, District of Columbia.

Mar. 4,1853

Philip Clayton, Georgia

Mar. 13,1857

Mar 12,1857

Jan. 16,1861

George Harrington, District of Columbia.2

Mar. 13,1861

Maunsell B. Field, New Y o r k . . .

Mar. 18,1864

June 15,1865

William E Chandler, New Hampshire.

Jan.

5,1865

Nov. 30,1867

John F. Hartley, Maine.....

July 11,1865

May 4.1876

Dec. .2,1867
Edmund Cooper, Tennessee
..
William A. Richardson, Massachusetts Mar. 20,1869
Frederick A. Sawyer, South Carolina. Mar. 8,1873

May 31,1868
Mar. 17,1873
June 11,1874

Charles F . Conant, New Hampshire..
Curtis FF .. Burnam,
Kentucky
Henry
French, Massachusetts

July

1,1874

Mar. 4,1875
Aug. 12,1876

July 11,1865

Apr.

3,1877

June 30,1876
Mar. 9,1885

1 Office established act Mar. 3,1849; appointed by the Secretary. Act Mar. 3,1857, made the office Presidential.
2 Act Mar. 14,1864, provides one additional Assistant Secretary

ASSISTANT SECRETARIES OF T H E TREASURY

Assistant Secretaries of the Treasury and Presidents and Secretaries under ivhom
they served—Continued
Presidents

Secretaries

Windom.
Folger.
Gresham.
McCulloch.
Manning.
Cleveland..
Sherman
Hayes
Richard C. McCormick, Arizona
Sherman
John B. Hawley, Illinois
Sherman
J. Kendrick Upton, New Hampshire..
Windom.
Garfield
Arthur
Windom.
Folger.
Folger
John C. New, Indiana
Folger
.
Charles E. Coon, New York
Gresham.
McCulloch.
Manning.
Cleveland
Manning
Charles S. Fairchild, New York
Manning
William E. Smith, New York
Manning
Hugh S. Thompson, South Carolina._
Fairchild.
Harrison
: Windom.
Fairchild
Isaac N. Maynard, New York-.
Cleveland
Windom.
Harrison.
George H. Tichner, Illinois
Windom
George T. Batchelder, New York 3.._.
Windom
A. B. Nettleton, Minnesota
Windom..
Foster.
Oliver L. Spaulding, Michigan
Windom..
Foster.
Carlisle.
Cleveland
Foster.-L
Lorenzo Crounse, Nebraska
Harrison
Foster
John H. Gear, Iowa-!'
Foster
Genio M. Lambertson, Nebraska-!...
Cleveland
Carlisle.
Charles S. Hamlin, Massachusetts
Carlisle
Gage.
McKinley
Carlisle
William E. Curtis, New York
Cleveland
Gage.
McKinleyCarlisle-Scott Wike, Illinois
Cleveland
M c K i n l e y . . . . . . Gage.
Gage.
William B. Howell, New Jersey
Oliver L. Spaulding, Michigan
Gage
Gage.
Roosevelt
Shaw.
Frank A. Vanderlip, Illinois. _
Gage
McKinley
Horace A. Taylor, Wisconsin..
Gage
Gage.
Roosevelt
Shaw.
Milton E. Ailes, Ohio
Gage.
McKinley.Gage.
Roosevelt-.:
Shaw.
Robert B. Armstrong, Iowa •
Shaw.- . . .
Charles H. Keep, New York
Shaw
James B. Reynolds, Massachusetts
Shaw
Cortelyou.
Taft
MacVeagh.
John H. Edwards, Ohio .
Roosevelt
Shaw
Cortelyou.
Shaw..
Arthur F. Statter, Oregon
Beekman Winthrop, New York
Cortelyou
Louis A. Coolidge, Massachusetts
Cortelyou
8 Act July 11,1890, provides for an additional Assistant Secretary.
Arthur

Term of service

Assistant Secretaries

From—
Apr. 3,1877
Dec. 9,1877
Apr. 10,1880

To—
Dec. 8,1877
Mar. 31,1880
Dec. 31,1881

Feb. 28,1882
Apr. 17,1884

Apr. 16,1884
Nov. 10,1885

Mar. 14,1885
Nov. 10,1885
July 12,1886

Apr. 1,1887
June 30,1886
Mar. 12,1889

Apr. 6,1887

Mar. 11,1889

Apr. 1,1889
Apr. 1,1889
July 22,1890

July 20,1890
Oct. 31,1890
Dec. 1,1892

July 23,1890

June 30,1893

Apr. 27,1891
Nov. 22,1892
Dec. 23,1892

Oct. 31,1892
Mar. 3,1893
Apr. 3,1893

Apr. 12,1893

Apr.

Apr. 13,1893

Mar. 31,1897

July

1,1893

May 4,1897

Apr. 7,1897
Apr. 7,1897

Mar. 10,1899
Mar. 4,1903

June 1,1897
Mar. 13,1899

Mar. 5,1901
June 3,1906

Mar. 6,1901

Apr. 15,1903

Mar. 5,1903
May 27,1903
Mar. 5,1905

Mar. 6,1905
Jan. 21,1907
Nov. 1,1909

July

1,1906

Mar. 15,1908

Jan. 22,1907
Apr. 23,1907
Mar. 17,1908

Feb. 28,1907
Mar. 6,1909
Apr. 10,1909

7,1897

ASSISTANT SECRETAKIES OE T H E TIIEASURY

XXI

Assistant Secretaries of the Treasury and Presidents and Secretaries under whom
they served—Continued
Presidents
Taft

Wilson
'Taft
Wilson
Taft
Wilson

Harding
Wilson

Harding
Wilson-.
HardingWilsonHarding
Wilson
Harding. _
Coolidge
Harding--

Coolidge.- .
Harding
...
Coolidge.

Secretaries
MacVeagh.
MacVeagh i
MacVeagh
MacVeagh
McAdoo.
MacVeagh
MacVeagh
McAdoo.MacVeagh
McAdoo.
McAdoo
McAdoo
....
McAdpo
McAdoo
McAdoo
McAdoo
McAdoo
Glass.
McAdoo
Glass,
Houston.
Mellon.
McAdoo
Glass.
Houston.
McAdoo.Glass.
McAdoo...'
Glass.
Houston.
Glass
Houston.
Glass
Houston.
Houston
Mellon.
.HoustonMellon.
Houston
Mellon
HoustonMellon
Mellon
Mellon
Mellon
Mellon
Mellon
Mellon
Mellon..

Assistant Secretaries

Term of service
From—
Apr.^ 5,1909
Apr. 19,1909
Nov. 27,1909

Charles D. Norton, Illinois
..
Charles D. Hilles, New York
James F. Curtis, Massachusetts
A. Piatt Andrew, Massachusetts
Robert 0 . Bailey, Illinois

John Skelton Williams, Virginia.
Charles S. Hamlin, Massachusetts
Byron R. Newton, New Y o r k . . . .
William P. Malburn, Colorado
Andrew J. Peters, Massachusetts
Oscar T. Crosby, Virginia
Leo S. Rowe, Pennsvlvania

8,1910
4,1911

July 3,1912
Mar. 3,1913

July 20,1912

Sept. 3D, 1913

. . June
Apr.

Sherman P. Allen, Vermont

To—
June 8,1910
Apr. 3,1911
July 31,1913

Mar.
Aug.
Oct.
Mar.
^. Aug.
Apr.
June

24,1913 Feb. 2,1914
1,1913 Aug. 9,1914
1,1913 Oct, 1,1917
24,1914 Jan. . 26,1917
17,1914 Mar. 15,1917
17,1917 Aug. 28,1918
22,1917 Nov. 20,1919

James H. Moyle, Utah ^

Oct.

Russell C. Leffingwell, New York

Oct. 30,1917

5,1917

Aug. 26,1921

July

5,1920

. . Dec. 15,1917

Jan. 31,1919

Albert Rathbone, New York

Sept. 4,1918

June 30,1920

Jouett Shouse, Kansas

Mar. 5,1919

Nov. 15,1920

Norman H. Davis, Tennessee

Nov. 21,1919

June 14,1920

Nicholas Kelley, New York-. .

June 15,1920

Apr. 14,1921

Thomas B. Love, Texas.-

S. Parker Gilbert, jr.. New Jersey 5 . . . July

6,1920

June 30,1921

Ewing Laporte, Missouri

Dec.

4,1920

May 31,1921

Angus W. McLean, North Carolina..
Eliot Wadsworth, Massachusetts
Eliot Wadsworth, Massachusetts
Edward Clifford, Illinois
Elmer Dover, Washington
..-.
McKenzie Moss, Kentucky
McKenzie Moss, Kentucky .
Garrard B. Winston, Illinois.. .
Garrard B. Winston, Illinois ^
Charles S. Dewey, Illinois
Lincoln C. Andrews, New York

Dec. 4,1920 Mar. 4,1921
Mar. 16,1921 Aug. 2,1923
Aug., 3,1923 Mar. 31,1925
May 4,1921 July 9,1923
Dec. 23,1921 July 25,1922
Mar. 3,1923 Aug. 2,1923
Aug. 3,1923 July 13,1926
July 9,1923 Aug. 2,1923
Aug. 3,1923 Nov. 19,1923
July 1,1924
Apr. 1,1925

* Act Oct. 6, 1917, provided for two additional Assistant Secretaries for duration of war and six months
after.
* Became Undersecretary July 1,1921.
6 Became Undersecretary November 20,1923.

XXII

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF T H E
T R E A S U R Y D E P A R T M E N T , AS O F O C T O B E R 3 1 , 1 9 2 8
OFFICE OF THE SECRETARY
ANDREW W . MELLON
GARRARD B . W I N S T O N

Secretary of the Treasury.
Undersecretary of the Treasury.

CHARLES S . D E W E Y
LINCOLN C . A N D R E W S
Vacant

Assistant Secretary of the Treasury.
Assistant Secretary of the Treasury.
Assistant Secretary of the Treasury.

JOHN KIELEY
W. NORMAN T H O M P S O N
C H A R L E S R . SCHOENEMAN_

Assistant to the Secretary.
Assistant to the Undersecretary.
Assistant to the Undersecretary.

FRANK D O W
H. R. SHEPPARD
L. C. M A R T I N
1
F R A N K A. BIRGFELD
JOHN T . BURNS
JAMES Fi. H A R P E R
THOMAS L . LAWRENCE
W. H . MoRAN
,
M I C H A E L J. O ' R E I L L Y
FREDERICK F . WESTON

Assistant to Assistant Secretary.
Assistant to Assistant Secretary.
Assistant to Assistant Secretary.
Chief Clerk and Superintendent.
Chief, Section of Mail and Files.
Chief, Division of Appointments.
Chief, Section of Surety Bonds.
Chief, Secret Service Division.
Chief, Division of Bookkeeping a n d Warrants..
Chief, Division of Printing.

J O H N L . SUMMERS
JOSEPH R . MCCOY

Disbursing Clerk.
Government Actuary.

SPECIAL STAFF ASSISTANTS
ELLSWORTH C . ALVORD
F. G L O YD Aw ALT
FLOYD G . BLAIR
DAVID E . F I N L E Y
W A L T E R O . WOODS
EDWARD H . B E N N E T T

Special Assistant to the Secretary.
Member, War Loan Staff.
Member, War Loan Staff.
Member, War Loan Staff.
Member, War Loan Staff.
Consulting Architectural Specialist.
PUBLIC DEBT SERVICE

WILLIAM S . BROUGHTON
.S. R. JACOBS

Commissioner of the Public Debt.
Deputy Commissioner.

H A R L E Y V. S P E E L M A N .

F R A N K A. D E G R O O T
CHARLES N . MCGROARTY
M E L V I N R . LOAFMAN

Assistant Register
Chief, Division of
Chief, Division of
Audit.
Chief, Division of

F R A N K G . COLLINS
OFFICE

OF THE COMMISSIONER

ROBERT G . HAND__

of the Treasury.
Loans and Currency.
Public Debt Accounts and
Paper Custody.

OF ACCOUNTS

AND DEPOSITS

_, Commissioner of Accounts and Deposits.

DANIEL W . BELL

Deputy Commissioner.

EDWARD D . BATCHELDER
E. R. GRAY

Chief, Division of Deposits.
Acting Chief, Section of Statistics.

OFFICE OF THE COMPTROLLER OF THE CURRENCY
JOSEPH W . MCINTOSH
E . W I L L E Y STEARNS
C H A R L E S W . COLLINS___
W I L L I S J. F O W L E R . .

J. W. P O L E
ROBERT D . GARRETT
JOHN G . HERNDON

Comptroller of the Currency.
Deputy Comptroller.
Deputy Comptroller.
. Deputy Comptroller.

Chief, National Bank Examiners.
Supervising Receiver, Insolvent National Bank
Division.
.

Chief Clerk.

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

XX I H

OFFICE OF THE TREASURER OF THE UNITED STATES
FRANK WHITE

Treasurer of the United States.

F R A N K J. F . T H I E L

Assistant Treasurer.

Ii. T . T A T E
.
W. F . W A R N E R . . . - — -

Assistant Treasurer.
. . Chief Clerk.

OFFICE OF THE COMMISSIONER OF INTERNAL REVENUE
D A V I D H . BLAIR

Commissioner of Internal Revenue.

CHARLES R . NASH

Assistant to the Commissioner.

H. F. MIRES
R. M . EsTES
Vacant
A. W. GREGG
R O Y A. H A Y N E S

Deputy Commissioner.
Deputy Comissioner.
Deputy Commissioner.
General Counsel.
Prohibition Commissioner.

JAMES E . JONES

Director of Prohibition.

CUSTOMS SERVICE
E R N E S T W . CAMP
JOSEPH D . NEVIUS
H E N R Y A. HAYWARD

NATHANIEL G . VAN DOREN
THOMAS B . M C K A I G . .

Director of Customs..
Assistant Director.
Assistant Director.

Director, Special Agency Service.
Assistant Director, Special Agency Service.
MINT BUREAU

R O B E R T J. G R A N T
MARY M. O'REILLY

Director of the Mint.
Assistant Director.

FEDERAL FARM LOAN BUREAU
ALBERT C . WILLIAMS..

Farm Loan Commissioner.

R O B E R T A. C O O P E R
L O U I S J. P E T T I J O H N
J O H N J. GUILL, Jr
ELMER S. LANDES
EDWARD E . J O N E S

Member.
Member.
Member.
Member.
Member.

A D. BRIGHT

Secretary.

N. S. B E A N

Chief Examiner.
BUREAU OF ENGRAVING AND PRINTING

ALVIN W . H A L L

Director of the Bureau of Engraving and Printing.
Assistant Director {Production).
Assistant Director {Administrative).
Assistant Director {Service).

JOHN J. DEVINY
CLARK R . LONG
H. P R E S T O N DAWSON

PUBLIC HEALTH SERVICE
H U G H S . GUMMING

S. B . G R U B B S
THOMAS PARRAN, J r
J. W. K E R R
C. C. P I E R C E
. A. M . STIMSON
F. C. SMITH
W. F . D R A P E R
D. S. M A S T E R S O N

Surgeon General.

Assistant Surgeon
Assistant Surgeon
Assistant Surgeon
Assistant Surgeon
Assistant Surgeon
Assistant Surgeon
Assistant Surgeon
Chief Clerk.

General.
General.
General.
General.
General.
General.
General.

XXIV

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
UNITED STATES COAST GUARD

Rear Admiral F . C. BILLARD
Lieut. Commander S. S. Y E A N D L E .
KENDALL J. MiNOT
OLIVER M . MAXAM
.:

Commandant.
Aide to Commandant.
Chief, Division of Materiel.
Chief, Division of Operations.

OFFICE OF THE SUPERVISING ARCHITECT
JAMES A. W E T M O R E

Acting Supervising Architect.

HENRY G.SHERWOOD

Executive Officer.

BUREAU OF SUPPLY
D A N C . VAUGHAN
ROBERT L E FEVRE

. . . Director of Supply.
.__ Superintendent of Supplies, General Supply
Committee.

STANDING DEPARTMENTAL COMMITTEES

Budget and Improvement Committee
S. R. J A C O B S , C h a i r m a n .
W. N . T H O M P S O N .
D . S. B L I S S .
.
F . A. B I R G F E L D .
W. 0 . W O O D S .
L. C. M A R T I N .

D . W. B E L L .
J. H . S C H A E F E R .
MARVIN WESLEY.
M . E.. SLINDEE.
F . G . L A W T O N , Secretary.

. Committee on Enrollment and Disbarment of Attorneys and Agents
S. R . J A C O B S , C h a i r m a n .
D A V I D E . F I N L E Y , Vice C h a i r m a n .
JAMES B . CORRIDON.
G E O R G E J. S C H O E N E M A N .

W; S. B L A N C H A R D .
H . C. A R M S T R O N G .
L A W R E N C E B E C K E R , Attorney.
W I L M E R G , P L A T T , Secretary.

Committee on Personnel
F . A. B I R G F E L D , Chairman.
J. E . H A R P E R .
S. R. J A C O B S .

Committee on Civil Service Retirement

F . J . F . T H I E L , Chairman.
F . A. B I R G F E L D .
J. E . H A R P E R .
E . W. C A M P .
W. N . T H O M P S O N .

ANNUAL REPORT ON THE FINANCES
TREASURY DEPARTMENT,

Washington, November 20, 1926.
S I R : I have the honor to make the following report:
Through the information the Treasury receives from income-tax
collections it is enabled to form an accurate picture of past financial
and business conditions through the country, but necessarily this
information does not cover the current year. From the preliminary
tax figures of profits and earnings for the calendar year 1925, just
compiled, it can^be safely stated that the country has reached a level
of national income not before exceeded. Nineteen hundred and
twenty-six has brought no indication of an ebbing of this high tide,
and I believe this year has been as satisfactory as the last. This
country has undoubtedly been exceedingly prosperous for the past
few years and prosperity is continuing. We have worked hard and
we have progressed. Still in a nation as extensive as the United
States and having such varied interests there must be sections or
trades which may not at all times be sharing equally in this prosperity.
A land boom in Florida seems to have subsided without serious
injury. A bumper cotton crop has materially decreased the price
of cotton, but plans for withholding a portion of the crop and for
its orderly marketing are already well under way and the financing
for the purpose is available. The textile industry, which has been
unprofitable for the last few years, will have an opportunity for
recovery in the low cost of cotton. In some parts of the country a
surplus of farm lands, taken over by banks for loans, will have to be
worked out. Bituminous-coal mining, which has been depressed,
shows improvement through foreign demand. These are specific
instances of maladjustment, but if we take the United States as a
whole, the current year has been good. The high earning power of
our people, from which comes our great buying capacity, is indicated
by increases in sales during the year by mail-order houses and of agricultural implements, motor cars, tractors, and many other articles
once considered luxuries. Another indication of well-being is the
amount of travel abroad and within the country by train and motor.
The strength of our present prosperity is the broadness of its base;
yet with all this spending, savings accounts have gone up, more life

RKPORT ON T H E FINANCES

insurance is being written, and sound securities are sought by the
small investor.
.%
During the year commodit}^ prices generally have declined slightly
and farm prices have not yet been restored to their relative position
as compared with all prices. There is little unemployment and wages
are good. Industry is active. There is a close rnargin between costs
and prices which has made competition severe, but due to the great
volume of business and quantity production profits, small in each
transaction, have been large in the aggregate. The most notable
improvement has been the. restoration of the railroads to their proper
place in the community. They are beginning to make up for losses
following Government control. Their credit is good and their efficiency is of the highest order. The railroads are one of the principal
factors in the strength of this country. Their ability to handle traffic
promptly and efficaciously is evidenced by the increase in carloadings
and by the practice of hand-to-mouth buying and curtailed inventories of manufacturers and dealers, which would not be possible
with less effective transportation.
The financial structure of the Federal Government is in excellent
shape. The national debt is below 193^ billion dollars as compared
with a peak of 263^^ just after the war. Government bonds are all
above par, and taxes are yielding ample revenue. Government
expenditures have been kept down, and the work of the Federal
Government is, I think, more efficiently handled. Credit throughout
the country seems to be ample. An indication of this is the ease
with which $16,000,000 has been recently raised through private,
subscription for marketing corporations to handle the situation
arising out of the large cotton crop. Money for investment is
plentiful, and it is most encouraging to note the extent of security
investments represented by the small investor. On the whole it
seems to me our domestic situation is in good shape and we can look
forward to another satisfactory year.
America has become a large factor in the world's affairs and our
country in turn is influenced by world conditions. The past year
has seen a notable improvement in the stability of the world and in
the increase of its trade. A gold basis for currency has now been in
successful operation in England for nearly two years, and in spite .of
a general strike England has not had to call at all on the credits
arranged in this country as insurance against emergencies. The
Dawes plan has completed two full years of operation and is functioning satisfactorily. . The w^orld is placing greater confidence in the
successful outcome of this great test. The finances of France, Italy,
and Belgium have improved; Belgium has recently stabilized its currency on a gold basis, and I look for further progress in the case of
other nations. Settlements have been negotiated by the American

SECRETARY OF THE TREASURY

D e b t Commission with practically all of the debtor nations and the
demand obligations held by the United States have been funded into
time obligations, definite in amount, and uncertainty has been removed. These settlements have been ratified by Congress, and by the
interested countries, except in the cases of France and Yugoslavia.
I think Europe is progressing and we can look for continued improvement abroad.
In America in particular lines there may have been some overbuilding. Generally, however, the demand continues for better living
conditions and the building industry is sound. There is another
factor which is beginning to make itself felt. Public buildings,
Federal, State, and municipal, have not kept up with the growth of
the country either in amount or in character. The Federal Government has practically done no building since the war, although governmental activities have greatly increased. Congress has now adopted
afive-year building program involving the expenditure of $165,000,000.^
In a great many States public institutions are inadequate to meet the
demand of the community and new buildings will have to come.
The program for hard roads is incomplete and requires continued
work. I believe that the influence of these governmentalrequirements
will supplement the private needs and should remove the fear of a
slump iri this important industry.
The increase in installment-plan buying has caused much discusiSion. An installment purchase means that instead of postponing the
enjoyment of some article until the. purchaser has saved up the
money required to make the purchase, he takes immediate enjoyment, paying out of future and not past savings. Within limits
there is nothing inherently unsound in this practice. I t has been
customary to buy household furniture and pianos on the installment plan, and its extension to automobiles, washing machines, and
similar things represents only a natural enlargement of the articles
purchased for personal use. One of the results of the extension of
installment purchases has been to increase the immediate consumptive power of the public and thus permit large production and full
employment to continue. The increase in savings deposits, in build,mg and loan associations, in life insurance, and in investments
shows that installment buying has not yet progressed to a point
where it interferes with the intelligent saving of the American people.
There are, however, two elements of weakness against which we
should be on guard. The purchaser should be careful that the article
which he acquires upon credit has a real and permanent value and
that he does not tie up too much of his future earnings for his present enjoyment. Secondly, if demand should decline there is danger
that to stimulate further consumption the terms of payment may be
so lightened as to make the credit unsound from a banking stand

REPORT ON THE FINANCES

point, and the finance companies and the banks thus become holders
of large amounts of slow or uncollectible paper. Subject to avoidance of these dangers, installment buying does not yet seem to be
menacing our financial soundness.
The .Liberty loan campaign to sell Government bonds taught
many people how to invest their savings. As a result of this education, of more effective bond salesmanship, and of high earnings in
America, there has been created an investment rnarket, and thepublic readily buys large amounts of new security issues, resorting
to the banks for loans to assist in these purchases. Business concerns have come to prefer permanent financing as distinguished
from commercial loans from the banks, and there has been a tendency
with a great many corporations, through the sale of bonds, notes,
or capital stock, to resort to the public for money to meet their
corporate requirements. Partly because commercial bills are n o t
as frequently resorted to for credit and the banks have difficulty
in obtaining sufficient amount of these bills, and partly on account
of the demand of the public for loans to help carry securities purchased, the banks have had to seek investments themselves, in
securities or loans to customers secured by bonds and stocks. This
has brought into the assets of the banks an increase in investments
and loans on securities without a proportionate increase in shortterm comniercial bills. Since it is the latter which are the most
easily liquidated, we are gradually noting a decline in assets which,
may be rediscounted at the Federal reserve banks and thus in w h a t
may be called the liquidity of bank assets. This trend has in nO'
way endangered the strength of our banking system, but it is a.
movement which may require care lest it go too far.
For most of our national • existence the United States has been
what is popularly called a ^'debtor'/ Nation. Large amounts of
foreign capital sought investment in this country and little American
capital weEjt abroad. As a result of the war and the conditions which
have prevailed in America and abroad, investment funds have been
plentiful in the United States and scarce in a great many other
countries. American securities owned by foreigners have largely
been resold here, and money of the American investor has also gone
into the securities of other countries. We have become a '^creditor''
Nation. We are owed more than we owe. While this change is a.
result of world conditions and not of conscious action by this country,,
nevertheless the objection has been raised to foreign loans on two
general grounds: First, that the loans will be used to establish more
effective competition against American industry, and, second, that the
loans are not safe. Considering the subject as a whole it must be
remembered that the international bankers are not the investors
in foreign securities. They simply act as agents in mobilizing the

SECRETARY OF THE TREASURY

•savings of thousands of Americans seeking a sound place to invest.
The breadth of this market is indicated by the fact that in many of
the recent large foreign issues the average investment has been around
$3,000. The money which is seeking profitable employment is therefore not that of a single group of interests in the United States, but
of an intelligent and widespread body of our citizenship. If their
savings can make them a better return, all things considered, through
investments abroad than through investments at home, it would
seem that, so long as credit facilities here are ample, no harm is done
to the American fiscal system by the encouragement of foreign
investments.
The proposition that these loans create competition harmful to
America, in its final analysis, is not, I believe, sound. Money which
puts a nation on its feet through the stabilization of its currency or
which increases the productiveness of industry or trade in a foreign
country enlarges the earning capacity of the people and increases
their buying power and thus stimulates world trade as a whole.
In this trade America has a great share. For our manufacturers we
have the protection of the tariff, and for those for whom the tariff
does not give complete protection, particularly the farmer, we
should encourage the purchasing power of other countries so that
there will be a greater demand for American products.
The question of the soundness of a particular loan is not one upon
which the. Federal Government should pass, but it is the banker
floating the loan in this country who must decide this question in
the first instance, and it is the investor using his savings to acquire
the security who must finally decide whether or not the risk is to be
accepted. The test of the security of a foreign loan does not differ
from the test of the security of a domestic loan. There is, however,
involved in foreign loans the question of exchange, with which a
domestic loan is n o t concerned. The revenues of a foreign debtor
are usually in the currency of his own country and its obligations
sold in America are payable in American currency. If a foreign
loan is productive—and by that I mean that the debtor out of the
use of the money borrowed can repay the principal, the interest, and
make a profit for itself—then I think foreign loans are sound.
RECOMMENDATIONS FOR LEGISLATION

Taxation
On February 26, 1926, the President approved the revenue act of
1926. This law embodied changes in the administrative provisions
which the actual operation of the income tax law had found desirable; increased the personal exemptions from $1,000 and $2,500 to
$1,500 and $3,500; extended the credit for earned income; and re

REPORT ON T H E FINANCES

duced the normal tax to a 5 per cent maximum and the surtaxes to a
20 per cent maximum. The capital-stock tax on corporations was
removed and in lieu thereof 1 per cent additional income tax was
imposed to make up for the loss in revenue but with no increase in
the taxes paid by corporations. The estate tax was reduced and the
possible credit for inheritance or estate taxes paid to a State increased from 25 to 80 per cent. The legality of this provision is now
pending in the Supreme Court. Many of the excise taxes were removed, including taxes on trucks and accessories. The automobile
tax was decreased from 5 to 3 per cent. The income-tax provisions
were generally made applicable to the tax on income earned in the
calendar year 1925 and taxed in the calendar year 1926, and the
excise-tax changes became effective either upon the enactment of the
law or a few months later. The effect of the law, therefore, has been
felt by the Treasury only during the five months to date of this fiscal
year. The law also created a Joint Congressional Committee on
Internal Eevenue Taxation consisting of five members of the Finance
Committee of the Senate and five members of the Ways and Means
Committee of the House of Representatives, with the duty of investigating the operation and effect of the Federal system of internalrevenue taxation. This committee has just begun its work. We
have then a new law to which the test of actual experience has only
just begun to be applied.
The Federal Government in time of peace should meet its expenditures from current revenues. The source of a government's
revenue is taxation. Taxation must be sufficient to carry out the
policies which the Federal Government deems essential for the
welfare and happiness of its citizens. I t is the duty, therefore, of
the Government to determine what policies should be essential, and,
if they can be more than met over a series of years from taxation,
to reduce taxes. Conversely, if the governmental revenues are riot
sufficient then it is the duty of the Government to increase taxes.
After every great war abnormal expenditures can be reduced, but
at the same time there is an opposing tendency of nornlal expenditures to increase due to the growth of the country and the increase
in governmental activities. This latter increase tends to neutralize
and ultimately overcomes the reduction of war expenditures even with
the economies in government which this administration has enforced.
Without enumerating all the causes of greater expenditures by the
Government, I might mention among others: Contributions for good
roads, adjusted service compensation, appropriations to make up the
deficit in the civil service retirement fund, and a public building
program necessary to meet in part the Government's need of buildings untouched since before the war. Total expenditures chargeable
against ordinary receipts of six billion in 1920, the first real peace

SECRETARY OF THE TREASURY

year, dropped to three and one-half billion iri 1924, but, as I have
said, by.reason of the increased activities of the Government further
decreases in expenditures have not been possible and the tendency
has been for these expenditures to increase slightly in spite of the
very considerable saving in interest on the public debt through its
retirement and refunding at lower interest rates.
The suggestion has been made that the expenditures of the Government could be decreased by altering the sinking fund provision and
the use of the proceeds of repayments of foreign loans. These provisions were adopted by Congress during and after the war, and on
the faith of them every Government obligation sold by the Treasury
since that time has been taken by the American people. I need not
again express my opinion that the United States will never repudiate
a contract w^hich it has made with the purchasers in good faith of
its securities. Aside from the ethics of such repudiation, which is
controlling, business sense demands an early retirement of the national debt. The total interest charges at 4i/4 per cent on a $25,000,000,000 indebtedness retired uniformly over a 25-year term is
$16,000,000,000; over a 62-3^ear term interest charges would be over
$46,000,000,000, or nearly three times as much interest .to be paid over
the longer term as over the shorter term.
The real value of the dollar, that is, its value in terms of goods it
will purchase, does not remain constant. The experience with our
Civil War debt was that we borrowed a 54-cent dollar and repaid an
85-cent dollar (using the 1860 value as the base),.or, in other words,
we paid back in value $3 for every $2 we borrowed. Using 1913 as
a base, our present w^ar debt was borrowed on a 51-cent dollar, and
to-day the dollar is worth 66 cents. If the appreciation of the dollar
continues—and such has been fiscal history after other great wars—
then the longer we postpone payment the more in real value we will
have to pay. From both a moral.and a financial standpoint the sinking fund and the application of foreign repayments to debt retirement should not be altered. An early repayment of our debt has been
the policy of this country after other great wars in our history. I t
is sound policy that in the days of our prosperity we should prepare
for the next emergency.
If, as I have said, it does not seem probable that we can contemplate a reduction in Government expenditures in the next few years,
then we must turn to a consideration of Government receipts in order
to determine to what extent, if at all, taxes can be reduced. These'
receipts have'been of two general classes.
During the war and in the period of postwar adjustment the
Government made what might be called capital investments in such
things as war supplies, now surplus, loans to railroads, investments
in the War Finance Corporation, and in the bonds of the Federal

REPORT ON T H E FINANCES

land banks. I n the last five fiscal years receipts from these and
other similar sources have returned to the Treasury some $950,000,000. During the same period collection bf back taxes over
refunds of taxes, a contribution also from past years, has brought
in $400,000,000. I n the current fiscal year net receipts from
similar revenues should be $250,000,000. I n the next fiscal year
similar receipts should be about $50,000,000, a decrease of $200,000,000. Of the investment assets there remains about $400,000,000,
but the greater part is of doubtful or slow character, and by the
close of the present fiscal year in June the Internal Revenue Bureau
should be substantially current on back taxes, and this item as a
material net receipt will disappear. I n determining Government receipts for future years, therefore, this class of receipts can no longer
be relied upon.
The second general class is composed of the receipts from current
taxation. The three divisions, consisting of customs, income taxes,
and miscellaneous internal revenue, are estimated for the present fiscal year to bring in: Customs $615,000,000, income taxes $2,190,000,000, and miscellaneous internal revenue, $620,000,000, a total of
$3,425,000,000.' I n the next fiscal year, that ending June 30, 1928,
these figures are, respectively, $600,000,000, $2,090,000,000, and
$570,000,000, a total of $3,260,000,000. The loss on income-tax revenue is the expected decrease in back taxes, and the loss in miscellaneous internal revenue is accounted for entirely by the reductions
of the revenue act of 1926, which in practice do not become fully
felt for several years. I t is upon these current taxes t h a t the Government must rely.
In the divisions of the spheres of taxation betw^een the State and
municipal governments, on the one hand, and the Federal Government ori the other, one fundamental difference is particularly noticeable. In general, taxes of the States and municipalities are based
upon real and personal property, the valuation of which is fairly constant, and upon other sources, such as franchise taxes, which do not
vary substantially over a period of years. Federal Goviernmerit
revenue on the contrary comes almost entirely from sources which
may and do fluctuate violently from year to year. Income taxes are
based ori a percentage of the income earned by the taxpayers. A
good year is immediately reflected in increased income and more
Government revenue, and a bad year will equally make itself felt in
decreased income and less Government revenue.
The greater part of the miscellaneous internal-revenue taxes are
dependent upon the purchasing power of the American people,
which in turn reacts promptly to good or bad times. This is also
true of customs. If consumption falls off, imports immediately
decrease, and with them customs duties. I know of no other o-reat

SECRETARY OF T H E TREASURY

nation of w^hich the revenues are so intimately linked wdth the prosperity or w^ant of prosperity of its citizens. Under our present system we have abundant revenues when business is good, and we may
expect diminished returns when conditions change materially.
W e are now at a very high tide of prosperity in the United States.
There is no reason to expect at this time a marked reaction, but before determining that permanent tax reduction can be had we must
have reasonable assurance of a continued flow from the sources from
which our revenue is obtained. With only a few months' test of the
revenue act of 1926, common sense requires that we do not act precipitately. We face the near exhaustion of war-time assets and the
necessity of putting our sole reliance for Government revenue upon,
a class of current taxes which are peculiarly susceptible to large
variations. Tax reduction applies not to one year but to every year
after its adoption. Surplus is a casual happening, occurring in one
year and not in another. A loss of revenue which could be easily
sustained in the fiscal year 1927 might result in putting the Budget
in the red in 1929 and require the imposition of additional taxation.
Business can easily adjust itself to a lowering of expenses through
a reduction in taxes, but if a decline in prosperity should come
business could not stand a raise in expenses through more taxes just
at a time when it needed not uncertaint}^ but certainty, not tinkering
by the Government, but a sustained and known public policy.
The imperative necessity that we do not commit our Government
to an unsound fiscal policy for the future should not prevent the
Government treating its taxpayers fairly in any particular year in
which Government revenues are overabundant. I believe in debt
reduction along the program settled after the war, but I do not
believe in the pa3^ment of a public debt to the undue burdening of
productive industry. A balance should be maintained between debt
reductions and tax reductions which is fair to all interests in our
country. According to present estimates, the present fiscal year
should end with a governmental surplus of about $350,000,000 after
providing for the retirement of debt through the sinking fund and
from repayment of foreign loans. I see no reason why the greater
part of this surplus might not be left in the pockets of the people
of the country by a credit upon their income taxes.
There is not time to pass legislation to cover the December 15,
1926, income tax payment date, but before March 15, 1927, the Congress might provide for this credit against all income taxes, both
individual and corporate, which are due and payable in the first
six months of the calendar year 1927, being the last six months of
the Government's fiscal year. A credit might be allowed of 30 per
cent of the half year's taxes due and payable in the first six months
11439—FI 1926

REPORT ON THE FINANCES

of 1927. This would represent a credit of 15 per cent on the total
taxes due for the entire calendar year 1927, but the whole credit
would be taken in the first six months of the year before the Government's fiscal year closes on June 30. If this policy were adopted
by the Congress, we should end the fiscal year having taken from
our taxpayers only sufficient to carry out the essential purposes of the
Federal Government. We will not have handicapped the finances
of the Government for the future by adopting a permanent reduction
of taxes which in lean years might prove inadequate to our needs.
With the Treasury and- the taxpayer both protected, we can fairly
await further experience under the revenue act of 1926.
Extension of the Federal reserve bank cha/rters
The Federal reserve system has been in operation 12 years. The
original charters for the Federal reserve banks were for a period of
20 years, so that they now have less than 8 years to run. These
charters must be renewed sufficiently in advance of the expiration
of their present tenure to avoid any uncertainty as to contiriuity of
policies and administration. I t would seem, therefore, that the
question of their renewal should not be delayed beyond the present
session of Congress. There is, fortunately, little difference of opinion as to the advisability of extending these charters. I n the few
years of their existence the Federal reserve banks have demonstrated,
beyond any doubt their\ value to the country. During these years
the country has come safely through a great war, not only without
a panic but with a minimum of strain upori our financial structure.
The credit for this achievement is due in large measure to the
steadying influence exerted by the Federal reserve system.
I t is difficult to imagine how this could have been accomplished
with the archaic banking system under which the country operated
prior to the passage of the Federal reserve act. That system consisted of a network of independent banks, with scattered and immobile bank reserves and a credit inelasticity which rendered it
totally inadequate to the country's needs. The old banking system
was so constituted that it operated to aggravate rather than to
relieve panic symptoms in any financial emergency. National banks
could issue, currency only when secured by Government bonds and
were consequently unable to increase the currency in times of
stringency. State banks could expand their credit facilities only
by borrowing from the larger metropolitan banks, with the result
that all loans in the end converged on New York. Instead of a
coordinated system of banks wdth a common reservoir of credit, we
had a large number of independent banking units, which in times of
stress struggled against each other, never working together as part
of one prreat financial structure.

SECRETARY OE THE TREASURY

These defects are cured by the Federal reserve system. The 12
regional banks, under the responsible coordinating influence of the
Federal Reserve Board, can effect that prompt mobilization of reserves which is so essential in preventing panics. These banks are
also able to provide the country with an elastic currency, which
expands or contracts with seasonal and trade needs. I t is possible
to supply the farmers and the trade with adequate currency during
the crop-moving period and to effect the necessary contraction when
the seasonal requirements have been met. The reserves of each
regional bank are available, through the discounting privilege, to
all other Federal reserve banks. The funds of the central reservoir
can be diverted to any bank in the system which has need of them^
so that the financing of an increasing or a decreasing volume of
business can be accomplished with ease.
Although the Federal reserve system was put into operation just
prior to the outbreak of the World V/ar in a period of unprecedented
economic and financial strain, it not only emerged without any
impairment of its own strength and stability, but gave the country
the soundest financial structure in our history. I t also enabled the
Nation to adjust itself to the new conditions following the war and
kept the financial crisis, which arose during the period of postw^ar
deflation, from degenerating into a panic. As a result, there was
no impairment of our financial structure at a time when such a
calamity would have had most serious consequences throughout the
world.
The Federal reserve system is to-day one of the most important
factors in the effort toward world stabilization. When England
made the mo;nentous decision to tie its currency to gold and to reestablish the pound upon a gold basis at its former value, it meant
that the old standard for financial transactions was to continue and
that America was not to be left holding the world's supply of a metal
for which the other nations were seeking a substitute. The Treas. uries of the two countries supported this action, but great credit is
due to the Federal reserve banks for the part which they played in
bringing about this result. These banks extended a credit of $100,000,000 to the Bank of England, and the British Treasury arranged
for credits of an additional $200,000,000 with private American
bankers. England has been on a gold basis nov>^ for a year and a
half and has not used a single dollar of these credits; nevertheless,,
wathout the support furnished by the Federal reserve banks, I do
not believe that stabilization would have taken place at the time when
it actually occurred.
I n the plans for the stabilization of the rest of Europe, the participation of the Federal reserve banks is equally necessary; and in

REPORT ON T H E FINANCES

all this the interests of the American farmer and manufacturer are
vitally concerned. The nations of the world must be reestablished
on a sound financial basis if our surplus products are to find an
export market. The improvement in world markets and some adjustments in production have already accomplished more for agriculture in this country than unlimited extensions of credit or artificial
measures of price control could possibly have done.
The plans which are now taking shape throughout the world look
far- ahead;. for this reason, it is important that no element of uncertainty should be injected into the situation such as would come from
a delay in extending the charters of the Federal reserve banks. I t is
equally important that the system should not be impaired by changes
which seek to bepefit any special group of producers or consumers
but which, in the end, might prove to be fundamental and might
interfere seriously with the proper functioning of the banks as
reserve institutions. There must be changes from time to time and
adjustments to new conditions. But these changes must be made,
not for partisan purposes or to satisfy any class or group, but in
accordance with sound banking principles.
.

Banking legislation

The Federal reserve system is a most important element in the
continuation of prosperity in America and will be indispensable
again in any financial crises which may come. Its continued operation, however, depends upon its representing the bulk of the banking resources of the country and its power to retain these resources
in time of emergency.
Membership in the Federal reserve system is made up of all the
national banks, which are required by law to be members, and of
such State banks as may voluntarily join the system. At present the
membership consists of all the national banks, about 8,000 in number,
and 1,400 out of 20,000 State banksi The combined resources of
member banks represent nearly two-thirds of the banking resources
of the country. If the system becomes one composed principally of
voluntary members, the system, the Government, and the country
might be embarrassed in time of emergency by the withdrawal of
membership and the depletion of the banking resources subject to
mobilization. I t seems to me, then, desirable that Congress should
keep the national banks, which are always members of the Federal
reserve system, upon a reasonable equality of powers with the State
banks, so that the national banks may continue to meet the competition of State banks and survive.
^
.
The national bank is the creature of the Federal Government; the
State bank the creature of the particular State in which the bank is

SECRETARY OF THE- TREASURY

located. National banks and State banks exist side by side in the
various States; and if in any State the law of that State grants a
power to the State bank which the laws of Congress deny to its
neighbor, the national bank, and if this power be a valuable business
privilege, the tendency is for the State bank to grow at the expense
of the national bank until ultimately the stockholders of the national
bank abandon their national charter and take out a State charter.
With the development of banking some States have^ increased the
powers of their banks, and in some particulars Congress has also
liberalized the national bank act to equalize privileges between the
two classes of banks. For example, under certain conditions a
national bank may exercise trust powers in a State where like privileges are given to State banks. This is fair to each and is a policy
w^hich should be followed by Congress, except in such cases as the
privilege granted to a State bank is in the opinion of Congress
unsound from a banking standpoint.
I n the former Congress what has been known as the McFadden
bill was introduced, based on the principle of the equality of power
I have mentioned above and which also clarified some of the provisioiis of the national bank act. The bill failed of passage in the
former Congress, was reintroduced in the present Congress, passed
both Houses, but in different forms, and is riow pending in conference between the Senate and the House. I am advised that the principal matter upon which agreement has not yet been had between
the two Houses is on the question of the Hull amendment.
The original McFadden bill gave national banks the right to establish branches within the corporate limits of the city in which they were
located in States where a State bank was authorized to have branches.
The provisions of the bill were general and applied to any State in
the Union in which, at the time the national bank sought to establish
its branch, the policy of that State permitted branch banking. The
sole object of the Hull amendment was to limit the right of national
banks in establishing branches to those States in which at the time
of the passage of the McFadden bill the policy of the State was in
favor of branch banking. Therefore, if any State, which prohibits
branch banking, should after the passage of the McFadden bill
change its policy in favor of branch banking," the Hull amendment
would deny to national banks the right to have home city branches
in such a State. I n other words, under the Hull a-mendment a national bank in New York City, a State where to-day branch banking
is permitted, might establish branches within the city, but in St.
Louis, in a State where to-day branch banking is not permitted, if
the State policy changed in the future to favor branch banking, a
national bank might never have branches. Thus the unfairness to

REPORT ON THE FINANCES

.national banks sought to be removed by the McFadden bill would
be removed in New York State b u t not in Missouri.
A Federal law which would give certain powers to national banks
in 22 States and would deny the same powers in the future under the
same conditions to national banks in the remaining 26 States is not
proper Federal legislation." The Hull amendment adds nothing to
the protection given by the original McFadden bill to those States
which do not permit branch banking. Under the original bill national banks may not have branches in such States. But if the policy
of a State should change and it permit State banks to have branches,
then it seems to me that the principle wiiich gives limited branch
banking facilities to national banks in States now permitting branch
banking should equally apply to States which may adopt a similar
policy in the future. W a n t of equality between competitors is the
reason given for,any Federal branch-bank legislation, and I can not
see why that reason is not applicable to to-morrow's want of equality
as well as to to-day's.
At the annual meeting of the American Bankers Association, held
in October, 1926, in Los Angeles, Calif., the association adopted a
resolution recommending to Congress the enactment of the so-called
McFadden bill, including the jDrovisions rechartering the Federal
reserve banks, with the following restrictions upon branch banking:
First, that no national bank be permitted in any State to establish a branch
beyond the corporate limit of the municipality in which the bank is situated;
second, that no national bank be permitted to establish a home city branch
in any State which does not at the time of such establishment permit the State
banks to establish branches; third, that no State bank be permitted to enter
or to retain membership in the Federal reserve system if it has in operation
any branch which may have been established after the enactment of H. R. 2
beyond the corporate limits of the municipality in which the bank is situated;
fourth, that no branches which may have been established -after the enactment
of H. R. 2 beyond the corporate limits of the municipality in which the parent
bank is situated be permitted to be retained when the State bank converts into
or consolidates with the national bank, or when two or three national banks
consolidate.

. With this recommendation and under the limitation therein set
forth, I thoroughly agree. The national banks have waited patiently
for constructive banking legislation from Congress. Owing to the
unfortunate injection of the Hull amendment into the McFadden bill,
relief has not yet been had. Many banks have withdrawn from the
national bank system, and unless action is taken by Congress I am
fearful that the national bank system will be further weakened. The
Federal Government owes to its own banking corporations treatment, which will permit them to meet their competitors, the State
banks, upon at least fairly equal terms. We can not afford to destroy
the national banks, which are arid must be the backbone of our Federal reserve system.

SECRETARY OF THE TREASURY

Disposition of sequestrated German property and payment oj mixed
claims
I t is eight years since the war ended, but reconstruction is difficult
and the task is not yet completed. America still has a duty to
remove sources of possible friction, and there is no greater cause of
misunderstanding between nations than the existence of unsettled
international questions. For this reason the administration has
urged the funding of inter-allied debts. As a further step in the
program of adjustment, the Treasury prepared last March a comprehensive plan for the settlement of the existing questions between
Germany and the United States, and a bill to accomplish this plan
was introduced in Congress by Representative Mills, of New York.
(A copy of the Treasury statement describing this plan appears as
Exhibit 44, page 266, of this report.)
This plan proposed in general:
1. T h a t their property be returned to the German nationals.
2. T h a t the United States advance the money necessary to pay the
private American claims.
3. T h a t the United States pay compensation for the ships, radio
stations, and patents taken from German nationals and used by the
United States.
4. T h a t the Treasury be authorized to borrow the money necessary
to make these payments and all receipts from Germany under the
Dawes plan go to pay interest and principal of the public debt, thus
reimbursing the Treasury.
This plan proposed to dispose of the three matters between the
United States and Germany left unsettled since the war.
Germany promised to pay the American claims, but Germany also
agreed to pay to the Allies an enormous bill for reparations. This
was more than Germany could do, and in effect it went into receiver^ship. Under the reorganization plan proposed by the Dawes Commission and accepted by all of Germany's creditors, including the
United States, by the Paris agreement, we are to receive a share of
the Dawes payments on account of the American claims, amounting,
when the plan is fully operative, to $11,000,000 a year. I t would,
however, take 80 years to pay the awards of the Mixed Claims Commission if this share alone is used. Unless we should confiscate the
private property of the German nationals which we hold and apply
the. proceeds against these claims, the American claimants, receiving
only a fraction of their awards each year, would get little real compensation for their losses. Payments in small installments over a
long period of time mean little to an individual, but are of benefit to
a government which is expected to continue in existence for centuries. I t would be no particular hardship, therefore, for the United
States, out of the money borrowed for the purpose, to pay off the

REPORT ON THE FINANCES

private American claimants and to rely upon subsequent receipts
from Germany for reimbursement.
The alternative is to confiscate the private property of German
nationals to pay the debt of their Government.
Although Germany is obligated to make good to her nationals
for any property taken to pay the debt of their Government to
American citizens, unless we know as a practical matter that such
payment will be adequate, for us to take the private property is
confiscation. I t has always been American policy to recognize this
sanctity of private property of others, even though we are at war
with their government, and we should not change now. As a commercial nation with large interests abroad, the continuation of this
policy as a part of international law may be to our own material
advantage in the future should another war ensue. And, finally, we
took the property as trustee, negativing the intention to confiscate
it, and under the Berlin treaty and joint resolution of Congress we
have agreed to hold the property only until suitable provision is
made for the payment of the American claims. Our own conduct
appears to have estopped us from using this private property to pay
Germany's debt even if the Constitution would permit confiscation,
now that we are at peace.
The payment for ships, radio stations, and patents, is but a recognition of fair dealing that the United States, having received the
benefit of property taken and used, should pay just compensation.
The plan embodied in one piece of legislation all of the principal
matters left over from the war and would, if adopted, be a settlement
with honor to the United States.
Objection arose to the plan in the Committee on Ways and Means
of the House of Representatives because the plan imposed a burden
on the Treasury, and various other plans have been suggested. The
Treasury undertook the preparation of the plan in the first instance
for the purpose of presenting some constructive solution of the entire
problem. I have not considered that this particular plan is the only
one which Congress should adopt. I am quite ready to support any
legislation for the solution of. the question which meets the two
requirements which I believe to be essential. First, that the United
States shall not take the private property of enemy nationals without
insuring adequate compensation to the owners; and, second, that the
United States shall not adopt a fair policy to foreign nationals with
whom we were at war at the expense of individual American citizens,
whose complete protection should be the first care of our own country.
The suggestions which have appeared up to the time of the writing
of this report as alternatives for the Treasury plan have recognized
the first of these principles, but not to the full extent the second.

SECRETARY OF THE TREASURY

I think it might be well for me to repeat some of the reasons why I
think the second principle is even more important than the first:
First. I t is the duty of a nation as a nation to protect its citizens
against harm by aiiother nation. Therefore, the burdens suffered
by an individual through the unlawful aggressions of Germany should
be borne not by the individual alone who has suff'ered, but by the
United States as a whole.
Second. In the Berlin treaty, which embodied certain provisions
of the Versailles treaty, Germany agreed that the alien property could
be used to pay American claims and that Germany would reimburse
her own nationals. In the Winslow Act, passed in 1923, for the payment of certain earnings to the owners of the alien property, Congress
seems to have ignored the right of the American claimants and in
effect estopped itself from making use of the property as it was
originally empowered to do under the Berlin treaty. In our participation in the Dawes plan through the Paris agreement, without the
consent of the American claimants, America in effect postponed and
placed upon an indefinite basis the American claims, both as to the
amount to be paid and time of payment. The action of Congress by
the Winslow Act and the United States' participation in the Dawes
plan, by taking rights away from the American claimants, put upon
this country the duty to see tliat American claimants do not suffer
from these acts.
In discussing the authority of Congress over enemy property the
Supreme Court, in the recent case of United States v. Chemical
Foundation (Inc.) (decided October 11, 1926), said:
There is no support for a construction that would restrain the force of the
broad language used. Congress was untrammeled and free to authorize the seizure, use, or appropriation of such properties without any compensation to the
owners. There is no constitutional prohibition against confiscation of enemy
properties. * * * And the act makes no provision for compensation. The
former enemy owners have no claim against the patents or the proceeds derived
from the sales. It makes no difference to them whether the consideration paid
by the Foundation was adequate or inadequate. The provision that after 'the
war enemy claims shall be settled as Congress shall direct conferred no rights
upon such owners. Moreover, the Treaty of Berlin prevents the enforcement of
any claim by Germany or its nationals against the United States or its nationals
on account of the seizures and sales in question.

Under this decision a return of the property to the German owners
represents not a legal but a moral duty. This decision has not
changed my view that America can and should be generous in its
treatment of this private property. There has been set up a mixed
American-German Commission, which has determined the justice and
amoimt qf the American claims. Payment of these claims must be
insured by the United States before the property of German nationals
should be returned. We can not be generous to the nationals of
Germany at the expense of individual American citizens.
11439~Fi 1926

REPORT ON THE FINANCES
RECEIPTS

The continued high level of Government receipts during the fiscal
year ended June 30, 1926, evidences the prosperity which has prevailed in the nation since the early part of 1925. The increased
receipts from taxation, as shown in the following table, have more
than offset the reduction in miscellaneous receipts, and total ordinary
receipts for the fiscal year 1926 were $3,962,755,690, compared with
$3,780,146,684 for the fiscal year 1925, an advance of $182,609,006:
Ordinary receipts, fiscal years 1920 to 1926
[Basis of daily Treasury statements, unrevised]
Miscellaneous revenues,
including P a n a m a Canal
Year e n d i n g
J u n e 30—

1920
1921
1922
1923....
1924
1925
1926.-1

Customs

$322,902,650'
308, 564, 391
356,443,387
561,928, 867
545, 637, 504
547, 561,226
579, 430,093

Income and
profits taxes

$3, 944, 949, 288
3, 206, 046,158
2, 068,128,193
1, 678, 607, 428
1, 842,144,418
1, 760, 537, 823
1,982,040,088

Miscellaneous
internal revenue

$1,460, 082, 287
1,390, 379, 823
1,145,125, 064
945,865, 333
953, 012, 618
828, 638, 068
855, 599, 289

Total
Proceeds
from foreign
obligations

All other

$74, 296, 622
114, 821, 206
75, 222,068
232, 989,156
221, 774, 675
183,637,677
194, 237, 957

$892, 334, 542
605,121, 383
464,185, 439
587, 744, 697
449,475, 487459, 773,890
351,448, 263

$6, 694, 565,389
5, 624, 932, 961
4,109,109,151
4, 007,145, 481
4,012, 044, 702
3, 780,148, 684
3, 962, 755, 690

Income taxes returned $1,982,000,000, compared with $1,760,000,000 in 1925, and $1,842,000,000 in 1924, notwithstandmg the reduction in individual income tax rates in the revenue act of 1926 affecting
receipts the last half of the fiscal year. Collections on account of
income tax returns of prior calendar years were $19,000,000 larger
, than similar collections in 1925. The increased tax receipts, however,
reflect primarily the marked growth in incomes of individuals and
corporations during the calendar year 1925, an increase which more
than compensated for the reduction in normal and surtax rates and
the increased personal exemptions and credits on incomes of individuals. Receipts from income taxes, corporation and individual,
in March and June, 1926, were $500,000,000 and $443,000,000 as
compared with $441,000,000 and $377,000,000 for the same months,
respectively, in 1925.
During 1926 imports reached their highest level since the postwar
adjustment. Customs receipts totaled $579,430,093, the largest in
the history of the country, nearly $32,000,000 more than was received
in the fiscal year 1925, and an increase of about $22,000,000 over
receipts estimated in October, 1925.
The increase in miscellaneous internal revenue for the fiscal year
1926 was not as great as estimated in October, 1925, largely because
of tax reductions in the new revenue act. However, receipts from
these sources were $27,000,000 more than in 1925, due to increased

SECRETARY OF THE TREASURY

colliBctions on taxes on estates of decedents, to-bacco and tobacco
manufactures, automobiles and parts, and corporation capital stock
tax. Receipts from miscellaneous sources fell off, primarily because
of a decline in receipts on account of Government-owned railroad
securities from $143,911,421 in 1925 to $36,735,327 in 1926.
Trend in receipts
The distribution of receipts for the fiscal year 1926 among the
different sources, as compared with a similar distribution in immediately preceding years, shows again the trend of adjustment in the
peace-time revenue system. Diagram 1 shows the percentage distribution of ordinary receipts by sourcies for the fiscal years 1920 to

ALL OTHtFw
PICOCLLDd FR.OM
FOREIGN OBLiqATIONS
CUSTOMS
MI5CLLLANLOV3
INTLILNAL RtVLNUL

INCOML' AND
PR.0FITS TAXE.5

1,000 -t-

0-^
1920

1921

1922

1923

1924

1925

1926

DIAGRAM 1.—Principal sources ol ordinary receipts of the Government for the fiscal years 1920 to 1926

1926. Income taxes, a comparatively new source of Federal revenue,
have produced about half the ordinary receipts during all these
years. However, the proportion of receipts coming from these
sources dropped off considerably in 1921, 1922, and 1923 subsequent
to the first downward adjustment in tax rates in 1921, and during
the business' depression of 1921 and 1922. Since 1923 the proportion of receipts coming from income taxes has risen steadily, from.
42 per cent of total receipts in 1923, to 50 per cent in 1926. This
has been due partly to increasing yield of income tax rates adjusted
to synchronize with the general prosperity of the country, and partly
to decreasing receipts from miscellaneous internal revenue resulting

REPORT ON T H E

FINANCES

from reductions in -tax rates and the repeal of taxes levied during
the war.
The postwar tax system thus evolved from the widespread use of
income taxes, first levied on corporations in 1909 and on individuals
in 1913, is quite different from the pre-war system. Diagram 2
shows the distribution of tax receipts (warrant basis) between customs, income and profits taxes, and miscellaneous internal revenue
during the period 1900 to 1925.
In the ye'ars immediately preceding the war more than 90 per cent
of tax receipts came from indirect taxes, customs duties, and taxes
on articles of domestic consumption, largely tobacco products and
alcoholic beverages. Now, although receipts from customs and from

i,ooo'

1900
1915
jL8aO
1926
DIAGRAM 2.—Government receipts from customs, miscellaneous internal revenue, and income and profits
taxes for the fiscal years 1900 to 1926

miscellaneous internal revenue are larger than in pre-war days,
these sources are of minor importance compared with the income
taxes paid by individuals and by corporations. Indirect taxes, the
burden of which is distributed rather generally among the consuming public, have been largely replaced by taxes on the income of
,individuals, graduated according to the size of the income, and by
taxes on the income of business.
Receipts from miscellaneous sources other than taxation have
declined considerably since 1920. The following table shows these
receipts, distributed among the more important sources. Liquidation of surplus supplies and of war corporations was responsible for
much of the high level of receipts from 1920 to 1923, and this liquidation is now practically complete.

SECRETARY OF THE TREASURY
Miscellaneous receipts, 1920 to 1926
[Basis of daily Treasury statements, unrevised; in millions of dollars]
Proceeds from G o v e r n m e n t owned obligations
Fiscal year
Foreign

Railroad

74.3
114.8
75.2
233.0
221.8
183.6
194.2

Q)
99.3
94.4
143.9
36.7

All other

Sale of
surplus
war
supplies

Panama
Canal
tolls

All other

309.3
183.7
113.6
91.7
46.8
23.8
25.6

5.6
12.3
11.7
17.3
.27.1
23.1
24.7

2 577. 4
2 409.1
312.8
333.1
271.6
249.2
229.9

Total

•

1920-1921..
1922_
1923.1924. _
1925
1926

0)
0)

3 26.1
46.3
9.6
19.8
34.6

966.6
719.9
539.4
820.7
671.3
643.4
545. T

1 Receipts on account of securities other than foreign-owned not shown separately for 1920 and 1921.
2 Includes in ^1920 $350,000,000 and in 1921 $100,000,000 from liquidation of the United States Graicr
Corporation.
3 Receipts on account of railroad securities not segregated.

Beginning with 1923, receipts on account of Government-owned
securities have been large, amounting to about half the miscellaneous
receipts. However, some of these sources are fast disappearing. R e ceipts on account of railroad securities, which ran from $94,000,000*
to $144,000,000 for the years 1923 to 1925, can not be expected tocontinue at this level. The amount of these obligations outstanding"
has been greatly reduced by the large repayments. Most of the
strong roads have already paid, so less may be expected in the futurCo
Receipts from ''other securities'^ have increased in the last twoyears with the repurchase by the Federal Farm Loan Board of the
Government holdings of farm loan bonds. Since the holdings ^of
these bonds had been reduced below $5,000,000 by October 1, 1926,.
this source is now practically exhausted. ''All other'' miscellaneous
receipts include a small amount of revenue from each of a large
variety of sources. These receipts have declined since 1923, from<
$333,000,000 to $230,000,000. Therefore, with the war supplies
liquidated, the holdings of railroad and other securities almost exhausted, and receipts from "all other" sources declining, miscellaneous receipts can not be looked to in the future to make up for any
falling off in the yield of taxes.
The revenue act of 1926
As the Treasury has pointed out in connection with other revenue-'
acts passed since the war, revenue revision must introduce not only
tax reduction but also tax reform, if the tax system is to be put on a
basis to furnish the maximum revenue with the minimum deterrent
eft'ect on business. We probably have not yet reached the state of
having a permanent basis for our tax system involving sources of
suflicient stability and breadth to insure adequate revenue f®r theGovernment's needs during good and poor years, and without putting
undue burdens on the productive forces of the country, but as I have

REPORT ON T H E

FINANCES

discussed elsewhere in this report I do not recommend a change in
the law until we have had the benefit of further experience in its
returns of revenue.
The revenue act of 1926 accomplished many of the reforms which
the Treasury believed the tax system needed and which the revenue
act of 1924 failed to incorporate and went further in the reduction
of the tax burden. Reductions were made in individual income taxes
in both normal and surtaxes. Personal exemptions have been increased, thus freeing from tax about 3,400,000 taxpayers in the lower
income brackets. The credit for earned incomes was increased. T h e
effect of all these changes in individual income taxes for a typical case,
a married taxpayer without dependents, is shown in the following
table:
T a x a t i o n of individual income of varying amounts under the revenue acts of 1924
a n d 1926
11 Taxpayer assumed a married man, whoUy independent, with no children or other dependents, earned
income of $5,000]
'
c
R e v e n u e act of 1924
N e t income
Tax

$1,000
$2,000$3,000$4,000
$5,000
$10,000.. . .
$50,000
$100,000. .

• '.

0
0
$7.50
22.50
37.50
207. 50
6,137. 50
22, 617. 50

.
.

Percentage
tax to
income
0
0
0.25
.56
.75
2.08
12.28
22.62

R e v e n u e act of 1926

Tax

0
0
0
$5.63
16.88
129. 38
5,079. 38
16, 259. 38

Percentage
tax to
income
0
0
0
0.14
.34
1.29
10.16
16.26

•

Excise taxes on manufacturers' and dealers' sales were removed,
except taxes on pistols and revolvers and on passenger automobiles
and motor cycles, and the tax rate on the last was reduced. Certain
stamp taxes were removed. Taxes on distilled spirits and on admissions were reduced. The corporation capital stock tax was repealed.
These revisions are reforms to the extent that the tax system is simplified. Although the productivity of the tax system as a whole has
not been increased by the elimination of these sources, the loss of
revenue from many of the taxes is comparatively insignificant.
The repeal of the corporation capital stock tax was offset by an
increase in the tax rate on corporation income, from 12^/^ to 13 per
cent for the calendar year 1925 and to 13 J^ per cent for the following
calendar years. Therefore this repeal was really a change in method
of taxation and not in the burden of taxation oil corporations. An
outline summary of the principal changes made in taxes and tax
rates by the revenue act of 1926 is given in Exhibit 51, page 291.
Although many of the tax changes in the revenue act of 1926
aft'ected collections between March and June, 1926, the fiscal year

SECRETARY OF THE TREASURY

ending June 30, 1927, will be the first to reflect the effect of the
majority of the changes. Some minor revisions will not be in complete operation until subsequent fiscal years. The changes in the
following taxes will be in effect for the entire fiscal year 1927:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

Income taxes, corporation and individual.
Repeal of gift tax.
Reduction of rates on cigars.
Increased exemption for admissions.
Changes in excise taxes.
Capital stock tax.
Miscellaneous occupational taxes, including tax on use of boats.
Stamp taxes.
Tax on cereal beverages.

Other reductions which will be fully reflected in receipts of subsequent fiscal years are those in estate taxes and in taxes on distilled
spirits.
The loss in collections from certain taxes repealed can be definitely
estimated, such as the capital stock tax, excise taxes, and miscellaneous occupational taxes. However, the losses due to the reduced
rates on cigar products, passenger automobiles and motor cycles, and
distilled spirits, the increased exemption on admissions, . and the
repeal of certain stamp taxes can be only roughly estimated, either
because the effect of the reduced rates on production is uncertain, as
in the case of cigars and automobiles, or because the lack of segregated
data on past collections makes it impossible to know what has been
collected from the taxes now removed, such as certain stamp taxes.
Until a full year's returns come in, the loss in revenue from these
sources can be only approximately known. While the difference in a
single tax may be slight, the total effect is cumulative. Although the
loss in revenue is not large compared with total tax collections, it is
significant in comparison with the estimated surplus of about
$383,000,000.
Compared with the internal revenue system in existence during the
war, which reached its most extensive development under the revenue
actof 1918, the revisions concluded by the revenue act of 1926 have
been far-reaching. Individual incomes in all brackets have been
^ relieved through two reductions in normal tax rates, three reductions
in surtax rates, successive increases in personal exemptions, and the
addition of a credit for earned income. The war-profits and excessprofits tax on corporations has been removed. A substantial reduction has been made in estate taxes. Of the long list of about 26
excise taxes on the value of sales of articles, only two are remaining.
From the special taxes, including the capital stock tax and a variety
of occupational taxes, all have been repealed except the tax on
brewers and distillers, on the use of boats, and on the use of narcotics.
-Some reductions have been made in taxes on documentary stamps,

. 24 .

REPORT ON THE FINANCES

admissions, distilled spirits, and tobacco products. Taxes on
transportation, on telegraph and telephone, on insurance, and on
nonalcoholic beverages have been, removed. In brief, an internal
revenue system of relatively few taxes has been evolved from an
elaborate war-time tax system composed of numerous taxes on
commodities and activities, some yielding a large amount of revenue
and others a comparatively insignificant amount.
Tax reduction
The revenue act of 1926 marks the third reduction in the Federal
tax burden since the end of the war. Two of these reductions have
taken place within two years of each other, through the revenue act
of 1924, approved June 2, 1924, and through the revenue act of 1926,
approved February 26, 1926. The extent to which the revenue acts
have relieved the tax burden from year to year varies, depending on
the total volume of taxes collected. A rough measure of the reduction under each act is a comparison of the receipts during the first
fiscal year under the new act with what might have been collected
had the old act remained in effect a year longer. On this basis the
following annual reduction in tax burden under the revenue acts of
1921, 1924, and 1926 is estimated:
Estimated reduction
in tax burden a year

Revenue act of 1921..
Revenue act of 1924
Revenue act of 1926
Total

.
:.

$663, 000, 000
519, 000, 000
422,000,000
1,604,000,000

As previously stated, the Treasury is of the opinion that no further
alterations in our tax system should be made until the full effect
of the revenue act of 1926 has been demonstrated. The revenue act
of 1921, approved November 23, 1921, was in effect for over two
years, and in full effect one complete fisca.1 year before the passage
of the revenue act of 1924. Furthermore, the productivity of the
act was tried out during the recovery period following a depression
and not during a period of great prosperity. Government expenditures were declining rapidly with the termination of war activities
and the rigid program of economy pursued. Before the revenue bill
of 1926 was enacted, the revenue act of 1924, approved June 2,1924,
had been in effect for a full fiscal year, and income tax receipts had
come in for the calendar year 1924, when business was only moderately prosperous. The revenue act of 1926 had been in effect only
a few months by June 30, 1926. Receipts under the act must be
expected in following years to meet an upward trend in Government
expenditures. The decline resulting from the cessation of war
activities has ceased, and expenditures are beginning to increase with

25.

SECRETARY OF THE TREASURY

the normal expansion in Government activities. The most important,
receipts under the new act, the receipts from corporation and individual income taxes, have thus far been based on incomes of 1925,
one of the most prosperous years since the war. The real measureof the productivity of a revenue act depends on the receipts it will
yield not only during the most prosperous years the country hasseen, but also during years of more moderate prosperity or of business,
depression. '
Large Government receipts similar to those for the fiscal year 1926can not certainly be counted on for the years immediately following1927. The increase in income of individuals from 1924 to 1925 just
about made up for the increased exemptions and credits and the>
reduction in normal and surtax rates. Corporate income and taxes,
increased in 1925 over 1924 more than estimated by the Treasury.
Collections on the miscellaneous taxes and on customs have been
similarly affected by the high level of prosperity. The prosperity of
the calendar year 1925 has continued thus far through the calendar
year 1926, with corresponding prospects for large corporate and individual incomes and taxes to be reported for 1926. Large collections,
for 1927 are certain because income taxes constitute about half theinternal revenue receipts and because collections for 1927 will be on,
incomes of 1925 and 1926.
If the main sources of taxation were not affected by the ups and
downs of business and the large tax receipts of recent prosperous years,
were thus certain for succeeding years, the prospect for tax reduction,
would be somewhat different. However, income and profits taxes,,
the source of about half the internal revenue receipts, vary with
changing business conditions. The following table shows fluctuations in net income and income tax (exclusive of war-profits and excessprofits taxes) returned by corporations reporting net income for the.
calendar years 1919 tp 1924:
Corporation net ^income and income taxes returned, 1919 io 1924
Net income Income tax.
(millions) (millions)

Calendar year
1919
1920
1921
1922
1923
1924
1925 1

;
1

•

•
:
•

$9,412
7,903
4,336
6,964
8, 322
7, 587
9,037

$744.,
637
366
755
937
882
1,101

1 Preliminary report.

During the moderate business recession of 1924 the amount of
income taxes returned declined $55,000,000. During the depression from 1919 to 1921 the decline in taxes retuorned amounted to^

REPORT ON T H E

FINANCES

$378,000,000. If a decline should take place in business during 1927,
corporation taxes collected during 1928 on these incomes would
decrease. The amount of reduction would depend on the severity
of the business decline. Similarly, individual net income has fluc^tuated with changing business conditions, although less widely than
corporation income. Other tax collections affected are customs, taxes
on sales of passenger automobiles, admissions, and documentary
stamps.
Thus to the uncertainty of the effect of the new revenue act on
Government receipts, even under the present prosperous conditions,
is added the uncertainty of the effect of possible changes in business
BILLIONS
OF DOLLARS
120

BILLIONS
OF DOLLARS ^
20!—
18

16
WORLD

mWAR

14
12
10

SPANISH
AMERICAN
WAR1890

1900

1910

19^0

DIAGRAM 3.—Expenditures chargeable against ordinary receipts for the fiscal years 1890 to 1926

prosperity on tax yield. Since the Treasury must have receipts
sufficient to cover Government expenditures, and these expenditures
are no longer declining as in the early postwar days, the Treasury
must take account of this possibility for smaller tax receipts in the
years iinmediately following 1927 before recommending further permanent tax reductions.
EXPENDITURES

The expenditures of a government summarize its activities. Both
the scope and relative importance of the various tasks required of the
Federal Government are shown more clearly by a summary of its
disbursements than in any other way. Furthermore, an analysis of
the trend of expenditures in the last few years furnishes the best

SECRETARY OF THE TREASURY

basis for judging the probability of a further reduction in the cost
of government in the immediate future—a question which is of widespread interest on account of its bearing on the feasibility of tax
reduction. In any comprehensive survey of the Government's
fiscal condition, therefore, it is necessary to carefully examine its
expenditures.
Total expenditures
The total expenditures chargeable against ordinary receipts for each
year since 1890 are shown in the accompanying chart, diagram 3.
(Corresponding figures may be found in Table 7, page 456.)
The period from 1890 to 1916 depicts the so-called normal
growth of expenditures, while in the decade 1917 to 1926 the abnormal
demands of the World War and the subsequent return to a new peace
level are shown.
The mounting tide of governmental costs under normal conditions
is exhibited in the following table of the amounts of annual ordinary
expenditures from 1890 to 1915, and the corresponding per cent of
increase over the figure for 1890. Even after allowance is made for
price changes, the same trend is apparent, as is shown in the last two
columns of the table.
Increase i n total ordinary expenditures,^ 1890 to 1915, with and without allowance
for price changes
Increase
over 1890
Increase Total ordinary expendiTotal ordinary over 1890 expenditures
tures
expenditures expendi- at 1913 price after correction
tures
level
for price
changes

Fiscal year

•
1890
1895...
1900...
1905...
1910
1915...

Per cent
.'

...^

$318,000,000
356, 000,000
521,000, 000
567, 000, 000
694, 000, 000
761, 000, 000

12
64
78
118
139

Per cent
$418,000,000
. 495,000,000
685,000,000
692, 000, 000
723, 000, 000
739,000,000

18
64
66
73
77

The tendency for expenditures to increase in ordinary times is not
confined to any one period or country but, on the contrary, seems to
be a universal phenomenon. Among the principal causes may be
enumerated:
1. the rising level of general prices,
2. the increasing population,
3. the increasing cost of armaments and accumulation of
expenses attributable to past wars,
4. the expanding sphere of governmental activity required by the
increasing congestion of population and made possible by
augmented national wealth, and

REPORT ON T H E FINANCES

5. the rising standards in governmental activities and efficiency,
a necessary concomitant to a rising general standard of
living in a progressive country.
Expenditures that expand only in proportion to rising prices and
the growth of population signify no change in the quality or quantity
of service performed per capita. I t is interesting to note that almost
one-half of the increase in Federal expenditures from 1915 to 1926 is
of this nature. But there has also been a real and permanent increase. From the World War there has emerged a new and much
higher level of expenditures than has ever before been attained. For
not only were there created large continuing expenditures ascribable
to the war itself—such as interest on the public debt, public debt,
retirements, and relief of veterans, which taken together account for
half of the Federal expenditures in the last five years—but the expansion of the civil establishment was also stimulated. This is the
usual result of war readjustments. In times of peace the expansion
of governmental activities lags behind the current demand) since the
burden of proof that enlargement is needed lies with those who favor
it. When expansion has once taken place through war necessity,
how^ever, the new scale of operation becomes the accustomed one^
making a return to old limitations practically impossible, especially
if the new activities are supported by a rising general standard of
living.
The Federal Government, although it alone was directly involved
in military activity, has not been the only one to feel the war's
stimulus to expansion. In the decade 1915 to 1925 the government-cost payments of States increased 226 per cent, and the corresponding increase for 146 cities having a population of over 30,000
was 156 per cent. T h a t the total ordinary expenditures of the
Federal Government during the same decade increased only 224 per
cent, in spite of the large amounts necessary for interest on the
public debt and the other legacies of the World War, is mainly due
to the aggressive economy campaign of the administration during
the last five years.
Functional distribution of expenditures
The accompanying chart, diagram 4, shows the expenditures of
the Federal Government since 1915 divided according to function
into four great classes.
Of these classes, the first in importance at present is the service of
the public debt, which in eludes debt retirements and interest payments.
From the chart it can readity be seen how the enormous national debt,
left as a legacy from the World War, dominates our national finance^
and will continue to do so until it has been reduced to an easily manageable size. The fiscal importance of rapid retirement of the debt

SECRETARY OF THE TREASURY

is apparent, for while these huge charges hold their predominant
position it will be difficult to alleviate materially the present burden
of taxpayers through reduction in the cost of the Government. To
retard retirement appreciably means to lengthen correspondingly the
period during which these heavy expenditures will be required.
The second major class of expenditures may be described as those
for military functions, a special province of the Federal Government.
This group includes aid to war veterans and the cost of special
^agencies for strictly military purposes, as well as the military expenditures of the War, Navy, and other departments. The expenditures
imder this head have, of course, been unusually expanded in the last
BILLIONS
OF DOLLARS
'20"

1915

1919*
1923
DIAGRAM 4.—Main classes of expenditures for the fiscal years 1915 to 1926

1926

•decade because of the World War, but seem to have reached their
new peace-time level.
A temporary group of expenditures appeared during the fiscal
years 1917 to 1921, when loans were made on a large scale for various
•emergency purposes. The three major categories were loans to for-eign governments, loans to special war agencies, and loans for agricultural purposes. Since 1922 only the last type of loan has been
continued, and in no subsequent year has there been a significant
amount compared with total expenditures. In calculating future
expenditures, therefore, loans may be disregarded.
The fourth group includes expenditures for all other purposes.
After subtracting the amount of refunds, losses, contingencies, pay-

REPORT ON T H E FINANCES

ments from trust funds, and other nonfunctional miscellaneous disbursements, the cost of the ordinary civil activities of the Federal
Government is obtained. This amount, distributed under six main
heads, is shown in the following table:
Functional distribution of ordinary civil expenditures, fiscal years 1916 to 1926
[Millions of dollars]

Fiscal year

1915
1916
1917
1918
1919.
1920
1921.
1922
1923
1924 . . .
1925
1926
.

General
government

Internal
security

45
46
49
68
105
122
119
105
105
106
104
102

24
21
22
24
31
141
53
45
51
50
74
74

:
.

.•

Develop- P u b l i c
m e n t a n d dwo omrakisn, ,
regulaa n d intion
dustries

Local
governments
a n d Indians

Foreign
relations

119
87
112
1,051
2,300
1,661
934
198
345
221
290
274

27
27
28
31
33
38
44
42
41
44
54
56

5
5
5
9
9
10
8
• 10
14
14
15
16

52
51
59
102
160
101
119
103
105
106
108
109

Total

272
237
275
1,285
2,638
2,073
1,277
503
661
541
645
631

Under '^General government" are included expenditures for the
Congress and the Executive Office, and for administrative operations
of a general character, such as, for example, the Treasury fiscal
service, the work of the Civil Service Commissioia, and the maintenance of public buildings.
Disbursements for law enforcement, immigration, naturalization^
public health, and special relief are grouped under ^'Internal securit3^" The large amount shown for 1920 is due principally to special
relief expenditures. '^Development and regulation" includes, besides education and research, the promotion or regulation of special
groups or industries, such as, for example, agriculture, banking,
commerce, labor, and railroads. The scope of the next division is
indicated by its name, ''Public domain, works, and industries."
An important item in public works is the promotion of good roads,
for which expenditures amounted to $98,000,000 in the fiscal year
1926. The large expansion shown by this group in the years from,
1918 to 1921, inclusive, is .due almost entirely to expenditures for
the Emergency Fleet Corporatio]ci and the Federal control of railroads.
In the fifth classification, designated ''Local governments and
Indians," are included expenditures for the governments of the
Territories and the District of Columbia, subventions to States, and
the cost of the Indian wards of the Nation. The term "Foreign
relations" explains the nature of the items grouped under the sixth
heading.
The total amount of all classes of ordinary civil expenditures has
more than doubled since 1915. Each of the six subdivisions of the

SECRETARY OF THE TREASURY

group has also increased more than 100 per cent in the same period.
Expenditures for "Local governments and Indians" and for "Foreign
relations" have shown a consistent expansion, stimulated to a
certain extent by the World War and, in the latter case, by the consequent change ia our iQternational position. The other subdivisions
show an increase during the war period and a subsequent decrease
which now seems to have reached its limit. In the two classes where
decreases still continue, viz, those designated "General government"
and "Public domain, works, and industries," respectively, little if
any further reduction can be reasonably expected. Good roads, for
example, account for 36 per cent of the 1926 figure for the latter
group, and this basic item is not likely to decrease in the near future.
I t seems evident, therefore, that a further reduction in total expenditures is not to be expected by a contraction in civil functions.
Ah interesting exhibit of the relative importance of the functions
of the Federal Government is shown in the following table, in which
the amounts spent for the various classes of activity in each of the
fiscal years 1920 to 1926 are reduced to percentages of total expenditures. Figures for pre-war years are not included in the table as
comparisons of such percentages would be entirely vitiated by the
enormous growth of the public debt.
Functional distribution of expenditures, by percentages, fiscal years 1920 to 1926
1920

General go vernment.
_
Internal security
__ . .
Development and regulation
Public domain, works, and industries ._
Local governments and Indians
Foreign relations
Total ordinarv civil functions
Military functions
Public debt
Loans
.._i
Trust funds. _
Refunds, losses, etc

1 Credit.

1921

1922

1923

1924

1925

i926

Per cent Per cent Per cent Per cent Per cent Per cent Per cent
2.7
2.5
2.7
2.6
1.7
2.6
2.4
2.0
1.1
1.3
1.2
1.9
1.9
1.1
2.8
2.5
2.7
2.6
1.4
2.7
2.4
7.7
4.7
8.9
5.5
22.7
19.1
6.9
1.4
LO
Ll
1.1
.5
1.4
.9
.4
.2
.4
.3
.1
.4
.2
28.3
32.2
30.2
8.2
.5
.6

26.1
36.6
29.0
6.0
1.2
1.1

12.0
36.3
47.5
.4
1.7
2.1

17.1
34.4
43.3
1.9
2.0
4.1

13.3
29.9
50.4
.3
2.1
4.0

4.7
,4.9

100.0

17.0
30.5
42.9
(2)

15. &
29.8
43.2
(2)

5. &
5.4

100. 0

2 Less than one-twentieth of 1 per cent.

As stated previously, in the discussion of total expenditures,
when disbursements increase only in proportion to rising prices and
the growth of population, it is prima facie evidence that no change
has taken place in the average quality or amount of service performed
per capita. Hence, after the expenditures for each function are
corrected for price changes and reduced to per capita figures, the
trends of real significance are more readily apparent. The following
table gives, for each function, the per capita expenditures corrected
for price changes, beginning with the fiscal year 1915. The price

REPORT ON T H E

FINANCFES

index used in this calculation is composed of price indexes of commodities and services entering into Government expenditures,
weighted according to their relative importance in the fiscal years
1924 to 1926, which constitute the base period.
Functional

distribution

of per capita expenditures reduced
level, fiscal years 1915 to 1926

1924-1926

price

1924

1926

[In dollars of 1924-1926 purchasing powerl
1915
General g o v e r n m e n t I n t e r n a l security
D e v e l o p m e n t a n d regulation!
Public domain, works,
and industries
•Local g o v e r n m e n t s a n d
Indians
•Foreign relations
T o t a l o r d i n a r y civil
functions
'.
-Military f u n c t i o n s . _
Public debt
J
Loans .
T r u s t funds
R e f u n d s , losses, etc

0.65
.34

1910
0.64
.28

1.917
0.02
.28

1918
0.7G
.27

.76

•71

.76

L13

L71

L22

L42

1L64

.39
.07

.38
.07

.37
.07

.34
.09

3.92
6.28
.33
.20
.22

3.30 3.52
6.29 10.71
.32
.33
11.46
.26
.14
.30
.30

1919

1920

1921

1923
0.97
.47

0.91
.65

L18
LSO

L64

.98

L12

.97

.95

23.51 16.10

8.78

L86

3.18

2.00

2.56

2.37

.41
.08

.39
.09

.38
.13

.39
.12

.47
.13

.49
.13

.36
.10

0.99
.42

0.96
.45

1925

L07
.32

.34
.09

L12
.49

1922

0.88
.64

14.23 26.97 20.08 12.00 4.72 6.10 4.87 5.67 5.46
8 L 4 3 119. 80 22.80 16.80 14.36 12.27 10.89 10.17 10.20
2.18
6. 29 2L39 13. 34 18.79 15.41 18.34 14.24 14.79
.09 (2)
(2)
54.30 39.63 5.84 2.76 • . 1 5 1.32
.33
.69
.78 L57 i 91
.55
.24
.65
.25
.44
.51
.38
.69
.83 L 4 6 L 4 3 L 6 5 L 8 5

10.95 10.35 26.57 152. 76 193.63 70.94 45.96 39. 50 35.61 36.40 33.30 34.21
1 Credit.

2 Less than one-half cent.

While total per capita expenditures adjusted for price changes are
three times as large in the fiscal year 1926 as in the pre-war fiscal
year 1915, the corresponding increase in expenditures for ordinary
civil functions is only 39 per cent and for military functions only 62
per cent. Most of the remaining enlargement of total per capita
expenditures is due to interest or retirement payments on the enormous World War addition to the pubhc debt. Of the $23.26 difference between the 1915 and 1926 total per capita disbursements on
a 1924-1926 price level, $14.46, or 62.2 per cent, is due to interest on
this new debt or its retirement; $3.92, or 16.8 per cent, to military
functions; and $1.54, or 6.6 per cent, to ordinary civil functions.
The remaining $3.34, or 14.4 per cent, is largely explained by the
growth of nonfunctional transactions in trust funds, and by an
increased amount of refunds of taxes.
In the various subdivisions into which the ordinary civil functions
are divided, the largest proportional grow^th is shown by the smallest
group, viz, "Foreign relations," an interesting indication of the changed
status of our Nation in international affairs. I n this group, as in
"InternaLsecurity" and "Local governments and Indians," no great
war expansion took place. "Public domain, works, and industries,"
the most irregular of all the groups, expanded enormously during the
World War, but by 1922 attained what will probably prove to be its
new peace level. The two other divisions show moderate war expan-

SECRETARY OF T H E

TREASURY

sion followed by moderate retrenchment. "General government^'
costs are still declining, while expenditures for "Development and
regulation," since reaching their lowest postwar level in 1924, have
barely kept pace with increases in population and prices. I t is to be
expected, however, that a steady expansion in the latter group will
begin in the near future, since it is along this line that insistent
demand comes for new activities whenever the people find need for
a governmental agency to counteract the effects of increasing congestion or to effect higher standards in governmental usefulness.
The amount and per cent of increase in per capita expenditures (of
1924-1926 purchasing power) from the fiscal year 1915 to (1) the
peak of war expansion and (2) the fiscal year 1926 are given by
subdivisions of ordinary civil functions in the following table:
Functional distribution of amount and per cent of increase i n per capita ordinary
civil expenditures {of 1924-1926 purchasing power) from the fiscal year 1916 to
{1) the year of war peak and {2) the fiscal year 1-926
[Per capita figures corrected for price changes]
Increase from 1915 Increase from 1915
to year of war peak
to 1926
Amount
General government
Internal security.
Development and regulation...
_.
Public domain, works, and industriesLocal governments and Indians.
Foreign relations
Total ordinary civil functions.

Per cent Amount

$0. 532
1.018
.880
21. 799
.016
.035

1 23.033

82
295
116
1,276
4
53

Per cent

$0. 237
.295
.186
.664
.093
.068

37
85
25
39
24
103

1.544

1 Increase from 1915 to 1919, the peak year for total ordinarj'' civil functions.

Prospect of reduction in expenditures
The prospect of further retrenchment in expenditures has been
touched upon to some extent throughout this discussion. A summary
can be stated in a few words. First, ordinary civil expenditures have
already been reduced by every possible means, and the limit has been
reached. The only reasonable prospect of their future is a gradual
increase corresponding with the growth of the country. Secondly,
military expenditures, after undergoing a reduction culminating in
1925, have shown a small increase in 1926. Their future depends
largely on the nature of our foreign relations and the attitude of the
country toward preparedness, that is, upon policy and not upon
considerations of economy. Thirdly, we must consider the public
debt—the remaining major item and the most important of all. As
long as there are enormous fixed debt charges approximating twofifths of all expenditures each year, no large reduction in total expenditures is possible in this direction. B u t the more rapidly the debt is

REPORT ON THE FINANCES

retired, the sooner will come the time when these charges can be
practically eliminated. A reduction in the amount of total expenditures, therefore, is not to be expected in the near future, but will
become a reasonable certainty when the public debt has become
.a negligible factor in Federal fin'ances.
THE SURPLUS

An excess of ordinary receipts over expenditures chargeable against
"those receipts is a surplus, and is the amount by which the income of
the Government, largely taxes paid by the people, exceeds the outgo
o i the Government in performing its functions. Since 1920 there has
been a surplus each fiscal year varying, as shown in the following
table, between $86,723,771 in 1921, and $505,366,986 in 1924, and
totaling $2,056,000,000 for the seven-year period:
Ordinary receipts and expenditures chargeable against ordinary receipts, 1920 to 1926
[Basis of daily Treasury statements, unrevised]

Fiscal year

1920._.
1921
1922
1923 __
:1924
,1925
1926

Total ordinary
'
receipts

•

$6, 694, 565,388
5, 624,932,960
4,109,104,150
4, 007,135,480
4, 012, 044, 701
3, 780,148, 684
3, 962, 755, 690

Expenditures
chargeable
against o r d i n a r y
receipts
$6,482,090,191
5, 538,209,189
3, 795,302,499
3, 697,478, 020
3, 506, 677, 715
3, 529, 643,446
3, 584, 987,873

Surplus

$212,475,197
86, 723,771
313, 801, 651
309, 657,460
505,366,986
250, 505,238
377, 767,817

The surpluses since 1920 have occurred largely because expenditures have been reduced in greater amount than have revenues under
t h e various revisions in the tax system and the liquidation of war
facilities. The expenditures each year, compared with the receipts,
are shown in diagram 5.
Although receipts fell oft' rapidly during 1921 and 1922 on account
of the cut in. taxes in the revenue act of 1921 and the depression of
those years, receipts exceeded expenditures because expenditures,
were cut in greater proportion. In 1923 and 1924 total receipts
changed little, but expenditures continued to decline, ^,nd the surplus
increased. In 1925, when expenditures increased slightly and receipts
declined, the surplus of the previous year was cut in half. The
increase in surplus from $251,000,000 in 1925 to $378,000,000 in 1926
was due to the large yield of taxation. Had expenditures not continued the tendency to increase begun in 1925, but remained instead
at the 1924 level, the surplus in 1926 would have been almost $80,000,000 larger.
The surpluses since 1920 have been used to reduce the public debt.
Public debt retirements thus made do not occur at the end of each

SECRETARY OF THE TREASURY

fiscal year from excess receipts accumulated during the year but as
a part of Treasury financing from quarter to quarter. A few weeks
prior to the 15tK of each September, December, March, and June
the Treasury determines what income it will need to meet expenditures during the coming quarter, taking into account, on the receipt
side, the cash in the general fund and the Government receipts to be
expected, and, on the expenditure side, the amount of cash required
to meet obligations maturing during the quarter, and the probable
expenses of the Government during the quarter. The difference
between the receipts and expenditures is met by the issue of new
securities. If, therefore, receipts are exceeding expenditures chargeBILLIONS
OF DOLLARS

10
ORDINARY

RECEIPTS

I EXPENDITURES CHARGEABLE
' AQAINST ORDINARY RECEIPTS

192 O

1921

1922

1923

1924

1925

1926

DIAGRAM 5.—Ordinary receipts-and'Expenditures chargeable against ordinary receipts for the fiscal years
1920 to 1926

able against ordinary receipts, the amount of new securities sold is
less than the amount of maturing securities. Thus surplus revenues
are apphed to debt reduction. To consider a concrete case, the
Treasury had some $333,000,000 of certificates maturing on the 15th
of June, 1926, but with the cash then available in the general fund,
plus the expected income taxes and other receipts for June and the
succeeding two months, the Treasury found that these certificates
could be retired and Governnient expenses paid to the next
borrowing date in September without a new flotation of securities.
Therefore, no new securities were sold in June to replace the $333,000,000 paid off, and the excess of receipts over ordinary expenditures
was automatically used to reduce the debt.

REPORT ON THE FINANCES

The existei:ice of a surplus in any particular year or group of years
is not prima facie evidence that the Government has sources of revenue in excQss of normal needs for the exercise of its functions. As I
have pointed out in the more detailed analysis of receipts and expenditures. Government expenditures and Government receipts for a number of years in succession can not be known with any fine degree of
accuracy, especially for years when the Government and business are
both getting into their normal stride following a war. Since Government expenditures must be met year in and year out, especiall}^
when there is a national debt, the Treasury must use the best method
possible to plan assure balance between income and outgo. Unusual
revenues which are not certain for the more immediate future must be
discounted in estimates for coming years. Normal increases in expenditures must be provided for in case those expenditures arise. If
surpluses persist in the face of such calculations, then taxes can safely
be cut to leave in the hands of the people that income which is unnecessary for the execution of Government activities.
The Treasury has always had and will always have this particular
problem to face. During the period of its operation, since 1791,
there have been two years of surplus for every year of deficit. During much of the time these surpluses have occasioned relatively
little difficulty, as they were promptly absorbed in paying pff the
public debt. This was especially true for the 45-year period from
1791 to 1835 when the debts of the Revolutionary War and of the War
of 1812 were being paid; and it was true again for about 20 years
following the Civil War.
However, during years of surplus when excess receipts could not
be turned readily to debt payments, the Treasury has struggled with
the'problem of adjusting receipts to expenditures. The surpluses of
1836 and 1837, the two years following the extinguishment of the
debt of the Revolutionary War and the^ War of 1812, amounted to
over 40 per cent of receipts. Revenues from customs duties and the
sale of public lands, the principal sources, were tremendously inflated
by the great prosperity prevailing. The Treasury was embarrassed
with revenue for which there was no immediate use and which could
not be easily returned to taxpayers. Large outlays were planned for
public works and improvements and for a; distribution of revenue
among the States. Then with the depression of 1837 receipts were
cut more than 50 per cent compared with the high level of 1836.
Increased expenditures could not be reduced immediately, and six of
the seven years from 1837 to 1843 showed deficits.
During the 10-year period 1881 to 1890, when revenue was plentiful
and when the Civil War debt redeemable at the option of the Government had been reduced to a low figure, surpluses amounted to over
25 per cent of ordinary receipts. Again the Government was faced

SECRETARY OF THE TREASURY

with the problem of either decreasing receipts or increasing expenditures. In spite of reductions in internal taxes in 1883, surpluses continued. Appropriations began to increase, especially for pensions,
and total expenditures which ranged between $243,000,000 and
$299,000,000 for the 10 years following 1880, ranged from $345,000,000
to $443,000,000 during the years 1891 to. 1898. After 1890 when
revenues fell off on account of further tax reductions in 1890 and a
severe business depression, the Treasury lacked funds with which to
meet the increased expenditures. The surplus dwindled and several
years of deficit followed.
The history of Federal finances thus shows that a precise adjustment of Government receipts to Government expenditures has
never yet been achieved. However, a balance of revenues has complicated Government finances only when the unnecessary receipts
could not be absorbed in public debt retirements. The most serious
difficulties which the disposition of such surpluses has yet given the
Treasury are those of the two periods just described. Similar maladjustments for shorter periods and with less deplorable consequences
have been experienced in other years. The fault has been largely
the revenue system which in pre-war days consisted of customs
duties and indirect taxes on domestic articles for consumption.
Excessive revenues could not be cut easily suice such reduction involved a change in tariff rates and in taxes on articles of consumption,
the effect of which on business and on Government receipts was
uncertain. Extravagant appropriations were a surer but less fortunate solution. The new budget of expenditures could neither be met
nor quickly reduced in less prosperous years when revenues declined.
Furthermore, the added outlays were largely the result of an abnormal
development in Government activities.
The present surplus offers the Treasury none of the difficulties
involved in surplus financing just described. The Government is
still in the process of paying a large war debt. The orduiary receipts,
since 1920, in excess of expenditures chargeable against those receipts
have been no larger, relatively, than the surplus revenues immediately following the Civil War. I t has always been the policy of the
Treasury during a postwar period to use surpluses for debt reduction
and thus to effect comparatively prompt relief from heavy debt
charges. Because the present balance of receipts can be thus TeadUy
absorbed in the retirement of the public debt, there is no possibility
that large revenues will stimulate abnormal increases in expenditures.
In fact, the history of postwar financing of the Federal Governnient
is merely repeating itself, a history which has always resulted in
systematic and prompt reduction of a large war debt.
Furthermore, the more permanent solution of the surplus problem
during ^''ears of peace-time receipts is no longer as difficult as formerly.

REPORT ON T H E FINANCES

The tax system has so developed that revenues which are temporarily
in excess of Government expenditures can be adjusted more easily
than in former years. The Government is in more direct contact
with the general body of taxpayers than in pre-w^ar days through the
income taxes, first levied on corporations in 1909 9ud on individuals
in 1913. Under the revenue act of 1926 this group oi taxes reaches
about 4,000,000 individuals and 400,000 corporations. If receipts
are unusually large and the general fiscal situation does not justify
a permanent adjustment of taxes, a return to taxpayers can be made
as a credit on income tax payments, thus leaving with the people
that share of the prospective income of the Government over and
above fiscal requirements of the particular year, and eliminating
one of the most serious phases of earlier surpluses, the pressure for
increased expenditures. Over a period of years the surplus resulting
from a particular tax system will gradually be absorbed in expenditures for the ever-increasing sphere of Government activities.
THE PUBLIC DEBT

Summary of transactions since July 1, 1925
During the fiscal year 1926, public debt receipts aggregated!
$3,008,453,761.83 and expenditures aggregated $3,881,431,334.54.
The total gross debt accordingly was reduced from $20,516,193,887.90'
to $19,643,216,315.19. The reduction of $872,977,572.71 was effected
(1) through retirements of $487,376,050.69 chargeable to ordinary
receipts in accordance with the established debt-payment program,
(2) apphcation of the entire surplus of $377,767,816.64 to debt payment; and (3) reduction of $7,833,705.38 in general fund balance,
this amount being applied to debt reduction.
During the year the short-dated interest-bearing debt, that is, the
debt maturing within five years, was reduced from $6,253,994,504.52:
to $4,943,764,740.05, a reduction of $1,310,229,764.47, and the
interest-bearing debt maturing after five years was increased $483,093,710—from $13,956,912,410 to $14,440,006,120.
At the beginning of the year the annual interest charge was
$829,525,300.72 on the basis of the interest-bearing debt then outstanding. The corresponding charge at the end of the year was
$793,423,960.81. This saving of $36,101,339.91 in annual interest
charge is due to (1) reduction in principal outstanding, and (2)
average lower rates on refunding issues.
During the year it was necessary to offer only Ihree regular issues
of interest-bearing public debt securities of the United States, all,
as usual, on tax-payment dates—issues of September 15 and
December 15, 1925, taking the form of Treasury tax certificates of
indebtedness, and the issue of March 15, 1926, taking the form of
Treasury bonds. I t was not necessary to offer an issue on June 15,.

SECRETARY OF THE TREASURY

1926. In the latter connection, on June 8, 1926, the followingannouncement was made by the Secretary of the Treasury:
The Treasury will make no offering of Government obligations for sale on.
June 15, 1926. This departure from the usual procedure on the quarterly taxpayment dates has been made possible on account of the increase in income
tax and other receipts over earher expectations, and the fact that the aggregatepubhc debt maturities due June 15 are somewhat less than usual. The amount
of taxes to be received in June together with the balances, now on hand is expected
to be sufficient to meet the Treasury's cash requirements until September, whenfurther financing will be necessary.

New issues of public debt securities in regular course are madeonly on tax-payment dates and the amount of the issue is determined
by the estimated cash requirements of the Treasury to the next payment date in excess of the cash in hand and the estimated current
receipts from taxes and other sources of revenue. Treasury requirements, of course, are based on estimated expenditures during the
three months' period for all accounts, including public debt maturities.
Details of the new issues offered during thefi^scalyear 1926, together
with those for the issue of September 15, 1926, are given hereafter in
this report.
The following tables show the interest-bearing securities (1)
matured, and (2) issued during the fiscal year, exclusive of special
short-term certificates of indebtedness:
Securities matured during^ the fiscal year
[On basis outstanding June 30, 1925]
Interest
rate

Issue

Certificates of i n d e b t e d n e s s :
Series TS-1925.
Series TD-1925
Adjusted service series
Series TJ-1926
Series TJ2-1926
T r e a s u r y notes:
Series B-1925 .
Series A-1926
T r e a s u r y (war) saving certificates, series 1921

Per cent
2H
3
4
3
. .

D a t e of
maturity

D a t e of issue

Sept.
Mar.
Jan.
June
Sept.

15,1924
16,1925
1.1925
15,1925
15,1925

Sept. 15,1925
D e c . 15,1925
Jan.
1,1926
J u n e 15,1926
do..

9iV^ J u n e 15,1922
i H M a r . 15,1922
Jan.
3,1921
24

D e c . 15,1925
M a r . 15,1926
Jan.
1,1926

Amount

$229, 576, 000:.
179„462,00a*
45,. 400, 000
124, 247,000'
» 251, 930,000

Total

299, 659,900615, 677, 900
11,187,468

1, 757,146, 268

i Represents amount of original issue in fiscal year.

^ Approximate.

Securities issued during the fiscal year 1926
Issue-

Interest
rate

Postal savings b o n d s :
Per cent
29th series
2H
30th series
._ . .
23^
T r e a s u r y bonds: ZH per cent b o n d s of 1946-1956.
ZH
T r e a s u r y notes:
i
Adjusted service series A-1931
4
A d j u s t e d service series B-1931
_
Certificates of indebtedness:
Series TJ2-1926
_ .
Series TD-1926
Adjusted service series A-1927
i
Total

D a t e of issue

D a t e of m a t u r i t y

Amount

J u l y 1,1925
Jan.
1,1926
M a r . 15,1926

J u l y 1,1926-1945
J a n . 1,1927-1946
M a r . 15,1946-1956

$238, 340305,820494,898,100'

Jan.
Mar.

J a n . 1, 1927-1931
J a n . 1, 1927-1931

53, 500,00070,000, 000-

1,1926
5,1926

Sept. 15,1925
D e c . 15,1925
Jan.
1,1926

June
Dec.
Jan.

15, 1926
15, 1926
1,1927

251,936,000452; 879, 000.
38,200,000
1,361,957,260

REPORT ON T H E FINANCES

SM V^'^ ^^^^ Treasury bonds of 1946-1956.
Some $615,000,000 4 ^ per cent Treasury notes became payable
on March 15, 1926. At the same time the Treasury was arranging
to purchase an amount of third 43^'s for the sinking fund, and subsequently did purchase something more than $120,000,000 for this
account. - This meant the withdrawal from the market and the
redemption of more than $735,000,000 Government securities. To
meet this redemption and to provide for the Treasury's cash requirements to June 15, 1926, the next quarterly tax-payment date, the
issue of about $500,000,000 new securities was indicated to supplement the cash balance on hand and the March tax receipts.
Accordingly, on March 8, 1926, through Department Circular No.
367, announcement was made of an oft'ering of 20-30 year Treasury
bonds, dated March 15, 1926, maturing March 15, 1956, and redeemable at the option of the United States on and after March 15, 1946,
on four months' notice of redemption. The offering was for $500,000,000, or thereabouts, the rate of interest was 3 ^ per cent per
annum, and the price was lOOj^. Subscriptions for this offering
were closed on March 11, 1926, and aggregated $647,243,900, of
which amount allotments of $494,898,100 were made. Allotments
on subscriptions were made as follows: Subscriptions in amounts
not exceeding $50,000 were allotted in full; subscriptions in amounts
over $50,000 but not exceeding $100,000 were allotted 80 per cent,
but not less than $50,000 on any one subscription; subscriptions
in amounts over $100,000 but not exceeding $500,000 were allotted
60 per cent, but not less than $80,000 on any one subscription; and
subscriptions in amounts over $500,000 were allotted 50 per cent
but not less than $300,000 on any one subscription.
As shown above the face amount of the issue was $494,898,100.
For these bonds the Treasury received a premium of one-half of 1
per cent, amounting to $2,474,490.50. At the issue price the bonds
will yield 3.714 per cent to March 15, 1946, and 3.722 per cent to
March 15, 1956.
With this offering four issues of Treasury bonds in three series
have been made, all for refunding purposes as follows:
Issues of Treasury bonds
Interest rate D a t e of issue

Title of series

Treasury bonds of 1947-1952
Treasury bonds of 1944-1954
Treasury bonds of 1946-1956
Total

Per cent
4 ^ Oct.
4
Dec.
Mar.
ZH M a r .

16,1922
15,1924
15,1925
15,1926

Issue
price

100
100
lOOH
lOOM

Amount
issued

$763,962, 300
756,933,800
290,154, 700
494,898,100
2. 305.948.900

SECRETARiY OF T H E TREASURY

4-#

Treasury certificates of indebtedness and T r e a s u ^ n d i e s > ^ ''
To cover the cash requirements of the Treasury to Decemberv.l5|
1925, an issue of 33^ per cent Treasury certificates of indebtedness,
series TJ2-1926, due June 15, 1926, in amount $251,936,000, was
made on September 15, 1925. Details of this issue were set forth
in my report for the fiscal year 1925.
On December 7, 1925, the Treasury announced an offering of 3 ^
per cent Treasury certificates of indebtedness, series TD-1926, dated
and bearing interest from December 15, 1925, maturing December
15, 1926. The amount of the offering was placed at $450,000,000,
or thereabouts, and the Treasury offered to accept in payment for
the new certificates, Treasury certificates of indebtedness of series
TD-1925, and 4 ^ per cent Treasury notes of series B-1925, both
maturing on December 15, 1925, giving preferential allotment to
subscriptions for which payment was tendered in such certificates or
notes.
About $480,000,000 of Treasury notes and certificates of indebtedness became payable on December 15, 1925, and the offering on that
date was intended, with the cash balances pn hand and the December tax receipts, to meet these maturities and to cover the Treasury's
further cash requirements until March. Subscriptions for the issue
closed on December 9, 1925, the aggregate amount of subscriptions
entered being $875,911,000. Of these subscriptions payment for
$167,340,700 was tendered in Treasury notes of series B-1925, or
Treasury certificates of indebtedness of series TD-1925, and such
subscriptions were allotted in full. Allotments on other subscriptions
were made as follows: All subscriptions in amounts not exceeding
$100,000 for any one subscriber were allotted 50 per cent, but not
less than $500 on any one subscription; and subscriptions in amounts
over $100,000 were allotted 30 per cent, but not less than $50,000
on any one subscription. The total amount finally allotted was
$452,879,000.
In accordance with the requirement of law that the Secretary of the
Treasury invest and reinvest the moneys appropriated and held in
the adjusted service certificate fund so as to return 4 per cent compounded annually, an issue of Treasury certificates of indebtedness,
adjusted service series A-1927, in amount $38,200,000, was made
on January 1,1926, and an issue of Treasury notes, adjusted service
series A-1931, in amount $53,500,000, was made on the same day.
A further issue of Treasury notes, adjusted service series B-1931,
in amount $70,000,000, was made on March .5, 1926. The funds
for these three issues, in aggregate amount $161,700,000, were
derived from the proceeds of the redemption of Treasury certificates
11439—FI 1926

412^

i: REPORT .ON;.:THEi FINANCES

of indebtedness^ adjusted service series, maturing January 1, 1926;
from interest on investments of certificates of indebtedness and
Treasury notes; arid from the annual appropriation for 1926 granted
by Cbrigress for the purposes pif the adjusted service certificate fund.
"fO'n^September 7, .1926,' tte^^
announced an offering of
$350,000,000, or thereabouts, of 33^ per cent Treasury certificates
of indebtedness, dated and bearing interest from September 15,
1;926, and maturing June 15, 1927. The Treasury further offered to
accept in paynient for the new certificates 43^ per cent Treasury notes
of Series B-1926, maturing September 15, 1926, and provided fpr
preferential allotment of certificates for which such Treasury notes
were tendered in payment.
' T h e offering was necessary to provide for the Treasury's cash
requirements until the December quarterly tax period, such requirerherits including provision for the redemption of about $400,000,000
434 per cent Treasury notes due for payment September 15, 1926.
Subscriptions for the issue closed on September 9, 1926, the
total amount offered being $996,660,000. Of these subscriptions
$144,953,000 represented subscriptions for which Treasury notes of
Series B-1926 were tendered in payment, all of which were allotted
in full. Allotments on other subscriptions were made as follows:
Subscriptions in amounts not exceeding $1,000 for any one subscriber were allotted 50 per cent, and subscriptions in amounts over
$1,000 were allptted 25 per cent but in no case less than $500 on any
one subscription. The total amount of the issue allotted was
$378,669,500.
Purchase of third ^H^s for the sinking fund
The early maturity of the third Liberty loan, and the fact that no
right exists of calling the issue before maturity, have indicated the
importance of discharging, from time to time, important amounts
of the bonds, when they may be acquired on terms advantageous
tp the Government. Any retirements before the maturity date will
reduce to that extent the problem of financing for the payment of the
loan on September 15, 1928. During the fiscal year 1926 it was
found possible to apply the entire appropriation for the cumulative
sinking fund to the purchase of third 434's. In making purchases
for the sinking fund it has been the policy of the department to
make such purchases on the market or through brokers. In November, 1925, it was proposed to determine the feasibility of making
such purchases, in part at least, directly from the holders, and thus
give aU holders of third Liberty loan bonds the opportunity to sell
their bonds to the Government, with a saving of commission charges

SECRETARY OF T H E TREASURY

not only to the Treasury but to the sellers. Accordingly, on Novem-:
ber 27, 1925, under Department Circular No. 363, the Treasury
made a definite offer soliciting from the holders of third Liberty
loan bonds proposals to sell such bonds to the Treasury, and specifying that from the lowest proposals received the Treasury would
purchase an aggregate amount of $50,000,000 par amount, or thereabouts, if offered below or at 101)^ and accrued interest. The
privilege of tendering third Liberty loan bonds for sale to the United
States under this offer expired on December 10, 1925, on which date
$176,000,000 face amount had been tendered for sale within the
announced limit of 1013^ and accrued interest, at prices which
averaged 101.34375. The Treasury accepted $66,274,750, at a
total principal cost of $67,069,605.07, the average cost being 101.19933.
A similar offer to purchase third Liberty loan bonds direct from
holders was made on March 1, 1926, under Department Circular
No. 366. In making the announcement it was stated that froiri the
lowest proposals received the Treasury would purchase third Liberty
loan bonds to an aggregate amount of $100,000,000, or thereabouts,
at the lowest prices offered, plus accrued interest from March 15,
1926, provided such prices were acceptable to the Secretary of the
Treasury. The privilege of tendering the bonds for sale to the
United States expired on March 10, on which date over $148,000,000
face amount of bonds had been tendered. All proposals for sale at
prices not exceeding 101.3125 were accepted, such proposals aggregating $121,584,750, the total principal cost being $123,103,626.70,
and the average cost 101.24923.
During the year an additional amount of $129,232,250 third Liberty
loan bonds was otherwise purchased for the sinking fund at a total
principal cost of $131,011,236.43, or an average cost of $101.37658.
A recapitulation of the purchases during the year follows:
Purchases of third 4^4='s for the cumulative sinking fund

U n d e r Circular 363
U n d e r Circular 366
Otherwise

Total

Face amount

P r i n c i p a l cost

$66, 274, 750. 00
121, 584, 750. 00
129,232,250.00

$67,069,605. 07
123,103, 626. 70
131, Oil, 236. 43

101.19933 (or 1 0 1 A + )
101 24923 for lOliAr—)
101.37658 (or 1 0 1 H + )

317,091,750.00 . 321,184,468. 20

101.2907 (or 1 0 1 A + )

Average cost

Review af the last seven years
During the past seven fiscal years the total gross debt has beer
reduced $5,841,289,845, as shown by the following table, which sek

REPORT ON THE FINANCES

forth the debt reduction and the means by which it was effected during
each fiscal year'from 1920 to 1926, inclusive:
Debt retirements classified hy source, for the fiscal years 1920 to 1926

Fiscal year

Retirements
chargeable
against ordinary receipts

Retirements
through surplus

$78,746, 350
$212,476,198
1 427,123, 666 ,t 86, 723, 772
422, 694, 600
313,801,661
402,850,491
309,667, 460
457,999, 750
606,366,986
466, 538,114
260, 605,238
487,376,061
377,767,817

1920
1921
1922
1923
1924
1925
1926..

2,743,328,922

Total

2,056,298,122

Retirements
through reductions in the
net balance in
general fund

Total debt
reductions

$893,963,146
» 191,976,423
277, 672, 693
2 98,833, 608
136, 627, 640
17, 676,749
7,833,705

$1,185,184,693
321,870,916
1,014,068,844
613, 674, 343
1,098,894,376
734, 619,101
872,977, 573

1,041,662,801

6,841, 289,845

1 Includes $4,842,066.46 written off the debt Dec. 31,1920, on account of fractional currency estimated to
have been irrevocably lost or destroyed in circulation.
J Increase in net balance in general fund—operates as aii increase in total gross debt.

During the seven-year period taken as a whole 47 per cent of the
retirements were chargeable against ordinary receipts, 35 per cent
were made through surplus receipts, and 18 per cent through reduction in the net balance in the general fund of the Treasury.
The established debt-payment program made effective in 1920
provides for definite retirements each year from ordinary receipts.
The following table shows for each fiscal year from 1920 to 1926,
inclusive, the debt retirements chargeable against ordinary receipts
classified by the source of the funds:
Debt retirements chargeable against ordinary receipts
[In thousands of dollars]

Fiscal year

1920
1921
1922
1923/J
1924
1925
1926
Total

Sinking
fund

Purchases
from
foreign
repayments

Received
from foreign governments
under
debt settlements

261,100
276,046
284,019
295,987
306,308
317,092

72,670
73,939
64,838
32,140
38,509
386
4,393

68,753
110,879
168,794
166,260

1,740,662

286,876

603,686

Received
for estate
taxes

Purchases
from
franchise Forfeitures,
gifts, etc.
tax
receipts

Total

3,141
26,349
21,086
6,668
8,897
48

2,922
60,725
60,333
10,815
3,636
794
668

13
15,011
393
556
93
208
63

78, 746
1 427,124
422,695
402,850
458,000
466,638
487,376

66,088

139,792

6,336

2,743,329

1 Includes $4,842,000 written off the debt Dec. 31, 1920, on'account of fractional currency estimated to
have been irrevocably lost or destroyed in circulation.

SECRETARY OF THE TREASURY

Of the total retirements chargeable against ordinary receipts set
forth in the above table, the sinking fund accounts for 63.4 per cent,
receipts from foreign Governments 28.9 per cent, and miscellaneous
receipts 7.7 per cent. .For 1927 it is estimated that debt retirements
thrc)ugh the sinking fund and through application of payments by
foreign Governments under ratified debt agreements will amount to
$507,600,000, and that similar retirements during 1928 will amount
to $529,600,000. The' sinking fund and payments by foreign governments under debt.agreements are the only two permanent sources
for debt retirement that can be definitely counted on'.
The distribution of public debt maturities is shown in the following
table for the present year in comparison with previous years:
Interest-bearing debt, distributed by maturities, and total gross debt August 31, 1919,
to October.31, 1926^'
[Millions of dollars]
Maturing within five years
Date

Aug. 31, 1919.
Apr. 30, 1921June 30, 1921.
June 30, 1922.
June 30, 1923.
June 30, 1924.
June 30, 1925.
June 30, 1926.
Oct.J 1, 1926 2

Within
one year

4,201
2,820
2,699
4,336
1,393
2,328
1,606
1,664
1,628

One
year to
two
years

672
4,494
366
1,432
927
1,182
500
2,807

Two
years to
five
years
5,045
4,209
425
2,044
2,647
4,817
3,567
2,780
291

Total
Maturafter interestTotal • ingfive
bearing
within
years
debt
five
years
9,246
7,602
7,618
6,746
5,473
8,072
6,254
4,944
4,726

17,103
16,158
16,119
15,965
16,535
12,910
13,957
14,440
14,440

26,349
23,760
23,737
22,711
22,008
20,982
20, 211
19,384
19,166

. Total
gross
debt

26, 694
23,994
23,976
22,964
22,360
21,251
20, 516
19,643
19,420

1 Exclusive of interest-bearing obhgations redeemable at the pleasure of the Government but not maturing within the period covered.
2 From nrp.limlnary statement of the public debt, Oct. 31, 1926.

From' the above table it will be noted that the total debt maturing
within five.years was reduced $1,310,000,000 during the fiscal year
1926, and that the debt maturing after five years was increased
$483,000,000. A comparison of the maturities within the five-year
period, as betweeri June 30, 1925, and June 30, 1926, shows an
increase of $159,000,000 in debt maturing within one year, a decrease
of $682,000,000 in debt maturing after one year but before two
years, and a decrease of $787,000,000 in debt maturing after two
years but before five years. However, an important change in the
distribution of maturities occurring within five years takes place in
the first quarter of the fiscal year 1927, when the third Liberty loan
falls into the class of debt maturing within the period from one to
two years.

REPORT ON T H E FINANCES

The composition of the short-dated debt and changes in its com*
position since 1919 are shown in detail in the following table:
Short-dated debt, August 3 1 , 1919, to October 3 1 , 1926 ^
[Millions of dollars]

Date

Total
shortThird
dated debt Liberty Victory Treasury
(maturing loan
notes
notes
within
bonds
five years)

Pittman
Certifi-, Act and Treasury 4 per ^
cates of special cei*- (war) • 'cent
indebt- tificates of savings" loan of
edness
indebtedr. securities 1925
ness

•

Aug. 31, 1919
Apr. 30, 1921....;
June 30, 1921.
June 30, 1922
June 30, 1923
June 30, 1924
June 30, 1926.......
June 30, 1926
Oct. 31, 1926 2

9,246
7,602
7,618
6,746
5,473
8,072
6,254
4.944
4,726

4,113
4,069
3.914
1,991
2,997
2,885
2,488
2,308

311
2,247
4,104
3,736
2, 404
1,613
1,198

3,938
2, 548
2,451
1, 756
1,031
808
579
483
862

263
272
249
74

931
713
694
679
337
413
. 386
360
358

118

1 Exclusive.,of.debt on which interest has ceased, and interest-bearing obligations redeemable at the
pleasure of the Government but not maturing, within the period covered.
2 From Preliminary Statement of the Public Debt, Oct. 31, 1926.

TREASURY FINANCING AND THE CREDIT SITUATION

Of the many direct relations of the Treasury operations with the
money market, at least two deserve some statement in this report:
(1) The issue arid redemption of short-term certificates of indebtedness and Treasury notes, and (2) the issue and redemption of longterm Treasury bonds.
Short-term financing
The new issues of certificates of indebtedness during the fiscal
year 1926 bore somewhat higher rates of interest than the issues of
the fiscal year 1925. - The accompanying schedule of issues for the
two years and diagram 6 on page 48 indicate the course of these rates,
although in interpreting them caution should be taken to observe t h a t
the dates of issue, the terms, and the amounts issued are not strictly
comparable. I t will be observed that the tendency of the rate borne
by the certificates to increase, which was evident in the latter part of
the fiscal year 1925, continued until the issue of December, 1925, when
it reached 3 ^ per cent, or 1 per cent higher than on September 15,
1924. The issues of September 15,1926, were effected at 33^ per cent;
whether this slight decline means a real turning point in the trend of
these rates is, of course, not known,-but. the fact that this issue had
to be floated to meet Government requirement at the height of the
seasonal demand for fiinds and at the height of the business prosperity
which has reigned during the year is some warrant for that siarMise.
The rate of interest on the new issues of certificates of indebtedness
is set by the Treasury in harmony with the rates ruling in the money

SECRETARY OF T H E TR-EASURY

market for loans of comparable maturity and security. T h e following table presents somewhat coiriparable short-term interest rates,
averaged monthly:
Short-term interest rates

Fiscal
year

Calendar
month and
year

f
1924
July
August
September..
October
November..
December..

Rate
R a t e on bills R a t e
dison
on
Rate
prime count- time
on
com- ed b y m o n e y call
F e d - 4 to 6 l o a n s
mereral months
cial
p a p e r reserve
bank

Rate
on
bankers'
acceptances

2.06^^
2.10
2.22
2.18
2.34
2.92

3.62
3.25
3.12
3.12
3.22
3.66

3.89
3.78
3.69
3.65
3.63
3.56

2.93
2.89
3.09
3.00
3.22
3.64

2.05
2.00
2.06
2.40
2.38
3.70.

3.62
January
3.62
February...
3.91
March
3.96
April
M a y . . . . . . . . . ,-3.88
3.88
iJune
3.90
(July
3.97
August
S e p t e m b e r . . 4.28
4.38
October
N o v e m b e r . . 4.38
4.38
December..

3.63
3.44
3.68
3.73
3.71
3.69
3.68
3.70
3.70
3.69
3.77
3.82

3.70
3.80
4.15
4.02
3.78
3.86
3.99
4.35
4.51
4.88
4.91
4.99

3.12 3.00
3.66 3.12
3.81 3.26
4.00 3.17
3.81. 3.18
3.94 '3.19
4.15 3.19
4.19 3.19
4.50 3.38
4.81 3.44
4.75 3.44
5.38 3.44

3.97
4.00
4.00
3.96
3.87
3.89
3.84
3.94

4.76
4.70
4.66
4.22
4.06
4.18
. 4.41
4.70
4.92
4.96

•:

N e w issues of certificates of
Yield
.. i n d e b t e d n e s s
on certificates N o m i ofinnal
debtrate
Amount
edness,
D a t e of issue T e r m
. issued
4 to 6
months
Months
2.13
2.26
2.36
2.62
2.87
2.30

12 $391,369, 500

2.75

Sept. 15,1924

3.00

M a r . 16,1925

219,462,000

.•3.00- J u n e 16,1925

124,247,000

1925

2.83
2.81
2.95
2.88
2.93
3.02
3.21
3.33
3.29
3.65
3.74
3.60

3.26

Sept. 15,1925

• 9

251,936,000

3.76

D e c . 16,1925

453,349,000

3.50

Sept. 15,1926

378,669,500

1926

1926
January
February...
March
April
May
iJune
[July
lAugust
1927 1 S e p t e m b e r . .
[October-...

4.31
4.19
4.28
4.19
4.05
3.88
3.93
4.20
4.39
4.50

4.38
4.88
4.60
4.00
3.88
4.18
4.25
4.44
5.08
4.69

3.69
3.68
3.69
3.37
3.62
3.28
3.42 . 3.16
3.23
3.33
3.31
2.82
3.38
3.20
3.63
3.46
3.81
3.60
3.81
3.66

While these rates differ among themselves on account of differences
in risk, marketability of the loans, seasonality, period, arid other
factors, they all show -a tendeiicy'to" rise quite steadily from the
beginning of the fiscal year 1925 to December, 1925, and theri to
decline slightly until May or June. This decline in the first half of
1926 had, however, been practically regained by October, due in part
no doubt to the usual seasonal tightening of money in the cropmoving period.
To this movement of short-term interest rates the yield on the
United States certificates of indebtedness has closely conformed,
ranging for the most part slightly below the rate on even the best
of the other loans. This close conformity is, of course, due to the
fact that these investments are all competing in the loan market and
capital is'easily diverted from one type to the other according to the
slight relative advantages that may -exi^tariiorig^^
^> .

REPORT ON T H E FINANCES

.When, therefore, the quarterly periods of refinancing are approaching, the Treasury affixes a rate to the new issues of certificates which
approximates that ruling in the market on investments as nearly
similar as exist. As the rates of the market increased from July,
1924, to December, 1925, the successive issues of certificates bore
higher and higher rates, rising, from 2.75 per cent in September,
1924, to 3.75 per cent in December, 1925. But the fall in market
PER"

A• *

\®

\^AW^
«

£»

YIELD ON C . O F r S .
NOMINAL RATE .ON
NLW ISSUES

1924

19 2 5

1926

DiAQBAM 6.—Nominal rate of interest carried by new issues of certificates of indebtedness and
yield of outstanding issues for ,the calendar years 1924 to 1926

rates since January this year made it .possible to place the September
certificates at 3.50 per cent.
The three chief lines of demand for short-term money are (a) the
issue pf short-term securities, (6) funds to support the stock and bond
market operations, and (c) the needs of commerce and industry for
working capital. The following schedules present the situation
during the past two fiscal years in respect to these three categories:

Variations in the demand for short-term loans
(6) Stock a n d b o n d m a r k e t a c t i v i t y

(a)

M
M

1
1^

Fiscal

year

Prices
of
stocks

$78
72
129
126
131
37

$47
30
18
37
29
43

$88..44
89.85
89.90
90.26
97.77
99.65

24,226
22,427
18,150
17,826
41,370
42,876

$76.81
75.93
75.40
76.74
76.06
75.77

.._.

53
58
91
97
98
33
46
76
93
40
142

118
45
14
23
8
12
• 28
32
22
23
20
41

105.06
105.64
99.78
IOL 90
104.68
108.05
110.75
112.71
115.71
121:39
120.05
121.84

4L 431
32, 760
38,668
24,836
36,463
30,860
37,273
32,865
36,886
63,423
48,981
42,876

76.07
76.82
76.38
76.61
77.97
78.46
77.56
76.34
76.92
76.73
77.12
77.56

79
24
122
73
36
58
62
38

43
32
25
46
30
20
39
17

120.42
119.92
106.63
108.94
108.13
i n . 50
112.75
115.64

78.59
39,088
78.69
35,462
79.32
62,040
24,296 . 80.16
80.68
23.188
80.82
37,990
80.66
36, 732
80.48
44.189

(

V.
1925
January
-February
March-.
April
'.
^May....
June
July
August
September..
^October.
November'
December
1926

1927

Bonds
sold on
Index
New
York
of m a n Stock
ufacExchange t u r i n g
(000,000
omitted)

Index
Per
Passenof r a w cent of ger a u t o matemobiles
blast
produced
rials
furp r o d u c - naces in
(000
tion • blast o m i t t e d )

Building Railroad
c o n t r a c t s freight E m p l o y - W h o l e sale
awarded revenues
ment
prices
index
(000,000
(000,000
index
omitted) omitted)

Mail
order
sales
index

1924

July
August
September..
October
November.^
December
1926

Shares
sold on
New
Prices
York
of
Stock
Exchange b o n d s
(000
omitted)

ShortShortterm m u - t e r m corporate
nicipal
bond
security
issues
' issues
(000,000
(000,000
omitted) omitted)

C a l e n d a r year a n d m o n t h

••

... .
:.......
. . .
. . .
1./....

1926
January
^'February
March
April..-.
May-.'i..
June
July
August

$341
306
265
293
389
392

352
307
315
278
339
277
270
241
264281
242
268

101
109
114
116
114
112
117
124
129130
128
128..
128.
122.,
122_
13f;
128.
122

98
123
163
180
156
143

36.7
37.6
42.9
45.2
50.9
56.6

236
250
267
255
198
175

$347
354
344
410
380
328

$340
369
399
439
"381
362

120
95
97
86
93
94
99
116
151
• 158
146
141

62.3
63.0
6L1
65.1
49.4
47.7
48.5
48.1
62.4
53.9
57.6
• 6L9

206
243
321
378
366
352
349
216
264
394
329
279

296
299
480
547
496
641
629
690
648
520
465
611

273
320
381
384
373
340.
316
379

443
374
577
552
521
523
501
574

86
86
87
88
88
89

147
150
149
152
163
157

69
74
106
141
131
148

351
337
361
347
359
366
378
403
420
450
402.
380

90
160
92
161
92 ^ 161
92 '
156
91
166
90
157
89
160
90
160
91
160
92
. 158
93
158
93
156

108
106
119
117
95
102
87
89
114
170
144'
168

348
340
401
370
386
397
409
429

93
94
94
93
92
91
90
91

116
111
130
125
105
113
98
gg

.....
...

293
236
274
298
248
277
242
215

122
130
' 132
132
129
131
127
135

111
92
97
89
94
99
116 .
121

69.3
60.3
63.3
63.6
6L5
59.6
58.6
67.7

156
156
152
151
152
162
161
149

REPORT ON T H E FINANCES

In these schedules the variation in the demand for short-term
funds for governmental purposes is represented by the volume of
temporary loans floated by the States county, city, and other civil
divisions. I t will be noted that these loans were heavier in the fiscal
year 1925 than in 1926, but that they are at all times very erratic,
depending more upon fiscal exigencies of the issuing governments*
than upon the condition of the mone}^ market. The only period
when the Federal Government refinancing of its certificates competed
with unusually heavy municipal issues was in December, 1925, and,
as previously stated, this was the time when the rates borne by the
certificates, reached their highest point. The issues of short-term
corporate bonds are a much less important factor in the market
than of municipals, but it happened also that the only financing
period in which the Government met much competition from the
corporate issues was in December.
The stock market has shown exceptional activity. Stock prices
rose steadily through 1924 and 1925 to unprecedented heights and
the slump of March, 1926, proved only temporary. Throughout
the period the number of shares sold has run extraordinarily high,
the course being frequently punctuated with two or three million
share days. Bond prices have also risen, with a slight interruption
in late summer of 1925, to new heights. To finance this speculative
market at higher prices and margins bank loans grew apace supported by security collateral.
The calendar years 1925 and 1926 have been marked with the very
flush of prosperity, as measured by any of the standard barometers.
For the past year and a half the output of our manufactures has stood
between 25 and 30 per cent higher than in midsummer, 1924. Since
that date the three, basic, industries—iron and steel, automobiles,
and building construction—have made new records at production,
as shown by the increase in the percentage of blast furnaces in blast,
the number of automobiles produced, and the volume of building
contracts awarded. The large figures for railroad freight revenues
and for mail-order sales signify a parallel prosperity in the distributive side of business. In the throes of this general prosperity
wholesale prices moved through a range of less than 10 per cent,
the course during the last fiscal year being steadily downw^ard. With
the exception, therefore, of the commodity price level, the business
situation has called for a growing amount of short-term working
capital.
With such an active bullish stock and bond market and with such
high activity in general business, the banks of the country have
prospered. The following table gives the figures significant of this
prosperity for the members of the Federal reserve system that report

SECRETARY OF THE TREASURY

weekly their condition to'the Federal reserve banks and. for the
Federal reserve banks themselves:
Changes in volume of bank credit of reporting member banks
[In millions of dollars]

Fiscal
year

Government
securities
' Collat- Commer- Total
eral
cial
earning
and
loans
loans
assets , bankers'
acceptances

Total
loans and
investments

Investments

1924
July
August
September
October
November
December

17,262
17, 571
18,194
18,315
18, 627
18,599

4,880
6,133
5,411
6,551
6,612
5,531

4,431
4,570
4,663
• 4, 647
4,721
4,863

7,941
7,868
8,120
8,217
8,194
8,205

825
916
983
. 1,024
L187
L249

531
613
716
802
938
935.

294
302
267
222
249
.314

1925
January
,
February
March
April
May
June
July
,
August-September
October,
November
December

18, 540
18, 638
18,704
18, 716
18,683
18,892
18,723
18, 918
19, 272
19, 345
19, 399
19,697

6.489
5,396
5,498
5,484
5,603
6, 516
5,606
6,443
5,440
5,443
5,393
6,462

4, 888
4,940
4,978
6,079
6,141
5,347
5,204
6,302
5,471
6,472
5,583
6,930

8,163
8,193
8,228
8,153
8,039.
8,029
8,013
8,173
8,361
8,430
8,423
8,306

989
L130
1,087
1, 028
1,064
1,127
1,021
1,126
1,257
1,250
1,352
1,501

715
696
687
628
652
615
553
549
624
660
709
751

274
434
400
400
412
512
468
577
633
590
643
750

19,454
19, 512
19, 546
19, 626
19,678
19, 816
19,627
19, 777

5,478
5,503
5,496
6,676
6,716
5,681
6,652
5,599

6,691
6,605
6,568
6,454
5,568
5,723
6,595
6,711

8,285
.8,404
8,484
8,495
8,394
8,412
8,380
8,468

L149
1,207
1,226
L114
1,186
1,158
1,106
1,202

662
624
593
601
661
643
585
676

583
632
514
525
615
621
626

Calendar year and
month

Rediscounts

1926

1926
January..
FebruaryMarch
April
May
June
/July
1927 \August-_-

, For week ending nearest the end of the month.

Of the reporting member banks the loans and investments have
increased during the fiscal year approximately $1,000,000,000, of
which increase less than one-sixth was in investment holdings. The
collateral loans, which rose steadily from $4,431,000,000 to $5,347,000,000 during the fiscal year 1925, continued upward to $5,930,000,000 in December, 1925; this movement was in pace with the
rising stock market on which presumably a large part of this type of
loan was used. The declension in stock prices in the first part of 1926
found a parallel in collateral loans, which dropped to $5,454,000,000
in April; since that date the general tendency, along with the stock
market, has been upward, standing at $5,711,000,000 in August.
The increase in commercial loans has been much less pronounced,
arid is properly more consonant with the course of general business, in
it seasonality and trend, than with the stock market. Comparing
the July figures of the last years, the status of commercial loans of the
reporting member banks was inJuly, 1924, $7,941,000,000; in 1925,
$8,013,000,000; and in 1926, $8,380,000,000, a total increase of

REPORT ON THE FINANCES

),000,000, or less than 6 per cent. This was about one-third of
the increase of collateral loans during the period. Here is a remarkable demonstration of banking capacity: Of a total expansion of
loans and investments of the reporting member banks from $17,252,000,000 in July, 1924, to $19,627,000,000 in July, 1926, or $2,375,000,000, only $439,000,000 went to commercial loans, at a time when
business was enjoying unwonted prosperity and commercial interest
rates hovered in the general vicinity of 4 per cent. The banking
capacity proved to be greatly in excess of commercial and industrial
needs and the banks have been forced to find employment for their
current funds through financial borrowers.
This great banking capacity springs (a) from the heavy gold importations of the war and postwar period, which have flushed the
bank reserves; (6) from the accumulating savings of the people and
corporations during the recent prosperous years; (c) from the declining price level, which makes it possible to float the same physical
volume 'of business on less current capital; {d) from the broadly
spreading method of hand-to-mouth buying, with less money tied
up in inventories; (e) from the disinclination of business men to carry
speculative inventories in the face of a steady or falling commodity
price level; and (/) from the better organization of transportation,
both, of railroad and automobile truck, the greater speed reducing
the total amount of goods in transit and the capital so tied up, as
well as the waste en route. These and other factors have tended
either to increase the supply of short-term loanable capital or to
reduce the demand for it, with the consequence that the expansion
of commercial loans has been small in spite of the extraordinary
business activity and the low interest rates. Of course, it is likely
that' a portion of the proceeds of the collateral loans is devoted to
commercial purposes, but banking statements do not reveal just
what this portion is; probably it is small.
During the past fiscal year the total earning assets of the Federal
reserve banks have fluctuated with seasonal demands, rising from
$1,021,000,000 in July, 1925, to $1,501,000,000 in December, then
dropping suddenly to $1,149,000,000 in January, and fluctuating
within a narrow range of about $100,000,000 thereafter. The invest^
ments of the Federal reserve banks in Government securities and
bankers' acceptances rose $200,000,000 during the first half of the
fiscal year 1926, after which they declined and fluctuated withio:
narrow range. Similarly the rediscounts rose from $468,000,000 to
$750,000,000 during the flrst half-of the last fiscal year and dropped
off suddenly to $488,000,000 in January, 1926; since then they increased with the spring revival in February and March, and dropped
off again until the harvest refinancing period in August.
I t is evident from this review of business and banking that the
seasonal increase in demand for commercial and uidustrial uses

SECRFITARY OF T H E TREASURY

which occurred in the autumn and early whiter months of 1925 was
conjouied with the demand for funds to finance the very crest of the
big bullish stock market. The higher rates which it was necessary
to put on the certificates issued by the Treasury in the September arid
December refinancing periods are thus explained. On the other
hand, the severe drop in the stock market in March released funds
for investment in the long-term Treasury bonds floated then and
made possible the lower rate thereon.
Long-term financing
The only long-term financing done by the Treasury during this
fiscal year ending June 30, 1926, was the issue on March 15, of
$494,898,100 of SH per cent Treasury bonds of 1946-1956, at a premium of one-half of 1 per cent, the proceeds of which, together with
tax receipts and funds then in the Treasury, were designed to meet
the Treasury notes, series A-1926, maturirig March 15, and to provide for the purchase for the sinking fund of $121,750,000 of the third
Liberty 434 per cent bonds, and to furnish cash funds for the last quarter of the fiscal year.
The condition and trend of long-term interest rates during the
past two fiscal years are shown in the following table:
Yield on long-term investments
Fis
cal
year

1925

On United
On 10
On 15
States
AAA municipal
Governrailroad
ment
bonds
bonds
bonds i

Calendar year and month

(
July
August
...
September
October
..
November
December
..
January
February
March
April
May
[June
[July
August
September
October
November
December

1924
.
.

_.
.
1925

'.
.

.. .

...

. . ._
^

....

.
1926
J..
.^

. .

;.
.

1926 ]

January
February
March
April
May
[June
rjuly
\August

4.60
4.61
4.64
4.62
4.61
4.65
4.61
4.64
. 4.61
4.62
4.56
4.65
4.65
.4.66
4.62
4.62
4.62
4.60
4.55
4.63
4.62
4.44
4.43
4.43
4.47
4.47

4.16
4.15
4.08
4.10
4.09
4.12

4.040
4.026
4.037
4.005
4.026
4. 068

4.10
4.08
4.07
4.05 '
4.02
4.01
4.06
4.03
4.12
4.16
4.22
4.13

4.069
4.064
4.075
4.046
4.016
3.974
3.986
4. 026
4.022
4. 030
4.036
4.036

4.10
4.09
4.09
4.07
4.06
4.06
4.06
4.04

4.023
3.990
3.987
3.967
3.952
3.956
3.973
3.995

» Average of average monthly yields of second and fourth Liberty bonds and of Treasury bonds of 1947-1952
calculated to date of maturity (not to first callable date).

REPORT ON T H E FINANCES

The schedules of this table indicate that the yields of railroad,
municipal, and Government bonds had similar trends during the
last fiscal year, rising from June until November, 1925, and then falling until May, 1926, and rising slightly thereafter. Over the whole
period since June, 1924, the general tendency of all yields has been
slightly downward. The long-terriis financing in March, 1926,
occurred, therefore, at an opportune time, when interest rates were
low and falling, and the Government was able to float its requirements at a rate lower than the current yield of its outstanding bonds
and to refund the Treasury notes into bonds bearing a 1 per cent
lower rate.
Changes in certain important factors in the supply of and demand
for long-term investment capital during the last two fiscal years are
shown in the accompanying table:
Long-term investment capital
[In millions of dollars; i. e,, 000,000 omitted]
Demand (new security issues)
Fis*
cal
year

1925.

1926.

Calendar year
and month

Total Total Foreign Real
cor- munic- govern- estate
ipal
ment
porate

1924
July
August...September.
October...
November.
December.

279
288
312
418
243
373

112
121
93
96
120
74

1925
January...
February..
March.-.__
April
May
June
July
August
September.
October...
November.
December.

509
504
353
483
296
379
423
241
311
371
376
618

121
78
107
188
145
123
87
121
• 85
72
166

1926
January...
February..
March
April
May
June.
July

615
414
480
443
453
472
474

75
146
119
118
142
146
90

10
48
42
214
102
91

140
145
9
62
40
138

48
31
63
52
40
108
60
36
52
91
66
58

Supply

New inNew
corporaYork
tions,
State
author- savings
ized
capital deposits

Life
insurance
sales

Industrial
dividend
payments

Total
interestbearing
debt of
United
States

572
399
479
543
674
735

3,267
3,261
3,302
3,308
3,318

591
508
488
572
545
.744

20,990
20.981
20.982
. 20,978
20,951
20,711

678
431
806
887
616
1,003
1,067
973
672
685
1,241
1,020

3,409
3,418
3,462
3,469
3,4.64
3,617
3,502
3,503
3,487
3,629
3,533
3,603

560
611
703
716
738
696
692
661
691
669
637
804

20,789
20,658
20,608
20,605
20,602
20,210
20,198
20,165
20,143
20,140
20,139
19,982

1,040
2,676
748
1,012
867
757
456

3,594
3,625
3,671
3,669
3,668
3,727
3,721

573
641
791
744
736
750
702

20,019
20,015
19,814
19,808
19,803
19,384
19,357

While these factors are. not inclusive, they do indicate that the
volume of long-term financing in the fiscal year 1926 exceeded greatly
that of 1925, being particularly heavy both in corporate and municipal
lines in the period from December, 1925, until the end of June, 1926.

SECRETARY OF T H E TIIEASURY

.55

This swelling volume of demand for permanent,capital reflected; the
prosperity and expansion that have prevailed iri business. But so
prolific have capital accumulations been that an excess has found its
way into foreign securities and real estate operations in unprecedented
amounts. The demand for fixed capital in industry has not expanded
as much as might ordinarily be expected, on account of the surplus pf
capital equipment erected duruig the war, the increased efficiency in
the use of equipment through better organization and hand-to-mouth
practices, and the falling price level.
Moreover, the supply of capital has been growing at an accelerated
rate. Steady employment at high wages but with falling cost pf
living has resulted in a rapid increase in savings deposits. This is
the more remarkable when it is remembered that installment buying
of merchandise has made great inroads on the normal increase of
savings accounts, for the practice of buying and then paying from
current earnings removes the occasion of accumulating funds in the
savings bank in advance^, of purchase. The rapid expansion of lifeinsurance sales is similar evidence of high prosperity and thrift. All
savings kept on deposit or put into insurance reach the investment
market. High general prosperity has also put corporate dividend
payments on a new level. A further important factor of supply of
capital is the funds released by the Government's policy of reducing
its debt, a reduction amounting to $841,000,000 from July, 1925, to
July, 1926.
The net result of all influences affecting the demand and supply of
long-term capital the past two fiscal years has been an excess-of
supply, permitting the market rate to fall and, as said above, the
flotation of the Treasury bonds of 1946-1956 at the favorable rate of
3 ^ per cent.
OBLIGATIONS OF FOREIGN GOVERNMENTS

The total principal amount of obligations pf foreign governments
originally held by the Treasury was $10,338,058,352.20. Fpr a statement showing the principal amount of such obligations by countries
and. classes and payments on account of principal thereof see Table
54, page 579, of this report.
Debt-funding agreements executed pursuant to the authority of
the act of February 9, 1922, as amended by the act of February 28,
1923, and as further amended by the act of January 21, 1925, providing for the funding of $9,811,094,094.03, principal amount of obligations of foreign governments held by the Treasury, have been concluded with the Governments of Belgium, Czechoslovakia, Estonia,
Finland, France, Great Britain, Hungary, Italy, Latvia, Lithuania,,
Poland, Rumania, and Yugoslavia.

REPORT ON T H E FINANCES

There is set out below a statement showing by countries the principal amount of obligations funded and the amount of accrued interest
thereon included in the principal of the debt as funded:
Country
Belgium
Czechoslovakia..
Estonia
Finland
France
Great Britain...
Hungary
Italy
Latvia
Lithuania
, Poland
Rumania
Yugoslavia

Date of
agreement
Aug.
Oct.
Oct.
May
Apr.
June
Apr.
Nov.
Sept.
Sept.
Nov.
Dec.
May

Original
principal (net)

Funded interest

Funded debt

18,1926 $377,029, 670.06
13,1925
91,879, 671.03
28.1925
12,066, 222.15
1,1923
8,281, 926.17
29.1926 3,340,616, 043. 72
19.1923 4,074,818, 368.44
25.1924
1,685, 835. 61
14.1925 1,647,869, 197.96
6,132, 287.14
24.1926
22,1924
4,981, 628.03
14,1924
159,666, 972.39
4,1926
36,128, 494.94
3,1926
51,037, 886.39

$40,760,429.94
23,120,328.97
1,763,777.85
718,073.83
684,483,956. 28
626,181,641. 56
253, 164. 39
394,130,802. 04
642,712. 86
1,048,371.97
18,893,027. 61
8,461,605.06
11,812, 113. 61

$417,780,000.00
116, 000,000.00
13,830,000.00
9,000,000.00
4,025,000,000.00
4,600,000,000. 00
1,939,000.00
2,042,000,000.00
6, 775,000.00
6,030,000.00
178, 560,000.00
44, 690,000.00
62,850,000.00

9,811,094,094.03

1,711,269,905.97

11, 522,354,000.00

The funding agreements with Estonia, Finland, Great Britain,
Hungary, Lithuania>:Poland,,. and Rumania, have. been, ratified by
the United States and by their respective Governments and the
new obligations provided for in the funding agreements have been
delivered to the United States. The agreements with Belgium,
Italy, and Latvia have been ratified by the United States and the
several debtor Governments. The agreement with Czechoslovakia
has been approved by the United States. The commission has not
yet been notified that action to ratify the agreement has been taken
by the Czechoslovak Republic. The agreements with France and
Yugoslavia have been approved by the House of Representatives,
but not by the Senate. .The French Government has not yet ratified
the agreement with France, while the , agreement with Yugoslavia
has been approved by that Government.
For brief reports regarding the negotiations and execution of the
funding agreements, see the annual reports of the World War Foreign
Debt Commission contained in the annual reports of the Secretary
of the Treasury for the fiscal years ended June 30, 1922, 1923, 1924,
and 1925, and pages 57 to 79 of this report.
There is set out below a statement showing the payments on
account of principal of the funded obligations up to November 15,
1926:
In United States obligations
Country

Belgium
Czechoslovakia..
Finland
Great Britain
Hungary
Italy
Lithuania...
Rumania
Yugoslavia

Cash

$2,100,000.00
3,000,000.00
92,000.00
35, 723. 62
19,690. 50
60,225.00
200,000.00
200,000.00
6,707,639; 12

Face amount

Accrued interest to date
of payment

$44,860.00
69, 742, 700.00

$160.00
221,676.38

5,000,000.00

74,787,660.00

221,726.38

Total

$2,100,000.00
3,000,000.00
137 OOO.OO
70,000,000.00
19,690.50
5,000,000.00
60,226.00
200,000.00
200,000.00
80,716,915.50

SECE.ETAEY OF T H E XEEASUKY

There is set out below a statement showing the payments on
account of interest on the funded obligations up to November 15,
1926:
In United States, obligations
In bonds
. of debtor
Governments

Country

Cash
Face amount

Accrued interest to date
of payment

Total

«a

Belgium
.
Estonia
Finland
Great Britain
Hungary
Latvia
Lithuania
Poland

. . . $43,555. 60
•

136,225.00
178,780.50

$1,740,000.00
50,000.00
783, 694. 28
$i54,750.55
49, 761, 339. 43 428, 742, 600.00
103, 245. 06
87,000. 00
227, 706. 76
1, 750, 000. 00
54,502,885.53

428,897,350. 00

$550.72
1,376,060. 67

1,376, 611. 29

$1,740,000.00
50,000.00
938,896.00
479,880,000.00
146,800.56
87,000.00
362,931.76
1,750,000.00
484,955, 627.32

For a detailed statement of the principal amount of the indebtedness of foreign governments as of November 15, 1926, payments
made on account of the principal thereof, and the interest accrued
and unpaid thereon as of the last interest payment date prior to or
endhig with November 15, 1926, see Table 54, page 579.
A statement of the payments made on account of interest on obligations of foreign governments, funded and unfunded, appears as
Table 55, page 580.
WORLD WAR FOREIGN DEBT COMMISSION

The present members of the World War Foreign Debt Commission
are:
/v .
Andrew W. Mellon, Secretary of the Treasury, c&ai|Tnan.
Frank B. Kellogg, Secretary of State.
Herbert Hoover, Secretary of Commerce.
Reed Smoot, United States Senator.
Theodore E. Burton, Member of the House of Representatives.
Charles R. Crisp, Member of the House of Representatives.
Richard Olney, formerly Member of the House of Representatives.
Edward N. Hurley, formerly chairman of the United States Shipping Board.
Garrard B. Winston, Undersecretary of the Treasury, is secretary
of the commission.
There have been no changes in the membership of the commission
since the publication of the last annual report.
Summary of activities
There is set forth in the annual reports of the Secretary of the
Treasury for the fiscal years ended June 30, 1922, 1923, 1924, and
1925, a complete report of the activities of the commission to

REPORT ON THE FINANCES

November 15, 1925. The present report covers the period from
November 15, 1925, to November 15, 1926.
At the time of the creation of the commission the United States
held obligations of foreign governments, representing indebtedness
incurred in connection with the World War or arising out of conditions
resulting therefrom, aggregating in principal amount approximately
$10,102,000,000. Debt-funding agreements have been concluded'
with Belgium, Czechoslovakia, Estonia, Finland, France, Great
Britain, Hungary, Italy, Latvia, Lithuania, Poland, Rumania, and
Yugoslavia. These settlements represent $9,811,094,094.03, principal
amount of the obligations held by the United States, or more than 97
per cent of the total principal amount of obhgations held when the
commission was created.
The World War Foreign Debt Commission was created by Congress
February 9, 1922, for a period of three years, and in 1925 its life was
extended for an additional two years. The existence of the World
War Foreign Debt Commission terminates, therefore, on February 9,
1927. The commission has practically completed the work intrusted
to it by Congress, and I do not now believe that its life need be
extended. Greece has not funded its debt, but has requested additional advances under credits heretofore established. In this case
the commission has taken the position that it will not riiake such
advances without specific authority from Congress, and the matter
is now before that body. If the occasion should subsequently arise
to undertake negotiations covering debts not yet funded, the matter
might be handled informally by the Secretary of the Treasury with
such former members of the debt commission as are in Washington
and reported direct to Congress.
The principles applied by the debt commission in the negotiations
consummated since the last annual report of the Secretary of the
Treasury are discussed in the' statements made by the Secretary of
the Treasury to the Ways and Means Committee of the House of
Representatives under date of January 4, 1926, and May 20, 1926,
copies of which appear as Exhibits 12 and 36, pages 206 and 251, of
this report, and in various press releases, which appear as Exhibits
13, 15, 24, 30, 32, and 34, pages 213, 216, 230, 241, 243, and 249,
respectively. I t seems unnecessary, therefore, to discuss in detail
again the principles of these settlements, but it might be well to
repeat the general considerations which in the opinion of the debt
commission controlled the terms of payment.
After the war the United States held large amounts of demand,
obligations of many nations in. Europe. These notes of hand
could not be paid according to their terms, and it became necessary
for the United States to make adjustments so that definite settlements
could be had. The debt commission was established by Congress and
undertook the negotiation of funding agreements. The policy

SECRETARY OF THE TREASURY

pursued was to treat each debtor nation on the basis of its particular
capacity to pay the debt. The first element was time. It would
have been preferable, of course, to have the matter out of the way
within a generation, but to insist upon such a period, brief as nations
go, would have been out of the question. This very extension of
time has been criticized as not an indulgence but a hardship to the
debtor nation. No one likes to pay a creditor over a 62-year period.
But if the whole debt can not be paid on demand, no other course was
open except to extend the period of repayment. This was done in the
first settlement, that with England, and similar extensions have
been granted to all other nations. The second problem was the
amount to be paid in the earlier years. It is these years that are the
most difficult, because postwar readjustments are still incomplete,
and it is here that America has been most lenient. No debtor nation
will deny that the payments provided for these earlier years are
well within its capacity. The third question was the later years.
No one can insure the future, but given normal conditions, it is
believed a true balance has been held between the duty of the debt
commission to the American taxpayer and fairness toward those
nations to which was extended aid during and after the war. The
debts have not been canceled, but the impossible has not been
demanded. Since these settlements, England's excepted, have but
recently been completed, the American debt has meant practically
nothing to continental Europe in the eight years since the armistice,
and it can not become too heavy a load in the next few years. Thereafter, much depends upon the progress of the world. With peace and
the development of trade internally and externally, these settlements
are quite workable. The principal fact is that settlements have been
made and a fair trial can be had, not on theory but in practice. The
debtor nations know what should be provided in their budgets and
uncertainty is eliminated.
From abroad has come again the suggestion that the indebtedness
pf the nations of Europe between themselves and with the United
States should be canceled or should be pooled and a general joint
settlement take place. There has been some repetition of this suggestion in the United States, and my position on the question of debt
cancellation appears in a letter from me to Mr. Frederick W. Peabody,
of July 14, 1926, Exhibit 40, page 259. This suggestion has been
presented in various forms, but upon analysis its essential basis seems
to be a belief that the advances of the United States during the war
were in the nature of subsidies and were, therefore, not loans at all,
or that these advances were contributions to a joint undertaking and
should be settled jointly by clearuig one against the other. The
position of the debt commission that the advances were loans to be

REPORT ON THE FINANCES

repaid and that each debt must be funded on the basis of the capacity
to pay of the particular debtor has been the consistent policy of the
United States from the first. Until the war ended no intimation was
made that these advances were subsidies, or that they were contributions to a joint cause, or that they would be the subject of a general
pooling after the war.
Contemporaneous construction by the parties involved is the most
conclusive evidence of the true meaning of their actions. In this
connection the quotation follow^ing is interesting. On April 5, 1917
(war was declared April 6, 1917), our ambassador was instructed at
the instance of the Secretary of the Treasury to learn from the French
Minister of Finance the amount of loan or credit that would most
assist the French Republic during the next six months. The ambas-^
sador immediately conferred with the French Premier, Ribot, whohad been for several years previous Minister of Finance.. Mr..
Thierry was then Minister of Finance, but was out of Paris. Our
ambassador had a conference with the Premier and wired the Secretary of State on April 11, 1917:
The Premier personally expressed tlie hope to me that no resolution would beintroduced or debated in Congress tending to make a gift to the Government of"
France from the United States however much the sentiment of good will prompting it might be appreciated by the French people. In view of France's action in:
the Franklin agreements in the years 1782 and 1783 in the time of our own distress,:^
I hope I may be permitted to suggest that it would appear to be a generous and.
gracious thing should such an arrangement prove feasible in making the French
loan at this time to stipulate that no interest shall be charged or be payable on:
such a loan during the war and thereafter for a limited number of years.

An article in Le Matin of Jurie 28, 1926, purports to contain copies
of cables between Ambassador Jusserand and the French Premier
about the time when the first advances were being made. Thefollowing are translations of the dispatches:
DiPLOMATiE P A R I S :
APRIL 12,

1917.

I have just had an interview with the Secretary of the Treasury regarding ourfinancial needs. The amount of $133,000,000 a month drew no observation from
him; the amount of $218,000,000, which would be reached by adding our expensesoutside the United States, appeared high to him, but it is not impossible that weshall get it.
As one of our allies has made some remarks on the necessity of equal treatment
for all, under the pretext that the contrary would be humiliating, special favors
for France are no longer spoken of, although it is possible that more will be heard
of this later.
The rate of interest will be the same that the Government of the United Statedwill be able to obtain, probably 33^ per cent, with a guarantee that if subsequent
loans are made at a higher rate, the same interest will be paid to the holders of"
the first loan.

SECRETARY OF THE TREASURY

This interest,' by the terms of the law, shall be paid by all the allied countries
-concerned; As to the term for repayment, I mentioned (supposing this to be
•desirable) that of 15 years. Mr. McAdoo said that he had no objection to that.
(Signed)

JUSSERAND.
APRIL 17, 1917.

I shall do my best in the matter of repayment in 25 years, but I can not refrain
•from pointing out how much easier things would have been made for me if.
Instead of speaking, as was done,.in the imprecise terms, in your telegram No.
536, of a term '*as long.as possible," the department had told me 25 years, since
it had a settled idea on this subject.
I believed that I had good reason to suppose that 15 years would be considered satisfactory.
I can not too urgently recommend the utmost possible precision in all these
practical and urgent affairs with which I am now occupied.
,
(Signed) ;

JUSSERAND!

PARIS, April 19, 1917.
FRENCH AMBASSADOR, Washington:

The Minister of Finance insists that the term of amortization shall be 30
years, a normal • and minimum term in such opierations. While thoroughly
understanding the difficulties indicated in your telegram No. 477, I transmit
the pressing communication which I have received.
(Signed)

RIBOT.

The foregoing shows that no idea of subsidy existed at the time
the loans were made.
The principles upon which the American Treasury acted in determining the purposes for which war loans should be made are described
in an article by former Assistant Secretary of the Treasury Rathbone
in Foreign Affairs for April, 1925, as follows:
The financial requirements of each of the allied and associated Governments
fell Into three classes—according as they arose.at home, in allied or associated
countries, or in neutral countries. In general, the view of the United States
Treasury was that the first class could and should be met by the Government
concerned through taxation'or domestic loans; that as regards the second class,
each country (if necessary)' should stand ready to provide or arrange finance for
the requirements of its allies for expenditures within its borders; and that expenditures in neutral countries should, for reasons of finance, be reduced to a minimum and should be met under some equitable arrangement by those countries
able to provide the necessary finance in the required currency.
*

For its own war purposes in Great Britain, France, and Italy, the United States
did hot borrow'pounds or francs or lire. Our-Treasury was obliged to procure
these currencies for the use of our Army abroad. We bought pounds, francs,
and lire from the Governments of Great Britain, France, and Italy, and made
payment therefor in dollars here. The dollars thus obtained by Great Britain,
France, and Italy were applied by them toward the cost of their war purchases
here, and thus the amount of the dollar loans required by these countries from
our Treasury was diminished in a corresponding sum. * * *
The United"States'^finanCed'its own requirements in- neutral •couh'tn'iE^il^^'T^
some extent our loans to support sterling exchange (which are referred t o hereafter) provided the means necessary to pay for British purchases in neutral
countries, and to the extent they did not suffice Great Britain obtained for

REPORT ON THE FINANCES

herself the neutral currencies she required. Direct aid was required, however,
chiefly by France and Italy, to finance much of their necessary war purchases in
neutral countries. It was evident that the United States or Great Britain orboth would have to find much of the finance required by France and Italy in
neutral countries. There was no particular principle under which all such
finance should be furnished by one of those countries and none by the other;
both the United States and Great Britain were financially able to assume and
to carry the burden. Great Britain before we entered the war had supplied
such neutral finance as France and Italy required and had not'been able themselves to supply. • Until we declared war on Germany the war. had. been the
Allies' war, not ours, and our Treasury therefore could not accept the theory
that, because before we entered the war Great Britain alone had furnished the
assistance required by France and Italy for finance in neutral countries, it was
our duty alone to furnish such assistance after we entered the war.
Various considerations had to be taken into account in determining how and
to what extent the United States should aid in financing, in neutral countries,
necessary requirements of France and Italy arising from the time we entered
the war. Great Britain, as the great creditor nation, had available facilities for
obtaining neutral finance which we, at that time a debtor nation, did not have.
The apparent large balance of trade in favor of the United States, after there
had-been-elimihated'therefrom the United States exports paid for by.the dollars,
which we had loaned the allied Governments, became a heavy adverse balanceagainst the United States, and this seriously handicapped the ability of the
United States to furnish financial aid to allied Governments in neutral countries.
Through its pre-war commercial interests and its well-established war organizations. Great Britain was actually in a better position than we were in, or
could put ourselves in, to handle the obtaining and utilizing of such neutral
finance. Great Britain had capital interests in man3^ neutral countries, and for
years the ocean transportation of exports and imports of neutral countries had
been largely carried on by British ships. Between April, 1917, and November,.
1918, as compared with the currencies of Sweden, Norway, Denmark, Holland^
Switzerland, Spain, India, Japan, the Argentine, Chile, Peru, and Bolivia, the
dollar was at a discount and generally at a very heavy discount, and the pound'
was at. an even heavier discount than the dollar. Consequently, purchases inv
these countries, if paid for in dollars or in pounds at their current exchange value,
meant->c0sts. largely in excess of the high war, prices as-measured in terms of the,
currencies of these countries. If we alone were tb finance these neutral require^
ments, it was as a practical matter impossible for us tp delegate to Great Britain
the control of the expenditure of our dollar^ loans for the neutral requirementsof France and Italy for which they were unable themselves to provide. For
the reasons elsewhere referred to, from the financial standpoint it was to our
interest, and to the interest of Great Britain as well, that purchases which France
and Italy, could make in the United States or in Great Britain should be made
there rather than in neutral countries. After we entered the war, in view of
the considerations mentioned, Great Britain continued to furnish in the first
instance most of the neutral finance required by France and Italy; but the.
United States Treasury, being prepared to bear its fair portion of the burden
of securing finance for France and Italy in neutral countries, efl'ected arrangements by which, after we entered the war, such purchases were ultimately in
part financed by our dollar.loans to France and Italy. The,cost of the neutrat
finance^so found after we entered the war was ultimately furnished, in the case
of Ital}'^, approximately one-half by the United States and one-half by Great
Britain, and in the case of France soinething over one-half by the United States;
and the balance,by Great Britain.

SECRETARY OF THE TREASURY

63'

Having thus fixed its general policy as to which: countries should be the^
lenders, the United States Treasury formulated its general policy as to the^ allied
Governments which should be the borrowers. This ^ was, that our loans should
be.made to each allied Government to meet the cost of commodities purchasedhere for its own;use; that we would not loan to one Government the dollars
needed for purchases to be made by or on behalf of another Government, and
that neither the financial condition of the borrower nor questions of political ,
'.expediency in our own. country, should be. factors in-deterlnining the Government to which our dollars should be loaned and whose. obligation we would
consequently take.
,

The question of a general joint adjustment of all debts arising out
of the war did not arise until after the armistice. I t first appears to
have been informally suggested by the British Chancellor of the
Exchequer to Assistant Secretary of the Treasury Crosley, who
was then in Europe, repudiated by him and apparently dropped for
the time being.
On January 15, 1919, Mr. Edouard de Billy, French Deputy High
Commissipner, wrote Secretary of the Treasury Glass as follows:
You are undoubtedly awiare that several times lately I have had occasion to
call the attention of Mr. Leffingwell and Mr. Rathbone to the question of definitely settling the status of the advances made up to the present by the UnitedStates Treasury against the demand obligations of the French Government.
The procedure to be followed in this connection appears of such importance
to my Government that I deem it necessary, at the request of Mr. Klotz, to
give you in writing the French Government's point of view as already given
verbally to Messrs. Leffingw^ell and Rathbone.
Although prepared to abide by your final decision, my Government is desirous
of submitting to your kind consideration the reasons for which it appears that
the question of the reimbursement of the debts of the Allies can be satisfactorily'
settled only at a conference to be held in Paris during the peace negotiations.
The financial relations among the Allies, brought about by the war, are closely
interwoven. The British and French Governments have both borrowed from
the United States; but France is also a.debtor of England. The French and
Italian Governments have both borrowed from the Uriited States; but Italy
is also a debtor of France. Although a debtor of the United States and of Great
Britain, France has loaned about 10,000,000,000 francs to its allies.
.
It appears to m y Government that, if the future adjustment of such mutual
accounts is to be made thie object of separate and distinct agreements, privileged
situations might arise to the prejudice of Soihe of the governments concerned.
If, on the contrary, all questions of debit and credit were Considered at the sarhe
time, and as a whole, it would be easier, according to equity, to settle the respective situation of these governments.
.
• On the other hand, it appears that the possibility of reimbursement by certain
governments may be deeply affected by the conditions of the Treaty of Peace,
especially by the indemnities to be received eventually from Germany and, in
the case of some countries, as Serbia for instance; by the distribution of territory'
and the establishment of new boundary lines.
v j: ^ ^ .
w
In short, the French Government looks upon these questibhs as concelrning
all the Allies and demanding a general aind simultaneous settlernent j in which,
at the same time, would be taken into consideration the respective positions
of each of the interested governinents toward the others, and the tea'ction Which

REPORT ON T H E FINANCES

the peace conditions might have on the financial possibilities of these Governments.
My Government would consider it a favor to know the views of the Treasury
on this most complex problem, especially as in the beginning my Government
had understood that its views corresponded to those expressed on various
occasions by the representatives of the Treasury.

On January 29', 1919, Secretary of the Treasury Glass replied to
Mr. de Billy's letter of January 15, 1919, as follows:
I have received your letter of the 15th instant, in which you set forth certain
considerations in regard to the formulation of the scheme of repayments by your
Government of loans made to it by the United States.
I am entirely in accord with the view that the scheme should take into account
the recoveries from the enemy which are likely to be effected by your Government. I do not, however, feel that these considerations lead to the conclusion
that discussion of the plans for repayment of debts due to the United States can
advantageously be undertaken in Paris in conjunction with the Peace Conference.
The conclusion I draw therefrom is rather that the United States should be
willing to postpone discussions until the probable amount, time, and form of
recoveries from the enemy can be. estimated and the financial position of the
receiving Government considered in the light of this information.
I have heretofore stated to representatives of various of the allied Governments, that, if they desire, I am quite ready to discuss with them the questioris
relating to any plan for the repayment of their obligations held by the United
.States. This I am prepared to do as I do not think the arrangements between
the United States and the Governments to. which it has made advances can
well be uniform or should necessarily be entered into simultaneously. On the
other hand, I have no wish to press the immediate consideration and discussion
of these questions upon any Government.
I recognize that in case a countiy has borrowed of more than one of the Governments associated in the war, it would be difficult to reach an equitable arrangement unless the arrangements which could be made by the borrowing country
with the other associated Governments which had lent it important amounts
were taken into account, but I can not see that any country is concerned in such
arrangements other than the borrowing country and the particular countries
which have made advances to it. I agree with you that where two or more of the
associated'Govefriments have made loans to the same Government, none should
seek any unfair priority or advantage over dther^'iii terms of repayrneht,-^and'
I am confident that all the associated Governments will be animated by this
principle. I assume that consideration of the advances to Russia must for a
time be postponed and the other cases, where both the United States and France
made advances to the same Government, are few in number, and only Great
Britain, besides the United States, has made loans to France, and I do not
anticipate that the treasuries of the respective countries will have any difficulty
in arriving at arrangements which will be equitable and free from discrimination.
After giving the views of your Government as expressed in your letter
careful consideration (the more so in view of the cordial expression of readiness to
accept the conclusion of the Uriited States Treasury.upon the question), I feel
that discussion of the scheme of repayment of debts due to the United States
should take place in Washington as soon as possible after the financial terms
of the peace settlement have been: decided, or earlier in the case of any Government wiiich so desire's. I shoiild'expeict. th^t wHe:iiever.such 'discussid.ns'are ihi.tiated by any country that country will join with me in the desire that any other.

SECRETARY OF THE TREASURY

associated governments which shall have made loans to the<, country in question
will be asked at the same time to discuss with the borrowing country the scheme
for the repayment of the debt held by such other associated Government, and
that no final conclusion would be arrived at in respect to the obligations,
acquired during the war, of any one of the associated Governments without the
previous knowledge of all the associated Governments which have during that
period made loans of an important amount to the Government in question.

Mr. J. Simon, of the French High Commission at Washington,
wrote Secretary Glass on February 5, 1919, as follows:
The attention of my Government has been called to an article published recently
in the Washington papers, according to which President Wilson is said to have
been approached by French officials with a view of having the United States
share the war expenditures of the Entente in the same proportion as if your
• Government had entered into the war in August, 1914.
The Prime Minister of France has cabled me in order to deny most emphatically that such a suggestion has ever been made to President Wilson by any
French ofiicial.

On March 8, 1919, Assistant Secretary of the Treasury Rathbone
wrote to Mr. de Billy, Deputy .French High Conimissioner at Washington, as follows:
I learn that at a meeting of the Financial Drafting Committee appointed by
the Executive Council of ten at the peace conference one of the allied governments having proposed as one of the financial questions affecting peace, the
reapportionment and consolidation of war debts, this proposal was strongly
supported by the representatives of your Government, Mr. Klotz taking the
position that this question must be discussed while the delegates of all the powers
are in Paris. While I understand that the drafting committee did not report
this question as one to be dealt with in the peace treaty, I understand that it
did report to the Executive Council as a question which had been raised, "Interallied agreements as to the consolidation, reapportionment, and the reassumption
of war debts."
I need not dwell on my surprise at the position taken by Mr. Klotz on behalf
of/your. Go yernrnent,.particularly in,: vie w^ of. your., 1^^^^^
of. December 27,. 1918,
and February 5, 1919, as to which I testified before the Ways and Means Committee of the House of Representatives of the Congress at the recent hearing on
the Victory Liberty bond bill.
I have, however, to state most emphatically that the Treasury, which, as
you are aware, is clothed by the Congress with full authority to deal with foreign
loans which it has made, will not assent to any discussion at the peace conference,
or elsewhere, of any plan or arrangement for the release, consolidation, or reapportionment of the obligations of foreign Governments held by the United
States.
.
You will appreciate also that the Treasury can not contemplate continuance
of advances to any aUied Government which is lending its support to any plan
which would create uncertainty as to its due repayment of advances made to it
by the United States Treasury.
I should be obliged if you would communicate to your Government the views
of the Treasury as expressed above, and I shall be anxious to receive its reply.

Assistant Secretary Rathbone. was advised by Mr. de Billy on
March 10, 1919, that the contents of his letter had been transmitted
. t9 his Goyei:iimentJby,.pa^^^

-REPORT ON TiSE FINANCES
On Miafch 18,» 1919, Mr. de Billy wrote Mr. Rathbone as follows:

. By your letter of March 8 you informed me that at a meeting of the financial
drafting committee in Paris one ;of the allied Governments having proposed,
as one of the questions affecting peace, the reapportionment and consoHdation
of war debts, this proposal was strongly supported by the representatives of
the French Government.
You expressed your surprise at the position taken by Mr. Klotz, and you
requested me to communicate to my Government the views of the Treasury
concerning ^this question.
'
. 1 have just xeceived an answer from Mr. Klotz by cable, the gist of which I
give you below: '
•
The proposition referred to was presented to the commission encharged by
the executive cornmittee with the study' of the financial questions at a time
when the role of this commission was reduced to the estabhshment of a list of
the questions to be submitted to the executive committee, which had subsequently to decide which questions should be retained, and in such case, to whom
their examination. should be confided. The Italian delegation of the said commission having proposed that the question of the division among the allies
of tlie total of the war expenses be inscribed on this list and a discussion having
begu.n, on this, point, the French delegate asked that the Itahan proposition be
not discarded a priori.
The purpose of the commission was purely and simply to make a list of the
questions which the representatives of the Powers now assembled in Paris might
find it expedient to consider either in the general meetings or in meetings limited
to the governrhents directly interested; the inscription of the Italian proposition
on this list would not in any way preclude the decision of the executive committee.
Furthermore, Mr. Klotz points out that with reference to the attitude of the
French officials toward the principle involved in this question, the French Government never made any declaration favoring either the Italian proposition or
any other similar proposition reproduced in the press or in the French chambers.
I t is to be noted that Assistant Secretary Rathbone's letter of
March 8, 1919, to Mr. de Billy, Deputy French High Commissioner,
stated that the Treasury could not contemplate continuance of
advances to any allied government lending its support to a plan which
woriid create uncertainty: as to its due repayment of advances made
to it by the United States Treasury. Mr. de Billy in his reply of
March 18, 1919, removed this uncertainty as to due repayment.
T h e cash advances of the United States to France subsequent to
March 18, 1919, aggregated $690,000,000, and in addition there was
an indebtedness of $407,000,000 incurred by France to the United
States in the purchase of war stocks, a total of approximately
$1,100,000,000.
. . *.
The correspondence then shifted to England. On November 8,
1919, Mr. Basil P. Blackett, British financial representative in Paris,
wrote tp Assistant Secretary of the Treasury Rathbone, also.in Paris,
as fpllpws:
i have, now had ari. opportunity of discussing with the Chancellor, of Exchequer
the questioh of the conversion of the demand obligations, of the British and
' allied''Gdvernments held by the United States Treasury into the form of longterm bonds. The Chancellor of Exchequer desires me to say that, on the under

SECRETARY OF THE TREASURY

standing that such conversion will not in any way prejudice the general question
of interallied indebtedness, to the ultimate settlement of whieh along broad
lines he attaches great importance, he is of opinion that a satisfactory solution
of the particular question of conversion of demand obligations can quickly be
reached along the general lines tentatively proposed in the memorandum which
you gave me on Saturday, November 1st. As I stated to you. in Paris, the
Chancellor of Exchequer is prepared to give analogous treatment to the obligations of allied governments held by the British Treasury. In this connection
he desires me to express his'entire concurrence in your view that their community of interests as the two chief creditors.makes close cooperation between the
British and American Treasuries of vital importance in these matters.
It is his strong hope that the two treasuries will work together with a view to
finding the right solution for the important problems which have arisen and
•will arise in regard to questions of interallied indebtedness and German reparation.
*

•

On November 18, 1919, Assistant Secretary Rathbone replied,
•stating in part:
I note that the chancellor attaches great importance to the ultimate settlement
:along broad lines of the general question of interallied indebtedness. Just wha;t
Is meant by that expression I do not know, but feel confident there is no such
•question now under discussion or consideration. The United States Treasury
has in no wise chariged the views it has expressed, or modified the position.that it
'has taken in the past, and regards the several obligations of the various allied
'Governments held by the Government of the United States as representing the
'debt of each to the United States.

On February 4, 1920, Mr. Blackett wrote Mr, Rathbone and
.referred to the interallied debt problem, saying:
They have more than once suggested informally to representatives of the
United States Treasury that steps should be taken by the two Governments
in concert to find some large solution of this problem, and as you are aware the
'Chancellor ofthe Exchequer expressed himself ready to take any steps towards
Telieving the Governments which are debtors to the British Goverriment of the
'burden of their debts which the United States Treasury might feel able to
propose in regard" to the obligations of the Governments which it holds. The
^suggestions have not ^hitherto been placed on formal record and it is for "the purpose of formal record that they are mentioned here.

On February 9, 1920, the British charg^ d'affaires at Washington
handed Assistant Secretary Leffingwell a message from the Chancellor of the Exchequer in which the following appeared:
* * * we should welcome a general cancellation of intergovernmental war
-debts. ' The moral effect would even be a greater practical change and fresh hope
.and confidence would spring up everywhere. The existence of these international
debts deters neutrals from giving assistance, checks private credits,, and will, I
ifear, prove a disturbing effect in future international relations.

On March 1, 1920, Secretary Houston sent the British charg^
d'affaires a reply for transmission to the chancellor:
°
Your recent, message through the British Embassy in which among other
vthings you suggest a general cancellation of intergovernmental.. war debts, has
sbeen received, and Rathbone has transmitted a copy of the communication

REPORT ON THE FINANCES

sent him by Blackett dealing with the funding o the demand obligations of the
allied Governments held by the United States and England, respectively, in
which the same subject is raised.
*

5jC

. As to the general cancellation of intergovernmental war debts suggested by
you, you will, I am sure, desire that I present my views no less frankly than you
have presented yours. Any proposal or movement of such character would,
I am confident, serve no useful purpose. On the contrary it would, I fear, mislead the people of the debtor countries as to the justice and efficacy of such a
plari and arouse hopes, the disappointment of which could only have a harmful
effect. I feel certain that neither the American people nor our Congress whose
.action on such a question would be required is prepared to look with favor upon
such a proposal.
Apparently there are those who have been laboring for some time under the
delusion that the inevitable consequences of war can be avoided. As far back as
January a year ago, before it could possibly be foreseen whether any measures
were necessary other than the adoption of sound economic policies, various schemes,
including that of a cancellation of intergovernmental war debts, were launched*
Of course I recognize that a general cancellation of such debts would be of advantage to Great Britain and that it probably would not involve any losses on her
..part... As ..there are no obligations of the United States Government which
would be canceled under such a plan, the effect would be that, in consideration
of a cancellation by the United States Government of oVjligations which it
holds for advances made to the British Government and the other allied
Governments, the British Government would cancel its debts against France,
Italy, Russia, and her other allies. Such a proposal does not involve
mutual sacrifices on the part of the nations concerned. It simply involves a
contribution mainly by the United States. The United States has shown its
desire to assist Europe. Negotiations for funding the principal of the foreign
obligations held by the United States Treasury, and for postponing or funding
the interest accruing during the reconstruction period are in progress. Since
the armistice this Government has extended to foreign governments financial
assistance to the extent of approximately four billions of dollars. What this
Government could do for the. immediate relief of the debtor countries has been
done. Their need now is for private credits. The indebtedness of the allied
Qoyernments to each other and to the United States is not a present burden
upon thedebtor Governments, since they are not paying interest or even, as far
as I am aware, providing in their budgets or taxes for the payment of either
principal or interest. At the present time the foreign obligations held by the
.Governmentof the United States do not constitute a practical obstacle to obtaining credits here, and I do not think that the European countries would obtain
a dollar additional credit as a result of the cancellation of those obligations. The
proposal does not touch matters out of which the present financial and economic
•difficulties of Europe chiefly grow. The relief from present ills, in so far as it
can be obtained, is primarily within the control of the debtor Governments and
peoples themselves. Most of the debtor Governments have not levied taxes
sufficient to enable them to balance their budgets, nor have they taken any
energetic and adequate measures to reduce their expenditures to meet their
income. Too little progress has been made in disarmament. No appreciable
progress has been made in deflating excessive issues of currency or in stabilizing
the currencies at new levels, but in Continental Europe there has been a constant
increase in note issues. Private initiative has not been restored. Unnecessary
and unwise economic barriers still exist. Instead of setting trade and commerce

SECRETARY OF THE TREASURY

free by appropriate steps there appear to be concerted efforts to obtain from the
most needy .discriminatory advantages and exclusive concessions. ' There is not
yet apparent any disposition on the part of Europe to make a prompt and
reasonable definite settlement of the reparation claims against Germany or to
adopt policies which will set Germany and Austria free to make their necessary
contribution to the economic rehabilitation of Europe.
After taking all the measures within their power, one or more of the debtor
Governments may ultimately consider it necessary or advantageous to make
some general settlement of their indebtedness. In such a case they would, I
presume, propose to all creditors, domestic and foreign, a general composition
which would take into account advantages obtiained by such debtor country
under the treaty of peace. How the American people or the American Congress would view participation in such a composition I can not say. It is very
clear to me, however, that a general cancellation of intergovernmental war
debts irrespective of the positions of the separate debtor Governments is of no
present advantage or necessity. A general cancellation as suggested would,
while retaining the domestic obligations intact, throw upon the people of this
country the exclusive burden of meeting the interest and of ultimately • extinguishing the principal of our loans to t h e allied Governments. This Nation has
neither sought nor received substantial benefits from the war. On the other
hand, the Allies, although having suffered greatly in loss of lives and property,
have, under the terms of the treaty of peace and otherwise, acquired very considerable accessions of territories, populations, economic and other advantages.
It would therefore seem that if a full account were taken of these and of the
whole situation there would be no desire nor reason to call upon the Government
of this country for further contributions.

On March 13, 1920, the British charge d'affaires at Washington
transmitted to the Secretary of the Treasury a message from the
Chancellor of the Exchequer, from which the following appears:
I am much obliged for the full and interesting reply which you have been good
enough to make to my message to Leffingwell.
I fully appreciate the attitude of the United States to any proposal for a mutual
cancellation of international war indebtedness. I had no intention of renewing
this proposal to which I referred only in order to respond fully to Leffingwell's
request for my appreciation of the general situation of Europe as weU as of this
country.

On May 21, 1920, Austen Chamberlain wrote Assistant Secretary
Rathbone at Paris as follows:
The Cabinet has this morning given prolonged and careful consideration to
the proposals which have been discussed between us for the treatment of British
indebtedness to the American Government and the parallel treatment by both
the United States and Great Britain of the debts due to them by France, Italy,
and other allied Governments.
Since I had my last meeting with you the discussion between the Prime
Ministers of France and Great Britain at Lympne have on the initiative of the
French resulted in an agreement that in order to provide a solution for the
economic difficulties which are gravely weighing upon the general situation of the
world and in order to mark a definite beginning of the era of peace the settlement
of the debts between them and the other European Allies should proceed on parallel lines with that of the reparation debts of the Central Empires.
The question of European indebtedness to America was not discussed at this
conference at which no American representative was present, but before proceeding further with the consideration of detailed proposals for the treatment of the

REPORT ON THE FINANCES

British debt to.the United States Government which as explained by you were
intended to form the basis for similar arrangements between the United States
and -Great Britain on the one hand and the allied nations indebted to both of'
them on the other, we feel that their applicability to the general situation must
be further explored and that it raises questions of great importance uhsuited fordepartmental trea^tment between our two Treasuries. Discussions on the subjecttook place at an earlier stage between President Wilson.and the Prime Minister
and the Prime Minister proposes now to resume these discussions and will send.
a communication on this subject, for the President's consideration.

On May 24, 1920, Assistant'Secretary Rathbone replied:
In view of the communication which the Prime Minister is about to send to the
President, I have referred your letter to the Secretary of the Treasury and shall
not now attempt to discuss the matter you refer to beyond restating the view of
the United States Treasury that the questions relating to the debt of the British
Government to the United States Government must be settled by those two.
Governments only, and that the indebtedness of other governments to the American Government or to the British Government, and the payment by Germany
of reparations, are in no way related to the postponement of interest upon and
funding of the obligations of the British Government held by the United States^
Treasury, nor to the other matters which were discussed during my month's^
stay in England for that purpose.
'

On June 26, 1920, Secretary Houston handed to Sir Auckland.
Geddes a memorandum, section II of which follows:
It has been at all times the view of the United States Treasury that questionsregarding the indebtedness of the Government of the United Kingdom of Great
Britain and Ireland to the United States Government and the funding of such,
indebtedness had no relation either to questions arising concerning the war loans^
of the United States and of the United Kingdom to other governments or to
questions regarding the reparation payments of the Central Empires of Europe.
These views were expressed to the representatives of the British Treasury constantly during the period when the United States Government was making loansto the Government of the United Kingdom and since that time in Washington,
ih Paris, and in London. The views of the President on the subject were stated'
at length to the Prime Minister in a letter dated May 5, 1919.

In a letter of July 23,1920, to Mr. Ceher, of the Ministry of Financeof France, Mr. Norman H. Davis, Undersecretary of State, wrote
as follows:
I may say, however, that the vague reports to the effect that it had been
decided that the various intergovernmental debts and the settlement thereof
would be made to depend directly upon the settlement of collection from German reparations appeared to have a rather adverse reaction here.
It is felt here that the obligation, on the part of debtor countries to liquidatewar debts is a matter., entirely independent of the reparation, problem. Themoneys were loaned before the question of reparations from. Germany could beconsidered. It is of course realized that^ the ability to pay these war debts ini
full will in some cases depend upon the economic recovery of the debtor country,,
and that the amount received by way of reparations will be one of the elementsin such recovery. It is hard for the people of this country, however, to see the
justification for any plan of assignment of German reparation obligations in.
payment of war debts, or the using of reparation payments as a controlling, index_

SECRETARY OF THE TREASURY

71-

of payments to be required on war loans, when these loans and reparation obliga-:
tions have no connection and receipts from reparations have at best only ah
indirect and partial relation to the ability of the debtor nations to pay. It would:
be impossible for me to express a personal opinion on any contemplated settler
ment of the reparations problem without more specific information than is con-r
tained in your letter. If the Secretary of-.the Treasury were inclined to tie up
the reparation question with intergovernmental indebtedness, which I believe*
is not the case, it would be impossible for him to do so without congressional
approval, which, in my judgment, is out of the question. Under existing cir^
cumstances, I fear that any agitation along this line will simply be misleading
and make it more difficult eventually for this country to participate and cooperate with other countries in the adjustment of existing economic problems.

On August 5, 1920, Mr. Lloyd George, Prime Minister of England,
wrote President Wilson as follows:
*• I come now to the other question I wish to write to you about, and that is the
knotty problem of interallied indebtedness. Indeed, I promised Mr. Rathbone
long ago that I would write to you about it, but I have had to put it off for one reason
and another till now. The British and French Governments have been discussing
during the last four months, the question of giving fixity and definiteness to
Germany's reparation obligations. The British Government has stood steadily
by the view that it was vital that Germany's liabilities should be fixed at a
figure which it was within the reasonable capacity of Germany to pay, and that
this figure should be fixed without d'elay because the reconstruction of Central
Europe could not begin nor could the Allies themselves raise money o.n the
strength of Germany's obligation to pay them reparation until her liabilities
have been exactly defined. After great difficulties with his own people, M.
MiUerand found himself able to accept this view, but he pointed out that it was
impossible for France to agree to accept anything less than it was entitled to
under the treaty unless its debts to its. Allies and associates in the. war were
treated in the same way.
This declaration appeared to the British Government eminently fair. But
after careful consideration they came to the conclusion that it was impossible
to remit any part of what was owed to them by France except as part and parcel
of all round settlement of interaUied indebtedness. I need not go into the
reasons which lead to this conclusion which must be clear to you. But the
principal reason was that British public opinion would never support a onesided arrangement at its sole expense, and that if such a one-sided arrangement
were made it could not fail to* estrange and eventually embitter the relations
between the American and the British people with calamitous results to the
future of the world. You will remember that Great Britain borrowed from the
United States about half as much as its total loans to the Allies, and that after
America's entry into the war, it lent to the Allies almost exactly the same amount
as it borrowed from the United States of America. Accordingly the British
Government has informed the French Government that it will agree to any
equitable arrangement for the reduction or cancellation of interallied indebtedness,
but that such an arrangement must be one that apphes all round. As you know,
the representatives of the Allies and of Germany are meeting at Geneva in a
week or two to commence discussion on the subject of reparation. '
I recognize that in the midst of a presidential election and with Congress not
in session it is impossible for the United States to deal with this question in a
practical manner, but the question is one of such importance to the future of
Europe, and indeed to the relations between the allied and associated powers

REPORT ON THE FINANCES

that I should very much welcome-any advice which you mighib feel yourself
able to .give me as to the best method of securing that.the whPle-i)roblem couid
be considered and settled by the United States Government in concert with its
associates at the earliest possible moment that the political situation in America
makes it possible.
There is one other point which I should like to add. When the British Government decided that it could not deal with the question of the debts owed to .
it by its allies except as part and parcel of an all-round arrangement of interallied debts, the Chancellor of the Exchequer told Mr. Rathbone that he could
not proceed any further with the negotiations which they had been conducting
together with regard to the postponement bf the payment of interest on thefunding of Great Britain's debts to America. I should like to make it plain
that this is due to no reluctance on the part of Great Britain to fund its debt,
but solely to the fact that it can not bind itself by any arrangement which would
prejudice the working of any interallied arrangement which may be reached in
the future. If some method can be found for funding the British debt which
does not prejudice the larger question, the British Governnient would be glad
to fall in with it.

On November 3, 1920, President Wilson, in replying to Mr. Lloyd
George's letter of August 5, 1920, said in part as follows:
I turn now to the problem of interallied indebtedness which you raise. I
must deal with this matter with great frankness, as I am sure you wish me to do.
It is desirable that our position be clearly understood in order to avoid any
further delay in a constructive settlement of reparations which may arise from
the hope that the debts to this Government can form a part of such settlernent.
It will be helpful if first of all I indicate our legal situation.
The Secretary of the Treasury is authorized by United States law to arrange
for the conversion of the demand obligations of the British Government into
obligations having a fixed date of maturity, in accordance with the agreement
of the British Government to rhake such exchange on demand contained in its
existing obligations. In connection with such exchange, the Secretary of the
Treasury has authority to arrange for the postponement of interest payments.
No power has been given by the Congress to any one to exchange, remit, or
cancel any part of the indebtedness of the allied Governments to the United
States represented by their respective demand obligations. It would require
congressional authority to authorize any such dealing with the demand obligations and the Congress has the same authority to authorize any disposition
of obligations of the British Government held by the United States, whether
represented by demand obligations or by obligations having a fixed date of
maturity: It is highly improbable that either the Congress or popular opinion
in this country will ever permit a cancellation of any part of the debt of the
British Government to the United States in order to induce the British Government to remit, in whole or in part, the debt to Great Britain or France or any
other of the allied Governments, or that it would consent to a cancellation or
reduction in the debts of any of the allied Governments as an inducement towards
a practical settlement of the reparation claims. As a matter of fact, such a
settlement in our judgment would in itself increase the ultimate financial strength
of the Allies.
You will recall that suggestions looking to the cancellation or exchange of the
indebtedness of Great Britain to the United States were made to me when I
was in Paris. Like suggestions were again made by the chancellor of the exchequer in the early part of the "present year. The United States Government
by its duly authorized representatives has promptly and clearly stated its unwill

SECRETARY OF THE TREASURY

ingness to accept such suggestions each time they have been made and has pointed
out in detail the considerations which caused its decision. The views of the
United States Government have not changed, and it is not prepared to consent
to the remission of any part of the debt of Great Britain to the United States.
Any arrangements the British Government may make with regard to the debt
owed to it by France or by the other allied Governments should be made in the
light of the position now and heretofore taken by the United States, and the
United States, in making any arrangements with other allied Governments regarding their indebtedness to the United States (and none are now contemplated
beyond the funding of the indebtedness and the postponement of payment of
interest), will do so with the understanding that any such arrangement would
not affect the payment in due course of the debt owed the United States by
Great Britain. It is felt that the funding of these demand obligations of the
British Government will do more to strengthen the friendly relations between
America and Great Britain than would any other course of dealing with the same.
The United States Government entirely agrees with the British Government
that the fixing of Germany's reparation obligation is a cardinal necessity for the
renewal of the economic life of Europe and would prove to be most helpful in
the interests of peace throughout the world; however, it fails to perceive the
logic in a suggestion in effect either that the United States shall pay part of
Germany's reparation obligation or that it shall make a gratuity to the allied
Governments to induce them to fix such obligation at an amount within Germany's capacity to pay. This Government has endeavored heretofore in a most
friendly spirit to make it clear that it cannot consent to connect the reparation
question with that of intergovernrhental indebtedness.
The long delay which has occurred in the funding of the demand obligations
is already embarrassing the Treasury, which will find itself compelled to begin
to collect back and current interest if speedy progress is not made with the
funding. Unless arrangements are completed for funding such loans, and in^
that connection for the deferring of interest, in the present state of opinion
here there is likely to develop a dangerous misunderstanding. I believe it to be
highly important that a British representative with proper authority proceed to
Washington without delay to arrange to carry out the obligation of the British
Government to convert its demand obligations held by our Treasury into longtime obligations.
The United States Government recognizes the importance, in the interests
of peace and prosperity, of securing the restoration of financial and industrial
stability throughout Europe. The war debts of the allied Governments, the
treaty obligations of Germany under the reparation clauses of the Treaty of
Versailles and the annexes thereto, and of other enemy and ex-enemy countries
under the treaties negotiated with them, the administration of countries under
the mandates provided for by such treaties, and the existing arrangements
between the Governments of various countries have or may have an important
bearing in making plans to accomplish such restoration.

Negotiations with the several countries
There is set out below a brief statement by countries summarizing
the work of the commission since the last annual report:
Armenia
There is no Armenian Government in existence.
11439—FI 1926

REPORT ON T H E FINANCES

Austria
As stated in the last annual report, the time of payment of principal
and interest of the Austrian obligation held by this Government was
extended until June 1, 1943, and the lien of the ohiligation subordinated pursuant to special authority conferred by joint resolution
of Congress approved April 6, 1922. See Annual Report of the
Secretary of the Treasury for the fiscal year ended June 30, 1923,
page 33.
Belgium
The funduig agreement with Belgium executed on August 18,
1925, was approved on the part of Belgium by the law of March 2,
1926, and on the part of the United States by the act of Congress of
April 30, 1926. A copy of the act of Congress approvuig the settlement appears as Exhibit 18, page 219. For a statement of amounts
payable to the United States under the funding agreement see the
Annual Report of the Secretary of the Treasury for the fiscal year
1925, page 287. The exchange of obligations provided for in. the
agreement has not yet been made.
Czechoslovakia
The funding agreement with the Czechoslovak Republic executed
on October 13, 1925, was approved on the part of the United States
'by the act of Congress of May 3, 1926. A copy of the act of Congress approving the settlement and a statement of the amounts
payable annually to the United States appear as Exhibits 27 and 28,
pages 234 and 235. The commission has not yet been advised that the
agreement has been ratified by Czechoslovakia. The exchange of
obligations provided for in the funding agreement has not yet been
made.
Estonia
The funding agreenient with the Republic of Estonia executed on
October 28, 1925, was approved on the part of Estonia by the law
of March 26, 1926, published m Official Gazette No. 36 of April
22, 1926, and on the part of the United States by the act of Congress
of April 30, 1926. A copy of the act of Congress approving the
settlement and a statement of the amounts payable annually to the
United States appear as Exhibits 19 and 20, pages 220 and 222. The
exchange of obligations provided for in the agreement took place on
October 18, 1926.
France
For a discussion of the negotiations with the French Debt Commission, headed by M. Joseph Caillaux, see the Annual Report of

SECRETARY OF T H E TREASURY

the Secretary of the Treasury for the fiscal year ended June 30,
1925, pages 59 to 63.
After the Caillaux commission returned to France negotiations
for the settlement of the debt were informally contuiued through the
French Embassy at Washington.
On December 1, 1925, the commission received and considered an
unofficial proposal of settlement. The proposal was further considered at a meeting of the commission on December 3, 1925, when it
was decided that it did not furnish a satisfactory basis for discussion.
On January 23, 1926, Senator Henry Berenger, the newly appointed
French ambassador at Washington, called on the chairman of the
commission and indicated that he desired to reopen negotiations for
the settlement of the debt. Further informal conferences were held
from time to time with representatives of the commission. Settlement
of the debt was authorized at a meeting of the commission on April 29,
1926. The funding agreement was signed and approved by the President the same day. I t has been approved by the House of Representatives, but has not yet been approved by the Senate. I t has not
yet been ratified by France. Cppies of the agreement and of the
statement issued to the press appear, respectively, as Exhibits 29 and
30, pages 236 and 241.
The amount of the debt funded was calculated on the same basis
as in previous settlements; that is, with interest at 43^ per cent to
December 15, 1922, and 3 per cent thereafter to June 15, 1925, the
date of the agreement. After deducting a cash payment of $386,686.89, made upon execution of the agreement, the total indebtedness
funded into bonds was $4,025,000,000. This amount is to be paid
in annuities commencing with $30,000,000 in the first year and rising
to $125,000,000 in the seventeenth year, continuing at this figure
until the sixty-second year, when the amount will be $117,674,104.17.
A statement of the amounts payable annually to the United States
appears as Exhibit 31, page 242. Under these annuities the total
principal funded will be repaid in full with interest thereon as follows:
after the first 5 years and for the next 10 years, 1 per cent per annum;
for the next 10 years, 2 per cent per annum; for the next 8 years,
2J^ per cent per annum; for the next 7 years, 3 per cent per annum;
and for the remaining 22 years, 33/^ per cent per annum. Over the
entire period the United States will receive $6,847,674,104.17. The
principal of the debt of France at the time of funding amounted to
approximately $3,340,000,000.
Greece
The Governments of Great Britain, France, and the United States
executed an agreement with Greece on February 10, 1918, providing
for advances to be made to Greece under certain conditions. As a

REPORT ON THE FINANCES

result of this agreement the United States made advances to Greece
in 1919 and 1920 aggregating $15,000,000. Greece from time to time
has urged certain claims for additional advances, but none have been
made.
On November 16, 1925, the Secretary of State was notified that the
Greek Government had designated Mr. George Cofinas, former
Minister of-Finance, and Mr. Drossopoulos, Director of the Public
Debt, to come to the United States to discuss questions bearing upon
the agreement. On December 26, 1925, the Greek minister at Washington notified the Secretary of State that a special commission,
consisting pf Mr. George Cofinas and Mr. Michel Eulambios, one of
the directors of the National Bank of Greece, would arrive in Washington on December 28, 1925. The special commission, consisting
of Mr. Cofinas and Mr. Eulambios, accompanied by Mr. C. Diamantopoulos. First Secretary of the Greek Legation at Washington,
appeared before the commission on January 14, 1926, and presented
a memorandum setting forth the claims of Greece for additional
advances under the 1918 agreement and making certain proposals
regarding an adjustment of the indebtedness of Greece to the United
States conditional on the receipt of further advances. A second
meeting of the two commissions was held on January 18, 1926. On
January 22, 1926, the following announcement was made by the
chairman of the World War Foreign Debt Commission:
In view of some questions which have arisen in the course of the meetings with
the American Commission, the Greek Delegation have found it desirable to consult
with their Government and have suggested a postponement of the negotiations
pending the receipt of further instructions. M. Cofinas will return to Athens
for this purpose and the negotiations will be continued for the present through
the Greek minister.

Since then negotiations for the settlement of the questions between
the two Governments have been carried on with the Greek minister
at Washington.
Italy
The funding agreement with Italy executed on November 14, 1925,
was approved on the part of Italy by the law of February 14, 1926,
published in the Official Gazette of February 20, 1926, and on the
part of the United States by the act of Congress of April 28, 1926.
A copy of the act of Congress approving the settlement and a
statement of the amounts payable annually to the United States
appear as Exhibits 16 and 17, pages 216 and 218. The exchange of
obligations provided for in the agreement has not yet been made.
Latvia
The funding agreement with the Republic of Latvia executed on
September 24, 1925, was approved on the part of the Republic of
Latvia by the Saeima of Latvia on March 26, 1926, and on the

SECRETARY OF T H E TIIEASURY

part of the United States by the act of Congress of April 30, 1926.
A copy of the act of Congress approving the settlement and a.
statement of the amounts payable annually to the United States
appear as Exhibits 21 and 22, pages 223 and 224. The exchange of
obligations provided for in the agreement has not yet been made.
'

Liberia

There have been no developments regarding the settlement of this
debt since the last report. The amount involved is only about $'30,000.
Nicaragua
The Republic of Nicaragua is making payments from time to time
on account of the original obligations of Nicaragua held by the
United States. It is expected that this indebtedness will be fully
liquidated by June 30, 1927.
Rumania
As stated in the annual report for the fiscal year ended June 30,
1925, a Rumanian Debt Commission, headed by Mr. N. Titulescu
Rumanian minister at London, appeared before the commission on
November 9, 1925, to enter into negotiations for the settlement of
the Rumanian debt to the United States. Subsequent meetings of
the two commissions were held on November 19, November 21, and
December 1, 1925. A settlement was agreed upon at the final meeting on December 1, 1925. A debt-funding agreement was signed on
December 4, 1925, and was approved by the President the same day.
It was ratified by Rumania by law of March 26, 1926, published in
the Official Monitor of March 29, 1926, and was approved by act of
Congress of May 3, 1926. Copies of the funding agreement, of the
press statement issued at the time the settlement was reached, and
of the act of Congress approving the settlement appear respectively
as Exhibits 23, 24, and 25, pages 225, 230, and 231.
Under the terms of the settlement the principal of the debt funded
is fixed as of June 15, 1925. Interest on the $36,128,494.94 original
indebtedness was calculated at 43^ per cent per annum to December
15, 1922, and from then until June 15, 1925, at the rate of 3 per cent
per annum, making the principal of the debt funded $44,590,000,
after deducting a payment in cash of $4,451.54 made by Rumania
upon execution of the agreement. The principal of the funded debt
is to be paid over a period of 62 years with interest at 3 per cent per
annum for the first 10 years and 3J^ per cent per annum thereafter.
During the first 14 years, however, the following total* amounts are
to be paid, the balance of each annuity at the above interest rates
being funded over the remaining 48 years: June 15, 1926, $200,000;

REPORT ON THE FINANCES

June 15, 1927, $300,000; June 15, 1928, $400,000; June 15, 1929,
$500,000; June 15, 1930, $600,000; June 15, 1931, $700,000; June 15,
1932, $800,000; June 15, 1933, $1,000,000; June 15, 1934, $1,200,000;.
June 15, 1935, $1,400,000; June 15, 1936, $1,600,000; June 15, 1937,
$1,800,000; June 15, 1938, $2,000,000; June 15, 1939, $2,200,000.
A statement of the amounts payable annually to the United States
appears as Exhibit 26, page 232. The exchange of obligations provided for in the agreement took place on October 28, 1926.
Russia
There is no Russian Government recognized by the United States.
Yugoslavia
On January 27, 1926, a Yugoslav Debt Commission consisting of
Dr. Milan Stoyadinovitch, Minister of Finance and chairman of the
commission; Mr. George Diouritch, Minister of Yugoslavia in London; Mr. Milan Radosavljevitch, Director of the Ministry of Commerce; Mr. Ranislav Avramovitch, former Assistant Minister of
Communications; Mr. Ivan Shvegel; Mr. Rudolph Steuimetz; and
Dr. Pavle Karovitch, general secretary of the commission, appeared
before the commission to enter into negotiations for the settlement
of the Yugoslav debt to the United States. The commission was
accompanied by Dr. A. Tresich Pavichich, minister at Washington,
and by Prof. M. I. Pupin, of New York, as advisers. Further meetings of the two commissions were held on January 30, and February
8, 1926. On February 17, 1926, the chairman of the commission
made the following announcement to the press:
Negotiations for the settlement of the debt of the Kingdom of the Serbs,
Croats, and Slovenes to the United States are continuing between the American
Debt Commission and the Yugoslav Delegation. Owing principally to the pendency of the tax bill in Congress, which has occupied Senator Smoot exclusively,
and to the absence of some of the members of the Debt Commission from Washngton, a final agreement has n^ot yet been arrived at. Doctor Stoyadinovitch,
the Minister of Finance of the Kingdom, has been obliged to return to Yugoslavia to take charge of his budget in Parliament. The other members of the
Delegation remain here to complete the negotiations. Many of the difficulties
in the way of a settlement have now been disposed of and it is hoped an agreement will be reached in a short time.

The Yugoslav commission returned to Yugoslavia with the exception of Dr. George Diouritch and a Yugoslav expert. Negotiations
for the settlement of the debt were informally continued with Doctor
Diouritch. On May 1, 1926, a settlement of the debt was reached.
A funding agreement was signed on May 3, 1926, and was approved

SECRETARY OF T H E TREASURY

by the President the same day. The agreement has been approved
by the House of Representatives but has not yet been approved by
the Senate. I t was approved by Yugoslavia on June 19, 1926.
Copies of the funding agreement and of the press statement issued
at the time the settlement was concluded appear respectively as
Exhibits 33 and 34, pages 244 and 249.
The amount of the debt funded was calculated on the same basis
as other debt settlements at 43^ per cent interest to December 15,
1922, and at 3 per cent interest thereafter until June 15, 1925, as of
which date the debt was funded. The total debt funded, after
allowing for a cash payment of $7,112.39, made upon execution of
the agreement, was $62,850,000, of which $51,037,886.39 represented
principal and $11,812,113.61 represented accrued interest.
Under the agreement annuities commence with $200,000 a year
for the first 5 years, increasing $25,000 a year the 7 succeeduig years.
During the remaining 50 years payments on account of principal
increase annually. Beginning with the 13th year interest commences
at the rate of one-eighth of 1 per cent for 3 years, one-half° of 1 per
cent for the next 14 years, 1 per cent for the next 3 years, 2 per cent
for the next 3 years, and 33^ per cent for the last 27 years of the
debt-funding period. A statement of the amounts payable annually
to the United States appears as Exhibit 35, page 250.
THE CURRENCY

The United States has been unique among the larger nations of the
world regarding the postwar status of its currency. Practically
every other important country has undergone a period of monetary
instability that has seriously retarded its recovery from the disturbances of the World War. Such monetary disturbances in foreign
nations are of immediate concern to our own country, as to the rest
of the world, because of the direct bearing they have on international
commerce and finance. I t is desirable, therefore, after summarizing
briefly the present composition of our currency, to review the events
of the year which have affected gold and silver, the bases of the
monetary systems of the world.
The composition of United States currency
The money in circulation in the United
silver, nickel, and bronze coins, and various
The gold dollar of 25.8 grains of gold 0.900
of value. The de^nominations, fine metal

States consists of gold,
kinds of paper currency.
fine is the standard unit
and alloy content, and

/ 80

REPORT ON THE FINANCES

weight of the various coins of the United States as at present issued
are shown in the following table:
Denominations, fine metal, alloy, and weight of the coins of the United States

Kind and denomination

Gold: 2
Doubleeagle ($20)..
Eagle ($10)....
Half eagle ($5)
Quarter eagle ($2.50)
Silyer:
Standard dollar
Half dollar
Quarter dollar
Dime.
Minor coins:
Five cents ^
One cent"

Fine gold,
silver or
Alloy
copper
contained *
contained
(grains)
(grains)
Gold^
464. 40
232. 20
116.10
58.05
Silver 3
371. 250
173. 610
86. 805
34. 722
Copper
57.87
45.60

Weight
(grains)

Copper
51. 60
25.80
12.90
6.45
41. 250
19. 290
9.645
3.858
Alloy
19.29
2.40

516.00
258. 00
129.00
64.50
412. 50
192. 90
96.45
38.58.
77.16
48.00

' The alloy neither adds to nor detracts from the value of the coin.
2 The coinage of the gold dollar was discontinued by the act of Sept. 26, 1890.
3 Gold and silver coins contain 900 parts of pure gold or pure silver and 100 parts of copper alloy.
* Seventy-jBive per cent copper, 25 per cent nickel.
« Ninety-five per cent copper, 5 per cent tin and zinc.

There are seven kinds of paper currency in circulation in the
United States: Gold certificates, silver certificates. United States
notes. Treasury notes of 1890, Federal reserve notes, national-bank
notes, and Federal reserve bank notes.
Gold and silver certificates certify on their faces, respectively,
that ''there has been deposited in the Treasury of the United States
of America
dollars in gold (or
standard silver dollars)
payable to the bearer on demand.'^ Gold and silver certificates are
in fact mere/'warehouse receipts^ ^issued by the Government in
exchange for gold coin or bullion deposited in the one case, or standard silver dollars deposited in the other case, or against gold or
standard silver dollars, respectively, withdrawn from the general
fund of the Treasury.
United States notes are often referred to as "greenbacks^' or
"legal tenders.'^ They were first issued during the Civil War and
inust now always be reissued when redeemed, the amount outstanding consequently remaining at $346,681,016. United States notes
are protected by a gold reserve of approximately $154,000,000 held
in the Treasury.
Treasury notes of 1890 were issued in payment of silver bullion
purchased under the so-called Sherman Act, which also provided
for the coinage of the silver purchased into standard silver dollars.
Only about $1,350,000 now remain in circulation, since they are
canceled and retired whenever received, and no inore may be issued.
The Federal reserve act, approved December 23, 1913, which
established the Federa reserve system, provided for an elastic

SECRETARY OF THE TREASURY

currency in the form of Federal reserve notes, to be issued at the
discretion of the Federal Reserve Board. Applications of the
Federal reserve banks for the issue of notes must be accompanied
by tender of collateral in amount equal to the amount of the Federal reserve notes applied for, and each Federal reserve bank is
required to maintain a reserve in gold of not less than 40 per cent
against its Federal reserve notes in actual circulation.
Any national bank may issue national-bank notes upon the deposit
in trust with the Treasurer of the United States of certain prescribed
United States bonds bearing the circulation privilege, the amount
issued not to exceed the par value of the bonds so deposited nor the
amount of the capital stock of the issuing bank actually paid in.
Federal reserve bank notes are identical in their legal attributes
with national-bank notes, except that' the amount issued is not
Hmited to the paid-in capital stock of the issuing Federal reserve
bank. Since it is now the policy of the Federal Reserve Board to
retire all of these notes as they are received for redemption, only
about $5,500,000 are now outstanding.
Gold certificates. United States notes. Treasury notes of 1890,
and Federal reserve notes are directly redeemable in gold. Nationalbank notes. Federal reserve bank notes, silver certificates, subsidiary
and minor coins are redeemable in lawful money of the United States,
which (including standard silver dollars), if not directly convertible
into gold, is, in the final analysis, legally on a par with gold under the
act of March 14, 1900. This act makes it the duty of the Secretary
of the Treasury to maintaui all forms of money issued or coined by
the United States at a parity of value (equality of purchasing power)
with the standard unit of value—i. e., the dollar, consistuig of 25.8
grains of gold 0.900 fine. The Federal reserve act reaffirms the parity
provisions mentioned above and the authority of the Secretary of the
Treasury to borrow or buy gold to maiatain such parity. Each of
the various types of money discussed is either full legal tender or
convertible into money which does possess this quality. The monetary system, therefore, though diverse in origin and external features,
is uniform in its essential characteristics of value in purchasing power
and legal tender attributes.
^

Improvements in the supply of paper currency

In my last annual report I spoke of the serious situation existing in
regard to the supply of United States paper currency and the measures being taken to correct it. These measures were (1) the adoption
of a definitive program for increased printing to extend over a period
of years, (2) the establishment of a currency board to determine requirements and control printing and distribution, and (3) a restudy
of paper currency designs.
11439—FI 1926

REPORT ON THE FINANCES

The increased printing program was formulated in October, 1924.
To make it effective, increased appropriations were necessary.
These were granted in part only for 1925, but were granted in full
for the past year, 1926, and for the year 1927 in accordance with the
department's estimates. During 1925, 160,644,000 sheets of completed currency were delivered to the Treasurer of the United States,
an increase of 10,684,000 over 1924. This increase provided for
additional payments. During 1926,176,242,000 sheets were delivered,
an increase of 15,598,000 over 1925 and 26,282,000 over 1924.
During the same year an adequate working reserve of incomplete
faces and backs was established in the Bureau of Engraving and.
Printing. For 1927 provision has been made for the delivery of 191,500,000 sheets to the Treasurer, an increase of 15,258,000 over 1926,
and for 1928 the estimates submitted provide for the delivery of
approximately the same number of completed sheets. If the estimated appropriations are granted for 1928, the close of that year will
find the printing program, adopted in October, 1924, fully executed.
During 1926 the working reserve in the bureau was established;
increased demands for payment purposes were fully met; the Treasurer's reserve stock of completed currency was increased from
5,951,000 sheets at the beginning of the year to 20,625,000 sheets
at the end; the balance of new one-dollar notes in the cash of
the Federal reserve banks was increased from 23,000,000 notes, or
5,750,000 sheets, to 40,000,000 notes, or 10,000,000 sheets. The standard of fitness of the notes in circulation has not been raised. The
programs for 1927 and 1928 include the printing necessary to replace
all unfit notes and each year to add to the Treasurer's reserve of
completed notes approximately one month's normal requirements.
The currency board has continued as an effective control over
supply and distribution. A complete check of the situation is now
made each month and printing and distribution directed in accordance with the known requirements.
A restudy of paper currency designs made necessary initially
through mechanical difficulties arising at the Bureau of Engraving
and Printing in the execution of the new designs adopted in September, 1923, as applied to Federal reserve notes, has been extended to
include many other matters in connection with the production of
currency with a view to improving the wearing qualities of the notes,
and if possible reducing the cost. On August 20, 1925, a committee
was appointed with the fiscal Assistant Secretary in charge, with the
best qualified experts in the Treasury as members, and with experts
from the Bureau of Efficiency and the Bureau of Standards as associate members. This committee was charged with the considera-

SECRETARY OF THE TREASURY

tion of every phase of design and of all matters having any relation
thereto. The studies of this committee have not been finished and
conclusions have not yet been presented for my consideration. A
report of the committee's work accordingly will not be made at this
time.
For some time past the Bureau of Efficiency and the Bureau of
Standards have been cooperating with the Bureau of Engraving and
Printing and the contractor for distinctive paper, with a view to
improving the wearing qualities of the notes in circulation. The
particular investigations are very technical and involve the character
of the paper, resizing, and finish. Extensive laboratory experiments
and tests have been conducted. Subsequently the laboratory experiments have been transferred to a production basis at the paper mill
and at the bureau. These investigations are very largely in association with the committee on design and are not yet completed. However, due to the improvements as a result of the investigations, and
to the established reserve in the bureau and the partially established
reserve in the Treasurer's office and the Federal reserve banks—the
reserves permitting ageing of the product—the life of the notes in
circulation has been considerably lengthened. Before the War onedollar notes remained in circulation approximately one year and
subsequently the life of these notes was reduced to about six months.
Now their life has been increased to between 9 and 10 months, and it
is confidently believed this span will be further increased.
The problem of currency supply is largely a problem of one-dollar
bills, for more than 80 per cent of the total printing of United States
currency is of this denomination. During the past year included in
total deliveries of 176,242,000 sheets of United States currency to
the Treasurer of the United States were 144,000,000 sheets (or
576,000,000 bills) of the one-dollar denomination. The supply of
this d^enomination was adequate in 1926 for payment purposes for
the first time in many years.. At the same time a good start was made
on building up very necessary reserve stocks with the Treasurer and
the Federal reserve banks. Currency transactions as between the
public and the Treasury are handled almost entirely through Federal
reserve banks acting as distributing and redemption agents for the
Treasury. The volume of business may be appreciated from the
statement following showing transactions in one-dollar bills at the
Federal reserve banks during the fiscal years 1925 and 1926.

REPORT ON T H E FINANCES

1925
Balance at beginning of year
Received from circulation
^
New notes received from Treasury
Fit notes received from other Federal reserve banks
Increase in balance of unassorted notes on hand during year
Total.
Paid into circulation
Unfit sent to Treasury...
Fit notes to other Federal reserve banks
Balance at end of year

_•

Total

1926

4, 768,000

65,964,000
975, 600,000
517,150,000
32,830,000
3.722,000

1,482,862,000

1, 59!5,166,000

931,982,000
473,716,000
11,200,000
65,964,000

986,453,000
501,773,000
31,832,000
76,108,000

1,482,862,000

1, 695,166,000

^ 40,065,000
925,057,000
501, 782,000
11, 200,000

Gold
Since gold is the basis of our currency and large amounts of silver
are used in the coinage of standard silver dollars and subsidiary
silver coins, the prevalence of the gold standard and the international
position of both gold and silver are of practical importance in connection with our currency, and are treated in the following sections.
Since the World War placed a large number of European countries
on a paper currency basis and added to America's holdings a third of
the world's store of gold, the supply, production, possession, and
movement of gold have assumed even greater than their usual importance.
The event of greatest world significance relating to gold during the
past year has been the increase in the number of countries whose
currencies are based on gold. The movement back to gold, begun in
Europe as early as 1922, continued by Sweden, Germany, and certain
other European countries in 1924, and definitely established in the
spring of 1925, when Great Britain, the Netherlands, the Dutch
East Indies, Australia, New Zealand, and South Africa announced
the reestablishment of gold as the basis of their monetary systems,
has been augmented in the last year by the addition of Canada,
Switzerland, Finland, Hungary, ChUe, and more recently Belgium,
to the list of countries maintaining some form of gold standard.
The return to gold by a large part of the world records the im-,
provement in the international economic and financial situation the
stability of which is the necessary basis for the growth of our foreign
trade and the expansion of our industry. Stabilization by Belgium
is looked upon as the initial step in a movement which will put the
remaining countries of the Latin Monetary Union on a gold basis.
If the recommendations of the Royal Commission on Indian Currency and Finance are adopted so that India, one of the greatest
oriental countries,^ is also included in the group of gold nations, a
broadening of commercial and industrial opportunities and increased
prosperity for. India and the world as a whole should result.

SECRETARY OF THE TREASURY

In the following table an attempt has been made to indicate, as
completely and currently as the information is available to the
Treasury, the status of the currencies of the several countries with
reference to gold. The Treasury, however, does not vouch for the
absolute accuracy of the data presented.

Gold status of gold-par currencies

Country

Date legally
or practically
effective of
most significant change

New or old gold
unit or par

Great Britain

Jan; 1,1879 Old
Apr. 1,1924 Old
Apr. 28,1925. Old

A-Ustralia

Apr. 28,1925

Old

New Zealand

Apr. 28,1925

Old

Apr. 28,1925

Old

Apr. 28,1925

Old

June 1,1926
May, 1925
Jan. 1,1926

Old
Old . .
New

July

Old
Old

CJnited States

South Africa
Canada
Nicaragua
Mexico
Colombia
Venezuela
Chile

1,1926
1915

Jan. 11,1926
July

6,1926

Gold

New
Old
New
New
New .

Cuba
Costa Rica

March, 1924

New

Belgium
Austria

Oct. 25,1926
1922

New
New..

Gold
.Gold
Gold bullion in 400-ounce
amounts.
Gold.

Inconvertible until Jan. 10,
1927.
Gold..-.

Jan. 16,1920' New
Ngw
July 23,1923

Convertibility of notes
(in actual operation)

..
.^

Gold
Not convertible
Gold or gold exchange at
option of bank.
Gold
Gold exchange in amounts of
not less than 6,000 cordoba.
United States gold coin
Gold, but notes neghgible in
amount and silver at a discount.
Gold L . . .
Gold
Gold or gold exchange at
option of the bank.
Gold or gold exchange at
option of the bank.
. . . No notes. United States
paper circulates.
Part of notes convertible in
gold exchange.2
Not convertible 3
Not convertible ^

Free
Free export of gold import of
gold

Yes
Yes
Yes

If bank reserve
does not fall below level of Jan.
1,1926.
By license liberally granted.
If rate is above
gold point.

Yes
No
Yes

Obligation
or practice of
purchasing gold
at fixed rate
Yes
No.....
Yes

Free coinage of
gold

Gold circulation

Yes...
No
Only for Bank of
England.

Yes.
No.
No.

Yes

No.

Yes

No.

Yes
Yes

Yes.

Bank buys at rate
slightly below
par..

Yes.

If rate is above
gold point.
Yes
Yes
Yes

Yes
Yes
Yes

Yes

Yes
No

Yes
Yes

No mint
Yes

_ Yes.
Yes.

Yes...
Yes...
Yes

Yes
Yes
Yes

Yes
No mint
Yes

Yes.
_ Yes.
Yes.

No-...

Yes.
Yes.
No.
No.

>
o
Ul

Yes

No mint-

Yes....

Yes

No mint

Yes

No mint

- 1 . . . Cuban and United
States.
No
No.

Germany
Hungary
Russia
Latvia
Lithuania
Danzig

1923-24
1925
1925
1923-24
1922
1924
1926

New
New
Tentative new-.
New
New. . . ' . .
New...
New

Not
Not
Not
Not
Not
Not
Not

convertible
convertible
convertible
convertible
convertible
convertible
convertible

3
3
^..
... . .
3
.
^..
3..
*.. _..

No.
No.
No.
No.
No.
No.
No.

1 A certain amount of inconvertible paper still outstanding but legally required to be retired by-government dividends on bank stock. Circulates at par with convertible notes.
- 2 Inconvertible paper much larger in amount than convertible, but circulates at par and is being retired. Reform not considered complete.
3 ConveitibiUty into gold or gold exchange is contemplated by laws already enacted, but the operation of the provision has been postponed. Cm-rencies, however, have been
naintained at a fixed ratio with gold, either by legal requirement or voluntary action, accomplished usually through foreign exchange operations and control.
i Bank has been instructed to maintain currency within fixed Umits in relation to gold. Reform not yet complete.
* Stabilized on .the English pound through foreign exchange operations. Convertibility into sterling exchange contemplated by law.
NOTE.—Where spaces are not filled'in, information is not available.

m
O

o
W
-iti

>
w

REPORT ON THE FINANCES

The most striking fact relating to the gold situation in the United
States in the past year is the reversal of the gold export movement
which began in December, 1924, and continued definitely through
June, 1925. In the fiscal year 192.6 gold has again flowed into the
United States.
The import movement of 1926, however, has been slight compared
with the similar movement of 1920 to 1924. After the gold export
impulse which followed the lifting of our gold embargo in June, 1919,
had spent itself, gold flowed into the country in a continuous stream
for more than four years, amounting in all to about $1,700,000,000.
In December, 1924, however, we began to feel that long-predicted
demand for gold from Europe for purposes of monetary reconstruction and stabilization, and during the following seven months about
$180,000,000 in gold was exported from the United States. At that
time it was the general belief that a considerable part of the billions
of gold which had flowed to us during the war and postwar period
would probably return to those countries from whence it had come
and where it was apparently needed as a basis for a return to gold.
Instead of net exports, however, the year 1926 brought to the United
States net imports of $97,000;000. The following table gives the
imports and exports of gold for the fiscal years 1920 toU926:
Gold imports and exports of the United States for the fiscal years 1920 to 1926
Fiscal year
1920
.1921
1922
1923
1924
1926-.
1926
_
1927 (July 1 to N o v . 1, 1926)

Gold i m p o r t s Gold exports

$160,640,200
638, 559, 805
468, 318, 273
284, 089, 550
417, 025,638
134,145,136
210,726,485
179,349,361

$466,420, 606
133, 637, 902
27, 345, 282
49,021,975
10, 206,941
248, 729, 698
113,438,459
100, 743,771

Net imports

N e t exports
$315, 880,406

$505, 021,903
440, 972,991
235, 067, 575
406,818, 697
114, 584, 562
97,288, 026
78,605,590

The import movement started in July, 1925, and while September
and November, 1925, and April and May, 1926, showed net exports,
net imports appeared in the remaiauig months amountuig in March,
1926, to $39,000,000. The inward movement continued in July and
October; August and September, however, have shown net exports,
the former being the largest net export in any month sitice the
beginning of the fiscal year. Net figures for each month beginning
with July, 1925, are shown below:

SECRETARY OF THE TREASURY

Net gold imports and exports of the United States, by months, July, 1926, to
October, 1926
Net imports

July
. -.
..
August
September . . - . - . - . . - .
October
November
December
-•-

1925
_

.
.

$6,787,660
2,726,046

_ .

. _ . . . . _ . . . .
- -

1926

January
. . . ._
February
March
April
-May
June
-.1
July
August
- - - „ ^ - . . _
September
October .
.
.

22,701,459
1,248,277
16,264,332
21, 564,281
39,188,012

15, 644, 668
14,750, 618
7,328, 862

Net exports

$2,666,149
13,903,966

4,768,232
6,408,262
17,764 423
7,147, 565

Before the World War shipments of gold occurred in response to
fluctuations in the exchange rates of different currencies, to changes
in the comparative levels of money rates in the different money
markets, or took place in the settlement of international balances.
The large movement of gold to the United States in the postwar
period, 1920 to 1924, however, instead of setthng irreducible international balances, represented largely straight payments for goods
purchased in the United States; in other words, gold was shipped as
any other export commodity.
During the past year, however, with the return of England and
other countries to a gold basis, exchange fluctuations and money
rates have once more become important factors affecting the movement of gold. The following table shows gold imports and exports
by countries for the fiscal year 1926:
Gold imports and exports of the United States, by countries, fiscal year 1926
Gold imports Gold exports Net imports

Countries
Canada
United Kingdom
Chile
Japan
Mexico
_
France
Australia
Peru
Dutch East Indies
Colombia
Costa Rica
Ecuador
Venezuela
Hongkong..
Argentina
Germany.British Malava
Salvador
British India
China
All other
Total

—

. _

$96,838,438
44,602,454
16,067,502
16,000,666
14,147,968
6,195,641
4,877,516
2, 606,894
1,889,036
1,533,753
1,253,438
1,078,726
636,849
480,000
6,021
650
160

60,000
8,672,106
18,488

4,620,773

1,651,260
2,Q07,889
14,486
9,927
2,300,000
8,489,421
. 2,316,640
3,158,126
8,600,763
2,850,040
2,851,152
1,453,666
1,349,446

210,726,485

113,438,459

$67,735,050

Net exports

$28,103,388
44,502,464
16,067,602
14,940,666
6,475,863
6,177,153
4,877,616
2,608,894
337,776
1,238,952
1,068,799

3,271,327
97,288,026

$484,136
1,663,151
8,009,421
2,310,619
3,157,476
8,600,603
2,850,040
2,851,152
1,453,666

REPORT ON T H E FINANCES

. The large import from England oc'curring mainly in October, 1925,
was due to changes in relative exchange and money rates in London
and New York. The position of Canadian exchange brought almost
one-third of our net imports during the year. Other shipments
represent payments of various kinds. Gold from Mexico, especially
large in June, July, and September, came in discharge of foreign
debts and other obligations abroad. The gold received from France
built up her balance in this country to meet an interest payment due
by the French Government on her debt to the United States Government.
The gold export movement of 1925 was largely connected with the
reform and stabilization of foreign currencies. The effect of currency conditions on the gold movement in 1926, tholigh not predominating, can still be traced. Gold from Chile came as reserve
for the new central bank organized as a part of that country's currency
reform program. Shipments from the Japanese Government from'
October to February were for the purpose of improving the exchange
situation of the yen. The large export of gold to Germany in August,
September, and October represents gold previously listed in the Reichsbank statement as ^'gold held in foreign b a n k s , " the total item amounting to about 260,000,000 marks before the Reichsbank began to withdraw its New York holdings. This is what is known as '^ earmarked "
gold, a term applied to dollar credits acquired in this country by
foreign banks which are converted into gold and held in trust here
for such banks. The title to this gold is actually vested in the foreign
bank. Although still physically present in this country and included
in statistics of our gold stock, this gold can not form the basis of
credit here; consequently the withdrawal of gold for earmarking
has the same effect upon credit conditions as the withdrawal for
export; vice versa, the actual export of earmarked gold is without
effect creditwise.
Our gold exports to India in the fiscal year 1926 have amounted to
less than $3,000,000, while in the fiscal year 1925 the United States
exported $67,000,000 in gold to that country. In the calendar year
1925 India absorbed about $200,000,000, more than one-half of the
world's gold production, about $60,000,000 of which was supplied to
her by the United States. Suice 1900, when India began her rapid
absorption of gold, she has taken $1,508,910,000 of the world's gold.
The disappearance of the gold sovereign from circulation means that
this immense absorption of gold by India has gone practically entirely
into the arts and hoarding, since the gold reserve held in India is
negligible in amount. One object of the recommendations of the
Royal Commission on Indian Currency and Finance is to secure for
India a currency system of such stability and obvious safety as to
bring these hoardings from their hiding places and through bank
deposit and investment add them to the world's credit bases.

SECRETARY OF THE TREASURY

While the commission recommends for India a currency system
based on gold, it does not recommend a gold circulation. In their return to gold the nations have not aimed at a return to a gold currency.
Great Britain has avoided the reintroduction of gold circulation; in
fact, with the exception of certain South and Central American
countries where gold has been in circulation for some time, the only
important countries which now have a gold circulation are the United
States, Switzerland, the Netherlands, and the Union of South Africa;
in the United States and certain of the South and Central American
countries gold circulates rather in theory than in practice, while the
circulations in Switzerland and the Netherlands seem to be of an
experimental nature and tend to return to the issuing banks.
When gold is not placed in circulation it w^ould appear that large
amounts of the metal are not necessary to the maintenance of gold
parity, especially where credits in gold countries are held. The
following table shows the gold reserves, the foreign credits (balances
abroad, bills of exchange, foreign currencies, and foreign government
securities), and note liabilities of the principal European central
banks at the close of June, 1925, and June, 1926, as they appear in the
published statements of these banks. Note liabilities are converted
at current rates of exchange, as are foreign credits, except where
shown in gold. The gold reserve, of course, is converted at par.
Gold reserves, foreign credits, and note liabilities of principal European central banksf
last statements of June, 1926 and 1926
[Amounts in thousands of dollars] •

Country

Gold
reserves.
1925.1

Austria
Belgium
Bulgaria
Czechoslovakia
Denmark
Finland
France
Germany
Great Britain-Greece
Hungary
Italy-.
Netherlands
Norway
Poland
Portugal.
Rumania
Russia
Spain
Sweden
Switzerland

1,597
52,551
7,853
30,513
. 56,131
8,364
4 710,696
252,901
764,935
8,688
8,865
218,403
183,040
39,467
23,193
9,268
7 26,020
87,013
489,565
62,915
96,174

Gold
reserves.
19261

2,622
52,856
8,190
27,232
56,051
8,326
4 711,126
355,450
725,089
14,096
21,188
219,180
171,457
39,457
25,996
10,438
7 49,022
76,554
491,238
61,223
80,941

Net foreign
g:edits,2
1926 3

Gold
reserves
and net forleign credits,
1926

83,537
1 6,833
2,220
38,022
14,232
23,835
1113,910
fi 77,341
17,020
18,801
20, 597
79,736
17,829
886
8 2,106

86,169
58,689
10,411
65,264
70,283
32,161
* 826,036
432,791
725,089
31,116
39,989
239,777
261,193
57,285
26,883
12,589

(8)

26,863
5,158
43,376 1
2,771

""102^418
490,396
104, 599
83,712

1 Converted at ,par.
^
2 Balance abroad, bills of exchange, foreign currencies, and foreign government securities.
3 Converted at current rates when not otherwise specified.
< Excluding gold held by Bank of England.
fi Held as cover for notes; additional foreign assets held but not shown separately for this date.
8 Foreign government securities. Bank statement shows in addition about $18.6 million in foreign
exchange, but this seems to be largely deposited as security for advances to the government.
7 Excluding gold transferred to Russia.
8 The actual gold value of foreign assets is not known.

REPORT ON T H E FINANCES

Gold reserves, foreign credits, and note liabilities of principal European central banksy..
last statement of June, 1925 and 1926—Continued
[Amounts in thousands of dollars]

Country

Note

liabilities,
1925 3

Austria
Belgium..----.
Bulgaria
Czechoslovakia
Denmark
Finland
France
Germany
Great Britain..
Greece
Hungary
Italy
-Netherlands. _.
Norway
Poland
Portugal-Rumania-Russia
Spain
Sweden
Switzerland

P e r cent P e r c e n t
of gold
of gold
Note
reserves reserves
liabilities, ^.^nnT
'STnt".
to
n
o
t
e
to n o t e
1926 3
liabilities. liabilities,
1925
1926

117, 744
116,345
340, 533
234,132
30,391
25, 779
205, 820
213, 834
94,405
106, 262
32,431
32, 714
1, 999, 506
], 466, 467
91,030, 534 91,034, 343
10 2,126,967 101,847,058
86. 861
55, 489
64, 398
69, 396
11 740, 287 11 737, 985
356,136
325,148
69, 227
75, 285
96, 513
41, 441
83, 377
94, 385
89, 387
100,157
316, 450
373, 582
629, 279
698, 762
140,128
125, 779
161,972
154, 954
.

1.4
15.4
25.8
14.8
59.5
25.8
35.5
24.5
36.0
10.0
13.8
29.5
51.4
56.9
24.0
11.1
29.1
27.5
77.8
44.9
59.4

2.23
22.58
31.77
12.73
52.75
25.45
48.49
34. 36 ,
33.26
25.40
30.53
29.70
52.73
52.41
62.73
11.11
48.95
. 20. 22
70.30
48.67
52.24

Per cent
of gold
reserves
and net
foreign
credits to
note liabilities,
1926
73.17
25.07
40.38
30.51
66.14
98. 30
56. 26
41.84
39. 26
56. 0&
57.62
32. 49'
77. 25
76. 09
'64. 87
27. 42
71.04
83.16
54. 02

3 Converted at current rates when not otherwise specified, lo Includes notes in currency notes account.
0 Includes Reichsbank and Rentenbank notes.
n Includes three banks of issue and government,

\
The gold holdings of European banks as a whole have increased
only slightly over the holdings of a year ago. Germany, however,
has added over $100,000,000 to her gold reserve. Hungary has more
than doubled the amount of her gold for the completion of her currency
reform, and Austria has increased hers in the same cause. The
National Bank of Rumania holds contracts with the chief goldmining enterprises in Rumania for the sale of their entire output to
the bank. The gold holdings of Greece and Bulgaria also materially
increased. In the Netherlands and Switzerland some of the reserve
has gone into circulation. Great Britain's holdings fell somewhat
with her return to the gold standard. Gold was also lost by Russia
and Czechoslovakia.
Decrease in the gold reserve has resulted in a lower gold reserve
ratio to note circulation except in the Netherlands where notes also
decreased, producing a slight improvement in the reserve ratio.
Slight decreases in that ratio occurred in Denmark, due to an increase
in note liabilities, and in Norway because of improvement in the
exchange position. All other countries in the above table showed
improvement in their gold reserve ratios. When holdings of foreign
credits, most of which are against gold currency countries and can
be used to secure gold, are added to the gold holdings, no reserve
ratio in the above table is below 25 per cent, and more than half are
above 50 per celnt.

^CRETARY OF THE TREASURY

In the present status of our international balance sheet the only
means in the final analysis by which Europe can secure gold from us is
through new loans. The fundamental reason for our gold imports,
of course, is that payments running to the United States from foreign
countries are very much larger than payments running from the
United States to foreign countries. The merchandise balance is
constantly in our favor, as are also interest payments to us on past
investments abroad. Such investments were estimated at the end
of 1925 at about $10,500,000,000, which included the following
amounts of new capital invested in foreign securities for years since
1922:
New. capital invested in the United States in foreign securities, 1922 to 1926
{par values)
p
Calendar year
1922
1923
1924

Amount
$694,000,000
377,000,000
878,000,000

Calendar year
1925
1926 (9 months)..-.

Amount
$1,031,000,000
788,000,000

Our main debit items of tourists' and charitable expenditures,
immigrant remittances, and ocean freight payments are not capable
of absorbing this favorable balance from trade and interest. Loans
to Europe are not only the natural means of balancing international
accounts at present but wiU assist in that rehabilitation of Europe
so desirable for the growth and expansion of our foreign trade.
The world's gold production figures for the calendar year 1925
•show a slight increase. The total production stood at $394,000,000,
as compared with $393,500,000 in 1924 and $470,000,000 in 1915,
the peak of production. The increase over the preceding year is
only slight in spite of a new high record for Canadian production,
further revival on the part of the Russian industry, and.some increase
in the Transvaal output. Canadian production has increased from
.about $19,000,000 in 1921, the first year in which postwar production attained the pre-war peak, to $36,000,000 in 1925. The total
production of Russia and Siberia was $29,000,000 in 1914; the war
and the revolution, however, gradually brought the gold mines to a
standstill and in 1921 the output was only about $900,000. In
recent years a recovery has been made, and in 1925, with a production of $22,000,000, Russia is supplying almost 75 per cent of her
pre-war outjput. Production in the United States declined slightly,
being $49,860,200 in 1925. The United States, however, after South
Africa, is the largest gold-producing country in the world.
Gold used in the arts in the United States in the calendar year 1925
was estimated at $65,953,870, of which $36,161^849 was new metal.
Gold reclaimed from the arts during the same period was about
$29,792,021.

REPORT ON T H E FINANCES

The monetary stock of gold held by the United States reached its
highest point in the history of this country on December 1, 1924,
when it amounted to $4,570,000,000. I t again reached the
$4,500,000,000 mark on July 1, 1926. Gold imports during the fiscal
year 1926, together with our own production, increased our total stock
by $114,000,000. On November 1, 1926, our gold stock amounted
to $4,491,000,000. Since 1923 the gold stock in this country has
equaled about one-half of the visible stock of gold in the world.
Our present stock is 2.4 times as great as it was in 1913.
The gold holdings of the Federal reserve banks decreased during the
first half of the fiscal year, but during the last half of the year a
sufficient part of our import flowed to these banks to place their
holdings ^bove the figure of July, 1925. Their proportionate holdings of the total gold stock is slightly lower than at the close of the
fiscal year 1925.
The following table shows the monetary stock of gold in the United
States on the 1st of July of each year from 1913 to 1924, inclusive,
and on the first of each month from July 1, 1925, to November 1,
1926, together with the gold holdings of the Federal reserve banks
on or about the same dates:
Stock of monetary gold in the United States and total gold holdings of Federal reserve
banks, 1913 to 1926 '

Date

Stock
in U n i t e d
States (in
millions of
dollars)

P e r cent
of
amount
in 1913

1,871
1,891
1,986
2,450
3,019
3,073
3,113
2,709
3,298
3,786
4,060
4,491
4,386
4,391
4,400
4,399
4,442
4,426
4,409
4,415
4,446
4,495
4,497
4,494
4,500
4,519
4,511
4,499
4,491

100
101
106
131
161
164
166
145
176
202
216
240
234
235
236
235
237
237
236
236
238
240
240
240
241
242
241
240
240

Holdings
of F e d e r a l
reserve
b a n k s (in
millions of
dollars)

R a t i o of
gold
held b y
Federal
reserve
banks to

total

P e r cent
J u l y , 1913
J u l y , 1914
J u l y , 1915
J u l y , 1916
J u l y , 1917
J u l y , 1918J u l y , 1919
J u l y , 1920
J u l y , 1921
J u l y , 1922
J u l y , 1923
J u l y , 1924
J u l y , 1925
A u g u s t , 1925
S e p t e m b e r , 1925
October, 1 9 2 5 . . .
N o v e m b e r , 1925.
D e c e m b e r , 1925.
January, 1926...
F e b r u a r y , 1926..
M a r c h , 1926
April, 1926
M a y , 1926
J u n e , 1926
J u l y , 1926
A u g u s t , 1926
S e p t e m b e r , 1926.
October, 1 9 2 6 . . .
N o v e m b e r , 1926

329
543
1 1,237
1 1,928
2,148
1 1,864
2,468
3,021
3,096
3,128
2,790
2,783
2,767
2,760
2,783
2,743
2,704
2,792
2,765
2,767
2,797
2,797
2,835
2,851
2,828
2,807
2,807

1 E x c l u d i n g gold held a b r o a d , w h i c h is n o t i n c l u d e d in t h e m o n e t a r y stock in t h e U n i t e d S t a t e s .

16.57
22.1640.97
62.68
69. 00^
68.44
74.83.
79.82
76.42'
69.66.
63. 61
63.3862.89
62.74
62.65^
61. 9761.33
63.24
62.20'
61.56.
62.19
62.24
63.00'
63.09•
62.69
62.39'
62. 50>

SECRETARY OF THE TREASURY

Gold and gold certificates in circulation and the proportion of
the gold circulation to total circulation has increased but slightly
during the past year. In March, 1922, the Treasury and the Federal reserve banks inaugurated the policy of paying out gold certificates with other forms of money in the ordinary course of business,
and since that date to November 1, 1926, gold certificates in circulation have increased by about $675,000,000. At present about 30
per cent of the total money in circulation in the country consists of
gold coin and gold certificates; about 22 per cent is gold certificates
alone. The following table shows the total money in circulation
and the amount of gold coin and gold certificates in circulation outside the Treasury and the Federal reserve banks on July 1, 1922,
and subsequent dates:
Total gold and total money in circulation in the United States, by quarters, 1922 to
1926

Month

J u l y 1, 1922.
Oct. 1,1922.
J a n . 1, 1923A p r . 1, 1923J u l y 1,1923.
Oct. 1,1923.
J a n . 1, 1924.
A p r . 1, 1924J u l y 1, 1924.
Oct. 1,1924J a n . 1, 1925.
A p r . 1, 1925.
J u l y 1, 1925.
Oct. 1, 1925.
J a n . 1, 1926A p r . 1, 1926J u l y 1, 1926.
Oct. 1, 1926.
N o v . 1, 1926,

Gold certifiGold coin
cates
i n circulation i n circulation

$415.937, 563
412, 894, 448
429,192,179
410.102, 015
404,181, 003
397,980,664
415, 319, 417
408.061,873
395,746,934
427,969,721
458,206.331
469, 447; 591
423, 860, 506
413,973,095
424,037,335
450, 787, 416
445, 068, 360
422,052,228
407, 456, 265

$173, 342,199
214. 966 729
302, 743, 899
319, 068, 349
386, 456, 089
465, 279, 009
582, 029, 209
687, 252, 519
801, 380, 819
898, 165, 609
970, 564. 239
914, 968. 019
1, 004,823, 302
1, 050,056, 659
1.114, 330. 649
1, 089,002; 939
1, 057,364,119
1.100, 919, 789
1.101, 452. 799

T o t a l gold
in circulation

Total money
in circulation

279, 752 $4, 374,015, 037
4, 620,895, 293
627, 851,177
731. 936, 078 4, 732,898,991
729, 170, 364 4, 655,675,790
790, 637. 092 4,729, 378, 516
863, 259; 673 4. 849,921,139
997, 348, 626 4,951, 085, 383
1, 095,314, 392 4, 812,861, 042
1,197, 127, 753 4, 754 772.754
1, 326,135, 230 4, 806!366, 540
1,428, 770, 570 4,992, 930, 842
1, 384,415, 610 4, 776,167,142
1, 428,683, 808 4, 736,464, 237
1, 464,029. 754 4, 827,005, 324
,1,538, 367, 984 6, 008,120,908
1. 539,790, 356 4, 805,884, 836
4, 834,710, 681
1; 502,432,479
1. 522,972, 017 4, 906,198, 326
1, 508,909, 064 4, 933,169, 057

R a t i o of
gold coin •
a n d certificates t o
total m o n e y
in circulation
13.6
13.9
15.5
15.7
16.7
17.8
20.1
22.8
26.2
27.6
28.6
29.0
30.2
30.3
30.7
32.0
31.1
31.0
30.6

The coinage of gold during the last year has decreased by about
70 per cent from the coinage of the preceding fiscal year. The
amount of gold coin in the Treasury decreased from $615,000,000 in
July, 1925, to $580,000,000 in November, 1926. Gold coin held in
the Treasury above the legal requirement that at least one-third of
the gold held against gold certificates in circulation be in the form of
gold coin, was less on November 1, 1926, than the amount so held
on July 1, 1925, by about $65,000,000.
Silver
Purchases of silver by the Government during the fiscal year 1926
amounted to about 5,000,000 fine ounces, costing about $3,500,000.
Deliveries of silver purchased under the terms of the act of April 23,

.96

REPORT ON THE FINANCES

1918, were completed in October, 1924, but about 11,400,000 silver
dollars were coined during the past year under the terms of this ^act,
leaving silver sufficient for the coinage of 6,500,000 dollars. About
55,000,000 subsidiary silver coins were executed during the year.
The New York market price of silver was sustained very near the
level of 1925 during the fiscal year ended June 30, 1926. The
average price for the year of $0.68317 per ounce varied very little
from the average price of $0.68813 for the fiscal year 1925. The
range varied somewhat from that of 1925, the highest price being
$0.731875 on September 5, 1925, and the lowest $0.633025 on April
22, 1926, as compared with $0.66125 and $0.72375 in the fiscal year
1925. Influences operating favorably on the price of silver in the
late summer were the demand from China and purchases by the
United States Treasury for subsidiary coinage The high point of
silver prices in September was followed by an almost steady downward drift to the low point of April 22. Some reaction in price
occurred in the late spring and early summer, but by October 19,
1926, the price of silver had dropped to $0,515 in New York, the
lowest point in eleven years.
Much concern has been evidenced in the possible effect upon silver
of the adoption of the plan of the Royal Commission on Indian
Currency and Fiaance. While the plan of the Royal Commission
leaves undisturbed the place of the silver rupee in the circulation of
India, no more silver for coinage will be required at present. However, India's consumption of silver for coinage purposes in recent
years has been very small as compared with her total net imports
of the metal. For 1923 and 1924 the figures are:
1923
Fine ounces

Total net imports of silver
Consumption of silver for coinage purposes
Percentage of imports used for coinage

92, 825, 822
2, 279, 994
2. 5

1924
Fine ounces

86, 523, 908
9,11, 7151
1. 1

India's demand for silver would seem to depend more on the
general prosperity of the country and a favorable trade balance than
on the currency situation. India's trade position has been definitely
and increasingly favorable in the last few years, due largely to good
crops resulting from successively good monsoons. At least a normal
monsoon this fall seems assured at the present writing.
Exports of silver from the United States to India in the fiscal year
1926 were less than those for 1925, the amounts being, respectively,
$42,794,176 and $54,803,754.
India and China have for many years, of course, been the large
absorbers of silver. In the calendar year 1925 the two countries ab-

SECRETARY OF THE TREASURY

sorbed more than 70 per cent of the world's silver production. The
total net imports of silver into China duruig 1925 were more than twice
those of 1924. Influences affecting the Chinese demand for silver during the past fiscal year, however, have been very diverse. Active
warfare in China caused hoarding and at the same time a demand
for silver coin to pay troops, both tending to increase the demand for
silver. On the other hand, disturbed conditions tended to the accumulation of silver stocks in the foreign banks of the treaty ports for
security, a condition which was aggravated by the boycott of British
and Japanese goods. Shipments of silver from China to London
resulted, an event which had not occurred for many years. This
had a depressing effect on the price of silver and indicated that the
import of silver to China had exceeded that country's power of absorption. The United States exported $43,742,077 in silver to China in
the fiscal year 1926 as compared with $23,022,808 in 1925. A more
settled condition in China would seem to promise a more stable
silver demand.
The world's silver production in the calendar year 1925 increased
over that for 1924 but was not quite up-to the 1923 production.
Silver production for each of the last three years, however, has been
higher than ia any previous year of the world's history. American
silver production in 1925 exceeded the 1924 production by $2,089,050,
being $45,911,864.
In addition to her own production, the United States received
silver.imports amounting hi all to $69,400,686, comiag almost entirely
from Mexico, Peru, Canada, and Chile, in the order named.
The following table shows the world's production of silver, the
proportion thereof absorbed by India and China, together with the
average price of the metal in New York:
World production of silver and net imports into India and China, 1916 to 1925
[In millions of fine ounces]
Percentage
Total net
Average
World
of world
production imports production
price of
of
silver in
into India absorbed
silver
and China by India New York
and China

Calendar year

1916
1917
1918-1919
-1920
1921 . .
1922
1923
1924
1925

-'..'.
-

180.8
186.1
203.2
179.8
173.3
171.3
209.8
246.0
239.5
245.1

72.4
83.5
208.8
235.0
115.5
90.9
116.3
173.9
117.9
175.2

40
45
103
131
67
53
55
71
49
71"

$0.67
.84
.98
1.12
. 1.02
.63
.68
.65
.67
.69

REPORT ON T H E FINANCES
FUNDS ADMINISTERED BY THE TREASURY

Adjusted service certificate fund
Investments for the account of the adjusted service certificate
fund were made during the fiscal year 1926 in special issues of Treasury notes and certificates of indebtedness bearing interest at the
rate of 4 per cent per annum, in accordance with the procedure
outlined in the Annual Report of the Secretary of the Treasury for
the fiscal year 1925. The investments made January 1, 1925, were
$100,000,000 face amount of the adjusted service series obligations
of which $4,600,000 were redeemed to June 30, 1925, to provide
funds for authorized payments to that date.
In the fiscal year 1926 the investments in similar obligations
aggregated $123,500,000 face amount. The funds available for this
purpose were appropriations of $50,000,000 and $70,000,000 available
January 1 and March 5, 1926, respectively, and $3,500,000 available
January 1, 1926, from interest on investments paid on that date.
Redemptions aggregating $15,000,000 face amount were made tb
provide funds for authorized payments; $38,200,000 face amount of
the one-year certificates of indebtedness held in the uivestment
account of the fund matured January 1, 1926, and after redemption
the proceeds of the principal amount were invested in like obligations
maturing January 1, 1927.
When funds are required for authorized payments by the Veterans'
Bureau, approved requisitions are made on the Treasury for advances
to the disbursing clerk on accountable warrants in the same manner
as with other advances from appropriations expended through disbursing clerks of the several departments and establishments. The
Treasury then redeems a sufficient face amount of the obligations to
honor the requisitions and deposits the principal amount and accrued
interest to the credit of the appropriation account of the fund and the
total is simultaneously advanced to the disbursing clerk. Under
that procedure the fund receives the full benefit from the investments.
A statement of the condition of the fund as of June 30, 1926, is as
follows:
Adjusted service certificate fund as of J u n e 30, 1926

FUND ACCOUNT

Appropriations:
J a n . 1, 1925
J a n . 1, 1926
Mar. 5,^1926
I n t e r e s t on investments

$100,000,000.00
50, 000, 000. 00
70, 000, 000. 00
3, 876, 975. 34
223, 876, 975. 34

SECRETARY OF THE TREASURY

Checks issued by Veterans' Bureau against credits from the
. fund and paid by the Treasurer of the United States
Balance in fund June 30, 1926

$19, 587, 982. 61
204, 288, 992. 73

FUND ASSETS

Investments:
4 per cent Treasury notes—
Dated Jan. 1, 1925, maturing Jan. 1,
1930_1
$50,000,000
Dated Jan. 1, 1926, maturing Jan. 1,
1931
53, 500, 000
Dated Mar. 5, 1926, maturing Jan. 1,
1931
70. 000, 000
4 per cent one-year Treasury certificates—
Net issues
.
$50, 000, 000
Redemptions to June 30,
1926
19,600,000
30, 400, 000
Net investments
_._
Balance to credit of disbursing officer of Veterans' Bureau (includes outstanding checks)
Total fund assets

203,900,000.00
388, 992. 73
204,288, 992. 73

District of Columbia teachers^ retirement fund
Investments for account of the District of Columbia teachers'
retirement fund are made by the Treasurer of the United States as
and when funds are available upon reports received from the Comfnissioners of the District of Columbia. Purchases during the fiscal
year 1926 were made as follows: $48,750 face amount second Liberty
loan 434 per cent bonds at a principal cost of $49,039.45, and $241,100
face amount of Federal farm loan 4 K per cent bonds at a principal
cost of $246,701.68. The securities held in the investment account
June 30, 1926, and their principal cost are as follows:
Face
amount
First Liberty loan i H per cent bonds. _
'Second Liberty loan i H per cent bonds.
"Third Liberty loan i H per cent bonds.
Fourth Liberty loan i H per cent bonds
TTreasury i H per cent bonds, 1947-1962.
•Federal farm loan 4 ^ per cent bonds...
Total.

Principal
cost

$26,850
202,150
166,450
735,760
10,000
288,840

$27, 629. 64
203,964. 62
157,611.47
704,371.27
10,000.00
296,754. 63

1,429,040

1,399,221. 63

100

REPORT ON T H E FINANCES

The following statement shows the transactions under the combined appropriated and trust fund accounts during the fiscal year
1926, and includes cumulative figures from date of the approval of
the act, January 15, 1920, to June 30, 1926:
Fiscal
year 1926
Unexpended balance, June 30, 1925
Credits:
Deductions from salaries
Interest earned on investments
Appropriations made by Congress *
Total

$52, 792.89
263,919. 72 $1,410,128.04
49,471. 88
155, 900. 00
60,807. 86
268,429.47
426,992. 35

Charges:
Annuities, refunds, etc
Investments, principal cost
Accrued interest on investments
Unexpended balance, June 30, 1926 *
Total

Jan. 15,
1920, to
June 30, 1926

1,834,457. 51

94,632. 45
397, 656.44
2 295, 741.13 3 1,399, 221. 63
1, 295. 74
< 2,256. 61
35,323.03
35, 323. 03
426,992. 35

1,834,457. 61

1 Exclusive of amounts carried to surplus fund.
«Face amount $289,850.
3 Face amount $1,429,040.
* Repayable in 1927.
«Exclusive of unexpended balances in hands of District of Columbia disbursing officer, but includes
$7.73 unexpended balance of funds advanced to Treasurer for investment.

United States Government life insurance fund
The Secretary of the Treasury is required to invest in interestbearing obligations of the United States or in bonds of the Federal
land banks all moneys received in payment of premiums on converted
insurance in excess of reserve requirements and authorized payments,
pursuant to the provisions of section 18 of the act approved December 24, 1919, as amended March 4, 1923. Investments are made
as and when funds are available, upon advice received from the
Director of the United States Veterans' Bureau. During the fiscal
year 43^ per cent Federal farm loan bonds were purchased for the
fund aggregating $37,350,000 face amount, at a principal cost of
$37,846,769.40. These purchases were made pursuant to an arrangement between the fiscal agent of the Federal land banks, the director
of the bureau, and the Treasury. All securities purchased for this
account are registered in the name of the Secretary of the Treasury
for account of the United States Government life insurance fund. The
obligations of the United States in the fund are held in safe-keeping
by the Division of Loans and Currency of the Treasury Department,
and the Federal farm loan bonds are held by the Treasurer of the
United States. Monthly reports are made by the Treasury to the
Veterans' Bureau of all securities in the fund and the principal cost
thereof, and periodic verifications of the security holdings are made
through reports rendered to the director by the safekeeping offices

101

SECRETARY OF THE TREASURY

above mentioned.
were as follows:

The securities held in the fund on June 30, 1926,

Par value
First Liberty loan converted i H per cent bonds-.
Second Liberty loan converted i H per cent bonds
Fourth Liberty loan i H per cent bonds
i H per cent Treasury bonds
_.
4H per cent Federal farm loan bonds
Total

Principal cost

$6,639,900
18,089,300
42,661, 550
49,173,200

$6,316, 209. 21
16, 247,357.00
39,495, 573. 60
49,201,905. 28

116,563,950
69, 200,000

111, 261,045. 09
69,742,644.40

185,763,950

181,003,689.49

Civil service retirement and disability fund
Under provisions of the amendment of July 3, 1926, to the act
approved M a y 22, 1920, establishing the civil service retirement and
disability fund, and the regulations issued pursuant thereto by the
Comptroller General bf the United States, it was necessary to make
certain changes in the accounting procedure beginning July 1, 1926.
Under the former procedure, expenditures for. salary, pay, or compensation of persons entitled to the benefits of the act were exhibited
in the official reports at 973^2 per cent of the appropriations therefor
and the remainder appeared as (1) authorized payments of annuities,
refunds, etc., under the act, and (2) expenditures on account of
investments of funds not required for payments indicated in (1)
above. Under the new procedure, expenditures for salary, pay, or
compensation from applicable appropriations are exhibited at 100
per cent, and deductions of 33/2 per cent from salary, pay, or compensation are paid by checks of disbursing officers making salary
payments, which are sent to the disbursing clerk. Bureau of Pensions,
who subsequently deposits them with the Treasurer of the United
States for credit of the civil service retirement and disability fund.
Section 11 of the act as amended authorizes the Secretary of the
Treasury.to invest from time to time in interest-bearing securities of
the United States or Federal farm loan bonds such portions of the
civil service retirement and disability fund as in his judgment may
not be immediately required for the payment of annuities, refunds,
allowances, etc., and that the income derived from such investments
shall constitute a part of such fund for the purpose of paying such
annuities, etc.
Where, under the provisions of section 12 of the act as amended,
gross or net returns are made of funds previously contributed by employees, accrued interest is required to be included therein, computed
at the rate of 4 per cent per annum compounded on June 30 of each
fiscal year.

102

REPORT ON T H E FINANCES

The same considerations as to savings and simplified procedure
are accordingly now applicable to investments made by the Treasury
for account of the fund as are indicated in connection with investments for account of the adjusted service certificate fund appearing^
in the article in the Annual Report of the Secretary of the Treasury
for the fiscal year 1925, page 118.
The following procedure, therefore, was prescribed, effective July
1, 1926:
(1) Investments for account of the fund will be made in special
issues of Government obligations bearing interest at the rate of 4 per
cent per annum payable on June 30 in each fiscal year, or on earlier
redemption, as follows: Certificates of indebtedness, civil service
retirement fund series; Treasury notes, civil service retirement fund
series. Such obligations will be issued in denominations of $100,000
or multiples thereof, and at par as of dates of issue.
(2) The Treasurer of the United States will act as disbursing officer
for the investments in the same general manner as at present, making
payments therefor from approved advances from the fund upon
accountable warrants. The Commissioner of Accounts and Deposits
will be responsible for the investments from available funds and the
Commissioner of the Public Debt for^ issuance of the securities and
safe-keeping thereof in the same general manner as is done with the
adjusted service certificate fund. Credits to meet monthly requisitions of the disbursing clerk of the Bureau of Pensions for authorized
payments will be provided from current deductions and through
redemptions of the special issues, after such deductions or the proceeds of the redemptions have been covered into the Treasury to
the credit of the fund.
During the fiscal year 1926, $2,050,000, face amount of Treasury
notes, series A-1926, were redeemed at maturity, March 15, 1926.
The investments during the year aggregated $11,335,700, face amount,
of which $8,000,000 was in second Liberty loan 4J^ per cent bonds
and $3,335,700 in fourth Liberty loan 43^ per cent bonds. The net
investments during the year aggregated $9,285,700, face amount,
purchased at a principal cost of $9,472,154.96. The interest on
investments amounted to $2,204,513.36, and from August 1, 1920,
the effective date of the retirement act, to June 30, 1926, the earnings amounted to $7,350,317.47.
The following statement shows the securities held in the fund as of
June 30, 1926:
Par value
Second Liberty loan i H per cent bonds
Fourth Liberty loan i H per cent bonds
Total

Principal cost

$30,500,000
23,524,050

$30,656,870. 60
23,217,656.54

64,024,050

63,874,527.04

103

SECRETARY OF THE TREASURY

The receipts and expenditures on account of the fund for the
fiscal year 1926 and cumulative totals to June 30, 1926, are as follows:
1, 1920, to
Fiscal year 1926 Aug.
June 30,1926
Unexpended balance June 30,1925 _
Credits: ,
On account of 2K per cent deductions from basic compensation of
employees subject to the civil service retirement act 2
Receipts—
b
Interest on profits on investments
Another
•

Total

Charges:
On account of refunds to employees, annuities, etc
On account of investments at cost ^ _.
Accrued interest on investments (net) paid
Unexpended balance June 30,1926
_ .
Total---.

1 $1,487,116.89
17,871,530.80

$91,684,071.63

2,204,513.36
97,647.70

7,350,317.47
334,934.78

21,660,808.75

99,269,323.88

44,823,885. 72
10,275,000.00
3 10,872,864.96 4 53,874,527.04
845. 39
6 67, 111. 94
570,065 73
570,065.73
21,660,808. 75

99,269,323.88

1 This amount includes $1,407,868.33, representing $1,400,700 principal cost and $7,168.33 accrued interest
on $1,380,000, face amount, of second Liberty loan i H per cent bonds purchased on June 29, 1925, but not
cleared through the records in time for inclusion in the investment figures for the fiscal year 1925.
2 Act of July 3,1926, vol 44, p. 910, sec. 10, increases amount of deductions to 3M per cent, effective July
1, 1926.
3 Face amount, $10,665,700.
< Face amount, $54,024,060.
* Excess credits, deduct.

Foreign service retirement and disability fund
The foreign service retirement and disability fund, estabhshed
by section 18 of the act of May 24, 1924 (vol. 43, p. 144), was credited
during the fiscal year 1926 with the sum of $160,743.25, including
$7,589.86 earnings on investments. The fund was charged with
$63,946.25 on account of annuities, and so forth, and $100,033.44
on account of investments, leaving an unexpended balance on
June ^30, 1926, of $304.77. The administration of the fund is vested
in the Secretary of State, but the Secretary of the Treasury is required to make investments from time to time of such portion of
the fund as may not be required for authorized payments and to
credit the fund with the income. Part of the investments for 1926
were made- in short-term obligations during a period when the funds
were not required for immediate disbursement. Such part of the
fund estimated not to be required for use during the fiscal year was
invested in longer-term securities. Duruig the fiscal year 1926,
$1,5.00 face amount of Treasury certificates of indebtedness, series
TS-1925, held in the fund on June 30, 1925, matured and were
redeemed. Investments during the year and remauiuig in the
fund June 30, 1926, were as follows: $74,600 face amount of second
Liberty loan 4J^ per cent bonds purchased at a principal cost of
$75,532.50, and $26,000 face amount of 3% per cent Treasury
certificates of indebtedness, series TD-1926, purchased at par.
With the exception of the 3 % per cent Treasury certificates of
indebtedness, series TD-1926, all of the securities in the investment

104

REPORT ON THE FINANCES

account on June 30, 1926, are registered in the name of the Secretary
of the Treasury in trust for account of the fund, and are held in
safe-keeping by the Division of Loans and Currency of the Treasury
Department. The total interest and profits earned and collected
on investments made to June 30, 1926, are $9,797.69.
The following statement shows the securities held in the fund as
of June 30, 1926:
Face
amount
Second L i b e r t y loan converted i H per cent b o n d s
F o u r t h L i b e r t y loan 43-^ p e r c e n t b o n d s . ZH per cent T r e a s u r y certificates of i n d e b t e d n e s s , series TD-1926.
Total

Principal
cost

$74,600.00
79,160.00
26,000.00

$75,532.50
81,069.85
26,000.00

179,750.00

182,602.35

The transactions in the fund for the fiscal year 1926 and cumulative
figures to'June 30, 1926, are as follows:
Fiscal year
1926

U n e x p e n d e d balance J u n e 30,1925
Credits:
,
O n account of 5 per cent d e d u c t i o n s from basic c o m p e n s a t i o n of employees
subject to foreign service r e t i r e m e n t act
--.-ReceiptsI n t e r e s t a n d profits on i n v e s t m e n t s .
Another
Total

...!....

Charges:
O n account of refunds to employees, a n n u i t i e s , e t c .
O n account of i n v e s t m e n t s at cost
U n e x p e n d e d balance J u n e 30,1926
Total

1 F a c e a m o u n t $99,100.

—

—.

M a y 24,1924,
to J u n e 30,
1926

$3, 641. 21
152,207. 30

$294,382. 30

7,589. 86
946. 09

9,797. 69
2,673. 38

164,284.46

306,853. 37

63,946. 25
1 100, 033. 44
304. 77

123,946. 25
2182, 602. 36
304.77

164, 284. 46

306, 853. 37

2 F a c e a m o u n t , $179,750.

Library of Congress trust fund
Under provisions of the act approved March 3, 1925, the Library
of Congress Trust Fund Board consists of the Secretary of the
Treasury, the chairman of the Joint Committee on the Library,
the Librarian of Congress, and two persons appointed by the President. The act authorizes the board to accept, receive, hold, and
administer such gifts or bequests of personal property for the benefit
of, or in connection with, the library, its collections, or its service
as may be approved by the board and by the Joint Committee on
the Library. The moneys or securities given or bequeathed to the
board are required to be receipted for by the Secretary of the Treasury, who is authorized to invest, reinvest, or retain investments, as
the board may determine.

SECRETARY OF THE TREASURY

105

As indicated in the Annual Report of the Secretary of the Treasury
for the fiscal year 1925, the first donation was made by Mr. James
B. Wilbur, of Manchester, Vt., and consisted of 1,000 shares 7 per
cent preferred capital stock of the Public Service Co. of Northern
Illinois. The donor reserved the right to receive six-sevenths of the
income during his lifetime, the remaining one-seventh to be credited
to the fund account of the board until* such time as he might forego
a larger part or all of the income.
During the fiscal year 1926 a donation of $10,000 par value, of
bonds w^as made by Mr. R. R. Bowker, of New York City, subject
to the condition that six-sevenths of the income therefrom be paid
to him during his lifetime, or to his wife during her lifetime should
she survive him, the remaining one-seventh to be credited to the
fund. These securities consisted of $5,000 face amount first mortgage 5 per cent gold bonds of the Detroit Edison Co., due January
1, 1933; $2,000 face amount 7 per cent gold bonds of the German
external loan, due October 15, 1949; $2,000 face amount 63^ per
cent gold sinking-fund bonds of the Imperial Japanese Government
external loan of 1924, due February 1, 1954; and $1,000 face amount
7 per cent sinking-fund bonds of the Austrian Government guaranteed loan of 1923, due June 1, 1943.
All of the above-described securities are.held by the Treasurer of
the United States, subject to the order of the Secretary of the Treasury, for account of the board. The earnings credited to the fund
during the fiscal year 1926 amounted to $774.29, which is the total
received to June 30, 1926.
OTHER FINANCIAL OPERATIONS

Federal farm loan system
Federal land banks.—During the fiscal year ended June 30, 1926,!
the Federal land banks closed 36,803 loans, amounting in the aggregate to $125,253,591. Net earnings for the same.period amounted
to $8,596,543.62, a portion of which was used to increase reserve
accounts from $7,544,700 to $8,467,500. The net amount of outstanding mortgage loans made by Federal land banks aggregated, as
of June 30, 1926, $1,043,954,725.03. The amount of farm loan bonds,.
issued by Federal land banks, outstanding as of June 30, 1926, was
$1,029,375,635.
A notable achievement in this period was the reduction in the loan
rate from 5}/^ per cent, which obtained in all the banks of the system,
to 5 per cent in five of the banks and to 5J^ per cent in one other.
This was made possit)le both because of the favorable terms on which
farm loan bonds were being sold and because of the volume of business
11439—FI 1926

-9

106

REPORT' ON THE FINANCtES

now on the banks' books, enabling them to operate on narrower
margins of profit.
The Treasury originally subscribed practically all the capital
stock in the Federal land banks. The law provides that this capital
is to be retired out of the proceeds of stock subscriptions by national
farm loan associations. On June 30, 1926, Government capital had
been reduced to $1,180,440. All Government capital has been retired
in seven banks.
The national farm loan associations, subsidiary organizations
through which Federal land bank loans are made, increased in number
during the fiscal year from 4,652 to 4,664. The combined capital
stock in all Federal land banks on June 30, 1926, amounted to
$55,816,545, of which $54,066,950 is owned by national farm loan
associations, and the remainder, with the exception of $569,155, is
owned by the Federal Government.
Joint-stock land banks.—During the fiscal year two joint-stock land
banks were chartered and four banks were liquidated. At the end
of the fiscal year there were 57 joint-stock land banks in actual
operation in all the States of the Union except the New England.
States, Delaware, Florida, New Mexico, and Montana.
Loans amounting to $133,187,999 were made by joint-stock land
banks during the year to 21,220 borrowers.
The combined capital stock of all joint-stock land banks on June 30,
1926, was $43,494,020; reserve, $4,637,239.50; surplus and undivided profits, $6,876,014.81. The net amount of outstanding mortgage loans made by joint-stock land banks aggregated, as of June 30,
1926, $600,149,835.63. The amount of farm loan bonds issued
by joint-stock land banks outstanding as of June 30, 1926, was
$571,476,800.
Federal intermediate credit banks.—The 12 Federal intermediate
credit banks authorized by the agricultural credits act of 1923 have
been in actual operation practically three years. Each bank has a
paid-in capital of $2,000,000, with a call upon the Treasury for an
additional $3,000,000.
The following statement indicates the volume of their business and
the extent of their service:
Direct original advances to cooperative marketing associations from
the beginning of operations to June 30, 1926, aggregated $149,160,099.65. In addition, renewal notes equaled $108,643,976.32. Total
loans, therefore, amounted to $257,804,075.97. Of this sum $224,488,164.96 has been repaid, leaving outstanding at the close of the
fiscal year $33,315,911.01. These advances were distributed by
commodities, as follows:

SECRETARY OF THE TREASUR.Y "
Tobacco
Cotton
Raisins
Wheat
Wool
Prunes.Canned fruit and vegetables
Peanuts.-..^
Rice
Broom corn
_.
Redtop seed
Olive oil
Coffee
Hay
Grimm alfalfa seed
Total

107

$52, 239, 909. 50
58, 281, 163. 06
12, 600, 000. 00
10, 138, 075. 26
3,.850, 145. 49
1,900,000.00
6,630,837.09
-__
565, 530. 00
1,914, 731.65
.
335,447 60
..
95, 800. 00
51, 960. 00
406, 500. 00
75,000. 00
75, 000. 00
--

.
.-•

__-

149,160,099.65

Original rediscounts ' aggregated $90,409,465.35 and renewals
$43,987,367.04 additional, or a total of $134,396,832.39. Repayments have been made in the sum of $91,262,725, leaving outstanding
at the close of the fiscal year $43,134,107.39. The agencies through
which these rediscounts were made are classified as follows: •
Agricultural credit corporations
National banks__
State banks__
Livestock loan companies.;
Savings banks and trust companies
Total

$62, 453, 694. 09
196, 215. 02
2, 853, 393. 11
24,376,484.71
529, 678. 42
90,409,465.35 •

The Federal intermediate credit banks paid into the United States
Treasury, as provided in section 206, paragraph (b) of the agricultural
credits act of 1923, 50 per cent of the net earnings of said banks for
the calendar year ending December 31, 1925, or $508,589.86. On
June 30, 1926, the surplus, reserve, and undivided profits accounts
aggregated $2,088,618.32.
I t is estimated that approximately 90,561 farmers have been
served through the rediscount of their individ.ual notes and 882,129
served as members of cooperative marketing associations. The interest rate on direct loans to cooperative marketing associations
continued at 43^ per cent until early in November, when, due to the
condition of the debenture market, it was increased to 5 per cent.
Again, on June 15, 1926, it was reduced to 4:}^ per cent. The rate on
rediscounts was 5 per cent throughout the period covered by this
report.
General.—While the operations of the farm loan system have, generally speaking, proceeded in a satisfactory manner, there appear to be
many opportunities for substantial improvement in both the administrative and operating functions of the system. Some of these improve-

108

REPORT ON T H E FINANCES

ments may be accomplished through revision of regulations,,
readjustments of personnel, or standardizing of procedure. T h e
remainder, and unquestionably the more important, may be achieved
only by amendment of the farm loan act.
With respect to those defects which may be remedied without
legislation, the Treasury has already taken steps to apply corrective
measures.
As an example of what has been accomplished along these lineS;
reference may be made to the revision of the regulations of the Farm
Loan Board. In October, 1925, attention was drawn to the fact that
some of the joint-stock land banks had evidenced an inclination to
interpret the regulations of the Farm Loan Board in such manner as
to enable them, by certain bookkeeping devices, to pay dividends
which, when viewed from a conservative standpoint, might be deemed
excessive. I t is appreciated that under the act, which permits a
joint-stock land bank to sell its bonds to the extent of fifteen times its
capital, the business of the bank may be extended and satisfactory
service rendered the public only if the capital stock of the bank may be
increased as may be found necessary. Sound banking principles
demand, however, that dividends to investors in joint-stock land
bank stocks should be paid .at a rate that can be maintained, and that
wide fiuctuations should be avoided in the market values of the stock.
As soon as the Treasury was advised of the situation as abdve set
forth, an examination was directed to be made of certain of the banks
of the system. As a result of this examination it developed that the
regulations of the Farm Loan Board were not sufficiently comprehensive to enforce the adoption of standardized methods of accounting and banking practice by the joint-stock land banks. To remedy
this condition, revised regulations were prepared and promulgated in
June, 1926. While there continue to be many apparent opportunities
for the further strengthening of these regulations, it is felt that the
recent revision will prove an adequate remedy for at least some of the
former defects in management.
Among the other improvements attained in the administration of
the system is the reinforcement of the bureau's examining facilities.
Due, in all probability, to the rapid growth of the system, the Federal
F a r m Loan Bureau has fallen considerably in arrears in the examination of the banks of the system. An investigation was directed to be
made of this situation, as a result of which there has been formed in
the bureau an examining division, headed by a chief examiner, with
three assistant chief examiners and a force of examiners and reviewing
appraisers sufficient to conduct examinations of the banks of the
system, as required by the farm loan act. This division, in addition,
will assist the banks in standardizing methods of accounting and
banking practice and of preparing reports of condition.

SECRETARY OF THE TREASURY

109

The Treasury will continue to study the operations of the system*,
and wdll from time to time make such other improvements as are
shown to be necessary.
There are, however, several fundamental weaknesses in the organic
law. This is not intended, and should not be construed, as a criticism
of the framers of the original act, for the defects in question could be
ascertained only through several years of actual operation and could
not have possibly been foreseen at the time the law was enacted.
I t is not possible at this time to set forth in full the particular provisions which experience has demonstrated to be faulty. In brief,
they pertain to the administrative powers vested in the board and
to the control exercised by the Treasury over the operations of the
system. A careful analysis is being made of the situations which
have arisen in the past and which ma}^ be avoided in the future only
through revision of the organic act. As a result of such analysis
appropriate recommendations will be made to Congress.
The system has fully demonstrated its capacity for providing valuable service to the farmer. Bonds of the system, offered to the investing public, are entirely sound and their popularity is continually
increasing. I t is earnestly believed that with the passage by Congress of the necessary remedial amendments to the act, and with the
continued introduction of improved methods of administration, the
system wilh in the future be able substantially to surpass the very
creditable record attained during the 10 years of its existence.
Federal reserve banks as fiscal agents of the United States
In considering the Federal reserve banks as fiscal agents of the.
United States a brief sketch of some of the outstanding incidents
leading up to their designation is in order.
Prior to the establishment of the Treasury Department in 1789,
the Government finances had been handled by boards or commissions,
appointed b}'' the Continental Congress. This policy was due to the
reaction against centralized control arising in the Colonies through
the appointment of colonial governors by the King of England; and
the antipathy toward a centralized Treasury system continued on
this account for some time, despite the fact the commission plan had
proved most unsatisfactory.
The fiscal history of the United States from 1789 to 1916 may be
said to consist of a number of experiments in an attempt to hberate
the revenue of the Government to the use of the country as a whole,
provide means of transferring currency to those points w^here it was
most needed, and to develop through the banking system of the
country a means of financing the Government's requirements.
The First Bank of the United States was chartered in 1791; and
although its charter made no specific provision for the deposit of

110

REPORT ON THE ^FINANCES

Government funds. Secretary Hamilton felt that it was his duty to
use the bank as a fiscal agent and pointed out that the Government
would derive the following advantages:
(1) The bank would render the Federal Government special aid
in a sudden emergency, such as might arise through war.
(2) The bank would assist in collecting and handling taxes and
other revenue accruing to the Government.
(3) The bank would assist in making payments on foreign debts.
(4) The bank would assist in meeting the interest payments on
the public debt.
I t may be said that during its life the bank carried out all of these
provisions in a manner at least more satisfactory than theretofore.
Funds were transferred with a saving to the Treasury Department
through its foreign-exchange operations it assisted in maldng remittances on the foreign debt, and it advanced loans to the Government
to an extent that proved a handicap to the bank itself.
Prior to the closing of the First Bank of the United States there
was considerable growth of State bank organizations., and to these
Secretary Gallatin transferred many of the Government fiscal agency
functions when he realized that the First Bank would not be rechartered. The State banks with inadequate capital attempted to fill
the gap left by the closing of the Bank of the United States, and this
additional financial burden, together with financing the War of 1812,
caused a large number of these banks to fail. Speculation and note
inflation depreciated their issues in some cases to 50 per cent below
par, causing a suspension of specie payment and a breakdown in
the ability of the Treasury to transfer its funds, causing great inconvenience and loss.
This condition led Secretary Dallas in 1815 to recommend the
establishment of a national bank to strengthen the State banks,
restore the currency to a specie basis, and give public confidence.
The plan met with considerable opposition in Congress and it w^as not
until 1816 that the Second Bank of the United States was chartered.
The First Bank of the United States was organized principally
to extend public and private credit, and there was no special provision
for the keeping of public funds, but the act organizing the Second
Bank specifically authorized the Secretary of the Treasury to deposit
Government funds ^4n places in which the said bank and branches
thereof may be established." The Government funds were not at
once transferred to the Second Bank, owing to the inability of a large
number of the State banks to resume specie payment; and the effort
to collect them proved a difficult and thankless task and caused
considerable friction.
Under its charter the Second Bank paid no interest on Government
deposits but performed a certain number of banking functions free of

SECRETARY OF THE TREASURY

111

charge. These consisted, as in the First Bank, of offering the necessary facilities for transferring public funds from place to place within
the United States, and distributing the funds in payment of the
public creditors without charging commissions or claiming allowance
on account of difference of exchange. These two functions were
performed in a satisfactory manner and at a saving to the Treasury.
Moreover, during its life the Second Bank made loans to the Government and rendered timely aid in meeting pension claims payments
and paying both installments of principal and interest on the public
debt.
Opposition led by President Jackson prevented the renewal of the
charter of the Second Bank, and it ceased functioning as a national
institution in March, 1836, and the Government again relied upon
State banks as depositaries, of which by 1836 there were slightly
more than 700 chartered and doing business.
The year 1837 brought with it a panic, suspension of specie payment upon the part of the banks, and the usual inconvenience and
loss to the Government due to the unavailability of public deposits
or payment only in depreciated State bank notes.
From the founding of the Treasury Department to 1846 the public
debt bore a very close relationship to the public deposits and the
banks. During a large part of the period covered by the first two
banks of the United States, the Government leaned very heavily
upon them in its financial operations, and although they performed
their fiscal duties in a fairly efficient manner, they were abandoned
for reasons either of jealousy or politics in favor of the State banks.
The latter, with their undercapitalization and unregulated organization, fell down under the burden. As a result public sentiment
demanded a complete separation of public finances from all banks in
general.
In 1846, after several years of vacillation and discussion. Congress
finally passed a bill establishing the Independent Treasury. The act
provided for four Assistant Treasurers and for a like number of subtreasuries, to be located at New York, Boston, Charleston, and St.
Louis. These officers were ^'required to keep safely, without loaning,
using, depositing in banks, or exchanging for other funds than as
allowed by this act, all public money collected by them." In other
words, the fiscal duties of holding public money on deposit and transferring it from point to point, heretofore performed by the banks,
were to be performed by these new independent branches of the
Treasury Department.
From 1846 until the outbreak of the Civil War, the Treasury Department continued to keep the public money out of banks. The
financing of the Mexican War was relatively easy, as it was of short
duration and such loans as the Government made were well sub-

112

REPORT ON T H E FINANCES

scribed. The country itself was entering a period of prosperity and
the only problem the Treasury had was the use to be made of its
surplus funds. In 1853 this became a matter of considerable moment
and was met by purchases of silver bullion. When this did not ease
the stringency the Secretary of the Treasury purchased Government
bonds in the open market, forcing them to a high premium. Receipts
from customs duties continued to increase faster than Government
expenditures, thus piling up a large surplus in the sub treasuries;
and again in 1857 the Secretary of the Treasury entered the market
as purchaser of bonds, but the aid was poorly timed and had the
double effect of encouraging speculation and so reduced the Treasury
surplus that assistance could not be rendered when most needed
during the actual financial crisis of that year.
The advent of the Civil War at once proved the inadequacy of the
Independent Treasury system to meet unaided a great emergency.
Practically the first step of Secretary Chase's financial program was
to ask the banks for a loan of $50,000,000. This was followed two
years later by a complete break away from the independent idea
through the establishing of the national-bank system and the designation of these banks as depositaries of public funds.
One of the great disadvantages of the Independent Treasury and
one which existed until its abolishment was its inability to supply
business with sufficient note circulation when needed, and to contract
the circulation when speculation reached a danger point. From
1870 to 1893 was a time of considerable prosperity in the United
States. Government receipts exceeded expenditures almost continually, thus piling up a Treasury surplus just at the time that
business needed currency in circulation. On at least three different
occasions during this period the Secretary of the Treasury entered
the bond market and purchased Government bonds with the intention
of relieving the monetary stringency. As Government bonds were
used by the national banks to secure their note circulation, the purchase and retirement of any appreciable amount of bonds by the
Government had the tendency to reduce the national-bank note circulation by an equal amount, thus defeating the purpose of the purchase. Another expedient put into practice about 1880 to relieve
the money market was the depositing of public moneys in private
banks. This policy once reinaugurated was continued, but it was
not until 1890 that the Secretary of the Treasury made a serious
effort to force a wide distribution. This he did by allowing national
banks accepting Government deposits to secure them by pledging
other securities than Government bonds. Under this practice the
growth of national-bank depositaries increased quite rapidly, and by
1907 there was a distribution of deposits > among about 1,400 banks
throughout the country. While this method of relieving the money

SECRETARY OF THE TREASURY

113

market produced some beneficial results, it placed too great a responsibility upon the Secretary of the Treasury to decide in what sections
of the country deposits were most needed, and the further responsibility of choosing banks that had satisfactory managements and would
not use the Government funds for speculative purposes.
I t may be said of the Independent Treasury system that it had
the advantages of safety and of inspiring public confidence which the
early banks had lost. On the other hand, it was not capable of
keeping pace with the growth of business in the United States and had
far outlived its usefulness at the time the Federal reserve system was
inaugurated in November, 1914.
In order to give the Federal reserve banks full opportunity to
become properly organized, the Secretary of the Treasury did not
appoint them as fiscal agents of the Government until January 1,
1916, and they did not take over all of the duties of the subtreasury
system until the latter was abolished by act of Congress approved
May, 1920.
Space will not permit a description of the many ramifications
of the Federal reserve act, the composition of the Federal Reserve
Board, and the organization of the 12 banks, nor of the development of
the system since its inception to meet the trying times of the war and
the infiation that ensued. Sufl^ice it to say that the Government
received the greatest cooperation from the Federal reserve system
and its member banks a,^d other banking institutions in all the intricate financial operations made necessary by the war and its aftermath. These operations proceeded smoothly and on a scale never
before conceived, and at all times the Federal reserve system guided
its policy that it might coordinate with the requirements of the
Government on the one hand and care for the expanded requirements
of business on the other. I t is conceded by all students of finance
that the system made possible this Government's full participation
in the war, and after its termination brought the country back to
something approaching normal in a conaparatively short time, with
a minimum of radical readjustment and in a manner that would have
been impossible under any of the former fiscal agency systems.
With the exception of certain depositary functions performed by
national and State banks, and which will be described hereinafter,
the Federal reserve banks to-day are the sole fiscal agents of the
United States Government. In commenting on their many duties,
first mention may be made of Government receipts. The Federal
tax legislation provides that payments of income taxes may be made
quarterly on the 15th day of March, June, September, and December.
These payments are forwarded by the taxpayers to the collector of
internal revenue of the locality, and by that collector in turn forwarded to the Federal reserve bank of the district. Upon the receipt
11439—FI 1926

114

REPORT ON TI-IE FINANCES
c

of these mone3^s the bank credits them to the account of and advises
the Treasurer of the United States. Besides the quarterly income
tax payments, the Federal reserve banks are in receipt of various dayto-day payments, such as miscellaneous taxes and the receipts from
general national-bank depositaries of excess funds deposited by
collectors of customs and other Federal collecting agencies.
A word of description should now be given of the three classes
of depositaries other than the Federal reserve banks which receive
and hold public money.
The policy of the Treasury Department is to establish general
national-bank depositaries only at points where there is a necessity
to meet the requirements of Government oflScers- for cash for payroll or other expenditures, or to receive deposits of cash from depositors of public moneys, and only where there is no Federal reserve
bank or branch located in the same city. These general depositaries
are given a fixed balance which they may retain, on deposit, and all
moneys received in excess of this amount must immediately be
sent to the Federal reserve bank of the district.
Limited depositaries may be designated among national banks, at
such points as are required, to receive, up to specified maximum
amounts, deposits made by United States courts and their officers
and by postmasters for credit to their official checking accounts with
such depositaries.
Both of the above classes of national-bank depositaries must
qualify, before receiving any public deposit, by pledging as collateral
certain authorized securities. These securities are held for the
depositary bank by the Treasurer of the United States.
The third class, and the one receiving by far the largest deposits,
is known as the special depositary, carrying a ^Svar loan" account.
Any incorporated bank or trust company desiring to participate in
deposits of public moneys arising from the sale of bonds. Treasury
^ notes, or Treasury certificates of indebtedness may make application
for designation as such depositary to the Federal reserve bank of its
district, and qualify by the pledging of certain authorized securities
with the Federal reserve bank to secure such account.
New offerings of public debt securities are, before their issue,
announced to the Federal reserve banks, which in turn notify banking
institutions and others in their districts as to the terms of the issue.
Beginning with the day of the offering, the Federal reserve banks
receive subscriptions and daily advise the Treasury of the total
received. The Treasury fixes a time for the closing of subscriptions
and after final reports are received notifies the Federal reserve banks
of the basis on which to allot the securities to subscribers.
Payments for subscriptions to public debt offerings are made in
the form of exchanges of maturing issues or in cash by nonmember

SECRETARY OF THE TREASURY

115

banks or others; by exchanges of maturing issues, cash, or checks on
their reserve account when made by member banks; or in case the
bank making the subscription is a special depositary having a 'Svar
l o a n " account, by a credit to that account in favor of the Federa
reserve bank of its district as fiscal agent of the United States, which
account, as has already been mentioned, is secured by the pledging
of authorized securities with the Federal reserve bank of the district.
Too great emphasis can not be placed on the importance of the
special depositary system. Since the new issues of securities are
off'ered on tax-payment dates, if the subscribing banks were required
to make payment therefor in cash, such payment, together with the
heavy withdrawals by depositors for the purpose of meeting quarterly
installment of taxes, would create a serious financial disturbance
unless prompt redeposit of the funds was made in the same localities
from which drawn. Under the existing system, whereby the subscribing bank is permitted to make payment for the securities by
credit in its ^'WSLV loan" account, the full amount of the subscription
is for the time being retained by the bank. Withdrawals are subsequently made as the Government has need for funds, but such withdrawals are-gradual, covering a period of several months following
the deposit, with the result that there is complete avoidance of the
shock which would be inevitable. if these subscriptions, in the first
instance, were required to be paid in cash on the date on which the
securities were issued.
Besides merely assisting the Treasury Department in originally
offering a loan to the public, the Federal reserve system has enabled
the Treasury to adopt a system by which short-term securities once
purchased can easily be traded in and a broad market assured. For
instance, if a citizen in Kansas City desires to sell a certain shortterm Government security, his purchaser may be some trust company
in New York. In order to make delivery it is not necessary to
forward the security to New York; it is merely delivered to the
Federal reserve bank in Kansas City, which wires the Treasury
in Washington for authority for the New York Federal Reserve
Bank to make delivery from its ^'denominational exchange stock"
to the New York purchaser. This is done, and the Treasury Department credits New York's stock account and debits that of
Kansas City. This service insures the quickest sort of delivery and
makes an even market for short-term Government securities over
the entire country.
The Federal reserve system also pays Government securities and
coupons upon presentation at maturity. This transaction is completed by merely paying cash or crediting the reserve account of
the presenting bank, if the latter is a member bank, and debiting
the account of the Treasurer of the United States. Besides paying

116

REPORT ON T H E FINANCES

Government securities at maturity, the Federal reserve bank acts
as agent for the Treasury Department in purchasing Gevernment
securities for the account of Government trust funds or for retirement. This is completed in exactly the same manner as when
securities are paid at maturity, except, in the case of purchase for
a trust fund, that fund is debited through the^account of the Treasurer
of the United States.
Perhaps the most important duty of the Federal reserve system,
so far as it affects the average citizen, is its function as depositary
of public money. As United States currency becomes available in
the cash the Treasurer of the United States ships new currency to
the Federal reserve banks in such amounts and denominations as
will provide an equitable proportion among all the banks of the
system. The receiving bank at once credits^ the account of the
Treasui^er of the United States as a transfer of funds.
As the currency in circulation becomes worn and unfit for further
use it comes in to member and nonmember banks of the system,
which Wanks present it to the Federal reserve bank of their district
in exchange for new and fit currency or for credit to their reserve or
correspondents' accounts. The Federal reserve bank then sorts
and counts its receipts of unfit United States money, cancels it bj^
punching holes and cutting it in halves longitudinally, and forwards
the upper half to the Commissioner of the Public Debt and the
lower half to the Treasurer of the United States for accoimting, and
at the same time debits the account of the Treasurer of the United
States as a transfer of funds.
The Federal reserve system's function of issuing its owm notes to
supply the wants of commerce and industry and to augment the
supply of United States currency at times of business expansion is
well understood and will be only commented on here. Suffice it to
say that this ability to issue currency based on sound and extremely
liquid security has added to the currency structure of the United
States an elasticity never known prior to the establishment of the
Federal reserve system.
The account of the Treasurer of the United States with the Federal
reserve banks has been mentioned in connection with the public
debt and the transfer of funds. These, however, are a small portion
of the business, at least in volume, that passes through it. Checks
are draw^n by the Treasurer of the United States directly against his
account in settlement of what are known as ''preaudit" claims, or
ones that have already been audited by the Comptroller General of
the United States. This represents about 10 per cent of the total.
The balance of the checks are drawn by Government disbursing officers against credits established through advances from appropriations

SECRETARY OF THE TREASURY

117

by law and placed to their credit on the books of the Comptroller
Oeneral of the United States.
Government checks after issue follow the course of most checks in
commercial business and are ultimately deposited in some bank.
The bank then presents.them to the Federal reserve bank of its district for payment or for credit in its ^'reserve account," and the
Federal reserve bank in turn debits the account of the Treasurer of
the United States.
The constant debiting of the Treasurer's account in due course
depletes it to such an extent that it has to be built up, and this process
brings us back to the income-tax receipts, the sale of securities, and
the special depositary with a *Var l o a n " account.
Prior to each quarterly tax-payment date the Treasury Department
estimates the amount of taxes it expects to receive, its probable
expenditures until the next tax date, and the amount of short-term
securities maturing. The difference between the total of the expenditures plus the amount of securities maturing and the income tax and
other receipts and the balance on hand determines the amount of
new securities that must be offered.
As has been described, upon the sale of the new securities banks
which hold the designation of special depositaries do not make immediate remittance for their subscriptions in cash, but make payment by credit in their 'Svar loan " accounts, and it is to these accounts
that the Treasury Department turns when it wishes to build up the
Treasurer's depleted balances with the Federal reserve banks. By
this method public moneys, instead of being tied up in subtreasuries,
as they were under the old system or being redeposited more or less
arbitrarily in national banks throughout the country, as was later the
practice, to meet ^estimated demands for currency, are now left in
the hands of the banks from which in the first instance the money
came, and thus continue to be available to supply the needs of business. Moreover, as the banks pay the Treasury Department 2
per cent interest on the average balance in their 'Svar l o a n " accounts,
the Government has an interest earning which under the independent
subtreasury system was lost.
Prior to the war the Treasurer kept balances with the national
banks, subtreasuries, and the Federal reserve banks, amounting on an
average to about $100,000,000. Under the present system of reduction of all depositaries to only the essential ones the Treasury, with a
total annual Government expenditure of about $3,600,000,000, is
able to operate with an average working balance of $36,000,00(3, or
1 per cent of its annual budget of expenditures. At times just before
a tax-payment date, when it is known that sufficient cash will be
coming into the Federal reserve banks within a few days, it would be
unwise to call cash which is earning interest from the special deposi-

118

REPORT ON THE FINANCES

taries to build up the account of the Treasurer of the.United States.
At these times all balances with the Federal reserve banks are deposited in one account with one bank and the excess of receipts or
expenditures of all the banks are cleared daily through this one
account until money commences coming in from tax receipts and the
strain is over. At such times the Treasurer's balances in the Federal
reserve banks will run down as low as five or six million dollars.
The foregoing outlines the more important of the fiscal agency
operations of the Federal reserve system. Its advantages over the
old subtreasuries, even in the short 12 years of its existence, are so
numerous t h a t there are scarcely any grounds for comparison.
However, the following facts are so outstanding that they deserve
special mention:
TheFederal reserve system (1) avoids accumulation of idle balances
of public moneys; (2) provides an elastic currency; (3) permits the
Government to earn interest'on balances of public money deposited
with special depositaries; (4) avoids disturbance of money and security markets by the balancing of current income and outgo> (5)
enables the Government to operate on a smaller working balance.
Depositaries of Government funds
Experience has demonstrated the fact that the orderly and economical transaction of the Government's fiscal business requires the
maintenance of deposits of Government funds with banks at all
points where the receipts or disbursements of the Government are
sufficiently large to justify such action. Accordingly, deposits of
Government funds are maintained with Federal reserve banks and
their branches, special depositaries, foreign depositaries, national-bank
depositaries, and depositaries in the insular possessions of the United
States. Comparative statements, showing the number of these
depositaries by classes and the Government deposits held by them on
the basis of Treasury statements, revised, at the end of the fiscal
years 1925 and 1926, are shown in the abstract of the report of the
division of deposits, on page 411 of this report.
Such deposits, in general, serve a threefold purpose: First,.through
the utilization of the facilities afforded by the Federal reserve system
and the banking institutions in this country and abroad, the essential
fiscal business of the Government is handled without unnecessary
delay; second, this system of deposits provides the best possible
means of safeguarding the public funds;.and third, prevents any
unnecessary financial disturbance during the quarterly income-tax'
payment periods and upon the sale of Government securities. Furthermore, the maintenance of fixed deposits with national-bank
depositaries and demand deposits with special depositaries for re-

SECRETARY OF THE TREASURY

119

plenishment of the working cash balance of the Treasury with the
Federal reserve banks at and when required enables the Treasury to
derive a considerable revenue from the interest paid upon such
deposits. In recent years the policy of the Treasury with respect to
Government deposits has been directed to the establishment of a system based strictly upon business principles. This policy has resulted
in very material economies by the elimination of all idle or unnecessary
Government deposits. During the fiscal year ended June 30, 1926,
the total of all Government deposits with banks was substantially
the same as in the preceding fiscal year, and, so long as the Government's business continues upon its present basis, it is not believed
that there can be any further material curtailment of such deposits.
The bulk of the Government's fiscal business is now transacted
through the Federal reserve banks and their branches. The Govern-ihent accounts therewith are very active, and the balances from
day to day are subject to broad fiuctuation. Supplementing the
Federal reserve banks and branches, the Treasury maintains deposits
with general national-bank depositaries and with depositaries in the
insular possessions of the United States and in foreign countries to
the number of approximately 325. Deposits to the credit of the
Treasurer of the United States with these depositaries are fixed in
direct proportion to the amount and character of the essential business
of the Government transacted, and the balances are adjusted from
time to time as conditions change. During the fiscal year ended
tJ.une 30, 1926, such deposits averaged about $7,000,000, and substantially the same average maintained during the preceding fiscal year.
With these depositaries and limited national-bank depositaries, other
Government officers, such as postmasters and officials of the United
States District Court, also maintain official checldng accounts to
facilitate local disbursements. Deposits of that character during the
past fiscal year averaged about $19,000,000, as against an average of
$21,500,000 during the fiscal year 1925. This reduction was largely
due to the transfer of a considerable number of postmasters' accounts
from national-bank depositaries to the books of the Treasurer of the
United States.
With special depositaries of public moneys is maintained the
greater part of the Government's deposits. Such deposits result
from the subscription of incorporated banks and trust companies,
which hold designation as special depositaries, to offerings of bonds.
Treasury notes, or Treasury certificates of indebtedness, for which
payment is made by crediting the Treasurer of the United States
in a war loan account on the books of the depositaries.- These
deposits are in the nature of a reserve fund and are withdrawn by
the Treasury through the Federal reserve banks as needed to meet

120

REPORT ON THE FINANCES

current expenditures in the interim between quarterly tax-payment
periods.
Adjustments affecting the various classes of depositaries are set
forth in the abstract of the report of the division of deposits on
pages 410 to 413 of this report.
The interest received on Government deposits, exclusive of deposits
with special depositaries of public moneys, during the fiscal year
ended June 30, 1926, totaled $517,313.83. The total amount from
this source received from June 1, 1913, when this requirement became
effective, to June 30, 1926, was $18,410,380.25. The interest received
on deposits with special depositaries during the fiscal year 1926 was
$3,922,066.76, and the total amount received from April 24, 1917, to
June 30, 1926, was $69,433,735.62. Statements showing the revenue
derived from interest on Government deposits by fiscal years and,
in the case of special depositaries, by Federal reserve districts, are
attached as Tables 14 and 15, page 488 of this report.
Customs
The statement in the last annual report that valuable results
would be accomplished with the use of forfeited automobiles in
connection with the enforcement of the customs laws, as provided
by the act of March 3, 1925, has been fully justified by the experience of the past fiscal year. This will appear from the fact that
with the operation of an average of 131 automobiles during the
year, 866 seizures were made, consisting of liquors valued at $195,156;
alcohol valued at $17,642; 499 automobiles valued at $201,284; 42
boats valued at $22,680, seized when landing their cargoes; and
other commodities valued at $16,321. In connection with these
seizures fines were imposed amounting to $22,495, bringing the to ta
value to the Government, exclusive of liquors, to $280,422.
These patrol automobiles covered 1,301,065 miles and consumed
134,287 gallons of gasoline during the year. The cost of acquiring
these machines was $5,552, and the total cost of maintenance and
operation was $82,471.
Notwithstanding the severe strain under which the patrol automobiles are operated, the department has been able to reduce the
average cost of maintenance and operation to $0.0634 per mile and
the average cost per annum per machine to $672. The average cost
on January 31, 1926, was $0.07 per mile and $1,007 per annum per
machine. The reduction in cost has been effected by establishing
repair shops at certain points where the number of automobiles in
operation" makes this economically possible; by the purchasing of
parts and accessories in quantity; and by the prompt replacement of
automobiles beyond economical repair and operation with more
serviceable machines, the unserviceable automobiles being sold as

SECRETARY OF THE TREASURY

121

surplus property in accordance with the provisions of section 3 of
the act of March 3, 1925.
The values of the seizures made by the patrols operating forfeited
automobiles and boats make their operation desirable even from the
standpoint of direct financial returns. Their greatest benefit, however, lies in the more strict enforcement of the law and the moral and
preventive effect exerted by such enforcement.
The efficiency of a patrol is measured not so much by the seizures
it makes as by the control it exercises over traffic and the influence
it thereby exerts for law observance. With the knowledge of almost
certain detection and capture, with the resultant penalties, the individual, who before the establishment of the patrols was willing to
take the risk of smuggling because of the chance of successful evasion
of duties on his merchandise, now reports at the customhouse, regularly enters his products, and pays the duties thereon.
This is demonstrated by the remarkable increase in customs receipts in the district of Maine and New Hampshire and the district
of St. Lawrence, in which the strongest border patrols were established and operated during the past fiscal year. In the former, the
amount of duties collected was increased from $755,798 in 1925 to
$1,283,786 in 1926, an increase of 69 per cent; and in the latter, from
$1,743,077 in 1925 to $2,745,736 in 1926, an increase of 57 per cent.
In the district of Maine and New Hampshire the patrolmen checked
up the foreign crops along the border and the capacity of the storage
warehouses, so that in a given locality any excessive introduction of
products could be immediately detected.
While not as decided as the percentage of increase in the northern
border districts, the increase in customs receipts for the entire service,
nevertheless, was such as to make the collections for the year an
outstanding feature, the amount being the highest in customs history.
Approximately $580,000,000 was collected in customs duties, exceeding by about $18,000,000 the previous high record of 1923. This
substantial increase contributed in no small way to the favorable
financial condition of the Treasury.
Thus does the tariff act of 1922, after approximately four years of
operation, continue to bear out the official forecasts that it would be
productive of considerable increased revenue. To such an extent has
this been true that repeated revisions of the official estimates have
had to be made to keep pace with the increased collections.
Contrary to the predictions made in some quarters, not only has
there been a great increase of revenue but also a corresponding
increase in our foreign trade. The value of imports for the year
increased by $642,485,446, having amounted to $3,824,128,375 for
the fiscal year 1925 and $4,466,613,821 for. the fiscal year 1926. The
atter figure, considering unit values, represents a larger quantity of

122,

REPORT ON THE FINANCES

merchandise than has ever been imported in any previous 12-month
period.
Nor has the tariff act operated to reduce wages. The statistics of
the Departinent of Labor show an increase in union wages of more
,than 20 per cent, as against an increase of only about 5 per cent in
the cost of living in the last four years.
Notwithstanding the large increase in collections during the year,
the total expense of collection was increased by only $288,762, the
total expenditures for the maintenance and operation of the service
for the fiscal year 1925 having been $16,675,461, and for the fiscal
year 1926, $16,964,223. The proportionate cost of collection per
dollar was reduced from $0.03 m 1925 to $0.0292 in 1926.
I t was possible to handle the greater volume of customs business
without an appreciable increase in the total expense of collection and
at a reduced cost per dollar collected by the practice of the most
rigid economy generally, and particularly by the holding open of
vacancies as they occurred in the service, and through the faithful
and efficient cooperation of all the employees of the service despite
the severe handicap of transacting an increased volume of business
with a decreased force.
During the year there has been an average of approximately 200
vacancies in the field service not filled at the end of each month.
This reduction in the working force was made necessary to bring the
expenses within the appropriation available; but it is felt it exceeded
the limits of sound economy, particularly in view of the decided
increase in receipts in districts where an adequate customs supervision was provided, as hereinbefore detailed in this report.
. The inadequate salaries paid in many positions in the service have
made it difficult to maintain the high standard of customs personnel
and have exerted a depressing influence on its morale. I t is generally
felt throughout the service that customs salaries in many instances
are not commensurate with the grave responsibilities involved, a
view which is shared by administrative officers. The dutiable value
and classification of merchandise are frequently predicated upon an
examination made by one man; and on his ability and judgment
depend the interests of both the Government and the importer, as
well as the domestic manufacturer of competitive merchandise.
Furthermore, a few hours' delay in the passing of merchandise or in
the clearance of a vessel may cause a loss of many thousands of
dollars. From the very necessity of the work, in many instances,
customs officers are so situated that they must exercise independent
judgment and act on their own responsibility. The importance,
therefore, of paying salaries sufficiently adequate to attract to the
service, and to retain in the service, employees of the highest ability
and integrity can not be overemphasized.

SECRETARY OF THE TREASURY

123

In view of this situation, the Bureau of Efficiency is cooperating
with the department in making a detailed study of all field positions
with a view to determining a fair rate of compensation for each
position based on the rates fixed for comparable positions in other
branches of the Government service.
Shipments from point to point in the United States through contiguous foreign territory are protected by United States customs seals.
At no time has the number of employees been sufficient to enable
customs officers to check and test all customs seals applied to ''in
transit" freight cars. This led to a serious situation as the mcentive
of high profits from the introduction of contraband liquors, and the
increasing difficulty of introducing such contraband through the usual
channels as the Government's enforcement activities expanded,
caused smugglers to attempt to make shipments into the United
States under "in transit" seals.
Changes in procedure were made and systems installed which made
possible a complete control and check of all seals issued, and enabled
the department to fix definitely the employee responsible for the
handling of any seal. However, the testing by customs officers of all
seals after their application to the cars was not established until a supplemental appropriation was secured.. This change facilitates the
detection and prevention of improper sealing which would allow a
later manipulation of the seals without showing evidences of tampering, and also makes it possible to ascertain that all seals were used
as reported.
The results obtained from the complete check and test of all customs seals fully justify the employment of the additional inspectors
necessary. At Buffalo during a period of 30 days, out of 8,500 cars
which departed from the yards at Black Rock, only 16 cars were
found improperly sealed. These were immediately resealed under
the supervision of the inspector. During the same period no reports
of improper sealing were received at Buffalo from the ports of destination, showing that all imperfectly sealed cars were detected before
leaving the yards. Out of, 11,000 cars entering Black Rock only 11
cars were found improperly sealed, and these were opened and the
contents examined and checked. At Detroit during a similar period
no reports were received of cars imperfectly sealed arriving at ports
where such cars reenter the United States, showing the effectiveness
of the thorough inspection at that port.
Good progress is being made in the installation of large, automatic
scales for weighing general merchandise in truck-load lots. Eight of
these scales have been installed at the port of New York and one each
is in course of installation at the ports of Philadelphia and Boston.
The saving in labor effected by the use of these scales has exceeded

124

REPORT ON T H E FINTANCES

expectations, and the department contemplates the installation of
additional scales of this type at other ports.
During the year the regulations governing the customs accounting
procedure were revised and amplified, particularly with reference to
the examination of accounts by comptrollers of customs, as provided
by section 523 of the tariff act of 1922. The provisions of this act,
under which the examination of accounts by comptrollers of customs
was authorized to be extended to all customs districts, resulted in
great benefit to the Government, making possible a thorough and
complete audit of customs transactions with a minimum of expense
and no delay or interference with the transaction of customs business
in the offices of the collectors. Documents also are always available
for official use in connection with protests, hearings before the United
States Customs Court, etc. During the year the Government collected the sum of $1,129,549.72 in increased receipts as a result of the
examinations made by comptrollers of customs.
The system works smoothly, enables the Secretary of the Treasury
to discharge his statutory duties in connection with the collection of the
customs revenues with promptness and, except as process of appeal
is provided by law, with finality, subject to no review by any other
officer of the Government which is as contemplated by various existing statutes. The procedure, it is generally conceded, is in accordance with existing law, which view is supported by an opinion of the
Attorney General. However, in order that some difficulties because
of certain claims by the Comptroller General as to his duties in connection with the review of customs transactions may be removed, a
bill has been introduced, which has the department's approval, and
is now pending before the Congress, so specifically prescribing the
procedure now followed as to eliminate all misunderstanding.
As the outcome of the investigation into the needs of the division
of customs referred to in my annual report for the fiscal year 1925, a
bill for the creation of a Customs Bureau was introduced in the
Congress, with the approval of the administration, which has passed
the House of Representatives and is now pending in the Senate.
Bureau of Internal Revenue
Collections of internal revenue from all sources during the fiscal
year 1926 amounted to $2,835,999,892.19, compared with $2,584,140,268.24 for the fiscal year 1925, an increase of $251,859,623.95.
Income tax collections for the year 1926 amounted to $1,974,104,141.33 ($1,094,979,734.17 corporation and $879,124,407.16 individual), compared with $1,761,659,049.51 for the year 1925 ($916,' 232,697.02 corporation and $845,426,352.49 individual).

125

SECRETARY OF THE TREASURY

Collections of miscellaneous taxes amounted to $861,895,750.86,
compared with $822,481,218.73 for the year 1925, an increase of
$39,414,532.13.
In the foregoing statement of receipts no deductions have been
made on account of refunds, which during the fiscal year 1926 were
made from the following appropriations:
Refunding taxes illegally collected 1924 and prior years
Refunding taxes illegally collected 1926 and prior years.
Refunding taxes illegally collected 1927 and prior years :>

$737, 093. 65
58, 944, 780. 59
114, 475, 022. 77

Total
174, 156, 897. 01
Less amount by which repayments exceeded disbursements in
connection with the appropriation refunding taxes illegally
collected 1925 and prior j^ears
36, 719. 27
Net total

174, 120, 177. 74

The above total includes interest allowed on claims under provisions of the revenue acts of 1921, 1924, and 1926.
The fiscal year 1926 was the most productive in the history of the
Income Tax Unit. In all of its activities marked advance was
made toward bringing the work to a current basis.
During the year 1926 the Income Tax Unit audited 2,155,933
income and excess profits tax returns, compared with 1,751,613 for
the previous fiscal year. The number of unaudited returns on hand
at the end of the fiscal year 1926 was 742,740, compared with 2,011,084
on hand at the end of the fiscal year 1925, a net reduction of 1,268,344.
The total number of cases by tax years, including those reopened
as a consequence of claims filed, and pending before the Income
Tax Unit at the close of the fiscal year, compared with the number
on hand at the close of the three previous fiscal years, was as follows:
R e t u r n year

1917
1918
1919
1920
1921
1922
1923-...
1924
1925
1926

On h a n d
J u n e 30,
1923

On hand
J u n e 30,
1924

28,916
84,323
103,198
458, 205
1,190,902
1,167,000

8,773
19,364
01,327
166,484
353,781
719,902
1,100,624

3,417
6,002
12,155
90,746
171,221
380,045
372, 200
975, 298

1,372
1,877
2,628
7,121
8,192
141,084
154, 329
170,786
253,402
1,949

1,309,864
1,268,770
1,489,170
1,620, 296
1,442, 228
1,319,830
1,019, 265
873,962
166,813
1,296

3, 032,544

2,430.. 055

2,011,084

742, 740

10,510,494

.
-

Totial

- -

On hand
J u n e 30,
1926

On h a n d
J u n e 30,
1926

Total
audited
to d a t e

NOTE.—The tabulation does not include returns in the 60-day file on which the unit has completed its
audit work.

Further evidence of the trend toward currency in the work is
shown by the reduction of the number of claims on hand June 30,
1926, compared with the number on hand at the close of the previous
fiscal year. The number of claims received during the fiscal year

126

REPORT ON THE FINANCES

1926 was 72,195, involving $1,008,290,704.43, compared with 65,613
involving $1,147,707,744.54 received during the fiscal year 1925. The
number of claims on hand June 30, 1926, was 29,234, compared with
73,441 on hand June 30, 1925, a net decrease of 44,207.
Indicative of the bureau's purpose to effect a just settlement as
promptly as possible, 53,848 certificates of overassessment were
scheduled during the year 1926 in cases in which the taxpayer did
not file claims. The object of this method is to relieve the taxpayer
of the necessity of filing and proving claims for taxes overpaid or
overassessed. Under the old procedure claims would have been
invited and filed before any certificates of overassessment could issue.
Reorganizations w^ere made within the Income Tax Unit during
the year, predicated upon three considerations:
{a) Avoidance of duplication of activities.
(&) Better coordination of effort and elimination of divided
responsibility, with corresponding improvement in the flow of
work from one, branch of the unit to another.
(c) Concentration of activities, with accompanying reduction of overhead cost of administration and personnel.
Certain divisions and sections were abolished, and the work combined with that of others. The number of sections in the personal
audit division was reduced from 6 to -3; in the corporation audit
division, from 6 to 4; in the consohdated returns audit division,
from 8 to 6; and in the engineering division, from 5 to 4.
The decentralization program—transference to the field of functions
performed in Washington prior to August, 1923—was amplified with
advantage to both the Government and taxpayer. Important
changes in the procedure and organization were made with a view to
placing in the jurisdiction of field offices the largest measure of duty
and responsibility consistent with uniform procedure. The result of
these chjanges is to simplify the handling of returns; to expedite the
final closing of the audit; and to effect valuable.economies, consequent to prompt settlement of income tax dift'erences in a manner
agreeable to the Government and taxpayer. Uhder the decentralization program, the taxpayer is more conveniently served. Usually he
is able to adjust his income-tax differences with the Government's
representative in the taxpayer's home district, thus avoiding an
expensive trip to Washington. Uncertainty as to whether a case
should be submitted to the field for verification also is eliminated.
Arrangements were made whereby returns in collectors' offices are
segregated by revenue agents into three classes, viz, returns accepted
as filed, returns requiring field investigation, and returns requiring
office audit only.
All fiduciary and partnership returns now are retained in the field
offices. This step was determined upon by reason of the fact that

SECRETARY OF THE TR-EASURY

127

the major portion of such returns report distributive income of individuals, whose returns ordinarily are retained in the offices of collectors and there audited. ,
In the discussion of disputed points between taxpayers and revenue
agents results have been most satisfactory. Agreements were
reached in more than 50 per cent of the cases in which change in tax
liability was recommended by revenue agents.
I t is believed the production program of the Income Tax Unit for
the fiscal year 1927 will result in bringing all work to a current basis
by June 30, 1927. This contemplates the final closing of returns
reporting income earned in 1924 and prior years.
Notwithstanding material reduction in personnel, the work of the
Miscellaneous Tax Unit is practically on a current basis. In consequence of the repeal of various taxes by the revenue act of 1926, the
miscellaneous division was organized March 1, 1926, taking over the
work of the former sales tax division and the administration of the
miscellaneous taxes from the tobacco and miscellaneous division.
From that date the unit has been composed of four divisions: Capital
stock tax division (for the completion of- work in connection with the
capital stock tax, repealed effective June 30, 1926), estate tax division,
miscellaneous division, and tobacco division.
Reports of the Accounts and Collections Unit show that of a total of
approximately 4,300,000 individual income tax returns filed, collectors
of internal revenue retained for audit approximately 3,670,000. Individual returns retained by collectors show a gross income of $25,000
or less. During the previous year collectors retained for audit
approximately 7,350,000 out of a total of approximately 7,556,000
individual returns filed. The revenue act of 1926 materially reduced
the number of individuals required to file returns. The audit of
returns in collectors' offices is progressing satisfactority. Indications
are that a large majority of returns retained by collectors for audit
will be completed well before the close of the calendar year 1926. .
The Accounts and Collections Unit and the Income Tax Unit,
working in cooperation, prepared instructions with reference to the
preliminary examination of returns in collectors' offices. All individual returns showing a gross income in excess of $25,000, as well as
all corporation returns filed during the 1926 filing period, were examined in collectors' offices for mathematical errors. The returns
then were reviewed by revenue agents, and a large number of cases
were definitely closed within a few weeks after the returns were filed.
As a result of this procedure, taxpayers were notified promptly of
corrections in the returns, and a substantial amount of revenue was
produced.
The field work was reorganized. During the year 106 division
offices and 30 stamp offices were discontinued, resulting in an annual

128

REPORT ON T H E FINANCES

saving of $204,469 in personnel cost and rental. At the close of the
fiscal 5^ear there were 65 collectorsv' offices, 43 division offices, and
48 stamp offices, 21 of which were operated in conjunction with division offices. As the division chiefs assigned to these 106 division
offices have been assigned to the productive work of a zone deputy
the department has every reason to expect increased revenue \vith
no additional cost to the Government.
The office of General Counsel for the Bureau of Internal Revenue
was created by the revenue act of 1926, taldng over the work of the
former office of the Solicitor of Internal Revenue. The general
counsel is appointed by the President, by and with the consent of
the Senate. Attorneys from the general counsel's office, representing the Commissioner of Internal Revenue, appeared in all cases
tried before the Board of Tax Appeals during the year.
The unsatisfactory conditions under which the bureau has been
forced to operate because of inadequate housing facihties continued
unchanged during the fiscal year 1926. However, under the act
passed by the Sixty-ninth Congress to enable the Secretary of the
Treasury to provide suitable accommodations in the District of Columbia for the executive departments, plans are being prepared by the
Supervising Architect, Treasury Department, for the construction
of an office building suitable for the housing of the personnel and
records of the bureau.
Checking accounts of Government corporations and agencies
Checking balances with the Treasurer of the United States have
been maintained during the year by the United States Shipping
Board Emergency Fleet Corporation, the United States Housing
Corporation, the War Finance Corporation, the several Federal
land banks, the Railroad Administration, and the United States
Sugar Equalization Board (Inc.) in the manner outlined in previous
annual reports of the Secretary of the Treasury.
There are shown in the following table the total amounts of checks
on these accounts and on similar accounts formerly maintained by
the United States Grain Corporation, the Russian Bureau of the
War Trade Board, and the United States Spruce Production
Corporation, paid by the Treasurer from the dates of the establishment of the account to October 31, 1926, and the balances on deposit
with the Treasurer on the latter date:

SECBETARY OF THE TKEASURY

Checks paid by the
Treasurer of the
United States

Emergency Fleet Corporation
United States Housing Corporation._
War Finance Corporation
United States Grain Corporation
Russian Bureau of the War Trade
Board
Federal land banks
Railroad Administration-_
United States Sugar Equalization
Board (Inc.)
United States Spruce Production
Corporation

$7,568, 554, 967. 65
169,987, 733. 33
3, 937, 749,323. 06
933,967,229.41

Period

1 Closed Feb. 2, 1922.
2 Closed Sept. 28, 1920.

Balances with
the Treasurer of the
United States
Oct. 31, 1926

Feb. 28, 1918-Oct. 31, 1926-- $30,563,173.03
July 27, 1918-Oct. 31, 1926...
692, 012. 65
June 2, 1918-Oct. 31, 1926-.. 36,815, 224. 50
Oct. 31, 1918-Feb. 2, 1922..l-l
0)

13,333,773.99 Nov. 30, 1918-Sept. 28, 1920..
36,241,165. 32 June 2, 1920-Oct. 31, 1926....
1,860,731,457.10 Apr. 13, 1918-Oct. 31, 1926.-.
15, 437, 256. 78 Apr. 7, 1922-July 16, 1926....
6, 035, 275.15

Dec. 20, 1921-Apr. 14, 1924...

(2)

44, 687,439. 37
(3)

3 Closed July 15, 1926.
• Closed Apr. 14, 1924.

The plans worked out by the Treasury for handling these accounts
have operated to the entire satisfaction of all concerned. The
results have been to assure absolute security to the funds and to save
withdrawals of large amounts from the Treasury until actually needed
to pay obligations of the Government, thus reducing the amount of
Government borrowings, with consequent savings in interest charges.
War Finance Corporation
The War Finance Corporation has made steady progress in the
liquidation of its affairs. The corporation ceased active operations
, on December 31, 1924, and since that date the only advances that
have been made are those designated as ^^expense advances"—that
is, advances necessary for the care and preservation of the corporation's security in connection with the orderly liquidation of its
assets. The last annual report indicated the status of the corporation's business on October 15, 1925. From that date until
October 15, 1926, the expense advances made by the corporation
aggregated $344,000. During the same period the repayments on
account of the corporation's agricultural and livestock loans, including
$498,000 on account of expense advances, totaled $14,536,000. Of
this amount, $6,895,000 was repaid by banking institutions, $7,209,000
by livestock loan companies, and $432,000 by cooperative marketing
associations, while $230,000 including $5,000 on account of expense
advances was repaid on the corporation's War loans, bringing the total
repayments for the year to $14,766,000. Of the total of $690,041,000
advanced by the corporation for all purposes since its creation in
May, 1918, $663,310,000 has been repaid, and the amount outstanding on October 15, 1926, was $26,111,000, of which $16,745^000
represented war loans and $9,366,000 agricultural and livestock loans
(including expense advances of $31,000).

130

REPORT ON THE FINANCES

%
'
• , '
' With the decline in the volume of outstanding loans, the corporation's
personnel and operating expenses have been steadily curtailed both
in Washington and in the field, and further reductions are being made
as rapidly as consistent with the proper handling of the corporation's
business and the protection of its interests.
Railroads
The total principal amount of railroad obligations owned by the
Government on June 30, 1926, which were acquired under the Federal
control and transportation acts, as amended, was $299,112,850.64,
as against $316,300,324.29 on June 30, 1925, a reduction of
$17,187,473.65. This reduction applies to obligations acquired
under Federal control act and transportation act, 1920, as'follows:
.Equipment trust notes
.._
Section 207, transportation act
Section 210, transportation act
Total

$950, 600. 00
5, 919, 609. 00
10, 317, 264. 65

-_
.

17, 187,473. 65

The chief reduction in equipment trust notes was due to the sale
of the notes of the Atlanta, Birmingham & Atlantic Railway Co.
in the aggregate principal amount of $917,000 at par and accrued
interest to date of sale. The Director General of Railroads sold
at par and interest obligations acquired under section 207 aggregating
$5,913,000 principal amount. The payments on account of loans
under section 210 amounted to $10,317,264.65, of which $2,678,764.65 represented payments on account of maturities and $7,638,500
payments before maturity due to refinancing. For a detailed statement of the holdings of railroad obligations on June 30, 1926, see
Table 53, page 576 of this report.
The total receipts on the basis of the daily Treasury statements
from railroad securities during the fiscal year were $36,735,326.87, of
which $19,415,364.65 was on account of principal and $17,319,962.22
on account of interest. The total net expenditures during the fiscal
year were $2,725,800.85, leaving net cash receipts for the fiscal year
of $34,009,526.02.
Under the transportation act net payments made during the fiscal
year for reimbursements^ of deficits under section 204 were
$74,253.27, and net guaranty payments under section 209 were
$3,275,222.11, while no new loans were made under section 210.
The total payments of $2,495,948.41 by the Railroad Administration
during the fiscal year were more than offset by receipts of $3,119,622.94, leaving excess receipts on account of Federal control of
$623,674.53.
During the period from July 1 to October 31, 1926, the proceeds
of railroad securities received by the Government amounted to

SECRETARY OF. THE. TREASURY

131

$26,223,969.35, while net expenditures were $161,267.68, an excess of
receipts for the period amounting to $26,062,701.67. Of the total receipts, $18,562,214.16 was on account of principal and $7,661,755.19
on account of interest.
The payments under sections 204, 209, and 210 of the transportation act, 1920, as amended, are niade by the Treasury in accordance
with certificates issued by the Interstate Commerce Commission.
The payments are summarized below.
Section 204.—This section provides for reimbursement of deficits
of the so-called ^'short-line" railroads during Federal control. In
making payments thereunder the Treasury is required, upon request
of the President, to deduct from the amount certified to be due the
carrier the amount certified to be due from the carrier to the President as operator of the transportation systems under Federal control
and payable to his agent, the Director General of Railroads. From
November 1, 1925, to October 31, 1926, $91,655.67 was paid under
this section, $72,907.89 to the carriers directly and $18,747.78 to the
Director General. Total payments under this section to October 31,
1926, amounted to $10,252,394.68, of which $8,333,876.77 was paid
to the carriers directly and $1,918,517.91 to the Director General.
(See Table 56, page 581.)
The indebtedness of $5,361.54 of the Texas State Railroad arising
out of an overpayment under this section referred to in the Annual
Report of the Secretary of the Treasury for the fiscal year ended
June 30, 1924, has not been paid.
Section 209.—This section provides for the guaranty of net railway
operating income during the six months' period immediately following
the termination of Federal control on March 1, 1920.
From November 1, 1925, to October 31, 1926, there was paid to
carriers under the provisions of this section $1,047,390.69, making
total payments up to October 31, 1926, of $532,909,298.21.
From November 1, 1925, to October 31, 1926, carriers have paid
into the Treasury on account of excess earnings during the guaranty
period pursuant to the provisions of paragraph (d) of this section, the
sum of $562.52, making total receipts of $446,637.8,1.
In the last annual report it was stated that the Interstate Railroad Co. was indebted to the United States in the amount of
$194,882.31 on account of excess earnings during the guaranty period.
The carrier refused payment of the claim on the ground that it did
not accept the provisions of section 209 of the transportation act, and
was not bound thereby. The collection of the amount due the
United States as certified by the Interstate Commerce Commission
was turned over to the Solicitor of the Treasury. The solicitor
brought suit through the Uriited States attorney for the western
district of Virginia. On August 3, 1926, the court rendered a de-

132

REPORT ON THE FINANCES

cision in favor of the defendant. The Government will appeal from
the decision of the district court.
The following is, a list of carriers indebted to the United States as
of October 31, 1926, by reason of overpayments under the provisions
of paragraphs (g) and (i^) of this section:
Alabama, Tennessee & Northern Railroad Corp
Buffalo & Susquehanna R. R. Corporation
Chicago, Indianapolis & Louisville Ry. Co
Fort Dodge, Des Moines & Southern R. R. Co
Great Northern Ry. Co. and subsidiaries
Minneapolis & St. Louis R. R. Co., receiver
Missouri & North Arkansas R. R. Co., receiver
Northern Pacific Ry. Co. and subsidiaries
Waterloo, Cedar FaUs & Northern Ry. Co
Total

$32, 906. 93
21, 749. 31
198, 484. 95
69, 065. 55
1, 322, 053. 27
292, 022. 23
41, 375. 46
1, 269, 905. 20
6, 072. 49
-

3,253,635.39

In the last annual report attention was called to the rehearings
pending before the Interstate Commerce Commission of the claims
against the Chicago, Indianapolis & Louisville Railway Co., Great
Northern Railway Co. and subsidiaries, and the Northern Pacific
Railway Co. and subsidiaries. The commission has concluded these
hearings and transmitted reports to the Treasury reaJBSrming, with
some modifications, its original certificates. The carriers have refused payment of the amounts certified to be due the United States,
taking the position that there is no legal basis for the action of the
commission. The questions involved are to be litigated.
The Buffalo & Susquehanna Railroad Corporation has refused to
accept the findings of the Interstate Commerce Commission and has
requested a rehearing on its claim which is pending before the commission. The Fort Dodge, Des Moines & Southern Railroad Co. has
initiated legal proceedings to compel the Interstate Commerce Commission to review its decision. A claim for the amount due from the
Minneapolis & St. Louis Railroad Co. has been filed with the receiver.
The claim against the receiver of the Missouri & North Arkansas
Railroad Co. has not been paid. The Missouri & North Arkansas
Railway Co., the successor corporation, has denied liability. The
Treasury is aw^aiting an opinion from the Department of Justice
as to the validity of the claim and the action, if any, to be taken to
collect it.
A detailed statement showing partial and final payments to carriers and amounts received from carriers under this section from
November 1, 1925, to October 31, 1926, is attached as Table 57,
page 581.
Section 210.—This section established a revolving fund of $300,000,000 to be used for loans to railroads authorized by the Interstate
Commerce Commission under the conditions set forth and also for

133

SECRETARY OF THE TREASURY

paying judgments, decrees, and awards rendered against the Director
General of Railroads.
No loans were made to railroads under this section of the act from
November 1, 1925, to October 31^ 1926. The total loans made aggregated $350,600,667, divided among 84 railroads. Repayments on
account of the principal of these loans from November 1, 1925, to October 31, 1926, aggregated $11,327,764.65, of which $10,064,464.65
represented payments on account of principal in advance of maturity.
Total repayments of principal up to Ofctober 31, 1926, amounted to
$183,235,357.36. Payments received on account of interest on these
loans from November 1, 1925, to October 31, 1926, aggregated
$10,365,423.64, total receipts on account of interest amounting to
$65,837,787.96.
Advances made by the Treasury to the Director General of Railroads from November 1, 1925, to October 31, 1926, for the purposes
authorized in the statute aggregated $2,000,000, making the net
total of such advances to October 31, 1926, $32,363,602.68.
The balance to the credit of the revolving fund at the close of
business on October 31, 1926, was $166,108,875.64.
The following is a list, as of October 31, 1926, of the carriers in
default in respect to loans made under this section:
Name of carrier
Gainesville & Northwestern R. R. Co
.
Kansas City, Mexico & Orient R. R. Co. (receiver).
Minneapolis & St. Louis R. R. Co
Missouri & North Arkansas Ry. Oo
Salt Lake & Utah R. R.- Co.Virginia Blue Ridge Ry. Co
Virginia Southern R. R. Co
Waterloo, Cedar Falls & Northern Ry. Co
Wichita Northwestern Ry. Co
Total.

Principal

Interest
$15,750. 00

Total

376, 674. 33
237, 342. 46
492, 453, 54
104. 778, 55
4, 560.00
5,700. 00
377, 268. 24
57, 262. 60

$15,750. 00
!, 876, 674. 33
237, 342. 46
492,453. 54
136,178.55
4, 660. 00
5, 700. 00
377, 268. 24
57, 262. 50

2," 531,400 1, 671, 689. 62

4, 203,089. 62

2, 500,000
31,400

A statement showing the amount of loans outstanding on October
31, 1925 and 1926; is attached as Table 58, page 582.
Director General of Railroads.—Hon. James C. Davis, Director
General of Railroads, resigned on December 31, 1925, his resignation becoming eff'ective at midnight. Hon. Andrew W. Mellon,
Secretary of the Treasury, was appointed director general to succeed
Judge Davis. Proclamations of the President appointing the Secretary of the Treasury Director General of Railroads and designating his successor in office as the agent provided for in section 206
of the transportation act, 1920, appear as Exhibits 42 and 43, pages
264 and 265 of this report. A summary of the liquidation of the
Government's liability growing out of Federal control, released to the
press at the time of the resignation of Judge Davis, appears as Exhibit 41, page 263. A report of the Director'General of Railroads

134

REPORT ON T H E FINANCES

for the period
transmitted to
on January 4,
Document No.

from January 1, 1925, to November 30, 1925, was
the Congress of the United States by the President
1926. I t was printed as House of Representatives
182, Sixty-ninth Congress, first session.

Securities owned by the United States Government
The aggregate amount of securities owned by the Government on
June 30, 1926, compiled from latest reports received, was $11,037,161,411.66, as against $11,106,*469,990.90 on June 30, 1925, a decrease
of $69,308,579.24. A summary comparison of the holdings at the
end of the last two fiscal years is as follows:
June 30, 1926
Foreign obligations:
Funded under debt settlements _
Another
...J

„

Capital stock of war emergency corporations
Railroad obligations
Capital stock of Panama R. R - .
Capital stock of Inland Waterways Corporation
Federal land bank securities:
Capital stock of Federal land banks
Federal farm loan bonds
:
Capital stock of Federal intermediate credit banks .
Miscellaneous securities received by War and Navy Departments and United States Shipping Board

June 30,1926

$4,725,490,865.00
5,807,062,185. 73

$4,743,442,883.00
5,812,317,438. 93

10,532,553,060.73
53,167,076.17
299,112,850. 64
7,000,000.00
1,500,000.00

10,555,760,321.93
55,863,326.35
316,300,324. 29
7,000,000.00
1, 500,000.00

1,180,440.00
60,495,000.00
24,000,000.00

1,613,045.00
88,885,000.00
24,000,000.00

58,152,994.12

65,647,973.33

11,037,161,411.66

11,106,469,990.90

The principal decreases, in round figures, were $23,000,000 in
foreign obligations, $17,000,000 in railroad obligations, and $28,000,000 in Federal farm loan bonds repurchased by the Federal land
banks. The facts in regard to changes in the holdings of foreign
and railroad obligations are treated elsewhere in this report under
separate captions. Since the close of the fiscal year and to October
31, 1926, the Federal land banks have repurchased $55,495,000 of
the Treasury's holdings on June 30, 1926/ I t is understood that
the remainder of these securities will be repurchased by June 30,
1927. Treasury purchases of these securities aggregating $195,925,000, principal amount, were made under authority of the act
approved January 18, 1918, as extended by joint resolution approved
May 26, 1920, which appropriated $200,000,000 for that purpose
and required the resale to the Federal land banks at par and accrued
interest. The respective receipts on account of interest and payments for principal have been covered into the Treasury as miscellaneous receipts.
A detailed statement of the securities held June 30, 1926, will be
found as Table 53 on page 576 of this report.

SECRETARY OF THE TREASURY

135

Surety bonds
Fifty-four insurance corporations now hold certificates of authority
from the Secretary of the Treasury to do a surety business with the
United States, 10 of which have been authorized during the past
year. In addition to these authorized companies, about 30 other
companies report to the department for reinsurance purposes.
The certificate of one company has been revoked and the certificate and rating of another company has been suspended.
There is keen competition among insurance companies for the
Government's bonding business, as will be noted by the additional
companies authorized each year. Since 1920 the number has more
than doubled and the resources of authorized companies have
materially increased.
The acceptance of insurance corporations as surety on bonds in
favor of the United States was originally authorized by the act of
Congress of August 13, 1894. This law was amended by the act of
March 23, 1910, to the extent that jurisdiction over these insurance
corporations was transferred from the Attorney General to the Secretary of the Treasury. At that time 25 companies were authorized
to do a Government surety business. The annual reports of these
companies showed .combined premium income of $31,759,637.71,
admitted assets of $60,460,402.71, liabilities of $27,511,113.46, and
combined capital and surplus of $32,949,289.25.
During the 10-year period, 1910 to 1920, the number of companies
competing for the Government's bonding business averaged about
25, b u t beginning with the year 1920 there has been a notable increase both in the number of such companies and in their resources,
as will be noted in the following table:
Companies

Year
1910-..
1920
1921
1922 .
1923...:
1924
1925

Increase in 6 years

^
.

25
34
32
37
44
43
•47

Admitted assets

LiabUities

Capital and
surplus

$60, 460,402. 71
270,299,865.08
299, 353,927. 88
382,148, 311. 57
429, 516, 394. 62
480, 917, 244. 89
644, 528, 471. 28

$27,511,113. 46
188, 465, 595. 74
208,641,351.53
259,289, 577. 78
289, 724, 507. 58
328, 813,168. 84
377,991,586. 86

$32,949, 289. 26
81,834, 269. 34
90, 712, 576. 35
122,858, 733. 79
139, 791,886.94
152,104,076.05
166, 636, 884. 42

274, 228, 606. 20

189, 625,991.12

84, 702,615.08

The above does not include the seven additional companies authorized during 1926, nor the 30 companies which report to the Treasury
for reinsurance purposes only.
The above figures are especially interesting because of the notable
increase in resources and reserves over corresponding figures reported
in 1910 and 1920. All compainies reporting to the Treasury for the
year 1910 showed combined premium income of about $32,000,000,

136

• REPORT ON T H E FINANCES

while in 1925 it amounted to $379,000,000. Under the provisions of
existing law, the Secretary of the Treasury must value the assets of
all companies reporting to the department and pass upon the sufficiency of the reserves to meet their liabilities. This valuation is
made largely from a desk audit, since each company is required by
law to report its financial status to the department four times a year.
Whenever these reports fail, however, to satisfy the department as
to the standing of a company, the Treasury makes an examination
of the company direct from its home office records.
In the case of new companies, the department has found it advisable to make a direct examination of such companies before issuing
the initial authority in any case. This brings the Treasury in close
touch with both the management of the company and its organization, so that first-hand information is available before the company
writes any business for the United States Government. The value of
this procedure has been satisfactorily demonstrated by the fact that
during the past few years a number of companies to which the
Treasury declined the issuance of authority have since gone into
receivership or liquidation because of insolvency. I t is believed that
in this particular connection the department renders a most valuable
service to the entire Federal Government and its bonded principals,
since the discontinuance of a company places upon the Government.
the additional expense involved in taking out superseding bonds?
necessitates considerable expenditure in the preparation and prosecution of Government claims against the insolvent estate, and subjects the principal to the necessity of paying for a new bond before
he can obtain reimbursement for any unearned premium paid on the
first bond. Such a condition is avoided in most cases if the Treasury
is provided with first-hand information before the company writes
any bonds for the Government.
The Treasury has, however, experienced some difficulty in satis-^
factorily discharging the responsibilities imposed upon the Secretary
under the provisions of existing law. The original law was approved
in 1894, at about the time that the business of corporate suretyship
and fidelity insurance had its inception in the United States on a
national scale. Only a few companies then actively transacted the
business, while during the 32 years intervening about one hundred
companies have entered the field, many of,,which have been forced to
retire. The statutory regulations on this subject, both Federal and
State, were so meager as to meet only the experimental conditions
and requirements as they then existed. But the demand for this
type of protection has resulted in the formation of so many competing
companies and the standards of requirements for their operations
have so changed as to make it difficult to obtain adequate security ^
under the provisions of the present law, which exists in its original

SECRETARY OF THE TREASURY

137

form with the single exception of transferring its enforcement from
the Attorney General to the Secretary of the Treasury. The capital
stock requirement is a striking illustration of the^inadequacies of the
existing law. Any company with a capital of only $250,000, without
any surplus, may now request authority to do business with the
United States. There should be a minimum capital of $500,000, and
an initial surplus of not less than $250,000.
I t is recommended that this law be amended so as to meet more
adequately the standards of requirements as they exist to-day, including a provision for ascertaining the amount of obligations in favor of
the United States carried by each of these companies. Under present
arrangement it would be most difficult, if not impossible, to determine the extent of such obligations or the value of all claims existing
under them. Complete information of this character in a central
office would be most helpful whenever a company gets into financial
difficulty and it becomes necessary for the Secretary to revoke its
certificate of authority.
When jurisdiction over these insurance corporations was transferred to the Treasury in 1910 it was estimated that about 10,000
bonds were taken by the Government annually, not including bonds
involved in the operation of the postal service and those taken by the
Federal courts. I t is now estimated that between 50,000 and 100,000
bonds are being executed annually by these insurance corporations
for the Government, exclusive of the Post Office Department and
the Federal courts. These bonds range in penalty from $100 to
several millions each. Consequently it is important t h a t the Government should know the amount of potential liability which each
company carries for the United States. Such information would be
especially helpful in judging the status of a company whose financial
condition was considered unfavorable.
MISCELLANEOUS FUNCTIONS

Activities for prohibition law enforcement
Early in 1925 smuggling had become so extensively developed as a
source of illicit liquor traffic that the Treasury decided upon a complete reorganization, placing under the direct charge of one Assistant
Secretary the three Treasury activities charged with its prevention.
On April 1, the immediate supervision of the Customs Service,
Coast Guard, and the Prohibition Unit was placed under one
Assistant Secretary, with a view to such reorganization and coordination of. these services as would result in more rigid enforcement
of the prohibition law.
The results of this reorganization have been very gratifying.
Smuggling, as stated, had developed into tremendous proportions,
11439—FI 1926

138

REPORT ON THE FINANCES

hundreds of ships in international trade being employed in operations
of this nature. Congress had made adequate appropriations, and the
Coast Guard 'had^ been rapidly expanded to meet the problem.
Treaties had been written with maritime nations, extending the
Government's jurisdiction over vessels to withui an hour's sailing
distance from shore. A treaty had been negotiated with Canada,
designed to stop smuggling along the northern border; and with
Mexico in May, 1925, and Cuba in February, 1926, both for the same
purpose.
By the summer of 1925 the Coast Guard was sufficiently developed
in materiel and personnel to undertake the elimination of the socalled *'rum fleet," lying off our eastern coast from Atlantic City to
Boston. This required arduous work, continued vigilance having
to be maintained at sea for extended periods. This campaign proved
successful. The fleet being dispersed,, and smuggling by sea along
this front being made so difficult, expensive and dangerous, very few
ships, if any, are now engaged in this practice off these coasts.
The illicit liquor traffic then turned to other methods and other
ports of the coast to continue their smuggling practices. American
coastwise shipping was employed by the smuggler, the illicit cargoes
being loaded from rum ships far out at sea and brought into port
concealed by legal cargoes. Steps have been taken to combat this
method.
Recognizing the fact that these extensive smuggling activities
required large capital and thorough organization, the Treasury
established, in September, 1925, a headquarters force calculated to
break up these organizations by obtaining information and evidence
of their operations. The detailed evidence acquired by the headquarters force clearly indicated that these operations were based
largely upon illegal practices involving international shipping.
Since it was through British colonial ports that these activities could
best be carried on, it naturally followed that most of the ships engaged flew the British flag. I t was believed, consequently, that if the
actual conditions as to illegal shipping could be brought to the attention of British authorities, the latter would be prompt to furnish
the necessary remedy. Under the direction of our State Department,
a conference was held ui London, attended by representatives respectively of Great Britain and the United States. An agreement
w^as drawn under which facilities were made available for the exchange of such' information and evidence as would render a continuation of these illegal practices difficulty if not impossible.
^
Prohibition Unit reorganization and policy.—Prior to April, 1925,
the administration of the prohibition law, through the Prohibition
Unit of the Bureau of Internal Revenue, was largely centralized ^ in
Washington. As a consequence of this centralization the adminis-

SECEETAEY OF THE TREASUEY

139

tration of the law was too far removed from the communities affected.
Moreover, there was need for better coordination between the field
forces of the Department of Justice and those of the Treasury. I t
was recognized that this coordination was a prerequisite to successful
law enforcement, inasmuch as the Treasury representatives were
responsible only for the arrest of the offenders, while the Department
of Justice was responsible for prosecutions and penalties. This latter
consideration determined the plan of field organization adopted in
decentralizing the administrative force. The Federal judicial district
was made the basic geographic unit for the reorganization of the field
force.. These Federal judicial districts were grouped into prohibition
administrative districts, each supervised by an administrator. On
this basis, the territorial United States was divided into 22 prohibition
administrative districts, while Hawaii and Porto Rico were each
designated a district, making 24 districts in all. In each district the
administrator was given full authority and charged with full responsibility for the enforcement of the law.
I n August, 1925, the prospective administrators were assembled
in Washington for instructions in the matter of administrative policy.
The administrators were appointed as of September 1, 1925, and were
allowed a preliminary period during which to effect their respective
organizations. This change in the administration of the law, while
radical in some respects, was generally recognized by business and
the public as offering many advantages over the previous method of
administration.
I t has long been realized that the national prohibition law will
be successfully enforced only when the law and its enforcement
shall have met with general approval. The underlying thought,
therefore, in instructions issued to the field forces, and in the formulation of all regulations, is that the law must be so administered as to
win popular approval. The field forces are held to the strictest
personal observance of the prohibition law, and are enjoined to use
only legal methods in their undertakings. The improvement in the
type of personnel employed, and in the conduct of office of this
personnel, is gradually becoming apparent. The Government's
witnesses in court are meeting with better cooperation on the part
both of court officers and of juries, and our representatives are receiving greater consideration from the public, when they are seen to be
dignified officers who conduct themselves seriously, courteously, and
lawfully in the prosecution of their tasks.
In the matter of policy, other than that mentioned above, the
Treasury felt with respect to local law enforcement that too much
responsibility had been placed upon the Federal Government. Even
in those States which alread}^ had satisfactory State laws, and in

140

REPORT ON THE FINANCES

which local machinery for enforcement had been provided, citizens
and officials were looking to the Federal forces for the performance
of police duties which were purely local. This misinterpretation of
jurisdiction, while perhaps natural and for. that reason excusable,
proved a serious hindrance to the successful enforcement of the
national prohibition law. Were the Federal Government to accept
this responsibility, it must organize large police forces in the various
communities, and, in addition, must provide adequate judicial
machinery for the disposition of the local cases—an interference by
the Federal Government with local government which could not be
other than obnoxious to every right-thinking citizen.
In many jurisdictions this condition had already resulted in flooding
the offices of Federal district attorneys, as well as the dockets of the
Federal courts, with thousands of untried cases.' In order to remedy
this situation it was decided that the Federal Government should
accept the responsibility for the enforcement of such provisions of
the law as the eighteenth amendment by clear intent placed under
Federal jurisdiction. The principal duty which the Federal Government should assume is the prevention of commercialized traffic in
liquor. I t is the function of the Federal Government to eliminate
the sources of supply for the liquor traffic; to prevent the manufacture, transportation, importation, and sale, in commercial quantities,
of intoxicating beverages. I t should be- the duty of the Federal forces
to point out to State, county, and municipal officers the necessity for
the prompt reassumption of the responsibilities of self-government,
as well as the urgent need for prompt local enforcement of the law.
This policy has been in force for nearly a year, and gratifying results
are beginning to be attained. The Federal forces have not, however,
wholly withdrawn from local enforcement, and continue to engage
to some extent locally in those communities where local officers have
been either slow or reluctant to take action. Generally speaking,
however, communities are recognizing the necessity both of replacing
local officers who are unfaithful to their trust and of exacting from all
other officers a more vigorous performance of their duties.
Prohibition field officers, meanwhile, are more actively cooperating
with the United States attorneys in the enforcement of the law.
Administrators have been instructed to assist the district attorneys
in the prompt clearance of court dockets.
Following the Government's vigorous attack on smuggling, the
liquor traffickers turned to the next available source—industrial
alcohol. This field, in fact, had previously been fairly well developed
by reason of the fact that the smuggled supply of liquor was insufficient to meet the demand. Imitation liquors made from alcohol,
moreover, were much cheaper than the genuine product, and provided
greater profit to the trafficker. The first important action to meet the

SECRETARY OF THE TREASURY

141

alcohol situation w^as taken in August, 1925, when the granting of
permits, together with certain other functions relating to the permissive provisions of the law, was transferred from the Bureau of Internal
Revenue to the Prohibition Unit. Many serious and delicate problems arose from this phase of enforcement. Thousands of permits
had been granted to so-called legitimate business concerns. While
the Treasury reahzed that the protection and encouragement of
legitimate industry should have first consideration, it appeared, on the
other hand, almost impossible to differentiate in ever3'' case between
the legitimate and the illegitimate. New regula|ions have been
formulated, and others are being prepared, with a view to meeting
these problems. Hundreds of permittees have been cited for hearings
and their permits revoked. In June, 1926, Congress appropriated
additional funds, enabling the department to establish a squad of
alcohol speciahsts, 75 in number, whose services have already increased the effectiveness of the administrators' efforts to disclose
illegitimate industrial alcohol permittees. The Treasury confidently
feels that this source of supply will within a reasonable time be practically eliminated.
The liquor traffic is already feeling the effect of the Government's
efforts to ehminate the diversion of alcohol for beverage purposes.
As this source of supply is removed, the trafficker is turning to the
manufacture of alcohol in illegitimate, unregistered distilleries. This
practice has been steadily developing and will unless prevented
continue to develop proportionately as other sources of supply disappear. This liquor is commonly known as ''moonshine." Wherever
distilleries are of such size as to be substantial sources of supply, their
existence will soon become known to the Federal agents and they
will be confiscated. The problem then remaining will be the small
''moonshine" stills scattered over the country, manufacturing smaller
quantities for local consumption. This development should be
anticipated throughout the country. I t must be handled by local
law officers. I t is hoped that its elimination will hasten the final
stage of law enforcement. The department has already taken steps
to forewarn the communities of this growing practice in order that
law-respecting citizens may work toward the election or appointment of law-enforcement officers who will faithfully enforce the prohibition laws locally.
Reference has hereinbefore been made to the coordination of the
operations of the Customs, Coast Guard, and Prohibition U n i t .
Instructions early were issued establishing the Coast Guard as the
first line of defense against smuggling, making that service responsible
for the interception of liquor boats before they reached shore. The
Customs' forces constitute the second line of defense, and are responsible for intercepting the liquor that actually reaches the shore. The

142

REPORT ON THE FINANCES

forces of the Prohibition Unit constitute the third line, and are responsible for the enforcement of the law behind the Customs' line. I t was
early recognized that this effort to stop smuggling with, as it were,
bare hands—actually trying to catch each boat as it arrived at any
unknown point along thousands of miles of coast line-—was almost a
physical impossibility and demanded an unreasonable expenditure of
energy. The Treasury therefore applied its efforts toward stopping
this traffic, as above outlined, more nearly at its source, namely, at
the ports of embarkation. I t is this last effort which should prove
successful in breaking up smuggling, and the direction of this work is
being carried on in close cooperation with the State Department by a
group established in the Prohibition Unit and designated the division
of foreign control. This division, as a result of the effective assistance
of the State Department, is reaching into many foreign ports and
intercepting ships before they start upon their unlawful voyages.
Meanwhile, however, the additional border patrolmen authorized by
Congress in June, 1926, have been appointed and have not only aided
materially in the capture of smugglers and smuggled cargoes on the
land borders, but are rendering valuable service in the prevention of
coastwise smuggling along the water borders.
Control of the manufacture and distribution of beer has been
among the most important accomplishments of the Prohibition
Unit. While many cereal beverage manufacturers are endeavoring to comply with the law, an equally large number of these manufacturers have proved the most determined group of law violators
with whom the Treasury has had to contend. I t has been exceedingly
difficult, in many cases, to gain access to the plants and obtain satisfactory evidence of illegal operations. Congress, at the request of
the Treasury, placed an internal revenue tax upon the manufacture
of cereal beverages. This has proved helpful. Congress also
authorized, in June, 1926, an appropriation for a Federal squad of
75 expert brewery inspectors. As in the case of alcohol,- this squad
is proving an effective aid to the administrators in preventing the
manufacture and distribution of beer.
Through the efforts of the division of chemical research of the
Prohibition Unit, the diversion of spirits through the illegitimate
use of permits to manufacture tonics, etc., has been materially decreased. In industrial alcohol, many formulas have been discarded
that were being used for the purpose of diversion to beverages.
New formulas have been devised after exhaustive research and experiment, with a view both to assisting legitimate manufacture
and to rendering more difficult the diversion to beverage purposes.
The effort primarily has been to discover a denaturant, nonpoisonous, that either by taste or smell would be made known to the purchaser for beverage purposes, so that he would have due warning
that the product contained industrial alcohol.

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The great source of liquor traffic in wine was the diversion, in the
larger cities, of wine issued for sacramental use. After extended
study of the many difficulties in the matter of supplying wine for
sacramental use by persons of the Jewish faith, and after consultation with several of the older and more prominent rabbis, a new
regulation was formulated as a result of which the amount of sacramental wine issued has been reduced more than 50 per cent, and
which when in complete operation will create further reduction and
ultimately eliminate this source of supply.
The Treasury has emphasized to its field forces the valuable results to be attained by adopting the so-called "padlock" procedure ,*n
connection with local law enforcement work performed by the Federal Government. In communities where liquor is sold in open violation of the law—where, in effect, the saloon is being reestablished—
there can be no question that these places are a public nuisance
and a menace to the community. The law provides a simple remedy
for the "abatement of this nuisance." Effort is being made through
the service to establish and use this effective remedy against the
saloon and other similar illegal places of business.
Legislation.—While Congress has enacted legislation aimed to
strengthen the Coast Guard in the matter of both personnel and
materiel, and has granted the required appropriations for the Prohibition Unit and the Customs Service, certain other measures which
have been recommended by the Treasury and which are deemed
equally essential to the enforcement of the national prohibition act
have not yet been passed. The most important of these measures is
the proposed reorganization bill, providing independent bureau
organizations respectively for the Prohibition Unit and the Customs
Service. I t is earnestly recommended that Congress, during the
forthcoming session, be urged to give early consideration to this most
essential reorganization bill, and to those other measures affecting the
enforcement of the national prohibition act, which have already been
discussed a t j e n g t h ui committees or are otherwise advanced to the
stage where their passage should be achieved without prolonged controversy. In the hope that these measures previously discussed in
committee may meet with favorable action, the Treasury will, with
one exception, propose to the coming session of Congress no new
legislation affecting the enforcement of the prohibition act. The
single exception noted is a measure designed to provide for such
distribution of medicinal spirits as will enable the Treasury to prevent
the diversion of such spirits to beverage purposes, and to furnish satisfactory means for replenishing the existing national supply of medicinal spirits which has been depleted to a point where replenishment
within the next year appears to be a serious necessity.

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. In conclusion, the Treasury feels that it has 'made real progress in
the solution of the many difficult problems arising in the administration of the national prohibition law. Certain legislation is, as stated
above, highly essential in order to obtain the maximum results.
Should this legislation be enacted, the Treasury feels confident that
its reorganized force, given the essential cooperation and assistance
of the Department of Justice, will be able, in the future, to achieve
even greater effectiveness in the enforcement of this law.
Narcotic law enforcement
The narcotic law enforcement has proceeded with increased vigor.,
More of the large distributors of the illicit drugs were apprehended in
the past year than any previous year suice the inception of the law.
There was an increase in the number of violations reported, as there
has been for each succeeding year for the past seven years. This
increase does not, as has been stated by some, indicate an increase in
addiction but, on the contrary, reflects the activity of the narcotic
force. Surveys recently made of narcotic addiction show that the
abuse of the use of narcotic drugs in the United States is not extensive and is confined to a relatively small number of people. This
number is decreasing and the habit is not spreading.
The Coast Guard
The fiscal year 1926 witnessed another period of intense activity
on the part of the Coast Guard in practically every field of its endeavor The enlargement of the service and the extension of its
duties along comparatively new lines within the past two years
naturally are accompanied with vastly increased labor, heavily
multiplied responsibilities, and numberless problems of a complex
and serious nature. There is not a section or an avenue of service
business that has not been so affected. The Coast Guard has met
and is meeting this unprecedented and unusually difficult situation
with a fine spirit of. fortitude and with a confidence that carries an
inspiration to do, that have been characteristic of the service from
its beginning.
The year's work was successful and noteworthy. During the year
the rtumber of persons saved or rescued from positions of peril was
3,037, a record never before attained in this form of service in any
one year since the present organization of the Coast Guard in 1915,
and exceeding last year's number by 553. This is an achievement in
itself. The total number of instances of assistance rendered in the
course of the year by the units of the service was 4,831, also the
largest in the history of the Coast Guard and exceeding last year's
number by 429. The value of vessels assisted, includuig their cargoes,

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145

amounted to $23,017,509. There were 15,398 persons on board the
vessels to which assistance was rendered. The derelicts and other
obstructions removed from the paths of marine commerce numbered
101, being 46 more than last year. The vessels boarded and examined in the interest of the enforcement of United States laws ran to
the unprecedented number of 53,080. This increase of 15,486 over
last year doubtless is due to the lately enlarged fleet of the Coast
Guard and to the continually increasing activity and watchfulness
of service craft. The law-enforcement activities of the Coast Guard
in connection with the prevention of the smuggling of liquor into the
United States from the sea have not resulted in any diminution of
the regular, normal work of the service having to do with the saving
of life and property at sea and along the coasts.
The law-enfoxcement program of the Coast Guard has been attended
during the year with satisfactory results. Foreign rum ships in varying numbers appear off certain sections of the coast, apparently
without regard to any fixed method or system, and seek to evade
the Coast Guard fleet and to reach our shores or to make contact
with the small-boat purchaser, but the "rum row" that formerly
hung close to our coasts has been effectively dispersed by the constant watchfulness and picketing of Coast Guard craft. Unremitting
activity on the part of the Coast Guard is essential to prevent the
reestablishment of "rum row" off' our shores.
Very marked improvement as regards the prevention of liquor
smuggling into the United States from the sea has taken place since
my last annual report.
The Coast Guard continued to carry on the usual duties which it
performs from year to year, including the international ice patrol,
winter cruising, cruises in Alaskan and Arctic waters, supervision of
the anchorage and movements of vessels at ports where Federal
regulations are in eft'ect, removal of derelicts from the paths of
marine commerce, patrol and supervision of regattas, and enforcement of the customs, navigation, and motor-boat laws of the United
States. .
The Secretary of the Treasury awarded during the year, under the
provisions of law, 68 life-saving medals of honor and 1 silver bar for
second service, in recognition of bravery exhibited in the rescue or
attempted rescue of persons from drowning in waters over which
the United States has jurisdiction or upon an American vessel; 11
of the medals were gold and 58, including the bar, were silver.
Attention is invited to the report of the Secretary of the Treasury for
1925 concerning the physical conditions existing at the Coast Guard
Academy at New London, Conn. The need of appropriate measures
to correct what is regarded as a very unsatisfactory situation at this
institution is very great.
11439—FI 1926

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REPORT ON THE FINANCES

There is need of the renewal of 16 miles of submarine cable
between Cape Henry and Cape Charles, Va., and 13 mUes of submarine cable between the mainland and Block Island, R. I.
The modernization program of the radio equipment of the service
is proceeding with good results.
The necessary steps are in progress toward carrying out the provisions of the act of July 3, 1926, entitled " A n act to readjust the
commissioned personnel of the Coast Guard, and for other purposes."
The act of June 10, 1926, authorized the construction and equipment of 10 Coast Guard cutters, to be designed and equipped for
Coast Guard duties, in accordance with the view expressed in last
year's report. Funds have been appropriated to commence the
construction of three of these vessels, and i t is very important that
the department be authorized, without undue delay, to enter into
contracts for the construction of the rehaaining seven cutters.
By act of March 3, 1926, an appropriation of $3,900,000 was made
for additional motor boats and their equipment, for five seaplanes
and their equipment, and for repairs or alterations to, o r i o r equipping
and placing in commission, vessels or boats transferred from the
Navy Department to the Treasury Department. Five destroyers
were acquired from the Navy Department and are being reconditioned,
and thirty-three 125-foot patrol boats are in course of construction. Arrangements have been made with the Army and Navy
by which the seaplanes and engines will be obtained under Army
and Navy contracts for delivery to the Coast Guard. The additional
equipment provided by this legislation will be a great help in the
operations of the service.
0

Public Health Service
The Public Health Service, which with the close of the present
fiscal year has completed the one hundred and twenty-eighth year of
its existence, is charged by law with manifold duties, among the
more important of which are:
1. Protection of the United States from the introduction of disease from without.
2. Prevention of the interstate spread of disease and suppression
of epidemics.
3. Cooperation with State and local boards of health in health
matters.
4. Investigation of diseases of man.
5. Supervision and control of biological products.
6. Public health education and dissemination of health information.
The researches of the service into the causes and prevention of
human diseases have been conducted at the Hygienic Laboratory

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147

and in central stations in the field, and important advances have
been reported during the year in a number of these investigations.
The studies have covered a wide range and have included investigations of industrial hygiene and sanitation, child hygiene, stream
pollution, municipal health practice, mental health, milk, and investigations of individual diseases, such as malaria, pellagra, tuberculosis, influenza, pneumonia, cancer, tularaemia. Rocky Mountain
spotted fever, leprosy, and typhus fever.
The plague-eradicative measures which were operative during the
fiscal year 1925 at New Orleans, La., and Oakland, Calif., due to the
occurrence of rodent plague at those places, were terminated at
New Orleans, La., on September 30, 1925, and at Oakland, Calif.,
on February 28, 1926. At these places plague was completely
eradicated as far as it is within human ability to determine. I t is
also considered that plague has been eradicated f^om Los Angeles,
Calif., and service activities were discontinued at that place on
June 30, 1926, except that at the request of the local authorities an
assistant surgeon general and four employees were authorized to
remain at Los Angeles until August 31, 1926, to assist in completing
the organization pf rodent-control work which the city will conduct
as a permanent activity as a means of preventing further widespread
outbreaks of plague.
'
At the present time plague exists nowhere on the North American
Continent except in the ground squirrels of California. This infected
territory, however, extends from the Carquinez Straits on the north
to Los Angeles County on the south, and embraces the central and
coast counties in this area. Outbreaks of plague may be expected to
occur from time to time in the cities and towns in this area unless
squirrel-free zones are maintained around them and unless the trapping and examination of rodents are conducted as permanent routine
measures in order that rodent plague infection may be determined in
its incipiency.
Present methods of operation are not sufficiently extensive tp
eradicate ground-squirrel infection in California. Complete eradication can be accomplished only by an intensive, coordinated effort
covering the entire area known to have foci of infection, and maintained over a period of years. While work of this magnitude would
require a large sum of money, it is probable that the sums which
must be expended by the various localities for plague prevention
and eradication over a period of years will far exceed the cost of
general complete eradication.
Measures for safeguarding shellfish from pollution and contamination were continued in cooperation with the Bureau of Chemistry and
the Bureau of Fisheries. In this connection an important function
of the Federal Health Service is the promotion of reasonably uniform.

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rules, regulations, and methods of enforcement in the various States,
and work toward this end has progressed satisfactorily.
Cooperative demonstrations of rural sanitation were conducted in
89 counties in 20 States under the same plan as in previous years.
The Twenty-fourth Annual Conference of State and Territorial
Health Authorities with the Public Health Service was held on May
24 and 25, 1926, in accordance with the act of July 1, 1902. Delegates were present from 35 States, 1 Territory, and the District of
Columbia. The transactions of the conference covered subjects
of great importance to the public health of the country.
Certification of water supplies used on common carriers, supervision of sanitation in the national parks, and trachoma eradication
work were continued as in former years. Public Health Service supervision of antimpsquito work along the Texas-Mexican border was
discontinued June 30, 1926, due to the apparent eradication of yellow
fever in Mexico. The localities, however, are expected to continue
their activities to some extent.
The Public Health Service has continued its investigations, both
field and laboratory, of problems affecting particular industries and
industrial hazards. There is a growing appreciation on the part of
the public, employers, and labor of the importance of this work.
Marked exacerbations of cliolera occurred in China, Siam, and the
Philippine Islands. A sharp outbreak in Japan, probably due to
importation from China, was quickly suppressed. The examination
of potential carriers and the prohibition of the embarkation of those
actually discovered at ports of embarkation in the Philippine Islands
effectually prevented the introduction of infection into the Hawaiian
Islands and the United States. ^
The widespread prevalence of plague mentioned in my last report
continued throughout the year, and in some parts of the world it is
invading new territory. Although there were considerable fluct^uations in the number of cases reported from specific localities, the general distribution of this disease is remarkably similar to that during
the previous year, thus illustrating the difficulty of eradicating plague
once it has become established.
Smallpox continued to occur throughout the world, including the
United States of America. In the United States the number of cases
and deaths in 1925 was less than in 1924; but 144 deaths from this
disease in Minneapolis during 1925, 87 deaths in Milwaukee, and 44
in Camden, N. J., show that smallpox is a dangerous disease in aiiy
community where vaccination is neglected. Because of an epidemic
in Florida a quarantine was imposed against that State by the
quarantine board of the Bahama Islands and maintained for several
weeks. The undue and prolonged incidence of smallpox in Los
Angeles, Calif., aroused the apprehension of the sanitary authorities
of the Territory of Hawaii, so that it was deemed advisable to require

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149

persons embarking at ports on the Pacific coast of the United States
to produce satisfactory evidence of immunity to smallpox before
embarkation. This restriction was continued in effect from April 5,
1926, to June 17, 1926. Similar measures were required for a time for
the protection of the Territory of Alaska. In England, where mild
smallpox has been prevalent for a number o t years, more than 6,000
cases were reported in 1925. In Russia the cases reported decreased
from 27,000 in 1924 to 16,000 in 1925. British India reported 41,000
deaths from smallpox in 1925 and 55,000 in 1924. Many countries in
Africa reported increased prevalence of smallpox.
There was relatively very little change in the reported prevalence
of typhus fever, though most countries reporting noted a decrease in
the number of cases. Although this disease is widely distributed, it
is not regarded as epidemic except in Soviet Russia, where it is
apparently decreasing. Typhus reappeared in the Canary Islands
and Italy. I t apparently increased in Czechoslovakia and Ireland
and diminished in Lithuania and Poland.
.The number ,of cases of yellow fever reported was approximately
the same as was reported during the previous year. However,
the distribution was more extensive, since cases were reported from
the Gold Coast, the Ivory Coast, Liberia, Nigeria and Senegal,
Africa, and Brazil in South America. The sharp outbreak a t Parahyba, Brazil, has caused some apprehension, but, due to the energy
and promptness of the measures for its eradication, will probably
soon be brought under control.
One amendment to the quarantine regulations was promulgated,
authorizing the Surgeon General to prescribe rules under which the
six-month period between fumigations may be extended for vessels
plying regularly betweeii ports not infected with plague and for
vessels whose construction does not favor the harborage of rats,
lu' accordance with the terms of this amendment, quarantuie officers
have been authorized to extend the period between fumigations for
an additional six months in the case of certain types of vessels if,
upon careful inspection, no evidence of rat infestation or harborage
is found. I t is expected that this procedure will materially dimuiish
the number of vessels fumigated.
The official declaration that New Orleans, La., and Los Angeles
and Oakland, Calif., are free from plague, with consequent lifting of
the special restrictions made necessary during the last fiscal year, has
materially benefited commerce with foreign nations and relieved shipping interests of the expenditures incident to quarantines imposed
by other countries or in accordance with international treaty obligations.
The question of the disinfection of the rags imported into the
United States for the manufacture of paper has for many years

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occupied the attention of the Public Health Service. On December
3, 1925, the medical officers in charge of quarantuie stations were
advised that consular certificates of disinfection or origin will no
longer be required as a prerequisite to admission of shipments of
rags into the United States, its possessions, or dependencies, but
that, when rags are obviously filthy or infected, their admission
should be refused.
Two meetings of the permanent committee of the International
Office of Public Hygiene were held during the year, one in October
and one in May. The United States was represented by Surg.
W. W. King. Subjects covering a considerable portion of the field
of public health were discussed.
An international conference, called by the French Government to
consider a revision of the sanitary convention of Paris in 1912, was
held in Paris from May 10 to June 21, 1926, and was attended by
delegates from 67 countries and dominions. The United States
was represented by Surg. Gen. H. S. Gumming, Senior Surg. Taliaferro
Clark, and Surg. W. W. Kmg.
Since the changes in the treaty were, on the whole, satisfactory,
the American plenipotentiaries signed the convention with two reservations, the first of which, following the policy of our Government,
disclaimed any recognition of the so-called Soviet Government of
Russia by reason of the signatures of delegates from that country to
the convention. The second reservation reserved to the United
States the right to decide what foreign ports or places should be
considered infected and to determine the measures to be applied
under special circumstances to arrivals at ports of the United States
from such areas.
The immigration act of 1924, approved May 26, 1924, by authorizing American consular officers to withhold their visas from prospective immigrants to the United States if it appears that the applicant is inadmissible under the immigration laws, made it possible to
comply with the growing popular demand for the examination of
immigrants in the countries of their origin previous to embarkation
for the United States.
About the beginning of the fiscal year it was decided, by mutual
agreement of the Secretaries of the State, Treasury, and Labor
Departments with the British Government, to conduct for a period
of three months an experiment to determine the feasibility of examining prospective immigrants in the'country of origin. It was
planned that medical officers of the Public Health Service and inspectors of the Bureau of Immigration should act as technical advisers
in their respective lines to the consular officers who issue the immigration visas. In accordance with the plan, on August 1, 1925, medical

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151

officers were detailed for duty at the American consulates at Belfast,
Cobh, Dublin, Glasgow, Liverpool, London, and Southampton.
The great advantage to the three classes of people directly concerned
in the medical inspection of immigrants abroad is evident. The
people of the United States are benefited because, when the prospective immigrants are examined abroad, all those who are mandatorily excludable under the law are refused visas, whereas, because
of the lack of funds and other factors, only a part of the immigrants
certified as ineligible upon arrival in the United States are actually
deported. Thus the law is more strictly enforced when the immigrants are examined abroad. The examination near their homes is
more satisfactory to the immigrants because, after they have successfully passed the examination, they are reasonably certain of admission to the United States. If, on the other hand, their visas should
be refused, they can return to their homes with but little expenditure
of time or money. The natural result is that the keen disappointment and great financial loss incident to rejection at the port of
arrival are either entirely avoided or, at least, greatly mitigated.
Transportation companies consider examination of aliens before
embarkation to be logical and businesslike, as it reduces the number
of fines imposed upon them for bringing those found to be inadmissible. The approval of the plan is practically unanimous, as the
immigrants, transportation companies, officials of the Departments
of State, Labor, and the Treasury, and the press, both foreign and
domestic, are all convinced of its usefulness.
Because of the success of the experiment in Great Britain and
Ireland the examination of prospective immigrants has been extended
to Antwerp, Belgium, and Rotterdam, the Netherlands, and, it is
expected, will be introduced early in the next fiscal year at Berlin,
Bremen, Cologne, Hamburg, and Stuttgart, Germany; Copenhagen,
Denmark; Bergen and Oslo, Norway;.Warsaw^, Poland; and Gothenburg and Stockholm, Sweden.
With regard to local conditions in the United States other than
those mentioned, it may be said that, in general, the health of the
people of the United States was good during the calendar year 1925
as compared with preceding years, but the continued prevalence of
smallpox, diphtheria, and other communicable diseases which can
be easily controlled shows that much work remains to be done,
especially in educating the people and inducing them to take the
necessary measures to protect themselves and their communities
against the ravages of these diseases. Many thousands of lives could
be saved each year and inuch suffering and expense could be avoided
by the use of known methods of prevention of disease. Lack of
appreciation of these facts and indifference leave a large part of the

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REPORT ON THE FINANCES

people in most of our communities susceptible to these diseases, and
the iesults are unnecessary suffe^ng, expense, and loss of life.
During the fiscal year no case of cholera or yellow fever was reported in the United States. Our people have come to regard these
diseases as mere memories of the past and not now threatening;
but if we are to continue free from their ravages we must be ever
watchful to prevent their getting a foothold here.
Plague in human beings has not been reported in the United States
since January, 1925, when two cases occurred in.Los Angeles, Calif.,
the last of an outbreak which began four months earlier. However,
as already stated, plague exists among rodents in California and is
always a menace wherever commerce is carried on.
A mild form of typhus, known as "Brill's disease," exists in the
United States, and occasional cases of the virulent type are reported
near the Mexican border.
Typhoid fever in the United States during 1925 showed a reaction
from the downward trend which has prevailed for many years.
Thirty-five States reported 30 cases of typhoid fever per hundred
thousand population in 1924 and 40.1 cases per hundred thousand
in 1925. Reports for the early part of 1926, however, indicate
more favorable rates for this disease.
Diphtheria continues to show a reduction in death rates as reported
from the various States and cities. The Public Health Service is
using every endeavor to encourage the use of toxin-antitoxin in the
immunization of children against this disease.
The birth rate in the United States appears to be declining. Thirty
States reported 21.2 births per thousand population in 1925 and 22.6
per thousand in 1924. The fact that foreign-born mothers usually
have larger families than American-born mothers may be worthy of
careful consideration.
In 30 States the death rate in 1925 was 11.7 per thousand population, while in 1924 it was 11.8. The lowest death rate ever recorded
in the registration area was 11.6 per thousand population in 1921.
The general death rate in the United States has been decreasing for
many years.
The infant mortality rate in the United States for the year 1925
w:as just a little higher than that for 1924, but the figures for both
years are much more favorable than those of a few years ago. This
rate is the number of deaths under 1 year of age per thousand births,
and during the 11 years since the establishment of the birth registration area it has decreased from 100 in 1915 to less than 75 in 1925, a
decrease of more than 25 per cent.
Everyone realizes the benefits derived from the use of automobiles,
but the constantly increasing death rate from automobile accidents
demands consideration. About 18,000 deaths per annum are due

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153

to automobile accidents in the United States at present, and the
number still appears to be increasing.
The marine hospitals and other relief stations, where beneficiaries
of the United States Public Health Service are given medical relief,
operated under reduced appropriations. A lower unit cost of service
resulted, but it was necessary to reduce the amount of relief in order
to avoid a deficit. The average per diem cost for treatment in the
marine hospitals was reduced from $3.89 in 1924 and $3.80 in 1925
to $3.71 in 1926. Attention is invited to the statement made in my
last annual report that there is reason to believe that the cost at that
time was below the minimum compatible with efficiency and that
further retrenchments would result in lessened efficiency and provoke
dissatisfaction and criticism. The limit of rational economy in
supplying medical care to sick men seems to have been reached, and
perhaps passed. I t is a matter of regret that it was necessary because
of insufficient funds to limit the amount of hospital care, although
the policy adopted by the Surgeon General was well calculated to
reduce public criticism to the minimum. I t is hoped that the appropriations for the maintenance of hospitals and relief will hereafter
be made sufficient for the high purpose to which they are devoted.
The division of venereal diseases, as in other years, carried on
activities in accordance with the law creating the division, which
requires that the cause, treatment, and prevention of venereal
diseases be studied, that the Federal bureau cooperate with the
State boards of health to control these diseases within the States,
and that the spread of venereal diseases in interstate traffic be
prevented.
In the past year an especial effort has been made to enlist the aid
of probation officers and all social workers who come in contact
with the delinquent and defective classes. To this end a manual
was prepared covering not only the medical aspects of syphilis,
gonorrhea, and chancroid, but including chapters on sex education
and the venereal diseases, sex morality and the law, the legal aspects
of venereal disease control, etc. This publication has been widely
distributed, and the approval with which it has been received indicates that it supplies this most necessary information in a very
acceptable form.
Social pathology for the socionomic aspects; and venereal disease
information for the medical aspects of the venereal disease problem,
published monthly, are each year distributed to an increasing number of readers.
An undertaking which was satisfactorily completed in the past
year was the preparation of strip films depicting the various phases
of syphilis. These films are lent b}^ the division to the State boards
of health. Their use within the State is directed by the health

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officer. As a means of instruction' in the diagnosis of the disease,
a graphic presentation of syphilis in its various manifestations is
invaluable to the clinician and the general practitioner. The education of the general practitioner to recognize syphilis in all its forms is,
of course, a most necessary step in the general program of disease
prevention.
The education of the public as to the seriousness of the venereal
diseases and the necessity for control and prevention is of the utmost
importance. Lectures and exhibits, meetings for special groups, and
newspaper publicity have been employed to further this end, while
intensive work in the schools has been this year, as in former years,
one of the most important activities of the division. The interest
of such national organizations as the parent-teacher associations,
men's organizations, and nonofficial health associations, has done
much to carry forward the program, and insures continued interest
in the control of venereal diseases.
The total personnel of the service on June 30, 1926, was 8,865, of
which number 4,442 employees are designated collaborating epidemiologists and assistant collaborating epidemiologists and receive
nominal compensation. They are for the most part officers or employees of State and local health organizations who transmit to the
service current reports of the prevalence of communicable diseases.
The number of full-time employees of the service has materially
decreased since June 30, 1925.
In previous reports I have emphasized the importance of enlarging
the corps of regular commissioned officers of the Public Health Service. In order to discharge its full duties, the responsible scientific
personnel of this service should be mobile; and the method of appointment and status of medical and dental officers, sanitary engineers,
and other scientists having hke qualifications should be the same.
Moreover, provision should be made for orderly promotions. By
means of legislation, provision should be made to thus insure the
efficiency of the personnel and to coordinate the public health activities of the Government.
Public buildings
An act entitled "An act to provide for the construction of certain
public buildings, and for other purposes" was approved on May 25,
1926. The latest general public building authorization prior to the
above enactment was the so-called omnibus public buildings act of
March 4, 1913. Two omnibus public building bills had been passed
by the House of Representatives in the interval, viz, January 19, 1917,
and February 15, 1926, but each failed of passage by the Senate.
The bill of February 15, 1926, referred to above, and the act of
May 25, 1926, present radical departures from the omnibus public

SECRETARY OF THE TREASURY

155

building bills enacted at intervals between the years 1902 and 1913.
The evident purpose of the enactment of May 25, 1926, was to get
away from a type of biU which has been characterized as " a parceling
out of favors" and to substitute therefor a method based on business
considerations of determining where public bufldings should be constructed or remodeled and enlarged. Under practically identical
bills introduced in each House of Congress large authority in this
direction was to be vested in the Secretary of the Treasury acting
jointly with the Postmaster General in cases where proposed buildings were to be occupied in whole or in part for postal purposes.
The bill as enacted into law provides total authorizations to the
extent of $165,000,000, of which $50,000,000 may be expended for
sites and buildings in the District of Columbia, and $15,000,000 for
extensions of limits of cost of buildings authorized under the omnibus
public buildings act of 1913, and other acts, and not yet placed under
contract. There is thus left available for construction work in the
country at large the sum of $100,000,000. The act contains numerous
provisions limiting freedom of action. Expenditures may not exceed
$25,000,000 per annum, of which amount not more than $10,000,000
may be expended annually in the District of Columbia; and of the
expenditures made outside of the District of Columbia for the fiscal
years 1927, 1928, and 1929, respectively, at least one-third shall
be for buildings authorized in prior acts. The act contemplates
a survey of the public building needs of the country and provides
that the $100,000,000 authorized for public buildings outside the
District of Columbia shall be allocated to the different States, where
buildings are found to be necessary, in such manner as to distribute
the same fairly on the basis of area, population, and postal receipts.
A survey of the public building situation, embracing all communities having postal receipts of $20,000 per annum and upwards
and in which no Federal building has been constructed or authorized,
is in progress. There are approximately 860 communities of this
character.. In these communities the gathering of data relating to the
postal service is being handled by the Post Office Department and the
gathering of data relating to all other branches of the Federal service
is being handled by the Treasury Department.
In addition to the foregoing communities there are in round
numbers 1,300 cities in which public buildings have been constructed.
These cities also are being surveyed and the gathering of data respecting all branches of the Federal service therein is being handled by the
Treasury Department, except in certain places where a joint survey
by the Post Office and Treasury Departments is deemed necessary or
desirable.
The object of the survey is to show what completed and occupied
buildings require enlargement, what new buildings should be con-

156

REPORT ON T H E FINANCES

structed to meet the needs of the Government and the public, and
to what extent such relief can be afforded within the authorization
contained in the recent public buildings act. These surveys are
proceeding satisfactorily.
^
The only construction work so far appropriated for under the
recent public buildings.act, chargeable to the $100,000,000 provided
for buildings outside of the District of Columbia, is for an extension
of the power house, etc., of the Chicago marine hospital, and for
additional stories on the Federal buildings at Sandusky, Ohio;
Birmingham, Ala.; Memphis, Tenn.; and Paris, Tex^. In each of
these cases where additional stories are authorized, the limits of cost
fixed by Congress were rendered inadequate by reason of the increased
construction costs resulting from the World War. The contract for
the additional story for the Sandusky building has been let and in the
remaining cases the drawings are weU under way.
The provisions in the act of May 25, 1926, hereinbefore referred
to, which authorize an increase of $15,000,000 in the aggregate
limit of cost of buildings authorized previously, cover 69 buildings. It is expected that they will all be under contract within
the next three years. Drawings and specifications are under way
for the first year's program, and estimates for the necessary appropriations will be submitted in due course of business.
Under the provisions of the act of May 25, 1926, the Public Buildings Commission, created by.the act of March 1, 1919,vis charged
with the approval of assignment and general arrangement of space
in Federal buildings to be constructed in the District of Columbia;
and is empowered to approve the sites for such buildings and to
determine the order in which buildings, or enlargements thereof, in
the District of Columbia, authorized under the provisions of the act
of May 25, 1926, shall be constructed. The commission has designated the following projects for the first year's program:
Building
Archives
Internal Revenue
Agricultural Department

Liberty Loan
.Department of Commerce
Government Printing Office. . . .

Project
Additional land, and construction including stacks-..
Additional land, and construction
(a) Purchase of Economics Building
(&) Completion of central part of Administration
Building.
(c) Additional land and construction of an office building.
Two additional stories and remodeling
Construction (land owned by Government)
. Purchase of additional land
.._
..

Total estimated cost
$6,900,000
7,950,000
325,000
2,000,000
5,750,000
376,000
10,000,000
1, 260,000

The sites for some of the above buildings—the Archives, the Internal Revenue, and the Department of Commerce—are designated
to be within the area bounded by Pennsylvania Avenue, B Street
NW., Sixth Street, and Fifteenth Street. In the same area it will

SECRETARY OF THE TREASURY

157

be advisable, probably, to locate other Government buildings, viz,
the Department of Justice, the Department of Labor, the General
Accounting Office, and the independent establishments of the
Government.
A contract has been made for the purchase of the Economics
Building above referred to at a cost of $300,000. Steps havfe also
been taken to acquire the necessary sites, and work on the plans for
the Internal Revenue, Archives, and Liberty Loan Buildings is well
under way.
Also, it should be borne in mind that the property extending along
the proposed Mall from Sixth Street to Third Street, south of Pennsylvania Avenue, will be required to safeguard the plan of the Park
Commission of the District of Columbia of 1901, based upon the
plan of Peter Charles L'Enfant, in its provisions for a fine approach
to the Capitol. In this connection the views expressed in the report
of the Public Buildings Commission of December 18, 1917, supported
by those of the Fine Arts Commission in the same report, are concurred in by this present report. They are as follows:
First. Public buildings, other than those of the executive departments, should face the giiounds of the Capitol.
Second. New executive departmental buildings may well be
located * * * south of Pennsylvania Avenue along Fifteenth
Street to B Street, on the land already purchased and awaiting such
occupation.
Third. Both sides of the Mall, with the exception of the space
needed by the Department of Agriculture on its grounds, should be
occupied by museums and other buildings containing collections in
which the public generally is interested, but not by department
buildings.
Fourth. The space east of Fourteenth Street, between Pennsylvania Avenue and the Mall, should be occupied, by public buildings.
Congress has authorized a program for the location and construction of buildings to accommodate the departments and other executive offices now housed in temporary structures and in privately
owned buildings; and has limited the area of purchase and location
to the space between Pennsylvania and Maryland Avenues, Fifteenth
Street and the Capitol.
Within this area the Government has already acquired the squares
between Pennsylvania Avenue and the Mall, Fourteenth and Fifteenth
Streets, the square bounded by Eleventh, Twelfth, Little B, and C
Streets, and the block bounded.by Tenth, Twelfth, Little B, and B
Streets. This area is available for the construction of department
buildings already authorized by Congress,
Congress has also provided for a site within the specified area for
an archives building and for its construction. Congress has further

158

REPORT ON THE FINANCES

provided for the extension of B Street east to the Capitol, thus throwing into the Mall all of the area east of Sixth Street and south of B
Street and providing two building sites facing both Pennsylvania
Avenue and the Mall. Within the specified area the Government
owns the Post Office Department building and the Center Market.
Thb available sites in the remainder of the area will be required for
Federal activities now occupying private bufldings or temporary
Government structures, so that^ all of the land included within the
limits set by Congress must be acquired. From motives of economy
all of these squares should be acquired at once. Otherwise, Government purchases made piecemeal will enhance the value of property
remaining in private ownership, and these increased prices must be
paid on later acquisitions.
The general character and bulk of the bufldings of a departmental
nature differ generally from those already occupying the Mall frontage and those of future possibility of the Museum type. A sense of
order, harmony, and fitness seems to indicate the separation of these
two types of buildings into distinctive general locations.
The requirements as to space in architectural setting, accessibility,
and the number of people, both employee^ of the Government and
others going to and from these bufldings, are so dissimilar as to reinforce strongly the argument for their collective separation. Again,
the bufldings on the Mall, although not necessarfly finer than those of
the departments, should be, architecturally speaking, of a more
plastic, decorative, and a more generally varied form, suiting their
location in the park.
A large portion of the area designated as the " t r i a n g l e " will be
necessary for the accommodation of the buildings now projected.
Even if it were not possible to foresee the ultimate use of all of the
land, nevertheless it may be stated with conviction that the choice
of the site for the bufldings, the provision possibly of parking space
for automobiles and of adequate road circulation and approaches to
the buildings, and in short the economic and orderly planning of the
area immediately required, can not be made unless the area is replanned as a whole for this purpose. I t may well be urged, also, that
unless all the land, with minor exceptions, is now taken by the Government, the construction of the new buildings and the removal of
the markets as proposed will induce a rise in values of the remaining
land, making it more costly to acquire.
In the Capital an example shoul.d be set for the country as a whole
in the matter of planning. Our national monuments will attract
seekers of the ideal in art. More and more it will become the tendency to establish the headquarters of societies of literature and art
in Washington and to make bequests of collections to the National
Capital as well as to other great cities of the country. Already there

SECOEIETARY OF THE TREASURY

159

is a definite project to establish here in Washington a national gaUery
of painting. Thus the Capital may be foreseen as an art center
responding to the desire of visitors from all over the world and satisfying that demand.
The example of the great capitals of Europe may be cited, that in
particular of Paris. Although the character of the cities of Washington and Paris differs in respects favoring the embellishment of our
own Capital, Paris besides being a capital is also a great business and
industrial center. Under the Haussmann plans of development of
Paris, during the period of some 30 years beginning about the middle
of the nineteenth century, the sum of $180,000,000 was spent on the
opening of thoroughfares and in general civic embellishment. A
similar sum was authorized for further development at the beginning
of this century, and in between those periods other great sums were
authorized and spent, estimated in all as upward of half a billion of
dollars. The Great War delayed the later program, although the
work involved has been and is being slowly carried out according to
plan. I t is generally recognized that the really splendid nature of
city development in Paris is responsible in a large degree for the
number of visitors and that this work has contributed very largely to
making Paris the artistic center of the world.
In the plan of future development of Washington the treatment
of the great triangle of land south of Pennsylvania Avenue to the
Mall will play an important part. Assuredly the character, height,
and design of the great front to the south stretching from Fifteenth
Street toward the Capitol must be carefully considered as a whole.
I t may be said to be the real frame or background of the Mall, with
its Museum buildings and memorials, present and to come. Opportunity must be given to treat it as a whole in relation to the Mall.
The problem of location of bufldings to-day, although it involves
difficulties, is made less.difficult by the existence of the general plan
of the commission of 1901. Correspondingly the work in the future
will be rendered easier and less costly if the plans of to-day are made
with foresight.
No expenditure of the magnitude contemplated under the new
building bill should be undertaken without a comprehensive study
of the entire situation. As has been outlined above, m.any features
must be taken into consideration, but the outstanding one is that
the public buildings, as finally located and constructed, should place
Washington in the forefront of the architecturally beautiful cities of
the world. This result/can only be obtained by a thorough and comprehensive study of the entire subject. No building should be located or its architecture decided upon until study has been made of
its effect upon the neighboring buildings to be built in the future and
the carrying out of the complete plan.

160

REPORT ON THE FINANCES

Bureau of Supply
Purchases and issues.—The Bureau of Supply has completed its '
fourth full year of operation as the central purchasing, warehousing,
and distributing agency of the Treasury Department. Its organization was the sequel to an inquiry by a representative of the Director
of the Bureau of the Budget early in the fiscal year 1922, and was
created by Department Circular No. 283, of March 28, 1922, by authority of section 161 of the Revised Statutes, following an opinion by
the ComptroUer General of the United States, dated January 13, 1922,
that there was no legal objection to establishing such an agency in
and for the Treasury Department.
The bureau purchases supplies and equipment for all branches of
the department both in Washington and the field, with the exception
of those for the Bureau of Engraving and Printing, whose purchases
are exempted by law from its supervision; those for the Coast Guard,
and to some extent those for the mint. The purchases of miscellaneous supplies are made from allotments to the Bureau of Supply from
appropriations for the several activities which it serves; while those
for stationery are made from' the departmental appropriation for
stationery, which has, since the organization of the bureau, been
under its supervision; and it is purposed to transfer also to the bureau
on or prior to July 1, 1927, the appropriation for printing and binding
as well as administrative supervision over the work and personnel of
the Division of Printing, which is now a separate division in the
office of the Secretary.
In addition to its purchasing, warehousing, distributing, and
accounting functions, administrative supervision over the work of
the General Supply Committee and the traffic division of the Treasury
Department is vested in the Bureau of Supply.
Heretofore the Bureau of Supply has functioned with personnel
detailed to it from the various bureaus and offices of the Treasury
Department, but as it has now demonstrated its value as an economical and efficient arm of the service it is believed that it ought to
be recognized and supported as a permanent institution. Accordingly, there has been prepared for submission to Congress through
the Bureau of the Budget an estimate for its personnel as a distinct
unit of the office of the Secretary, and to provide for this personnel
deductions exceeding the proposed appropriation have been made
from the several bureaus and offices from which the bureau now draws
its personnel on a detailed basis. Thus funds for operating the
agency will be furnished without increasing the sum of the appropriations to the department.
At the time of the organization of the Bureau of Supply, and as
its functions have been gradually widened, its personnel has. been

161

SECRETARY OF THE TREASURY

provided by assigning to it such employees of the several bureaus
and offices concerned as had previously devoted their entire time to
purchasing, warehousing, and shipping supplies and equipment and to
the.accounting incident thereto. In making allocations of employees,
however, no consideration was given to those who devoted only a
part of their time to such duties, and as the work of the bureau
has become systematized approximately 15 employees have from
time to time been dispensed with, in spite of which, in arriving at
the amount of the estimate for its continuance on a permanent basis,
it has seemed possible, after a careful study of the organization,
functions, methods, and needs of the bureau, to effect a still further
reduction of seven employees, with salaries aggregating $14,700. In
addition the bureau will attempt to carry on the traffic work of the
department, which wfll require the services of several employees,
without asking for additional personnel therefor. The estimate submitted has accordingly been prepared on this basis, with a resulting
considerable saving to the department in the cost of carrying on
this important service.
There was expended by the bureau in 1926 a total of $5,409,132.78,
a decrease of $237,610.46 when compared with the expenditures for
the preceding year, which totaled $5,646,743.24.
The following table summarizes, for the past four fiscal years,
expenditures by the Bureau of Supply from appropriations to the
several bureaus and offices for the purchase of supplies and equipment:
B u r e a u or office
E x p e n d e d from a l l o t m e n t s :
Chief Clerk a n d S u p e r i n t e n d e n t
General S u p p l y C o m m i t t e e
Division of P r i n t i n g a n d S t a t i o n e r y
Supervising A r c h i t e c t .
B u r e a u bf I n t e r n a l R e v e n u e
T r e a s u r e r of t h e U n i t e d States
Commissioner o f t h e P u b l i c D e b t - ' - - - Division of Bookkeeping a n d W a r r a n t s
P u b l i c H e a l t h Service.
Division of C u s t o m s
T o t a l from a l l o t m e n t s
P u r c h a s e s from a p p r o p r i a t i o n s from w h i c h n o
a l l o t m e n t s were m a d e
G r a n d total

1923

1924

1925

1926

$120,102. 51
118, 628.44
368, 948. 86
1, 998, 537. 52
327,992. 61

$159, 562.45
$133,812. 92
$170,938. 62
105, 606. 65
118, 506. 98
111,436.68
343,202.28
379, 971. 90
319,293.10
1 768,419. 45 1, 925, 066. 63 2,031,804. 68
528,231. 80
436,254.19
543,413. 74
3, 942.44
141. 77
67.95
2 63,124. 79
72, 902. 39
49, 640.01
1,493. 50
3,193. 67
2,442.41
2,069,435. 02 1, 983,116.44 2,188,128.86
3 46,117. 78
179, 643. 84

40,735. 39
1,269. 92
2,067, 386. 85
233, 483.02

4,104,064. 50

5,057, 085.10

5, 577, 763. 24

5,276, 985.12

165, 942.19

88, 953. 96

68, 980.00

132,147. 66

4, 270,006. 69

5,146,039. 06

5, 646, 743. 24

5,409,132. 78

1 Purchasing for Supervising Architect transferred to Bureau of Supply oh 0ct.''l7, 1922.
2 Purchasing for the Commissioaer of the Public Debt transferred to Bureau of Supply on Sept. 15,1922.
3 Purchasing for Division of Customs transferred to Bureau of Supply on Apr. 1, 1924.

The purchasing work of the bureau in 1926 involved the issue of
34,957 formal purchase orders; the preparation of 5,993 sets of specifications and invitations for proposals; and the examination and audit
for settlement of 84,465 vouchers. Cash discounts for prompt
payments were utilized to the extent of $10,856.87, only $296.99
being lost, which was due in great part to inability to obtain certifications of vouchers in the field within the limited discount periods.

162

REPORT ON THE FINANCES

The 1926 appropriation to the department for articles of stationery
was $437,760, of which $368,964.65 was expended and $68,795.35
reverted to the Treasury. The unexpended balance was a part of a
special aUowance by Congress for the installation of a new and
improved system of filing income-tax returns in field offices, but it
was not practicable to complete the installation, and consequently
the unused part of the appropriation lapsed. There was expended
also for stationery items $67,440.52 from other avaflable appropriations, making the total purchases of stationery supplies for the
entire department $436,405.17, compared with $426,285.29 during
the preceding year.
The value of stationery supplies issued in 1926, as distinguished
from actual expenditures for replacement, totaled $453,224.24,
compared with $437,256.01 in 1925, or an increase of $15,968.23.
The excess of issues over expenditures ($16,819.07) was made
possible by a reduction of $10,487.02 in the value of stock on hand and
the utilization of $6,332.05 worth of articles surrendered to the bureau
by consuming offices for reissue.
The increase in both expenditures for and issues of stationery
supplies was due to increases in prices of certain items and to the
furnishing by legal authority of several articles not previously included
under stationery.
Shipments of stationery supplies to the field were made in 12,604
packages and boxes, weighing '598 tons. Of these, there were 3,367
franked parcels (each weighing less than 4 pounds); 1,543 parcelpost packages, costing $1,044.88 for postage; and 7,694 express and
freight boxes, crates, etc., requiring the use of 2,346 Government
bflls of lading. In addition the bureau sent through the mafls approximately 5,500 sacks of printed matter, weighing about 275 tons.
Inventories taken July 1, 1926, show a stock on hand of stationery
supplies valued at $157,399.28 and also 37,285,579 blank books and
forms (exclusive of Bureau of Internal Revenue stock, which is in
the hands of that bureau), valued at $135,905.56.
General Supply Committee.—The Bureau of Supply proper functions
for the Treasury Department alone, whereas the General Supply
Comimttee is an interdepartmental organization and, under the
direction of the^Secretary of the Treasury, functions in behalf of all
the executive departments and independent Government establishments. The Bureau of Supply, in addition tp contracting duties, is
«lso charged with purchasing, warehousing, distributing, and accounting in relation to every requirement for supplies for both Washington
and field offices of the Treasury Department, while the activities of
the General Supply Committee, under its organic law, are concerned
only with the making of contracts for furnishing articles in common
use in two or more departments or establishments in the District

SECRETARY OF THE-TREASURY

163

of Columbia; though certain requirements for a field service may be
provided for on request of a head of a department under which the
service operates.
The committee was created by section 4 of the act of June 17, 1910
(36 Stat. 531), and consists of a representative from each of the 10
executive departments, who serves on the committee without additional compensation, though clerical services for the committee,
including a superintendent of supplies, are provided for by an appropriation to the Treasmy Department. I t is required to prepare and
issue annually a general schedule of supplies, in which are listed the
articles for which contracts are made, with descriptions thereof,
the unit prices, times of delivery, and the names and addresses of
contractors. The committee is charged especially with the standardization of supplies and the elimination of unnecessary grades and
varieties.
At the close of the World War, the original duties of the committee were enlarged by Executive order, subsequently approved by
legislation, to include the disposition of surplus war supplies and
equipment in the District of Columbia. A large part of this material
was reissued to various offices and establishments; a greater part,
being either unserviceable or not likely to be needed for reissue, was
disposed of, usually by auction, and some of it still remains available
for reissue as called for from time to time, x^rticles reissued to
Government departments and establishments are charged, at a discount below their original cost, to appropriations ordinarily available
for the purchase of such supplies, and.receipts therefrom are deposited
to the credit of miscellaneous receipts of the Treasury.
Since the war surplus has become practically exhausted, the facilities of the committee's organization have by authority of law.been
availed of to receive and dispose of the vast quantity of property of
every character currently becoming surplus or unusable in Government offices in the District of Columbia, which is disposed of in the
same manner as was the war surplus.
With the approval of the coordinating agencies of the Government
the, committee has, with respect to a great many items, embarked
upon a policy of procurement in definite quantities at the beginning
of each quarter, rather than making annual contracts for furnishing
the articles in indefinite quantities from time to time to the various
establishments. Requirements for these items are assembled four
times a year, proposals therefor are solicited for immediate delivery,
and a single shipping direction placed for the entire quantity needed
at once. This policy has resulted in decidedly lower prices in many
lines, with a resulting saving to the Governiment of hundreds of
thousands of dollars.

164

REPORT ON THE FINANCES

Purchases reported by Government departments and establishments under contracts negotiated through the General Supply Committee amounted to $6,725,600.35 during the fiscal year 1926, an
increase of $80,404.71 over the preceding year. Of the 20 classes of
items contracted for, purchases of 12 increased in varying amounts
and those of 8 decreased. A net increase of $526,054.07 is noted in
those classes of items containing commodities included in coordinated
purchases. The principal increase was in class 17, where purchases
of automobile tires and tubes amounted to $470,247.40, an increase
over the purchases of the preceding year of approximately 200 per
cent, due to a larger number of services obtaining this equipment
under General Supply Committee contracts. Increases reported
for 1925 in the purchases of items included in classes 9 and 18 (office
furniture and filing equipment and typewriting machines, adding
machines, other labor-saving devices, etc.), are no doubt responsible
for the decreases of $94,817.12 and $304,013.98 shown in these
classes for 1926. A decrease of $86,356.71 also occurred in class 15,
electric lamps. Decreases are also shown in class. 1, stationery;
class 6, electrical and plumbing supplies; class 12, photographic
supplies; class 16, incandescent gas-lamp supplies; class 19, electric
service; and class .20, telephone service.
Issues of surplus supplies and equipment to various Government
activities decreased to $48,450.84 from the amount of $78,028.61
transferred during 1925. There was, however, an increase of $20,187.51 in the value of the material no longer usable by the Government and disposed of at public auction. Simflar material disposed
of by contract sale decreased $35,043.70, caused both by reduction
in quantity and in the price obtained, lower prices prevailing for
waste paper and other paper stock materials.
Attention is again directed to the disadvantage imposed by existing law which makes it impossible to secure the maximum benefit
from the consolidated purchases of commonly used supplies by
making single payments. The present requirement that each individual department make payment for its share of a consolidated purchase is cumbersome and unbusinesslike. I t causes unnecessary
bookkeeping on the part of both the contractor and the Government,
delays payments, and frequently makes it impossible to take advantage of discounts.
Much has been accomplished by consolidating requirements for
a number of commonly used items of supply and making bulk purchases with a single delivery and inspection, but bettei: prices could
be obtained b}^ adopting the more businesslike method of making
single payments.

SECRETARY OF THE TREASURY

165

Bureau of Engraving and Printing
During the fiscal year 1926 the bureau eclipsed all previous records
in the production and delivery of perfect work. Deliveries for the
year reached a total of 482,307,106 sheets, as compared with deliveries for the previous year of 464,869,695 sheets, an increase over
the preceding year of 17,437,411 sheets, or 3.75 per cent. This net
increase is accounted for by an increase of 21,507,386 sheets of currency, and a decrease of 4,069,975 sheets of bonds, notes, certificates,
stamps, and miscellaneous work.
In addition to the amount delivered the bureau printed for its
reserve, currency backs and currency backs and faces aggregating
30,924,312 sheets, for which $321,986.84 was expended.
The average number of persons employed in 1926 was 5,173, as
compared with 5,098 in 1925, an increase over 1925 of 75 persons,
or 1.47 per cent.
There was expended during 1926 a total of $10,483,674.68, as compared with $10,041,457.46 in 1925, an increase over 1925 of $442,217.22. Deducting $321,986.84 expended for reserve, the net increase
of expenditures for delivered work in 1926 was $120,230.38 over those
of the preceding year, or 1.19 per cent.
By summarizing the preceding paragraphs it will be noted that
whfle the sheets delivered for 1926 represent an increase over 1925
of 3.75 per cent, expenditures were increased 1.19 per cent and the
personnel was increased 1.47 per cent.
The spoflage of currency of all classes for 1926 was 3.7 per cent as
compared with the spoilage for the previous year of 5.8 per cent, a
decrease of 2.1 per cent. One of several reasons for the reduction
may be attributed to a change in the examination of sheets of currency backs, which resulted in a decrease of 60 per cent of mutilations on back printings. By punching a hole on the outer margins,
opposite single mutilated notes, on four-subject sheets, the other
three notes which formerly were destroyed are being salvaged.
The executive committee, consisting of the fiscal assistant secretary, the assistant to the fiscal assistant secretary, the director, the
assistant directors, and members of the planning unit, referred to in
the annual report for the fiscal year 1924, has continued its weekly
meetings. The meetings are formal in character. Matters of policy
and problems of major importance are subjects of consideration.
Records of the proceedings are maintained.
The bureau has continued its efforts to improve the wearing qualities of the paper currency, being associated in this work with the
Bureau of Efficiency, the Bureau of Standards, and the contractor
for distinctive paper. Important results have been achieved during
the past two years, as shown by the increased life of notes in circula-

166

REPORT ON THE FINANCES

tion. Improvement in this respect has been brought about through
a modification in the character of the paper, improvements in technical procedure in the bureau, restoration of resizing, and establishing
in the bureau an adequate working reserve of incomplete notes, the
latter being made possible by action of Congress in granting the
necessary appropriation for printing 15,000,000 sheets of backs and
faces, and 15,000,000 sheets of backs. During the year 144,000,000
sheets of one dollar bills were delivered, an increase of 13,000,000
over 1925, 23,000,000 over 1924, and 78,500,000 over 1917—10 years
ago. Increased deliveries of one dollar notes have permitted establishing, in part, with the Treasurer of the United States, and with
the Federal reserve banks, reserve stocks of completed notes, permitting ageing of the notes before payment into circulation and so adding to their life.
In the last annual report reference was made to the fact that this
bureau was required to vacate a warehouse in which operating supplies were stored. A warehouse located at First and L Streets NE.,
approximately 3 miles from the bureau has been leased at a cost of
$3,600 a year. Although the leasing of this property has relieved
storeroom congestion temporarfly, there is still a great need for a
warehouse ui close proximity to the bureau with spur track service,
so that unnecessary hauling and handling of materials may be
avoided..
Twelve 400-subject intaglio web rotary presses were received and
installed, making a total of 25 presses of this type engaged in postage
stamp production. About 60 per cent of the total number of stamps
of denominations to and including 10 cents, printed during 1926,
were made by this process, which resulted in a substantial saving,
to the Post Office DepartmxCnt. On June 30, 1926, the installation
was practically completed, and it is expected that all stamps of low
denominations will be printed by the rotary process during 1927, as a
result of which increased savings will be realized.
The work of reconditioning a section of the Auditors BuUding (old
bureau) was completed during the early part of the fiscal year. The
engraving division, excepting one unit, was moved from the main
building into this space. The new quarters are ideal and the change
has resulted in increased production and improved morale. This
transfer, which involved the handling of a large quantity of heavy
machinery from one building to another, was accomplished by
bureau em^ployees, withoutjnterruption to the work of the engraving
division and without a special appropriation.
Woolen blanketing used on impression rollers on power presses
has been replaced by rubber drilling and tag board, with a great reduction in cost. The cost of printing 1,000 impressions of currency with
woolen blanketing was 29.6 cents, while the cost of printing the same

SECRETARY OF THE TREASURY

167

number of impressions with rubber drilling is 6.3 cents. Although
rubber blankets were not in general use on power presses untfl the
latter part of the fiscal year, substantial savings were realized.
Electrolytic plates are now used in printing approximately 50
per cent of the currency. These plates are being produced at less
than one-half the cost of producing steel plates. By the use of
electrolytic plates it has been possible to provide plates for a printing
program 15 per cent larger than the requirements for the fiscal year
1925, without increasing the personnel of the engraving division.
Heretofore the numbering and the sealing of national-bank currency were accomplished in two operations. The numbers and seals
are now affixed in one operation, with resultant economy of time
and money. Only 8 presses are now necessary to accomplish the
work which previously required 15 presses.
A plan of delivering sheets of national-bank currency more or less
than the amount ordered has been adopted. Perfect sheets in
excess of orders are now delivered instead of being destroyed and
perfect sheets in numbers less than orders are being delivered as
completed orders, thereby avoiding reprints. This procedure has
resulted in a reduction in the cost of the manufacture of nationalbank currency.
The examination of silver certificates, and United States notes,
following the trimming operation, has been discontinued, thereby
eliminating the need of the services of 45 employees.
A system for a centralized control in the accountiug division of all
stock maintained in the various storerooms has been adopted and is
being installed. When the installation of this system, is complete
better control of the issue and use of materials will be afforded.
As a part of the Federal Government exhibit two presses were
sent to the Sesquicentennial Exposition at Philadelphia for the
purpose of demonstrating the methods employed in printing securities. Employees of the bureau were detailed to operate the presses
and conduct the exhibit.
• The two investigators of the Bureau of Efficiency, detailed to the
planning unit, have continued their constructive study of methods
and procedures during the year. Many valuable suggestions were
received and adopted.
An auditing committee, consisting of five representatives of the
Division of Public Debt Accounts and Audit, Public Debt Service,
has been engaged in conducting spot counts of securities in process.
During the past year this committee has completed 84 audits and has
checked every class and denomination of securities printed in this
bureau. According to the reports made by the committee the
amounts on hand were found to be in agreement with the records
maintained in the divisions where the securities were kept, as well as
with the control records of the accounting division.

168

REPORT ON THE FINANCES
ADMINISTRATION

AND ORGANIZATION

Changes in Treasury organization
Under the provisions of section 1201 of the revenue act of 1926
the office of General Counsel for the Bureau of Internal Revenue
was created, and coincident therewith the office of Solicitor of Internal Revenue in the Department of Justice was abolished. No
other change, of major importance in Treasury organization has taken
place during the'year, the assignment of bureaus and offices to the
administrative supervision of the Undersecretary and the Assistant
Secretaries remaining the same as indicated in my annual report for
1925. Minor changes have taken place in the usual course of efficient
administrative operation.
Budget and improvement committee
The budget and improvement committee examines all Treasury
estimates of appropriations, makes inquiry as to the reserves which
may be set up under the various appropriations, considers requests
subsequently made for releasing portions of such reserves for expenditure, and makes investigations with the purpose of improving
administrative methods and procedure. Its reports and recommendations thereon are submitted to the Secretary through the budget
officer of the department.
Initial reserves amounting to $1,156,250 were set up from appropriations for the fiscal year 1926. Subsequently additional reserves
of $438,760 were added and reserves amounting to $432,750 were
released, leaving a balance of $l,162,260in reserve at the end of the
year. For the fiscal year 1927, heads of bureaus and offices reported
reserves of $718,075. After examination by the committee $329,450
was added, making a total general reserve for the year of $1,047,525.
In addition, by direction of the President through the Director of
the Bureau of the Budget, reserves amounting to $1,318,409.60 on
account of "two per cent personnel club" were set up with the purpose of saving not less than 2 per cent of the total amount available
for salaries of the executive civil service during the fiscal year 1927,
such savings to be accomplished b}^ omitting to fill current vacancies.
Supplemental and deficiency estimates were submitted during the
year aggregating $185,702,997.85, of which $154,500,000 was for refunds of internal-revenue taxes. After examination by the committee these estimates were revised and reduced to $185,144,361.70.
Preliminary estimates submitted by the heads of bureaus and
offices for the fiscal year 192S amounted to $180,958,271.66, exclusive
of interest on and retirement of the public debt and amounts for the
Bureau of the Budget. . The President allocated to the Treasury
Department as a tentative maximuni amount $140,740,777 for annual
appropriations, and $36,168,815 for permanent and indefinite appropriations and special funds. The regular estimates submitted, totaling $178,433,801.44, were carefully examined by the committee to

SECRETARY OF T H E TREASURY

169

ascertain as to each item whether the expenditure is absolutely
necessary. On the. committee's recommendation net deductions of
$4,328,188 were made. There were approved for permanent and
indefinite appropriations and special funds $31,145,040, for regular
annual appropriations $140,740,670.44, and as a supplemental statement of the absolutely necessary requirements of the department
$2,219,903.
The committee has considered and reported on various matters
submitted to it, including proposed requests for legislation which
might affect expenditures of the department. Under special instructions of the budget officer a detailed examination was made of
one of the offices of the department and a report was submitted
thereon containing a number of recommendations for the betterment
of the service.
Enrollment and disbarment of attorneys and agents
During the year 2,647 applications for admission to practice as
attorney or agent before the Treasury Department were received,
2,283 were approved, and 50 w^ere disapproved. Sixty-four attorneys
and agents who were enrolled prior to August 15, 1923, furnished the
affidavit relative to contingent fees required by Department Circular No. 230, as revised and reissued August 15, 1923, and were enrolled
to continue in practice before the' department. On June 30, 1926,
14,725 enrolled attorneys and agents had, since August 15, 1923,
furnished the required affidavit relative to contingent fees, and thus
became eligible to practice or continue in practice before the
department.
There has been continued activity by the Committee on Enrollment
and Disbarment with reference to complaints charging enrolled
attorneys or agents with violation of the laws and regulations governing practice before the departnient, and whenever deemed necessary
or advisable action has been taken looking to the disciplining of persons charged with such violations. In a number of instances the
attorney or agent was advised of the complaint and given an opportunity to show cause why formal disbarment proceedings should not
be instituted against him. On June 30, 1925, there were pending 56
cases in which formal disbarment proceedings had been instituted
against an enrolled attorney or agent. During the year new proceedings were instituted against 114 individuals, making 170 in all.
In 11 cases the proceedings were dismissed by the Secretary on the
recommendation of the Committee on Enrollment and Disbarment
without a formal hearing, the respondent's written answer to the
complaint being accepted as satisfactory. In 63 cases the respondent
was given a formal hearing by the committee, after which the committee submitted its finding of facts and recommendation to the
Secretary for his action. In 14 cases the Secretary dismissed the
complaint. In 49 cases, the complaint having been found proven
in whole or in part, the Secretary imposed penalties as follows: 7
11439—FI 1926

170

REPORT ON T H E FINANCES

were disbarred from further practice before the department, 13
were suspended from practice for various periods, and 29 were
reprimanded. In one case it developed from the respondent's answer
that he had been improperly enrolled as he was not a citizen of the
United States and his enrollment was canceled. There were 95 cases
not disposed of on June 30, 1926.
Personnel
Number.—From June 30, 1925, to September 30, 1926, there was a
net decrease of 1,713 in the personnel of the Treasury Department in
Washington. While there has been a tendency on the part of nearly
all branches of the Treasury to decrease the personnel, the greatest
reductions were made in the Division of Loans and Currency, where
a decrease of 149 occurred; the Office of the Register of the Treasury, with a decrease of 211, and the Bureau of Internal Revenue,
where the net reduction was 1,482.
On June 30, 1925, there were on the rolls ol ihe Treasury Department in Washington 15,816 employees, and on September 30, 1926,
the force had been reduced to 14,103. The number of employees in
the departmental service of the Treasury, classified according to
bureaus and offices, at the end of each month from June, 1925, to
September, 1926, is shown in Table 62, page 588 of this report.
On June 30, 1925, there were in the field services of the Treasury
Department 46,794 employees, compared with 47,026' on June 30,
1926, a net increase of 232 employees. Increases of 59 in the Customs
Service and 545 in the Coast Guard were largely offset by decreases
in other branches of the service.
Comparison of the number of employees in the departmental and field services of the
Treasury on J u n e 30, 1925 and 1926
June 30, 1925
Bureau or office

Division of Customs
Secret Service Division
United States Coast Guard..
Federal Farm Loan Bureau.
Mint Bureau
Internal Revenue Bureau
Public Health Bureau
Supervising Architect's Office
Public Debt Service ^
All other
^
Total

Depart- Field
mental

June 30, 1926

Total

54 8,397 8,451'
11
127
138
123 9,398
9,521
96
96
14 """780"
794
6,022 13, 312 19,334
237 8,838 9,075

61
11
139
109
13
4,857
219

Total Departmental Field

Total

8,617
+7
+59
+66
137
-1
-1
10, 082 ""+I6" +545
+561
109.
+ 13
+13
742'
755
-1 ""-38"
-39
-197 - 1 , 362
13,115 17,972 -1,165
-165
8,673 8,892
-IS
-183
8,456
126
9,943

6,170
+9
1,826 +1, 795
7,067 - 1 , 971

+22
+31
-24

+31
+1, 826
-1,995

46, 794 62, 610 14, 501 47, 026 61, 527 -1,315

+232

-1,083

221

5,918

6,139

9,038

9,062

15,816

S S i ^-.d

Increase (+) and
decrease (—)

230
1, 795
7,067

5,940
31

' Previous to June 30, 1926, the Public Debt Service was included under "All other."

Classification.—-Begmriing ^ v l j 1, 1925, the Personnel Classification
Board provided new and special forms for making appeals for change
in allocation of positions in the departmental service. Under this new
procedure 382 appeals were presented to the department during the
year for transmittal to the Personnel Classification Board. Of the
total number of appeals presented, 47 were returned approved and

SECRETARY OF THE TREASURY

171

59 disapproved, leaving at the close of the fiscal year 276 appeals
not acted on by the board.
Each appeal is specially investigated and submitted by the classification officer of the department, approved or disapproved with
a brief summarizing the arguments for or against the employee'^
appeal and citing allocations in such other cases as bear upon the
appeal either in the department in which the employee serves or
elsewhere in the departmental service.
Due to reorganization in several of the Treasury activities, particularly in the Internal Revenue and Prohibition Services, a considerable amount of investigation was necessary. A great number
of change of duty sheets were accordingly handled in this connection.
Retirement of civil service employees
From October 1, 1925, to September 30, 1926, 135 persons were
retired on account of age and 77 were retired on account of disabihty.
Since the retirement law went into effect 2,162 employees have been
retired under the provisions of the law. At the present time only
105 persons above the retirement age are retained in the Treasury
Department in Washington and 507 in its field service. Of the total
number retained in the field service 258 are in the Customs Service,,
where, on account of their long experience in the interpretation and
administration of the customs laws, many of these employees are morevaluable to the Government than new employees without experience
would be. Since my last report the Congress somewhat liberalized
the retirement law by increasing the annuities of retired employees.
At the same time the deductions from salaries for the retirement fund
were increased from 2 J^ to 33^ per cent.
Prior to the passage of the amendatory act it had been the policy
of the department to retire all employees upon reaching the age of
80. The new act, however, provided that should an employee
eligible for retirement make application for retention and his record
indicates that he has been efficient and competent during the preceding two years, certification should be made to the Civil ServiceCommission that the continuance of such employee would be advantageous to the public service. The present policy, therefore, is totreat all retirement cases on their merits without regard to age. In.
view of this more liberal policy under the new law and the fact t h a t
the annuities are still somewhat low, the number of employees retired^
probably has not been as large as otherwise might be expected. In
my previous reports I have expressed the opinion that it would be*
in the interest of efficient administration to reduce the age limits and*
GO increase the annuities. While there has been some modification^
of the law, I am still of the opinion that a more hberalized enactment;
would be in the interest of the service.
The following table shows the number of persons retired and the^
number retained in the departmental and field services of the Treas

172

REPORT ON T H E

FINANCES

ury under the provisions of the act of July 3, 1926, amending the
act of May 22, 1920, and the amendments thereto:
.Statement showing total number of per sorts now retained in the departmental and
.field services of the Treasury Department under the act approved July 3, 1926,
, ^amending the act of May 22, 1920, and the amendments thereto, and the numher
retired since August 20, 1920
'
DEPARTMENTAL
R e t i r e d on a c c o u n t R e t i r e d on a c c o u n t
of disability
of age
Retained

Office

Secretary's
A p p o i n t m e n t Division
Mint Bureau
C u s t o m s Division
P r i n t i n g Division
T r e a s u r e r ' s office
Bookkeeping and warrants
Public Health
C o m p t r o l l e r of C u r r e n c y
__
Loans and Currency .
Supervising Architect
D i s b u r s i n g clerk
Public Debt
_
„
Secret Service
__
Register's office
Engraving and Printing
Internal Revenue
Chief clerk
Coast Guard
A u d i t o r s ' offices. _ _ _
Public Moneys
V/ar R i s k
_
Total

2
4
16
1
2
7'
9
7

To
Sept. 30,
1925

From
Oct. 1,
1925, to
Sept. 30,
1926

47
6

4
1

22
14
11

1
1
1

To
Sept. 30,
1925

From
Oct. 1,
1925, to
Sept. 30,
1926

1
1
1
1
2
37
1
3
4
4
6

Retired
under
act
Sept. 22,
1922

7
1
1
1
5
1
1

1
1
2
20
5
28

105

1
3
9
230
50
. 26
6
86
3
14
529

2
3
1
17
4
6

4
84
20
9

4
13
5
1

11
1
1
192

36
10

78
24

3
7
46
3

16
4
1
1
4
13

9
4
1

Total
number
retired

1
2
1
4
2
95
9
4
28
24
18
1
3
6
18
353
83
43
5
98
4
15
817

F I E L D SERVICE
Customs
Internal Revenue
Coast G u a r d
Public Health
M i n t and Assay.
Custodian
Subtreasury

Total

Grand total

258
27
2
14
52
154

389
232
8
12
130
169
24

• l l

71
1
14

519
341
0
22
155
258
41

507

964

161

1,345

612

1,493

135

353

104

2,162

FINANCE

TABLES

Condition of the Treasury, June SO, 1926
[Revised figures]

General fund:
In Treasury ofiices—
Gold--$161, 784, 563. 70
Standard silver dollars
6, 031, 887. 00
United States notes
3, 835, 118. 00
Federal reserve notes_.:
205, 849. 00
Federal reserve bank notes
134,743.00
National-bank notes
63, 612. 50
Subsidiary silver coin
6, 147, 965. 93
Minor coin
2, 439, 819. 92
Silver bullion (at cost)
8, 431, 438. 88
Unclassified (unassorted currency,
etc.)---60, 801, 453. 14

$249, 876, 451. 07

SECRETARY OF -THE TREASURY
General fund—Continued.
In Federal reserve banks—
To credit of Treasurer of the United
States
In transit-:.
In special depositaries—
Account of sales of cer.tificates of
indebtedness
In national-bank depositaries—
To credit of Treasurer of the United
States----__-To credit of other Government oflBcers
\
In transit

173

^
$10, 718, 586. 49
6, 629, 183. 48
• $17,347,769.97
202, 728, 706. 99
6,642,814.30
21,184,947.21
2, 651, 280. 43
30, 479, 041. 94

In treasury of Philippine Islands—
To credit of Treasurer of the United
States
In transit
.-__

1,032,444.73
671. 10
1, 033, 115. 83

In foreign depositaries—
To credit of Treasurer of the United
States
To credit of other Government ofiicers__.
In transit

•

87,928.12
66,342.00
725.00

154, 995. 12
501, 620, 080. 92

Deduct current liabilities—
Federal reserve
note 5 per cent
fund(gold)__ $152,373,227.61 ^
Less n o t e s in
process of redemption
710,677.50
151, 662, 550. 11
National - b a n k . '
note 5 per cent
fund
26,301,669.29
Less n o t e s in
process of redemption
17, 696, 240. 00
Treasurer's checks outstanding
Post Ofiice Department balance.__
Board of trustees. Postal Savings
System balance
Balance to credit of postmasters,
clerks of courts, disbursing oflB• cers, etc
Ptetirement of additional circu' lating notes, act of May 30,1908 _
•^ Miscellaneous redemption accounts

8,605,429.29
808, 912. 83
6, 651, 315. 13
7, 000, 360. 78
53,247,758.86
4, 065. 00
62, 511, 610. 49
290, 492, 002. 49

Balance in the Treasury June 30, 1926, according to
statementof the public debt of the United States-

211, 128, 078. 43

174

REPORT ON T H E FINANCES

The following is a summary of the net change in the general fund
balances between June 30, 1925, and June 30, 1926, on the basis of
daily Treasury statements (revised):
General fund balances:
Balance per daily Treasury statement, June 30, 1925
$217, 835, 732. 09
Add excess of receipts over expenditures in June reports
subsequently received
I
^,
2, 143, 708. 73
Net balance June 30, 1925, according to statement
of the pubhc debt of the United States
219, 979, 440, 82
Excess of ordinary receipts over expenditures chargeable
against ordinary receipts in the fiscal year 1926
376, 861, 681. 96
Total to be accounted for
-_- — . ~ 9 6 , 841, 122778
Public debt retirements from surplus revenue
376, 861, 681. 96
(This is additional to $487,376,050.69 sinking fund
and other debt retirements chargeable against ordinary
receipts.)
Public debt retirements resulting in decrease in general
fund balance
'
8, 851, 362. 39
Balance in the Treasury June 30, 1926, according to
statement of the pubhc debt of the United States___'-_ 211, 128, 078. 43
Total
.
596, 841, 122. 78

United States notes {greenbacks).—The redemptions qf United
States notes unfit for circulation during the year amounted to
$298,860,000. An equal amount was issued in order to maintain
the outstanding aggregate of the notes as required by law.
Gold reserve fund.—The reserve fund was increased by $567,900.69
during the year, being the amount of franchise tax receipts paid
into the Treasury by the Federal reserve banks and Federal intermediate credit banks on account of earnings in the calendar year
1925. The reserve fund now amounts to $154,188,886.20. There
were no redemptions of United States notes for gold from the reserve
und during t h e year.
•
Trust funds.—The following table shows the trust funds held for
the redemption of the notes and certificates for which they are
respectively pledged:
Gold coin and bulhon. $1, 680, 510, 609
Silver dollars
457, 903, 515
Silver dollars, 1890...
1,356,304

Total

Gold certificates outstanding-.____---_ $2, 168, 884, 959
Less amount in the
Treasury
488, 374, 354
Net
1, 680, 510, 609
Silver certificates outstanding
460, 340, 363
Less amount in the
Treasury
...2,436,848
Net
457, 903, 515
T r e a s u r y notes
(1890) outstanding.
1, 359, 804
Less amount in the
Treasury
3, 500
Net
1, 356, 304
Total
2,139,770,428
2, 139,770,428

175

SECRETARY OF THE TREASURY

Gold fund, Federal Reserve Board.—The balance to the credit of the
gold fund of the Federal Reserve Board on June 30, 1926, amounted
to $1,717,348,235.12, a decrease of $35,396,200 from the amount to
the credit of this fund on June 30, 1925.
The public debt.—The gross public debt of the United States at
.the close of the fiscal year 1926 amounted to $19,643,183,079.69.
This is shown in detail in Tables 22 and 23, pages 500 and 502, respectively.
Receipts and expenditures on the basis of daily Treasury statements
{unrevised)
The following statements summarize cash receipts and expenditures during the fiscal year 1926, and the estimated receipts and
expenditures for the fiscal years 1927 and 1928 on the basis of the
lastest information received from the Bureau of the Budget:
Summary of receipts and expenditures on the basis of daily Treasury statements
{unrevised) ^
Actual, fiscal
year 1926

Estimated,
Estimated,
fiscal year 1927 fiscal year 1928

Net balance in the general fund at the beginning of fiscal
$217,835, 732
year
$210, 002, 027
Receipts:
3,962,755,690
4,026,780,688
Ordinary
21,106,831,762 «1, 009, 019,268
Public debt
Total..

5, 287,423,184

Expenditures:
Ordinary
..-..
Pubhc debt chargeable-against ordinary receipts..
Other public debt
Net balance in the general fund at close of fiscal year..
Total

$210, 002, 027
3,772,753, 077
s 916,638,511

5,245,801,973

4, 898, 393, 616

3,097,611,823
3,077,546,946
487,376,050
566,155, 647
31,492,433, 284 21,392, 098, 353
210,002,027
210,002, 027

3,008,891,688
563,167, 626
a 1,116, 342, 374
210,002, 027

6,287,423,184

5, 245, 801,973

4,898, 393, 615

659,819,801
699,326,291

705, 000,000
727,143,648

747,600, 000
758,189,116

19,506,490

22,143,648

10, 689,115

POSTAL SERVICE

Postal receipts
Postal expenditures s
Deficiency in p(»tal receipts <

1 For explanation of difiierent bases of statements showing Government receipts and expenditures in
this report, see page 296.
2 Other public debt expenditures and public debt receipts, as shown in this statement, are exclusive
of $1,901,622,000 Treasury certificates issued and retired within the same fiscal year.
3 The postal expenditures for 1926 and the deficiency in postal receipts for 1926, as shown in this table,
are exclusive of $10,472,289.69 transferred to the civil service retirement fund under the act of May 22,
1920.
< The postal deficiency for 1926 and the estimated postal deficiencies for 1927 and 1928 are included in the
ordinary expenditures shown above and in the general classification of ordinary expenditures and estimated ordinary expenditures on p. 177.

Receipts and expenditures for the fiscal years 1926 and 1926, and estimated receipts and expenditures for the fiscal years 1927 and 1928, on the
basis of daily Treasury statements {unrevised)
.Fiscal year 1925

Fiscal year 1926

Fiscal year 1927

Fiscal year 1928

RECEIPTS

Ordinary
Customs
Internal revenue:
Income tax
Miscellaneous internal revenue
Miscellaneous receipts:
Proceeds of Governmentowned securitiesForeign obligationsPrincipal
Interest
Railroad securities
All other securities
Trust fund receipts (reappropriated for investment).
Proceeds sale of surplus property
Panama Canal tolls, e t c . . . . . .
Receipts from miscellaneous
sources credited direct to
appropriations
Other miscellaneous

828, 638,067.90

, 982,040,088. 58
2, 589,175,891. 68

855,599,289,26

« $616,800,000.00'

2, 837, 639, 377.84

« $601,800,000.00
$2,090,000,000. 00

$2,190,000, 000.00
619, 685, 000.00
• 2,809,685,000.00

668,985,000. 00

23, 247, 699. 07
160, 389, 977. 94
143, 911,420.98
19,843, 302.01

34,147, 271. 62
160,090, 685. 53
36, 735,326. 87
34,568,379.41

75, 748,575. 00
139, 922, 837.00
32, 588. 254.00
67,426,039. 00

68,643,185. 00
140,029, 291. 00
15,401,948.00
5,972,264. 00

33, 373,481. 01

39, 796,568. 07

45,036,866.00

45,870,000. 00

23, 768,975.02
23, 089,957.87

25, 572,012. 59
24,648,568.58

17, 233,330.00
24, 000,000.00

20.855, 643. 00
24,000,000. 00

645, 686, 219. 44

643,411, 566. 73

3,962, 765,690.14

3,780,148,684.42

7,149, 900. 00
184,045,846. 00

13, 968,980. 00
184,371, 807. 00

18, 694,008. 27
171,433,408. 50

29, 603,432. 29
186,183, 320. 54

511,968,077. 00

4,026, 780, 688. 00

3, 772,753,077. 00

Ordinary (checks and warrants
paid, etc.)

13, 855,664. 29
411,898.27
15,054,408. 58
128,232,421.79
361,887,888. 84
23,495, 738.96
< 79,826.85

15,776,230. 41
438,768. 06
16,521,348. 08
136,678,723. 67
355,072,225. 92
23,774,129.23
96,388.93

16. 502, 758. 00
627, 074. 00
17,025, 420. 00
169, 282, 672. 00
373, 280, 605. 00
25, 630, 960. 00

H
O

600, 295, 688. 00

EXPENDITURES

General expenditures: ^
Legislative establishment
Executive proper.
State Department
Treasury Department
War Department
Department of Justice
Post Office Department..

2, 658,985,000. 00

Total ordinary receipts
:

579,430,092.86

$547, 661, 226.11
$1, 760, 537,823. 68

16,113, 343. 00
625,460.00
12,188,335. 00
164, 993,188. 00
366,802,697. 00
25, 758,160.-00

r
CD

346,142, OOl. 44
302,440,633. 08
164,644,283. 54
25,782,961. 39
9, 677,841. 30
384,716,796. 72

312, ?43,409.81
301,759,049.28
155, 350,432.49
29,132, 015. 82
8, 544,899. 59
404,692,186. 22

336,644,079. 00
306, 719,758. 00
157,097,405. 00
30,813,800. 00
9,420,253.00
409, 268,346. 00

326,740,000. 00
287,037,191. 00
152, 917,110. 00
33, 839,000. 00
9, 482, 893. 00
405,826,043. 00

'27,682, 657. 28
32,713,000. 67

32, 069,356. 30
34,410, 707.45

36, 526,049. 00
36, 663,231. 00

34, 969,763. 00
37,874,869.00

Total
D e d u c t unclassified i t e m s

1,836,667,369. 20
«347,106. 72

1,825,969,870. 26
232,946. 52

1,924, 502,409.00

1, 875,168,052. 00

Total
I n t e r e s t on p u b l i c d e b t
Refunds of receipts:
Customs
...1
Internal revenue
Postal deficiency
:
P a n a m a Canal
Operations in special accounts:
Railroads
W a r F i n a n c e Corporation
Shipping Board .
Alien p r o p e r t y funds
Adjusted service certificate f u n d .
Civil service r e t i r e m e n t a n d disability f u n d '

1,837,004,475. 92
3 881,806,662. 36

1,826,726,923.74
3 831,937,700.16

1,924,502,409. 00
785, 000,000. 00

1,875,168,052.00
765,000,000. GO

05
05
58
69

27, 744,697. 78
182, 220, 053. 01
39, 506,490. 29
9, 017,719.00

18, 010,600. 00
152,330,000. 00
22,143,548.00
9,794,611.00

24,410, 600. 00
152, 230,000. 00
10,689,115. 00
9,042,189. 00

7,204,992. 53
M2,901, 758.13
30,304,859. 54
4,018,131. 55
6 99,458, 769.16

2, 725, 800. 85
* 19, 691,166. 28
23, 043,032. 04
3, 615, 999. 58
« 120,152,238.11

3, 250,000. 00
4 25,000,000. 00
27,080,000. 00
4 150,000.00
115,700,000.00

1,200,000. 00
* 3,000,000. 00
23,880,000. 00
* 150,000. 00
111, 700,000. 00

9,746,622.04

10,816, 743. 02

« 250,000. 00

* 250,000. 00

Navy Department
Interior D e p a r t m e n t
D e p a r t m e n t of A g r i c u l t u r e . . .
JDepartment of C o m m e r c e . —
D e p a r t m e n t of L a b o r
U . S. V e t e r a n s ' B u r e a u 2
O t h e r i n d e p e n d e n t . oflQces
and commissions.
D i s t r i c t of C o l u m b i a

Zfl
22,920,891.
147,777,034.
23,216,783.
9,092,818.

1 F o r explanation of different bases of s t a t e m e n t s showing G o v e r n m e n t receipts a n d e x p e n d i t u r e s in this rei)ort, see p . 296.
2 D u r i n g t h e fiscal year 1926 a l l o t m e n t s for v e t e r a n s ' relief h a v e been m a d e t q t h e T r e a s u r y D e p a r t m e n t in t h e a m o u n t of $372,878.53, to t h e W a r D e p a r t m e n t in t h e a m o u n t
of $4,933,149.13, to t h e N a v y D e p a r t m e n t in t h e a m o u n t of $754,451.62, a n d to t h e I n t e r i o r D e p a r t m e n t in t h e a m o u n t of $41,000. Similar a l l o t m e n t s in t h e fiscal y e a r 1925 to
t h e T r e a s u r y D e p a r t m e n t w e r e $394,840, t o t h e W a r D e p a r t m e n t $4,075,300.07, to t h e N a v y D e p a r t m e n t $1,536,800, a n d to t h e I n t e r i o r D e p a r t m e n t in t h e a m o u n t of $51,260.E x p e n d i t u r e s u n d e r these a l l o t m e n t s , however, a p p e a r as expenditures of t h e respective d e p a r t m e n t s a n d n o t of t h e V e t e r a n s ' B u r e a u .
3 I n c l u d e s $10,374,897.87 for 1925 a n d $5,821,883.67 for 1926, accrued d i s c o u n t on w a r savings certificates of m a t u r e d series.
* Excess of credits ( d e d u c t ) .
8 Add.
8 I n v e s t m e n t s m a d e J a n . 1, 1925, for account of t h e fund were $100,000,000 face a m o u n t of a d j u s t e d service series obligations, of w h i c h $4,600,000 were r e d e e m e d to J u n e 30,1925,
t o p r o v i d e funds for a u t h o r i z e d p a y m e n t s t o t h a t d a t e . I n v e s t m e n t s m a d e J a n . 1, 1926, a n d M a r , 5, 1926, in similar o b h g a t i o n s w e r e $120;000,000 face a m o u n t from t h e a p p r o p r i a tions available on those d a t e s a n d $3,500,000 face a r h o u n t from a n n u a l interest p a y m e n t s on i n v e s t m e n t s . $38,200,000 face a m o u n t of one-year T r e a s u r y certificates of i n d e b t e d n e s s
held in t h e fund m a t u r e d J a n . 1. 1926, a n d after r e d e m p t i o n t h e proceeds of p r i n c i p a l w e r e reinvested in like obligations m a t u r i n g J a n . 1, 1927. F o r issues a n d r e d e m p t i o n s since
J u n e 30,1925, see i t e m s of adjusted service series u n d e r p u b l i c d e b t receipts a n d e x p e n d i t u r e s o n pages 433 a n d 442. T h e difference b e t w e e n a m o u n t s of a b o v e charges a n d t h e
a m o u n t s a p p r o p r i a t e d for i n v e s t m e n t is d u e to w o r k i n g b a l a n c e required for u s e of V e t e r a n s ' B u r e a u in m a k i n g authorized p a y m e n t s from t h e fund:
'' U n d e r provisions of t h e a m e n d m e n t of J u l y 3, 1926, t o t h e act establishing t h e civil service r e t i r e m e n t a n d disability fuii,d a n d regulations issued p u r s u a n t thereto, beginning
J u l y 1, 1926, e x p e n d i t u r e s for salary, p a y , or c o m p e n s a t i o n of employees e n t i t l e d to t h e benefits of t h e act are a t t h e full a m o u n t d u e . R e t i r e m e n t fund d e d u c t i o n s are deposited
m o n t h l y w i t h t h e T r e a s u r e r fjor credit to t h e fund. A m o u n t s n o t required for authorized p a y m e n t s are invested b y t h e T r e a s u r y in special issues of G o v e r n m e n t obligations
bearing interest a t t h e r a t e of 4 per cent per a n n u m , p a y a b l e on J u n e 3.0 each year, w h i c h is t h e s a m e r a t e prescribed in t h e act for earnings on t h e d e d u c t i o n s from salary, p a y , or
compensation. T h e figures for t h e fiscal years 1926 a n d 1926 represent o n l y i n v e s t m e n t s of e m p l o y e e s ' c o n t r i b u t i o n s n o t required for c u r r e n t e x p e n d i t u r e . F o r a m o r e detailed
e x p l a n a t i o n of t h i s a c c o u n t , see p . 101.
^.

Receipts and expenditures for the fiscal years 1926 and 1926, and estimated receipts and expenditures for the fiscal years 1927 and 1928, on the
basis of daily Treasury stateme^its {unrevised) ^—Continued
Fiscal year 1925

F i s c a l ' y e a r 1926

Fiscal year 1927

Fiscal year 1928

EXPENDITURES—continued
Ordinary (checks and w a r r a n t s
paid, etc.)—Continued
I n v e s t m e n t of t r u s t funds:
G o v e r n m e n t life i n s u r a n c e
fund
D i s t r i c t of C o l u m b i a teache r s ' r e t i r e m e n t fund
Foreign service r e t i r e m e n t
fund
General railroad c o n t i n g e n t
fund
P u b l i c d e b t r e t i r e m e n t s chargeable against o r d i n a r y receipts:
Sinking fund
P u r c h a s e s from foreign repayments
° Received from foreign gove r n m e n t s u n d e r d e b t settlements
.
Received from e s t a t e t a x e s . _.
P u r c h a s e s from franchise tax
receipts (Federal reserve
b a n k s a n d F e d e r a l interm e d i a t e credit b a n k s )
Forfeitures, gifts, etc

$31,991, 713. 82

$38, 290, 345. 65

$42,731,866. 00

258,006.70

297,036. 87

305,000. 00

320,000.00

82, 668. 91

100,033.44

97,912. 00

101, 732. 00

1,123, 760. 49
-$3,063,105,332.26

Excess of o r d i n a r y receipts over
total expenditures chargeable
against o r d i n a r y receipts

2,000,000. Op
-$3,077, 545,946.00

w
o

317,091, 760.00

332,232,060. 00

386,100. 00

4;393,600.00

27,706,027. 00

168, 793, 500. 00
47, 550. 00

165, 260,000. 00

205, 218,670.00

208, 672,476. 00

794,159. 88
208, 403. 95

667,900. 69
62,900. 00

1,000,000, 00

800, 000. 00

353, 686,160. 00

•

3, 529,643,446. C

250, 505, 238. 33

(/2

487,376, 050. 69

666,155,647.00

563,167,626.00

3, 684, 987,873. 50

3,643,701,593.00

3, 572, 049,214. 00

377, 767,816.64

383,079,095.00

200,703,863. 00

1 F o r e x p l a n a t i o n of different bases of s t a t e m e n t s s h o w i n g G o v e r m e n t receipts a n d e x p e n d i t u r e s in t h i s r e p o r t , see p . 296,

000,000. 00
-$3,008,891, 588. 00

. 306,308, 400. 00

466, 538,113.83
T o t a l e x p e n d i t u r e s chargeable against o r d i n a r y receipts.
_

1, 209,175. 55
-$3,097,611,822.81

$45, 550,000.00

Public debt expenditures and receipts for fiscal year 1926 and estimates for fiscal years 1927 and 1928, on the basis of daily Treasury
statements {unrevised) ^
Fiscal year 1926

Fiscal year 1927

Fiscal year 1928

EXPENDITURES

Certificates ofindebtedness
Treasury notes and certificates of indebtedness (adjusted service
series)
_
Victory notes
Treasury notes and bonds, and Liberty bonds
_
Treasury (war) savings securities
__
Loan^'of 1925
Retirements of Federal reserve bank notes and national-bank notes...
Old debt items..
_
Total public debt expenditures......
Deduct public debt expenditures chargeable against ordinary receipts:
Sinking fund
Purchase of Liberty bonds from foreign repayments.
Received from foreign goveraments under debt settlements
Retirements from Federal reserve bank and Federal intermediate
credit bank franchise tax receipts
_.
Retirements from gifts, forfeitures, etc

Deposits to retire Federal reserve bank notes and national-banknotes.
Treasury savings securities
_
Other new issues of securities, including Treasury notes and certificates.
Total public debt receipts.
Excess of pubUc debt retirements over the retirements chargeable
against ordinary receipts due to indicated surplus and decrease in
general fund balance.
_

$533,107,500.00

$452,879,000. 00

$800,000,000. 00

15,000,000.00
2,311,550.00
1,339,929,850.00
33,850, 692.38
634,050.00
64,400,182.50
575,509.66

18,000,000.00
2, 000,000. 00
1,415,375,000. 00
40,000,000. 00

19,000,000. 00
1,000,000.00
709, 500,000. 00
125,000,000. 00

30,000,000. 00

1,979,809, 334.54
$317, 091, 750.00
4,393, 500.00
165,260,000.00
567, 900.69
62,900.00.

""25,'000,"600."00

1,958, 264,000. 00
$332, 232, 050. 00
27,705,027. 00
206, 218,670. 00

1, 679,500,000. 00
$353,685,150.00

""268,'672,'476."00

1,000,000. 00

800, 000. 00

487,376,050.69

666,156,647.00

563,167,626.00

1,492, 433,283. 86

1,392,098,363. 00

1,116,342,374. 00

22,318,476.00
11, 678,026.83
1,072,835,260.00

""994,'0i9,"258."00'

"""900,'638,'5ii.'00

1,106,831,761.83

1,009,019, 258.00

915, 638,611.00

385, 601,522.02

383,079,095. 00

200,703, 863.00

16,000,000.00

15,000, 000. 00

1 Public debt expenditures and public debt receipts, as shown in this statement, are exclusive of Treasury certificates issued and retired within the same fiscal year. For
explanation of different bases of statements showing Government receipts and expenditures in this report, see p. 296.

w.
O

180

REPORT ON THE FINANCES

Attention is respectfully invited to the attached abstracts of the
annual reports of the various bureaus and divisions of the Treasury
Department and to the tables and exhibits accompanying the report
on the finances.
A. W.

MELLON,

Secretary of the Treasury.
To the SPEAKER OP THE H O U S E OF REPRESENTATIVES.

EXHIBITS

18.1

EXHIBITS

EXHIBIT

BRIEF DESCRIPTION OF LIBERTY BONDS AND TREASURY BONDS

Form and denominations.—Liberty bonds are issued in both coupon
and registered form in the following denominations: Coupon, $50,
$100, $500, $1,000, $5,000, and $10,000; registered, $50, $100, $500,
$1,000, $5,000, $10,000, $50,000, $100,000; except that the First 3 J^'s
are not issued in coupon form in denominations of $5,000 and $10,000,
nor in registered form in the denomination of $50.
Treasury Bonds are issued in both coupon and registered form in
the following denominations: Coupon, $100, $500, $1,000, $5,000,
$10,000, $100,000; registered, $100, $500, $1,000, $5,000, $10,000,
$50,000, $100,000.
Where obtainable.—Subscriptions for bonds of a new issue may be
made to almost any banking institution in the United States, or
direct to the Federal Reserve Bank of your district, subject to
the terms of the circular announcing the issue. After the close of
the subscription books, bonds of any outstanding issue may be purchased at the market price, and your own bank, or the Federal Reserve Bank of your district, will endeavor to fill your order in the
market.
S}/2 per cent Liberty Bonds exempt from Federal, State, and local
taxation.—Such bonds are exempt, both as to principal and interest,
from all taxation (except estate or inheritance taxes) 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.
4 per cent and 4H. V^'f' ^^^^ Liberty Bonds and all Treasury Bonds
exempt from State and local taxation and from normal Federal income
ifaa:.—Such bonds are 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 S'tates, upon the income or profits of individuals, partnerships,
associations, or corporations.
4 per cent and 4}4. per cent Liberty Bonds and all Treasury Bonds
also entitled to Ujnited exemptions from Federal income surtaxes and
profits taxes.—Such bonds are also entitled to limited exemptions from
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,

183

184

REPORT ON THE FINANCES -

partnerships, associations, or corporations, in respect to the interest
on principal amounts thereof, as follows:
During the life of the obligations— .
$5,000. in the aggregate of First 4's, First 43^'s, First-Second
43^'s, Second 4's, Second 4M's, Third 4M's, Fourth 4M's,
Treasury Bonds of 1947-52, Treasury Bonds of 1944-54,
Treasury Bonds of 1946-56, Treasury Certificates of Indebtedness, War-Savings Certificates, and Treasury Saving
Certificates.
All bonds in hands of foreign holders exempt from taxes.—Bonds of
the United States, while beneficially owned by a nonresident alien
individ.ual, or a foreign corporation, partnership, or association, not
engaged in business in the United States, are exempt, both as to
principal and interest, from any and 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.
4/€ V^'^ c^nif Liberty Bonds and li-^i per cent Treasury Bonds receivable
at par inpayment of Federal estate or inheritance taxes.—All such bonds
which have been owned by any person continuously for at least six
months prior to the date of his death and which upon such date constitute part of his estate are receivable by the United States at par
and accrued interest in payment of Federal estate or inheritance taxes.
'Cumulative Sinking Fund.—For the fiscal year beginning July 1,
1920, and for each fiscal year thereafter until all Liberty Bonds and
V^ictory Notes, and other bonds and notes issued for refunding purposes under any of the Liberty Bond Acts, or the Victory Liberty
Loan Act, or under any of such acts as amended, are retired, the
Victory Liberty Loan Act appropriates, out of any money in the
Treasury not otherwise appropriated, for the purposes of the cumulative sinking fund, an amount equal to the sum of (1) 23^ per cent of
the aggregate amount of such bonds and notes outstancling on July
1,^ 1920, less an amount equal to the par amount of any obligations of
foreign governments held by the United States on that date, and (2)
the interest which would 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.
The principal and interest of all Liberty Bonds and Treasury Bonds
are payable in United States gold coin of the present standard of value.
Liberty Bonds and Treasury Bonds are issued under authority of
the acts of Congress approved April 24, 1917, September 24, 1917,
April 4, 1918, July 9, 1918, and September 24, 1918, as amended,
and pursuant to ofiicial Treasury Department circulars, from which
these statements are summarized and to which they are subject.
EXHIBIT 2
BRIEF DESCRIPTION OF TREASURY NOTES, CERTIFICATES OF
INDEBTEDNESS, T R E A S U R Y SAVINGS CERTIFICATES, AND WARSAVINGS CERTIFICATES i

Form and denominations.—Treasury Notes are .issued only in
coupon form, and in the following denominations: $100, $500, $1,000,
$5,000, $10,000, and $100,000.
1 War-Savings Certificates are now matured.

SECRETARY OF T H E TREASURY

185

Treasury Certificates of Indebtedness are issued in coupon form,
and in the following denominations: $500, $1,000, $5,000, $10,000,
and $100,000.
Treasury Savings Certificates have been withdrawn from sale, b u t
were issued only in registered form,, with maturity values of $25,
$100, and $1,000..
War-Savings Certificates ^ are obligations of the Government when
one or more War-Savings stamps with a maturity value of $5 each are
affixed. War-Savings stamps have been withdrawn from sale.
Where obtainable.—Subscriptions for notes or certificates of a new
issue may be made to almost any banking institution in the United
States, or direct to the Federal Reserve Bank of your district, subject
to the terms of the circular announcing the issue. After the close of
the subscription books, notes or certificates of any outstanding issue
may be purchased at the market price, and your own bank, or the
Federal Reserve Bank of your district, will endeavor to fill your
order in the market.
Treasury Notes, Treasury Certificates of Indebtedness, Treasury
Savings Certificates, and War-Savings Certificates,^ exempt from State
and local taxation and from normal Federal income tax.—All such notes
and certificates herein described are exempt, both as lbo 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 Treasury
Certificates of Indebtedness, Treasury Savings Certificates, WarSavings Certificates, Liberty Bonds, and Treasury Bonds, the principal of which does not exceed in the aggregate $5,000, owned by an\
individual, partnership, association, or corporation, shall be exempt
from the taxes provided for in subdivision {b) above.
All Notes and Certificates of Indebtedness in hands of foreign holders
exeinpt from taxes.—Notes and certificates of indebtedness of the
United States are, while beneficially owned by a nonresident alien
individual, or a foreign corporation, partnership, or association, not
engaged in business in the United States, exempt, both as to principal
and interest, froni any and 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.
Treasury Notes bearing interest at a higher rate than 4 per cent per
annum, receivable at par in payment of Federal estate or inheritance
taxes.—All such notes which have been owned by any person continuously for at least six months prior to the date of his death and which
upon such date constitute part of his estate are receivable by the
United States at par and accrued interest in payment of Federal
estate or inheritance taxes.
Treasury Notes and Certificates of Indebtedness receivable in payment
of Federal income and profits taxes.—Treasury Notes are receivable
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
* War-Savings Certificates are now matured.

186'

REPORT ON T H E FINANCES

taxes payable at or within six months before the maturity of the notes.
Treasury Certificates of Indebtedness maturing on quarterly tax
payment dates are receivable in payment of income and profits
taxes payable at the maturity of the certificates.
Cumulative Sinking Fund.—For the fiscal year beginning July 1,
1920, and for each fiscal year thereafter until all Liberty Bonds and
Victory Notes, and other bonds and notes issued for refunding purposes under any of the Liberty Bond Acts or the Victory Liberty Loan
Act, or under any of such acts as amended, are retired, the Victory
Liberty Loan Act appropriates, out of any money in the Treasury
not otherwise appropriated, for the purposes of the cumulative sinking
fund, an amount equal to the sum of (1) 23^ per cent 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 that date, and (2) the
interest which would 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 3^ear or in
previous years.
Treasury Savings Certificates and War-Savings Certificates^—Limit
of Holdings.—Any one person at any one time may hold Treasury
Savings Certificates and War-Savings Certificates of any one series
to an aggregate amount not exceeding $5,000 (maturity value). The
certificates issued within any one calendar year constitute a separate
series under the serial designation of the year of issue.
The principal and interest of all Treasury Notes aiid Certificates
of Indebtedness are payable in United States gold coin of the present
standard of value.
Treasury Notes, Treasury Certificates of Indebtedness, Treasury
Savings Certificates, and War-Savings Certificates ^ are issued under
authority of the acts of Congress approved April 24, 1917, September
24, 1917, April 4, 1918, July 9, 1918, September 24, 1918, March 3,
1919, and November 23, 1921, as amended, and pursuant to official
Treasury Department circulars, from which these statements are
summarized and to which they are subject.
EXHIBIT 3
[Department Circular No. 368. Public Debt]

GENERAL REGULATIONS GOVERNING FULL-PAID INTERIM
CERTIFICATES
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, August 16, 1926.
The following regulations are prescribed relative to full-paid
interim certificates issued subsequent to August 16, 1926:
(1) ISSUE.—Federal Reserve Banks may issue full-paid interim
certificates in lieu of definitive securities, when specifically authorized
by the Secretary of the Treasury in connection with the sale, hereafter,
1 War-Savings Certificates are now matured.

SECRETARY OF THE TREASURY

187

to the public, of United States securities. Interim certificates will
not be issued—
{a) In the names of two or more persons.
(&) In any form limiting legal title of the owner.
No interim certificate shall be issued by any Federal Reserve Bank
in exchange for an interim certificate issued by another Federal
Reserve Bank. Interim certificates of one issue will not be exchanged
for interim certificates of a different issue, whether or not both issues
bear the same. date.
(2) EXCHANGE FOR D E F I N I T I V E SECURITIES.—-Upon surrender of a

full-paid interim certificate at the Federal Reserve Bank of issue,
the definitive securities described therein, when prepared, will be
delivered to the subscriber named thereon, or his or its assigns, or to
the duly authorized-representative thereof. No assignment of the
certificate will be required upon such surrender, but the subscriber,
or his or its assigns, or the duly authorized representative thereof,
must satisfy the Federal Reserve Bank as to his or its identity and
authority to receive the definitive securities, and must sign the receipt
on the back of the interim certificate.
Interim certificates will be honored only by the Federal Reserve
Bank by which issued, and in order to secure delivery of definitive
securities they must be presented to such issuing Federal Reserve
Bank.
(3) TRANSFERS.—The definitive securities described in a full-paid
interim certificate shall be delivered only to the subscriber named
thereon, or his or its assigns, or to the duly authorized representative
thereof. The certificate, and rights under and by virtue thereof,
shall pass only by assignment and delivery of the certificate, and in
the event of such assignment delivery of the definitive securities shall
be subject to the same regulations as herein provided with respect to
the original subscriber.
(4) ASSIGNMENTS.—(a) By individuals.—Assignments must be
executed by the subscriber, or his or its assigns, or by the duly
authorized representative thereof, in the presence of a notary public,
a justice of the peace, or an officer authorized to witness the execution
and acknowledgement of assignments of United States registered
bonds. If an assignment is made by anyone other than the subscriber,
or his or its assigns, appropriate evidence of the authority of such person to act must be produced and must accompany the certificate.
For the purpose of executing assignments, the forms appearing on the
back of the certificates must be used. Detached assignments will
not be recognized or accepted.
(6) By attorneys-infact.—The subscriber, or his or its assigns, may,
by duly-executed power of attorney, appoint an. attorney-in-fact to
assign the certificates. The original power of attorney must in all
cases accompany the certificates: Provided, however. That where the
certificates are issued in the name of, or are assigned to, an attorneyin-fact, as ^'John Jones, Attorney-in-Fact for Henry Jones,'^ assignments b}^ the person so named, when executed under the representative title in the same wording as appears in the certificate or assignment, will be recognized without requiring further proof of authority
to act.
(c) By partnerships.—Assignments by partnerships should be executed by a member of the firm who is possessed of authority to sign

188

»REPORT ON THE FINANCES

for the firm, of which autborit}^ the officer witnessing the signaturemust be satisfied. The assignment should read substantially,..
'\Smith and Jones, a Partnership^ by John Jones, Member of t h e
Firm.''
{d) By corporations.—Assignments by corporations should be made
by an officer or officers duly authorized for the purpose by resolution
of the governing body, and a. certified copy of such resolution, underseal, must accompany the certificates or be on file with the Federal
Reserve Bank of issue. Where the charter or by-laws of a corporation, or a resolution of its governing body, authorizes the holder of a.
particular office to execute assignments, a certified copy of the charter,,
by-laws, or resolution should be furnished, together with a certificate,
under^seal, giving the name of the person holding such office. If,
however, the interim certificate is issued in the name of, or is assigned'
to, an officer of a corporation, as'^^John Jones, Priesident, The X.
Corporation'' (but not when issued in the name of, or assigned to,
the corporation, as ^^The X Corporation, John Jones, President"),,
assignments by the person so named, when executed under the representative title in the same wording as appears on the face of the certificate, or in the assignments, will be recognized without requiringfurther proof of appointment and authority to act.
{e) By fiduciaries.—Assignments by trustees, executors, administrators, or guardians must be accompanied by duly-certified copies
of appropriate orders of courts of competent jurisdiction, under seal,
authorizing the sale and assignment of the certificates, except that.
such orders of court will not be required where, under the laws of"
the domicile of the subscriber, or of his or its assigns, as the case may
be, orders of court are not required or deemed by the Federal ReserveBanks to be necessary: Provided,' however. That where these certificates are issued in the name of, or are assigned to, a trustee, executor,
administrator, or guardian, assignments by the person so named,
when executed under the representative title in the same wording;
as appears on the face of the certificate or in the assignment, will
be recognized without requiring further proof of appointment and.,
authority to act.
(/) Assignments by trustees, etc., tq theinselves individually.—•Assignments by trustees, executors, administrators, guardians,,
agents, attorneys-in-fact, or officers of a corporation, or other repre-sentatives, to themselves individually will not be recognized except
upon presentation of duly-certified copies of orders of courts of"
competent jurisdiction authorizing the assignments; except that
where any such representative derives his authority from a writteni
instrument and is not appointed by, or under control of, a court,,
an assignment to himself individually will be recognized if accompanied by the original instrument of authority expressly authorizingsuch assignment.
{g) Instructions J o witnessing officers.—Witnessing officers must,
satisfy themselves as to the identity of the person executing an*,
assignment, and the person executing the assignment must actually
appear before the witnessing officer. Witnessing officers will beheld to strict accountability in these respects, and will be expected
to respond in the event of any loss resulting from want of care on
their part. In all cases the witnessing officer must affix to theassignment his official signature, title, address, and seal, and the-

SECRETARY OF THE TIIEASURY

189

-date of the assignment; officers of incorporated banks and trust
-companies must affix the seal of the bank or trust company. If
the officer does not possess an official seal, that fact should be made
known and attested.
(h) Forged assignments.—No title passes by a forged assignment
of a full-paid interim certificate even though the purchaser has
purchased the certificate in good faith and for value. Upon receipt
•of notice that a certificate bears a forged assignment, the Federal
Reserve Bank of issue will immediately enter a caveat against the
delivery of the definitive securities described therein and when the
•certificate is presented to the Federal Reserve.Bank it will be forwarded to the Treasury Department, together with a full statement
of the facts and a request for further instructions. Where delivery
of the definitive securities has already been made on the basis of
an assignment or receipt which is subsequently proven to be a
forgery, appropriate relief may, if warranted by the facts, be granted
to the true owner upon a complete report of the facts to the Treasury and upon approval by the Secretary of the Treasury. Those
responsible on the assignment or receipt will be proceeded against
in the following order: (1) The person committing the forgery;
(2) the officer witnessing the forged assignment; and (3) the person
presenting the certificate to the Federal Reserve Bank, on his iinplied warranty of title. In accordance with the general principles
of law, a person presenting United States full-paid interim certificates to the Federal Reserve Banks, as Fiscal Agents of the United
States, for transfer or exchange for definitive securities, gives an
implied warranty of title to the United States, and, therefore, is
liable to the United States in case the assignment on which the
transfer or delivery is effected is found to be forged or otherwise
defective.
{i) Assignments afecied by fraud.—Where the assignment of a
full-pg^d interim certificate is secured by fraudulent representations,
no relief can be granted if the assignment has'been honored without
notice of the fraud. Otherwise, upon receipt of notice t h a t ' the
assignment is claimed to have been secured by fraudulent representations, a notation will be made against the transfer of the certificate or delivery of the definitive securities thereon, and when the
certificate is presented to a Federal Reserve Bank it will be forwarded with a full statement of the facts to the Treasury Department. The Treasury Department will require the subscriber as
w^ell as the person presenting the certificate to substantiate their
respective claims, and may, in its discretion, take the position of a
stakeholder and withhold action on the assignment pending a settlement of the case by agreement between the parties or by judicial
proceedings, if necessary.
ij) Forms.—Wherever appropriate, the forms adopted for use
in transferring United States registered bonds, reference to which
will be found in Treasury Department Circular No. 300, should be
used in support of assignments of these certificates, with such
changes therein as may be necessary.
(5)

LOST, STOLEN, DEFACED, OR DESTROYED INTERIM C E R T I F I -

CATES.— (a) Immediately upon the loss, theft, defacement, or
destruction of a full-paid interim certificate, the owner should, in
writing, notify the Federal Reserve Bank by which it was issued of

190

REPORT ON THE FINANCES

the fact, giving the amount of the interim certificate, the name and
address of the owner, the name and address of the bank or other
agent, if any, connected with the purchase, the issue or series and
the date and number of the certificate. After it has been proved
to the satisfaction of the Secretary of the Treasury by clear and satisfactory evidence that an interim certificate has been lost, stolen, or destroyed so that the same is not held by any person as his own property
or is so defaced as to impair its value to the owner, the Secretary
will, as provided herein, issue definitive securities on account of such
interim certificate.
(b) In order to procure the issue of definitive securities on account
of such interim certificate, the claimant, who in cases arising under
this circular should be the owner or his recognized representative,
will be required to furnish to the Federal Reserve Bank which issued
the original certificate an affidavit showing (1) his name, age, and
residence in full; (2) the complete identification of the interim
certificate by issue or series, denomination, serial number, inscription, and the name of the issuing Federal Reserve Bank; (3) his
ownership thereof; (4) that no pledge, loan, hypothecation, assignment, exchange or transfer of the certificate has been made or
authorized by him in person or by attorney; and (5) that the certifipate has been lost,, stolen, or destroyed so that the same is not
held by any person as his own property or is so defaced as to impair
its value. The affidavit must also show the interest of the affiant
therein and must state in detail the circumstances attending the
loss, theft, defacement, or destruction, and must contain every
fact within the knowledge of the affiant bearing upon the circumstances, and must also contain any information which affiant has
received with reference thereto from any other person, stating from
whom received and whether or not affiant believes such information
to be true. The omission from the affidavit of any material fact
within the knowledge of the affiant or of any material infomiation
that has been received by him prior to the making of the affidavit
will be sufficient cause to refuse relief. If the claim is presented by
an authorized representative, of the owner, he should state the capacity in which he is making the claim and should furnish evidence
of his authority to act.
If the definitive securities to be issued can be issued in registered
form, the affidavit shall state whether coupon or registered securities
are desired. If registered securities are desired, the name in which
they are to be registered, giving prefix (Mrs. or Miss), first name in
full, middle name or initial, and last name, and address in full, with
street and number, city or town, county and state, must be given.
(c) In addition to the affidavit of the owner, the material facts
should be substantiated by the affidavits of all other persons acquainted therewith. If such supporting affidavits are not furnished,
the owner's affidavit must show sufficient facts to satisfy the Department that supporting affidavits can not be had. The omission to
furnish the supporting affidavits required by these regulations, where
such supporting affidavits can be obtained, will be sufficient cause
to refuse relief.
{d) The affidavits relative to the circumstances must show the
specific place of deposit of the missing certificate (that is, if kept in
house or office, it should be shown in what part thereof, whether in

SECRETARY OF THE TREASURY-

191

desk, box, etc., and whether under lock and key) and whether or not
any person or persons other than the owner had access thereto. In
the event of its having been accessible to other parties, their affidavits
in addition to that of the owner should be furnished, showing their
knowledge of the existence of the certificate and of the facts as to
its loss, theft, defacement, or destruction. In the event the certificate was in the custody of a bank or was kept in a safety-deposit
box in a bank, or in the event that the claimant alleges he has no
recollection of having received the certificate from the bank through
which his purchase was made, his affidavit should show these facts,
giving the name of the bank, and should be accompanied by an
affidavit from an executive officer of such bank who is in a position
to be familiar with the circumstances showing what knowledge he
has of the existence of the certificate in the bank and the facts and
circumstances of its alleged loss, theft, defacement, or destruction.
Full details should be given in the affidavit, which should show the
result of the inquiries he has made of the other officials and employees
of the bank who might have had access to the certificate and who
might have knowledge in connection with the facts.
{e) In addition, affidavits should be furnished from two responsible
and disinterested persons who are in no manner related to the claimant, and who should, wherever possible, be officers of the United
States or executive officers of incorporated banks or trust companies,
identifying the affiant and showing that he is a person known to
them and whose statements, as set forth in his affidavit, are worthy
of the confidence and consideration of the Treasury Department,
and that he is the identical person named in the application. Like
evidence of credibility must accompany each of the supporting
affidavits furnished,
{f) In case of a claim on a defaced interim certificate, in addition
to the submission of the above-required evidence, the certificate, or
so much thereof as m.ay remain, must be carefully packed to avoid
further mutilation and surrendered to the Federal Reserve Bank
for transmittal to the Department. In cases of this character affidavits of credibility may not be required.
{g) All affidavits submitted in connection with claims under this
circular must be acknowledged before a notary public, or other
officer authorized by law to administer oaths, and, unless authenticated by the official impression seal of the officer, should be accompanied by a certificate from the proper official, showing that the
officer was in commission on the date of the acknowledgment. The
date when the officer's commission expires should appear in any
event. Only one certificate is necessary for each officer provided
the dates of the beginning and expiration of his commission are
shown thereon and such period of commission includes the date of
acknowledgment of the affidavit. Affidavits acknowledged before a
judge or clerk of a court and bearing the seal of the court need not
be accompanied by any further certification.
{h) The Federal Reserve Bank which issued the interim certificate
will examine the proof submitted and call upon the applicant to
submit any proof hereinabove required which may be missing. After
all the proof hereinabove required has been furnished, or after the
applicant has failed for a period of 60 days after request, or has
refused, to submit further proof required, the Federal Reserve Bank

192

REPORT ON THE FINANCES

shall transmit the papers to the Secretary of the Treasury, Division
of Loans and Currency, with a transcript of its record of the issuance of the interim certificate ih question, giving the number and
date thereof, and a report whether such interim certificate has been
presented by any other person, whether notice of its existence in the
hands of any other person has been given to such Federal Reserve
Bank, whether the certificate is identified to its satisfaction with the
record of issuance transmitted, and making recommendations as to
the disposition of the application.
{i) Upon receipt by the Secretary of the Treasury of such documentary evidence it will be referred to the Solicitor of the Treasury
for his opinion as to its sufficiency. The applicant will be advised
of the decision as soon as it is reached. If it be favorable to such
applicant, the Secretary of the Treasury will hold the application
until the expiration of a reasonable time from the date of the application. If the original interim certificate shall not be found or presented within such period, a bond of indemnity will be prepared and
forwarded to the applicant for execution, and when this bond of
indemnity shall have been duly executed, returned to the Department, and approved by the Solicitor of the Treasury and the Secretary
definitive securities, as requested, of the loan and denomination called
for by such interim certificate, will be issued to the applicant.
(j) The bond of indemnity shall be for a sum equal to two and
one-half times the principal amount of the securities called for by
such interim certificate, and shall be in the form furnished by the
Treasury Department. If individuals act as sureties, they shall be
two in number, both of whom shall be citizens of the United States,
and it must be shown that they have sufficient unincumbered property
liable to execution to cover the penalty thereof. A married woman
will not be accepted as surety. If a woman acts as surety, she must
include in her affidavit in the bond of indemnity a statement of the
fact that she is unmarried. The statement of the sureties relative
to their responsibility may be investigated by the Department, and
any refusal to disclose material facts bearing on their responsibility
will be sufficient cause to reject the surety.
(k) The Acts of August 13, 1894, and March 24, 1910, authorize
the acceptance of a surety company (duly incorporated and duly
authorized to do business) by the Secretary of the Treasury, in lieu
of the two sureties above prescribed. When a surety company has
been duly accepted by the Treasury Department, its sufficiency need
not be certified as is required in the case of personal sureties.
{I) In case of a claim on account of a defaced interim certificate,
if the defacement or mutilation appears to be immaterial or is so
slight that the certificate may be fully and completely identified, and
the missing fragments could not by any possibility form the basis of a
claim against the United States, the Treasury Department may grant
relief without a bond of indemnity.
In no event should a bond of indemnity be submitted until called for
by the Department, and it should be submitted then only on the .prescribed form furnished for the purpose.
(m) In all cases where notice is given to a Federal Reserve Bank
that an interim certificate has been lost, stolen, or destroyed, a
caveat will be entered against the issue of any definitive securities
against such certificate. No definitive security shall be issued on

SECRETARY OF THE TREASURY

193

any certificate against which a caveat is entered, without special
instructions from the Treasury Department.
^
{n) In case the interim certificate alleged to be lost, stolen, or
destroyed has been presented by the subscriber, or his or its assigns,
and honored prior to granting, relief under these regulations, the
application will be denied.
(o) The Secretary of the Treasury reserves the right to require
and permit the security of the bond of indemnity to be renewed,
strengthened, increased, or diminished as the facts may warrant, in
his opinion, from time to time.
{p) Certificates assigned in blank, or bearing assignments for
exchange for definitive securities without instructions restricting
delivery, are in effect payable to bearer, since title thereto may pass
by delivery without further assignment or indorsement. Accordingly, under existing law, the Treasury Department can grant no
relief on account of the loss or theft of certificates so assigned, and,
if reported lost or stolen, will not enter caveats against their transfer
or exchange for definitive securities. The Treasury Department
assumes no responsibility with respect to certificates so assigned,
but if the issuing Federal Reserve Bank or the Department is notified
of their loss or theft, notations will be made on the records, and, in
the event that the certificates thereafter are received for transfer or
exchange, may require the person presenting such certificates to
submit evidence showing w^hether or not he is a bona fide holder in
due course. If it appears that the person presenting the certificates
is not a^ bona fide holder in due course, the Federal Reserve Bank
,may withhold transfer or exchange, and, in any event, it will notify
the registered owner of the result of the inquiry. In case certificates
so assigned are destroyed or defaced, relief will be given upon application in proper form on substantially the same terms and conditions
as heretofore prescribed, excepting that in case of destruction the
proof of the destruction must be clear and unequivocal.
RESERVATION

CLAUSE

(6) The Secretary of the Treasury reserves the right to withdraw
or amend at any time or from time to time any or all of the foregoing
rules and regulations.
GARRARD B . WINSTON,

Acting Secretary of the Treasury.
EXHIBIT 4
IFourth supplement to Department Circular 225. Public Debt.]

RECEIPT OF LIBERTY BONDS, TREASURY BONDS, AND TREASURY
NOTES FOR ESTATE QR INHERITANCE TAXES
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, October SO, 1926.
1. The provisions of Department Circular No. 225, dated January
31, 1921, as supplemented June 30, 1922, July 31, 1923, and October
15, 1925, prescribing regulations governing the receipt of bonds and
notes of the United States for Federal estate or inheritance taxes are

194

REPORT ON T H E

FINANCES

hereby supplemented to show the bonds and notes at this date outstanding, bearing interest at a higher rate than 4 per centum per
annum, which come within the provisions of Department Circular No.
225, dated January 31, 1921, as thus supplemented. The bonds and
notes are:
Description
(a)
(b)
(c)
(d)
(e)
(/)

First Liberty loan converted i H per cent bonds of 1932-1947
^.
First Liberty loan second converted i H per cent bonds of 1932-1947.
Second Liberty loan converted 43^ per cent bonds of 1927-1942
Third Liberty loau i H per cent bonds of 1928
Fourth Liberty loan 4Mper cent'bonds of 1933-1938
i H per cent Treasury bonds of 1947-1952

(Q) i H per cent notes, payable Dec. 15, 1927
(Jl) i H per cent notes, payable Mar. 15, 1927

'_.._

Date of issue

Short title

May 9,1918
Oct. 24,1918
May 9,1918
do--

First 4M's.
First second i H ' s .
Second 43^'s.
Third iH's.
Fourth 43^'s.
Treasury bonds of
1947-1952.
Series A-1927.
Series B-1927.

Oct. 24,1918
Oct. 16,1922

Jan. 15,1923
May 15,1923

2. For the calculation of accrued interest on the current coupons of
bonds and notes tendered in payment of estate or inheritance taxes
under this circular, the method outlined in Exhibit B to Department
Circular No. 225, dated January 31, 1921, should be followed.
Interest tables at the various rates borne by the various issues, or
for other or future issues, may be obtained from the Treasury
Department, Division of Loans and Currency, Washington, upon
request.
A. W.

MELLON,

Secretary of the Treasury.

EXHIBIT

[Department Circular No. 367. Public Debt]
U N I T E D STATES O F A M E R I C A — T H R E E 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 BONDS O F 1 9 4 6 - 5 6 , DATED AND B E A R I N G
I N T E R E S T F R O M M A R C H 16, 1926, D U E M A R C H 15, 1 9 5 6 , R E DEEMABLE AT T H E O P T I O N O F T H B U N I T E D STATES AT PAR
AND ACCRUED I N T E R E S T ON AND A F T E R M A R C H 15, 1 9 4 6 ,
I N T E R E S T PAYABLE M A R C H 15 AND S E P T E M B E R 15

The Secretary of the Treasury invites subscriptions, at lOOj^ and
accrued interest, from the people of the United States, for three and
three-quarters per cent Treasury bonds of 1946-56, of an issue of
gold bonds of the United States authorized by the Act of Congress
approved September 24, 1917, as amended. The amount of the
offering will be $500,000,000, or thereabouts.
DESCRIPTION

OF BONDS

The bonds will be dated March 15, 1926, and will bear interest
from that date at t h e rate of three and three-quarters per cent per
annum payable semiannually, on September 15, 1926, and thereafter.
on March 15 and September 15 in each year. The bonds will mature
March 15, 1956, but may be redeemed at the option of the United
States on and after March 15, 1946, in whole pr in part, at par and
accrued interest, on any interest day or days, on four months' notice

SECRETARY OF THE TREASURY

195

of redemption given in such manner as the Secretary of the Treasury
shall prescribe. In case of partial redemption the bonds to be
redeemed will be determined by such method as may be prescribed
by the Secretary of the Treasury. From the date of redemption
designated in any such notice, interest on the bonds called for redemption shall cease. The principal and interest of the bonds will be
payable in United States gold coin of the present standard of value.
Bearer bonds with interest coupons attached will be issued in
denominations of $100, $500, $1,000, $5,000, $10,000, and $100,000.
Bonds registered as to principal and interest will be issued in denominations of $100, $500, $1,000, $5,000, $10,000, $50,000, and $100,000.
Provision will be made for the interchange of bonds of different
•denominations and of coupon and registered bonds and for the transfer
of registered bonds, without charge by the United States, under rules
and regulations prescribed by the Secretary of the Treasury.
The bonds 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 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 (6) above.
The bonds will be acceptable to secure deposits of public moneys,
but do not bear the circulation privilege and are not entitled to any
privilege of conversion.
APPLICATION, A L L O T M E N T , AND PAYMENT

Applications will be received at the Federal Reserve Banks, as
'fiscal agents of the United States. Banking institutions generally
ivill handle applications for subscribers, but only the Federal Reserve
B.anks are authorized to act as official agencies.
The right is reserved to reject an}^ subscription and to allot less
than the amount of bonds applied for and to close the subscriptions
at any time without notice. The Secretary of the Treasury also
reserves the right to make allotment in full upon applications for
smaller amounts and to make reduced allotments upon or to reject,
applications for larger amounts and to make classified allotments and
allotments upon a graduated scale; and his action in these respects
will be final.
Payment at 1003>^ and accrued interest for any bonds allotted must
be made on or before March 15, 1926, or on later allotment. Any
qualified depositary will be permitted to make ^ payment by credit
for bonds 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 notes
of Series A-1926, maturing March 15, 1926 (with coupon dated
March 15, 1926, detached) will be accepted at par, at the Federal

196

REPORT ON T H E FINANCES

Reserve Banks, to be applied in part payment for any Treasury
bonds of 1946-56 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
allotments thereon on the basis and up to the amounts indicatefd
by the Secretary of the Treasury to the Federal Reserve Banks of
the respective districts. Allotment notices will be sent out promptly''
upon allotment, and the basis of allotment will be publicly announced.
FURTHER

DETAILS.

Bonds will be delivered after allotment and payment. Pending
delivery of the definitive bonds. Federal Reserve Banks may issue
interim receipts.
Further details may be announced by the Secretary of the Treasury from time to time, information as to which may be obtained
from the Treasury Department, Division of Loans and Currency,
Washington, D. C , or .from any Federal Reserve Bank.
A. W.

MELLON,

Secretary of the Treasury.
TREASURY DEPARTMENT, ,
O F F I C E OF THE SECRETARY,

March 8, 1926.
To the investor:
Almost 2i.nY banlving institution in tlie United States will handle 3^0ur subscription for you, or you m a y m a k e subscription direct to t h e Federal Reserve
Bank, of your district. Your special attention is invited to t h e t e r m s of subscription a n d allotment as stated above. If you desire to purchase, a t t h e m a r k e t
price, bonds of t h e above issue after t h e subscriptions close, or bonds of any
outstanding issue, you should apply to your own bank, or, if it can not obtain
t h e m for you, to t h e Federal Reserve Bank of your district, which will then
endeavor to fill your order in t h e m a r k e t .

EXHIBIT 6
[Department Circular No. 364. Public Debt]
U N I T E D STATES O F A M E R I C A — T H R E E AND T H R E E - Q U A R T E R S
PER
CENT
TREASURY
CERTIFICATES
OF
INDEBTEDNESS.
S E R I E S T D - 1 9 2 6 , D A T E D AND B E A R I N G I N T E R E S T F R O M D E CEMBER 15, 1925, DUE DECEMBER 15, 1926

SECRETARY OF THE TREASURY

197

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 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 will be acceptable to secure deposits of public moneys, but will
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. The Secretary of the Treasury
also reserves the right to make allotment in full upon applications for
smaller amounts, and to make reduced allotments upon, or to reject,
applications for larger amounts, and to make classified allotments
and allotments upon a graduated scale; and his action in these respects
will be final. Allotment, notices will be sent out promptly upon
allotment, and the basis of the allotment will be publicly announced.
Payment at par and accrued interest for certificates allotted must be
made on or before December 15, 1925, 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 notes
of Series B-1925, and Treasury certificates of indebtedness of Series
TD-1925, both maturing December 15, 1925, will be accepted at par,
in payment for any certificates of the series now offered which shall
be subscribed for and allotted, with an adjustment of the interest
accrued, if any, on the certificates of the series so paid for.
As fiscal agents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions and to make
allotments on the basis and up to the amounts indicated by the
Secretary of the Treasury to the Federal Reserve Banks of the respective districts.
A. W.

MELLON,

Secretary of the Treasury.
TREASURY DEPARTMENT,
OFFICE OF THE SECRETARY,

December 7, 1925.
To the investor:
Almost any banking institution in t h e United States wiU handle your subscription for you, or you m a y m a k e subscription direct to t h e Federal Reserve
Bank of your district. Your special a t t e n t i o n is invited to t h e t e r m s o f . s u b scriptioTi and allotment as stated above. If you desire to purchase, a t t h e m a r k e t

198

REPORT ON T H E FINANCES

price, certificates of t h e above issue after the subscriptions close, or certificates^
of any outstanding issue, you should apply to your own bank, or, if it can not
obtain t h e m for you, to t h e Federal Reserve Bank of your district, which will,
then endeavor to fill your order in t h e m a r k e t .

EXHIBIT 7
[Department Circular No. 370. Public Debt]

UNITED STATES O F A M E R I C A — T H R E E AND O N E - H A L F P E R CENT
TREASURY CERTIFICATES OF INDEBTEDNESS. SERIES TJ-1927,
DATED AND B E A R I N G I N T E R E S T F R O M S E P T E M B E R 15, 1926,
DUE JUNE 15, 1927

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 of Series TJ-1927, dated and
bearing interest from September 15, 1926, payable June 15, 1927,
with interest at the rate of three and one-half per cent per annum,
payable on a semiannual basis.
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 December 15, 1926, and June 15, 1927.,
The certificates of 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 (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 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 paj^able
at the maturity of the certificates. The certificates of this series
will be acceptable to secure deposits of public moneys, but will 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. The Secretary of the Treasury
also reserves the right to make allotment in full upon applications for
smaller amounts, and to make reduced allotments upon, or to reject,
applications for larger amounts, and to make classified allotments
and allotments upon a graduated scale; and his action in these
respects will be final. Allotment notices will be sent out promptly
upon allotment, and the basis of the allotment will be publicly
announced.

SECRETARY OF THE TREASURY

199

Payment at par and accrued interest for certificates allptted must
- b e made on or before September 15, 1926, 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 notes
of Series B-1926, maturing September 15, 1926, will be accepted at
par, in payment for any certificates of the series how offered which
shall be subscribed for and allotted, with an adjustment of the interest
accrued, if any, bn the certificates of the series so paid for.
As fiscal agents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions and to make allotments on the basis and up to the amounts indicated by the Secretary
of the Treasury to the Federal Reserve Banks of the respective
districts.
GARRARD B .

\
•\

WINSTON,

Acting Secretary of the Treasury.
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

September 7, 1926.
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. Your special attention is invited to the terms of subscription and allotment as stated above. If you desire to purchase, at the market
price, certificates of the above issue after the subscriptions close, or certificates
of any outstanding issue, you should apply to your own barik, or, if it c^n not
obtain thein for you, to the Federal Reseo've Bank of your district, which will
then endeavor to fill your order in the market.

EXHIBIT 8
[Department Circular No. 363. Public Debt]

PURCHASE OF THIRD LIBERTY LOAN 41/4 PER CENT BONDS FOR
THE CUMULATIVE SINKING FUND
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, November 27, 1925.
To Holders of Third Liberty Loan 4 M V^'^ ^^^^ Bonds, and Others
Concerned:
The Treasury will purchase Third Liberty Loan Bonds for account
of the Cumulative Sinking Fund and solicits proposals for sale of
such bonds to the Treasury. Purchase will be made of $50,000,000
or thereabouts, of Third Liberty Loan Bonds, at the lowest prices
offered, if at or below the price of 101J^ and accrued interest. Proposals must be presented to the Federal Reserve Banks by December
10, 1925, and payment will be made on December 29, 1925, for all
bonds delivered in accordance with accepted proposals.
All transactions in connection with the proposals for sale, the delivery
of bonds, and payment therefor should be handled thtoy^gh banks or trust
companies, which will act as agents of the owners of the bonds. The

200

REPORT ON THE FINANCES

banks and trust companies will deal with Federal Reserve Banks, which
are the only official agencies of the United States in these transactions.
Proposals must be in writing and must reach a Federal Reserve
Bank before the close of business on December 10, 1925. (See form
on reverse side.) All proposals not received at Federal Reserve
Banks by the close of business December 10, 1925, will be rejected.
The Secretary of the Treasury reserves the right to reject or accept
in whole or in part any and all proposals, and his action in this respect
shall be final. All proposals not accepted by December 19,1925 (due
time allowance being made for postal notification to the contrary),
shall be considered as rejected.
Upon the acceptance of any proposal by the Secretary of the
Treasury, the banking institution which forwarded such proposal
will be notified by the Federal Reserve Bank of such acceptance and
will thereupon transmit the Third Liberty Loan Bonds described in
the proposal, at the seller's own expense and risk, to the Federal
Reserve Bank. All bonds to be surrendered for purchase must reach
the Federal Reserve Bank on or before December 21, 1925, and the
Federal Reserve Bank, on December 29, 1925, will pay therefor at /
the accepted proposal price. If not received by the Federal Reserve/
Bank until after December 21, 1925, the bonds may, in the discretion
of the Secretary of the Treasury, be rejected. The Secretary of thfe
Treasury reserves the right to reject in whole or in part any and all
bonds, and his action in this respect shall be final.
All coupon bonds of the Third Liberty Loan presented for sale to
the United States in accordance with accepted proposals should have
the interest coupon due March 15, 1926, and interest coupons due
subsequent thereto, attached. All registered bonds of the Third
Liberty Loan presented for sale to the United States in accordance
with accepted proposals must be duly assigned to ^^The Secretary of
the Treasury for Redemption," in accordance with the general regulations of the Treasury Department governing assignments. Bonds
registered in the names of minors or incompetents will not be
accepted unless accompanied by a certificate of court of competent
jurisdiction showing that the person assigning such bonds has
authority to so assign.
Any further information which may be desired may be obtained
from any Federal Reserve Bank.
A. W. M E L L O N ,

Secretary of the Treasury.

TREASURY DEPARTMENT

Division of Loans and Currency
Form P. D. 941

PROPOSAL FOR ^ALE OF THIRD LIBERTY LOAN 4 ^ PER CENT BONDS
OF 1928 TO THE UNITED STATES

Important: Proposals should be made through a bank or trust
company, and delivered to a Federal Reserve Bank. Bonds should not
be surrendered to the Federal Reserve Bank with this proposal.
To the SECRETARY OF THE TREASURY,

(through)
F E D E R A L R E S E R V E B A N K OF

Pursuant to the provisions of Treasury Department Circular No.
363, dated November 27, 1925, the undersigned agrees to sell to the

SECRETARY OF T H E TREASURY

201

United States on December 29, 1925, $
face
amount of Third Liberty Loan 43^ per cent Bonds of 1928, at
>
__, plus accrued interest from September 15, 1925, to the
(See footnote 1)

date of sale.
And further agrees upon receipt of notice of acceptance of this
proposal, in whole or in part, sent to
,
(See footnote 2)

to deliver on or before December 21, 1925, to the above-stated Federal
Reserve Bank, the designated amount of bonds, payment to be made
to the undersigned care of the bank or trust company named above.
(Signature)
^
_(Address in full)
(Date)
.
1 state sale price on basis of $100 face amount exclusive of accrued interest, i. e., 100, lOOA, etc. NOTE.—
Fractions should be quoted in thirty-seconds or decimals.
2 Name of bank or trust company through which this proposal is made.

EXHIBIT

[Department Circular No. 366. Public Debt]
P U R C H A S E O F T H I R D L I B E R T Y L O A N 4V4 P E R C E N T B O N D S
THE CUMULATIVE SINKING FUND

FOR

TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, March 1, 1926.
To Holders of Third Liberty Loan 4 / 4 P^^ ^^^^ Bonds, and Others
Concerned:
The Treasury will purchase Third Liberty Loan Bonds for account
of the Cumulative Sinking Fund, and solicits proposals for sale of such
bonds to the Treasury. Purchase will be made of $100>000,000, or
thereabouts, of Third Liberty Loan Bonds, at the lowest prices offered,
plus accrued interest from Mar(ih 15, 1926, provided such prices are
acceptable to the Secretary of the Treasury. The Secretary of the
Treasury reserves the right to reject or accept in whole or in part
any and all proposals, and' his action in this respect shall be final.
Proposals must be presented to the Federal Reserve Banks by March
10, 1926, and for all bonds delivered in accordance with accepted
proposals payment will be made, in the case of coupon bonds, on
March 23, 1926, and, in the case of registered bonds, on March 23,
1926, or as soon thereafter as registration may be cleared.
All transactions 4n connection with the proposals for sale, the delivery
of bonds, and payment therefor should be handled through banks, trust
companies, or recognized dealers, which will act as agents of the owners
of the bonds. The banks, trust companies, and dealers will deal with
Federal Reserve Banks, which are the only official agencies of the United
States in these transactions.
Proposals must be in writing, and must reach a Federal Reserve
Bank before the close of business on March 10, 1926. (See form on
reverse side.) All proposals not received at Federal Reserve Banks
by the close of business March 10, 1926, will be rejected. Federal
Reserve Banks will notify the presenting agency of the acceptance
or rejection of proposals.
11439—FI 1926

202

REPORT ON T H E FINANCES

Upon notification of the acceptance of any proposal, the agency
which forwarded such proposal will thereupon transmit the Third
Liberty Loan Boncis described in the proposal, at the seller's own
expense and risk, to the Federal Reserve Bank. All bonds to be
surrendered for purchase must reach the Federal Reserve Bank on
or before March 23, 1926, and the Federal Reserve Bank, on that
date, or as soon thereafter as practicable, will pay therefor at the
accepted. proposal price. If not received by the Federal Reserve
Bank until after March 23, 1926, the bonds may, in the discretion
of the Secretary of the Treasury, be rejected. The Secretary of the
Treasury reserves the right to reject in whole or in part any and all
bonds, and his action in this respect - shall be final. In order that
payment for registered bonds may be made on March 23, 1926, registered bonds must be presented well in advance of that date.
All coupon bonds of the Third Liberty Loan presented for sale to
the United States in accordance with accepted proposals should have
the interest coupon due September 15, 1926, and interest coupons
due subsequent thereto, attached. The interest coupon due March
15, 1926, should be detached and collected in ordinary course. All
registered bonds of the Third Liberty Loan presented for sale to the
United States in accordance with accepted proposals must be duly
assigned to ^'The Secretary of the Treasury for Purchase," in accordance with the general regulations of the Treasury Department governing assignments. Bonds registered in the names of minors, or
incompetents will not be accepted unless accompanied by a certificate
of court of competent jurisdiction showing that the person assigning
such bonds has authority so to assign. Bonds registered in the
names of two or more persons must be assigned by all of the
coowners.
Any further information which may be desired may be obtained
from any Federal Reserve Bank.
. >
A.

MELLON,

Secretary of the Treasury.
IMPORTANT: Third Liberty Loan 4J^ per cent bonds will not mature until
September 15, 1928, and by their terms are not callable before maturity. The
right to tender bonds of this loan for sale, in accordance with the above circular,
may therefore be exercised in the discretion of the owner of the bonds.
TREASURY DEPARTMENT
Division of Loans and Currency
Form P. D. 956
PROPOSAL FOR

SALE OF THIRD LIBERTY LOAN 4 ^ PER CENT BONDS
OF 1928 TO THE UNITED STATES

Important: Proposals should be made through a bank, trust company,
or recognized dealer, and delivered to a Federal Reserve Bank. Bonds
should not be surrendered to the Federal Reserve Bank with this proposal.
To

the

SECRETARY OF THE TREASURY,

(through)
FEDERAL R E S E R V E B A N K OF

In accordance with the provisions of Treasury Department Cir-^
cular No. 366, dated March 1, 1926, the undersigned agrees to sell to
the United States on March 23, 1926, $
.
-_

SECRETARY

O F T H E TIIEASURY

203

face amount of Third Liberty Loan 43^ per cent Bonds of 1928, at
__:__
, plus accrued interest from March 15, 1926,
(See footnote 1)

to the date of sale.
And further agrees upon receipt of notice of acceptance of this proposal, in whole or in part, sent to
,
(See footnote 2)

to deliver on or before March 23, 1926, to the above-stated Federal
Reserve Bank, the designated amount of bonds, payment to be made
to the undersigned care of the bank, trust company, or recognized
dealer named above.
(Signature)
(Address in full)
(Date)----:
.
1 state sale price on basis of $100 face amount exclusive of accrued interest, i. e., 100,100^, etc. NOTE.—
Fractions should be quoted in thirty-seconds or decimals.
2 Name of bank, trust company, or recognized dealer through which this proposal is made.

EXHIBIT

[Department Circular No. 361. Public Debt]

REDEMPTION

OF TREASURY SAVINGS CERTIFICATES,
OF 1921, DATED JANUARY 3, 1921

SERIES

TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, November 14, 1925.
To Owners of Treasury Savings Certificates of the Series of 1921, dated
January S, 1921, and Others Concerned:
United States Treasury Savings Certificates of the Series of 1921,
dated January 3, 1921, become due and payable January 1, 1926,
according to their terms. Treasury Savings Certificates of this series
are all in registered form, and bear on their face the title ^^United
States Treasury Savings Certificate, Issue of War-Savings Certificates" and the date ^^ January 3, 1921." The Secretary of the Treasury offers facilities for their redemption, as follows:
1. General.—Registered owners of Treasury Savings Certificates,
Series of 1921, dated January 3, 1921, will be entitled to receive, on
or after January 1, 1926, one thousand dollars ($1,000) for each
$1,000 certificate, one hundred dollars ($100) for each $100 certificate,
and twenty-five dollars ($25) for each $25 certificate. Certificates
are payable and must be presented and surrendered (by mail or otherwise) at the Treasury Department, Division of Loans and Currency,
Washington, D . C. The demand for payment appearing on the back
of['each certificate presented for redemption must be properly signed
by the owner in the presence of and duly certified by a United States
postmaster (who should affix the official postmark of his office), an
executive officer of an incorporated bank or trust company (who
should affix the corporate seal of the bank or trust company), or any
other person duly designated by the Secretary of the Treasury for
the purpose. In the event of the death or disability of the owner,
the demand for payment shall be executed by the person entitled to
receive payment under the provisions of Treasury Department Circular No. 149, Revised, dated August 1, 1922.

204

REPORT ON THE FINANCES

2. Presentation before maturity.—In order to facilitate redemption
of maturing certificates, owners are offered the privilege, beginning
December 1, 1925, of surrendering their certificates in advance, for
redemption as of January 1, 1926. Payment for any certificate so
presented in advance will be made by check payable to the order
of the registered owner, which check will be mailed to reach such
owner on or about January 1, 1926.
3. Presentation at or after maturity.—Redemption will be made
only as of January 1, 1926. Payment will be made by check payable
to the order of the registered owner.
4. Procedure in case of death or disability of the owner.—The provisions of Treasury Department Circular No. 149, Revised, dated
August 1, 1922, further define the rights of holders of Treasury
Savings Certificates and will govern the presentation and surrender
of .certificates for redemption in the event of the death or disability
of the registered owner.
5. Further information.—Any further information which may be
desired as to the redemption of Treasury Savings Certificates of the
.Series of 1921, dated January 3, 1921, may be obtained from post
offices. Federal Reserve Banks and branches, or the Treasury Department, Division of Loans and Currency, Washington, D . C.
6. The Secretary of the Treasury may at any time or from time
to time prescribe suppleriiental or amendatory rules and regulations
governing the redemption of Treasury Savings Certificates, Series
of 1921, dated January 3, 1921.
A. W.

MELLON,

Secretary of the Treasury.
EXHIBIT

[Department Circular No. 362. Public Debt]

REDEMPTION OF WAR-SAVINGS CERTIFICATES, SERIES OF 1921
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, November 14, 1925.
To Holders of War-Savings Certificates of the Series of 1921, Postmasters, Federal Reserve Banks, and Others Concerned:
United States War-Savings Certificates of the Series of 1921,
become due and payable January 1, 1926, according to their terms.
The Secretary of the Treasury offers special facilities for their redemption, as follows:
1. General.—Plolders of War-Savings Certificates, Series of 1921
will be entitled to receive on or after January 1, 1926, $5.00 for each
War-Savings Stamp of the Series of 1921 then affixed thereto. Certificates having registered stamps affixed are payable only at the
post office where registered. Unregistered certfficates are payable
at any money-order post office or at the Treasury Department in
Washington, and will likewise be accepted for.payment at the Federal Reserve Banks and their branches, acting as fiscal agents of the
United States. Certificates presented for redemption must be duly
receipted in the name inscribed thereon, or, in the event of the
<death or disability of the owner, in the name of the person entitled

SECRFITARY OF THE TREASURY

205

to receive payment under the provisions of Treasury Department
Circular No. 108, Revised, dated August 1, 1923. Banking institutions generally wull handle redemptions for their customers, but the
only official agencies are the'post offices, the Federal Reserve Banksand branches, and the Treasury Department at Washington.
2. Redemption.—Holders must present their certificates, at their
own expense and risk, to the post office where registered in the case'
of registered certificates, or to any money-order post office. Federal
Reserve Bank or branch, or the Treasurer of the United States, at
Washington, D. C , in the case of unregistered certificates. HoMers
will facilitate redemption by presenting unregistered certificates
through their own banks, for recognized banking institutions
generally will receive such certificates for account of the holders, or
may cash unregistered certificates for the holders and get cash reimbursement therefor, at maturity value, on or after January 1, 1926,
upon surrender of the certificates, duly receipted as herein provided, to the Federal Reserve Bank of the district.
3. Redemption wull be made only as of January 1, 1926. In order
to facilitate redemption, however, any of the certificates may be
presented and surrendered in the manner herein prescribed, at^ any
time in advance of January 1, 1926, for payment on that date.
\ Certificates presented prior to January 1, 1926, should be receipted
^-as of January 1, 1926, and certificates presenteci on or after January
iv, 1926, should be receipted as of i\ie date of presentation. The
Treasurer of the United States and the Federal Reserve Banks and
branches will be prepared to make payment of matured certificates
immediately upon presentation, provided, however, that where
certificates are presented prior to January 1, 1926, a check payable
to the order of the holder will be mailed to reach him on or about ^
January 1, 1926. Post offices are not required to make payment
until ten days after receiving written demand therefor, but wherever
practicable wiU waive this requirement and make payinent at an
earlier date, but in no event will any such payment be made prior
to January 1, 1926. Payment of certificates surrendered through
banks will be made to the bank through which presented, while
payment of certificates presented direct to post offices. Federal
Reserve Banks and branches, or the Treasurer of the United States
will be made direct to the holder.
4. Procedure in case of death or disability of the owner.—The provisions of Treasury Department Circular No. 108, Revised, dated
August 1, 1923, further define the rights of holders of War-Savings
Certificates and subject to the provisions hereof will govern the presentation and surrender of certificates for redemption in the event of
the death or disability of the owner. Where certificates are inscribed
in the name of a deceased owner and the estate is being administered
in a court of competent jurisdiction, the certificates should be
receipted by the legal representative of the estate and accompanied
by a certificate of his appointment or by duly certified copies of the
letters testamentary or letters of administration, as the case may be.
Certificates inscribed in the names of minors should be receipted by
the legal guardian, or, if there is no guardian, by the minor himself
if of sufficient competency and understanding to sign the receipt and
comprehend the nature thereof, or, if not of sufficient competency
and understanding, receipted for the minor by the parent or natural

206

REPORT ON T H E

FINANCES

guardian with w^hom the minor resides. Holders may obtain further
information as to the provisions of the circular from their own banks
or post offices.
5. Limitation of holdings.—UndeT the provisions of Section 6 of t h e .
Act of Congress approved September 24, 1917, as amended, it is not
lawful for any one person at any one time to hold War-Savings
Certificates of the Series of 1921 to an aggregate amount exceeding
$5,000 (maturity value). Holders may, however, redeem their excess
holdings in accordance with the provisions of Treasury Department
Circular No. 178, dated January 15, 1920, *as amended and supplemented.
6. Further information.—Any further information which may be
desired as to the redemption of War-Savings Certificates of the Series
of 1921 may be obtained from post offices. Federal Reserve Banks and
branches, or the Treasury Department, Division of Loans and
Currency, Washington, D. C.
7. The Secretary of the Treasury may at any time or from time to
time prescribe supplemental or amendatory rules and regulations
governing the redemption of War-Savings Certificates, Series of 1921.
A. W.

MELLON,

Secretary of the Treasury.

EXHIBIT

S T A T E M E N T B Y S E C R E T A R Y M E L L O N B E F O R E T H E WAYS AND
MEANS C O M M I T T E E CONCERNING THE SETTLEMENTS OF THE
INDEBTEDNESS OF BELGIUM, CZECHOSLOVAKIA,
ESTONIA,
I T A L Y , LATVIA, A N D R U M A N I A
JANUARY 4, 1926.

Statement of Secretary Mellon, chairman, of the l¥orld War
Foreign Debt Commission, to the Ways and Means Committee of
the House.
'
During the w^ar the United'States made loans to the Allies largely
to assist them in purchases ^of supplies in the United States. The
original loans bore interest at 33^ per cent, being the interest rate
carried on the First Liberty Loan issue. The rate w^as subsequently
made 5 per cent. After the armistice the United States continued
to make advances to the Allies to complete their contracts in the
United States and to purchase food and surplus.war supplies from
the United States. Relief was, also extended to .a number of the
smaller nations largely born of the w^ar. At the conclusion of the
war period, the Treasury held the obligations of some 20 nations, in
general payable on demand with interest at 5 per cent per annum.
The world was in a state of financial disorder. No nation could
have paid its debt had we demanded it. Most could not even pay
the interest rate of 5 per cent called for by their obligations. Only
with time and more settled conditions did possibility of adjustment
arise.
Recognizing the fact that our debtors could not pay on demand.
Congress originally authorized debt funding on not longer than a
25-year basis and at not less than 4J4 per cent interest. Subsequently, when it was apparent that this basis of settlement was beyond
the capacity of most of the debtors, the American Debt Commission

SECRETARY OF THE TREASURY

207

was given general authority to recommend settlements to Congress.
I t is as the expert body created by Congress that we have presented
our recommendations in the six cases now pending.
Since foreign debt settlements do not seem to be clearly understood,
I wish to mention some rather elemental facts. The obligations held
by the Treasury generally call for payment on demand, and such payment can not be made. We must find practical terms. Now, if we
are owed $62 and payment is made to-day, we receive.the full value
of our loan. If payment is made at the rate of $1 a year for 62 years
without interest, we would be conceding a part of the debt. What
this concession amounts to can be variously estimated depending
on the rate of discount arbitrarily taken. If we used 43^ per cent,
the present value of a $1 annuity for 62 years is a little over $21;
if we use 3 per cent, its present value is $28. If, however, instead
of $1 a year for 62 years without interest we should charge interest
at the cost of money to us, we get the full value of the loan, since we
could borrow the $62 to-day, pay interest on the borrowing, and
repay the principal as annuities are received. From the United
States standpoint, therefore, the question of whether a particular
settlement represents a reduction in the debt depends on whether
the interest charged over the entire period of the agreement is less
than the average cost to us of money during that period. The
'flexibility in debt settlements is found in the interest rate to be
charged.
The situation of each debtor nation is particular; that is, its
capacity to pay is not the same as the capacity of some other nation.
I t has been felt by the Debt Commission, however, that repayment
of principal is essentia! in order that the debtor might feel that it
had paid its debt in full and that we might know that we had our
capital returned to us. The commission felt, therefore, that no
funding should be made which did not repay the principal, and thus
we have rnaintained the integrity of international obligations.
Adjustment to the capacity of each case is made in the interest to
be paid over the period of the agreement.
Great Britain was the first nation to recognize the desirability of
putting its house in order. Great Britain owed some $4,600,000,000
of principal and interest on its demand obligations. The American
Debt Commission recommended a settlement on the basis of principal payments over a 62-year period, with interest at the rate of
3 per cent per annum for the first 10 years and 3 H per cent thereafter. Congress has approved the settlement. Taking into account
the current interest rate when the settlement was made, the British
agreement does not represent payment in full. If we figure the
present value of the settlement at 43^ per cent we canceled 20 per
cent of the debt. The settlement was, however, entirely based on
our estimation of Great Britain's capacity to pay. I t is a precedent
for the recognition of the principle of capacity to pay and is not a
set formula to control other cases of substantially less capacity.
I t is the rule that a debtor can not prefer one creditor over another.
The debtor must treat all creditors alike. On the other hand, the
creditor has the option of treating each of its debtors separately.
I t may insist on payment in full from one, give time to another, and
cancel the indebtedness of a third, and no one of the three debtors
has a right to complain of the treatment accorded the other. There

208

REPORT ON THE FINANCES

follows from the foregoing that England, which is also a creditor
of many nations who are debtors to us, has the right to insist that
no debtor of it pay us more in proportion than England receives.
The debtor nation may not discriminate between its two creditors.
I t has been frequently stated in Parliament that England has no
just cause of complaint if the United States settles with one of its
debtors on terms easier than those accorded England. As a matter
of fact, England itself in dealing with its European debtors has
made settlements more favorable to one than to another. I want to
be clear that the British-American settlement is one based on capacity
to pay, and not a fixed formula to which all others, irrespective of
capacity, must conform, and that a creditor is free to settle with its
debtors as it may choose.
As other nations have approached the American Debt Commission
for a funding of their debts, it has been the position of the American
commission that since England represents the strongest of its debtors,
America would not ask heavier terms than those offered by England.
The commission would consider the British-American basis as prima
facie a fair basis of settlement. If such a settlement was beyond the
capacity of the particular nation, then the commission would recognize this capacity by way of a reduction in the interest rate, but in
no event cancel any of the principal. As we settled with England
on her capacity, so consistently we must consider capacity in every
other case.
Generally speaking, our foreign indebtedness may be divided into
two general classes—advances to carry on the war, and advances
after the war for relief and for the stabilization of Europe. Among
the nations in the first class are included England, France, Italy, Belgium, Russia, and Serbia, although loans were made after the armistice. In the second class are the countries on the Baltic Sea, Finland, Lithuania, Latvia, Estonia, and Poland; the former enemy
countries of Austria and Hungary; and the Balkan countries of •
Czechoslovakia, Rumania, and Greece.
The' general plan applied to the settlement of the second class
has been the British-American basis, with easier treatments in the
earlier years depending upon the particular circumstances of the
nation involved. Hungary, Finland, and Lithuania have been
settled on the straight British-Anaerican basis. Poland, Latvia, and
Estonia have been given the option to fund 75 per cent of the payments which would have been due for principal and interest for the
first 5 years over the remaining 57 years of the agreement
Czechoslovakia for the first 18 years pays about three-fourths of what it
would have paid under the straight British-American basis and the
balance is funded over the remaining years of the 62-year period.
Rumania pays a graduated scale to reach the British-American
basis at the end of the twelfth year, and the balance is funded. In
every case the balance funded is at the interest rates of 3 per cent and
3J"^ per cent. The variations in the earlier years of these agreements have been occasioned by the present fiscal situation of the
nation involved and represent a determination of the capacity of
payment for these earlier years. In each case the American Debt
Commission was of the opinion that over the whole period, subject
to the earlier modifications, the British-American basis was within the
capacity of the particular nation.

SECRETARY OF THE TIIEASURY

209

The debt-funding agreements of the nations in this second class
have been approved by Congress in the cases of Finland, Lithuania,
Poland, and Hungary. In the case of Latvia, Estonia, Czechoslovakia, and Rumania, the debt-funding agreements are now pending. In the case of Austria, Congress has voted a 20-year moratorium, recognizing Austria's present want of capacity. Yugoslavia and Greece have not yet negotiated a settlement.
Coming now to the large debtors, no agreement has been reached
with France, but the commission has negotiated funding agreements
with Belgium and Italy.
In the Belgian agreement the indebtedness of Belgium has been
separated between prearmistice debt and postarmistice debt; that
is, indebtedness created before or after the 11th of November, 1918.
The postarmistice indebtedness has been settled on the BritishAmerican basis, with the exception that during the first 10 years
interest rates are scaled up on an arbitrary basis to reach 3}^ per
cent at the beginning of the eleventh year. As to the prearmistice
indebtedness, the principal is to be repaid in substantially equal
installments over the period of 62 years. Accrued and accruing
interest is waived. The circumstances which infiuenced the American
Debt Commission in recommending this concession on the prearmistice debt were these: Almost all of Belgium was occupied by
Germany since the early days of the war. Germany had taken
from Belgium and moved into Germany most of the industrial
machinery and equipment which it had found in Belgium. The
value of the war damage done to Belgium was estimated at roughly
$1,000,000,000. During the period of. occupation, Germany had
caused to be printed and circulated in Belgium paper money which
the Belgian people in the occupied territory were forced to receive.
At the conclusion of the war Belgium had to redeem this worthless
currency, issuing its own money in exchange therefor. The loss to
Belgium on this account was about $1,200,000,000. Belgium had
received prior to the armistice about $1,300,000,000 in advance
from France, Great Britain, and the United States, France advancing
over $600,000,000, Great Britain, more than $500,000,000, and the
United States less than $200,000,000. At the time of the negotiation
of the Versailles treaty Belgium demanded that she be given a preferred claim on reparations to the extent of her war damage, that
Germany be compelled to redeem in gold the worthless paper marks
taken up by Belgium, and that the three principal allies forgive
their prearmistice loans, and Belgium stated that unless such preferences were given she would withdraw from the peace conference.
In order to prevent a break in the negotiations, representatives of
the United States, England, and France proposed that Belgium be
given a prior charge on reparations of $500,000,000, that each representative recommend to his respective government the adoption of
an arrangement under which the prearmistice debt of Belgium would
be assumed by Germany, and Belgium released,^ and that Belgium
withdraw her other demands for the remainder of war damage
and for reimbursement for the German currency. Accepting this
compromise, Belgium continued in the conference. Subsequently
the United States, entirely within its rights, declined to accept
Germany as a substitute for Belgium on the prearmistice debt.
The argument of Belgium was that it had waived its demand for
11439—FI 1926

210

REPORT ON THia FINANCES

$2,200,000,000 of preferred reparations, relying on a promise which
was unfulfilled, and that it was now too late to restore Belgium to
the position it had formerly occupied. The* American commission
felt that the equities were with Belgium. We would not agree to.
substitute Germany as our debtor, although England and France
with larger debts than ours have done so. We did not think it just,
however, to ask Belgium to repay more than the principal of the
prearmistice advances. Belgium continues solely liable to us.
Taking the Belgian settlement as a whole, both the prearmistice
and postarmistice, the American commission felt that the payments
required from Belgium substantially represent its capacity to pay.
Belgium is a small nation, densely populated, with few natural resources, and obliged to import a large proportion of its food supply.
Its foreign investments have been exhausted by the war, the balance
of trade has for a great many years been adverse, and Belgium will
require in the near future large borrowings abroad in order to stabilize
its currency and to reduce the inflation caused by the paper money
issued by Germany during the occupation.
Another settlement now before Congress is that with Italy. To the
original principal of the Italian debt of $1,648,000,000 was added
interest at 434 P©T cent per annum to Deceraber ol5, 1922, the date of
the British settlement, and at 3 per cent per annum to the date of the
new settlement, making a total to be funded of $2,042,000,000.
Repayment of the new principal is made on the same scale as on the
British-American basis, with the exception that in the first five years,
there is a slight modification. To meet Italy's capacity t o , p a y
' interest rates during the period of the funding agreement after the
first 5 years have been fixed during successive 10-year periods at
one-eighth of 1 per cent, one-fourth of 1 per cent, one-half of 1 per
cent, three-fourths of 1 per cent, 1 per cent, and 2 per cent for the
last 7 years. The interest rates recognize the quite material difference between Italy and other debtor countries with whom negotiations for settlement have been made. Italy has no natural resources
and no productive cc)lonies. Its balance of trade has always been
adverse; a large part of the country is mountainous and it must import
food for its rapidly increasing population. Coal, iron, copper, cotton,
oil, and other raw materials have to be imported. The standard of
living and the taxable capacity of its people are extremely low. The
assets of Italy are but the labor of its people and its water power.
No better example of the equitable principle of capacity to pay
which must apply to a debt settlement can be given than in the case
of Italy. Italy owes the United States over $2,000,000,000. I t
owes England about 25 per cent more than this. Any payment to
the United States must be contemporaneously met by proportionately greater payments to England. To pay a dollar to the United
States in debt settlement means that Italy must pay $1.25 to England.
The settlement of the Italian-American debt on the British-American
basis would have meant that Italy must pay at once $71,000,000 per
year, and a similar settlement of the British-Italian debt would require
the payment of $89,000,000 per year, a total to be added to the tax
burden of the Italian people of $160,000,000. The present total of
all Italian taxes is about $850,000,000. The present total of all
American taxes is about $7,500,000,000. Addmg $160,000,000 to the

SECRETARY OF THE T^REASURY

211

Italian taxes would be the same as adding $1,400,000,000 to taxation
in America. This would be a terrific burden to America, but we
might stand it because our average income is high, and the American
people would not be forced below the level of subsistence; that is,
we would still have enough to live on. The Italian people, however,
are now so heavily taxed in proportion to the national income that
this additional tax would have forced them below the level at which
life can be supported. Such payments to-day are impossible. We
should have made a China of Italy. You will appreciate what I
mean by the present close approach of the Italian to the level of
subsistence when it is understood that the adoption in the Italian
income-tax law of the same exemptions carried in our 1924 law (not
the increased exemptions under the proposed law) would reduce the
Italian Government's revenue from income tax by 99 per cent. An
insistence of a settlement of the Italian-American debt on the BritishAmerican basis would have been entirely futile. Italy could not have
paid, and such an insistence would have meant only that the United
States would receive nothing.
The comparative burdens of the war debt settlements of England,
Belgium, and Italy are a fair test of the adequacy from an American
\ standpoint of the Italian settlement. I t must be remembered that
'\ Italy owes Great Britain 25 per cent more that it owes the United
"States, and any American settlement will probably have to be followed by an English settlement on substantially a proportionate
basis. There are three principal factors in the finances of any
country which furnish indices by which a comparison of the weight
of a new fiscal burden can be measured. These are the total budget,
representing what all instrumentalities of government collect from
the people; the total foreign trade, which has a bearing on the
capacity to transfer payments abroad; and the total national income,
which is the ultimate source of a country's capacity to pay. If
we apply these indices to the three settlements we obtain the following comparison: The British-American settlement calls, for an
annual average payment equivalent to 4.6 per cent of the total
British budget expenditures; the Belgian settlement 3.5 per cent,
and the Italian settlement to America alone 5.17 per cent, and to
America and Great Britain 11.47 per cent of Italy's total budget
expenditures. The British settlement calls for an annual average
charge corresponding to 1.9 per cent of the total British foreign
trade. This figure is 0.88 per cent with Belgium. Italy's average
payment to the United States is 2.87 per cent of its total foreign
trade, and the combined payments to the United States and England
6.32 per cent of its total foreign trade. Great Britain's average
annuity represents 0.94 per cent of-its national income; Belgium's
0.80 per cent; Italy to the United States alone 0.97 per cent, and
to the Uniteci States and Great Britain 2.17 per cent of its total
. national income. If we averaged the three indices, the comparative
Italian burden of war debts would be represented by 6.72, the British
2.4, and the Belgian by 1.75. If instead of using the average annual
annuity we should compare, the present value of the settlements
with the sum of these three indices—the total budget, the total
foreign trade, and total national income for a year of each of the
countries—the burden of the British settlement represents 11.7 per

212

REPORT ON THE FINANCES

cent of this sum, the Belgian settlement 7 per cent, and the Italian
war debts to the United States and England combined 19.8 per cent.
Suppose that America had to assume a burden comparable to' the
burden of war debts upon Italy based upon the above indices, the
present value of this burden would be over $15,000,000,000, or
three-fourths of our present public debt, and if we were to pay this
war debt on the same scale as in the Italian agreement, after five
years we would be paying an annuity of over $400,000,000, after
30 years of over a billion dollars, and by the end of the period of
considerably over two billions a year. Consideration must be given
in these comparisons to the income and standard of living in Italy,
which are lower than in either England or Belgium and very much
lower than in the United States, and which, therefore, would make
the same burden relatively higher in Italy than in other countries.
In its negotiations for the funding of the debt, the American Debt
Commission has been forced to consider these facts: No nation,
except by the pressure of public opinion and the necessities of its
own credit, can be compelled to pay a debt to another nation. An
insistence on a funding agreement in excess of the capacity of the
nation to pay would justify it in refusing to make any settlement.
None can do the impossible. If the debtor is to be able to pay and ^
if the creditor is to receive anything, a settlement fair to b o t h /
countries is essential. I t follows that those who insist upon im-,'
possible terms are in the final analysis working for an entire repudiation of the debts. The only other alternative which they might
urge is that the United States goes to war to collect.
Europe is our largest customer. Unless the finances of Europe
can be restored, her currency placed on a sound basis, and her people
able to earn and to spend, this country will not be able to dispose
of its surplus products of food, materials, and goods. Our exports
to Belgium last year were $114,000,000, and imports $66,000,000.
Our exports to Italy were $185,000,000, and imports $75,000,000.
Of the total exports to the two countries, 26 per cent were foodstuffs
and 36 per cent were cotton. Nearly two-thirds of the exports
represent the surplus products of the American farmer.
Germany began a reestablishment of sound currency in the latter
part of 1923. In that year it imported $149,000,000 of cotton from
us. With the Dawes plan and a proper financial system, exports
of cotton increased in 1924 to $223,000,000, and in the first 10 months
• of 1925 to $198,000,000, or at the rate of $231,000,000 a year. Here
is the real interest of America in the stabilization of Europe, in
which prompt debt settlements are an integral part.
The countries of Europe must be restored to their place in civilization. In this process of reconstruction certain essentials have to be
met: First, the budgets must be balanced.' This is a domestic question for each nation to solve. Second, payments coming due in the
future must be ascertained. Interallied debts constitute the principal item in this essential, and in order that their settlement be
effective the terms must be definite in amount and time and within
the capacity of the debtors. We have learned the folly of imposing
indefinite and impossible terms from the experiment with Germany
before the Dawes plan. And third, America, with its excess of capital
seeking profitable investment, must aid by making private loans to

SECRETARY OF THE TREASURY

213

Europe for productive purposes. Only from these private loans
during the past year have the countries abroad been able to pay
for our wheat and cotton. It is these new loans which make our
exports possible. The American commission has not recommended
settlements of the debts to profit those who wish to loan money
abroad. I t is possible, since any payment, necessarily involves a
strain on the debtor country, that the insistence on impossible terms
which would justify a refusal of the debtor to fund might be more
acceptable to the international bankers. But the settlements are
made in the real interests of those American producers who must
have a foreign market able to pay. The American producer needs
these debt settlements. The entire foreign debt is not worth as
much to the American people in dollars and cents as a prosperous
Europe as a customer.
The capacity of a nation to pay over a long period of time is not
subject to mathematical determination. I t is and must be largely
a matter of opinion; but we have been fortunate in the constitution
of the American Debt Commission to have a representation from the
administration, from Congress, and from private life, and from
both political parties. We have facilities to acquire information.
through the State Department, the Treasury, and the Department
of Commerce. We bring a varied experience to the consideration
of the debt settlements, and our recommendations are unanimous.
While some may believe our recommendations too lenient and others
too harsh, I know that it is the honest judgment of the commission
that they are just settlements in the real interests of our country.
The President has approved each settlement.

EXHIBIT

PRESS STATEMENT BY SECRETARY MELLON COMPARING THE
DEBT SETTLEMENTS MADE BY ITALY WITH GREAT BRITAIN
AND THE UNITED STATES
WEDNESDAY, JANUARY 27,

1926.

Secretary Mellon, chairman of the World War Foreign Debt Commission, made the following statement this afternoon.:
The Treasury has been informally advised that a settlement of
Italy's debt to Great Britain has been agreed to. This settlement
calls for annuity payments of £2,000,000 the first year, £4,000,000
the second and third years, £4,250,000 from the fourth through the
seventh year, and £4,500,000 from the eighth through the sixtysecond year. This represents a total payment of £276,000,000 over
the 62-year period to amortise an indebtedness of £583,000,000.
Italy owes to Great Britain $2,837,000,000, and to America $2,042,000,000. As compared with the Italian-American settlement,,Great
Britain receives from Italy in the 62-year period total payments
of $1,346,000,000, of a present value on a 434 P^i' cent basis of
$455,000,000, as against total payments under the Italian-American
settlement of $2,407,000,000, of a present value of $528,000,000.
The present value of the British-Italian settlement represents about
16'per cent of the indebtedness funded, and the present value of the

214

REPORT ON T H E FINANCES

Italian-American settlement represents about 26 per cent of the
indebtedness funded. I t is understood also that in accordance with
the provisions of the Balfour note, if England receives from German reparations and from its other war debtors more than sufficient
to pay her annuities to the United States, the Italian annuities shall
be proportionately reduced. The £22,000,000 of gold deposited by
Italy wdth the Bank of England is to be returned to it after the
second year in proportion to Italy's annuity payments on the debt.

EXHIBIT

L E T T E R F R O M SECRETARY^ M E L L O N TO T H E P R E S I D E N T , CALLI N G ATTENTION TO SOME PRACTICAL F A C T O R S INVOLVED
IN THE SETTLEMENT OF THE INDEBTEDNESS OF ITALY
FEBRUARY 10,

1926.

In connection with our discussion of
possible opposition in the Senate to the Italian debt settlement, I
should like to call your attention to some practical factors which
are involved.
Until comparatively recently, I think it has been the general
impression in Europe that interallied debts would be canceled or ^
in some way cleared against the German reparations. I think this
was particularly true in Italy, where until Mussolini took charge
the Government has let the people believe they would never have
to pay their war debts. At one time also there was quite a respectable body of opinion in America that we should cancel these obligations.
To dispel this belief in cancellation and to bring about an adjustment of the war debts as commercial obligations, there /vere three
influences which, in my opinion, were persuasive upon our debtors.
The first, and perhaps the strongest, of these was the belief that an
international obligation must be met so that, a debtor would retain
its credit among its fellow nations and in its next emergency be able
to obtain financial aid. This is a little more selfish than the purely
moral view that irrespective of future benefits one ought to pay
one's debts.
Once a nation, either through expediency or idealism, recognizes
the desirability of paying its debt, it is necessary that it come to a
funding agreement with its creditor. I t is quite obvious that none
of our debtors could pay their debts in accordance with the terms
of the obligations held by our Treasury, which are payable on demand. The debt has to he funded, within the capacity of the
debtor, over a long period of years; and in order that its budget
may be balanced and its currency stabilized, the debtor must know
exactly how much each year it must pay out of government revenues
in the satisfaction of the debt. In other words, not only must
there be an extension of time for the payment of the entire debt,
but the expenditures on this account for the next few years must be
definitely ascertained.
About a year ago we began pressing our debtors for settlements.
A t about the same time, England announced its intention of restorDEAR

MR.

PRESIDENT:

SECRETARY OF THE TREASURY

215

ing the gold standard. As an essential element in its program, the
London market had to be closed to foreign loans because such Ibaiis
would have meant, a drain of gold upon England which would have
made a maintenance of the gold standard ih its earlier months
uncertain. There was only one other large market for foreign
loans in the world—the market in this cotintry. As a matter of
administrative policy it was determined to deny recourse to our
money market by the debtor nations or their nationals until the
nation negotiated a settlement of its debt tp the United States.
These three influences which have brought about debt settlements are, then, the desire of the debtor nation to be able to say
that it recognized its international obligation and agreed to settle
within its capacity; the necessity for determination, particularly
in the earlier years, of the revenue requirements of the debtor nation
to meet its foreign obligations; and, finally, the desire of the debtor
nation to obtain new capital abroad for the stabilization of its
currency and for the reestablishment. of its industries.
Assuming that the Italian debt settlement is not accepted by the
Senate, I should like to consider what arguments can be presented
to Italy which would infiuence it in negotiating, with us a new and
. more onerous settlement. Italy came to America with a representa\ tive delegation and with a very thorough preparation of its facts.
\ The delegation presented Italy's case to a bipartisan American commission composed of three members of the Cabinet, a Senator, two
Representatives, and two members of the public. After thorough
discussion a settlement was arrived at which in the opinion of the
American commission fairly represents Italy's capacity to pay.
The settlement was approved by you and was passed by the House
of Representatives. If now the Senate failed to approve the settlement, I think it would be obvious to the' world that the reason was
political and not
fiscal.
...,_
Italy, within its capacity, has met its international obligation in
the view of the expert American compaission. Neither in America
nor Europe would her morah credit be hurt if, then, she refused to
renegotiate. No government could stand in Italy which undertook
in a new settlement to pay more than the expert American commis'sion had said, was fair. The Government, therefore, could safely
assume that its budget was balanced if it provided on its books for
the amount called for by the American settlement. The Italian
.Government has borrowed in the American/market the $100,000,000
that it needed for Government purposes. The closing of the American money market now would simply mean that Italian industries
and municipalities would go to the London market, which is now
open to foreign fiotations. I t is my conclusion, therefore, that the
•only practical effect on Italy of a failure to approve the debt settlement would be that Italy would be relieved^ for the present at any
rate, of any payments, and no settlement more favorable to the
United States would likely be made in the future.
I have spoken of Italy alone because that is the immediate question now pending. I feel that a failure to approve the Italian settlement would render doubtful the possibility of an early settleinent
with France. We would certainly be placed in an undesirable light
in Europe and we might retard the reestablishment in that continent

216

REPORT ON THE FINANCES^

of sound fiscal systems. Here in America we can ill afford to hamper
the customers which alone permit our large exports. Without a
market to dispose of our surplus, our own prosperity would be
threatened.
Faithfully yours,
A. W.

MELLON,

Secretary of the Treasury,
The

PRESIDENT,

The White House.

EXHIBIT

PRESS STATEMENT BY SECRETARY MELLON COMMENTING
UPON THE PROSPECT FOR THE APPROVAL OF THE ITALIAN
DEBT SETTLEMENT IN THE SENATE
SATURDAY, M A R C H 6,

1926.

Secretary Mellon, chairman of the American Debt Commission,
- in commenting upon the prospect for the approval of the Italian /
settlement in the Senate, said to-day:
/
It is very gratifying to know tliat the Italian debt settlement is not being made'
a partisan matter. The settlement was negotiated with the Italian representatives by a bipartisan commission and received the unanimous approval of all
the members of the commission. It passed the House with a ver}^ large v^Vte,
representing generous support from all parties, and has the support of mernbers
of both parties in the Senate. This condition is reflected in the .country where
approval is being voiced by editorial articles strongly urging Senate adoption of
the settlement by the press of both parties.
' .

EXHIBIT

[Public No. 156, Sixty-ninth Congress. H. R. 6773]

AN ACT TO AUTHORIZE THE SETTLEMENT OF THE INDEBTEDNESS OF THE KINGDOM OF ITALY TO THE UNITED STATES
OF AMERICA

Be it enacted by the Senate and House of Representatives ofthe United
States of America in Congress assembled, That the settlement of the
indebtedness of the Kingdom of Italy to the United States of America
made by the World War Foreign Debt Commission and approved by
the President upon the terms and conditions as set forth in Senate
Document Numbered 3, Sixty-ninth Congress, first session, is hereby
approved in general terms as follows:
The amount of the indebtedness to be funded, after allowing for
certain cash payments made by Italy, is $2,042,000,000, which has
been computed as follows:

SECRETARY OF THE TUEASURY

217

Obligations taken for cash advanced by
Treasury
...
$1,648,034,050. 90
Accrued and unpaid interest at 434 per
centum per annum to December 15,
1922
251, 846, 654. 79
:
$1, 899, 880, 705. 69
Accrued interest at 3 per centum per annum from December
15, 1922, to June 15, 1925
142,491,052.93
Deduct payments made on account of
principal since December 15, 1922___
Interest on principal payments at 3 per
centum per annum to June 15, 1925_

2, 042, 371, 758. 62
$164, 852. 94
7, 439. 34
172, 292. 28

Total net indebtedness as of June 15, 1925
To be paid in cash upon execution of agreement
Total indebtedness to be funded into bonds

2, 042, 199, 466. 34
199, 466. 34
2, 042, 000, 000. 00

The principal of the bonds shall be paid in annual installments on
June 15 of each year up to and including June 15, 1987, on a fixed
^ schedule, subject to the right of the Kingdom of Italy to postpone
^ such payments falling due after June 15, 1930, for two years, such
\ postponed payment to bear interest at the rate of 4J^ per centum
''per annum. The amount of the annual principal installment during
the first five years shall be $5,000,000. The amount of the principal
installment due the sixth year shall be $12,100,000, the subsequent
annual principal installments increasing imtil in the sixty-second
year of the debt-funding period the final principal installment shall
be $79,400,000, the aggregate principal installments being equal to
the total principal of the indebtedness to be funded into bonds.
The Kingdom of Italy shall have the right to pay off additional
amounts of principal of the bonds on June 15 and December 15 of
any year upon ninety days' advance notice.
The bonds to be issued shall bear no interest until June 15, 1930,
and thereafter shall bear interest at the rate of one-eighth of 1 per
centum per annum from June 15, 1930, to June 15, 1940; at the rate
of one-fourth of 1 per centum per annum from June 15, 1940, to
June 15, 1950; at the rate of one-half of 1 per centum per annum from
June 15, 1950, to June 15, 1960; at the rate of three-fourths of 1 per
centum per annum from June 15, 1960, to June 15, 1970; at the
rate of 1 per centum per annum from June 15, 1970, to June 15,
1980; and at the rate of 2 per centum per annum after June 15, 1980,
aU payable semiannually on June 15 and December 15 of each year.
Any payment of interest or principal may be made at the option
of the Kingdom of Italy in any United States Government obligations issued after April 6, 1917, such obligations to be taken at par
and accrued interest.
Approved, April 28, 1926.

218

REPORT ON THE FINANCES
EXHIBIT

STATEMENT OF AMOUNTS PAYABLE TO THE UNITED STATES
ON ACCOUNT OF THE PROPOSED REFUNDING BONDS TO BE
ISSUED BY ITALY
A n n u a l interest
Year

Principal
P e r cent
042,000,000
037,000,000
032, 000,000
027, 000, 000
022, 000,000
017, 000, 000
004, 900,000
992, 700,000
980,400, 000
967,800,000
954,800, 000
941, 300, 000
927,100, 000
912, 500, 000
897, 300, 000
881, 500,000
865,100,000
848,100,000
830, 500, 000
812, 200, 000
793,200, 000
773, 600, 000
753, 600, 000
733, 000.000
711,800,000
689,800,000
666, 800, 000
643, 000, 000
618, 400, 000
593, 000,000
566, 500,000
539,000,000
510,500, 000
480,900, 000
450, 400,000
418, 900, 000
386, 400,000
352,900,000
318,400,000
282,900,000
246,400,000
208, 400, ood
168,900, 000
127,400, 000
083,900,000
039, 400,000
993,400,000
945,900,000
896,900, GOO
846,400,000
794,400,000
740,400,000
684, 400,000
625,400,000
664,400, 000
502,400, 000
438,400, 000
371, 400,000
302, 400, 000
230, 400, 000
156, 400, 000
79, 400,000

1926..
1927..
1928..
1929..
1930-.
1931..
1932.,
1933..
1934-.
1935..
1936..
1937-.
1938-.
1939-.
1940-.
1941..
1942..
1943..
1944..
1945..
1946..
1947..
1948..
1949..
1950..
1951..
1962..
1953..
1954.;
1955..
1956..
1957.
1958.,
1959.,
I960..
1961..
1962.,
1963..
a964.,
1965.
'1966.
1967.
, 1968.,
1969-,
1970197119721973.
1974.
1975.
197619771978.
19791980.
1981-1982.
. 198319841985.
19861987.

Total..

Payments

521,250
506,125
490,875
475, 500
459, 750
443, 500
426, 625
408, 875
390, 625
371,625
703, 750
662, 750
620, 250
576, 250
530, 500
483,000
434, 000
384,000
332, 500
279,500
449, 000
334,000
215,000
092,000
965,000
832,500
695, 000
562, 500
404,500
252, 000
641, 750
398,000
146, 750
888,000
621, 750
348,000
063,000
766, 750
455, 500
129, 250
10,394,000
934, 000
459,000
969,000
464, 000
944,000
404, 000
844, 000
254,000
644,000
048, 000
768, 000
428,000
048, 000
608,„000
128,000
688,000

Annual
principal
payments

$5,000, 000
5, 000, 000
6, 000, 000
6, 000, 000
6, 000, 000
12,100,000
12,200,000
12, 300,000
12,600, 000
13,000, 000
13, 500, 000
14, 200, 000
14, 600, 000
15, 200,000
15,800,000
16, 400, 000
17,000,000
17, 600, 000
18, 300, 000
19, OCO, 000
19, 600, 000
20, 000, 000
20, 600, 000
21,200, 000
22, 000,000
23,000, 000
23,800, 000
24, 600, 000
25, 400, 000
26,500, 000
27,500, 000
28,500, 000
29, 600, 000
30,500, 000
31, 500, 000
32,500,000
33, 500, 000
34,600,000
35, 600,000
36,500, 000
38, 000, 000
39,500,000
41, 500, 000
43,500, 000
44, 500, 000
46,000, 000
47,500, 000
49, 000,000
60, 500, 000
62,000, 000
54, 000, 000
•56, 000,000
59, 000,000
61, 000,000
62,000,000
64, 000, 000
67,000,000
69,000, 000
72,000,000
74, 000,000
77, 000, 000
79, 400,000

Total annual
payments

$5,000, 000
5, 000,000
6, 000,000
6, 000,000
5, 000,000
14,621, 250
14, 706,125
14, 790,875
15,075, 600
15, 459,750
15.943, 500
16, '626,625
17,008, 875
17,590, 625
18,171,625
21,103,750
21,662,750
22,220,250
22,876,250!
23, 530,500'^
24,083, 000
24,434, OOt)
24,984, 000
26, 532,600
26, 279;600
31,449, 000
32,'134, 000
32) 815,000
33,492, 000
34, 465,000
35,332, 600
36,196, 000
37,162, 600
37,904, 500
38, 752,000
43,141, 750
43,898, 000
44,646, 750
45,388, 000
46,121, 760
47,348, 000
48,663, 000
60, 266,760
51, 955,500
62, 629,260
66,394, 000
67,434, 000
000
68, 459,000
69, 469,000
60, 464,000
61.944, 000
63,404, 000
66,844, 000
67,254, 000
67,644, 000
74, 048,000
76,768, 000
76, 428,000
78,048, 000
78, 608,
80,128, boo
80,988, 000

365, 677, 600 2, 042, 000, 000 , 407,677, 600

SECRETARY OF THE TREASURY

219

E X H I B I T 18
[Public No. 169, Sixty-ninth Congress. H. R. 6774]

AN ACT TO AUTHORIZE THE SETTLEMENT OF THE INDEBTEDNESS OF THE GOVERNMENT OF THE KINGDOM OF BELGIUM
TO THE GOVERNMENT OF THE UNITED STATES OF AMERICA

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled, That the settlement of the
indebtedness of the Government of the Kingdom of Belgium to the
Government of the United States of America made by the World War
Foreign Debt Commission and approved by the President upon the
terms and conditions as set forth in Senate Document Numbered 4,
Sixty-ninth Congress, first session, is hereby approved in general
terms as follows:
The indebtedness to be funded has been divided into two classes,
that incurred prior to November 11, 1918, called the prearmistice
indebtedness; and that incurred subsequent to November 11, 1918,
called the postarmistice indebtedness.
The amount of the prearmistice indebtedness to be funded is'
\ $171,780,000, which is the principal amount of the obligations of
\ Belgium received by the United States for cash advances made prior
. to November 11, 1918. The prearmistice indebtedness is payable in
^ annual installments without interest over a period of sixty-two years,
the first payment falling due June 15, 1926. Belgium is to pay the
following amounts on the dates specified: June 15, 1926, $1,000,000;
June 15, 1927, $1,000,000; June 15, 1928, $1,250,000; June 15, 1929,
$1,750,000; June 15, 1930, $2,250,000; June 15, 1931, $2,750,000;
June 15, 1932, to June 15, 1986, inclusive, $2,900,000 per annum;
June 15, 1987, $2,280,000.
The amount of the postarmistice indebtedness to be funded after
allowing for certain cash payments is $246,000,000, which has been
computed as follows:
Principal of obhgations for cash advanced
$175,430,808.68,
Accrued and unpaid interest at 43^ per
centum per annum to December 15, 1922__
26, 314, 491. 66
Principal of obhgations for war material sold
'.
on credit
__-_
29, 818, 933. 39
Accrued and unpaid interest at 434 per
centum per annum to December 15, 1922__
491, 359. 24

30, 310, 29.2. 63
Total indebtedness as of December 15,
'.
1922
232, 055, 592..97
Accrued interest thereon at 3 per centum per annum from
December 15, 1922, to June 15, 1925
17, 404, 169. 47
Total indebtedness as of June 15, 1925
Deduct:
Payments on account of interest received
between December 15, 1922, and June
15, 1925, on obligations for war material
.
Principal payment of $172.01 made Aug.
7, 1923, together with interest thereon
at 3 per centum per annum to June 15,
1925
-

249, 459, 762. 44

$3,442,346.20

Net indebtedness as of June 15, 1925.
To be paid in cash upon execution of agreement
Total indebtedness to be funded into bonds

181.58
3,442,527.78
246, 017, 234. 66
17, 234. 66
246, 000, 000. 00

220

REPORT ON THE FINANCES

The principal of the bonds issued for the postarmistice indebtedness
shall be paid in annual installments on June 15 of each year up to
and including June 15, 1987, on a fixed schedule subject to the right
of the Government of the Kingdom of Belgium after June 15, 1935,
to make such payments in three-year periods. The amount of the
first principal installment shall be $1,100,000, the annual principal
installments to increase until in the sixty-second ^''ear the amount of
the final principal installment shall be $9,600,000, the aggregate
principal installments being equal to.the total principal of the postarmistice indebtedness to be funded into bonds.
The Government of the Kingdom of Belgium shall have the right
to pay off additional amoimts of the bonds on June 15 or December 15
of any year upon not less than ninety days' advance notice.
The bonds issued for the postarmistice indebtedness shall bear
interest from June 15, 1925, in the amounts and on the dates set forth
in the following schedule: December 15, 1925, $870,000; June 15,
1926, $870,000; December 15, 1926, $1,000,000; June 15, 1927,
. $1,000,000; December 15, 1927, $1,125,000; June 15, 1928, $1,125,000;
December 15, 1928, $1,250,000; June 15, 1929, $1,250,000; December 15, 1929, $1,375,000; June 15,' 1930, $1,375,000; December 15,
1930, $1,625,000; June 15, 1931, $1,625,000; December 15, 1931,;
$1,875,000; June 15, 1932, $1,875,000; December 15, 1932, $2,125,000;^
June 15, 1933, $2,125,000; December 15, 1933, $2,375,000; June 15,
1934, $2,375,000; December 15, 1934, $2,625,000; June 15, 1935,
$2,625,000 until and including June 15, 1935, and thereafter at .the
rate of 3 3/^ per centum per annum, payable semiannually on June 15
and December 15 of each year, until the principal of said bonds shall
have been paid.
Any payment of interest or principal may be made at the option
of the Government of the Kingdom of Belgium in any United States
Government obligations issued after April 6, 1917, such obligations
to be taken at par and accrued interest.
Approved, April 30, 1926.

EXHIBIT

[Public No. 160, Sixty-ninth Congress. H. R. 6776]

AN ACT TO AUTHORIZE THE SETTLEMENT OF THE INDEBTEDNESS OF THE REPUBLIC OF ESTONIA TO THE UNITED STATES
OF AMERICA

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled, That the settlement of the
indebtedness of the Republic of Esthonia to the United States of
America, made by the World War Foreign Debt Commission and
approved by. the President upon the terms and conditions as set
forth in Senate Document Numbered 7, Sixty-ninth Congress, first
session, is hereby approved in general terms as foUows:
The amount of the indebtedness to be funded, after allowing for
the cash payment made by Estonia, and the credit set out below, is
$13,830,000, which has been computed as follows:

SECRETARY OF THE TREASURY

221

Principal amount of obligations to be funded
$13, 999, 145. 60
Credit allowed for total loss of cargo on sinking of steamship
John Russ, sunk by a mine in Baltic Sea
1, 932, 923. 45
Interest accrued and unpaid thereon to December 15, 1922, at
the rate of 434 per centum a year
Total principal and interest accrued and unpaid as of
December 15, 1922
To be paid in cash by Estonia upon execution of agreement
Total indebtedness to be funded into bonds

12, 066, 222. 15
1, 765, 219. 73
13, 831, 441. 88
1, 441. 88
13, 830, 000. 00

The principal of the bonds shall be paid in annual installments on
December 15 of each year up to and including December 15, 1984,
on a fixed schedule, subject to the right of the Republic of Estonia
to make such payments in three-year periods. The amount of the
first year's installment shall be $69,000, the annual installments to
increase until the sixty-second year. The amount of the final installment will be $530,000, the aggregate installments being equal to
the total principal of the indebtedness to be funded into bonds.
The Republic of Estonia shall have the right to pay off additional
I amounts of the principal of the bonds on any interest date, upon
mnety days' advance notice.
\ Interest on the bonds shall be payable semiannually on June 15
a,nd December 15 of each year at the rate of 3 per centum per annum
froisp December 15, 1922, to December 15, 1932, and thereafter at
the 2:ate of 3 J/2 per centum per annum until final payment.
T}lf Republic of Estonia shall have the option with reference to
payments on account of principal and/or interest falling due on or
before December 15, 1930, under the terms of the agreement, to
make th^,following payments on the dates specified: June 15, 1926,
$50,000; December 15, 1926, $50,000; June 15, 1927, $75,000; December 15, 1927, $75,000; June 15, 1928, $100,000; December 15, 1928,
$100,000; June 15, 1929, $125,000; December 15, 1929, $125,000;
June 15,/'1930, $150,000; December 15, 1930, $150,000; total,
$1,000,000; and to pay the balance, including interest on all overdue
payments, at the rate of 3 per centum per annum, in bonds of
Estonia, dated December 15, 1930, bearing interest at the rate of
3 per centum per annum from December 15, 1930, to December
15, 1932, and thereafter at the rate of 33^ per centum per annum,
such bonds to mature serially on December 15 of each year up to
and including December 15, 1984, substantially in the same manner
and to be substantially the same in other respects as the bonds of
Estonia received at the time of the funding of the indebtedness.
Any payment of interest or of principal may be made, at the option
of the Republic of Estonia, in any United States Government obligations issued after April 6, 1917, such obligations to be taken at par
and accrued interest.
Approved, April 30, 1926.

222

REPORT ON T H E PINANCES
EXHIBIT

STATEMENTS OF AMOUNTS PAYABLE TO THE UNITED STATES
ON ACCOUNT O F T H E P R O P O S E D R E F U N D I N G BONDS TO B E
ISSUED BY ESTONIA

Year

1923
1924
1925
1926
1927
1928
1929
1930
•
1931
1932
1933
1934—
1935.1936
1937
1938 - - .
1939-..
1940
1941
1942-1943
1944
1945.
1946
1947 .
-..
1948
1949
1950
- .
1951
1952
1953
1954
1955.,.
1956 .
1957
1958
^
1959
1960
1961
1962
..^
1963
1964
1965
_
.
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976 1977 . . . "
1978
1979.
1980
1981 . . .
1982
1983
1984

Principal

_
-

.-.

-..
.

.
-

- ......

. - .
-

. .--

•
.-

_
.

:
.

$13,830,000
13,761,000
13,690,000
13,617,000
13, 542,000
13,464,000
13,384,000
13,302,000
13, 217,000
13,129,000
13, 039,000
12, 947,000
12,852,000
12, 754,000
12, 653,000
12, 548,000
12, 439,000
12,326,000
12,209,000
124 088, 000
11,963,000
11,834,000
11, 700,000
11, 562,000
11,419,000
11, 271,000
11,118,000
10, 959,000
10,794,000
10,624,000
10,448,000
10, 266,000
10,077,000
9, 882,000
9, 680, 000
9,471,000
9, 254,000
9,030,000
8, 798,000
8, 558,000
8,309,000
8,052,000
7, 786,000
7, 511,000
7,226,000
6,931,000
6,626,000
6,310,000
6, 983,000
5, 644,000
5,294, 000
4, 931,000
4, 556, 000
4,168,000
3, 766,000
3,350,000
2,919,000
2,473,000
2, 012,000
1, 535,000
1,041,000
630, 000

Annual
interest installments
at 3 per cent
for first 10
years; 3 ^
per cent
thereafter
$414,900
412,830
410,700
408,510
406, 260
403, 920
401,520
399,060
396, 510
393,870
456,365
453,145
449, 820
446,390
442, 855
439,180
435,365
431,410
427, 315
423,080
418,705
414,190
409, 500
404,670
399,665
394,485
389,130
383, 565
377, 790
371,840
365, 680
. 359,310
352, 695
345, 870
338,800
331,485
323,890
316,050
307,930
299, 530
290,815
281,820
272,510
262,885
252, 910
242, 585
231, 910
220,850
209,405
197, 540
185, 290
172, 585
159,460
145,880
131,810
117, 250
102,165
86, 555
70,420
535 725
36,435
18, 550
19, 501,140

Annual
principal
installments

Total
annual
payments

$483,900
$69,000
483,830
71,000
73,000
483,700
75,000
483, 510
78, 000
484,260
80,000
483,920
82, 000
483, 520
85,000
484,060
88,000
484, 510
90,000
483,870
92,000
548,365
95,000
548,145
98,000
547,820
101,000
547,390
105,000
547,855
109,000
548,18^
113,000
548,36/6
117,000
548,4^0
. 121,000
548,/315
125,000
548^080
129,000
5f7,705
134,000
5i8,190
138, 000
/547, 600
143,000
/ 547,670
148,000
/ 547,665
153,000 ..^
547,485
159,000 /
548,130
165,00(y
548,665
170,000
547,790
176,/O00
547,840
18)2,000
547,680
1&9,000
548,310
19k 000
547, 695
202;000
547,870
209,000
547,800
217,000
548,485
224,000\
547,890
232,000
548,050
. 240,000
547,930
249,000 \
\. 548,530
257,000
547,815
266,000
547,820
275,000
647,510
285,000
547,885
295,000
547,910
305,000
547, 585
316,000
547, 910
327,000
547,850
339,000
648,405
350,000
547,540
363,000
548,290
375,000
547,585
388,000
547,460
402,000
416,000
547,880
431,000
547,810
446,000
548,260
461,000
548,165
477,000
547, 555
494,000
547,420
511,000
547,725
-530,000
547,435
548,550
13,830, 000

33,331,140

SECRETAR.Y OE THE TREASURY

223

E X H I B I T 21
[Public No. 161, Sixty-ninth Congress. H. R^ 6776]

AN ACT TO AUTHORIZE THE SETTLEMENT OF THE INDEBTEDNESS OF THE GOVERNMENT OF THE REPUBLIC OF LATVIA TO
THE GOVERNMENT OF THE UNITED STATES OF AMERICA

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled. That the settlement of the
indebtedness of the Government of the Republic of Latvia to the
Government of the United States of America made by the World
War Foreign Debt Commission and approved by the President upon
the terms and conditions as set forth in Senate Document Numbered 8, Sixty-ninth Congress, first session, is hereby approved in
general terms as follows:
The amount of the indebtedness to be funded, after allowing for the
cash payments made by Latvia, is $5,775,000, which has been computed as follows:
Principal amount of obligations to be funded
$5, 132, 287. 14
Interest accrued and unpaid thereon to December 15, 1922, at
the rate of 4J^ per centum per annum
^
647, 275. 62
;
Total principal and interest accrued and unpaid as of
\
December 15, 1922
5, 779, 562. 76
^To be paid in cash by Latvia upon execution of agreement
4, 562. 76
Total indebtedness to be funded into bonds
5, 775, 000. 00

The principal of the bonds shall be paid in annual installments on
December 15 of each year up to and including December 15, 1984,
on a fixed schedule, subject to right of the Government of the Republic
of Latvia to make such payments in three-year periods. The amount
of the first yearns installment shall be $28,000, the annual installments
to increase until in the sixty-second year, the amount of the final installment will be $228,000, the aggregate installments being equal
to the total principal of the indebtedness to be funded into bonds.
The Government of the Republic of Latvia shall have the right to
pay off additional amounts of the principal of the bonds on any
interest date upon ninety days' advance notice.
Interest on the bonds shall be payable semiannually on June 15 and
December 15 of each year at the rate of 3 per centum per annum
from December 15, 1922, to December 15 1932, thereafter at the rate
oi 3^2 P^T centum per annum unti final payment.
The Government of the Republic of Latvia shall have the option,
with reference to payments on account of principal and/or interest
falling due on or before December 15, 1930, under the terms of the
agreement, to make the following payments on the dates specified:
June 15, 1926, $30,000; December 15, 1926, $30,000; June 15, 1927,
$35,000; December 15, 1927, $35,000; June 15, 1928, $40,000; December 15, 1928, $40,000; June 15, 1929, $45,000; December 15, 1929,
$45,000; June 15, 1930, $50,000; December 15, 1930; $50,000; total
$400,000, and to pay the balance, including interest on all overdue
payments at the rate of 3 per centum per annum in bonds of Latvia,
dated December 15, 1930, bearing interest at the rate of 3 per centum
per annum from December 15, 1930, to December 15 1932 and thereafter at the rate of 3 J^ per centum per annum, such bonds to mature
serially on December 15 of each year up to and including December 15,
1984, substantially in the same manner and to be substantially the
same in other respects as the bonds of Latvia received at the time
of the funding of the indebtedness.

224

REPORT ON T H E FINANCES

Any payment of interest or of principal may be made at the option
of the Republic of Latvia, in any United States Government obligations issued after April 6, 1917, such obligations to be taken at par
and accrued interest.
Approved, April 30, 1926.
EXHIBIT

STATEMENT OF AMOUNTS PAYABLE TO T H E UNITED STATES
ON A C C O U N T O F T H E P R O P O S E D R E F U N D I N G B O N D S T O BE
ISSUED B Y LATVIA

Year

1923
1924
1925
1926.-..
1927
1928- .
1929
1930
1931
1932 .
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950..
1961
1962
1953
1954
1965
1956
1957...
1958
1959
I960
1961..
1962
1963
1964
1965
1966
1967
1968
1969
1970:
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984

Principal

$5,775,000
5, 747,000
6,718, 000
5, 688,000
- ...
6, 657, 000
5, 626, 000
5, 592,000
5, 568, 000
6, 523,000
5,487,000
6,450,000
6,412,000
5,373,000
6,333,000
6,291,000
— 6, 248,000
6, 203,000
. 5,157,000
5,109,000
6,059,000
_. 6,008,000
4,956,000
4,900,000
4,843,000
4,784,000
.
4, 723,000
4, 660, 000
4, 696,000
4,527,000
4,457,000
.
4,384,000
4,309,000
4,231,000
4,151,000
4,068,000
3,982,000
3,893,000
3,801,000
3,706,000
3, 607,.000
...
3, 506,000
3,398, 000
3, 287,000
3,173,000
3,055,000
2,932,000
2,804, 000
2,672, 000
2, 534,000
2, 391,000
2, 243, 000
2,090,000
1,932,000
- 1,768,000
1, 598,000
1,422,000
1, 240,000
:
1,052,000
867,000
—
655, 000
446,000
228,000
-

'
...
.

:
..
_

-_..

.
.-

Schedule
of annual
Schedule
interest
of annual
installTotal
installments at
annual
3 per cent ments to
be
paid
on
payments
forfirst10
years; 3 H account of
principal
per cent
thereafter
$28,000
$201,250
$173,260
29,000
201,410
172,410
30,000
201, 540
171, 540
31,000
201, 640
170, 640
32,000
201, 710
169, 710
33,000
. 201,750
168,750
34,000
167, 760
201, 760
35,000
166, 740
201, 740
36,000
201, 690
165, 690
37,000
201, 610
164, 610
38,000
190, 750
228,750
39,000
228,42t)
189,420
40,000
228,055
188,055
42,000
186, 655
228i 655
43,000
185,185
228,186
45,000
183, 680
228, 680
46,000
182,105
^28,105
48,000
180, 495
•'228,496
50,000
178,815
.- 228,816
61,000
177,065
228,065
53,000
175, 280
228, 280
56,000
173,425
228,425
57,000
171,500
228, 600
59/000
169, 505
228, 605
61,000
167,440
228,440
63,000
166,305
228,305
65,000
163,100
228,100
68,000
160,825
228, 826
70,000
168,445
228,445
73,000
165,996
228,996
75,000
163,440
228,440
78,000
150,816
228,815
80,000
148,085
228,085
83,000
145,286
228,286
86,000
142,380
228,380
89,000
139, 370
228,370
92,000
136,255
228, 265
95,000
133,035
228,035
99,000
129,710
228,710
102,000
126,245
228, 245
107,000
122, 675
229,675
111, 000
118,930
229,930
114,000
115,046
229,045
118, 000
111, 065
229,056
123,000
106,925
229,925
128,000
102, 620
230, 620
132,000
98,140
230,140
138, 000
93, 620
231, 520
143,000
88, 690
231, 690
148, 000
83, 686
231, 685
153,000
78, 605
231, 606
168, 000
73,150
231,160
164,000
67, 620
231, 620
170,000
61,880
231, 880
176,000
55,930
231,930
182, 000
49, 770
231,770
188, OOO
43,400
231, 400
196,000
36.820
231, 820
202,000
29,995
231,995
209,000
22,926
231,925
218,000
15, 610
233, 610
228,000
7,980
235,980
8,183, 636 6,775,000
13,958,636

225

SECRETARY OF THE TREASURY
EXHIBIT

AGREEMENT FOR THE FUNDING OF THE INDEBTEDNESS
RUMANIA TO THE UNITED STATES

Agreement made the fourth day of December, 1925, at the City of Washington, District of Columbia, between the Kingdom of Rumania, hereinafter called Rumania, party of the first part, and the United States of
America, hereinafter called the United States, party of the second part
WHEREAS, Rumania is indebted to the United States as of June
15, 1925, upon obligations in the aggregate principal amount of
$36,128,494.94, together with interest accrued and unpaid thereon;
and
WHEREAS, Rumania desires to fund said indebtedness to the
United States, both principal and interest, through the issue of bonds
to the United States, and the United States is prepared to accept
bonds from Rumania upon the terms and conditions hereinafter set
forth;
Now, therefore, in consideration of the premises and of the mutual
covenants herein contained, it is agreed as follows:
1. Amount of Indebtedness.—The amount of the indebtedness to
be funded, after allowing for cash payments made or to be made by
Rumania and the credit set out below, is $44,590,000, which has been
Cvomputed as follows:
Principal amount of indebtedness to be funded
$36, 128, 494. 94
Interest accrued and unpaid thereon to December 15, 1922, at .
the rate of 434 per cent a year
6, 365, 806. 08
Total indebtedness as of December 15, 1922.
41, 494, 30L 02
Interest accrued and unpaid thereon to June 15, 1925, at the
rate of 3 per cent a year
3, 112, 072. 59
Credits allowed by War Department for material, together
with interest thereon
Total net indebtedness as of June 15, 1925
To be paid in cash upon execution of agreement

44, 606, 373. 61
11, 922. 07
44, 594, 451. 54
4, 451. 54

Total indebtedness to be funded into bonds

44, 590, 000. 00

2. Payment.—In order to provide for the payment of the indebtedness thus to be funded Rumania will issue to the United States at
par bonds of Rumania dated June 15, 1925, in the principal amounts
and maturing serially on the several dates fixed in the following
schedule:
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935

June 15—
:

$200, 000. 00
300, 000. 00
400, 000. 00
500,000. 00
600, 000. 00
700, 000. 00
800, 000. 00
1, 000, 000. 00
1, 200, 000. 00
1, 400, 000. 00

June 15—
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945

$1, 600, 000. 00
1, 800, 000. 00
2, 000, 000. 00
2, 200, 000. 00
430, 560. 43
445, 000. 00
462, 000. 00
478, 000. 00
494, 000. 00
512, 000. 00

226

REPORT ON T H E FINANCES

June 15—
1946
1947
1948
1949
1950_:
1951
1952
1953
1954___
1955_
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967

$529, 000. 00
548, 000. 00
567, 000. 00
587, 000. 00
608, 000. 00
629, 000. 00
651, 000. 00
673, 000. 00
697, 000. 00
722, 000. 00
• 747,000.00
773, 000. 00
800, 000. 00
828, 000. 00
857, 000. 00
887, 000. 00
918, 000. 00
950, 000. 00
984, 000. 00
1, 018, 000. 00
1, 053, 000. 00
1, 090, 000. 00

June 15—
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
Total

_.__
-__
'____
.__

$1, 129, 000. 00
1, 168, 000. 00
1, 209, 000. 00
1,252,000,00
1, 295, 000. 00
1, 341, 000. 00
1, 387, 000. 00
1, 436, 000. 00
1, 486, 000. 00
1, 539, 000. 00
1, 592, 000. 00
1, 648, 000. 00
1, 706, 000. 00
1, 765, 000. 00
1, 827, 000. 00
1, 891, 000. 00
1, 957, 000. 00
2, 026, 000. 00
2, 097, 000. 00
2, 172, 000. 00
66, 560, 560.. 43

PROVIDED, HOWEVER, That Rumania, at its option, upon not less
than ninety days' advance notice to the United States, may postpone
any payrnent on account of principal falling due as hereinabove
provided after June 15, 1939, to any subsequent June 15 or December
15 not more than two years distant from its due date, but only oh
condition that in case Rumania shall ab any time exercise this option
as to any ^payment of principal, the payment falling due in the next
succeeding year can not be postponed to any date more than one year
distant from the date when it becomes due unless and until the payment previously postponed shall actually have been made, and the
payment falling due in the second succeeding year can not be postponed at all unless and until the payment of principal due two years
previous thereto shall actually have been made.
3. Form of Bond.—All bonds issued or to be issued hereunder to the
United States shall be payable to the Government of the United
States of America, or order,. and shall be signed for Rumania by its >
Envoy Extraordinary and Minister Plenipotentiary at Washington,
or by its other duly authorized representative. The bonds issued for
the first fourteen annual payments shall be substantially in the form
set forth in the exhibit hereto annexed and marked ^'Exhibit A,''
shall be issued in fourteen pieces in the principal amounts fixed in the
preceding schedule, maturing annually on June 15 of each year up to
and including June 15, 1939, and shall not bear interest before
maturity. The bonds maturing subsequent to June 15 1939, shall be
substantially in the form set forth in the exhibit hereto annexed and
marked ^'Exhibit B , ' ' and shall be issued in 48 pieces with maturities
and in denominations as hereinabove set forth and sha 1 bear interest
at the rate of 3 3 ^ % per annum from June 15, 1939, payable semiannually on June 15 and December 15 of each year until the principal of such bonds shall be paid.
4. Method of Payment.—All bonds issued or to be issued hereunder
shall be payable, as to both principal and interest, in United States
gold coin of the present standard of value, or, at the option of Rumania
upon not less than thirty days' advance notice to the United States,

SECRETARY OF THE TREASURY

227

in any obligations of the United States issued after April 6, 1917, to
be taken at par and accrued interest to the date of payment hereunder.
All payments, whether in cash or in obligations of the United States
to be made by Rumania on account of the principal of orinterest on any
bonds issued or to be issued hereunder and held by the United States,
shall be made at the Treasury of the United States in Washington, or,
at the option of the Secretary of the Treasury of the United States,
at the Federal Reserve Bank of New York, and if in cash shall be made
in funds immediately available on the date of payment, or if in obligations of the United States shall be in form acceptable to the Secretary
of the Treasury of the United States under the general regulations of
the Treasury Department governing transactions in United States
obligations.
5. Exemption from Taxation.—The principal and interest of all
bonds issued or to be issued hereunder shall be paid without deduction
for, and shall be exempt from, any and all taxes or other public dues,
present or future, imposed by or under authority pf Rumania or any
political or local taxing authority within the Kingdom of Rumania,
whenever, so long as, and to the exteiit that beneficial ownership
is in (a) the Government of the United States, (b) a person, firm, or
association neither domiciled nor ordinarily resident in Rumania, or
(c) a corporation not organized under the laws of Rumania.
6. Payments before Maturity.—Rumania, at its option, on June 15
or December 15 of any year, upon not less than ninety days' advance
notice to the United States, may make advance payments in amounts
of $1,000 or multiples thereof, on account of the principal of any
bonds issued or to be issued hereunder and held by the United
States. Any such advance payments shall be applied to the principal of such bonds as may be indicated by Rumania at the time of
the payment.
7.' Exchange of Marketable Obligations.—Rumania will issue to the
United States at any time, or from time to time, at the request of the
Secretary of the Treasury of the United States, in exchange for
any or all of the bonds issued hereunder and held by the United
States, definitive engraved bonds in form suitable for sale to the
public, in such amounts and denominations as the Secretary of the
Treasury of the United States may request, in bearer form, with provision for registration as to principal and/or in fully registered form,
and otherwise on the same terms and conditions, as to dates of issue
and maturity, rate or rates of interest, if any, exemption from taxation, payment in obligations of the United States issued after April 6,
1917, and the like, as the bonds surrendered on such exchange.
Rumania will deliver definitive engraved bonds to the United States
in accordance herewith within six months of receiving notice of any
such request from the Secretary of the Treasury of the United States,
and pending the delivery of the definitive engraved bonds will deliver,
at the request of the Secretary of the Treasury of the United States,
temporary bonds or interim, receipts in form satisfactory to the
Secretary of the Treasury of the United States withm thirty days of
the receipt of such request, all without expense to the United States.
The United States, before offering any such bonds or interim receipts
for sale in Rumania, will first offer them to Rumania for purchase at
par and accrued interest, if any, and Rumania shall likewise have the

228

REPORT ON THE FINANCES

option, in lieu of issuing any such bonds or interim receipts, to make
advance redemption, at par and accrued interest, if any, of a corresponding principal amount of bonds issued hereunder and held
by the United States. Rumania agrees that the definitive engraved
bonds called for by this paragraph shall contain all such provisions,
and that it will cause to be promulgated allsuch rules, regulations, and
orders as shall be deemed necessary or desirable by the Secretary of
the Treasury of the United States in order to facilitate the sale of
the bonds in the United States, in Rumania or elsewhere, and that if
requested by the Secretary of the Treasury of the United States,
it will use its good offices to secure the listing of the bonds on such
stock exchanges as the Secretary of the Treasury of the United States
may specify.
8. Cancellation and Surrender of Obligations.—Upon the execution
of this Agreement, the delivery to the United States of the
$66,560,560.43 principal amount of bonds of Rumania to be issued
hereunder, together with satisfactory evidence of authority for the
execution of this Agreement by the representatives of Rumania and
for the execution of the bonds to be issued hereunder, the United
States will cancel and surrender to Rumania at the Treasury of the
United States in Washington, the obligations of Rumania held by the
United States.
9. Notices.—Any notice, request, or consent under the hand of the
Secretary of the Treasury of the United States, shall be deemed and
taken as the notice, request, or consent of the United States, and
shall be sufficient if delivered at the Legation of Rumania at Washington or at the office of the Ministry of Finance in Rumania"^ and
any notice, request, or election from or by Rumania shall be sufficient
if delivered to the American Legation at Bucharest or to the Secretary
of the Treasury at the Treasury of the United States in Washington.
The United States in its discretion may waive any notice required
hereunder, but any such waiver shall be in writing and shall not extend
to or affect any subsequent notice or impair any right of the United
States to require notice hereunder.
10. Compliance with Legal Requirements.—Rumania represents and.
agrees that the execution and delivery of this Agreement have in all
respects been duly authorized and that all acts, conditions, and legal
formalities which should have been completed prior to the making
of this Agreement have been completed as required by the laws of
Rumania and in conformity therewith.
11. Counterparts.—This Agreement shall be executed in two counterparts, each of which shall have the force and effect of an original.
I N W I T N E S S W H E R E O F Rumania has caused this Agreement
to be executed on its behalf by N. Titulescu^ Envoy Extraordinary
and Minister Plenipotentiary to his Brittanic Majesty and President
of the Rumanian Debt Funding Commission at Washington, thereunto duly authorized, subject, however, to ratification by Rumanian
Parliament, and the United States has likewise caused this Agreement to be executed on its behalf by the Secretary of the Treasury
as Chairman of the World War Foreign Debt Commission, with the
approval of the President, subject, however, to, the approval of
Congress, pursuant to the Act of Congress approved February 9,.
1922, as amended by the Act of Congress approved February 28,

SECRETARY OF THE TREASURY

229

1923, and as further amended by the Act of Congress approved
January 21, 1925, all on the day and the year first above written.
T H E KINGDOM OF RUMANIA,
By N. TITULESCU.
T H E U N I T E D STATES OF AMERICA,

For the World War Foreign Debt Commission:
By A. W.

MELLON,

Secretary of the Treasury and Chairman of the Commission.
Approved:
CALVIN COOLIDGE,

President.

EXHIBIT

(Form of Bond)
T H E KINGDOM OF RUMANIA

^
No.
The Kingdom of Rumania, hereinafter called Rumania, for value
received, promises to pay to the Government of the United States
of America, hereinafter called the United States, or order, on June 15,
19 , the sum of
Dollars ($
). This bond
is payable in gold coin, of the United States of America of the present
standard of value, or, at the option of Rumania, upon not less than
thirty days' advance notice to the United States, in any obligations of
the tjnited States issued after April 6, 1917, to be taken at par and
accrued interest to the date of payment hereunder.
This bond is payable without deduction for, and is exempt from,
any and all taxes and other public dues, present or future, imposed
by or under authority of Rumania or any political or local taxing
authority within Rumania, whenever, so long as, and to the extent
that, beneficial ownership is in (a) the Government of the United
States, (b) a person, firm, or association neither domiciled nor ordinarily resident in Rumania, or (c) a corporation not organized under
the laws of Rumania. This bond is payable at the Treasury of the
United States in Washington, D. C , or at the option of the Secretary
of the Treasury of the United States at the Federal Reserve Bank
of New York.
This bond is issued pursuant to the provisions of paragraph 2 of
an Agreement dated December 4, 1925, between Rumania and the
United States, to which Agreement this bond is subject and to which
reference is hereby made.
I N WITNESS W H E R E O F , Rumania has caused this bond to be
executed in its behalf by its
at the City of Washington, District of Columbia, thereunto duly
authorized, as of June 15, 1925.

T H E KINGDOM OF RUMANIA.

230

REPORT ON THE FINANCES
.

EXHIBIT B

(Form of Bond)
THE

KINGDOM

RUMANIA

No.
The Kingdom of Rumania, hereinafter called Rumania, for value
received, promises to pay to the Government of the United States
of America, hereinafter called the United States, or order, on June
15, 19 ', the sum of
Dollars ($
), and to pay
interest upon said principal sum from June 15, 1939, at the rate of
33^% per annum, payable semiannually on the 15th day of December and June in each year, until the principal hereof has been paid.
This bond is payable as to both principal and interest in gold coin of
the United States of America of the present standard of value, or, at
the option of Rumania, upon not less than thirty days' advance notice
to the United States, in any obligations of the United States issued
after April 6, 1917, to be taken at par and accrued interest to the date
of payment hereunder.
This bond is payable as to both principal and interest without
deduction for, and is exempt from, any and all taxes and other public
dues, present or future, imposed by or under authority of Rumania
or any political or local taxing authority wdthin the Kingdom of
Rumania, whenever, so long as, and to the extent that, beneficial
ownership is in (a) the Government of the United States, (b) a person,
firm, or association neither domiciled nor ordinarily resident in Rumania, or (c) a corporation not organized under the laws of Rumania.
This bond is payable as to both principal and interest at the Treasury
of the United States in Washington, D . C. or at the option of the
Secretary of the Treasury of the United States at the Federal Reserve
Bank of New York.
This bond is issued pursuant to the provisions of paragraph 2 of
an Agreement dated December 4, 1925, between Rumania and the
United States, to which Agreement this bond is subject and to which
reference is herebv made
I N W I T N E S S W H E R E O F , Rumania has caused this bond to be
executed in its behalf by its
a t the City of Washington, District of Columbia, thereunto duly
authorized, as of June 15, 1925.
T H E KINGDOM

OF RUMANIA.

EXHIBIT

PRESS STATEMENT BY THB WORLD WAR FOREIGN DEBT COMMISSION GIVING THE TERMS OF THE AGREEMENT FOR THE
SETTLEMENT OF THE INDEBTEDNESS OF RUMANIA TO THE
UNITED STATES
DECEMBER

1925.

The World War Foreign Debt Commission issued the following
statement to-day:
An agreement has been reached in settlement of the Rumanian debt to the
United States subject to the approval of Congress and the Rumanian Parliament.
The settlement has been approved by the President. The original indebtedness

SECRETARY OF THE TREASURY

231

of R u m a n i a a m o u n t e d t o $36,128,494.94. Interest on this a m o u n t has been
calculated as in recent settlements m a k i n g t h e principal of t h e d e b t t o be
funded as of J u n e 15, 1925, $44,590,000. T h e R u m a n i a n Government agrees t o
repay t h e principal of t h e funded d e b t over a period of 62 years with interest a t
3 per cent a year for t h e first 10 years and 33^ per cent a year thereafter.
During
t h e first 14 years t h e following t o t a l a n n u a l a m o u n t s are t o be paid, t h e balance
of each a n n u i t y a t t h e above interest rates t o be funded over t h e remaining 48
vears:
J u n e 15—
1926
1927__
1928
1929
1930
1931___
1932

$200, 000
300,000
400, 000
500,000
600, 000
700, 000
800, 000

J u n e 15—
1933
1934
1935
1936
1937
1938
1939__.__.

$1,000,000
1, 200, 000
1, 400, 000
1, 600, 000
1, 800, 000
2, 000, 000
2, 200, 000

A debt-funding agreement will be prepared for signatures a n d submission t o
t h e President.

EXHIBIT

(Public No. 167, Sixty-ninth Congress. H. R. 6772]

AN ACT TO A U T H O R I Z E T H E S E T T L E M E N T O F T H E I N D E B T E D NESS OF T H E K I N G D O M O F RUMANIA TO T H E UNITED STATES
OF AMERICA

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled, T h a t the settlement of the
indebtedness of the Kingdom of Rumania to the United States of
America made by the World War Foreign Debt Commission and
approved by the President upon the terms and conditions as set
forth in Senate Document Numbered 5, Sixty-ninth Congress, first
session, is hereby approved in general term^ as follows:
The amount of the indebtedness to be funded, after allowing for
the cash payments made by the Kingdom of Rumania and the credits
set out below, is $44,590,000, which has been computed as follows:
Principal a m o u n t of indebtedness t o be funded
$36, 128, 494. 94
I n t e r e s t accrued a n d unpaid thereon t o December 15, 1922, a t
t h e r a t e of 434 per centum a year
5, 365, 806. 08
Total indebtedness as of December 15, 1922
I n t e r e s t accrued a n d unpaid thereon t o J u n e 15, 1925, a t t h e
r a t e of 3 per centum a year

41, 494, 301. 02
3, 112, 072. 59
44,606,373.61

Credits allowed by War D e p a r t m e n t on material, together with
^ interest thereon
Total net indebtedness as of J u n e 15, 1925
T o be paid in cash upon execution of agreement
T o t a l indebtedness t o be funded into bonds

11,922. 07
44, 594, 451. 54
4, 451. 54
44, 590, 000. 00

The principal amount of the bonds to be delivered to the United
States is $66,560,560.43, the increase over the funded indebtedness
as of June 15, 1925, being due to the smaller payments during the
first fourteen years than would have been payable upon the basis of
the British-American settlement, this difference being funded over
the remaining forty-eight years, compounded annually, a t the rates

232

REPORT ON T H E FINANCES

of 3 per centum per annum up to and including the tenth year and
33^ per centum per annum from the eleventh to the fourteenth year,
both inclusive. The principal of the bonds shall be paid in annual
installments on June 15 of each year up to and including June 15
1987, subject to the right of the Kingdom of Rumania, after June 15,
1939, to make such payments in three-year periods. The first fourteen annual installments are to be paid without interest on the dates
specified and in the following amounts: June 15, 1926, $200,000; June
15, 1927, $300,000; June 15, 1928, $400,000; June 15, 1929, $500,000;
June 15, 1930, $600,000; June 15, 1931, $700,000; June 15, 1932,
$800,000; June 15, 1933, $1,000,000; June 15, 1934, $1,200,000; June
15, 1935, $1,400,000; June 15, 1936, $1,600,000; June 15, 1937,
$1,800,000; June 15, 1938, $2,000,000; June 15, 1939, $2,200,000.
The remaining forty-eight installments are to be paid annually on
June 15 of each year, with interest at the rate of 3J^ per centum per
annum from June 15, 1939, payable semiannually on June 15 and
December 15 of each year. The amount of the installment due in
the fifteenth year is $430,560.43, the annual installments to increase
thereafter until in the sixty-second year the amount of the final
installment will be $2,172,000, the aggregate installments being e\ual to
the total face amount of bonds to be delivered, namely, $66,560,560.43.
The Kingdom of Rumania shall have the right to pay off additional
amounts of the principal of the bonds on June 15 or December 15 of
any year upon not less than ninety days' advance notice.
Any payment of interest or of principal may be made at the option
of the Kingdom of Rumania in any obligations of the United States
issued after April 6, 1917, such obligations to be taken at par and
accrued interest.
Approved, M a y 3, 1926.
EXHIBIT

STATEMENT OF AMOUNTS PAYABLE TO T H E UNITED STATES
ON ACCOUNT O F P R O P O S E D R E F U N D I N G B O N D S TO BE ISSUED
B Y R U M A N I A ( I N T E R E S T AT 3 P E R CENT P E R A N N U M F O R F I R S T
1 0 Y E A R S A N D 31/2 P E R C E N T T H E R E A F T E R — A L L D E F E R R E D
A M O U N T S ARE C O M P O U N D E D ANNUALLY AT T H O S E RATES)

Year

1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939

Principal

Annual
interest
due

Annual
principal
due

Total
amount due
annually

Total
a m o u n t to
be p a i d
annually

Amount
deferred
each year

Value of each
deferred
a m o u n t on
fifteenth year

$44,690,000.00 $1,337,700.00 $222,000.00 $1,659,700.00 $200,000.00 $1,359,700.00 $2,035, 817.04
44, 368,000. 00 1,331,040.00 229,000.00 1,560,040.00
300,000.00 1,260,040. 00 1,831,651. 22
44,139,000.00 1,324,170. 00 236, 000:00 1,560,170.00
400,000.00 1,160,170. 00 1, 637, 355. 26
43,903,000. 00 1,317,090. 00 243,000.00 1,660,090.00
500,000.00 1, 060,090. 00 1,452, 535.10
43, 660, 000. 00 1,309,800.00 250,000.00 1,659,800.00
959,800. 00 1, 276, 814. 66
600,000. 00
43, 410,000. 00 1,302, 300.00 268,000. 00 1, 560,300. 00
700, 000. 00
860,300. 00 1, 111, 117. 32
43,162,000.00 1,294, 560. 00 265,000. 00 1,659, 560. 00
800, 000. 00
769, 660. 00
962, 433. 76
42,887,000. 00 1,286,610.00 273,000. 00 1, 559, 610. 00 1,000,000.00
559,610. 00
681, 272. 62
42, 614,000. 00 1, 278, 420. 00 282,000. 00 1, 560, 420. 00 1, 200, 000. 00
360,420. 00
426, 997. 58
42, 332, 000. 00 1, 269,960. 00 290,000. 00 1,669,960. 00 1, 400,000. 00
159,960. 00
183, 657. 62
42, 042, 000. 00 1, 471,470. 00 296,000. 00 1,767,470.00 1, 600, 000. 00
167,470.00
185,676. 84
41,746, 000.00 1, 461,110. 00 338,890. 00 1,800, 000. 00 1,800,000. 00
41,407,110.00 1,449, 248. 85 550, 751.15 2, 000, 000. 00 2, 000, 000. 00
- 40,856,358.85 1, 429,972. 56 770, 027. 44 2, 200, 000. 00 2,200, 000. 00
40,086,331.41 18,863, 451. 41 4, 503, 668. 59 23, 367,120. 00 14, 700, 000. 00 8, 667,120.00 111,774,229.02

•Add value of amounts deferred.

233

SECRETARY OF THE TREASURY

STATEMENT OF AMOUNTS PAYABLE TO THE UNITED STATES
ON ACCOUNT OF PROPOSED REFUNDING BONDS TO BE ISSUED
BY RUMANIA, ETC.—Continued

Year

Principal

Annual
interest due

$51,860, 560.43 $1,816,119.62
61,430, 000. 00 1,800,050.00
60,986, 000. 00 1, 784,475.00
50, 623,000.00
1,768,306. 00
60,045, 000.00
1, 761, 675. 00
49, 661,000. 00
1,734,285.00
49,039, 000.00
1, 716, 365. 00
48, 510,000. 00 1, 697,850. 00
47,962, 000. 00 1, 678, 670. 00
47, 396,000. 00 1, 658,825. 00
46,808, 000. 00 1,638,280.00
46, 200,000.00
1, 617,000. 00
45, 671,000. 00 1,594; 985.00
44,920, 000. 00 1, 572,200. 00
44, 247,000.00
1, 648, 646. 00
43, 560,000. 00 1, 624,250. 00
42,828, 000. 00
1,498, 980. 00
42,081, 000. 00 1,472, 835. 00
41, 308,000. 00 1,445,780.00
40, 608,000. 00
1,417, 780. 00
39, 680,000. 00
1, 388,800. 00
38,823, 000. 00 1, 358, 805.00
37,936, 000.00
1,327, 760. 00
37, 018,000. 00
1,295, 630. 00
36,068, 000. 00
1,262, 380. 00
35,084, 000.00
1,227,940.
00
34,066, 000.00
1,192,310.00
33,013,
000.00
1,155,465.
00
31, 923,
1,117, 305. 00
30,794, 000.00
1,077, 790. 00
29, 626,000. 00
28,417, 000.00 . 1,036,910.00
OOOl
00
^'994, •596.00
27,165,
950,.776. 00
25,870, 000. 00
000.
00
905,460. 00
24, 529,
000. 00
868,615.00
23.142, 000. 00
809,970.00
21, 706,000.00
759, 710. 00
20,220, 000.00
707,700. 00
18, 681,000.00
653,836.00
17,089, 000. 00
698,115.00
15,441, 000.00
540,436. 00
13, 735,000. 00
480, 726. 00
11,970, 000.00
418,950. 00
10.143, 000. 00
366,005. 00
8, 252,000. 00
288,820. 00
6, 295,000. 00
220,325.00
4,269, 000. 00
149,416.00
2,172, 000.00
76,020.00

1940..
1941..
1942..
1943..
1944..
1945..
1946-.
1947..
1948..
1949..
1950..
1951..
1962..
1963..
1954..
1965..
1956..
1957..
1968..
1959..
I960..
1961..
1962..
1963..
1964..
1965-.
1966..
1967..
1968..
1969..
1970..
1971..
1972..
1973..
1974..
1975..
1976-.
1977..
1978..
1979..
1980..
-1981..
1982..
1983..
1984..
1985..
1986..
1987-.

Add total amount received first 14 years.,

Annual
principal due

$430, 560.43
446,000.00
462,000.00
478,000. 00
494,000.00
612,000.00
629,000. 00
648, 000. 00
667,000.00
687, 000. 00
608,000.00
629, 000. 00
651,000. 00
673,000. 00
697,000. 00
722, 000. 00
747, 000. 00
773,000. 00
800,000.00
828,000. 00
857,000. 00
887,000. 00
918,000.00
950,000.00
984,000.00
1,018,000. 00
1,063,000.00
1,090,000. 00
1,-129,000.00
1,168,000.00
1,209,000.00
1,252, 000. 00
1,295,000. 00
1, 341,000. 00
1,387,000.00
1,436,000.00
1,486,000.00
1, 639,000. 00
1, 692,000.00
1, 648,000.00
1,706,000.00
1,765,000.00
1,827,000.-00
1,891,000.00
1, 967,000. 00
2,026,000.00
2,097,000.00
2,172,000. 00

Total
amount to be
paid annually
$2,246,680.05
2,246,050.00
2,246,475; 00
2,246, 306. 00
2.245, 676. 00
2,246,286. 00
2,245,365. 00
2,245,850. 00
2.246, 670.00
2,245,826. 00
2,246, 280. 00
2, 246,000. 00
2,245,986. 00
2,245,200. 00
2.245, 645. 00
2.246, 250. 00
2,245,980. 00
2,245, 835. 00
2.245, 780. 00
2.246, 780. 00
2,245,800. 00
2,246, 805. 00
2,246, 760. 00
2,245, 630. 00
2, 246, 380. 00
2,245,940. 00
2.245, 310. 00
2,245,455. 00
2.246, 305. 00
2,245, 790. 00
2.245, 910. 00
2.246, 595. 00
2.245, 775. 00
2,246,460. 00
2.246, 515.00
2, 245,970. 00
2,245, 710.00
2,246,700.00
2,246,836. 00
2,246,116.00
2,246,435.00
2,246,725.00
2.245, 950. 00
2,246,005. 00
2,246,820.00
2.246, 325. 00
2,246,415.00
2,248,020.00

65,945,699.62 ' 61,860,560.43 107,806,260.06
14, 700,000.00
122,506,260.05

11439—-n 1926

234

REPORT ON THE FINANCES
EXHIBIT

[Public No. 168, Sixty-ninth Congress. H. R. 6777]

AN ACT TO AUTHORIZE THE SETTLEMENT OF THE INDEBTEDNESS
OF THE CZECHOSLOVAK REPUBLIC TO THE UNITED STATES
OF AMERICA

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled. T h a t the settlement of the
indebtedness of the Czechoslovak Republic to the United States of
America made by the World War Foreign Debt Commission and
approved by the President upon the terms and conditions as set
forth in Senate Document Numbered 6, Sixty-ninth Congress, first
session, is hereby approved in general terms as follows:
The net amount of the indebtedness in settlement of the financial
differences between the two Governments and/or their agencies, both
principal and interest, is fixed as of June 15, 1925, at $115,000,000.
The principal amount of the bonds to be delivered to the United
States is $185,071,023.07, the increase over the funded indebtedness
as of June 15, 1925, being due to the smaller payments during the
first eighteen years than would have been payable upon the basis of
the British-American settlement, this difference being funded over
the remaining forty-four years, compounded annually, at the rates
of 3 per centum per annum up to and including the tenth year and
33^ per centum-per annum from, the eleventh to the eighteenth year,
both inclusive. The principal of the bonds shah be paid in semiannuah installments on Jime 15 and December 15 of each year up
to and including June 15, 1943, and thereafter in annual installments,
subject to the right of the Czechoslovak Republic, after June 15,
1943, to make such payments in- three-year periods. The first
thirty-six semiannual installments are to be $1,500,000 -each, and
are to be paid without interest on June 15 and December 15 of
each year. The remaining forty-four installments are to be paid
annually on June 15 of each year, with interest at the rate of 3J4
per centum per annum from June 15, 1943, payable semiannually
on June 15 and December 15 of each year. The amount of the
installment due in the nineteenth year is $1,296,023.07, the annual
installments to increase thereafter until in the sixty-second year
the amount of the final installment will be $5,685,000, the aggregate
installments being equal to the total face amount of bonds to be
delivered, namely, $185,071,023.07.
The Czechoslovak Republic shall have the right to pay off additional amounts of the principal of the bonds on June 15 or December
15 of any year upon not less than ninety daj^s^ advance notice.
Any payments of interest or principal may be made at the option
of the Czechoslovak Republic in any United States obligations
issued after April 6, 1917, such obligations to be taken at par and
accrued interest.
Approved, May 3, 1926.

235

SECRETARY OF T H E TREASURY
EXHIBIT

S T A T E M E N T OF AMOUNTS PAYABLE TO T H E UNITED STATES ON
ACCOUNT OF PROPOSED REFUNDING BONDS TO BE ISSUED
B Y CZECHOSLOVAKIA (INTEREST AT 3 P E R CENT P E R ANNUM
F O R F I R S T 10 YEARS AND 33^ P E R CENT T H E R E A F T E R — A L L
D E F E R R E D A M O U N T S ARE C O M P O U N D E D ANNUALLY AT T H O S E
RATES)
Fiscal
year

Principal

Annual
interest
due

Annual
principal
due

Total
amount due
annually

450,000.00 $575, 000. 00
.1926-.. $115,000,000.
432, 750.00 696, 000.00
1927._. 114,425,000.
414, 900. 00 610, 000.00
1928... 113,830,000.
396,600.00
630, 000.00
1929._. 113, 220,000.
377,700.00
645, 000. 00
1930__. 112,690,000.
368,350.00
665, 000.00
1931._. I l l , 945, 000.
338,400.00
690, 000.00
1932._. 111,280,000.
317, 700.00 710, 000.00
1933__. 110, 590,000.
296,400. 00 730, 000.00
1934... 109,880,000.
274, 600.00 750, 000. 00
1935... 109,150,000.
794,000. 00 770, 000.00
1936--. 108,400,000.
767,060.00
795, 000.00
1937--. 107, 630,000.
739, 225. 00 825, 000.00
1938--. 106, 835,000.
710,350.00
865, 000. 00
1939... 106,010,000.
680,425. 00 885, 000.00
1940... 105,. 165,000.
1941... 104, 270, 000. 00 3, 649,450. 00 915, 000.00
1942... 103, 355,000. 00 3, 617,425. 00 945, 000. 00
000. 00
1943... 102,410,000. 00, 3, 584,360. 00

025,
027,
024,
026,
022,
023,
028,
027,
026,
024,
564,
662,
664,
565,
565,
564,
562,
564,

000.00
750.00
900.00
600.00
700. 00
350. 00
400.00
700.00
400.00
500. 00
000. 00
050.00
225. 00
350. 00
425.00
450. 00
425. 00
350. 00

Total
a m o u n t to
be paid
annually
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.
000,000.

Amount
: deferred
each year
025,000.00
027, 750. 00
024,900.00
026,600. 00
022, 700. 00
023, 350.00
028,400.00
027,700.00
026,400.00
024, 500.00
564,000. 00
562,050. 00
564,225. 00
566, 350.00
565,426. 00
664,450.00
562,425. 00
664, 350.00

Value of each
deferred
a m o u n t on
nineteenth
year
$1,761, 086. 23
1, 714, 379. 79
1,659, 831. 00
1, 614, 168.82
1,561, 192. 58
1,516, 684. 65
1,479, 775. 62
1,435, 697. 46
1,392, 117. 83
1,349, 068. 77 .
1,989, 842. 79
1,920, 156.21
1,857, 806.571, 796, 273. 66
1,735, 613. 31
1,675, 877. 95
1, 617, 109. 87
1, 564, 350. 00

101, 430, 000. 00 63,199, 575. 00 13, 570, 000. 00 76, 769, 575. 00 54,000,000.00 22, 769, 575. 00 129,641, 023.
Fiscal year
1944..
1945..
1946-.
1947..
1948..
1949..
1950^.
1951..
1952..
1953-.
1954-.
1955-.
1956-.
1957-.
1958..
1959..
I960-.
1961-.
1962-.
1963-:
1964..
1965..
1966-.
1967-.
1968-.
19691970.
1971..
1972-.
1973..
1974.
1975..
1976..
1977..
1978..
1979.,
1980.:
1981..
1982.
1983-,
1984.,
1985.,
1986.
1987.,
A d d total a m o u n t received first 18
years
......^
^ A d d v a l u e of a m o u n t s deferred.

Principal
$131,071, 023.07
129,775, 000.00
128,435, 000. 00
127,050, 000. 00
125, 615, 000. 00
124,130, 000. 00
122, 690, 000. 00
121,000, 000. 00
119, 365, 000.00
117, 660, 000.00
115,885, 000. 00
114, 060, 000. 00
112,170, 000. 00
110, 210, 000. 00
108,185, 000.00
106,085, 000. 00
103, 915, 000. 00
101, 670, 000. 00
99, 345, 000. 00
96,940, 000. 00
94,450, 000.00
91, 875, 000. 00
89, 210, 000. 00
86,450, 000. 00
83, 595, 000. 00
80, 640, 000. 00
77, 580, 000. 00
74,415, 000. 00
71,135, 000. 00
67, 740, 000. 00
64,230, 000. 00
60,595, 000. 00
56,835, 000.00
52, 946, 000. 00
48, 915? 000. 00
'44, 745, 000. 00
40,430, 000.00
35, 965, 000. 00
31, 340, 000. 00
26, 555, 000. 00
21, 605, 000. 00
16,480, 000. 00
11,175, 000. 00
5,685, 000. 00

A n n u a l interest
due

A n n u a l principal d u e

$4, 587,485.81
4, 542,125.00
. 4,495,225. 00
4,446, 750. 00
4, 396,525.00
4,344, 550. 00
4, 290,650. 00
4, 235,000. 00
4,177, 425. 00
4,117,750. 00
4,055,975.00
3,992,100. 00
3,926,950. 00
3, 857,350. 00
3, 786,476. 00
3, 712,976. 00
3, 637,025. 00
3, 558,450. 00
3,477,075. 00
3, 392,900. 00
3, 305,750. 00
3, 215,625. 00
3,122, 350. 00
3,025, 750. 00
2,925, 826. 00
2.822, 400.00
2,715, 300.00
2,604, 525. 00
2, 489,725. 00
2, 370,900. 00
2, 248,050. 00
2,120, 825.00
1,989, 225. 00
1,853, 075. 00
1, 712,025. 00
1, 666,075. 00
1, 415,050. 00
1, 258,775. 00
1, 096,900. 00
929, 425, 00
756, 175. 00
576, 800.00
391, 125. 00
976. 00

$1, 296,023. 07
1,340,000.00
1, 385,000. 00
1, 435,000. 00
1,485,000.00
1, 540,000. 00
1, 590,000.00
1, 645,000.00
1, 705,000.00
1, 765,000.00
1,826,000.00
1,890, 000.00
1,960,000.00
2, 025,000.00
2,100, 000. 00
2,170, 000.00
2, 245,000. 00
2, 325,000. 00
2,405, 000. 00
- 2,490,000. 00
2, 575,000. 00
2, 665,000.00
2, 760,000. 00
2,855, 000. 00
2,955, 000. 00
3,060, 000.00
3,165, 000. 00
3, 280,000.00
3, 395,000. 00
3, 510,000.00
3, 635,000. 00
3,760, 000.00
3,890, 000. 00
4,030, 000. 00
4,170, 000.00
4,315,000. 00
4,465, 000. 00
4, 625,000. 00
4, 785,000. 00
4,950, 000. 00
5,125, 000. 00
6,305, 000. 00
6, 490,000. 00
6, 685,000. 00

127, 740, 410. 81

131,071,023. 07

Total amount
to be paid
annually
$5,883, 508. 87
5,882, 125. 00
6.880, 226. 00
6.881, 750.00
5, 881, 525.00
5,884, 550. 00
6,880, 650.00
6, 880, 000. 00
5,882, 425.00
5.882, 750. 00
5,880, 975.00
5,882, 100.00
6, 885, 950.00
5,882, 360.00
5,886, 476. 00
5,882, 975. 00
5 , " ~ 025. 00
6, 883, 450.00
5, 882, 075.00
5,882, 900. 00
5, 880, 750.00
6,880, 625.00
6,882, 350. 00
5,880, 750. 00
5,880, 825. 00
5.882, 400. 00
5.880, 300. 00
5,884, 525. 00
5,884, 725. 00
5, 880, 900.00
6.883, 050. 00
5, 880, 825. 00
6.879, 225. 00
5, 883, 076. 00
5.882, 026. 00
5.881, 075. 00.
6.880, 050. 00
5.883, 775.00
5,881, 900. 00
5, 879, 425. 00
5, 881, 175. 00
5, 881, 800.- 00
6,881. 12.5. 00 .
5, 883, 975.00
258,811,433.88
64,000, 000. 00 •
312.811.433. 88 .

236

REPORT ON THE FINANCES
EXHIBIT 29

AGREEMENT F O R T H E FUNDING O F T H E INDEBTEDNESS O F
^
FRANCE TO THE UNITED STATES

Agreement made the 29th day of April, 1926, at the City of Washington,
District of Columbia, between the French Republic, hereinafter called
France, party of the first part, and the United States of America,
hereinafter called the United States, party of the second part
WHEREAS, France is indebted to the United States as of June 15,
1925, upon obligations in the aggregate principal amount of $3,340,516,043.72, together with interest accrued and unpaid thereon; and
WHEREAS, France desires to fund said indebtedness to the
United States, both principal and interest, through the issue of
bonds to the United States, and the United States is prepared to
accept bonds from France upon the terms hereinafter set forth;
Now, therefore, in consideration of the premises and of the mutual
covenants herein contained, it is agfeed as follows:
1. Amount of Indebtedness.—The amount of indebtedness to be
funded, after allowing for certain cash payments made or to be made
by France is $4,025,000,000, which has been computed as follows:
Principal of obligations held for cash advanced under Liberty Bond Acts
$2, 933, 405, 070. 15
Accrued and unpaid interest at 434%
to December 15, 1 9 2 2 . . .
445, 066, 027. 49
Principal of obhgations given for surplus war supplies purchased on
credit
Interest at 434 % from the last interestpayment date prior to December 15,
1922, to December 15, 1922

$3, 378, 471, 097. 64

407, 341, 145. 01
6, 324, 940. 79

413, 666, 085. 80

Total indebtedness as of December 15, 1922
3, 792, 137, 183. 44
Accrued and unpaid interest at 3 % per annum on this
amount from December 15, 1922, to June 15, 1925
284, 410, 288. 75
Total indebtedness as of June 15, 1925
4, 076, 547, 472. 19
Credits:
Payments received on account of .
interest between December 15,
1922, and June 15, 1925
$50, 917, 643. 13
Payments on account of principal
since December 15, 1922
230, 171. 44
Interest on principal payments at
3 % per annum from date of payment to June 15, 1925
12, 970. 73
51, 160, 785. 30
Net indebtedness as of June 15, 19251
To be paid in cash upon execution of agreement
Total indebtedness to be funded into bonds. _

4, 025, 386, 686. 89
386, 686. 89
4, 025, 000, 000. 00

2. Payment.—In order to provide for the payment of the indebtedness thus to be funded, France will issue to the United States at par,
bonds of France in the aggregate principal amount of $4,025,000,000,
dated June 15, 1925, and maturing serially on the several dates and
in the amounts fixed in the following schedule:

SBCBETABT OP a?HE TREASURY
June 15—
1926
-_._.
1927
.
1928
1929
1930
1931__
1932__
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942______
1943
1944
1945
1946
1947
1948
1949.
1950
1951
1952__
1953
1954
1955
1956
1957-.

$30,000), 000.00
. 30, ooo;), 000.00
32,500;), 000.00
32, 500,), 000.00
-_ 35,000;), 000.00
1,350,), 000.00
11,363,500. 00
21,477\ 135. 00
36,691,906. 35
42,058,, 825.41
52, 479;), 413.67
63, 004t, 207.80
68,634;t, 249.88
74,320,), 592.38
80,063,798. 30
51,728;>, 872.58
57,763,450. 02
58, 918>, 719.03
60, 097;', 093.41
61,299,I 035. 28
62,525,), 015.98
63,775,), 516.30
65,051,026. 63
66,352:,047. 16
67,679;), 088.
.o
33
'__ 55, 040,), 837. :
56, 416,858. 27
57,827\ 279. 71
59,272,961. 71
60,754., 785.76
62,273,655. 40
63, 830;), 496.79

June 1 5 —
___.
1958
1959
__..
1960
1961
1962
1963
1964
1965
-.__
1966
1967
1968
.___
1969
1970
1971
1972
1973_L
1974
__..
1975
1976
1977
1978
__._
1979
1980
1981
1982
1983
1984:
1985
1986
__ .
1987

Total

237
$65,426,259.21
55,474,298. 82
57,138,527.79
58,852,683.62
60,618,264. 13
62,436,812.05
64,309,916.42
66,239,213.9?.
58,764, 122. 05
60,820,866.32
62,949,596.64
65,152,832.52
67,433, 181. 66
69,793,343.02
72,236,110.02
74,764,373.88
77,381,126.96
80,089,466. 40
82,892,597 73
85,793,838.65
88,796,623.00
91,904, 504. 81
95,121,162.48
98,450,403. 16
101,896,167.27
105,462,533. 13
109, 153,721. 79
112,974,102.05
116, 928, 195. 62
113,694,786. 64

4, 025, 000, 000. 00

PROVIDED, HOWEVER, T h a t France, at its option, upon not less than
ninety days' advance notice to the United States, may postpone
so much of any payment on account of principal and/or interest
falling due in any one year as hereinabove provided after June 15,
1926, and prior to June 16, 1932, as shall be in excess of $20,000,000
in any one year, to. any subsequent June 15 or December 15 not more
than three years distant from its due date, and upon like notice
France, at its option, may postpone any payment on account of
principal falling due as hereinafter provided after June 15, 1932,
to any subsequent June 15 or December 15 not more than three years
distant from its due date, but any such postponement shall be only
on condition that in case France shall at any time exercise this option
as to any payment of principal and/or interest, the payment falling
due in the third succeeding year can not be postponed at all unless
and until the payment of principal and/or interest due three years,
two years and one year previous thereto shall actually have been
made. All such postponed payments shall bear interest at the rate of
4 M % P^T annum payable semiannually.
3. Form of Bond.—All bonds issued or to be issued hereunder
to the United States shall be payable to the Government of the
United States of America, or order, and shall be signed for France
by its Anibassador at Washington, or by its other duly authorized
representative. The bonds shall be substantially in the form set
forth in the exhibit hereto annexed and marked ^'Exhibit A ' ' , and
shall be issued in 62 pieces with maturities and in denominations as
hereinabove set forth and shall bear no interest until June 15, 1930,
and thereafter shall bear interest at the rate of 1 % per annum from

REPORT ON T.HE FINANCES

June 15, 1930, to June 15, 1940; at the rate oi 2 % per annum from
June 15, 1940, to June 15, 1950; at the rate of 23^^% per annum from
June 15, 1950, to June 15, 1958; at the rate of 3 % per annum from
Jurie 15, 1958, to June 15, 1965, and at the rate of 3 J ^ % per annum
after June 15, 1965, all payable semiannually on June 15 and
December 15 of each year.
4. Method of Payment.—All bonds issued or to be issued hereunder
shall be payable, as to both principal and interest, in United States
•gold coin of the present standard of value, or, at the option of France,
^upon not less than thirty days' advance notice to the United States,
in any obligations of the United States issued after April 6, 1917,
to be taken at par and accrued interest to the date of payment hereunder.
All payments, whether in cash or in obligations of the United
States, to be made by France on account of the principal of or interest
on any bonds issued or to be issued hereunder and held by the Uriited
States shall be made at the Treasury of the United States in Washington,
or, at the option of the Secretary of the Treasury of the United States,
at the Federal Reserve Bank of New York, and if in cash shall be
made in funds immediately available on the date of payment, or if in
obligations of the United States shall be in form acceptable to the
Secretary of the. Treasury of the United States under the general
regulations of the Treasury Department governing transactions in.
United States obligations.
5. Exemption from Taxation.—The principal and interest of all
bonds issued or to be issued hereunder shall be paid without deduction
for, and shall be exempt from, any and all taxes or other public dues,
present) or future, imposed by or under authority of France or any
political or, local taxing authority within France, whenever, so long
as, and to the extent that beneficial ownership is in (a) the Government of the United States, (b) a person, firm, or association neither
domiciled nor ordinarily resident in France, or (c) a corporation not
organized under the laws of France.
6. Payments before Maturity.—France, at its option, on June 15
or December 15 of any year, upon not less than ninety days' advance
notice to the United States, may make advance payments in amounts
of $1,000 or multiples thereof, on account of the principal of any bonds
issued or to be issued hereunder and held by the United States. Any
such advance payments shall be applied to the principal of such
bonds as may be indicated by France at the time of the paynient.
7. Exchange for Marketable Obligations.—France will issue to the
United States at any time, or from time to time, at the request of the
Secretary of the Treasury of the United States, in exchange for any
or all of the bonds issued hereunder and held by the United States,
definitive engraved bonds in-form suitable for sale to the public, in
such amounts and" denominations as the Secretary of the Treasury of
the United States may request, in bearer form, with provision for
registration as to principal and/or in fully registered form, and otherwise on the same terms and conditions, as to dates of issue and maturit.y, rate or rates of interest, if any, exemption from taxation, payment in obligations of the United States issued after April 6, 1917,
and the like, as the bonds surrendered on such exchange. France
will deliver definitive engraved bonds to the United States in accordance herewith within six months of receiving notice of any such

SECRETARY OF THE TREASURY

239

request from the Secretary of the Treasury of the United States, and
pending the delivery of the definitive engraved bonds will deliver,
at the request of the Secretary of the Treasury of the United States,
temporary bonds'or interim receipts in form satisfactory to the Secretary of the Treasury of the United States within thirty days of the
receipt of such request, all without expense to the United States.
The United States, before offeririg any such bonds or interim receipts
for sale in France, will first offer them to France for purchase at par
and accrued interest, if any, and France shall likewise have the
option, in lieu of issuing any such bonds or interim receipts, to make
advance redemption, at par and accrued interest, if any, of a corresponding principal amount of bonds issued hereunder and held by
the United States. France agrees that the definitive engraved bonds
called for by this paragraph shall contain all such provisions, and
that it will cause to be promulgated all such rules, regulations, and
orders as shall be deemed necessary or desirable by the Secretary of
the Treasury of the United States in order to facilitate the sale of
the bonds in the United States, in France or elsewhere, and that if
requested by the Secretary of the Treasury of the United States, it
will use its good ofl[ices to secure the listing of the bonds on such
stock exchanges as the Secretary of the Treasury of the United States
may specify.
'
8. Cancellation and Surrender of Obligations.—Upon the execution
of this Agreement, the delivery to the United States of the principal
amount of bonds of France to be issued hereunder, together with
satisfactory evidence of authority for the execution of this Agreement by the representative of France and for the execution of the
bonds to be issued hereunder, the United States will cancel and surrender to France at the Treasury of the United States in Washington,
the obligations of France held by the United States.
9. Notices.—Any notice, request, or consent under the hand of the
Secretary of the Treasury of the United States, shall be deemed and
taken as the notice, request, or consent of the United States, and
shall be sufl^lcient if delivered at the Embassy of France at Washington or at the office of the Ministry of Finance at Paris; and any
notice, request, or election from or by France shall be sufl&cient if
delivered to the American Embassy at Paris or to the Secretary of
the Treasury at the Treasury of the United States in Washington.
The United States in its discretion may waive any notice required
hereunder, but any such waiver shall be in writing and shall not
extend to or affect any subsequent notice or impair any right of the
United States to require notice hereunder.
10. Compliance with Legal Reguirements.—France represents and
agrees that the execution and delivery of this Agreement have in all
respects been duly authorized and that all acts, conditions, and legal
formalities which should have been completed prior to the makings
of this Agreement have been completed as required by the laws of
France and in conformity therewith.
11. Counterparts.—This Agreement shall be executed in two
counterparts, each of which shall have the force and effect of an
original.
I N W I T N E S S W H E R E O F France has caused this Agreement
to be executed on its behalf by Hon. Henry Berenger, its Ambassador
Extraordinary and Plenipotentiary at Washington, thereunto duly

240

REPORT ON THE FINANCES

authorized, subject, however, to ratification in France, and the
United States has likewise caused this Agreement to be executed on
its behalf by the Secretary of the Treasury as ^Chairman of the
World War Foreign Debt Commission, with the approval of the
President, subjept, however, to the approvaL of Congress, pursuant
to the Act of Congress approved February 9, 1922, as amended by
the Act of Congress approved February 28, 1923, and as further
amended by the Act of Congress approved January 21, 1925, all on
the day and year first above written.
,

T H E F R E N C H REPUBLIC,
By H E N R Y BIERENGER,
T H E U N I T E D STATES OF AMERICA,

For the World War Foreign Debt Commission:
By ANDREW W . M E L L O N ,

Secretary of the Treasury and Chairman of the Commission,
Approved:
CALVIN COOLIDGE,

President.
EXHIBJT A
(Form of Bond)

T H E R E P U B L I C OF FRANCE

No.
The Republic of France, hereinafter called France, for value
received, promises to pay to the Government of the United States of
America, hereinafter called the United States, or order, on June 15,
19 , the sum of
Dollars ($
), and to pay
interest upon said principal sum after June 15, 1930, at the rate of 1%
per annum from June 15, 1930, to June 15, 1940,* at the rate of 2 %
per annum from June 15, 1940, to June 15, 1950, at the rate of 2}4%
per annum from June 15, 1950, to June 15, 1958, at the rate oi 3 %
per annum from June 15, 1958, to June 15, 1965, and at the rate of
3}/2% P^r annum after June 15, 1965, all payable semiannually ori
the 15th day of December and June in each year. This bond is
payable as to both principal and interest in gold coin of the United
States of America of the present standard of value, or, at the option
of France, upon not less than thirty days' advance notice to the
United States, in any obligations of the United States issued after
April 6, 1917, to be taken at par and accrued interest to the date of
payment hereunder.
This bond is payable as to both principal and interest without
deduction for, and is exempt from, any and all taxes, and other public
dues, present or future, imposed by or under authority of France or
any political or local taxing authority within France, whenever, so
long as, and to the extent that, beneficial ownership is in (a) the Government of the United States, (b) a person, firm, or association
neither domiciled nor ordinarily resident in France, or (c) a corporation
not organized under the laws of France. This bond is payable as to
both principal and interest at the Treasury of the United States in
Washington, D . C , or at the option of the Secretary of the Treasury
of the United States at the Federal Reserve Bank of New York.

SECRETARY OF THE TREASURY

241

This bond is issued pursuant to the provisions of paragraph 2 of
an Agreement dated April 29, 1926, between France and the United
States, to which Agreement this bond is subject and to which reference is hereby made.
I N WITNESS W H E R E O F , France has caused this bond to be
executed in its behalf by its Ambassador Extraordinary and Plenipotentiary at Washington, thereunto duly authorized, as of June
15,1925.
T H E F R E N C H REPUBLIC :

Ambassador Extraordinary and Plenipotentiary,
EXHIBIT

PRESS STATEMENT BY THE WORLD WAR FOREIGN DEBT COMMISSION GIVING THE TERMS OF THE AGREEMENT FOR THE
SETTLEMENT OF THB INDEBTEDNESS OF FRANCE TO THE
UNITED STATES
THURSDAY, A P R I L 29,

1926.

The World War Foreign Debt Commission made the following
announcement to-day:
The American commission has reached an agreement with Ambassador Berenger for a settlement of the indebtedness of France to the United States. The
amount to be ^funded has been calculated on the same basis as in other debt
settlements, at 434 per cent interest to December 15, 1922, and at 3 per cent
interest thereafter to June 15, 1925, the date of the agreement. The total to be
funded after the cash payment to adjust the amount to round figures is
$4,025,000,000. Of this $4,025,000,000, $3,340,000,000 represents principal,
and $685,000,000 the accrued interest to the date of the agreement.
The agreement provides for annuities commencing with $30,000,000 in the
fiist year, and reaching $125,000,000 in the seventeenth year and thereafter
continuing at this figure, except for the sixty-second year, which is slightly less.
Under the agreement the total of the principal funded will be paid in full. On
this principal, interest will be paid as follows: After the first 5 years and for the
next 10 years 1 per cent per annum; for the succeeding 10 years 2 per cent per
annum; for the succeeding 8 years 2J^ per cent per annum; for the succeeding 7
years 3 per cent per annum; and for the remaining 22 years of the period 33^
per cent per annum.
The total payments to be received are $6,847,674,104.17, and the present
value of these payments on a 434 per cent basis is $2,008,122,624, or practically
50 per cent of the debt funded, as compared with the Italian settlement of 26
percent.
The best offer heretofore received from France was made by M. Caillaux in
October last, of $40,000,000 a year for 5 years, $60,000,000 a year for the next
7 years, and $100,000,000 for the succeeding 56 years. M. Caillaux included as
the essential element of his proposed settlement a revision clause, called by him
a *'safeguard'' clause, the effect of which was to relieve France if Germany did
not pay reparations. A comparison of the Caillaux offer and the present settlement shows the following:
(1) In the settlement the ''safeguard'' clause has been eliminated.
(2) Total payments to be received under the settlement are $6,847,000,000,
as against $6,220,000,000 offered by M. Caillaux, an increase of $627,000,000.
The present value of the settlement on a 434 per cent basis is $2,008,000,000, as
against $1,755,000,000 present value of the Caillaux offer, an increase of
$253,000,000.
(3) In the first five years Caillaux offered $200,000,000; under the settlement
we are to redeive $160,000,000. The slightly easier terms for the first five
years were made necessary because the present fiscal condition of the French
Government is less strong than it was at the time of the negotiations last September. Upon the present exchange rates payment of the first annuity of $30,000,000 requires that France shall find 898,200,000 francs. In October, last,
11439—FI 192e--—18

242

REPORT ON THE FINANCES

a payment of $40,000,000 would have required that France find only 845,700,000
francs. The lower annuity in dollars represents to-day a higher annuity in
francs than the Caillaux offer.
(4) In the sixth to the tenth year Caillaux offered $300,000,000; the settlement
provides for the payment of $305,000,000.
(5) In the eleventh to the fifteenth year Caillaux offered $420,000,000; the
settlement requires the payment of $520,000,000.
(6) Caillaux's maximum annuity was $100,000,000, reached after the twelfth
year; the maximum annuity in the settlement is $125,000,000, reached after the
sixteenth year.
In view of the enormous burden of the domestic debt of France, the difficulty
of raising by taxation a sufficient revenue to meet the charges of this debt, to
carry on the ordinary Government operations, and to find the exchange necessary
to pay her foreign debt to the United States and to England, the commission believes that this settlement represents substantially France's capacity to pay.
Unless France is enabled promptly to fix the amount of its obligations abroad
so that it may know definitely its commitments and may provide for them in its
budget, there might be grave danger of a complete breakdowniof French finances.
This would be a serious blow to the reestablishment of Europe and would inevitably affect not only the payments now being made to the United States by France,
but would seriously curtail the sale by our farmers of our export surplus abroad.
It is felt that the settlement meets the requirement of the statute from which the
commission's authority is derived that it be just both^to our own citizens and to
our ally in the war.
This settlement substantially completes the work of the commission, there
remaining but $295,000,000 unfunded out of a total of $10,102,000,000 war debt.
Of these, $193,000,000 is Russian and $24,000,000 Austrian, which has already
been extended by Congress for 20 years; $51,000,000 is Yugoslavian, $15,000,000
is Greek, and $12,000,000 Armenian.
EXHIBIT

STATEMENT OF AMOUNTS PAYABLE TO THE UNITED STATES ON
ACCOUNT OF THE PROPOSED REFUNDING BONDS TO BE ISSUED
BY FRANCE
A n n u a l interest
Fiscal year

Principal
P e r cent

1926
1927__
1928_ .
1929
1930-_
1931
1932..
1933-1934..
1935.
1936-19371938
1939-_
1940
1941
19421943-__
1944
1945.19461947-1948-194919501951
196219631954-..,
1955
1956-..
1967-_
1958
1959

$4,025,000,000. 00
3, 995, 000,000. 00
3, 965,000, 000. 00
3, 932, 500,000. 00
3,900,000,000. 00
3, 885,000, 000. 00
3,863,650,-000:00
3,852,286,600.00
3,830,809,365. 00
3, 794,117,458. 65
3, 752,068,633. 24
3, 699, 679, 219. 57
3, 636, 575, Oil. 77
3, 567, 940, 761. 89
3,493, 620,169. 51
3,413, 556, 371. 21
3,361, 827,498. 63
3,304,064,048. 61
3,245,145,329. 58
3,185,048,236.17
3,123, 749, 200. 89
3,061, 224,184. 91
2, 997,448, 668. 61
2, 932, 397, 641. 98
2, 866,045, 594. 82
2, 798,366, 506. 72
2, 743,325, 669. 39
2,686,908,811.12
2,629, 081, 531. 41
2, 569,808, 569. 70
2, 509,053, 783. 94
2,446, 780,128. 64
2,382,949,631.75
2,317, 623,372. 64

2
2(
2
2
2
• 2
2
2
2
2
2H
2H
2M
23^
2H
2H
2H
2H
3

A n n u a l principal
•payments

Total annual
payments

$30,000,000.00
30,000,000.00
32,500,000. 00
32, 500,000. 00
35,000,000.00
1,350,000. 00
11, 363, 500. 00
21,477,135. 00
36,691, 906. 35
42,058, 825. 41
52,479,413. 67
63,004,207. 80
68,634,249. 88
74,320, 592. 38
80,063,798.30
51, 728,872. 68
57,763,460. 02
58,918,719.03
60,097,093. 41
61, 299,035. 28
62, 526,015. 98
63, 775, 516. 30
65,051, 026. 63
66,352,047.16
67, 679,088.10
55,040,837. 33
56,416,868. 27
67,827,279. 71
• 59,272,961.71
60, 754, 785. 76
62, 273,655. 40
63,830,496.79
65,426,259. 21
> 56.474. 298. 82

$30,000,000.00
30,000,000. 00
32, 500,000. 00
32, 500,000. 00
35,000,000.00
40,000,000. 00
50,000,000. 00
60, 000, 000. 00
75, 000,000. 00
80, 000,000. 00
90,000,000. 00
100,000, 000. 00
105,000,000. 00
110,000,000.00
115,000,000.00
120,000,000.00
125,000,000. 00
125,000,000.00
125,000,000.00
126,000,000.00
125,000,000.00
125,000,000. 00
125,000, 000. 00
125,000,000. 00
125,000,000.00
125,000,000. 00
125,000,000.00
125,000,000.00
126,000,000. 00
.125,000,000.00
125,000,000. 00
125,000,000.00
i'^5,000,000.00
126.000.000. 00

Payments

$38,650,000. 00
38,636,-500. 00
38, 522,865. 00
38,308,093. 65
37, 941,174. 59
37, 520, 686. 33
36, 995, 792. 20
36,365, 750.12
35, 679,407. 62
34,936, 201. 70
68, 271,127.42
67, 236, 549. 98
66,081,280. 97
64,902, 906. 69
63, 700, 964. 72
62,474, 984.02
61,224,483. 70
59,948, 973. 37
68,647, 952. 84
67, 320, 911. 90
69, 959,162. 67
68, to, 141. 73
67,172, 720. 29
65,727,038.29
64, 245, 214. 24
62, 726,344. 60
61,169, 603. 21
59, 573, 740. 79
69, 525. 701.18.

243

SECRETAR.Y OF THE TREASURY

STATEMENT OF AMOUNTS PAYABLE TO THB UNITED STATES ON
ACCOUNT OF THE PROPOSED REFUNDING BONDS TO BS ISSUED
BY FRANCE—Continued
A n n u a l interest
Fiscalyear

Annual principal
payments

Principal
Per cent

1960 .
19611962
1963
1964 _
1965
1966
1967
1968
1969
1970 . 19711972-_
19731974
1975._.
1976 19771978
1979—
198019811982-_
1983-_
1984-..
1985
1986 .
1987.-

$2,262,049,073.72
2,204,910,545. 93
2,146,057,862.31
2,085,439, 698.18
2,023,002, 786.13
1,958,692,869.71
1,892,453, 665.80
1,833, 689, 533. 75
1, 772,868, 667.43
1, 709, 919, 070. 79
1,644, 766,238. 27
1, 577,333,056. 61
1, 607, 539, 713. 59
1,435, 303,603. 57
1,360, 539, 229.69
1, 283,158,102. 73
1, 203, 068, 636.33
- 1,120,176,038. 60
1,034,382,199. 95
945, 585, 576. 95
863, 681, 072.14
758, 559, 909. 66
660,109, 506. 60
558,213,339. 23
452, 750,806.10
343,697, 084. 31
230,622, 982. 26
:...
113, 694, 786. 64

Total

Total annual
payments

Payments

3
$67,86i, 472. 21
66,147,316. 38
3
. 64,381, 735. 87
3
62, 583,187. 96
3
60, 690,083. 58
3
3
68, 760, 786. 09
66,236,877. 96
3M
64,179,133. 68
3M
62,050,403.36
3H "
69, 847,167.48
3H
57, 566,818. 34
3K
65,206,656. 98
sy2
52, 763,889. 98
3H
60,236,626.12
3H
47,618,873. 04
3H
44, 910,533. 60
3H
42,107,402. 27
33^
39, 206,161. 36
3H
38,203,377. 00
3H
33,096,495.19 '
3V2
29,878,837. 52
3yi
26, 549, 596. 84
3H
23,103,832. 73
33^
19, 637,468. 87
3H
15,846,278. 21
3¥i
12,025,897. 95
8,071,804.38
3, 979,317. 63
3H
2, 822,674,104.17

EXHIBIT

$67,138,-527. 79
68, 852,683. 62
60, 618, 264.13
62,438,812. 05
64,309, 916. 42
66, 239, 213. 91
58, 764,122. 05
60,820,868. 32
62,949, 596. 64
66,152,832. 52
67,433,181.66
69, 793, 343.02
72, 238,110. 02
74, 784,373. 88
77, 381,126. 96
80, 089,466.40
82,892, 697. 73
. 85,793,838.65
88,796,623. 00
91,904, 504. 81
95,121,162. 48
98,450,403.16
101,896,167. 27
105,482, 633.13
109,153,721. 79
112,974,102. 05
116, 928,195. 62
113,694,788.64

$125,000,000. 00
126,000,000.00
125,000,000. 00
125,000,000. 00
125,000,000. 00
125,000,000.00
125,000,000. 00
125,000, 000. 00
125,000,000. 00
125,000,000. 00
125, 000, 000. 00
125, 000,000. 00
125,000,000. 00
125,000,000. 00
125, 000,000. 00
125,000,000. 00
125,000,000. 00
125,000,000.00
125, 000,000. 00
125, 000, 000. 00
125,000,000. 00
125,000, 000. 00
125,000,000.00
125,000, 000. 00
125,000, 000. 00
125, 000, 000. 00
126, 000, 000. 00
117, 674,104.17

4, 025,000, 000. 00 6,847, 674,104.17

PRESS STATEMENT BY SECRETARY MELLON CONCERNING THE
BRITISH-FRENCH AND THE AMERICAN-FRENCH DEBT SETTLEMENTS
.

FRIDAY, JULY 16,

1926.

Secretary Mellon, chairman of the World War Foreign Debt Commission, in view of the erroneous comparisons in the American press
of the British-French settlement and the American-French settlement,
made the following statement:
The settlement of the French obligations to America has been made along
somewhat different lines from the settlement of French obligations to Great
Britain. With the British, banking advances and commercial obligations for
war stocks have been treated separately from the war debt proper. If, however,
\ye compare the settlement of all of France's indebtedness to England with the
settlement of her indebtedness to America, France has had generous treatment
from us. Particularly is this true during the first five years, which will be most
difficult for France. The present Caillaux-Churchill settlement does not differ
materially from the tentative Caillaux-Churchill agreement of last August, an
analysis of which appears in the documents of the Caillaux negotiations Vvdth the
American commission of September last, which was released to the press October,
1, 1925.
The American settlement with France embraces all of France's indebtedness
and represents, in the opinion of the American commission, France's capacity to
pay. . For obligations incurred by France to America after the war ended,
France owes us to-day $1,655,000,000. The present value of the entire FrenchAmerican settlement, at the rate of interest carried in France's existing obligations,
is $1,681,000,000. In effect, therefore, America has canceled the obligations of
France for all advances during the Avar, and France in the Mellon-Berenger
agreement has undertaken only to repaj^ the advances and obligations subsequent
to the armistice. No other creditor of France has accorded|.such generous
treatment.

244

REPORT ON THE FINANCES
EXHIBIT

AGREEMENT FOR THE FUNDING OF THE INDEBTEDNESS OF THB
KINGDOM OF THE SERBS, CROATS, AND SLOVENES TO THE
UNITED STATES

Agreement made the Srd day of May, 1926, at the City of Washington^
District of Columbia, between the Kingdom of the Serbs, Croats and
Slovenes, party of the first part, and the United States of America,
hereinafter called the United States, party of the second part
W H E R E A S , the ^Kingdom of the Serbs, Croats and Slovenes is
indebted to the United States as of June 15, 1925, upon obligations in
the aggregate principal amount of $51,037,886.39, together with
interest accrued and unpaid thereon; and
W H E R E A S , the Kingdom of the Serbs, Croats and Slovenes
desires to fund said indebtedness to the United States, both principal
and interest, through the issue of bonds to the United States, and
the United States is prepared to accept bonds from the Kingdom of
the Serbs, Croats and Slovenes upon the terms hereinafter set forth;
Now, therefore, in consideration of the premises and of the mutual
covenants herein contained, it is agreed as follows:
,1. Amount of Indebtedness.—The amount of indebtedness to be
funded, after allowing for certain cash payments made or to be made
by the Kingdom of the Serbs, Croats and Slovenes is $62,850,000,
which has been computed as follows:
Principal of obligations acquired for cash
advanced under Liberty Bond Acts
_. $26, 126, 574. 59
Accrued and unpaid interest at 434% P^r
annum to December 15, 1922
4, 073, 423. 14
:
$30, 199, 997. 73
Principal of obligations acquired by Secretary
of War for surplus war supplies sold on
credit
,_ 24,978,020.99
Accrued and unpaid interest at 434% per
annum to December 15, 1922____._
3, 358, 790. 45
:
28, 336, SlL 44
Accrued interest at 3 % per annum from December 15, 1922, to
June 15, 1925
-__
Credits:
Payments on account of principal since
December 15, 1922
Interest thereon at 3 % to June 15, 1925. .

4,390,260.69
62,927,069.86

\
$66, 709. 19
3, 248. 28

Total net indebtedness as of June 15, 1925
To be paid in cash upon execution of Agreement
Total indebtedness to be funded into bonds

58, 536, 809. 17

69, 957. 47
62, 857, 112. 39
7, 112. 39

._.

62, 850, 000. 00

2. Payment.—In order to provide for the payment of the indebtedness thus to be funded the Elingdom of the Serbs, Croats and Slovenes
will issue to the United States at par bonds of the Kingdom of the
Serbs, Croats and Slovenes in the aggregate principal amount of
$62,850,000, dated June 15, 1925, and maturing serially on the several
dates and in the amounts fixed in the following schedule:

SECRETARY OF T H E TREASURY
June 15—
1926.
1927_
1928_
1929 _
19301931_
1932.
1933.
1934.
1935.
1936.
1937.
1938.
1939.
1940.
1941.
1942.
1943.
1944.
1945.
1946.
1947.
1948.
1949.
1950.
1951.
1952.
1953.
1954.
19551956.
1957.

$200, 000
200, 000
200, 000
200, 000
200, 000
225, 000
250, 000
275, 000
300, 000
325, 000
350, 000
375, 000
400, 000
450, 000
488, 000
524, 000
562, 000
604, 000
648, 000
697, 000
707,000
718, 000
729, 000
746, 000
764, 000
782, 000
801, 000
820,000
838, 000
855, 000
873, 000
892, 000

245

June 15—
1958
1959
.
1960
1961..
1962
1963
1964...
1965
1966
1967
....
1968
1969
1970
1971
1972
.
....
1973
1974
1975._._._.
1976...
1977
1978
1979
1980
1981.
1982
1983
1984
1985
1986
1987

$912, 000
938, 000
961, 000
984, 000
018, 000
054, 000
090, 000
129, 000
168, 000
209, 000
1, 251, 000
1, 295,' 000
1, 340, 000
1, 388, 000
1, 436, 000
1, 486, 000
1, 538, 000
1, 592, 000
1, 648, 000
1, 706, 000
1,765,000
1, 827, 000
1, 891, 000
1, 957, 000
2, 026, 000
2, 097, 000
2, 170, 000
2, 246, 000
2, 324, 000
2, 406, 000

Total

62,850,000

That the Kingdom of the Serbs, Croats and
Slovenes, at its' option, upon not less than ninety days' advance
notice to the United States, may postpone any payment on account
of principal falling due as hereinabove provided, after June 15, 1937,
to any subsequent June 15 or December 15 not more than two years
distant from its due date, but only on condition that in case the
Kingdom of the Serbs, Croats and Slovenes shall at any time exercise this option as to any payment of principal, the payment falling
due in the second succeeding year can not be postponed at all unless
and until the payments of principal due two years and one year
previous thereto shall actually have been made. All such postponed
payments of principal shall bear interest at the rate of 434% per
annum payable semiannually.
3. Form of Bond.—All bonds issued or to be issued hereunder to
the United States shall be payable to the Government of the United
States of America, or order, and shall be signed for the Kingdom of
the Serbs, Croats and Slovenes by its Minister at Washington, or
by its other duly authorized representative. The bonds shall be
substantially in the form set forth in the exhibit hereto annexed and
marked '^Exhibit A,'' and shall be issued in 62 pieces with maturities
and in denominations as hereinabove set forth and shall bear no
interest until June 15, 1937, and thereafter shall bear interest at the
rate of V^ of 1% per annum from June 15, 1937, to June 15, 1940; at
the rate of J^ of 1% per annum from June 15, 1940, to June 15,1954;
at the rate of 1% per annum from June 15, 1954, to June 15, 1957;, at
the rate of 2% per annum from June 15,1957, to June 15,1960, and
at the rate of 3J^% per annum after June 15, 1960, all payable
PROVIDED, HOWEVER,

246

REPORT ON T H E FINANCES

semiannually on June 15 and December 15 of each year, until the
principal thereof shall have been paid.
4. Method of Payment.—All bonds issued or to be issued hereunder
shall be payable, as to both principal and interest, in United States
gold coin of the present standard of value, or, at the option of the
Kingdom of the Serbs, Croats and Slovenes, upon not less than thirty
days' advance notice to the United States, in any obligations of the
United States issued after April 6, 1917, to be taken at par and
accrued interest to the date of payment hereunder.
All payments, whether in cash or in obligations of the United
States, to be made by the Kingdom of the Serbs, Croats and Slovenes
on account of the principal of or interest on any bonds issued or to be
issued hereunder and held by the United States, shall be made at the
Treasury of the United States in Washington, or, at the option of the
Secretary of the Treasury of the United States, at the Federal
Reserve Bank of New York, and if in cash shall be made in. funds
immediately available on the date of payment, or if in obligations
of the United States shall be in form acceptable to the Secretary of
the Treasury of the United States under the general regulations of
the Treasury Department governing transactions in United States
obligations.
5. Exemption from Taxation.—The principal and interest of all
bonds issued or to be issued hereunder shall be paid without deduction
for, and shall be exempt from, any and all taxes or other public dues,
present or future, imposed by or under authority of the Kingdom
of the Serbs, Croats and Slovenes or any political or local taxing
authority within the Kingdom of the Serbs, Croats and Slovenes,
whenever, so long as, and to the extent that beneficial ownership is in
(a) the Government of the United States^ (b) a person, firm or association neither domiciled nor ordinarily resident in the Kingdom
of the Serbs, Croats and Slovenes, or (c) a corporation not organized
under the laws of the Kingdom of the Serbs, Croats and Slovenes.
6. Payments before Maturity.—The Eangdom of the Serbs, Croats
and Slovenes, at its option, on June 15 or December 15 of any year,
upon not less than ninety days' advance notice to the United States,
may make advance payments in amounts of $1,000 or multiples
thereof, on account of the principal of any bonds issued or to be
issued hereunder and held by the United States. Any such advance
payments shall be applied to the principal of such bonds as may be
indicated by the Kingdom of the Serbs, Croats and Slovenes at the
time of the payment.
7. Exchange for Marketable Obligations.—The Kingdom of the
Serbs, Croats and Slovenes will issue to the United States at any
time, or from time to time, at the request of the Secretary of the
Treasury of the United States, in exchange.for any or all of the bonds
issued hereunder and held by the United States, definitive engraved
bonds in form suitable for sale to the public, in such amounts and
denominations as the Secretary of the Treasury of the United, States
may request, in bearer form, with provision for registration as to
principal, and/or in fully registered form, and otherwise on the same
terms and conditions, as to dates of issue and maturity, rate or
rates of interest, if an}'^, exemption from taxation, payment in obligations of the United States issued after April 6, 1917, and the like, as
the. bonds surrendered on such exchange. The Kingdom of the

SECRETARY OF THE TREASURY

247

Serbs, Croats and Slovenes will deliver definitive engraved bonds
to the United States in accordance herewith within six months of
receiving notice of any such request from the Secretary of the Treasury
of the United States, and pending the delivery of the definitive
engraved bonds will deliver, at the request of the Secretary of the
Treasury of the United States, temporary bonds or interim receipts
in form satisfactory to the Secretary of the Treasury of the United
States within thirty days of the receipt of such request, all without
expense to the United States. The United States, before offering
any sucli bonds or interim receipts for sale in the Kingdom of the
Serbs, Croats and Slovenes, will first offer them to the Kingdom of the
Serbs, Croats and Slovenes for purchase at par and accrued interest,
if any, and the Kingdom of the Serbs, Croats and Slovenes shall like' wise have the option, in lieu of issuing any such bonds or interim
receipts, to make advance redemption, at par and accrued interest, if
any, of a corresponding principal amount of bonds issued hereunder
and held'by the United States. The Kingdom of the Serbs, Croats
and Slovenes agrees that the definitive engraved bonds called for by
this paragraph shall contain all such provisions, and that it will
cause to be promulgated all such rules, regulations, and orders as
shall be deemed necessary or desirable by the Secretary of the
Treasury of the United States in order to facilitate the sale of the
bonds in the United States, in the Kingdom of the Serbs, Croats and
Slovenes or elsewhere, and that if requested by the Secretary of the
Treasury of the United States, it will use its good offices to secure the
listing of the bonds on such stock exchanges as the Secretary of the
Treasury of the United States may specify.
8. Cancellation and Surrender of Obligations.—:Upon the execution
of this Agreement, the delivery to the United States of the principal
amount, of bonds of the Kingdom of the Serbs, Croats and Slovenes
to be issued hereunder, together with satisfactory evidence of authority for the execution of this Agreement by the representative
of the Kingdom of the Serbs, Croats and Slovenes and for thp execution of the bonds to be issued hereunder, the United States will
cancel and surrender to the Kingdom of the Serbs, Croats and
Slovenes at the Treasury of the United States in Washington, the
obligations of the Kingdom of the Serbs, Croats and Slovenes held
by the United States.
9. Notices.—Any notice, request, or consent under the hand of
the Secretary of the Treasury of the United States, shall be deemed
and taken as the notice, request, or consent of the United States,
and shall be sufficient if delivered at the Legation of the Kingdom
of the Serbs, Croats and Slovenes at Washington or at the office of
the Ministry of Finance at Belgrade; and any notice, request or
election from or by the Kingdom of the Serbs, Croats and Slovenes
shall be sufficient if delivered to the American Legation at Belgrade
or to the Secretary of the Treasury at the Treasury of the United
States in Washington. .The United States in its discretion may waive
any notice required hereunder, but any such waiver shall be in writing
and shall not extend to or affect any subsequent notice or impair
any right of the United States to require notice hereunder.
10. Compliance with Legal Requirements .—The Kingdom of the
Serbs, Croats and Slovenes represents and agrees that the execution
and delivery of this Agreement have in all respects been duly au-

248

REPORT ON THE FINANCES

thorized and that all acts, conditions, and legal formalities, which
should have been completed prior to the making of this Agreement
have been completed as required by the laws of the Kingdom of
the Serbs, Croats and Slovenes and in conformity therewith.
11. Counterparts.—This Agreement shall be executed in two counterparts, each of which shall have the force and effect of an original.
I N W I T N E S S W H E R E O F the Kingdom of the Serbs, Croats
and Slovenes has caused this Agreement to be executed on its behalf
by Dr. George Diouritch, its Envoy Extraordinary and Minister
Plenipotentiary to the Court of St. James and Commissioner for
the funding of the debt at Washington, thereunto duly authorized,
subject, however, to ratification in the Kingdom of the Serbs, Croats
and Slovenes, and the United States has likewise caused this Agree-,
ment to be executed on its behalf by the Secretary of the Treasury,
as Chairman of the World War Foreign Debt Commission, with the
approval of the President, subject, however, to the approval of
Congress, pursuant to the Act of Congress approved February 9,
1922, as amended by the Act of Congress approved February 28,
1923, and as further amended by the Act of Congress approved
January 2 1 , 1925, all on the day and year first above written.
T H E KINGDOM OF THE SERBS,
CROATS AND SLOVENES.
By GEORGE DIOURITCH.
^
T H E U N I T E D STATES OF AMERICA,

For the World War Foreign Debt Commission:
By ANDREW W .

MELLON,

Secretary of the Treasury and Chairman of the Commission,
Approved:
CALVIN COOLIDGE,

President.
EXHIBIT

(Form of bond)

T H E KINGDOM OF THE SERBS, CROATS AND SLOVENES

/
•
No.
The Kingdom of the Serbs, Croats and Slovenes, for value received,
promises to pay to the Government of the United States of America,
hereinafter called the United States, or order, on June 15, 19 , the
sum of
Dollars ($
), and to pay interest upon
said principal sum after June 15, 1937, at the rate of J^ of 1% per
annum from June 15, 1937, to June 15, 1940, at the rate of 3^ of 1%
per annum from June 15, 1940, to June 15, 1954, at the rate of 1%
per annum from June 15, 1954, to June 15, 1957, at the rate of 2 %
per annum from June 15, 1957, to June 15, i960, and at the rate of
3 J^% per annum after June 15, 1960, all payable semiannually on the
15th day of December and June in each year, until the principal hereof
shall have been paid. This bond is payable as to both principal and
interest in gold coin of the United States of America of the. present
standard of value, or, at the option of the Kingdom of the Serbs,
Croats and Slovenes, upon not less than thirty days' advance notice

SECRETARY OF THE TREASURY

249

to the United States, in any obligations of the United States issued
^after April 6, 1917, to be taken at par and accrued interest to the date
of payment hereunder.
This bond is payable as to both principal and interest without
deduction for, and is exempt from, any and all taxes and other public
dues, present or future, imposed by or under authority of the Kingdom
of the Serbs, Croats and Slovenes or any political or local taxing authority within the Kingdom of the Serbs, Croats and Slovenes whenever, so long as, and to the extent that, beneficial ownership is in
(a) the Government of the United States, (b) a person, firm, or association neither domiciled nor ordinarily resident in the Kingdom of
the Serbs, Croats and Slovenes, or (c) a corporation not organized
under the laws of the Kingdom of the Serbs, Croats and Slovenes.
This bond is payable as to both principal and interest at the Treasury
of the United States in Washington, D . C , or at the option of the
Secretary of the Treasury of the United States at the Federal Reserve
Bank of New York.
This bond is issued pursuant to the provisions of paragraph 2 of
an Agreement dated May 3, 1926, between the Kingdom of the
Serbs, Croats, and Slovenes and the United States, to which Agreement this bond is subject and to which reference is hereby made.
I N W I T N E S S W H E R E O F , the Kingdom of the Serbs, Croats and
Slovenes has caused this bond to be executed in its behalf by its
Envoy Extraordinary and Minister Plenipotentiary at Washington,
thereunto duly authorized, as of June 15, 1925.
T H E KINGDOM OF THE SERBS, CROATS AND SLOVENES

By
Envoy Extraordinary and Minister Plenipotentiary.
E X H I B I T 34

PRESS STATEMENT BY THE WORLD WAR FOREIGN DEBT COMMISSION GIVING THE TERMS OF THE AGREEMENT FOR THB
SETTLEMENT OF THE INDEBTEDNESS OF THE KINGDOM OF
THE SERBS, CROATS, AND SLOVENES TO THE UNITED STATES
SATURDAY, M A Y 1,

1926.

The World War Foreign Debt Commission made the following
announcement to-day:
The American commission has reached an agreement with Dr. George
Diouritch, commissioner of the Kingdom of the Serbs, Croats, and Slovenes, for
the settlement of the indebtedness of his Government to the United States. The
amount to be funded has been calculated on the same basis as in the other debt
settlements, at 434 P^r cent interest to December 15, 1922, and at 3 per cent
interest thereafter until June 15, 1925, as of which date the debt is funded. The
total to be funded after a cash payment to adjust the amount to round figures is
$62,850,000. Of this amount $51,037,886.39 represents principal, and $11,812,113.61 the accrued interest to the date of the settlement.
The agreement provides for annuities commencing with $200,000 a year for
the first five years, increasing $25,000 a year during the succeeding seven years.
For the remaining years, payments on account of principal increase annually.
Commencing with the thirteenth year interest is fixed at one-eighth of 1 per cent
for 3 years; one-half of 1 per cent for the succeeding 14 years; 1 per cent fpr the
following 3 years; 2 per cent for the next 3 years, and 33^ per cent during the last
27 years of the period.

250

REPORT ON T H E

FINANCES

The basis of settlement has been t h e r e p a y m e n t of t h e principal in full and paym e n t of interest in accordance with t h e capacity of Yugoslavia to p a y . , The
present value of t h e p a y m e n t s on a 434 per cent basis is $20,236,715, or about 32
per cent of t h e debt funded.

E X H I B I T 35
S T A T E M E N T O F A M O U N T S P A Y A B L E T O T H E U N I T E D S T A T E S ON
ACCOUNT OF T H E P R O P O S E D R E F U N D I N G BONDS TO BE ISSUED
BY T H E K I N G D O M O F T H E SERBS, CROATS, AND SLOVENES
A n n u a l interest
Year

Principal
P e r cent

1926
1927
1928.
1929
1930
1931
1932
1933...:.
1934
1935
19361937
1938
1939
1940
1941
1942
1943
1944
1945...
1946
1947
1948.
1949
1950 .
1951
1952
1953..
1954
1955...
1956...
1957
1958
1959.
1960
1961
1962...
1963..
1904
1965 .
1966
1967
1968_
1969.
1970
1971
1972
1973
1974..
1975
1976..
1977
1978..
1979
,
1980
1981
1982
1983...
1984
1985
1986
1987..,

1...

Total

$62,850,000.00
62, 650,000. 00
62,450, 000. 00
62,250,000. 00
62,050,000. 00
61,850, 000. 00
61, 625, 000. 00
61,375, 000. 00
61,100,000. 00
60, 800, 000. 00
60,475,000. 00
60,125,000.00
. . 59, 750,000. 00
59,350,000.00
58,900,000.00
58,412,000.00
57,888,000. 00
67,326,000. 00
56, 722,000. 00
1 56,074,000. 00
55,377,000. 00
54, 670,000.00
53,952,000. 00
53,223,000. 00
52,477,000. 00
51,713,000. 00
50,931, 000. 00
50,130,000. 00
49,310,000. 00
48,472,000.00
47, 617,000. 00
46,744,000. 00
45,852,000. 00
44,940,000. 00
44,002,000. 00
43,041,000. 00
42,057, 000. 00
41,039,000. 00
39, 985, 000. 00
38,895,000. 00
37,766,000. 00
36, 598,000. 00
35,389,000. 00
34,138, 000. 00
32,843,000.00
31,503,000.00
30,115,000.00
28, 679,000. 00
27,193,000. 00
25, 655,000. 00
24,063,000. 00
22,415,000. 00
20, 709,000. 00
18,944, 000. CO
17,117, 000. 00
15, 226,000. 00
13,269,000. 00
11,243,000. 00
9,146,000. 00
6,976, 000.00
4, 730, 000. 00
2,406, 000. 00

Vl
Vl

Yi
V2
Vl
y2

\
2
2
2
33/2
W2
3M
3H
3H
3H
3K2
3H
33^
3H
33^
3H
33/2
33/2
33/2
3H
33^
33^
33-^
33/2
33/2
33^
33^
3H
3H

Payments

$74,687. 50
74,187.50
73, 625. 00
292,060. 00
289,440.00
286, 630. 00
283, 610. 00
280, 370. 00
276,885. 00
273, 350. 00
269, 760. 00
266,115. 00
262, 385. 00
258, 565. 00
254, 655,00
250,650. 00
246, 550. 00
484, 720. 00
476,170. 00
467,440.00
917,040. 00
898,800. 00
880,040. 00
1, 506,435. 00
1,471,995.00
1,436,365. 00
1,399,475. 00
1, 361, 325. 00
1,321,810. 00
1, 280, 930. 00
1,238, 615. 00
1,194,830. 00
1,149, 505. 00
1,102, 605.00
1,054,025. 00
1,003,765. 00
951,755. 00
897,925. 00
842,205. 00
784, 525. 00
724,815. 00
663,040. 00
599,095. 00
532,910. 00
464,415. 00
393, 505. 00
320,110.00
244,160. 00
165, 550. 00.
84, 210. 00
32, 327, 635. 00

Annual
principal
payments

$200,000. 00
200,000.00
200;000. 00
200,000. 00
200, 000. 00
225, 000. 00
250, 000. 00
275,000. 00
300,000. 00
325,000. 00
350,000. 00
375, 000. 00
400,000. 00
450, 000. 00
488, 000. 00
524,000. 00
562,000. 00
604,000. 00
648,000. 00
697,000. 00
707, 000. 00
718,000. 00
. 729,000.00
746,000. 00
764, 000. 00.
782, 000. 00
801,000. 00
820,000. 00
838,000. 00
855,000. 00
873,000. 00
892,000. 00
912,000. 00
938,000. 00
961,000. 00
984,000. 00
1, 018,000. 00
1,054,000. 00
1,090,000. 00
1,129,000.00
1,168,000. 00
1, 209, 000. 00
1,251,000. 00
1, 295,000.00
1,340,000. 00
1,388,000. 00
1,436,000. 00
1,486, 000. 00
1, 538,000. 00
1, 592,000. 00
1, 648, 000. 00
1, 706, 000. 00
1, 765,000. 00
1,827,000.00
1,891,000. 00
1,957,000. 00
2.026,000. 00
2,097, 000. 00
2,170, 000. 00
2,246,000. 00
2,324, 000. 00
2,406, 000. 00
62,850,000.00

Total annual
payments

$200,000.00
200 000 00
200,000.00
200, 000. 00
200,000 00
225, 000. 00
250 000 00
275, 000. 00
300,000. 00
325, 000. 00
350, 000. 00
375 000 00
474, 687. 50
524,187 50
561, 625. 00
816, 060 00
851,440. 00
890, 630 00
931,610. 00
977, 370. 00
983 885 00
991, 350. 00
998,760 00
1, 012,115. 00
1,026,385 00
1, 040, 565. 00
1,055, 655. 00
1, 070, 650. 00
1,084, 550. 00
1, 339,720. 00
,1,34.9,170. 00
1, 359,440. 00
1, 829,040. 00
1,836,800. 00
1,841,040. 00
2, 490,435. 00
2,489,995. 00
2,490,365. 00
2,489,475. 00
2,490,325. 00
2,489,810.00
2,489,930. 00
2,489, 615. 00
2,489,830. 00
2,489,^ 505. 00
2, 490, 605. 00
2,490,025. 00
2,489,765. 00
2,489, 755. 00
2,489,925. 00
2,490,205. 00
2,490, 525. 00
2,489,815. 00
2,490,040. 00
2,490,095. 00
2,489,910.00
2,490,415. 00
2,490, 505. 00
2,490,110. 00
2, 490,160. 00
2,489. 550.00
2,490, 210. 00
95,177, 635. 00

SECRETARY OF THE TREASURY
E X H I B I T 36

251
^

STATEMENT BY SECRETARY MELLON BEFORE THE WAYS AND
MEANS COMMITTEE CONCERNING THB SETTLEMENTS OF THE
INDEBTEDNESS OF FRANCE AND THE KINGDOM OF THE SERBS,
CROATS, AND SLOVENES
M A Y 20, 1926.
On January 4, 1926,1 appeared before the committee in connection
with the debt settlements with Belgium, Czechoslovakia, Estonia,
Italy, Latvia, and Rumania, which were then before you for consideration. I discussed briefly the principles applied b^^- the commission in negotiating and eft'ecting a settlement.
I t is not necessary for me to repeat what I stated at that time.
Since then the commission has concluded two additional settlements,
one with France, the other with the Kingdom of the Serbs, Croats,
and Slovenes, or Yugoslavia. These have been presented to Congress
for approval.
I. S E T T L E M E N T W I T H FRANCE

Referring first to the settlement with France: The amount to be
funded has been calculated on the same basis as in the other debt
settlements, at 43^ per cent interest to December 15, 1922, and at 3
per cent interest thereafter to June 15, 1925, the date of the agreement. The total to be funded, after a cash payment of $386,686.89
to adjust the amount to round figures, is $4,025,000,000. Of this
amount $3,340,000,000 represents principal and $685,000,000 the
accrued interest to the date of the agreement.
Under the agreement France pays $30,000,000 a year the first two
years; $32,500,000 a year the third and fourth years, and $35,000,000
the fifth year. The annuities increase each year, reaching$125,000,000
in the seventeenth year, thereafter continuing at that figure, except
for the sixty-second year, when the payment is approximately
$118,000,000. Under the agreement the total principal of the funded
debt (including $685,000,000 accrued interest) will be repaid in full
with interest on the funded principal as follows: After the first 5
years and for the next 10 years, 1 per cent per annum; for the succeeding 10 years, 2 per cent per annum; for the succeeding 8 years,
23^2 P^i" cent per annum; for the succeeding 7 years, 3 per cent per
annum, and for the remaining 22 years, 3 % per cent per annum.
The total payments to be received from France on account of the
$3,340,000,000 originally loaned is $6,847,674,104.17. The present
value of these payments on a 43^ per cent basis is $2,008,122,624,
or practically 50 per cent of the debt funded, as compared with the
Italian settlement of 26 per cent.
Although the United States has outstanding a substantial amount
of Liberty bonds bearing 434 per cent interest, a large part of the
Government's requirements are now being financed at a much lower
rate. The average cost of money to the United States probably
will continue to decline. Securities with high interest rates issued
during' the war will be paid, redeemed, or refunded. If we assume
that the average cost of money to the United States for the next
62 years wdll approach a 3 per cent basis, and if we determine the
present value of the French annuities on that basis, we arrive at a
figure which would approximate their actual value to-day.

252

REPORT ON THE FINANCES

The present value of the French' payments on a 3 per cent basis is
$2,734,000,000. This is approximately 82 per cent of the principal
amount of the $3,340,000,000 French debt.
Until the present negotiations and settlement the best offer received
from France was made last October after two weeks of negotiations
with a French commission. Under that offer France was to pay
$40,000,000 a year for 5 years, $60,000,000 a year for the next 7
years, and $100,000,000 a year for the succeeding 56 years. There
was included, however, as an essential element of the proposal, a
so-called '^safeguard clause,'' the effect of which was to relieve
France of making payments to the United States if Germany did not
pay reparations. The receipt by the United States of the payments,
therefore, would be uncertain. A comparison of the previous offer
with the present settlement shows the following:
(1) The '^safeguard clause" has been eliminated.
(2) Under the settlement the total payments to be received from
France are $6,847,000,000 against $6,220,000,000 under the offer, an
increase of $627,000,000, The present value of this settlement on a
4:}4 per cent basis is $2,008,000,000; the present value of the former
offer was $1,755,000,000, an increase of $253,000,000.
(3) In the first five years France offered last October $200,000,000.
-Under this settlement we are to receive $160,000,000. The slightly
smaller payments for the first five years were made necessary because
the present fiscal condition of France is less strong than it was at
the time of the negotiations last fall. Under present exchange rates
the payment of the first annuity of $30,000,000 requires that France
find approximately 1,060,000,000 francs. Last October to make a
payment of $40,000,000 France would have been required to find
846,000,000 francs. The lower annuity in dollars represents to-day
a higher annuity in francs.
(4) From the sixth to the tenth year under the offer the United
States would receive $300,000,000; under this settlement the United
States will receive $305,000,000.
(5) From the eleventh to the fifteenth year France' offered
$420,000,000; under this settlement France will be required to pay
$520,000,000.
(6) The maximum annuity under the offer was $100,000,000,
reached after the twelfth year; the maximum annuity in this settlement is $125,000,000, reached after the sixteenth year.
In conducting negotiations for settling the war debts we meet with
criticism from two extremes. One body of opinion would have us
forgive entirely the debts because the money was loaned during or
immediately after a war against a common enemy. Those who
maintain such a position fail to recognize the responsibility of the
representatives of a government to its citizens.
Public officials, whether in the legislative or executive branch
of the Government, are essentially trustees. They are trustees for
the citizens of their own country. They are not free to give away
the property of the beneficiaries of '^the trust. An individual can do
what he will with his own property. A public official, however,
must keep firmly in view that he is dealing not with his own property
but with property intrusted to his care by the citizens of his country.
Moreover, those who urge a complete forgiveness of debts ignore
entirely the effect upon the country whose debt is forgiven. All

SECRETARY OF THE TREASURY

253

self-respecting people desire to discharge their obligations. This is
true of nations as of men. I t is true of France.
At the other extreme are those who insist that we should collect
the full principal and interest of the debts. In its final analysis
the maintenance of this position could but reach the practical result
that nothing would be collected, since the full payment of the debt is
beyond the capacity of the debtor. While a trustee may not give
trust money away, while he may not even be generous at the cost
of those for whom he is trustee, it is equally true that a trustee must
manage the trust with business intelligence. Any trustee would be
derelict in the performance of his duty if by demanding the impossible
he should lose the possible.
The settlement with France is but another application of the
principle of capacity to pay. I appreciate, as all reasonable men
must, that it is not possible for any set of men to determine with
mathematical accuracy the future capacity of a great nation to tax
itself and to transfer the avails of taxation to another nation. We
are forced to look at the present, and to estimate the future.
France at present is not able to set apart large sums to be transferred abroad as payments on account of her external debts. Despite
great efforts she has not yet fully repaired the losses in man power and
property caused by the war. Her domestic debt has reached enormous proportions, her currency is inflated, and it is becoming increasingly difficult to raise by taxation sufficient funds to meet the charges
on her debt and to pay her ordinary governmental expenditures.
Subject to the ill effects of a fluctuating currency, she has been making
every effort to balance her budget. France must fix the amount of
her obligations abroad so that she may definitely know all her commitments. Having completed a settlement of her obligations to
this country, she has starte^i negotiations with her other large creditor.
When a settlement has been reached with Great Britain, she will then
be in a position to-balance her budget, check inflation, stabilize her
€urrency, and put her finances on a permanently sound basis. Until
these have been accomplished, France can not be expected to make
large payments on account of her war debts to the United States and
Great Britain. To insist on too heavy payments in the early years
might well jeopardize the accomplishment of these reforms essential
to her economic and financial rehabihtation.
Criticism has been made of France for the situation in which she
now finds herself. In our criticism we are likely to forget the factors
which contributed to that situation. The French people gave so
fully of their man power and their industry during the four years of
war, fought mainly on their own soil, that French taxation during
the period of the war and the period immediately following could
not be so heavy as in those countries which were never occupied by
the enemy. The richest industrial section of France lay directly in
the course of the German armies, and when recovered was ih a
destroyed condition.
France was faced with the problem of deciding whether it would
leave the country in this condition, with its industry permanently
crippled, or would recondition the soil and rebuild its plants at
whatever cost, and thus increase the wealth-producing power of the
nation. The former course might have permitted more inimediate
taxation. The latter course was in substance the re-creation of Indus

254

REPORT ON T H E FINANCES

tries able in the future to bear a proper burden of taxation. France
chose the latter course.
In my statement of January 4, 1926, I compared the burden of
the various settlements in terms of the total budget, total foreign
trade, and total national income and an average for the three indices.
The total budget represents what the government collects from
the people, the total foreign trade has an important bearing on the
capacity to transfer'sums abroad, and the total annual income is in
final analysis the ultimate source of the country's capacity to pay.
The British settlement calls for an annual average payment
equivalent to 4.6 per cent of the total British budget expenditures.;
the Belgian settlement, 3.5 per cent; the Italian settlement to America
alone 5.17 per cent, and the French settlement 7.33 per cent. The
British settlement calls for an average annual charge corresponding
to 1.9 per cent of the total British foreign trade, the Belgian settlement 0.88 per cent, the Italian settlement 2.87 per cent, and the
French settlement 2.64 per cent. Great Britain's average annuity
represents 0.94 per cent of its national income, Belgium's 0.80 per
cent, Italy's 0.97 per cent, France's 1.47 per cent. If we average
the three indices, the comparative French burden of her debt would
be 3.81 per cent, the Italian, 3 per cent; the British, 2.4 per cent;
the Belgian, 1.75 per cent.
If, instead of using the average annual annuity, we should compare
the present value of the settlements with the sum of these three
indices—the total budget, the total foreign trade, and total national
income for a year of each of these countries—the burden of the
French settlement represents 15 per cent, the British settlement
11.7 per cent of this sum, the Belgian settlement 7 per cent, and the
Italian settlement 8.58 per cent.
When discussing other debt settlements I have stressed the importance to America of the economic revival of Europe. When viewed
as a market for the surplus products of our fields, our mines, and our
industry, Europe must be taken as a whole. While the finances of
its nations are closely related, each presents a distinct problem
requiring individual treatment, but responsibility rests upon each
nation to effect its own stabilization. Ouf efforts to that end during
the past three years are known to all of you. We have concluded
debt settlements with 13 nations, among the larger being England,
Italy, and Belgium.
France is the last of our large debtors. Her future is bright.
She has been and is one of the great nations of the world. Her
people are able, hard-working, and frugal. While the burden of the
debt settlement is relatively light in the earlier years, it is heavy in
the latter years.
To have imposed too heavy a burden at the outset would have
rendered doubtful any subsequent payments.
The commission is confident that the settlement, giving due consideration to the ability of the debtor as well as to the rights of the
creditor, is a just settlement, fair both to the American taxpayer
and to the French people.
II. SETTLEMENT WI^TH THB KINGDOM OF THB SERBS, CROATS,
SLOVENES

AND

The other settlement which is now^ before Congress is the settlement with the Kingdom of the Serbs, Croats, and Slovenes. The

255

SECRETARY OF THE TREASURY

amount of the indebtedness to be funded was calculated on the same
basis as in the other debt settlements, at 434 P^r cent interest to
December 15, 1922, and at 3 per cent interest thereafter until June
15, 1925, as of which date the debt is funded. The total to be funded,
after allowing for a cash payment of $7,112.39 to adjust the amount
to /round figures, is $62,850,000. Of this amount $51,037,886.39
represents principal and $11,812,113.61 the accrued interest to the
date of settlement.
Under the agreement, Yugoslavia is to pay an annuity of $200,000
a year for the first 5 years, increasing $25,000 a year for the succeeding
7 years. For the remaining 50 years payments on account of principal increase annually. Commencing with the thirteenth year interest is fixed at one-eighth of 1 per cent for 3 years; one-half of 1 per
cent for the next 14 years; 1 per cent for the next 3 years; 2 per cent
for the next 3 years; and 3J^ per cent for the last 27 years of the
debt-funding period.
The total payments to be received under the settlement are
$95,177,635. The present value of the payments on a 434 per cent
basis is $20,236,000, or about 32 per cent of the debt funded. On a
3 per cent basis the present value is $30,286,000, or about 59 per
cent of the principal amount of the $51,000,000 Yugoslav debt.
The settlement is made on the basis of Yugoslavia's capacity to
pay. Although the country received consid.erable additions of territory as a result of the war, it is relatively poor and its standard of
living is much the lowest of any of our debtors. I t is almost totally
lacking in li-atural resources; its agriculture is poorly developed and
its industries are negligible. With the exception of 1924, its balance
of trade in recent years has been adverse. The country was overrun and devastated several times during the war. The work of
reconstruction has been carried on but slowly, the cost being met
chiefl}^ from German reparations. Railroad facilities, already inadequate, have been only temporarily restored. In an agricultural
country without natural resources and lacking capital, increase in
wealth must necessarily be slow. The commission feels that the
settlement arrived at is fair and just to both countries.
E X H I B I T 37
TOTAL A M O U N T S TO BE RECEIVED B Y T H E T R E A S U R Y ON ACCOUNT OF P R I N C I P A L AND I N T E R E S T U N D E R T H E D E B T S E T TLEMENTS MADE W I T H FOREIGN GOVERNMENTS (WITHOUT
R E G A R D TO ANY O P T I O N S T H A T HAVE BEEN OR M A Y BB
EXERCISED)
Principal
Belgium
Czechoslo"vakia.
Estonia
FinlandFrance
_
Great Britain
Hungary
Italy..
Latvia
Lithuania
Poland
Rumania.
Yugoslavia

. . .
_

_
_.

. . . _ . , . . .
_

i
. .
_
._

Total

$310,050, 500. 00
$417, 780, 000. 00
1 197, 811,433. 88
115, 000,000. 00
19, 501,140. 00
13, 830,000. 00
9, 000,000. 00
12, 695, 055. 00
4, 025, 000, 000. 00 2, 822,674,104.17
4, 600, 000,000. 00 6, 505, 965, 000. 00
1, 939, 000. 00
2, 754, 240. 00
2, 042, 000, 000. 00
365,677,500.00
5,775, 000. 00
8,183, 635. 00
6, 030, 000. 00
8, 501,940. 00
178, 560, 000. QO
257,127, 550. 00
44, 590, 000. 00
177,916,260.05
62, 850,000. 00
32, 327, 635. 00
11, 522, 354,000. 00 10,621,185, 993.10

1 Includes deferred payments which will be funded into principal.

Interest

Total
$727, 830, 500. 00
312, 811, 433. 88
33,331,140. 00
21, 695, 055. 00
6,847, 674,104.17
11,105, 965, 000. 00
4,693,240. 00
2,407, 677, 500. 00
13,958,635. 00
14, 531,940. 00
435, 687, 550. 00
122, 506. 260. 05
95,177,635. 00
22,143,539,993.10

256

REPORT ON T H E FINANCES
EXHIBIT

PRESS STATEMENT OF THE BRITISH ACCOUNT WITH THE UNITED
STATES IN ( C O N N E C T I O N W I T H W A R L O A N S
J U L Y 20,

The Treasury issued to-day the following statement:

1926.

"^.

A statement of the British account with the United States in connection with
war loans shows the following reported expenditures in the United States:
Munitions, including remounts
.
$1, 330, 607, 883. 09
Munitions for other Governments
205, 495, 801. 10
Exchange and cotton purchases
1, 682, 419, 875. 31
Cereals
.
1, 375, 379, 343. 57
Other foods
.
.__> 1, 169, 153, 585. 05
Tobacco
99, 174, 858. 34
Other supplies
_..
215, 331, 787. 01
Shipping.
48, 890,000. 00
Reimbursements
19, 302, 357. 55
Interest
387, 732, 633. 50
Maturities
353, 501, 56L 66
Relief
.__
16, 000, 000. 00
Silver
.
261, 643, 388. 81
Food for northern Russia
7, 029, 965. 94
Miscellaneous
47, 745, 629. 01
Total reported expenditures
These expenditures were met as follows:
By reimbursement from the other allies out of funds loaned
to those aUies by the United States
__..
By dollar pavments by the United States' Government for
British currencies
By proceeds of rupee credits in gold from India
_.
By cash from Britain's ''own independent resources''
Funded in debt settlement with the United States. _

7, 219, 408, 669. 94

1, 853, 612, 246. 37
449, 496, 227. 55
81, 352, 908. 06
760, 128, 929. 52
4, 074, 818, 358. 44

7, 219, 408, 669. 94
From England's total reported expenditures in America from April 6, 1917,
to November 1, 1920, there should be deducted the $1,853,000,000 expenditures
for which Great Britain was simply the purchasing agent for the other allies
and for which Great Britain was paid by the other allies from money loaned to
Ithem by the United States. This amount was not provided from England's
'"own independent resources." This leaves $5,366,000,000. .Of this amount,
$1,682,000,000 represents "Exchange and cotton purchases." The greater part
of this expenditure was for the maintenance of sterling exchange, not necessary
for purchases in America, but which enabled England to make purchases in
other countries at an undepreciated exchange rate; $2,643,000,000 was for .food
and tobacco. A part of this item is probably included in the account out of which
England was reimbursed by the other aUies and a part was resold by England
to its own civil population. To the extent of this resale England avoided the
necessity of floating loans in its own country; $507,877,000 was for interest and
principal of England's commercial'obligations maturing in America; $261,000,000
was for silver.
The total principal advances to England after the armistice were $581,000,000.
EXHIBIT

S P E E C H O F SECRETARY OF THE TREASURY MELLON BEFORE
THE UNION LEAGUE CLUB AT PHILADELPHIA ON MARCH 24,
1926, CONCERNING THE FISCAL RESTORATION OF EUROPE

War is a supreme effort. In it the individual merges his individuality, his prejudices, and himself into the national spirit. With

SECRETARY OF THE TREASURY

257

peace, this union of all in a common cause disappears. Again arise
selfishness and controversy exaggerated by the fact that victory has
not meant ease, but only more work. A nation's effort to win the
peace is much less effective than its effort to win the war, and to my
mind this is the reason why we find reconstruction so difficult. We
put every effort into fighting the flood, and we hate the 'drudgery of
clearing the land of the mud and stones left by the retiring waters.
But this work must be done, and it requires clear eyes to see that
we Americans are acting in our own true interest in helping others
restore peace conditions. I wish to touch briefly upon some of the
aspects of this fiscal restoration in Europe and of our own direct
concern therein.
If we think of the financial reorganization of Europe along the
same general lines as the reorganization of some large industrial corporation heavily involved after a severe depression, I think we can
visualize in terms by which you as business men will readily understand the problems requiring solution. When through mismanage. ment or misfortune a corporation has become financially embarrassed
and a plan for its future is to be worked out, the reorganization
managers must consider three things:
First, the expenses must be cut and sales increased, so that operating
loss be changed to operating profit. With a government, this means
that its budget must be balanced.
Second, the demand liabilities of the corporation must be determined and their payment sb arranged that the corporation can meet
its obligations as they mature in the future. With a government,
this means the funding of its foreign indebtedness, now principally
the interallied war debts.
And, finally, the corporation must obtain new capital so as to pay
obligations which can not be funded and to make improvements
which wiU reduce costs and increase sales. With a government, this
means the obtaining of new loans abroad to stabilize the currency
and make productive the industries of the country.
The first problem, as you see, is entirely a matter of internal management. We in America have nothing to do with the budget of
another nation, either in the Treasury or as private lenders of capital.
There is the fact, however, that a nation \7ill find difficulty in selling
bonds in America if it can not show its ability to meet current expenses
oU't of current revenues, just as it is impossible for reorganization
managers to get new capital if they can not show that their corporation can operate in the future at a profit. So we do exert an indirect
pressure upon even internal affairs abroad.
With the second problem the Government of the United States is
directly concerned. We contributed liberally in loans to our Allies
during the war, and we supported them, and many of the new nations
carved out of old countries in the period of their extreme distress
immediately after fighting ceased. We have become, whether we
like it or not, the most important creditor of Europe. In this capacity we are like the general creditors of the embarrassed corporation.
Our money is in and we want it out, but it is impossible to get more
than the debtor can pay. If we insist upon too difficult terms, we
receive nothing. We must then settle upon such terms as will give
our debtor reasonable opportunity to live and to prosper. More it
will not pay, and. more we can not collect.

258

•

REPORT ON T H E FINANCES

The third problem, that of new capital, is a matter for our private
bankers and for our investors. I t is not an American Government
question. Like those who are asked to put money into the reorganized corporation, before they part with their money our investors
have a right to insist that the return be adequate, risk considered;
that the borrower shall have put its financial house in order, actually
balanced its budget; and that the new loan- shall contribute to the
productive capacity of the borrower and thus assure the loan's ability
to pay its way.
If, then, Europe is to be reestablished on a sound basis, it must
balance its budget, our Government must settle the war debts, and
the American investor, intelligently and profitably invest his surplus capital abroad.
Budget equilibrium has been reached by the European nations
with some very important exceptions, and all, I think, now appreciate
the desirability of obtaining this balance and are earnestly working
for it. We in the administration at Washington have been doing
our part, and there remains but France, Yugoslavia, and Greece.
with whom debt-funding negotiations are pending. The flotation
of foreign securities has become a commonplace in our money market. We approach fiscal reconstruction in Europe.
But the question asked is what does all this reconstruction mean
to the ordinary American, not an investor, not a banker, not an
internationalist. I have outlined what must and is being done
toward reestablishment of sound fiscal conditions in Europe. I can
now show the material interest which everyone of us here in America
has to see that this stabilization is promptly effected.
'
Modern trade consists not in having each community sufficient
for its own needs, but in specialization of production and in consumption throughout a large market. In the United States we may
grow wheat in the Dakotas, corn in Iowa, and fruit in Florida. We
may make steel at Pittsburgh, automobiles at Detroit, and shoes
in St. Louis. Through our efficient transportation system we distribute articles to a market of 110,000,000 people of great consuming
capacity, speaking the same language and separated by not a single
customs barrier. In this market seems to me to lie the great industrial power.of America. .Certainly nowhere else in the world does
such a favorable condition to industrial strength now exist. We
are enabled to manufacture cheaply because we manufacture in
quantity and in the territories where conditions of labor and raw
material are most favorable, and we can, and'do, pay the highest
real wages in the history of labor. Our production, however, both
in agriculture and in industry exceeds even the capacity of our
great domestic market to consume. There is a surplus, and to dispose of this surplus we must reach markets abroad, which means
having purchasers abroad with money or credit to buy.
Europe last year took from us $2,500,000,000 of our commodities,
principally foodstuffs, cotton, copper, and automobiles. Cut that
figure materially and consider its effect upon our prosperity. The
index of labor wages in 1925 was 222 as compared with 100 in 1913;
the cost of living 178; and of wholesale prices 159. Industry has
been able to pay these high wages because the large new investment
in equipment, the adoption of more efficient methods, and a constructive spirit in the worker have made labor more effective. T h e '

SECRETARY OF THE TREASURY

259

margin between costs and prices is small. If costs should go up by
reason of lessened production, or prices should go down by reason
of narrower markets, the profit margin of industry might be exhausted and depression and wage readjustments follow. I t is the
same with agriculture. If the exportable surplus can not be disposed of abroad, then prices in this country will drop. We all need
our best customer.
Europe can not continue to be a great consumer unless it be
restored to health. If, however, we can help the nations abroad get
on their feet, produce wealth, pay better wages, and buy, we share
in their prosperity. Just let me give 3^ou an instance. In negotiating the debt settlement with one of the smaller nations, it was shown
that the minimum of existence in that country, a scale at which the
bulk of the peasants are now living, was $31 per man per year.
This included no meat, one suit of clothes, and one pair of sandals
a, year. Think what it would mean in the aggregate to us to have
that country be able to increase the standard of living there so as
to include meat once a week, a cotton shirt once a month, and another
pair of shoes, and to have the bulk of the goods bought in America.
Look around the United States and note the improvement in general
prosperity through the increase in our own capacity to buy. Without
such increase the automobile, the telephone, the electric light, the
radio would be but comparatively insignificant industries. As
with Europe, so with the rest of the world, improvement elsewhere
means improvement to us.
Some of the debt settlements we have negotiated have been criticized because it is claimed that our failure to collect the last cent
imposes an avoidable burden upon our taxpayers. I pass the practical fact that we have, I believe, made for the United States the
most favorable settlements which could be obtained short of force.
This criticism is without perspective and does not take conditions
in their true relative importance. I should rather^, have solvent
customers in the future which permit me to run a profitable business
than insist upon terms of debt settlement which will again force
my customers into bankruptcy. A business man would prefer
making $100 in his business than being repaid $5 of a debt. The
farmer or the laboring man would rather have a market for our
surplus in Europe than save a dollar of Federal taxes.
I have spoken to-night entirely i r o m a material standpoint not
because I feel that America owes no moral obligation to assist
other peoples to work their way out of the wreckage of war. We
do, and we will carry out this duty. I wish, however,, to impress
upon you the fact that the administration believes not in charity
but in help, and our financial policies tow^ard Europe are backed
not by sentiment but by sense.
EXHIBIT

LETTER FROM SECRETARY MELLON REPLYING TO MR. FREDERICK! W. P E A B O D Y ' S L E T T E R U R G I N G C A N C E L L A T I O N O F T H E
SO-CALLED WAR DEBTS
J U L Y 14, 1926.
D E A R S I R : By reference from the President, I have your letter

of June 30, 1926, urging cancellation by the United States of the

260

REPORT ON THE FINANCES

so-called war debts. Your arguments are confused, but I believe
your points can be fairly summarized as follows:
1. As a legal proposition, taking into account the message of
President Wilson, the debates in Congress, and the first Liberty
loan act authorizing advances to our Allies, the United States made
a gift and not a loan and neither party expected repayment.
2. As an equitable proposition, advances were made while the
Allies were fighting our battle for us and before we could put an
adequate military force in the field, and, therefore, the loans represent part of the cost to us of the war and should be canceled.
3. As a charitable proposition, America being wealthy and prosperous and the European countries being poor and heavily taxed, we
should, in the interest of humanity, cancel the debts.
The initial authority for the advances to foreign governments
occurs in the first Liberty loan act, passed just after we declared
war. As a lawyer, you know that the interpretation of legislation
unambiguous on its face is determined from its language and not
from expressions in debates on the floor of the Congress. But even
ignoring this rule of construction, a reading of President Wilson's
message and of the debates shows no ground for your arguments.
The most that can be said of any expiression you quote is a willingness on the part of the speaker to make the loans even if our debtors
may not be good risks. This is far from an intention to make a
gift of the advances. Let us, however, consider the act itself. T h e
law is declared to be '^for the purpose of more effectually providing
for the national security and defense and prosecuting the war by
establishing credits in the United States for foreign governments."
A reading of section 2 is convincing that loans and not subsidies
were intended. The United States is authorized to purchase at par
the obligations of foreign governments. As to rate of interest and
other essentials the foreign governments' obligations are to have
the same terms and conditions as United States obligations (Liberty
bonds) issued'under the authority of the act. Arrangements are
to be made for purchasing the foreign government obligations and
for the subsequent payment thereof before maturity. If United
States bonds are converted into bonds bearing a higher interest
rate, the obligations of foreign governments are likewise to l)e converted. In section 3 of the same act, the Secretary of the Treasury
is authorized to receive on or before maturity payment of the foreign
government obligations; to sell the obligations at not less than t h e
purchase price, and to apply the proceeds of any payments made
on account of the obligations to the retirement of the debt of t h e
United States. I t is clear that when the advances were made to
our Allies they knew and we knew they were loans, not gifts. From
the time of the original advances to date no responsible authority in
the United States Government has suggested cancellation, and each
of our debtor nations, except Russia, has recognized the debt created
by the advances and has offered to pay. The only question for
discussion in each settlement has been the extent of the capacity of
the debtor to make payment of an acknowledged liability.
Your second proposition is that the Allies held the line with men
until we could deliver an army and, therefore, cash advances m a d e
during this period by the United States were our contribution to
the general cause of the war and should be canceled. I shall no!

SECRETARY OF THE TREASURY

261

dispute with you the exact date when we became an effective force
on the western front nor as to the time or extent of our service at
sea. We will assume America, as you infer, contributed nothing
military or naval to the common cause but only gave financial support. Even then you will have to admit that advances made to
our Allies after the armistice, when the war was over, can not be
considered as a contribution pending effective entry into battle or
as saving American lives. We can eliminate at once, therefore, loans
made entirely after the armistice to Finland, Estonia, Latvia,
Lithuania, Poland, Czechoslovakia, Hungary, Austria, Armenia, and
Rumania. The Allies to which we did make advances while the
ivar was on are England, France, Italy, Belgium, Serbia, and Russia.
As the figures I shall give will show, if we admit your argument is
sound, England alone is concerned.
The debt settlements have been negotiated on the basis of the
•capacity of the particular debtor to pay. None could pay its signed
obligations as called for by their terms. Accordingly, payment of
the principal had to be extended and the period of 62 years set in
the British agreement has been followed in all other agreements.
If the debtor nation paid the United States a rate of interest on the
postponed installments equivalent to the cost of money to us, we
would receive in present value payment of the full debt. Since,
however, such an interest rate is beyond the capacity of any of our
debtors to pay, the United States has, of necessity, accepted less
than the full value of the debt to the extent the interest to be received under the settlement is below the cost of money to the United
States, now about 43^ per cent. Looking at the matter from the
standpoint' of the debtor nation, the debtor has received a concession in its debt to the extent the interest to be paid by it is below
the cost of money to the debtor. The obligations taken by us
from our debtors carry the interest rate of 5 per cent per annum.
Since this rate is less than most of the debtor nations now have to
pay for money, the rate of 5 per cent is certainly a fair measure of
the real burden put upon them by the settlements.
Let us see what relation the burden of our debt settlements bears
to our loans after the armistice. In this way we can determine accurately our real contribution in money to the joint cause of the war.
In the case of England, postarmistice advances with interest amounted
to $660,000,000, and the present value of the entire debt settlement
is $3,297,000,000. I t must be remembered that England borrowed a
large proportion of its debt to us for purely commercial as distinguished
from war purposes—to meet its commercial obligations maturing in
America, to furnish India with silver, to buy food to be resold to its
civilian population, and to maintain exchange. Our loans to England
were not so much to provide war supplies as to furnish sterling for
home and foreign needs and to save England from borrowing from its
own people..
/
France's after-the-war indebtedness with interest amounts to
$1,655,000,000. The settlement negotiated by Ambassador Berenger
with the American Debt Funding Commission has a present value
•of $1,681,000,000.
Belgium's postarmistice borrowings with interest were $258,000,000, and the present value of the settlement is $192,000,000. In
addition, Belgium has a share of the German reparations sufficient
t o pay her prearmistice debt to America.

262

REPORT ON T H E FINANCES

With Italy the situation is similar. Its postarmistice indebtedness
with interest is $800,000,000, and the present value of its debt settlement is $426,000,000. I t is the same as regards Serbia. In view of
these facts, in what respect do you still believe America has been
unfair to its allies?
The statement is made in your letter that the French debt settlement takes annually about 60 per cent of the German reparation
payments which France is to receive. I believe you are not correctly
informed. France, in addition to reparations already received from
Germany, is to be paid under the Dawes plan 52 per cent of the
maximum reached three years from now of 2,500,000,000 gold marks
($625,000,000) after certain charges, about $300,000,000 annually.
The maximum annual payment required of France under our settlement is $125,000,000, reached after the sixteenth year. I think you
will find that the reparations receivable from Germany by Belgium,
France, and Italy are more than the payments those nations have
agreed to make on their indebtedness to both the United States and to
England.
I come now to your third proposition: That to preserve our selfrespect and retain the affection of foreign nations for America we
must as a charity cancel the debts. A creditor is never popular, but
a debtor without credit is not in an enviable position. England's
prompt and courageous attitude when first of all others it sought a
settlement of its debt seems to me to have been rewarded in her
present sound financial position, a rock in the turbulent seas of monetary instability now washing over the other allied nations. Are you
so sure that your policy of cancellation will mean a happier future
for a world which will only continue to trust those who keep a promise
once made?
When cancellation of debts is viewed from the standpoint of the
United States you fail to recognize that the debt commission, the
President, and the Congress act not in their individual capacities
according to sentiment, but as trustees for those whom they represent,
the American people. If these foreign debts are canceled the United
States is not released from its obligation to pay the very bonds
which were sold to our citizens to make the advances to the foreign
governments. We must collect through taxation from our people
if our debtors do not pay to us what they can. You call this a *'specious reason," but nevertheless, again as a lawyer, you must know
the duty of a trustee. Were these trustees as certain as you seem to
be that their cestui qui trust the American people, demand a cancellation of the debts, it is within the province of popular government
to carry out that mandate. But neither generally from the people,
nor in the press, nor at all from the chosen representatives of the people
in Congress has come this demand.
I have, as have you, and every other good citizen, a profound
sympathy for the countries suffering from the after results of the Great
War which we in America have to a large extent escaped. But I feel
that a recognition of their external obligations by the European
nations and an undertaking bravely to meet them within their capacity as each country has done, is a moral force of great service to permanent prosperity in the world. I can not agree with you that
England is on the edge of destruction. I t is most sound of heart,
as its recent solution of a general strike has shown to all. Other coun-

SECRETARY OF THE TREASURY

263

' tries are in monetary difficulties, but the very acuteness of the
disease has brought a clear understanding of the causes and of the
proper remedies. Dark as the financial sky now appears, I believe
Europe is to-day closer to a permanent sound solution of its economic
troubles than iat any time since the war. The danger is there, but
with it the courage to fight. I do not despair of Europe.
Very truly yours,
A. W.

MELLON,

Secretary of the Treasury.
FREDERICK W.. PEABODY,

Esq.,

Counselor at Law, Ashburnham, Mass.
EXHIBIT

SUMMARY OF THE LIQUIDATION OF THE GOVERNMENT'S
BILITY GROWING OUT OF FEDERAL CONTROL
DECEMBER 14,

LIA1925.

As a war measure, the Government of the United States, on the
28th day of December, 1917, took over the possession and active
control of all the class 1 railroads, together with sundry inland and
coastwise shipping lines. These properties were operated by the
Government, under the direction of a Director General, for a period
of 26 months, ending February 29, 1920, when the respective properties were returned to their ow:ners. The,value of the property
taken over was some $20,000,000,000, and the annual compensation
represented by the average earnings for the three years prior to Federal control, was $2,087,323,593.97, a monthly rental in excess of
$80,000,000.
When the property was returned to its owners, claims were presented by the carriers, represented largely by the items of impaid
compensation, undermaintenance of way and equipment, material
and supplies, and depreciation, in the sum of $1,014,402,446.72.
The Railroad Administration set up claims against the railroads,
largely for excess expenditures for maintenance, in the sum of
$440,353,715.08.
Congress directed the President, through his agent, as soon as
practicable to settle and adjust these and all other claims incident
to Federal control. Every one of the claims of the. carriers whose
property was taken over has been adjusted. The creditor roads
were paid $243,652,196.91. There was collected from the debtor
roads $195,272,295.17. The balance paid by the Government
was $48,379,901.74, or less than 5 per cent of the claims as originally
presented.
There are perhaps two outstanding features in the adjustment:
I t was made without litigation, and well within the appropriation
originally made by Congress for this purpose.
The liquidation has involved the handling of large sums. As an
outgrowth of Federal control, the Groyernment took definitive
obligations of the railroads, for advances, funding of additions and
betterments, balance due on settlement, and the like, aggregating
$629,241,250. Of this amount there has been collected, or disposed
of at par, $495,705,450. This amount has been returned to the
United States Treasury.

264

REPORT ON T H E FINANCES

The Railroad Administration for a number of years has been
returning large sums to the Treasury. For the 11 months ended
November 30, 1925, the receipts in excess of expenditures were
$50,690,499.
The liquidation of the claims of the railroads, now completed,
represents perhaps the largest liquidation of a single commercial
interest ever undertajien.
The Railroad Administration has cash assets,^ in the shape of
unexpended appropriations and other funds, aggregating $101,504,972.84, and still holds carrier obhgations in the sum of
$133,535,800.
Aside from the claims of the railroads for the use of their property,
there were innumerable claims of third persons for freight overcharge, reparation, loss and damage, personal injuries, fires, and the
like, while the Railroad Administration, on its part, had many^ claims
for demurrage and under charges. In the neighborhood of 50,000
lawsuits were instituted against the Railroad Administration growing
out of these transactions. The largest claim in this connection grew
out of the Minnesota forest fire, which occurred in October, 1918.
Some 1,500 square miles were burned over, including the city of Cloquet, it being claimed the fire was set out by railroads operated by the
Government. Fifteen thousand and three lawsuits were commenced,
demanding an aggregate of $73,112,146.17. After protracted'litigation, an arrangernent was made to adjust these claims. Some
14,000 of these cases have been settled. The cost to the Government
of this fire wiU aggregate about $15,000,000. I t is undoubtedly the
greatest fire in history for which a financial liability has been sustained.
The greater portion of these outside claims have been adjusted,
and the entire liquidation is being rapidly concluded. The income of
the Railroad Administration, from interest on railroad obligations,
is largely in excess of an amount sufficient to finally conclude this
adjustment.
The total cost to the Government of Federal control, including the
operating losses during that period and the six months guaranty
period after Federal control, and the payment to deficit short lines,
will aggregate some $1,696,000,000.
I t is understood that the President will appoint the Secretary of
the Treasury as his agent and director general to conclude the liquidation, the Railroad Administration to be carried on as a bureau of
the Treasury Department;
EXHIBIT

A P P O I N T M E N T O F A N D R E W W. M E L L O N AS D I R E C T O R

GENERAL

OF RAILROADS
B Y THE

PRESIDENT OF THE U N I T E D STATES OF AMERICA
A PROCLAMATION

Whereas James C. Davis has tendered his resignation as Director
General of Railroads; and
Whereas such resignation has been accepted effective upon the
qualification of his successor,

SECRETARY OF THE TREASURY

265

Now, therefore, I, Calvin Coolidge, President of the United States,
under and by virtue of the power and authority so vested in me
under the transportation act of 1920, the unrepealed provisions of
the Federal control act of March 21, 1918, and the ^^Act making
appropriations for the support of the Army for the fiscal year ending
June 30, 1917, and for other purposes," approved August 29, 1916,
and of all other powers me hereto enabling, do hereby appoint,
effective at midnight on the 31st day of December, 1925, Andrew W.
Mellon, of Pennsylvania, Secretary of the Treasury, to be Director
General of Railroads in the stead of the said James C. Davis, and
do hereby delegate to and continue and confirm in him all powers
and authority heretofore granted to and now possessed by the said
James C. Davis as Director General of Railroads; and do hereby
authorize and direct the said Andrew W. Mellon, or his successor in
office, until otherwise provided by proclamation of the President or
by act of Congress, either personally or through such divisions,
agencies, or persons as he may authorize, to exercise and perform,
as fully in all respects as the President is authorized to do, all and
singular the powers and duties conferred or imposed upon me by the
said unrepealed provisions of the Federal control act of March 21,
1918, and the said transportation act of February 28; 1920, except
the designation of the agent under section 206 thereof.
In witness whereof I have hereunto set my hand and caused the
seal of the United States to be affixed.
Done by the President at the city of Washington this 14th day
of December, in the year of our Lord nineteen hundred and twentyfive and of the independence of the United States the one hundred
and fiftieth.
CALVIN COOLIDGE.

By the President:
[SEAL.]

F R A N K B . KELLOGG,

Secretary of State.
EXHIBIT

D E S I G N A T I N G A N D A P P O I N T I N G A N D R E W W. M E L L O N , D I R E C T O R
GENERAL O F RAILROADS, AND H I S SUCCESSOR IN OFFICE,
AS T H E A G E N T P R O V I D E D F O R I N S E C T I O N 2 0 6 O F T H E A C T
OF CONGRESS, APPROVED FEBRUARY 28, 1920
B Y THE PRESIDENT OF THE U N I T E D STATES OF AMERICA
A PROCLAMATION

Whereas by proclamation dated August 13, 1923, James C. Davis,
Director General of Railroads, was designated as the agent provided
for in section 206 of the transportation act, 1920; and
Whereas the said James C. Davis, Director General of Railroads,
as aforesaid, has tendered his resignation as said agent, which has
been duly accepted, effective upon the qualification of his successor:
Now, therefore, I, Calvin Coolidge, President of the United States,
under and by virtue of the power and authority vested in me by
said act, and of all other powers me hereto enabling, do hereby designate and appoint, effective at midnight oh the 31st day of December, 1925, Andrew W. Mellon, Director General of Railroads, and
11439—FI 1926

266

REPORT ON THE FINANCES

his successor in office, as the agent provided for in section 206 of
said act approved February 28, 1920.
In witness whereof I have hereunto set my hand and caused the
seal of the United States to be affixed.
Done by the President at the city of Washington this 14th day of
December, in the year of our Lord nineteen hundred and twenty-five
and of the independence of the United States the one hundred and
fiftieth.
CALVIN COOLIDGE.

By the President:
[SEAL.]

F R A N K B . KELLOGG,

Secretary of State.
EXHIBIT

PRESS STATEMENT BY ACTING SECRETARY OF THE TREASURY
WINSTON GIVING THE TREASURY PLAN FOR THE DISPOSITION
OF GERMAN PROPERTY HELD BY THE ALIEN PROPERTY CUSTODIAN AND THE SETTLEMENT OF MIXED CLAIMS
MONDAY, M A R C H 29,

1926.

Acting Secretary of the Treasury Winston made the following
statement on behalf of the Treasury:
There have been introduced in this and the last Congress numerous bills for
the return of alien property and for various amendments to the alien property
act affecting particular interests, but no general plan has yet been presented for
the disposition of alien property and for the final settlement of the other questions between Germany and the United States left over from the war. A Mixed
Claims Commission has been set up by the United States and Germany for the
determination of American war losses. Claims have been presented to the commission and most of the awards have been made, but unless the United States
Government intervenes the payment to private American claimants will be so
long delayed as to make the awards of the commission illusory. There is also
the liability of the United States for property of German.nationals used by the
United States, of which there is as yet no machinery for determination and no
provision for settlement.
The Treasury has found it impracticable at this time to cover in the same
plan similar questions in connection with Austria and Hungary. In the case of
Germany the Mixed Claims Commission has been set up, the claims filed, most
of them already adjudicated, and an estimate of the amount of the awards and
the probable liability thereunder can be made. In the Austrian and Hungarian
cases, while a commission has been constituted and claims are. being received,
the period of limitation for filing claims has not run and no estimate can be
made of the total amount of claims which will be presented or the' probable"
amount of awards thereunder. In addition, the Dawes plan provides for payments by Germany to the United States on account of the awards, but there is
no like arrangement for payment by Austria or Hungary.
In order that the reasons which have influenced the Treasury in the preparation of a comprehensive plan for the disposition of these matters may be understood, it is desirable to review the existing situation.
The Versailles treaty provided for reparations but did not fix their amount.
In the schedule of payments of May 5, 1921, the total reparation payments as
fixed by the reparation commission were notified to Germany in the amount of
132,000,000,000 gold marks, plus the Belgian war debt (about 5,000,000,000
gold marks), less certain negligible credits, plus interest at 5 per cent on the capital
sum until paid. The obligation of Germany to pay the American mixed claims
is in the same category as Germany's obligations to pay reparations.
The amounts required of Germany are beyond its capacity. Unable to meet
its treaty requirements, Germany in effect went into receivership and a reorganization was undertaken by the Dawes Commission. Under the plan adopted,
the total which it was found that Germany can pay on all its treaty obhgatiohs

SECRETARY OF T H E TREASURY

267

arising out of the war was fixed, after a five-year recuperation period, at a maximum of 2,500,000,000 gold marks a year, subject to some acljustment under an
index of prosperity. Since this is all Germany can pay, it is obvious that the
United States, if it wished to receive anything from Germany, had to obtain
a share in the total payments represented by the Dawes annuities. Accordingly
the United States became a party to the Paris agreement dividing the.Dawes
payments and received a share to repay our army of occupation costs at the rate
of 55,000,000 gold marks, or about $12,000,000 a year. In addition, the share
of the United States on account of the Mixed Claims Commission awards was
fixed at "2J^ per cent of all receipts from Germany on account of the Dawes
annuities available for distribution as reparations, provided that the annuity
resulting from this percentage shall not in any year exceed 45,000,000 gold
marks." The United States, then, is to receive on its own account the $12,000,000
annuity in repayment of Army costs and on its own and for the benefit of the
American private claimants the $11,000,000 annuity on account of the mixed
claims. The awards of the Mixed Claims Commission, plus interest, are estimated at $60,000,000 to the United States and $190,000,000 to private American
citizens.
The United States under its war powers as a sovereign seized enemy property
through the Alien Property Custodian as a common-law trustee. The Versailles
treaty, gave the allied and associated powers the right to dispose of enemy property and Germany agreed to compensate its own nationals for the seizure. The
allied and associated powers were authorized to liquidate the property and.to
apply the proceeds to satisfy debts owed by enemy nationals to. their nationals
or as a credit on reparation account. Under the Berlin treaty, making peace
between the United States and Germany, the United States received the benefit
of these provisions of the Versailles treaty. But the joint resolution of Congress
of July 2, 1921, and the Berlin treaty specifically provided that the property of
enemy nationals "shall be retained by the United States of America and no disposition thereof made except as shall have been heretofore or specifically hereafter shall be provided by law until such time as the Imperial German Government * * * shall have * * * made suitable provision for the "satisfaction of all claims against said Government" of American nationals. It was
further provided that such property should be retained until the German Government should have "confirmed to the United States of America all fines.,
forfeitures, penalties, and seizures imposed or made by the United. States of
America during the war * * * ^nd shall have waived Piuy and all pecuniary
claims against the United States of America."
There has been no modification of the Versailles treaty or Berlin treaty with
respect to the paj^ments due from Germany, and the duration of the Dawes plan
payments is not fixed. The practical effect of the Dawes plan is, however,
that Germany's creditors have accepted a reorganization under which their
rights are limited to their shares under the Paris agreement and an attempt to
return to the original treaty requirements for payments would be useless.
This is the general situation. Its application to the United States may be
considered.
It is estimated that all the awards of the Mixed Claims Commission which
Germany is obligated to pay will aggregate $190,000,000 of principal and
$60,000,000 of accrued interest to January 1, 1926, or a total of $250,000,000..
The awards bear. 5 per cent interest. If no interest is to be paid upon accumulated interest, an annuity of $11,000,000 would pay current interest and pay the ,
$60,000,000 accumulated interest in 40 years, and thereafter in 40 more years
would amortize the principal of the awards, a total period of 80 years. This is
on the assumption that the Dawes plan continues for that length of time and
that each year Germany is able to pay to the transfer agent in Germany and the
transfer agent is able to transfer into the currencies of the creditor nations
2,500,000,000 gold marks per year. While our Army costs repayments are preferred, the mixed claims belong in the general category of reparations without
preference and any diminution in total payments will be felt by the mixed claims.
If the Dawes plan fails and the United States resorts to its rights to demand
payment of the mixed claims under the Berlin treaty, the Allies would seem to
have a like right to ask payment of the 132,000,000 gold marks of reparations.,
plus 5 per cent per annum interest. This yearly interest alone is two and one-half
times the total Dawes annuities. It seems impractical, therefore, to expect from
Germany payment of the mixed claims except out of the 2J^ per cent annuity
under the Dawes plan. While the annuity given the United States under the
Paris agreement is a fair proportion of the total demands on Germany by all her

268

REPORT ON THE FINANCES

creditors, still, in view of the length of time it will take for this annuity to pay the
mixed claims, it must be recognized that the awards have little present value to
the private Anderican citizen unless some other means of immediate payment
can be obtained.
It might be within the power of the United States under those provisions of
the Versailles treaty to the benefit of which the United States is entitled under the
Berlin treaty, to liquidate the private German property and to apply the proceeds to the payment of the mixed, claims. The moral justification for such a
proceeding is doubtful and, moreover, there is some question as to the constitutionality of such a procedure now we are at peace. The private German owners
of the property are not likely to receive from their government adequate compensation for their property taken and used to pay the debts of their government*
The proceeding would practically amount to confiscation of private property.
Looking at the matter from the standpoint of a great commercial nation,
whose citizens now have enormous investments in foreign countries, it would
appear sound policy for us to continue as we have in the past, to recognize the
sanctity of private property of other nationals. By such a policy the property
of our nationals abroad may be saved from confiscation in the event of another
war. Aside from the moral and commercial policy questions affecting the confiscation of the enemy property, doubt is raised by the Berlin treaty and the
resolutions of Congress as to our legal authority to liquidate the property to pay
the mixed claims. It is provided that the enemy property "shall be retained by
the United States * ,* * until such time as the Imperial German Government * * * shall have * * * made suitable provision for the satisfaction" of the mixed claims of our nationals. If the provision for a share in the
Dawes annuities is a suitable provision, then the property ought to be returned!
If it is not a suitable provision, then our right would seem to be to hold the
property until the mixed claims are paid—at least 80 years, and most likely
indefinitely. To keep property away from its owners and hold it in the hands of
a Government trustee, is a great economic loss. It is a vain thing indeed to
insist on retaining title to property not our own indefinitely. Matters between
nations should be settled and not permitted to be for many generations a.source
of friction.
The only other practical method of payment of the awards to .the private
American citizens is for the United States to advance the money necessary to
pay the awards to its own citizens (estimated between $180,000,000 and $190,000,000) and to recoup the Treasury for this advancement out of all moneys
received from Germany on account of mixed claims ($11,000,000 a year) and
Army costs ($12,000,000 a year). If- the United States should borrow the
money at 3 ^ per cent to pay the awards to American citizens, and use the
$30,000,000 of earnings made by the Treasury out of money of the Alien Property
Custodian on deposit with it prior to the Winslow Act, which gives later earnings
to the enemy nationals, and if the United States should receive all payments
provided under the Dawes plan for both mixed claims and Army costs, the debt
thus created would be retired with interest at 3 ^ per cent ih about eight years.
In other words, the United States would be made whole out of payments due the
American claimants and out of repayments to the United States for money spent
in past years in a short period of time, and thereafter all payments would go into
the Treasury. True the payment by. the United States of the awards to
American citizens would be an expenditure in the Government accounts in the
year actually made and thus appear as an increase in governmental expenditures,
but looking at the matter in another aspect, it might be fair to consider that the
expenditure for payment of the mixed claims is in effect a capitalization to-day
of certain payments due from Germany in the future.
To summarize: The only practical way for the American citizen to get compensation for his war loss is either for the United States to confiscate the property
of German nationals and apply the proceeds, or for the Treasury to advance the
money and to recover it later from the Dawes payments. The Treasury is
opposed to the confiscation of the private property of German nationals and
believes also that the burden of war losses suffered by some of our citizens should
be borne not by them alone when they can be relieved by its temporary assumption by all of the people of the country, although this assumption carries with
it some risk of loss.
In addition to the question of the payment of the mixed claims and the return
Ol the alien property, there is a further matter between the United States and
the German nationals which should be settled. During the war the United
States seized and used ships, radio stations and property belonging to German

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269

nationals. The Berlin treaty provides that Germany will make suitable provision
for the satisfaction of all claims against the United States on account of such
seizures, but the situation is like that with respect to the enemy property. We
have taken the property of private citizens and used it for our.own purposes.
The rehef from their own Government is inadequate. We have enjoyed the
benefit and we ought to pay. This does not mean the creation of a new moral
obligation on the part of the United States, but simply the recognition of what
we owe and the payment of fair compensation for property taken by the United
States from others.
The Treasury having in mind these various related matters between the United
States and Germany, presents for the consideration of Congress a plan to cover
in one piece of legislation (1) payment of the mixed claims; (2) ascertainment and
payment of compensation due private owners of German ships, radio stations,
and patents taken and used by the United States; and (3) disposition of the German property. A bill embodying this plan has been introduced in the House of
Representatives by Representative Mills, of New York.
The bill proposes:
(1) That awards to American citizens on the mixed claims shall be paid.
(2) That an arbiter, appointed by the President, shall award compensation
due the German owners of ships, radio stations, and patents taken and used by
the United States, and that the United States shall pay these awards to an
aggregate not exceeding $100,000,000.
(3) That the Treasury may borrow money to make such payments.
(4) That the property of German nationals in the hands of the Ahen Property
Custodian shall be returned.
(5) That the earnings prior to March 4, 1923, on moneys deposited by the
Alien Property Custodian in the Treasury of the United. States shall be retained
by the United States and applied towards payment of the awards of the Mixed
Claims Commission. March 4, 1923, is the date.of the Winslow Act giving
similar earnings after that date to the enemy owners.
(6) That the United States shall pay up to the date of the Winslow Act
interest at 4 per cent per annum on moneys of American citizens wrongfully
seized by the Alien Property Custodian ^and deposited in the Treasury.
. (7) That receipts by the United States from Germany on account of tlie
mixed claims and the Army costs shall be applied by the United States to the
payment of awards of the Mixed Claims Commission and of the arbiter, to interest
on any debt created by the United States for moneys borrowed to make the payments required by the bill, and to the retirement of the pubhc debt.
The Treasury believes that the proposed bill is desirable for the reasons:
(a) It is a recognition of sound policy in the treatment of the war losses of our
own citizens and bf the property of enemy nationals;
(6) It is a comprehensive settlement of all the principal questions between the
United States and Germany left from the war, and
(c) It is recognized on both sides as an equitable adjustment of our moral
and legal obhgations, is in conformity with our traditional principles of fair;
dealing, and will mean one more step toward the restoration of sound conditions^
in the world.

EXHIBIT

LETTER FROM SECRETARY MELLON TO THE PRESIDENT OF THE
SENATE IN RESPONSE TO SENATE RESOLUTION 199, CONCERNING ALIEN PROPERTY
A P R I L 16,
DEAR M R . PRESIDENT:

1926.

In response to Senate Resolution 199, the

following report is made:
In. the course of the preparation of the.settleinent of war claims
act of 1926, which deals with the settlement and payment of American claims against Germany, the Treasury has at no time dealt,directly or indirectly, wdth representatives of the German Government. No representatives of the Treasury Department have
carried on negotiations in Germany.

270

REPORT ON THE FINANCES

In the last sessions of the former Congress and in the present Congress numerous bills have been introduced for the disposition of the
property held by the Alien Property Custodian. Some of the bills
covered only particular classes of persons interested in the alien
property. Some of the bills* returned all of the property and would
create a flood of claims against the United States which might become
a serious drain on the Treasury. There was no legislation introduced
to cover the subject as a whole and finally. Litigation is pending
against the United States for compensation for ships of German
citizens taken during the war and is still undisposed of. The Mixed
Claims Commission set up between Germany and the United States
to determine American claims against Germany, is approaching the
completion of its work. There is, however, no provision for the
payment of awards of the Mixed Claims Commission which adequately compensates the private American claimants. The advice
of the Treasury had been sought by Frederick C. Hicks, the former
Alien Property Custodian, in reorganizing his office, and from its
study of the situation the Treasury believed that it was uneconomical,
both from the standpoint of the owner and of the United States, to
continue indefinitely the operation of the trusts by the Alien Property Custodian. Questions of policy in the management of the
businesses and of the disposition of securities are continually arising
which are too complicated and responsible to be left to a public
trustee. These and other related matters had come to the direct
attention of the Treasury.
Here, then, was a series of questions of importance demanding
action and toward the entire solution of which there had been no
plan suggested. I believe that a sound national policy is against the
confiscation of the property of private citizens to pay the debts of
their government. Yet this German property was pledged as security for the claims of our nationals against Germany. To release the
security without providing for the payment of American private
claims would be in effect to avoid confiscation of German private
rights by the confiscation of American private rights. To hold the
German property until the American claims were paid out of the
annuity provided under the Dawes plan meant holding the property
indefinitely, and therefore substantially confiscation of the German
property, and at the same tim-^, since this annuity represents our
share of all Germany can pay, such inadequate payment of the
American claims as to render them valueless. If it is right that we
should reaffirm the American policy that private property shall not
be taken for public use without just compensation, then there seemed
to me to be no practical solution of the entire problem except that
suggested by the Treasury. The Treasury, therefore, in the interest
of all concerned, undertook the preparation of a plan for the consideration of the Congress.
The Treasury was advised by Mr. Chandler P. Anderson, the
American commissioner on the Mixed Claims Commission, that
Dr. Wilhelm Kiesselbach, the German commissioner on the Mixed
Claims Commission, and Dr. Karl von Lewinski, the German agent
on such commission, as individuals, represented a group of the private
German owners whose property was held by the Alien Property
Custodian.. The Treasury also learned that most of the American
claimants before the: Mixed Claims Commission.. had united in the

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271

American War Claimants Association. The Treasury consulted
with representatives from these groups and with others who appeared
interested in the questions involved and proposed a tentative plan,
which differed from that carried in the proposed ^'settlement of
war claims act of 1926'' only in respect to the manner of financing
the payments. In the tentative plan it was proposed that the
United States should assign the payments to be received by it under
the Dawes plan to a trustee against the*issue of bonds payable either
in marks or dollars and guaranteed by the United States. These
bonds were to be used for the payments required of the United
States. Since bonds instead of the cash in the hands of the Alien
Property Custodian belonging to Germans were to be returned and
bonds were also to be used in payment for German ships and American claims, it was deemed advisable that the consent of those who
were to receive the bonds should be had in order to avoid any charge
t h a t just compensation was not paid. The representatives of the
American claimants consented. On November 23, 1925, 1 wrote
Doctor Kiesselbach a letter setting out in substance the tentative
plan. He took the letter to Germany and obtained there the consent of the German owners of the ships and of the property in the
hands of the Alien Property Custodian. Doctor Kiesselbach did
not represent the German Government, but the private German
owners of ships and property.
The tentative plan provided for bonds bearing 5 per cent interest.
This rate of interest was necessary in order that bonds, payable in
marks in Germany, should be worth par in the German market,
where interest rates are very much higher than here. This is to us
a high rate of interest, and since the United States was guarantor of
the bonds and the sole beneficiary of the Dawes payments after the
bonds should be paid, upon further consideration I came to the
conclusion that it was preferable for the Treasury to use its own
obligation payable in dollars, which could be marketed on as low
as a 3 ^ per cent basis. In preparing the proposed '^settlement of
war claims act of 1926,'' therefore, the provision for financing the
project by the issuance of bonds against the payments to be received
from Germany, guaranteed by the United States, was eliminated,
and the plan simplified by meeting all payments in cash, just as any
other expenditures authorized by Congress, and leaving to the
Treasury the finding of the money under its general powers.
In preparing the plan the Treasury has been in consultation with
Mr. Bbnynge, the American agent before the Mixed Claims Commission, with the Alien Property Custodian, with representatives
from the Departments of State, Justice, War, and Navy, with representatives of the American claimants, and with Doctor Kiesselbach
and Doctor von Lewinski, representing the private German owners
of ships and property. The purpose of these consultations was to
obtain the views of all interested parties in the preparation of a plan
to meet the many techincal difficulties involved and to cover the
entire field.
The considerajtion which induced me to prepare the plan was to
suggest to Congress comprehensive legislation to settle, promptly
and permanently, questions left over from the war with Germany,
to remove possible sources of friction between the two nations and to
reaffirm,pur high standard of national policy, just alike tb the citizens

272

REPORT ON THE FINANCES

of a former enemy and to our own citizens who had been injured in
the war.
Very truly yours,
A. W.

MELLON,

Secretary of the Treasury.
Hon.

CHARLES G . D A W E S ,

The President of the Senate.

E X H I B I T 46

PRESS STATEMENT B Y SECRETARY MELLON CONCERNING
FACTORS IN THE SETTLEMENT OF G E R M A N PROPERTY HELD
B Y THE ALIEN PROPERTY CUSTODIAN AND THE PAYMENT
OF MIXED CLAIMS
MONDAY, A P R I L 19,

1926.

Secretary of the Treasury Mellon made the following statement
to-day:
Partisan opposition has developed in the Congress to the plan prepared by the
Treasury for the settlement of the private German property in the hands of the
Alien Property Custodian and for payment of the American mixed claims. I
should like to restate ih substance the considerations which must be taken into
account in any solution of these problems.
In the Versailles treaty Germany agreed to pay as reparations to the Allies
132,000,000,000 gold marks ($34,000,000,000), plus interest at 5 per cent. In
the Berlin treaty Germany agreed to pay to the United States the American
mixed claims, which are now estimated with interest at $250,000,000. These
treaty payments were more than Germany could make, and Germany went
into receivership. A creditors' committee investigated Germany's economic
capacity and found that 2,500,000,000 gold marks a year ($625,000,000) was
Germany's entire capacity to meet her treaty obligations. This annuity of
$625,000,000 may be compared to the $1,700,000,000 annual interest charge on
the reparations which by the Versailles treaty Germany had agreed to pay to
the Allies. Germany's creditors accepted their committee's recommendations
as embodied in the Dawes plan, and by the Paris agreement divided the total
annuity among the creditors. The United States signed the Paris agreement
and thereby accepted the Dawes plan. By the Paris agreement the annuity
for the payment of the American mixed claims was fixed at 45,000,000 gold
marks ($11,000,000). A Mixed Claims Commission between Germany and the
United States has been set up, and the American losses have been judicially
determined by an impartial tribunal of- high character. The United States
holds the private German property as security for the payment of the private
American mixed claims.
It is futile to say that Germany must pay the American mixed claims immediately because under the Berlin treaty it has promised to do so. The United
States, by the Paris agreement, has agreed to the Dawes plan, which limits
Germany's payments. Even if the Paris agreement could be canceled and the
Dawes plan abandoned, the United States under the Berlin treaty would stand
in no better position than Germa,ny's other creditors under the Versailles treaty,
whose claims are enormous and quite beyond Germany's capacity. We must,
of necessity, stick to the agreement we have signed in Paris.
There a e three possible courses: (1) Confiscate the privatie German property
and use the proceeds to pay the American claims; (2) retain the private German property as security until the American claims are paid by Germany;
(3) return the private German property.
(1) Confiscate the private German property and apply the proceeds to pay the
American claims.—I pass over the legal question of the power of Congress to
confiscate, this property, in view (a) of the joint resolution bf the Congress of
March 3, 1921, which specifically provided that the property should be held as
security for the payment of the, American private claims; {h) of the Winslow
Act of March 4, 1923, which recognized that title to the property was in the
German owners'by providing.for return of a portion of the property and for the:

SECRETARY OF THE TREASURY

273

payment of the income from the property to the German owners; (c) of the
fact that the war is over and the constitutional provision against the taking of
private property for public use without just compensation is now applicable.
I believe that the question must be decided on broad grounds of national policy.
To confiscate the private property of enemy citizens is inconsistent with the
historical American policy, is detrimental to our own citizens who now have,
or will make, large investments abroad where similar confiscation might be
adopted, and is above all wrong in morals. I can see no justification for tlie
adoption of such a course.
(2) Retain the private German property as security until the American claims
are paid by Germany.—We can expect no larger payments from Germany than
those provided by the Paris agreement. If the Dawes plan works 100 per cent
it will take 80 years for the specific annuity to liquidate the American claims
with interest. To retain the private German property in the hands of a public
trustee indefinitely is virtual confiscation. To ask the American claimant to
wait 80 years for payment, is to deny him relief. This course gets us nowhere.
(3) Return the private- German property.—If the private German property is
returned to its owners, the security of the American claimants for the payment
of their claims by Germany is taken away by act of the United States. This
course will avoid confiscation of the private property of Germans only by confiscating the private property of Americans. The United States can not do an
immoral act to its own citizens so as to do a moral act to German citizens.
It has seemed to the Treasury that the only practical solution of these problems, which are now, before the Congress for determination is tp return the
private German property and for the United States to advance the funds necessary to pay now the American claims and to recover the amount advanced from
payments to be made to the United States under the Dawes plan, on account
both of the mixed claims and of the army of occupation costs. These payments
together should reimburse the Treasury for the advances with interest within
eight years.
I am quite open-minded. If those opposed to the Treasury plan have any
other practical plan to solve these questions, I believe it should be presented
for consideration. We need constructive, not destructive, criticism.

E X H I B I T 47

REPLY OF SECRETARY MELLON TO REPRESENTATIVE OLIVER'S
SUGGESTION OF A SUBSTITUTE FOR THE PLAN PROPOSED BY
THE TREASURY FOR THE DISPOSITION OF GERMAN PROPERTY
HELD BY THE ALIEN PROPERTY CUSTODIAN AND THE PAYMENT
OF MIXED CLAIMS
A P R I L 23,

1926.

M Y D E A R CONGRESSMAN: I have your letter of April 21, suggest-

ing a substitute for the plan proposed by the Treasury for the disposition of the German property and the payment of the American mixed
claims.
There is but one substantial difference between us. I proposed
t h a t the United States use the money now in hand in the unallocated
interest fund and with the transfer agent in Germany and advance
the balance necessary to pay the private American claims in cash.
You intend to use the same money now in hand, but instead of the
United States advancing the balance, you propose to pay the Anaerican claimants out of the proceeds of the Dawes annuities as they are
received from Germany, both on account of the mixed claims and
on account of the Army costs, until the private American claims are
paid. Under each plan the United States takes all of the annuities
after .the claims are paid.
Under each plan the German property would be returned, under
my plan simultaneously with the payment of the American claims,
and under yours prior to such payment. The effect of your plan,
11439—FI 192620

274

REPORT ON THE FINANCES

therefore, is to deprive a large proportion of the American claims of
the security of the German property to which they are entitled under
the Berlin treaty and to substitute nothing in place of the security.
In other words, in order to do prompt justice to German citizens we
would be depriving American citizens of their rights.
If we use the estimate of $190,000,000 as the amount of the private
American claims, deduct from, this $30,000,000 as representing the
unallocated interest fund and $8,200,000 of marks now in Germany
with the transfer agent, there would have to be paid $151,800,000.
If the United States should advance the money, it can borrow at
3 ^ per cent, and the Dawes annuities, if paid in full, would reimburse the United States with interest in a little less than eight years,
at a total cost of $179,700,000. The awards of the mixed claims
carry 5 per cent interest, and taking the same principal amount of
American private claims to be paid and again applying all of the
Dawes annuities, it would take eight and one-half years to pay the
claims, at a total cost of $191,600,000. Under both plans the United
States is the sole beneficiary of all the Dawes annuities when the
American private claims are paid. Assuming full payment of the
Dawes annuities, the Treasury would save $11,900,000 by advancing
the money in the first instance, and there could be no objection to the
immediate return of the German property.
I am, as I have publicly stated, quite open-minded on this problem.
If some way can be found to give the American citizens adequate
substitute for the security of the German property to which they are
legally entitled, and if at the same time the plan will not be ultimately
more expensive to the Treasury, I should be glad to give it my support.
Very truly yours,
A. W.

MELLON,

Secretary of the Treasury.
Hon.

F R A N K OLIVER,

House of Representatives.

EXHIBIT

ADDRESS OF UNDERSECRETARY OF THE TREASURY WINSTON BEFORE THE FIFTY-SECOND ANNUAL CONVENTION OF THE AMERICAN BANKERS' ASSOCIATION, AT LOS ANGELES, ON OCTOBER
6, 1926, ON THE PUBLIC DEBT OF THE UNITED STATES

In peace times the United States does not resort to credit, b u t
pays cash. Except for some relatively small borrowings to strengthen
the currency and to build the Panama Canal, any national indebtedness has represented the price of war. So a picture of the public
debt is, in its broad outlines, a major war in which the country can
not pay as it goes but must borrow for a large share of its expenses;
then a period of gradual reduction of the debt so created; its continuation at a low figure; another war; and a repetition of the process.
The three cycles in our history, in the third of which we now are, were
the Revolutionary war, the Civil War, and the Great War. Other
wars may appear in the books, but they had little effect on the
national debt structure.
After the Revolutionary War our foreign and internal indebtedness,
which included the indebtedness of the States assumed by the Federal

SECRETARY OF THE TREASURY

275

Government upon Alexander Hamilton's insistence, aggregated in
1790 some $71,000,000. The foreign debt was paid by 1815, and the
entire debt retired by 1832. Figures as to the real burden of the debt
are incomplete, since we have no satisfactory estimate of national
wealth or of national income at that time, but when one remembers
that we were then a new nation, poverty stricken, and with little industrial development, this reduction of debt represents a truly great
effort.
In the Civil War cycle, we find an interesting comparison with our
situation to-day. We owed practically nothing when that war
commenced. At its close, the peak of the indebtedness was 2 ^
billions. In 1914 our debt of about 1 billion was represented principally by bonds to secure national-bank circulation. We reached the
peak of 25 J^ billion dollars in 1919. In the seven years after the Civil
War the debt was reduced 22 percent. In the seven years since 1919—
that is, to 1926—the debt has been reduced 23 per cent. Six hundred million dollars reduction then as against 6 billion dollars now,
but still by this great accomplishment we have put no greater burden
on the individual taxpayer since the last war than was done 60 years
ago. By 1892, or 27 years after the Civil War, the debt had reached
its low point of less than a billion dollars.
We may analyze the factors which went into the reduction of the
present debt to date and see what may be their influence in the future.
On August 31, 1919, the gross debt was as high as 26J^ billions, but
this was at an intermediate point during a flscal year just prior to a
tax-payment period and is not representative of the real debt. At the
close of the fiscal year 1919 the debt was about 253^ billion dollars;
it is to-day about 19 H billion dollars. There are $5,800,000,000,
roughly $6,000,000,000, for which we should account.
Of this total sum, $1,000,000,000 represents a reduction in the cash
balance of the Treasury. Just after the close of the war the Treasury
was spending at the rate of a billion dollars every two weeks, and
necessarily it had to keep a large amount of cash in the general
fund. As expenditures fell off rapidly, the cash in the fund was
decreased, and the fund is now on a peace-time basis, varying between
$100,000,000 and $300,0.00,000. Instead of owing 25)^ billion
dollars and having $1,200,000,000 in cash, we owed 24J^ billion
dollars and had $200,000,000 in cash. This source of debt reduction
is used up and can not affect the future. From securities used to pay
estate taxes, out of purchases from franchise taxes, and other miscellaneous items we obtained a little over $200,000,000. These items
yielding over $80,000,000 in each of the years 1921 and 1922, brought
in less than $1,000,000 in 1926, and will not be again material.
The difference between Government receipts and Government
expenditures chargeable against such receipts is the surplus, and the
aggregate of $2,056,000,000 for the seven years went to reduce the
debt. An excess of receipts over expenditures increases the cash in
the general fund, and at the next quarterly refunding period the
Treasury can meet part of the maturing obligations in cash and need
refund only the remainder. For example, this September we had
$415,000,000 4 J^ per cent notes maturing, and we sold a new issue of
$378,000,000 33^ per cent certificates. Out of existing or expected
surplus the national debt in September became $37,000,000 less.

276

REPORT ON THE FINANCES

So, as long as the Treasury owes money and has to meet maturities,
cash surplus disappears in debt reduction.
Two billion dollars is a large excess of receipts over expenditures in
•the seven years, but before it can be stated that this is entirely too
much to collect from industry to-day and devote to the reduction of a
debt which might be paid to-morrow, consideration should be taken
of the sources from which the money came in order to determine
whether it was entirely out of the pocket of to-day's taxpayers.
During the war and in the period of immediate postwar adjustment
the United States made what might be called capital investments.
No proper balance sheet can be set up for a government. Treasury
accounts must be kept on a cash basis. While in the long run this
practice gives an accurate picture of fiscal results, still, in periods of
wide fiuctuations, one year may share the benefit of a previous year's
expenditure and a cash basis is temporarily uncertain. Prior to
1922 the Government had, among other things, used money for war
supplies, now become surplus, loans to the railroads, and investment
in the War Finance Corporation and in the bonds of the Federal
land banks. During the last five fiscal years the aggregate surplus
was $1,750,000,000, and included in this surplus was $950,000,000
realized by the Treasury from previous investments. Most of these
assets have been turned into cash, but there still remains $400,000,000
to be received in this and succeeding fiscal years. Then the assets
will be exhausted.
I n addition, the Bureau of Internal Revenue has been cleaning up
back taxes on the war years of high rates. We have detailed figures
for the last three years only, and these show a net receipt of back
taxes collected over refunds made of $400,000,000. On the expense
side of the accounts, the Army and the Navy, and to some extent,
other departments, have been using up old war supplies and thus
reducing current expenditures.
. We have, you see, as a nation been living on the barrel of flour,
•sides of bacon, and canned goods which we bought in previous years
and stored away. When these are exhausted we will be restricted
to current taxes and have less surplus.
In 1920 Congress enacted into law its financial program of handling
the debt. Roughly, $10,000,000,000 of debt represented borrowings
'for our expenditures in the war, and $10,000,000,000 represented
borrowings tb loan abroad. Congress chose a sinking fund calculated
to retire the half represented by domestic borrowings in 24 years,
and, with the then expectation that foreign loans would be promptly
paid, directed that repayments of their indebtedness by foreign
nations should go to retire bonds, and thus meet the other half of
the debt within the 24 years. The sinking fund is not restricted to
10 billions of. the debt, and so if foreign repayments are not made,
or are not made in full, the entire war debt will ultimately be extinguished from the sinking fund, although at a period much later than
the 24 years originally contemplated. This sinking fund to date
has accounted for $1,750,000,000 of the 6 billion of debt reduction,
while foreign repayments of principal represent something less than
$300,000,000.
In the various debt settlements Congress has provided that the
d e b t o r m a y pay both principal and interest in securities of the United
States at par. As a practical matter, of course, these sec^urities are

SECRETARY OF THE TREASURY

277

not used unless they are quoted in the market at par or less on the
day they are to be surrendered. When the Treasury receives these
counters, which are its own obligations, there are two things it might
do: Cancel the securities and thus reduce the debt, or resell them to
the public. Since the Treasury has no authority to sell United
States securities at less than par, the second alternative is not practicable, and securities so received to the amount of $500,000,000
have been used to reduce debt.
Summarizing the debt reduction of $5,800,000,000 in the seven
years, 18 per cent came from decrease in the general fund balance
and 3 J^ per cent from miscellaneous sources. None of these sources
will influence future debt reduction. Thirty-five per cent came from
surplus, and half of this surplus represented return of capital investments, which will not continue to produce revenue in the future.
Thirty per cent came from the sinking fund, and 133^. per cent from
our foreign debtors.
There are two thoughts I wish to suggest at this point. If we retire.
a debt of $25,000,000,000 uniformly over a 25-year term and pay
an average rate of interest of 43^ per cent, the total interest cost will
be $16,000,000,000. If the term is made 30 years, over 33^ billion,
is added to the total interest. If 62 years is taken, as some personshave urged, total interest would be $46,272,000,000, or nearly twice
the original principal. So a'25-year program will cost the American
taxpayer a total of $41,000,000,000 and a 62-year program would cost
$71,000:,000,000..;
Theireal value of the dollar does not remain constant. If we take
our Civil War experience and use as a base the dollar of 1860, we^
borrowed; a 54-cent dollar and we paid in an 85-cent dollar. We
repaid $3 for every $2 we borrowed. Referring to our present debt
and as a base the dollar of 1913, we borrowed a 51-cent dollar and we
paid back to date on weighted average a 56-cent dollar. To-day the
dollar is worth about 66 cents. . Paying in the early years of the 7-year
period instead of waiting until 1926 saved the Treasury $600,000,000.
If the appreciation of the dollar continues—and such has been fiscal
history- after other great wars—then the longer we postpone payment
the more in real value we will have to pay.
So taking into consideration our historic policy, and the actual
sources out of which the debt has been reduced, debt retirement to
date, while large and most encouraging, has nevertheless been fair to
both the bondholder and to business.
. The statement is made that we have had debt reduction at the
expense of adequate tax reduction. This is not true. Let us consider
for a moment what has been accomplished in tax reduction during the
pasti seven years. I t has been the experience of the Treasury that
reduction of the individual income tax stimulates the creation of
taxable income and also increases the general prosperity of the coun-:
try, so, that within certain limits, it appears to be true that a decrease
in rate of tax makes no decrease in the amount of tax received by
the Government. This variable of changing income subject to tax
makes.difficult the ascertainment of the exact amount of taxes saved
to the people by a particular reduction in rates. If, however, we take'
the revenue actually collected under the old law for the last year it
was in effect and compare it with the revenue which would have been
collected under the new and lower rates of tax had they been in effect

278

REPORT ON THE FINANCES

/
in that year, a fair idea of the reduction can be had. On this basis,
the 1921 revenue act reduced taxation $663,000,000 a year, the 1924
act $519,000,000, and (he 1926 act $422,000,000, or a total of $1,604,000,000 a 3^ear. If we go back, however, to the peak of our internal
revenue collection, we find that the Treasury collected 23^ billion
less in 1926 than it did in 1920. If the 1920 return from internal
revenue taxes had been maintained for the succeeding six years to
date, the American taxpayer would have given his Government nearly
$14,000,000,000 of additional taxes. Compare this with 6 billion of
decrease in debt. I t has been the policy of the Treasury to recommend
a balance between debt reduction and tax reduction. On these
figures it will not be said that the balance is in favor of debt reduction.
A definite program for the future is difficult. While one can not
look far ahead in this complex world, there are certain factors which
should continue to reduce the still enormous debt. Some nations
apparently consider a large debt as a part of the permanent financial
structure of the country. During the 100 years from the fall of
Napoleon to the opening of the World War, England only reduced
its debt from 43^ billion dollars to 33^ billion dollars. During the
same period the French debt increased steadily from a nominal figure
to $7,000,000,000. With this policy America differs. Congress: in
1920, by providing for a sinking fund and for the application of foreign repayments to the retirement of the debt, definitely reaffirmed
our historic policy of having no permanent public debt. This legislation has become a part of the contract between the United States
and the holders of its securities, and a change can not be made without repudiation. We will not have repudiation.
The use by our foreign debtors under the debt settlements authorized by Congress of United States obligations in payment of interest
is not within the control of the Treasury. Market conditions determine whether or not it is advantageous to the foreign debtors to
use certain securities, and if so used there appears to be nothing for
the Treasury to do except cancel the securities received. To credit
the amount of these securities against the sinking fund would in effect
permit the foreign debtors and not the Treasury to determine the
particular bonds to be retired. For the past three years the Treasury
has been using the sinking fund almost exclusively toward the retirement of the third Liberty loan, which still amounts to nearly 23^2 billion, has no prior call date, and matures within two years. Until this
loan is out of the way, the right of the Treasury to apply the full sinking fund to^ the most pressing maturity should have no interference.
We come finally to the factor of surplus, that is, the difference
between receipts and expenditures. I t is here that flexibility lies
between tax reduction and debt reduction. First, consider what the
Government must spend. After every war there is a sharp decline
in Government expenditures as the country gets back to a peace
basis. As opposed to this there are increases through grow^th of the
country and the after-costs of war, principally in pensions. In a few
years the curve of decreasing abnormal expenditures is met by the
curve of increasing normal expenditures. President Garfield, when
he was chairman of the Appropriations Committee of the House,
calculated from a study of financial history of the world that these
curves should meet in a number of years after the war which is twice
the duration of the war. His calculation was correct in the Civil

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279

War period, and it seems to be substantially right again to-day.
Total expenditures chargeable against ordinary receipts of OJ^ billion in 1920, the first real peace year, dropped to 3 ^ billion in 1924,
or four years after a tw^o-year war. They went up 25 million in
1925, another 50 miUion in 1926, and the President in his budget
speech last June stated that it might be possible to have a minimum
of $3,600,000,000 in 1927. Without the determined stand of the
President for economy, the expenditure figures would have been
greatly increased, but in spite of holding expenses to bedrock, the
growth of the country seems finally to have caught up and we can
not rely on further decreases to supply a surplus.
The purpose of government is to give its citizens life, liberty, and
the opportunity to pursue happiness. This is a large and expensive
order. Stated otherwise, the Government should provide the protection and facilities its people require. The sole source of a country's revenue out of which this duty can be performed is taxation.
Taxation, therefore, should be sufficient to meet the nation's policies,
but no more. It is not possible to estimate with absolute accuracy
this cost or the revenue for future years. Reductions in expenditures are not likely except through decline in interest charges by
retiring or refunding at lower interest rates the public debt. A bit
of new legislation, a new activity of Government, may increase the
expenditures; a shading of prosperity, the exhaustion of a capital
asset now held, may decrease receipts—two types of influences
which are cumulative in their effect, both reducing surplus. With
an unbalanced budget a sinking fund is a mockery. We should not
contemplate in peace time spending more than we receive. We
should, therefore, consider an annual surplus of $100,000,000 as no
more than a properly balanced budget. This is only 13^ per cent
of our total receipts and expenditures, and is, one must admit, a
narrow margin. When this margin is insured, we can turn to further tax reduction.
As I have stated, with a large existing indebtedness, the surplus of
prior years is not carried forward in cash, but goes into reducing
debt. Past surpluses are not available for future tax reduction.
A cut in taxes, other conditions being equal, works a loss of revenue
not for one year but for every year, whereas surplus may be an
isolated phenomenon appearing in one year and not in the next. I t
is for this reason that the Government, whatever it may have received
in past years, can not afford to reduce its revenues below its expected
expenditures in future years.
There is a peculiar argument one hears advanced that it is proper
to add together the surpluses of two years to determine the amount
taxes can be reduced. On this theory a man who received $100 a
week and spent $95, and who had two $5 bills in his pocket, could
eontinue to break even week after week with his receipts cut to $90
and his expenses remaining at $95. This is political finance.
Some six months ago Congress reduced taxes in the revenue act
•of 1926. The anticipation of this aided in bringing the country to
the present high tide of prosperity. The Treasury has shared
abundantly and the revenues will this year more than meet the cost
of government. The previous cuts in taxes have been possible
because of strict economy which has brought about war-cost deflation promptly and the increasing business activity of the country

280

REPORT ON THE FINANCES

which has followed. As I have said, expenditures seem to have
reached a level, but it is quite too early to be assured that revenues
will keep up. Tides ebb and flow. They do not remain constant.
The people do not want a reduction one year and new taxes the next.
I t would be most unfortunate to have to add to a declining prosperity
more taxation and thus accelerate the decline—uncertainty added
to uncertainty. The administration has gone far in the past few
years, and it should be sure the next step is not over the line. If a
full year's trial of the present taxes justifies the belief in a higher
surplus than $100,000,000 for several years, the excess should go to
tax reduction, but below that margin, and before we have that
assurance, we should not go.
To sumriiarize, I quote from Secretary Mellon's statement to the
Ways and Means Committee in the last session of Congress:
This country is to-day exceedingly prosperous. It can afford to pay off its
debts without undue burden upon its taxpayers. Its history has always been
prompt extinguishment of its war debts. It is ready for the next emergency
when it comes. The time to repair your roof is in good weather, not when it is
raining. The time to pay your debts is when you can.

EXHIBIT

ADDRESS BY UNDERSECRETARY OF THE TREASURY WINSTON
BEFORE THE BANKERS' CLUB OF KANSAS CITY, OCTOBER 11,
1926, ON CURRENCY STABILIZATION IN EUROPE

The change from a debtor to a creditor nation has made America
the factor in any financial readjustment of Europe, and in turn a
financially soimd Europe is essential to a continuance of our own
prosperity. One does not have to engage in international banking
to appreciate that America is a part of the world. Our export trade
to Europe last year amounted to some $2,700,000,000. Our manufacturers and farmers need this market. I think, therefore, that a
survey of Europe from a fiscal standpoint is not inappropriate out
here in the great Middle West, where so much of our exportable surplus
is produced.
England has successfully returned to a gold basis. Germany has
been reestablished through the Dawes plan, but in France, Italy, and
Belgium restoration is incomplete.
Before coming to a consideration of the particular question, it
is well to understand that the situation in Europe is nothing new or
unexpected. In every great war the expenditures of the Government
must exceed its current receipts. Cash with which to carry on must
come from borrowing and from the inflation of currency, that is,
printing more paper money. We can not criticize Europe. During
the Civil War we inflated by the issuance of greenbacks, so that our
paper was worth in gold only 35 cents on the dollar. The year after
the war we started to deflate, but two years later we abandoned the
attempt, and it was not until 14 years after the war and with bumper
crops that we actually resumed specie payments. The debates in
Congress during this period do not differ in tenor from the debates
in the European parliaments demanding inflation and protesting
against suffering the hardships of deflation. If it took this country

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281

14 years to get over currency inflation, we can hardly blame Europe
if it is not on its feet 8 years after the World War.
There is another charge laid against the European countries which
it seems to me is unfair. I t is said that the people do not pay taxes.
The true test of taxation is not the paper rates of tax or the fact
that some classes or some persons do not pay their proper proportion
of the tax, but how much money does the government collect out of
its people from all sources, direct and indirect, and what proportion
of the total income of the nation is this collection. If we apply this
test, the burden of taxation in France, Belgium, and Italy is very
high. Perhaps it is not as great as that paid by the English people,
but it is certainly much above what we pay in this country.
The war ended. The situation of France was typical. I t found
itself presented with a very difficult choice. A large part of its industrial area had been destroyed. If France were willing to accept a
place as a second-class nation and no longer be a factor in the industrial trade of the world, it might leave its territory just flelds; of
ruins, shell holes, and rusted wire; but if France wished to continue
to occupy its place in the w^oiid it must rebuild the devastated area
promptly, no matter what the cost. Unless this area could be made
again productive, the remainder of the country could not support
the burden imposed by the war. I t was just as if a manufacturer
had a plant partially destroyed by fire; he would have to rebuild
the plant so that his production would be large enough to cover his
overhead, and he would have to do this whether his insurance was
paid or not. , The other alternative is to quit business. France
elected to keep on, and it was right. Keeping on meant enormous
expenditures in excess of the current receipts, further inflation, and
a postponement of stabilization. To a lesser degree the same conditions existed in Italy and Belgium. The time has now come,
however, when each of these countries must decide whether it will,
destroy all values by unsound policies or put its house in order..
The longer action is postponed the more difficult it becomes to follow
the sound course, and there is a point of complete collapse. If a
ship rolls beyond a certain angle, it can not right itself.
The problems of stabilization involve two factors—one political
and the other economic. There seems to be a defect in present,
government in Europe the cause of which is fundamental and which
lies in the history and institutions of those nations. England oyer
the course of centuries evolved a system of parliamentary government the success of which depends on having two parties. This,
system differs from American constitutional government in the impor-^
tant particular that England has no separation of the executive and
legislative powers. Continental Europe had lived under monarchies,
where there was a strong executive and no legislative power, the
exact opposite of the English theory. In the nineteenth century the
English form of government was taken over bodily into Europe. I t
was thought effective government could be assured by a representative legislature with the executive powers of the English parliament
and all would be well. Instead of a two-party government, where
the majority party has the power to adopt and make effective its.
program and is held solely responsible for the administration of the
country, and the minority party serves as,a check on the action of
the majority, we have had in almo^st every country in Europe the.

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REPORT ON THE FINANCES

development of dozens of parties shading into each other. As a result, party government does not exist, but we have government by
coalition, a system of trades and dickers, no responsibility, and no
continuity. Europe struggled along under this system up to the
war. During the war military purpose substantially controlled
Parliament, but in the difficult days of reconstruction the system
has frankly broken down. Parliament seems to have failed except
in Switzerland and the Scandinvian countries, where local selfgovernment has been a part of their history. Italy, Spain, Portugal,
Poland, and Greece have abandoned the legislative and readopted the
executive power in the form of a dictatorship. I t is this weakness in
government which has constituted one of the largest problems in a
financial stablization.
I t is interesting^ to see how the three countries we are discussing have
met the problem. Italy is frankly a dictatorship. Mussolini is all
powerful, and within the limitation that even a dictator if he is to
continue must carry with him the support of his people, is ablei to act
on a purely economic basis. Belgium, after several failures involving months when it was impossible to form any government, has
created her King temporarily a dictator, but the direction of her
fiscal affairs is in the hands of Mr. Francqui. In France the situation
becarne^very bad indeed before Parliament recognized to the full the
duty it must perform. France seems to have met the problem by a
cabinet representing practically all of the important parties.
The solution of the political problem seems, then, to be on the way,
and we can approach the economic side. Now, as has been often
stated, the reorganization of a country's finance is very similar to
the reorganization of any large industrial corporation. First, it must
balance its budget, it must cut its costs> increase its sales, and get
out of the red. Second, it must ascertain and fund its demand or
short term obligations. This is like getting a corporate creditor tp
take stock in the reorganized company. And third, it must stabilize
its currency. There is nothing just similar in a corporate reorganization, but stabilization is something analogous to putting a new company on a profit^rnaking basis by additional capital and good management.
The balancing of the budget involves two sides: First, a decrease
in expenditures, which means cutting down the number of the public
servants, the activities of the government and military costs, and
putting the public utilities, such as railroads and telephones, on a
commercial basis, and making them pay their way; second, on the
other side of the ledger, increasing rates and making a more productive
system of taxation, what we call in this country a reform of. taxation
so that the taxes which are imposed will bring greater revenue and be
less burdensome. For example, I have been told that a bachelor in
France with a certain income is supposed to be taxed 95 per cent of
his income. Of course, he can not afford to pay such a tax, so all is
evaded. A lower tax would produce revenue.
A proposition closely connected with the balancing of the budget
is the ascertainment and funding of future liabilities so that they can
be met when they come due. This involves principally the settlement
of the war debts and funding the internal floating debt so as to relieve
the Treasury from embarrassment on every occasion of financial
strain. The three countries have negotiated settlements of their

SECRETARY OF THE TREASURY

283

war debts and, except in the case of France where the agreement has
not yet been presented to Parliament, the settlements have been
approved. Belgium has already taken care of its floating debt by
a conversion of it into preferred stock of a company organized to take
over the Belgian state railways. France expects to handle this in
the more usual way through a sinking fund, gradual retirement, and
funding. Italy, because it has for several years balanced its budget
and is internally upon a sound basis, has the floating debt now well
in hand.
The third and most difficult step is the stabilization of the currency. Stabilization presents hardship but no great unusual difficulty where the currency can be restored, as England has done
recently and as we did after the Civil War, at its original value.
But where this deflation is impossible, as it is in the three countries
we are discussing, the point of stabilization is extremely difficult to
determine. There arises at once a conflict in interest between those
who are investors in fixed interest-bearing securities or who have a
fixed income and those engaged in industry. Stabilization at any
point below former parity must mean appropriation by the State
oi a part of the value of its bonds sold to its people. While all of the
French bonds were not sold when the franc was worth 20 cents,
still figures I have seen indicate that the average of all investments
.at home in France's obligations were at about 15 cents per franc, or
75 per cent of the pre-war value. If the franc should now be stabilized at 3 cents, the Government will have taken four-fifths of the
value of the loans made to it by its own people. This is an enormous
capital tax which we should consider when we are discussing the
burden the French people have to bear.
If the stabilization point is too high, stabilization can not be mainstained. If it is too low, there is an unnecessary capital tax and an
increase in the internal price level, bearing most heavily on those
with fixed income. Where this point should be depends largely upon
the external purchasing power of the currency, that is, its quotation
on the world's exchanges, and the internal purchasing power of the
currency, that is, what it wilh buy at home. These values vary
greatly during the period of infiation, and what is the true value of
the currency is difficult to determine. It seems to be desirable,
therefore, to remove the economic influences on the exchanges by
balancing the budget, by eliminating the threat of inflation, and by
rrestricting imports so that the balance of international payments will
not be adverse, then when the internal and external prices come
together and the current exchange rate ceases to fluctuate violently,
.and when stabilization in fact exists, stabilize at that point by law.
It is toward this stabilization that these countries are now striving.
When we read in the papers that war bread is being eaten in Belgium;
"that Italians may not go traveling abroad; or that France is growing
more of what it needs in its colonies, you can understand that these
are all means to the ends of improving the relation between the
receipts of the country from the world and its payments to the world.
The mere determination of a point of stabilization is not sufficient,
but assurance must be had that when the value of the currency is
rfixed it can be maintained. It is here that America comes into the
>=picture. Credits or loans must be obtained to support the program
rim til full public confidence is restored. When England prepared to

284

RFPORT ON THE FINANCES .'

go on a gold basis it first accumulated dollar exchange—that is> dcr
posits in America—then the Bank of England arranged for a credit
of $100,000,000 with the Federal reserve banks of this country and,
the British Treasury negotiated a credit with private bankers in
America for an additional $200,000,000. Credits are not loans, but
simply rights to borrow if necessity arises. Thus bulwarked against
any possible speculative assault and tn position to meet any financial
crises which might arise, the free, export of gold was made lawfuL
England has now been on a gold basis for a year and a half. It has
faced the trying period of the coal strike and yet it has not had todraw on a dollar of the $300,000,000 credit. It seems to me that,
these credits bear a strong resemblance to the conspicuous delivery
of truck loads of currency to a sound bank upon which for somereason there is a run of depositors. When the depositors know they
can get their money, the run stops. When the people know they^
can get foreign exchange, export of capital ceases, money previously
exported returns, and the foreign exchange rests upon a sensible .and'
not a fright basis. Not only do these extensions of credit fortify
the country seeking to stabilize against attack, but the fact thatforeign bankers are willing to grant credits is notice to the ^vorld of
their confidence in the country, and in itself is a great help in removing
the fear of subsequent disaster. It is most effective window dressing.
I do not know whether the program of stabilization in the three
countries we have been talking about has advanced to the point
where such credits or foreign loans are considered essential. These'
credits are not granted by the Treasury, but by the Federahreserve
banks in connection with the banks of issue of other stable countries
and by private American bankers. If the time should come wheni
the credits are sought, or if it should be desirable to fioat a loan in
this country, it would be clearly to our interests in America that.thi^;
help be extended. Nothing is more productive than the money whiclii
puts a country on its feet financially, and we here in America have the
money and with our large market abroad will benefit greatly through
stabilization in Europe.
; ? .;
If we compare the three countries, Italy has the least difficult
governmental problem and the most difficult exchange problem..
A despotic form of government, intelligently run as it is in Italy, i^efficient; On the other hand, Italy is overpopulated, with ie:v7
natural resources, and must import many necessities. It require^
consummate skill to keep the payments that Italy makes to the
world less than those which-Italy receives from the world. Belgium
occupies an intermediate position. Its Government can not be a»
despotic as that of Italy.. Temporarily at any rate, its affairs a^e
in the hands of a financier and not a politician. Its international
situation is somewhat better than Italy's. True, it owes a lot
abroad, but it has large resources in the Congo and industrially it i s
very productive. France is almost the reverse of Italy. Its Government is a coalition of many diverse interests, working together
to-day but which may disintegrate to-morrow. Its economic position,
on the other hand, is excellent. Its visible balance of trade is not
excessively adverse, it still holds some good investments abroad,,
and it has an enormous invisible export in foreign tourist expenditureg.
I think that there is no doubt that the balance of internajtional
payments is in favor of France and stabilization is feasible.
w?

SECRETARY OF THE TREASURY

285

" T h e administration has done its share in negotiating debt settle-^
'iiients within the capacity of the debtors and has biBen extremely lenient
in the early difficult years. Our Federal reserve system and our private bankers understand the real interest of the United States in
Europe and are helping. So with the full realization t h a t these
countries now have of the problem before them and with the power
that the respective governments now possess through the support
of their people, I believe that Europe should soon again be in a sound
jposition and stabilization be an accomplished fact.

EXHIBIT

PRESS STATEMENT BY SECRETARY MELLON ON THE TARIFF
QUESTION
OcTOiBER 25, 1926.

There has recently appeared in the press of the world a ''Plea for
t h e removal of restrictions upon European trade," signed by many
Bahkers of the European countries and some of the bankers of this
<i6untry, stating that tariff barriers, special licenses, and prohibitions imposed in Europe since the war interfere with international
tirade and prevent it flowing in natural channels and should be
removed. The fact which gave rise to this situation is the break-up
.of the old pollticaLunits and the rearrangement of the Continent
along ethnical and not commercial lines. For example, the AustroHungarian Empire was a commercial, manufacturing, and agricultural whole.
To-day Austria, with its plants, banking facilities,
and railroads, is cut off from both its markets and its sources of raw
niaterial. We have a brain without a body. I t is just as if we
should make New York City with the southern portion of New
York State and the States of Connecticut and Rhode Island a
separate country. The city would be too large for the territory
which it could reach and the rest of the United States would be
deprived of that intensive manufacturing and financial center.
^^^'The situation in Europe since the w^r is different from the situation
in America. The two would only become comparable if we should
dohsider each of the 48 States a separate nation, each having its
<)\vh tariff, its own railroads, its own currency, and its own language.
Under such conditions the industrial power of the United States
irhust and would end. What the plea of the bankers seeks to accomplish in its final analysis is hot a change in the world but to bring
.about in Europe a condition similar to that in the United States^
I t is not criticism of us but emulation.
Nevertheless our public thought and some of our press argued
t h a t because artificial barriers hinder readjustment in Europe we
m u s t change our tariff policy; but one can not take a policy, which
is essential to the relief of Europe under conditions arising out of the
war, and say that this policy is proper for the United States, unless
i t can be established that conditions are the same. Conditions are
not the same. The purpose of the pohcy in Europe is to provide a
territory large enough to contain raw materials, manufactures, and
a market so that industry may function where coal and iron and,
laibbrers are convenient and food may be produced where conditions

286

REPORT ON THE FINANCES

for its production are favorable. No such hmitation exists in t h e
United States. We do not have to put a steel plant in Kansas or
grow wheat around Gary, Ind. We have one transportation system;
we speak one language, and we have one kind of money among
120,000,000 people in an area the size of most of Europe outside of
Russia.
But there is a still greater distinction between Europe and the
United States. I t is true there are different nationalities and dift'erent languages on the Continent, but, generally speaking, the standard
of living among the principal nations abroad is about on the samelevel, just as the standard of living of the people of the United
States is about the same, whether residents of Texas or Minnesota,
Massachusetts or California. But the standard of living of Europeans is quite different from the standard of living of the United.
States. Unless we are willing to bring our standard in America
down to the level of that of Europe, we can not consider a change in
our tariff however desirable such a change may seem to Europe.
Our tariff policy has been mainly responsible for the development
of manufacturing in America. Our tariff pohcy has brought to labor
the highest real wages in history. The development of. manufacturing has been accompanied by improved methods and quantity pro^duction, and we have been able to make and distribute at a relatively
low price considering the high cost of labor. . In many lines we more
than meet foreign competition with its low labor costs. In turn,
high wages have created a great consuming population, which has been
the principal factor in our reaching quantity production and thus
low costs. A study of the industries in this country shows a very
small margin of profit per unit and large profits in the aggregatepossible only through large turnovers. These reasons, I thinks
account for the present exceedingly prosperous condition generally
of our country.
Again, as I have said, the statement appears to be directed toEuropean and not American conditions. Still, the appearance of the
statement has been the occasion for an attack on American policies
upon the assumption that our tariff is harmful to the restoration of
world prosperity. I should like, therefore, to state my views on
American tariff policy.
When the present tariff measure was in process of enactment, it wa&
freely predicted that its passage would seriously restrict foreign trade,
particularly import trade. Some extremists contended that the
proposed rates were prohibitive and would result in a virtual embarga
on commerce. The tariff law has now been in operation for four
years and its influence on commerce is no longer a guess. With
disregard of the facts, statements are still being made that foreign
countries at the present time are unable to sell in the American
market. This is not a fact. During the fiscal year which ended!
June 30, 1926, merchandise with a total value of nearly $4,500,000,000
was imported into the United States. With due consideration to
unit values, this represents a larger volume of imports by a very
considerable margin than has ever been brought to the United
States in any preceding 12-month period.
The trend of trade during the past few years convincingly confirms
the contention that the volume of imports is controlled by the purchasing power of the Nation, rather than the rate of import duties

SECRETARY OF THE TREASURY

287

assessed. An unparalleled combination of high wages and industrial
activity has raised the purchasing power of the people of the United
States to new high levels, which has brought about increased consumption of commodities of practically every description. A study
of the consumption of the more common commodities in the United
States in comparison with the total world production shows what
America means to the rest of the world.
During the calendar year 1925 the world production of coal
amounted to 1,500,000,000 tons. The United States' consumption
of coal amounted to 566,000,000 tons. In other words, with slightly
over 6 per cent of the world's population, the United States has consumed 37 per cent of the total world's coal production. In pig iron
the percentage of world production consumed in the United States
was 48, in copper 46, in rubber 75, in coffee 51, in petroleum 75, in
tin 52, in raw silk 77, and in nitrate 48. British India exported
during the fiscal year ending March 31, 1925, 42,000,000 pounds of
shellac. Of this total, 21,000,000 pounds entered the United States.
Shellac is an almost exclusive product of British India, and 50 per cent
of the total exports found their way to the United States.
T h a t the 6 or 7 per cent of the world's population who live in
continental United States should supply a market for such large
proportions of the world's total production of principal commodities
is a consideration of greatest importance to the world's commerce,
industry, and the employment of labor. No economic survey of
world conditions can reach correct conclusions unless this major
factor—the high purchasing power of the United States—is taken
into account and its effect intelligently understood.
Whether the economic policies of the United States, our industrial
activity, and prosperous conditions are of benefit to foreign countries
can best be determined by analyzing the possible effect on other
nations of a reduction of the per capita consumption of commodities
in the United States to the world average. If, for example, the consumption of rubber in the United States should be reduced to t h e
world average, it would mean that there would be no market for
more than 50 per cent of the world's present production. I t would
mean bankruptcy to certain dependencies whose hvelihood is predicated almost exclusively on the rubber industry. A reduction in t h e
consumption of coffee in the United States to the world level would
wipe out the market for some 40 per cent the world now produces,
and would cause great financial losses to Brazil. A reduction in t h e
consumption of sugar in the United States to the world level would
bring financial ruin to Cuba, and likewise a reduction in the consumption of wool would adversely affect Australia. As the United States'
consumption is 77 per cent of the world's production of raw silk, a.
reduction in the consumption of raw silk to the world's per capita
average would destroy the market for 70 per cent of the silk produced.
A reduction in the consumption of nitrate in the United States would
injure Chile, and a reduction in the United States in the use of shellac
would cause financial reverses in British India. American money
going to Japan for the purchase of silk, to Brazil for the purchase of
coffee, to Cuba for the purchase of sugar, to Chile for the purchase of'
nitrate, and to British India for the purchase of shellac, enables these
countries to increase their purchiases from European countries, aswell as the United States.

288

REPORT ON THE FINANCES

An individual out of employment, generally speaking, is without
purchasing power and is a detriment rather than an asset to his community. Likewise, a nation out of employment is a detriment to
the rest of the world. Conversely, a man well employed refiects
prosperity and is a benefit to his community; and a nation well employed reflects prosperity on other countries. Preeminently the
United States is prosperous and by furnishing a market for such
amazing proportions of what the world produces is reflecting prosperity on other nations. A fair survey of facts can not lead to a
conclusion other than that the economic policies of the United States,
i,nd their resulting industrial activity and prosperity, have played a
leading r61e in aiding the world to recover from losses and damage
wrought by the war.
The tariff law of October 3, 1913, materially reducing import
•duties, did not become effective as to all its schedules until January
1, 1914, and early in August the outbreak of the World War caused
a disruption of commerce. Therefore, the act of 1913, uninterrupted
by war conditions, was in operation for a period of but seven months.
A comparison of imports during the seven months ending July 31,
1914, with the seven months ending July 31, 1926, is as fair a comparison as can be made of the effect of the two laws. While imports
in general have materially increased during the lapse of 12 years, the
kinds of imports, rather than the quantities,^are of most interest in a
study of foreign trade.
In 1914 there was much unemployment, and, compared with this
year, the purchasing power of the nation was materially reduced.
The value of imports of crude materials for use in manufacturing
duruig the seven-month period in 1914, was less than $400,000,000,
while during the corresponding months of this year the value of this
group of imports was $1,120,000,000. In 1914 this group was 34
per cent of the total, and although the total imports have more than
doubled, this year the imports of this group constitute 42 per cent
of the total importations. The use of large quantities of crude materials is the necessary result of industrial activity and indicates
healthy industrial conditions. In 1914 partly manufactured articles
for further use in manufacturing amounted in value to $180,000,000,
•or 15 per cent of the total, while this year this group of imports
was valued at $480,813,000, or 18 per cent of the total. This
increase was an incidental also to uicreased industrial activity.
Manufactured foodstuffs in 1914 made up 14 per cent of the total .
imports, while this year the percentage is 9; and of other finished
manufactures the percentage in 1914 was 22 and 18 this year. Finished manufactures, generally speaking, are competitive products,
and the relatively large imports of 1914 without question served to
^aggravate the unemployment situation then existing.
In the light of experience the contention can not be sustained t h a t
reduced duties on competitive products would increase the aggregate
quantities of all things consumed in the United States. On the other
hand, the evidence is most convincing that the converse would obtain.
Assuming that temporarily the importation of competitive products
would increase with reduced duties and that the consumption of
such commodities in this country would not increase but would
•decline, it would mean but one thing, and that is that American
labor'would be deprived of making these commodities to the extent

SECRETARY OF THE TREASURY

289'

of the increase in the imports plus the decrease in consumption.
The decrease in consumption and the increase in imports would all
be at the expense of American industry—it would be at the expense
of the purchasing power of this nation and eventually would reduce
this country's purchases of foreign products whether competitive or
noncompetitive, dutiable or free.
Under the present law, generally speaking, competitive articles are
dutiable and noncompetitive articles free of duty. While imports
are steadily increasing, the increases are in the duty-free or non-^
competitive products. For instance, dutiable imports in 1926 were
about $1,500,000,000, about the same as in 1924, but free imports
increased in the 3 years from $2,000,000,000 to nearly $3,000,000,000.
Under our present American policy, foreign countries are able to
sell the United States increasing quantities of the class of things
the United States does not produce. As a whole, these increased
imports are of a kind that supply the needs of this Nation's industries
and not the kind that injure such industries by displacing w h a t
they produce. No doubt to those who have been misled into the
belief that at present foreign countries can not sell to the United
States, the statement that during the fiscal year 1926 no less than
65.2 per cent of the total imports were free of duty is a distinct
surprise and the fact that in 1926 imports free of duty exceeded the
total of imports both dutiable and free of the year 1914 by more
than 60 per cent is a revelation.
I t is apparent that reduced tariff rates would materially change the
kinds of imports and the percentages of the various great groups
to the totals, but it is anything but apparent that the totals would be
increased, and there is much to indicate that the totals would decline.
I t is fallacy to assume that reduced import duties will enable this
country to increase its purchases abroad, for the measuring stick
is the Nation's purchasing power and not the amount of duty assessed.
With business activity and high wages the United States will continue to be of great economic benefit to other nations; but any
economic policy that will occasion unemployment in the United
States and reduce its purchasing power will diminish this country's
consumption of commodities and cause large surpluses of the world's
principal products and result in serious financial losses to them. A
cut in the tariff would materially reduce rather than increase, our
purchases abroad; it would not enable foreign countries to sell more
in the American markets, but would prevent them from selling^
as much; it would not help certain foreign nations to recover from
the losses occasioned by the war, but would retard such recovery.
Consider again what our'tariff policy has meant to American labor.
I know personally of one manufacturing company w^hich has plants
in France, in Brazil, and in the United States. The wages paid labor
to-day at these three plants reduced to American currency are as
follows: Unskilled labor gets in France 73^ cents an hour, in Brazil
123/^ cents, in this country 40 cents. Skilled labor 10^1, 21, and
65 cents, respectively. In other words, a laborer in this industry
gets six times more per hour in America than he does" in France for
the same kind of work. Can it be to the interest of the United States
that equality be established by the removal of the protection of the
tariff?

.290,

REPORT ON THE FINANCES

As an example I might cite the case of the Aluminum Co. of
America. The raw product of aluminum is bauxite, deposits of
which occur in the United States, in British Guiana, and in many
other countries of the world. The principal cost of the manufacture
of aluminum is electric power and labor. The cheapest power in the
world is hydroelectric; the cheapest labor is foreign. The Aluminum
Co. has many power properties in the United States, but others in
foreign countries, and the largest power of all is now being developed
in Canada. From its plants in the United States the American
market is supplied; from its plants abroad the foreign market is
supplied. If the present tariff on aluminum is maintained, developments for the expansion of domestic business, will be made in the
United States. If the tariff be removed, these developments will
occur in foreign countries and part of the American market be supplied from abroad. The effect of removing the tariff on aluminum
would not in the least be to hurt the Aluminum Co. but to deprive
the United States of the benefit of enlarged manufactory here. Less
•capital will be invested here and less labor employed.
The same condition holds true of a great many other large manufacturing industries in the United States. If the tariff is taken off, a
larger share of manufacturing will be done abroad where the costs
are less.
The United States is the largest customer in the world to-day. If
we were not prosperous and able to buy, Europe also would suffer.
I t is inconceivable to" me that American labor will ever consent to
the abolition of protection which would bring the American standard
of living down to the level of that in Europe, or that the American
farmer could survive if the enormous consuming power of the people
in this country was curtailed and his market at home destroyed.

291

SECRETARY OF THE TREASURY
EXHIBIT

SUMMARY OF PRINCIPAL CHANGES IN TAXES AND TAX RATES
IN THE REVENUE ACT OF 1928
Revenue act of 1926
-Title in revenue act, tax, and
provision of tax

Revenue act of 1924:
Rates, credits, etc.

Rates, credits, etc.

Date effective

II
Jan.

INDIVIDUAL INCOME T A X .

'Credits:
Single individual
$1,000.
Married individual or head $2,500.
of family.
'Earned income credit: Maxi- $10,000.
imum net income on which
credit may be claimed.
Normal tax rates:
First $4,000 of taxable net 2 per cent.
income.
Next $4,000 of taxable net 4 percent.
income.
Taxable net income in ex- 6 per cent.
cess of $8,000.
-'Surtax rates: i
Rates apply to net income $10,000....
in excess of.
40 per cent on net inMaximum rate.
come in excess of
$500,000.
individuals required to iile return:
. . .
Single, or married and not $1,000 or over..
living with husband or
wife, and having net income of.
Married and living with $2,500 or over..
husband or wife, and having net income of.
Having gross income for tax- Regardless of amount of
able year of $5,000 or over.
net income.

$1,500$3,500.
$20,000IH per cent.
3 per c e n t . . .
5 per c e n t . . .
Same..
20 per cent on net income in
excess of $100,000.
$1,500 or over..

$3,500 or over..
Same
.Do.

CORPORATION INCOME T A X . .

Tax rate on net income in excess
of credits.
- Requirement for installment
payments.

Tax rate on net income of life
' insurance companies.

12H per cent
4 equal installments.,

12H per cent..

13 per cent for income of calendar year 1925; 133^ per cent
after 1925.
On incomes of calendar year
1925, 24 per cent of tax each
of first 2 installments, and
26 per cent of tax each of last
2 installments. After 1925,
same as in revenue act of
1924.
12H per cent
^...
Do.

•CORPORATION AND
INDIVIDUAL
- •-''-'';-^.;
INCOME TAX

'Publicity of returns

Ill

1,1925

List made available for List made available for public
inspection, containing name
public inspection, conand address of each person
taining name and admaking return.
dress of each person
making return, and
amount of tax paid.

ESTATE TAX

Net estate exempt from tax
Tax rates: Graduated rates on
net taxable estate; maximum
rate on net taxable estate in
excess of $10,000,000.

$100,000...
-... Feb. 26,1926
.$50,000...
1 per cent to 40 per cent Retroactive revision of 1924 June 2,1924
(Revised retroactively| rates, 1 per cent to 25 per
cent.
by revenue act of 1926.)
1 per cent to 20 per cent
Feb. 26,1926

Credit for State inhertiBnce, Not to exceed 25 per cent Not to exceed 80 per cent of
Federal tax.
of Federal tax.
etc., taxes paid.
£ For detailed rates, see Exhibit 52, page 294.

Do.

292

REPORT ON T H E FINANCES

Summary of principal changes in taxes and tax rates in the revenue act of 1926Continued

Title in revenue act, tax, and
provision of tax

Revenue act of 1926

Revenue act of 1924:
Rates, credits, etc.

Date effective

Rates, credits, etc.

GIFT TAX

Retroactive revision of 1924 tax
rates: Graduated rates on net
taxable gift; maximum rate
on net taxable gift in excess
of $10,000,000.

Tax repealed
1 per cent to 40 per cent.. Retroactive revision of 1924
rates, 1 per cent to 25 per
(Revised retroactively
cent.
by revenue act of 1926
and excess collections
made refundable.)

Jan. 1,1926
June .2,1924.-

IV
CIGARS 2

Tax rates
1
Weighing not more than 3
pounds per thousand.
Weighing more than 3
pounds per thousand:
Retail at not more than
5 cents each.
Retail at more than 5
cents and not more
than 8 cents each.
. Retail at more than 8
cents and not more
than 15 cents each.
Retail at more than 15
cents and not more
than 20 cents each.
Retail at more than 20
cents each.

$1.50 per thousand

$0.75 per thousand

$4.00 per thousand

$2.00 per thousand

$6.00 per thousand
$9.00 per thousand
$12.00 per thousand.. - - .
$15.00 per thousand

Mar. 28,1926.^

$3.00 per t h o u s a n d . . . . .
$5.00 per thousand .
$10.50 per thousand

_-_

$13.50 per thousand

V
ADMISSIONS 3

Admissions exempt from tax.

50 cents or less

75 cents or less

Mar. 28,1926

5 per cent

3 per cent

Mar. 28,1926

3 per cent

Repealed

Feb. 26,1926-

VI
EXCISE TAXES

On value of manufacturers'
sales:
Automobile chassis and
bodies and motor cycles.
Automobile truck chassis
and auto-wagon chassis
sold in excess of $1,000,
and bodies sold in excess
of $200.
Tires, parts, inner tubes,
accessories.
Cameras and lenses
Photographic films and
plates.
Firearms, shells, and cartridges.
Cigar or cigarette holders,
pipes, humidors.
Coin-operated devices or
machines.
Mah-jongg or similar tile
sets.
On value of dealers' sales:
Sculpture, painting, art
works, etc.
Jewelry, pearls, etc

2M per cent

Do.
•

10 per cent..i
5 per cent
10 per cent.

V.'.'.'.ao.'.'.'.'.'.'.V.'.'.V.'.V.V.V.V.V.'.
10 per cent on pistols and revolvers.
Repealed...
.

do
5 per cent

•

... ...

Do.
Do.
Do
Do.

do....

Do.

10 per cent

Do.

5 per cent

Do.
-

Do.

VII
SPECIAL T A X E S

Capital stock tax

$1 for each $1,000 of fair
average value of capital Stock in excess of
$5,000.

' other tobacco taxes unchanged.

8 Tax on dues unchanged.

June 30,.192(>;

293

SECEETARY OF THE TEEASUEY

.Summary of principal changes in taxes and tax rates in the revenue act of 192'.—
Continued
Revenue act of 1926
Title in revenue act, tax, and
provision of tax

.Miscellaneous o c c u p a t i o n a l
taxes:
Brokers, except produce
and merchandise brokers.
Pawnbrokers
Ship brokers
•Customhouse brokers
Proprietors of bowling
alleys and billiard tables.
Proprietors of shooting galleries.
Proprietors of riding acad[ emies.
'Persons operating passenger
automobiles for hire, according to capacity of
automobile.
Brewer, distiller, etc
Manufacturers of tobacco
products.
'Tax on use of boats...

"Tax on narcotics: Physicians,
dentists, veterinary surgeons,
etc., distributing narcotics.<

Revenue act of 1924:
Rates, credits, etc.

$50 each..,

Rates, credits, etc.

Date eflective

Repealed.

June 30,1926

$100 each-.
$50 each...
.do-.
$10 per alley or per table.

.do
-do.,
-do..
..do-.

Do.
Do.
Do.
Do.

$20 each

-do..

Do.

$100 each.

-do..

Do.

$10 or $20 per automobilel

.do-

Do.

----

$1,000 each..
Same
Graduated rates for man-| Repealed..
ufacturers of different
products.
Graduated by length o^ Applied only to foreign-built
boats, graduated rate by
boat in feet—$1 to $4
length of boat—$2 to $8 per
per foot.
foot.
$1 per annum
\ per annum-

Do.
Do.

Do.

VIII
STAMP TAXES « •

.Bonds of indebtedness: 5 cents
on each $100 of face value or
fraction thereof, applied to.

•^Conveyances of realty.

TEntry of goods, wares, etc., at
warehouses, for consumption
or warehousing.
Entry of goods, wares, etc., at
warehouses for withdrawal.
Proxy for voting
Power of attorney

All bonds, debentm-es,
or certificates of indebtedness issued hy
any person, and all
instruments, however
termed, issued by any
c o r p o r a t i o n , etc.,
known generally as
corporate securities.
50 cents for value from
$100 to $500, and 50
cents for each additional $500 or fraction
thereof.
Graduated, 25 cents to
$1.

All bonds, debentures, or certificates of indebtedness issued hy any corporation, etc.
(remainder same as in 1924
act).

Mar. 28,1926

Repealed.

Do.

.do.

Do.

50 cents.

.do.

Do.

10 cents.
25 cents.

..do.do.

Do.
Do.

IX
DISTILLED SPIRITS

' T a x rate, per proof gallon or
wine gallon when below proof,
and a proportionate tax at
like rate on fractional parts:
. Nonbeverage use

Beverage use.

$2.20 (revenue act of
1918, as. amended).
$4.20 additional if used
or sold for beverage
(revenue act of 1918, as
amended).

$2.20 until Jan. 1, 1927; $1.65,
Jan. 1, 1927-Jan. 1, 1928;
$1.10, Jan. 1,1928, and thereafter.
$6.40 if used or sold for beverage purposes, with a credit
for tax paid at $2.20, $1.65,
or $1.10.

Feb. 26,1926

CEREAL BEVERAGES

' Containing less than one-half of No tax.
1 per cent of alcohol by volume.
< Other taxes on narcotics unchanged.

Tax of one-tenth of 1 cent per
gallon or fraction thereof.
» Other stamp taxes unchanged.

Do.

EXHIBIT

INDIVIDUAL INCOME TAX: SURTAX RATES, 1913 LAW—1926 LAW
1913 law applicable to
incomes of 1913,1914,
and 1915
Income class

Rate

1916 law applicable to
incomes of 1916
Income class

Per
cent

1918 law applicable to
incomes of 1918, 1919,
1920, and 1921

1917 law applicable to
incomes of 1917

Rate

Income class

Per
cent

Rate
Per
cent

$5,000- $7,600

7,500- 10,000

10,000- 12,600

12,500- 15,000

15,000- 20,000

;
$20,000- $40,000

$20, 000-$50,000

•

20,000- 40,000

Income class

•
$5,000- $6,000
6, OOO-

8,000

Rate

1921 law applicable to
incomes of 1922 and
19231
Income class

Rate

10,000- 12,000

12,000- 14,000

16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000

32,000- 34,000

.15

34,00036,00038,00040,00042,00044,00046,00048,000-

16
17
18
19
20
21
22
23

36,000
38,000
40,000
42,000
44,000
46,000
48,000
50,000

Income class

Per
cent

Rate
Per
cent
O

3
4
5
6
7
8
9
10
11
12
13
14

14,00016,00018,00020,00022,00024,00026,00028,00030,000-

Rate

1926 law applicable to
incomes of 1925 and
subsequent years

1
$6,000-$10,000

12,000- 14,000

Income class

Per
cent

Per
cent
2

8,000- 10,000
10,000- 12,000

1924 law applicable to
incomes of 1924

16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000

4
5
6
8
9
10
11
12
13

32,000- 36,000

14,00016,00018,00020,00022,00024,00026,00028,00030,000-

36,000- 38r000 16
38,000- 40,000 .17
40, OOO- 42,000 18
42,000- 44,000 19
44, 000- 46,000 20
46,000- 48,000 21
48,000- 60,000 22

o
$10,000-$14,000

$10,000-$14,000

14,000- 16,000
16,000- 18,000
18,000- 20,000
20,000- 22,000
22, OOO- 24,000
24, OOO- 26,000
26,000- 28,000
28, OOO- 30,000

2
3
4
5
6
7
8
9

14,00016,00018,00020,000' 22,00024,000-

30,000- 34,000

34, OOO- 36,000
36, OOO- 38,000

11
12

38,000- 42,000
42,000- 44,000
44, OOO- 46,000
46,000- 48,000
48,000- 50,000

16,000
18,000
20,000
22,000
24,000
28,000

1
2
3
4
6
6
'.7

!2l

>
O

28,000- 32,000

32,000-36,000

36,000-40,000
40,000- 44,000

14
16
16
17

44, OOO- 48,000

11
12

J/3

40,000-

50,000- 75,000.

40,000-

60,-000

60,000-

75,000-100,000

80,000

60,000-

80,000

100, 000-250, 000

600,000 a n d over.

100,000

80,000-

100,000

48, OOO- 62,000
60,00062,000-

62,000
54,000

24
26

50,000- 52, 000
62,000- 64,000

23
24

64,00066,00068,000-

66,000
68,000
60,000

26
27
28

64,000- 66, 000
56, 000- 68,000
58, OOO- 60, 000

26
26
27

60,00062,00064,00066,00068,000-

62,000
64,000
66,000
68,000
70,000

29
30
31
32
33

60. OOO62,00064,00066, 00068, 000-

62,000
64, 000
66, 000
68,000
70,000

28
29
30
31
32

70,000-

72,000

70, OOO- 72, 000

72,00074,00076,000-

74,000
76,000
78,000

35
36
37

72,000- 74,000
74,000- 76, 000
76,000- 78,000

34
35
36

3
80,000-

250,000-500,000

60,000

100,000-

150,000

100,000-

160,000

150,000200,000-

200,000
250,000

6
7

150,000200,000-

200,000
250,000

31
37

250,000-

300,000

250,000-

300,000

300,000-

300,000600,000-

500,000
750,000

46
60

78,00080,00082,00084,000-

80,000
82,000
84,000
86,000

38
39
40
41

78,000-80,000
80,000- 82,000
82,000- 84,000
84, 000- 86,000

37
38
39
40

86,00088,000-

88,000
90,000

42
43

86,000- 88,000
88,000-90,000

41
42

90,00092,00094,00096,000-

92,000
94,000
96,000
98,000

44
45
46
47

90,00092,00094,00096,000-

92,000
94,000
96,000
98,000

43
44
46
46

98,000100,000-

100,000
150,000

48
62

98, 000-100,000
100,000-150, 000

47
48

150,000-

200,000

160,000-200, 000
200,000 a n d over.

49
50

200,000-

300,000

60-

300,000-

62,000- 66,000

62, OOO- 56,000

66,000- 68,000

66,000- 60,000

60,000-64,000

64,000- 70,000

70,000-80,000

80,000-100,000

100,000 a n d over.

68,000- 62,000

62, OOO64,00066,00068, OOO-

64,000
66, 000
68,000
70,000

22
23
24
25

70,000- 74,000

74,000- 76,000

76,000- 80,000

80,000^ 82,000
82,000- 84,000

29
30

84,000- 88,000

31-

88, OOO- 90,000

90,000- 92,000
92,000- 94,000
94,000- 96,000

33
34
35

96,000-100,000

100,000-200,000

200,000-300,000

300,000-500,000
500,000 a n d over.

39
40

5
500,000

500,000-1,000,000

1,000,000-1,500,000
1,500,000-2,000,000
2,000,000 a n d over.

11
12
13

750,000-1,000,000
1,000, OOO-l, 500,000
1, 500,000-2,000,000
2,000,000 a n d over.

66
61
62
63

600,000

600,000-1,000,000

1,000,000 a n d over.

^ By the revenue act of 1924 incomes of 1923 were allowed a credit or refund of 26 per cent of the amount of tax.

60.000- 52,000

bO
CO

296

REPORT O N - T H E FINANCES.
EXHIBIT

BASES OF STATEMENTS SHOWING GOVERNMENT
PENDITURES

RECEIPTS AND

EX-

The fact that receipts and expenditures of the Government, as
pubhshed in the annual report of the Secretary of the Treasury, are
on more than one basis has caused, considerable confusion to those
who do not thoroughly understand the reasons therefor and the
methods of compilation involved. I t is believed that a short explanation will tend to eliminate some of this confusion.
The receipts of the Government are published on four different
bases, namely: (1) Daily Treasury statements, unrevised (current);
(2) daily Treasury statements, revised (actual); (3) warrants issueci;
and (4) collections reported by collecting officers; while the expenditures of the Government are published on the bases of (1), (2), and (3).
Daily Treasury statements {unrevised).—The figures shown in the
daily statement of the United States Treasury are compiled from the
latest daily reports received by the Treasurer of the tJnited States,
from Treasury offices, and public depositaries holding Government
funds. The daily Treasury statement, therefore, is a current report
compiled from latest available information, and, by reason of the
promptness with which the information is obtained and made public,
it has come into general use as reflecting the financial operations of
the Government covering a given period, and gives an accurate
idea of the actual condition of the Treasury as far as it is ascertainable from day to day. This is known as ^^current cash basis,''
according to daily Treasury statements (unrevised). Statements
showing the figures on this basis are shown on pages 176,179,443,444,
448, and 452 of this report.
Daily Treasury statements {revised).—On account of the distance of
some of the Treasury offices and depositaries from the Treasury, it is
obvious that the reports from all offices covering a particular day's
transactions can not be received and assembled in the Treasury at
one time without delaying for several days the publication of the
daily Treasury statement. I t is necessary, therefore, in order to
exhibit the actual receipts and expenditures for any given month or
fiscal year, to take into consideration those reports covering the
transactions for the last few days of the month or fiscal year concerned which have not been received in the Treasury until the
succeeding month or fiscal year. After taking into consideration
these reports the revised figures indicate the condition of the Treasury
on the basis of actual transactions occurring during the period.under
review. This is known as *Hhe basis of daily Treasury statements
(revised)."
I t is not practical to delay the publication of the daily Treasury
statement in order to include the later reports, as the difference
between the revised and the unrevised figures is immaterial. The
unrevised figures as shown in current daily Treasury statements are
the basis for the Budget estimates submitted to Congress by the
President. The revised figures are of no practical use except to
enable the use of a true general fund balance on the monthly statement of the public debt of the United States and to bring the daily

SECRETARY OF T H E TREASURY

297

Treasury statement figures into agreement with the figures based on
warrants issued. A summary of receipts and expenditures on this
basis is shown on page 363.
Warrants issued {receipts) . S e o t i o n 305 of the Kevised Statutes
provides that receipts for all moneys received by the Treasurer of the
United States shall be indorsed upon warrants signed by the Secretary of the Treasury, without which warrants, so signed, no acknowledgment for money received into the Public Treasury shaU be valid.
The issuance of warrants by the Secretary of the Treasury, as provided by law, represents" the formal covering of receipts into the
Treasury.
Certificates of deposits covering actual deposits in Treasury offices
and depositaries, upon which covering warrants are based, can not
reach the Treasury simultaneously, and for that reason all receipts
for a fiscal year can not be covered into the Treasury by warrants
of the Secretary immediately upon the close of that fiscal year. I t
is necessary to have all certificates of deposits before a statement
can be issued showing the total receipts for a particular fiscal year
on a warrant basis. The figures thus compiled will agree with the
figures compiled on the basis of daily Treasury statements (revised).
Statements showing receipts on this basis are shown on pages 429
and 456 of this report.
Warrants issued {expenditures).—The Constitution of the United*
States provides that no money shall be drawn from the Treasury but
in consequence of appropriations made by law. Section 305 of the
Eevised Statutes requires that the Treasurer of the United States
shall disburse the moneys of the United States upon warrants drawn
by the Secretary of the Treasury. As the warrants are issued by the
Secretary they are charged against the appropriate appropriations
provideci by law. Some of these warrants do not represent actual
payments to claimants, but are merely advances of funds to be placed
to the credit of disbursing officers of the Government with the Treasurer of the United States for the payment of Government obligations.
The disbursing officer then issues his check on the Treasurer in payment of such obligations. As far as the appropriation accounts are
concerned, the w^arrants issued and charged thereto constitute expenditures, but it will be observed that such expenditures necessarily include
unexpended balances to the credit of the disbursing officers. Under
normal conditions these balances over a period of several years
fluctuate very little in the aggregate, and the difference between the
total expenditures on a warrant basis and a cash basis (revised) is
immaterial. Statements, of the expenditures on a warrant basis
are shown on pages 434 and 460 of this report. On pages 441 and
442 of this report also will be found an adjustment of the expenditures on a warrant basis to the basis of daily Treasury statements"
(revised), from which it will be noted that in order to reconcile the
two bases there must be taken into consideration unexpended disbursing officers' balances, unpaid warrants at the beginning and end
of the year, and receipts credited direct to appropriations, the last
of which are explained in the footnotes on pages 433 and 441.
Collections reported by collecting officers.—Statements showing receipts on a collection basis are compiled from reports received by the
various administrative offices from collecting officers in the field, such
as collectors of internal revenue and collectors of customs. These
11439—n 1926

298

REPORT ON THE FINANCES

reports cover the collections actually made by these officers during the
period specified. The collections are then deposited in a designated
Government depositary to the credit of the Treasurer of the United
States, which depositary renders a report to the Treasurer. The
reports of the collecting officers and the depositaries do not, of course,
coincide, for the reason t h a t the collecting officers make collections
during the last few days of the fiscal year which are not deposited
until after the close of the fiscal year. On this account the two
reports will not agree. The receipts are reported on a collection basis
merely for statistical purposes and to,furnish information as to detailed
sources of revenue. Classification of such items on the basis of deposits has been found to be impracticable and uneconomical
Statements showing receipts on a collection basis are shown on pages 471,
477, and 485 of this report.

E X H I B I T 54
[Department Circular No. 164, revised.* Chief Clerkl

ACCEPTANCE OF UNITED STATES BONDS AND NOTES AS SECURITY
IN LIEU OF SURETY OR SURETIES ON PENAL BONDS
TREASURY DEPARTMENT,
O F F I C E OF THE SECRETARY,

Washington, April SO, 1926:
To Bond-Approving Officers, the Treasurer of the. United States, Federal
Reserve Banks, and Others Concerned:
Treasury Department Circular No. 154, dated August 30, 1924,
is hereby amended and supplemented so as to read as follows:
The following rules and regulations are prescribed for carrying
into effect Section 1126 of the Kevenue Act of 1926, approved February 26, 1926, which provides as follows:
SEC. 1126. Wherever by the laws of the United States.or regulations made
pursuant thereto, any person is required to furnish any recognizance, stipulation,
bond, guaranty, or undertaking, hereinafter called "penal bond,'' with surety or
sureties, such person may, in lieu of such surety or sureties, deposit as security
with the official having authority to approve such penal bond, United States
Liberty bonds or other bonds or notes of the United States in a sum equal at
their par value to the amount of such penal bond required to be furnished, together with an agreement authorizing such official to collect or sell such bonds
or notes so deposited in case of any default in the performance of any of the
conditions or stipulations of such penal bond. The acceptance of such United
States bonds or notes in lieu of surety or sureties required by law shall have the
same force and effect as individual or corporate sureties, or certified checks, bank
drafts, post-office money orders, or cash, for the penalty or amount of such penal
bond. The bonds or notes deposited hereunder and such other United States
bonds or notes as may be substituted therefor from time to time as such security,
may be deposited with the Treasurer of the United States, a Federal reserve
bank, or other depositary duly designated for that purpose by the Secretary,
which shall issue receipt therefor, describing such bonds or notes so deposited.
As soon as security for the performance of such penal bond is no longer necessary,
such bonds or notes so deposited shall be returned to the depositor: Provided,
That in case a person or persons supplying a contractor with labor or material as
provided by the Act of Congress, approved February 24, 1905 (33 Stat. 811),
entitled ''An Act to amend an Act approved August thirteenth, eighteen hundred and ninety-four, entitled 'An Act for the protection of persons furnishing
materials and labor for the construction of public works,"' shall file with the
obligee, at any time after a default in the performance of any contract subject
1 Superseding Treasury Department Circular No. 154, dated August 30, 1924.

SECRETARY OF THE TREASURY

299

to said Acts, the application and affidavit therein provided, the obligee shall not
deliver to the obligor the deposited bonds or notes nor any surplus proceeds
thereof until the expiration of the time limited by said Acts for the institution of
suit by such person or persons, and, in case suit shall be instituted within such
time, shall hold said bonds or notes or proceeds subject to the order of the court
having jurisdiction thereof: Provided further. That nothing herein contained
shall affect or impair the priority of the claim of the United States against thebonds or notes deposited or any right or remedy granted by said Acts or by this^
section to the United States for default upon any obligation of said penal bondr
Provided further, That all laws inconsistent with this section are hereby so modified
as to conform to the provisions hereof: And provided further. That nothing contained herein shall affect the authority of courts over the security, where such
' bonds are taken as security in judicial proceedings, or the authority of any
administrative officer of the United States to receive United States bonds for
security in cases authorized by existing laws. The Secretary may prescribe
rules and regulations necessary and proper for carrying this section into effect.
I. BOND-APPROVING OFFICERS

The term ''bond-approving officers" as used in this .circular, means
the head of an Executive Department or Government Establishment
or an officer designated either by law or regulation to approve ''penal
bonds." The Treasury of the United States assumes no responsibility or liability on account of the acts of bond-approving officers.
The term "bond-approving officer ".shall be deemed to include theofficer's successors in office.
II. ACCEPTANCE OF BONDS AND NOTES BY BOND-APPROVING OFFICERS^

2. Any individual, partnership, or corporation required by the
laws of the United States or regulations made pursuant thereto to
furnish any recognizance, stipulation, bond, guaranty, or undertaking (hereinafter called penal bond), with surety or sureties, may,
in lieu of such surety or sureties, deposit as security with the official
having authority to approve such penal bond (hereinafter called
the bond-approving officer). United States Liberty bonds. Treasury
notes, or other United States bonds or notes in a sum equal at their
par value to the amount of the penal bond required to be furnished,,
together with a power of attorney and agreement in the form hereinafter prescribed, authorizing the bond-approving officer to collect
or sell such bonds or notes so deposited in case of any default in the
performance o"f any of the conditions or stipulations of such penal
bond. The acceptance of such United States bonds or notes in lieu
of surety or sureties required by law shall have the same force and
effect as individual or corporate sureties, or certified checks, bank
drafts, post-office money orders, or cash, for the penalty or amount
of such penal bond. Treasury certificates of indebtedness are not
acceptable under said Section 1126 of the Eevenue Act of 1926 as.
security in lieu of surety or sureties.
3. The individual, partnership, or corporation required to furnish
any penal bond, who deposits United States bonds or notes as^
security in lieu of surety or sureties in accordance with the provisions of this circular, must be the owner of the bonds or note^
deposited, and is hereinafter called the obligor. United States
bonds or notes may be deposited with bond-approying officers,
pursuant to the provisions of this circular in either coupon or regis^
tered form. Coupon bonds or notes shall have attached thereto'
all coupons unmatured at the date of such deposit, and all matured!

300

REPORT ON THE FINANCES

coupons should be detached. Registered bonds or notes must i e
registered in the name of the obligor, and duly assigned, ai or before
the date of such deposit, either to the bond-approving officer with whom
they are deposited or his administrative superior, or in blank, in accordance with the regulations of the Treasury Department in relation ta
United States bonds. (See Treasury Department Circular No. 300,
dated July 31, 1923.)
4. The United States bonds or notes to be deposited must in
every case be delivered to the bond-approving officer at the obligor's
risk and expense. Coupon bonds or notes and registered bonds or
notes assigned in blank or for exchange for coupon bonds or notes
can not safely be forwarded by registered maU unless insured by
the obligor against risk of loss in transit. Registered bonds or notes,
unless assigned in blank or for exchange for coupon bonds or notes,
need not be so insured when forwarded by registered mail, unless
the obligor so elects. The bond-approving officer shall issue a receipt
in duplicate, substantially in Form A, hereto attached, for the
United States bonds or notes so deposited, the original of the receipt
to be given to the obligor and the duplicate to be retained by the
bond-approving officer for his files.
5. At the time of the deposit of any United States bonds or notes
with a bond-approving officer in accordance with the provisions of
this circular, the obligor shall deliver to the bond-approving officer
a duly executed power of attorney and agreement, in favor of the
bond-approving officer, authorizing such officer to collect or sell
such bonds or notes so deposited in case of any default in the performance of any of the conditions or stipulations of the penal bond,
and to apply the proceeds of such sale or collection, in whole or in
part, to thco satisfaction of any damages, demands, or deficiency
arising by reason'of such default. The power of attorney and agreement shall be, in the case of an individual, substantially in Form C,
hereto attached; in the case of a partnership, substantially in Form
D, hereto attached; and in the case of a corporation, substantially
in Form E, hereto attached.
6. In connection with the acceptance of United States bonds or
notes hereunder as security in lieu of surety or sureties, bondapproving officers must satisfy themselves as to the ownership of
the bonds or notes deposited and the sufficiency of the power of
attorney and agreement, and in the case of registered bonds or
notes, as to the regularity of the assignments as well, and, in general,
that the deposit is made in conformity with the provisions of this
circular.
7. Any obligor who deposits United States bonds or notes in
accordance with the provisions of this circular may, upon written
application to and with the approval of the bond-approving officer,
substitute for the bonds or notes so deposited {a) other United
States bonds or notes in a sum equal at their par value to not less
than the par amount of the United States bonds or notes to be withdrawn, upon compliance with all the provisions of this circular
applicable to an original deposit of United States bonds or notes in
lieu of surety or sureties, or (&) a penal bond with surety or sureties
or such other security as may be allowed by law. The bonds or
notes withdrawn shall be returned in the manner hereinafter provided for the return of bonds and notes deposited.

SECRETARY OF T H E TREASURY
III.

301

DEPOSITS OF BONDS AND NOTES BY BOND-APPROVING OFFICERS
WITH DEPOSITORIES

8. United States bonds and notes deposited with bond-approving
officers as security in accordance with the provisions of this circular,
and such other United States bonds or notes as may be substituted
therefor from time to time as such security, may be deposited by
bond-approving officers with the Treasurer of the United States, a
Federal Reserve Bank or any branch Federal Reserve Bank having
the requisite facilities, or other depository duly designated for that
purpose by the Secretary of the Treasury; provided, however, that
bond-approving officers shall deposit with the Treasurer of the
United States all United States bonds and notes received by them
in the District of Columbia pursuant to the provisions of this circular.
Depositaries of public moneys are not authorized to act as depositories for United States bonds or notes accepted under this circular,
unless specifically designated for that purpose by the Secretary of
the Treasury. Any authorized depository receiving deposits of.
United States bonds or notes from bond-approving officers in accordance with this circular shall give receipt therefor in duplicate, describing the bonds or notes so deposited, substantially in Form B,
hereto attached, the original to be delivered to the bond-approving
officer and the duplicate to be retained by the depositor^yLfor its own
files. The bond-approving officer will hold the original receipt subject to the instructions of his administrative superior. United States
bonds or notes so deposited with an authorized depository may be
withdrawn only by or on the written orde.r of the bond-approving
officer:
9. United States bonds and notes accepted by bond-approving
officers from obligors under this circular, and not deposited by them
with authorized depositories, will be held at the risk of the respective
bond-approving officers, subject to such regulations and instructions
as may be prescribed for their guidance by their respective administrative superiors. Coupon bonds or notes and registered bonds or
notes assigned in blank or for exchange for coupon bonds or notes
are in effect bearer obligations and must be kept in safe custody at
peril; registered bonds or notes not assigned in blank or for exchange
for coupon bonds or notes must also be kept in safe custody, but in
the event of loss or destruction may be replaced upon compliance
with the provisions of law and the regulations of the Treasury Department applicable thereto.
10. Bond-approving officers desiring to deposit United States
bonds or notes received by them with authorized depositories must
deliver such bonds or notes to the depository, without risk or expense
to the depository. Coupon bonds or notes and registered bonds or
notes assigned in blank or for exchange for coupon bonds or notes
can not safely be shipped by registered mail unless covered by insurance. Registered bonds or notes not assigned in blank or for exchange
for coupon bonds or notes may be forwarded by registered mail
uninsured.

302

REPORTv.ON T H E FINANCES

IV. RETURN OR OTHER DISPOSITION OF BONDS AND NOTES DEPOSITED

11. The obligor shall be entitled to receive the interest accruing
upon United States bonds or notes deposited in accordance with this
circular, in the absence of any default in the performance of any of
the conditions or stipulations of the penal bond. The interest on any
registered bonds or notes which the obligor is entitled to receive hereunder will be paid by check in regular course to the registered holder.
The coupons for any interest on coupon bonds or notes which the
obligor is entitled to receive hereunder will, upon v^ritten application
from the obligor to the bond-approving officer, be detached, as they
mature, from the bonds or notes deposited and forwarded to the
obligor at the obligor's risk and expense, either by the bond-approving
officer or upon his written order by the depository with which the
bonds or notes may be deposited, or, at the direction of the bonda-pproving officer, collected by the depository and check therefor forwarded to the obligor. In the absence of written application therefor
by the obligor, coupons for interest on coupon bonds or notes to
which the obligor may be entitled hereunder shall remain attached
to the bonds dr notes deposited, subject to the provisions of this
circular.
12. As soon as security for the performance of the penal bond is
no longer necessary, the United States bonds or notes deposited in
lieu of surety or sureties on such penal bond, together with the power
of attorney and agreement accompanying such bonds or notes, shall
be returned to the obligor by the bond-approving officer, without
application therefor from the obligor. The determination qf the
question whether security is any longer necessary for the performance
of the penal bond shall rest with the bond-approving officer and such
other officers as shall have jurisdiction in the premises under the provisions of law and administrative regulations which may be applicable; provided, however, that in case a person or persons supplying
labor or material as provided by the Act of Congress, approved
February 24, 1905 (33 Stat. 811), entitled "An Act .to amend an Act
approved August 13, 1894, entitled 'An Act for the protection of
persons furnishing materials and labor for the construction of public
works,'" shall file with the obligee, at any time after a default in the
performance of any contract subject to said Acts, the application
and affidavit therein provided, neither the obligee nor the bondapproving officer shall deliver to the obligor the deposited bonds or
notes or any surplus proceeds thereof until the expiration of the time
limited by said Acts for the institution of suit by such person or
persons (viz., one year'from the date of final settlement of the contract for the performance of which the bonds or notes were pledged),
and, in case suit shall be instituted within such time, shall hold said
bonds or notes or proceeds subject to the order of the court having
jurisdiction thereof; provided, further, that nothing herein contained
shall affect or impair the priority of the claim of the United States
against the bonds or notes deposited or any right or remedy granted
by said Acts or under this circular to the United States for default
upon any obligation of said penal bond.
13. Bonds or notes to be returned to the obligor will be forwarded
at the obligor's risk and expense, either by the bond-approving
officer, or upon his written order by the depository with which the

SECRETARY OF THE TREASURY

303

bonds or notes may be deposited, and unless delivered direct to the
obligor, will be forwarded, in the absence of other written instructions
and remittance to cover expenses, by express, collect, except that
registered bonds or notes not assigned in blank or for exchange for
coupon bonds or notes may be forwarded by registered mail,
uninsured. Registered bonds or notes assigned to the bond-approving
officer or his administrative superior shall be reassigned to the obligor
before their return.
14. Any obligor who desires to withdraw a portion only of the
bonds or notes deposited, by reason of reduction in liability under the
penal bond, shall make written application for such withdrawal to
the bond-approving officer, who shall, if he approve such application,
return such portion of the bonds or notes to the obligor.
15. Upon the complete or partial return to the obligor of bonds
or notes deposited as security under the provisions of this circular
the bond-approving officer shall require from the obligor a receipt in
duplicate, substantially in Form G, hereto attached, ^nd shall further
require the obligor, in case of complete return, to surrender the original
receipt on Form A.
V. FORM OF PENAL BONDS WITH UNITED STATES BONDS OR NOTES AS
SECURITY

16. Penal bonds on which United States bonds or notes are
accepted as security in lieu of surety or sureties may be substantially
in Form F, hereto attached. Administrative offices of the Government may, however, use other forms of penal bonds appropriate to the
work of their respective offices, provided that upon the execution of
the penal bond the principal shall indorse on the face thereof and
sign the following statement:
The United States bonds/notes described in the annexed schedule are hereby
pledged as security for the performance and fulfillment of the foregoing undertaking in accordance with Section 1126 of the Revenue Act of 1926, approved
February 26, 1926, and Treasury Department Circular No. 154, dated April
30, 1926.
Principal on the above bond.

17. Nothing contained in this circular shall be construed as
modifying the existing practice or duties of administrative offices in
handling penal bonds, except to the extent made necessary under
the terms of this circular, by reason of the acceptance of United
States bonds or notes as security in lieu of surety or sureties thereon.
VI. SPECIAL PROVISIONS

18. General Supply Committee.—United States bonds and notes
deposited to guarantee proposals or bids submitted to the General
Supply Committee, or as security for the performance or fulfillment
of contracts made through said committee, shall either be delivered
in person or forwarded by registered mail at the obligor's risk and
expense to the Chief Clerk of the Treasury Department, who shall
deposit said bonds or notes with the Treasurer of'the United States
against receipts therefor which shall be made in quadruplicate; one
copy to be retained by the Treasurer, the original and the other two
copies to be delivered to the Chief Clerk of the Treasury Department, who shall retain the original, give one copy to the obligor, and

304

REPORT ON T H E FINANCES

transmit one copy to the Director of Supply, Treasury Department,
Washington. Bonds or notes thus deposited may be withdrawn
only by or on the written order of the Director of Suppty, countersigned by the Chief Clerk of the Treasury Department, and the
surrender of the original, duplicate, and triplicate receipt. In no
instance should United States bonds or notes be forwarded to the
General Supply Committee with the proposal or contract forms.
Coupon bonds or notes and registered bonds or notes assigned in
blank or for exchange for coupon bonds or notes forwarded by
registered mail should be insured by the obligor against risk of loss in
transit. Registered bonds or notes not assigned in blank or for
exchange for coupon bonds or notes need not be insured against loss
in transit, unless the obligor so elects. The regulations prescribed in
sections 2, 4, and 11 of this circular with respect to the assignment of
registered bonds or notes, the power of attorney and agreement to
accompany the bonds or notes, the substitution of other bonds or
notes, and the return of bonds or notes to the obligors shall apply to
all United States bonds or notes accepted by the General Supply
Committee as guarantees on proposals or as security for the performance of contracts made by such committee. Bonds or notes
tendered by unsuccessful bidders will be returned promptly.
19. Collectors of customs.—The acceptance by collectors of customs
of United States bonds or notes in lieu of surety or sureties on penal
bonds shall be governed by the general rules and regulations contained
in this circular, except as modified with the approval of the Secretary
of the Treasury to cover special cases.
20. Collectors of internal revenue.—Special instructions for the
guidance of collectors of internal revenue in accepting United States
bonds or notes in lieu of surety or sureties on penal bonds will be
issued through the office of the Commissioner of Internal Revenue,
upon the approval of the Secretary of the Treasury.
21. Other Departments and establishments.—Bond-appvoymg officers of other Departments and establishments of the Government
accepting Liberty bonds, Treasury notes, or other United States
bonds or notes in lieu of surety or sureties under the provisions of
Section 1126 of the Revenue Act of 1926 shall be governed by the
provisions of this circular. This circular may be modified or amended
only upon the approval of the Secretary of the Treasury.
VII. OTHER DETAILS

22. Nothing contained in this circular shall affect the authority of
courts over the security when United States bonds or notes are
taken as security in judicial proceedings, or the authority of any
administrative officer of the United States to receive United States
bonds or notes for security in cases authorized by provisions of law
other than Section 1126 of the Revenue Act of 1926, approved
February 26, 1926.
^
23. The Secretary of the Treasury may withdraw or amend at
any time or frorn^ time to time any or all of the foregoing rules and
regulations, subject, however, to the provisions of Section 1126 of
the Revenue Act of 1926, approved February 26, 1926.

A. W.

MELLON,

Secretary of the Treasury.

305

SECRETARY OF THE TREASURY
FoKM A

RECEIPT OF BOND-APPROVING OFFICER FOR UNITED STATES BONDS OR NOTES
ACCEPTED AS SECURITY
(City)

(State)

(Date)

The undersigned hereby acknowledges receipt of the United States bonds/notes
hereinafter described, deposited as security in lieu of surety or sureties on
, filed with
(Description of penal bond).

(Department or establishment)

, through

for

(Bureau or oflBce)

Said bonds/notes ^ are registered
(Description of obligation secured)

in the name of
are assigned to

, and
:.
(State form of assignment)

Coupon
Title of bonds/notes or registered

Total face
amount

Denomination

" Serial number

Interest dates

•

This receipt is executed in duplicate, and the original must be surrendered by
the obligor before the above-described bonds or notes deposited are returned to
him. This receipt is not assignable.
{Signature and official title of Bond-Approving Officer.)
FORM B
R E C E I P T OF DEPOSITORY F O R U N I T E D STATES BONDS OR NOTES DEPOSITED BY
BOND-APPROVING OFFICER

(City)

(State)

The undersigned hereby acknowledges receipt from

(Date)

(Name and official title of bond-

approving officer)
posited by

, of the United States bonds/notes hereinafter described, de' ..
._
, as security in lieu of
(Name of obligor)

surety or sureties on
_._

, filed

(Description of penal bond)

with

,. through

(Department or establishment)
, for

(Bureau or office)
(Description of obligation secured)

Said bonds/notes ^ are registered in the name of
-, and are assigned to

:
(State form of assignment)

» This information to be furnished only in case of registered bonds/notes.

11439—FI 1926

306

EEPORT ON T H E FINANCES
N -

Coupon
Title of bonds/notes or registered

Total face
amount

Denomination

Serial number

Interest dates

The above-described bonds/notes will be returned only to or on the written
order of said bond-approving officer or his successor in office, upon presentation
and surrender of the original of this receipt. This receipt is executed in duplicate
and is not assignable.
{Signature of Depository.)
FORM C
POWER OF ATTORNEY AND AGREEMENT

(For individual)

Know all men by these presents, that I, the undersigned, of
do hereby constitute and appoint

,
, and his

(Name and official title of bond-approving officer)

successors in office, as my attorney, for me and in my name to collect or to sell,
assign, and transfer certain United States Liberty bonds, Treasury notes, or
other United States bonds or notes, described as follows:
such bonds/notes having been deposited by me, pursuant to authority conferred
by Section 1126 of the Revenue Act of 1926, approved February 26, 1926, and
subject to the provisions thereof and of Treasury Department Circular No. 154,
dated April 30, 1926, as security for the faithful performance of any and all of
the conditions or stipulations of a certain obligation entered into by me with the
United States, under date of
, which is hereby made a part
hereof, and I agree that, in case of any default in the performance of any of the
conditions and stipulations of such undertaking, my said attorney shall have full
power to collect said bonds/notes or any part thereof, or to sell, assign, and transfer said bonds/notes or any part thereof, without notice, at public or private
sale, free from any equity of redemption and without appraisement or valuation,
notice and right to redeem being waived, and to apply the proceeds of such sale
or collection, in whole or in part, to the satisfaction of any damages, demands, or
deficiency arising by reason of such default, as my said attorney may deem best.
And I hereby for myself, my heirs, executors, administrators, and assigns,
ratify and confirm whatever my said attorney shall do by virtue of these presents.
In witness whereof, I have hereunto set my hand and seal this
day
of
, 19
V
[SEAL.]

Before me, the undersigned, a notary public within and for the county of
, in the State of
(or the
District of Columbia), personally appeared the above-named
and acknowledged the execution of the foregoing power of attorney.
Witness my hand and notarial seal this
day of
, 192
[Notarial seal.]
Notary Public.

SECRETARY OF THE TREASURY

307

FORM D
POWER OF A T T O R N E Y AND AGREEMENT
(For partnership)

Know all men by these presents, that we, the undersigned, carrying on business
in partnership together under the firm name and style of
,
of
, do, and each of us does, hereby constitute and appoint
^
, and his successors in office, as the attor(Name and official title of bond-approving officer)

ney of us and each of us, and of our said firm of
!__, in the name or
names and on behalf of us and our said firm, to collect, or sell, assign, and transfer
certain United States Liberty bonds, Treasury notes, or other United States
bonds or notes, described as follows:
'
•.
)
such bonds/notes having been deposited by us, pursuant to authority conferred
by Section 1126 of the Revenue Act of 1926; approved February 26, 1926, and
subject to the provisions thereof and of Treasury Department Circular No. 154,
dated April 30, 1926, as security for the faithful performance of any and all of
the conditions or stipulations of a certain obligation entered into by us with the
United States, under date of
, which is hereby made a part
hereof, and we agree that, in case of any default in the performance of any of
the conditions and stipulations of such undertaking, our said attorney shall have
full power to collect said bonds/notes or any part thereof, or to sell, assign, and
transfer said bonds/notes or any part thereof without notice, at public or private
sale, free from any equity of redemption and without appraisement or valuation,
notice and right to redeem being waived, and to apply the proceeds of such sale
or collection, in whole or in part, to the satisfaction of any damages, demands, or
deficiency arising by reason of such default, as our said attorney may deem best.
. And we hereby for ourselves, our heirs, executors, administrators, and assigns,
ratify and confirm whatever our said attorney shall do by virtue of these presents.
In witness whereof, we have hereunto set our hands and seals this
day of
, 19
[SEAL.]
[SEAL.]

Before me, the undersigned, a notary public, within and for the county of
, in the State of
(or the District
of Columbia), personally appeared the above-named
,
partners doing business under the firm name and style of
,
and acknowledged the execution of the foregoing power of attorney.
Witness my hand and notarial seal this
day of
, 19l
[Notarial seal.]
_-_^
Notary Public.
FORM
POWER

ATTORNEY

E
AND

AGREEMENT

(For corporation)

Know all men by these presents, that
, a corporation duly
incorporated under the laws of the State of -^
, and having its
principal office in the city of
, State of
,
in pursuance of a resolution of the board of directors of said corporation, passed
on the
day of
, 19
, a duly certified copy of
which resolution is hereto attached, does hereby constitute and appoint
, and his successors in office, as attorney for
. (Name and official title of bond-approving officer)

said corporation, for and in the name of said, corporation to collect or tojsell,
assign, and transfer certain United States Liberty bonds. Treasury notes, or
other United States bonds or notes, described as follows:
such bonds/notes having been deposited by it, pursuant to authority conferred
by Section 1126 of the Revenue Act of 1926, approved February 26, 1926, and
subject to the provisions thereof and of Treasury Department Circular No.
154, dated April 30, 1926, as security for the faithful performance of any and

308

REPORT ON THE FINANCES

all of t h e conditions or stipulations of a certain obligation entered into by it
with t h e United States, under date of
__, which is hereby made
a p a r t hereof, and t h e undersigned agrees t h a t , in case of any default in the perfo'rmance of any of t h e conditions a n d stipulations of such undertaking, its said
a t t o r n e y shall h a v e full power to collect said bonds/notes or any p a r t thereof,
or to sell, assign, and transfer said bonds/notes or a n y p a r t thereof without
notice, a;t public or private sale, free from any equity of redemption and without
appraisement or valuation, notice a n d right to redeem being waived, and to
apply t h e proceeds of such sale or collection, in whole or in p a r t , to t h e satisfaction of any damages, demands, or deficiency arising by reason of such default,
as its said a t t o r n e y m a y deem best.
And said corporation hereby for itself, its successors a n d assigns, ratifies a n d
confirms whatever its said a t t o r n e y shall do by virtue of these presents.
I n witness whereof, t h e
, t h e corporation hereinabove
named, by
, duly authorized to act in t h e
. (Name and title of officer)

premises, has executed this i n s t r u m e n t and caused the seal of t h e corporation
to be hereto affixed this
day of
, 19
[Corporate seal.]
By
Before me, t h e undersigned, a notary public within a n d for t h e county of
^
, in t h e State of
(or t h e District of Columbia), personally appeared
^
and for
(Name and title of officer)

a n d in behalf of said
, corporation, acknowledged the execution of t h e foregoing power of a t t o r n e j ^
Witness m y h a n d and notarial seal this
day of
, 19
[Notarial seal.]
,
Notary Public.
FORM F
FORM OF PENAL BOND. F O R E X E C U T I O N BY INDIVIDUALS, P A R T N E R S H I P S , OR CORPORATIONS W H E R E UNITED STATES BONDS OR NOTES ARE ACCEITED AS
SECURITY I N L I E U OF SURETY OR S U R E T I E S

Know all men by these presents, t h a t
--,
:__
, of t h e city
of
, and State of
, as obligor,
held and firmly b o u n d unto t h e United States of America, in t h e penal sum of
dollars ($
), lawful money of t h e United States,
for t h e p a y m e n t of which sum, well and truly to be m a d e to t h e United States,
without relief from valuation or appraisement laws,
bind
,
,
heirs, executors, administrators, successors, and
assigns, firmly by these presents.
T h e condition of t h e above obligation is such t h a t
(Insert conditions and stipulations appropriate to the penal bond)

T h e above-bounden obligor, in order t h e more fully to secure t h e United States
in t h e p a y m e n t of t h e aforementioned sum, hereby pledges as security therefor
bonds/notes of t h e United States in the. principal sum of
dollars ($
), which said bonds/notes are num|)ered serially a n d are in
t h e denominations a n d a m o u n t s , and are otherwise more particularly described
as follows:
which said bonds/notes h a v e this da.y been deposited with

(Name and official title of bond-approving officer)

a n d his receipt t a k e n therefor.
Contemporaneously herewith t h e undersigned has also executed and delivered
a power of a t t o r n e y and agreement in favor of
.
(Name and official title of bond-approving officer)

authorizing and empowering said officer as such attorney to collect or. sell t h e
above-described bonds/notes so deposited, or any p a r t thereof, in case of any
default in t h e performance of any of t h e above-named conditions or stipulations.
I n witness whereof, this bond has been signed, sealed, and delivered by t h e
above-named obligor, this
day
, 19
-_

Signed, sealed, and delivered in the presence of:

---

[SEAL.]
[SEAL.]

309

SECRETARY OF T H E TREASURY
FORM

R E C E I P T OF OBLIGOR ON R E T U R N O F BONDS OR NOTES

(City)

(State)

(Date)

The undersigned hereby acknowledges receipt of the United States bonds/notes
hereinafter described, deposited with
as
(Name and official title of bond-approving officer)

security in lieu of surety or sureties on

filed
(Description of penal bond)

with

^--1

, through

(Department or establishment)

for

(Bureau or office)

Said bonds/notes^ are registered

(Description of obligation secured)

in the name of

Title of bonds/notes

__, and are assigned to

(State form of assignment)
Coupon
or registered

Total face
amount

Denomination

Serial number

Interest dates

This receipt is executed in duplicate.
{Signature of Obligor.)
EXHIBIT

AN OUTLINE O F T H E D U T I E S OF T H E S E C R E T A R Y OF THE T R E A S U R Y AND T H E VARIOUS O F F I C E S AND BUREAUS I N T H E
TREASURY DEPARTMENT
THE TREASURY DEPARTMENT

The following is an outline of the various offices and bureaus of the
Treasury Department and the divisions of the Secretary's office,,
together with the duties of each:
The Secretary of the Treasury.
The Undersecretary of the Treasury:
The finances.
Commissioner of Accounts and Deposits.
(a) Division of bookkeeping and-warrants.
(b) Division of deposits.
Foreign loans..
.Advances and loans to railroads under the transportation act, 1920.
Federal Farm Loan Bureau.
Section of statistics.
Government actuary-.
Assistant Secretary in charge of fiscal offices:
Treasurer of the United States.
Comptroller of the Currency.
* This information to be furnished only in case of registered bonds/notes.

310

REPORT ON THE FINANCES
Commissioner of the Pubhc Debt.
(a) Division of loans and currency.
{b) Register of the Treasury.
(c) Division of. public debt accounts and audit.
(d) Division of paper custody.
Bureau of Engraving, and Printing.
Mint Bureau.
Secret Service division.
Disbursing clerk.
Section of surety bonds of the division of appointments.
Assistant Secretary in charge of internal revenue and miscellaneous:
Chief clerk.
(a) Section of mail and files.
Bureau of Supply.
(a) General Supply Committee.
Division of appointments.
Division of printing.
Bureau of Internal Revenue.
Bureau of the Public Health Service.
Supervising Architect's Office.
Assistant Secretary in charge of customs, Coast Guard, and})prohibition:
Customs Service.
Coast Guard.
. Prohibition Unit.
(a) Narcotic division.

The Secretary.—The Secretary of the Treasury is charged by law
with the management of the national finances. He prepares plans
for the improvement of the revenue and for the support of the public
credit; superintends the collection of the revenue, grants warrants
for all moneys drawn from the Treasury in pursuance of appropriations made by law, and for the payment of moneys into the Treasury;
and submits a report annually to Congress on the condition of the
public finances and the results of activities under his supervision.
He controls the construction and maintenance of public buildings;
the coinage and printing of money; the administration of the Coast
Guard and the public health branches of the public service, and
furnishes generally such information as may be required by either
branch of Congress on all matters pertaining to the foregoing. He
is ex officio chairman of the Federal Reserve Board, created by act
approved December 23, 1913, known as the Federal reserve act; ex
officio chairman of the Federal Farm Loan Board, created by act
approved July 17, 1916, known as the Federal farm loan act; chairman of the World War Foreign Debt Commission;, honorary chairman
of the United States section of the Inter-Airierican High Commission;
chairman Rock Creek and Potomac Parkway Commission; member
board of trustees. Postal Savings System; member board of trustees,
Smithsonian Institution; member Federal Narcotics Control Board;
chairman board of directors. War Finance Corporation.
The Undersecretary.—The office of Undersecretary of the Treasury
was created in the deficiency appropriation act of June 16, 1921.
To the Undersecretary and the Assistant Secretary in Charge of
Fiscal Offices, who acts under the intermediate supervision of the
^ Undersecretary, are assigned the general supervision of all matters
relating to the fiscal.bureaus, offices, and divisions, as follows: Foreign
loans, advances and loans to railroads under the transportation act,
1920; Commissioner of Accounts and Deposits; division of bookkeeping and warrants; division of deposits; Treasurer of the United

SECRETARY OF THE TREASURY

311

States; Comptroller of the Currency; Federal Farm Loan Bureau;
section of statistics; Government actuary; public debt service;
Bureau of Engraving anci Printing; IMint Bureau; Secret Service
Division; disbursing clerk; and surety bonds section.
The Undersecretary also is charged with the supervision of the
finances, and is authorized to act, for and by direction of the Secretary, in any branch of the department, and represents the Secretary
in dealings with the Federal Reserve Board, the War Finance Corporation, and the Farm Loan Board.
Assistant Secretaries of the Treasury.—To the Assistant Secretary
in charge of fiscal offices, acting under the intermediate supervision
of the Undersecretary, is assigned supervision of matters relating to
the fiscal bureaus, offices, and divisions as indicated under the duties
of the Undersecretary.
To the Assistant Secretary in charge of internal revenue and miscellaneous is assigned the general supervision of all matters pertaining
to the following bureaus and divisions: Chief clerk; division of mail
and files; Bureau of Supply; General Supply Committee; division of
appointments; Bureau of the Public Health Service; division of
printing; Bureau of Internal Revenue; Supervising Architect's
Office.
To the Assistant Secretary in charge of Customs, Coast Guard,
and Prohibition is assigned the general supervision of those respective
services.
.
THE UNDERSECRETARY OF THE TREASURY

Commissioner of Accounts and Deposits.—The Office of Commissioner of Accounts and Deposits was created in January, 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 its 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 IVTay 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 of all investments and securities held by the Treasurer of the
United States, and the Federal reserve banks for which the Secretary
is responsible other than those related to the public debt operations.
Division of bookkeeping and warrants.—This division, established in
1894, is by law the official bookkeeping organization of the Government so far as appropriation accounts and covering of public moneys
into the Treasury are concerned. The accounts and records of
disbursements in this division are on a basis of warrants issued and
necessarily differ materially from the actual cash expenditures as
shown in the daily Treasury statement prepared in the office of the
Treasurer of the United States. Reconciliations between these
accounts, both as to receipts and expenditures are made in order to
exhibit properly the receipts and expenditures of the Government.
Among the many functions of this division the following are the most

312

REPORT ON THE FINANCES

important: I t makes analysis of all acts of Congress carrying appropriations and opens up the necessary appropriation accounts on its
ledgers; it issues all warrants for placing disbursing funds to the credit
of disbursing officers and for the payment by the Treasury of claims
settled by the General Accounting Office; it issues all warrants
covering into the Treasury the revenues and receipts of the Government from the various authorized sources, and all repayments to the
• Treasury of the unexpended balances of appropriations; and handles
the work involved in the Secretary's special deposit accounts, including those of the Alien Property Custodian kept with the Treasurer of
the United States. I t compiles for submission through the Bureau of
the Budget the regular estimates of appropriations and the supplementary and deficiency estimates for the service of the Treasury. I t
compiles for transmission to Congress an annual combined statement
of the receipts, disbursements, and unexpended balances under each
appropriation account.
In addition to the above this division compiles and publishes the
annual digest of appropriations made by Congress and makes miscellaneous statistical reports as requested by Congress or by the
Secretary of the Treasury and carries on tlie correspondence and
miscellaneous work incident to its activities. I t has also been
assigned the duties formerly under the division of public moneys, so
far as they related to the covering of revenue and repayments into
the Treasury, the issuance of duplicate checks and warrants and the
certification of outstanding liabilities for payment.
Division of deposits.—This division is charged with the administration of matters pertaining to designation of Government depositaries
and the deposit of Government funds in the Federal reserve banks,
national banks, special depositaries under the Liberty loan acts,
foreign depositaries. Federal land banks, and the Philippine Treasury.
This division supervises all depositaries and obtains proper security
for all Government deposits. I t issues directions to all public officers
as to the deposit of public moneys collected by them and is charged
generally with the administration of all matters pertaining to the
foregoing.
The Federal Farm Loan Bureau.—The Farm Loan Board, through
the Farm Loan Bureau, administers the farm loan act of July 17,
1916, and that part of the agricultural credits act of March 4, 1923,
providing for the establishment and operation of Federal intermediate
credit banks.
The Federal farm loan act was passed in order to provide the
American farmer with long-term credit at a low rate of interest.
Prior to the passage of this act the capitalerequirements of American
agriculture could not be met through the ordinary channels of commercial banking or through the Federal reserve system. The intermediate credits act of March 4, 1923, was designed to furnish to
agriculture a short-term credit but of a longer maturity than could
ordinarily be provided by commercial banks but not so long as t h a t
provided by the Federal farm loan act.
The Federal farm loan act provides for 12 Federal land banks and
such number of joint-stock land banks and national farm loan
associations as the Farm Loan Board may approve. The oversight

SECRETARY OF THE TREASURY

313

and regulation of all these organizations are in the hands of the Farm
Loan Board. I t is necessary that Federal land banks and joint-stock
land banks have the approval of the Farm Loan Board before any
bonds can be issued and sold. Likewise, a Federal intermediate
credit bank must secure the board's approval before it can issue
debentures provided for under the agricultural credits act.
This board has such incidental powers as are necessary to fulfill its
duties and to carry out the purposes of the act creating the institution
for which it is responsible.
The section of statistics.—This section makes statistical studies on
receipts, expenditures, the public debt, and other questions of public
finance that arise in connection with the Treasury administration.
I t estimates future tax receipts on the basis of a statistical analysis of
tax receipts and business conditions. I t prepares correspondence and .
reports for the Secretary and Undersecretary dealing with financial
subjects. Under the direction of the Undersecretary it assembles,
edits, and prepares articles for the annual report of the Secretary of
the Treasury. During the sessions of Congress the progress of
legislation in which the Treasury may be interested is summarized
daily and distributed to the various divisions and bureaus of the
Treasury Department. The library of the office of the Secretary is a
part of the section of statistics.
The actuary.—This officer makes estimates relative to population,
revenues, and finances for the Treasury Department, for Congress,
and various committees of Congress and Members of Congress. H e
assists in the preparation of revenue and tariff acts by giving details
to the Ways and Means Committee and the Finance Committee. He
issues a monthly circular showing the market prices and investment
value of Uniteci States securities daily. He is sometimes detailed
to other departments and conimissions to assist on actuarial work,
such, for instance, as the negotiation of trade treaties with foreign
countries through the Department of State, and to the Joint High
Commission in dealing with Canada. He is a member of the Board
of Actuaries in connection with the Bureau of Pensions.
ASSISTANT SECRETARY IN CHARGE OF FISCAL OFFICES

Treasurer of the United States.—The Treasurer of the United States
is charged with the receipt and disbursement of all public moneys
that may be deposited in the United States Treasury and in all other
depositaries authorized by the Secretary of the Treasury to receive
deposits of Government funds for credit in the account of the Treasurer
of the United States; is trustee for bonds held tO secure nationalbank note circulation and public deposits in national banks and bonds
held to secure postal savings in banks; is custodian of miscellaneous
securities and trust funds and is fiscal agent for the issue and redemption of United States paper currency, for payment of principal and
interest on the public debt, and for payment of principal and interest
on bonds of the Porto Rican and Philippine Governments, of which
the Secretary of the Treasury is the transfer agent; and is treasurer
of the board of trustees of the Postal Savings System. The Treasurer
is agent for the redemption of national-bank notes. Federal reserve

314

REPORT ON THE FINANCES

notes, and Federal reserve bank notes, and makes exchanges and
redemptions of the paper money and the gold, silver, and minor coin
of the United States. Funds advanced to disbursing officers for the
use of Government departments and establishments under the
appropriation of Congress are credited in the accounts of such
disbursing officers on the books of the Treasurer and disbursements
therefrom are made by checks drawn on the Treasurer.
There are in the office of the Treasurer seven divisions: The chief
clerk, cashier, division of securities, redemption division, division of
general accounts, accounting division, and National Bank Redemption
Agency.
Chief clerk.—The chief clerk has supervision of all employees and
conducts all correspondence relative to personnel, and answers all
.miscellaneous letters not properly chargeable to the other divisions.
He is responsible for the distribution of all mail, telegrams, etc., for
the office, and has direct supervision of the preparation of pay rolls
and payment of salaries. He prepares all requisitions for supplies
and prepares all estimates of appropriations for the Treasurer's
office. He supervises the operation of the confidential code and
system of test words between the Treasurer's office and the Federal
reserve banks and conducts all transactions under the retirement
act of May 22, 1920. He is charged with the responsibility of
enforcing those regulations of the department relating to the Treasurer's office. He prepares all special reports for the Budget and the
Secretary of the Treasury. He compiles reports of the different
divisions as to classification and efficiency ratings and is a member of
the board of review to pass upon such ratings. He is responsible for
the safe handling of the valuable mail received and sent.
,Cashier.—The cashier receives public deposits made in Washington
and pays over the counter Treasury checks, interest checks, coupons,
and disbursing officers' checks when presented. He receives from
the Bureau of Engraving and Printing United States paper currency
and stores it in the reserve vaults until it is required for issue to
replace mutilated currency destroyed. He issues all United States
paper currency and makes shipment of it in ^denominations required
by the Federal reserve banks and the public. He makes collection
through Federal reserve banks and national-bank depositaries of all
checks deposited in payment of Government obligations.
Division of securities.—This division has custody of all bonds held
to secure circulation of national-bank currency, for deposits of public
moneys, for postal savings deposits, and miscellaneous accounts for the
Secretary of the Treasury; collects the semiannual tax on nationalbank circulation and examines and proves all public debt items
charged as redemptions and taken up in the Treasurer's account
current affecting all public debt redemptions in both principal and
interest, and prepares requisition for reimbursement therefor; issues
Treasurer's checks in redemption of Treasury savings certificates
and other obligations of the United States; verifies and arranges
by loans all checks paid on account of interest on the public debt, making search for stoppage of payment; issues interest checks on registered bonds of the Philippine Islands and Porto Rico, and renders the
account current of the Treasurer for these disbursements; makes

SECRETARY OF THE TREASURY

315

investments and holds securities for the District of Columbia teachers'
retirement fund; receives and verifies all securities purchased for
retirement by the Secretary of the Treasury, and acts as disbursing
agent for the Secretary's account of investments for the civil service
retirement fund, foreign service retirement fund, and adjusted service
compensation fund; and has custody of and maintains an accurate
account of all foreign obligations to the United States.
Redemption division.—This division receives and verifies unfit
United States paper currency forwarded to the Treasurer for redemption and directs payment therefor; cancels and cuts in two lengthwise
this unfit currency, and delivers same to the division of loans and
currency for recount and destruction; receives and makes test counts
of the upper halves of unfit United States paper currency forwarded
by Federal reserve banks and their branches; adjusts differences
found by the division of loans and currency in its complete count of
corresponding lower halves; receives from banks in Washington currency' for telegraphic credit with the Federal Reserve Bank of Richmond; keeps the necessary books covering all transactions, functioning
credits, or directing issue of checks in payment of remittances
received. I t establishes the standard of fitness of notes for circulation, and checks shipment of half notes received from Federal reserve
banks and branches, and reports in this particular matter to the Treasurer of the United States and to the Commissioner of the Public Debt.
The redemption division is charged with the responsibility of detecting
all counterfeit, short notes, pieced notes, and raised notes found in
currency presented for redemption.
Division of general accounts.—This division prepares and issues, for,
the Secretary of the Treasury, the daily Treasury statement of the
United States, the monthly preliminary statement of the public
debt, and the monthly preliminary - statement of classified expenditures of the Government. I t publishes the monthly statement of the
outstanding paper currency of the Government and maintains the
accounts from which it compiles the figures for such statements. I t
issues Treasurer's checks as authorized by settlement warrants in
payinent of claims settled by the Comptroller General, and certificates of deposit placing funds to the credit of disbursing officers as
authorized by accountable warrants; maintains registers as to such
warrants and checks issued, paid and outstanding; makes reclamation
of payment of checks returned by the Comptroller General for which
credit is disallowed in the Treasurer's account; collects interest on
daily balances with Government depositaries and renders report of
same to the Comptroller General; authorizes and directs transfers of
currency and coin between Treasury offices and Federal reserves bank
and branch banks; restores depleted balances in general national-bank
depositaries to the limits authorized by the Secretary of the Treasury;
and handles applications for coins received from banking institutions,
individuals, and others. I t also maintains general Treasury ledger
accounts of all of the accounts of the trust fund, the reserve fund, the
gold settlement fund, and the general fund; the record accounts of the
classified assets and liabilities of the Government; the individual and
controlling reserve, issue and redemption accounts of the paper currency of the Government, by classes and denominations.; the indi-

316

REPORT ON T H E FINANCES

vidua! ledger and individual transit accounts of Treasury offices^.
Federal reserve banks and branch banks, foreign depositaries, and
national-bank depositaries; Federal reserve bank and branch bank
telegraphic report accounts; fiscal agent accounts of deposits in
special depositaries; and iD dividual accounts, by banks and classes,
of payments for and redemption of public debt securities; and the
accounts of the covered and uncovered revenue and repayment
receipts of the Government. I t renders the bullion fund accounts of
United States mints and assay offices; the Treasurer's quarterly
account of receipts and expenditures by warrants; and the account of
the Government's paper currency issued, redeemed, and in reserve.
Accounting division.—This division receives daily from the Federal
reserve banks and their branches and from the general national-bank
depositaries transcripts of the account of the Treasurer of the United
States with such banks, accompanied by certificates of deposit representing the credits in the Treasurer's account and by checks representing the charges in the Treasurer's account. I t proves and classifies
the deposits and checks for posting to the general ledger accounts and
for, use in the Daily Statement of the United States Treasury. I t
maintains individual accounts with disbursing officers, examines and
proves checks presented for payment, and renders monthly statements of such accounts to the disbursing officers and to the General
Accounting Office. I t causes investigations to be made oi claims of
nonreceipt of checks, reclaims payment from indorsers when checks
are fraudulently negotiated, and transmits to the payees the funds
thus recovered. I t forwards to payees bonds of indemnity required
to obtain duplicates of disbursing officers' checks, interest checks,
and Treasurer's checks, and it receives and files bonds of indemnity
given to obtain duplicate Treasurer's checks and interest checks. I t
maintains files of authorities required for the indorsement of checks.
The accounting division also records stoppages of payment, returns to
the presenting banks checks which can not be paid, and conducts correspondence relating to disbursing officers' checks and accounts.
National Bank Redemption Agency.—The agency receives shipments of national-bank notes. Federal reserve notes, and Federal
reserve bank notes sent to the Treasurer for redemption by Federal
reserve banks and other institutions. I t directs payment for such
remittances either by Treasury checks, by credits with Federal
reserve banks, or by transfers between redemption funds. I t makes
three assortments of national-bank notes in order to assemble the
notes according to the banks of issue, using as a basis of assortment
the charter numbers on the notes. Federal reserve notes and Federal reserve bank notes received from other than Federal reserve
banks are assorted to banks of issue by the agency. Federal reserve notes assorted and cut in half before shipment by Federal
reserve banks are verified by the agency as to count and assortment.
Federal reserve notes assorted and cut in half before shipment by
Federal reserve banks are verified by the agency as to count and
assortment.
The agency delivers all notes unfit for use or subject to retirement
to the Comptroller of the Currency and returns to the banks of
issue any notes that are fit for further circulation. I t keeps accounts
of the redemption funds of the national and Federal reserve banks,

SECRETARY OF THE TREASURY

317

crediting the respective banks with deposits made and debiting them
with notes redeemed or refunds made. I t keeps account of all
expenses incurred by the Government in the redemption and transportation of national and Federal reserve currency and assesses such
expenses upon the banks in proportion to the amount of their notes
redeemed.
The agency is responsible for the integrity of the cash in its possession, the detection of counterfeits, raised and pieced notes presented for redemption, and with protection of the Government against
fraud in the redemption of burned and mutilated currency.
Comptroller of the Currency.—The Comptroller of the Currency is
the chief officer of the Bureau of the Comptroller of the Currency,
established under the act of June 3, 1864, known as the national bank
act. In the beginning emphasis was placed primarily upon those
functions of the bureau concerned with the issue and regulation of
the national bank notes, secured by United States bonds. In the
•course of time this phase of the work of the bureau has decreased
in relative importance and the primary functions of the Comptroller
of the Currency now are those relating to the organization of new
national banks, the general supervision over the national banks in
operation, and the administration through receivers of national
banks which have failed.
Under the direction of the comptroller, the national bank examiners
make regular examinations of the affairs of all national banks. A
report of each of these examinations is made in writing by the examiner to the comptroller. These examinations show the condition
of the bank with reference to its solvency and whether or not it has
^ violated any of the provisions of the national bank act. In the case
of such violations of law, suit may be brought in the name of the
comptroller against any such bank for the forfeiture of its charter.
If it appears to the comptroller that any national bank is in an
insolvent condition, it is his duty to appoint a receiver therefor for
the purpose of winding up the affairs of the bank.
The reports of condition of all national banks are required to be
made to the comptroller by the banks not less than three times a
year upon a date fixed by the comptroller.
The Comptroller of the Currency is an ex officio member of the
Federal Reserve Board and sits regularly with the board. He also
by virtue of the provisions of the Federal reserve act executes and
issues the charters for the Federal reserve banks, and his bureau
issues to the Federal reserve banks the Federal reserve circulating
notes.
The Comptroller of the Currency is required by law to report
annually directly to Congress and to recommend to Congress amendments to the national banking laws.
The Commissioner of the Public Debt.—The Commissioner of the
Public Debt has supervision over all transactions in the public debt
;and the paper currency issues of the United States, and the miscellaneous work incident thereto. The public debt service includes the
•division of loans and currency, the office of the Register of the Treasury, the division of accounts and audit, and the division of paper
custody.
The division of loans and currency is the issuing branch of the
public debt service. I t receives, examines, and has custody of all

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REPORT ON THE FINANCES

public debt securities printed by the Bureau of Engraving and
Printing. I t is charged with the original issue of public debt securities, and thereafter conducts transactions therein, including exchanges,,
transfers, conversions, and replacements, the maintenance of accounts
. with the holders of registered bonds, and the preparation of checks
for the payment of interest thereon. This division also handles the
public debt issues of the Philippine Government, the Government of
Porto Rico, and the District of Columbia; and audits all currency
notes of United States paper currency issues received for redemption.
The office of the Register of the Treasury is the retirement branch
of the public debt service. I t is charged with the receipt, examination, and custody of all public debt securities retired for any account,
including paid securities and securities canceled against reissue or
otherwise. Paid securities, including interest coupons, are forwarded
by the Treasurer direct to the register, and the register's certificate
of audit is accepted by the Comptroller General as verification of
payment by the Treasurer. The register's certificate is also accepted,
by the Secretary as evidencing credit to be given fiscal agents in the*
matter of returned securities, and the same procedure exists witK
respect to canceled securities delivered by the division of loans and
currency and by the Postal Service to the register for credit.
The division of accounts and audit maintains accounts of, and
exercises control over, all transactions in the public debt from thetime securities are printed until they are retired. I t maintains thegeneral accounts of the public debt with the division of loans and
currency with respect to issues; with the Register of the Treasury asto retirements; with the fiscal agents for all transactions conducted
by them; with the Postal Service in connection with Treasury (war)*
savings securities; and with the Treasurer of the United States.
Through administrative audits conducted from time to time, this
division verifies the accuracy of public debt transactions. Thisdivision also maintains controlling accounts over all distinctive and
nondistinctive security paper used by the Bureau of Engraving and
Printing and the work in process and conducts administrative auditsthereof.
The division of paper custody receives from various contractors^
the distinctive paper used in printing the public debt obligations and.
the paper currency of the United States, internal-revenue stamps,,
and other securities. I t issues such paper to the Bureau of Engraving
and Printing and requires that bureau to account for every sheet
issued, either through delivery of perfect work to the several Treasury
offices or through the return of imperfect or mutilated stock to the
division of paper custody. The manufacture of the distinctive paper
used in the printing of public debt obligations and paper currency
issues is supervised by a representative of this division detailed tothe paper mills of the contractor for that purpose.
Bureau of Engraving and Printing .—This bureau designs, engraves,
and prints for the Government all United States bonds, certificates of
indebtedness. Treasury notes. United States currency, national-bank
currency. Federal reserve notes. Federal farm loan and joint-stock
land bank bonds; revenue, customs, and postage stamps; disbursing:
officers', pension, retirement, and interest checks; liquor permits^,
drafts, warrants, transportation requests; certificates, commissions,
and licenses for various purposes; and many other classes of engraved

SECRETARY OF THE TREASURY

319

work for governmental use. It also designs, engraves, and prints
bonds, currency, revenue, and postage stamps as authorized by the
Bureau of Insular Affairs for the insular possessions of the Government.
Mint Bureau.—The Director of the Mint has general supervision
of all the mints and assay offices of the United States. He prescribes
the rules, to be approved by the Secretary of the Treasury, for the
transaction of business at the mints and assay offices, receives daily
reports of their operations, directs the coinage to be executed, reviews
the accounts, authorizes all expenditures, superintends the annual
settlements of the several institutions, and makes special examinations
of them when deemed necessary. All appointments, removals, and
transfers in the mints and assay offices are subject to his approval.
Tests of the weight and fineness of coins struck at the mints are
made in the assay laboratory under his charge. He publishes quarterly an estimate of the value of the standard coins of foreign countries
for customhouse and other public purposes. An annual report is
prepared by the director, giving the operations of the mint service
for the fiscal year, printed in the Finance Report of the Secretary of
the Treasury, and giving statistics of the production of the precious
metals in the United States and the world for the calendar year.
Secret Service division.—This division is charged with the suppression of counterfeiting, the protection of the President of the United
States and his family and the person elected to be President, and
investigations of violations of the farm loan act, the war finance act,
and such other matters relating to the Treasury Department and the
several branches of the public service under its control as are directed
by the Secretary of the Treasury.
Disbursing clerk.—^The work of this office is concerned with paying
by check or cash those obligations of the Treasury which have been
certified by the proper division as due. The payments for salaries,
expenses, and supplies cover disbursements, for all bureaus and divisions of the Treasury Department in the District of Columbia (except
the Bureau of Engraving and Printing) and a large proportion of the
salaries and expenses outside of the District of Columbia under the
Public Health Service, the Supervising Architect's Office, the Bureau
of Internal Revenue, the Federal Farm Loan Board, the Comptroller
of the Currency, the Coast Guard, the Secret Service, the customs
division, and the public debt service. Upon the approval of the
Commissioner of Internal Revenue, checks drawn on account of
claims for refund of internal revenue taxes illegally collected are
mailed directly by the disbursing clerk.
In addition to making disbursements, an important function of the
office is receiving and accounting for moneys due the United States
on account of rents for buildings and real estate owned by:.the Government, as well as of public property under the various bureaus and
offices.
Section of surety bonds ofthe division of appointments.—The division
of appointments has administrative control over 50 surety companies
authorized to transact business with the Government; fixes the qualifying power of each company; supervises the audit of the financial
statements of the companies quarterly; notifies the companies of the
settlement of fiscal officers' accounts under fidelity bonds, and has
custody of all bonds running to the Government except those for
post-office employees and certain internal revenue bonds.

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REPORT ON T H E FINANCES

ASSISTANT SECRETARY IN CHARGE OF INTERNAL REVENUE AND
MISCELLANEOUS

Chief clerk.—The chief clerk and superintendent is the chief executive officer of the Secretary, and, under the direction of the Secretary,
the Undersecretary, and Assistant Secretaries, is charged with the
enforcement of departmental regulations general in their nature; is
by law superintendent of the Treasury Building, and in addition
superintends the Register's, Liberty Loan, Butler, Auditor's,, and
Treasury Annex Buildings, and all other Treasury buildings in the
District of Columbia except the Bureau of Engraviag and Printing;
has direct charge of motor trucks belongiag to the department; the
direction of engineers, machinists, watchmen, firemen, laborers, and ^
other employees connected with the maintenance and protection of
the Treasury Building and annexes; the expenditures of appropriations for contingent expenses; the administrative control of appropriations made for Government exhibits at various expositions; handles
offers in compromise cases; the custody of the records and files of the
Secretary's office; the custody of all sites for proposed public buildings in Washington; custody of the official seal of the Treasury Department; the handling of requests for certified copies of official
papers; as department representative handles all matters relating to
personnel classification and efficiency ratings; and has charge of all
business of the Secretary's office unassigned. .
Under the chief clerk is operated the medical relief service which
was organized and is supervised by the Treasury physician. In the
various buildings occupied by Treasury personnel there are 10 relief
rooms operated by graduate registered nurses. These rooms are
established for the relief and protection of employees who become ill
or are injured while on duty. So far as practicable, this service is
limited to first-aid treatments; however, this service is open to all
employees in a building whether on the Treasury roll or not. The
main relief room, which is also the physician's office, is in charge of
the head nurse and is located in the Treasury Buildiag.
An average of 66,500 employees are treated annually in the Treasury relief rooms, about 25 per cent of whom are men.
Bureau of supply.—This bureau has charge of all of the functions
in connection with the purchase of equipment and supplies formerly
carried on by offices, divisions, services, and bureaus of the Treasury
Department in Washington and in the field, except those of the Mint
Bureau, Coast Guard, and Bureau of Engraving and Printing. The
bureau further has control over the storage and distribution of stocks
of stationery, etc., belonging to the department. Accounting for the
funds allotted to the bureau for the purchase of supplies, together
with the*approval of vouchers for payments, is also a function of this
bureau. The bureau exercises supervision over the activities of the
General Supply Committee.
General Supply Committee.—The General Supply Committee was
created by the act of June 17, 1910, and is composed of one representative from each of the executive departments, designated by the
head thereof. The superintendent of supplies, who is an official of
the Treasury Department, is ex officio secretary of the committee,
and he conducts its correspondence, supervises the preparation of its
contracts, and performs such other duties as the Secretary of the

SECRETARY OF THE TREASURY

321

Treasury may direct. I t is the duty of the committee to prepare^
annually a schedule of miscellaneous supplies in common use by or
suitable to the ordinary needs of two or more executive departments
or Government establishments in Washington; to standardize such
supplies; and to solicit bids therefor, tabulate proposals received, and
recommend awards.
By the Executive order of December 3, 1918, and Treasury Department Regulations dated December 10, 1918, the General Supply
Committee has charge of the transfer and sale of surplus office material, supplies, and equipment in the hands of the executive departments and other establishments of the Government in the District of
Columbia.
The Executive order of August 27, 1919, carrying into effect the
provisions of the act of July 11, 1919, designates the General Supply
Committee as the central agency to maintain records of surplus
Government material, supplies, and equipment throughout the
United States.
Division of Appointments.—This division has supervision over all
matters relating to the appointments and other changes in the personnel of the departmental and field services of the Treasury Department; the preparation of nominations and commissions of presidential
officers and of all bonds of Treasury officials, where required; prepares
and approves the pay rolls of the Treasury Department in Washington, and prepares reports relative to the personnel required by law
or requested by Congress. Has supervision over the work connected
with the retirement and retention of employees under the retirement
law and certifies to the Pension Office all amounts refunded under
this law to employees leaving the service. I t also supervises the
preparation of correspondence with Members of Congress and others
relative to appointments and other personnel matters and conducts
correspondence with the United States Civil Service Commission and
other departments relative to personnel matters and changes in the
service.
Division of printing.—This division orders from the Government
Printing Office, and supervises the production of, and accounting for,
all printing and binding for the Treasury Department, and its outside services and on requisition supplies such printed material to all
Treasury activities, wherever located. . I t orders from the Bureau of
Engraving and Printing and supervises the production of all plate
printing and engraving not having a money face value, including
disbursing officers' checks for the entire Government establishment.
Places department advertising, designating the newspaper or periodical, issuing written authority for publication, and settling the accounts therefor. Administers the Treasury appropriation for postage.
Bureau of Internal Revenue.—The Commissioner of Internal Revenue, under the direction of the Secretary of the Treasury, has general
superintendence of the assessment and collection of all internal
revenue taxes; the enforcement of internal revenue laws; the enforcement of the national prohibition act and the Harrison Narcotic Act;
the selection, compensation, and assignment to duty of all internal
revenue officers and employees, and the preparation and distribution
of instructions, regulations, forms, blanks, stationery, stamps, etc.

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REPORT ON THE FINANCES

For the purpose of efficient and effective administration, the duties
of the bureau are assigned to various units as follows:
BUREAU

The Internal Revenue Bureau in Washington is made up as follows:
Prohibition Unit.
Miscellaneous Tax Unit.
Accounts and Collections Unit.
Income Tax Unit.
General Counsel's Office.
Commissioner and Miscellaneous Unit.
The Prohibition Unit is charged with the enforcement of the
Federal prohibition act and the Harrison Narcotic Act.
The Miscellaneous Tax Unit is charged with the responsibility of
administering the estate tax, the gift tax, and the capital-stock tax
laws; interpretation and administration of Titles V and VII of the
revenue act of 1924, and similar provisions of the revenue acts of
1917, 1918, and 1921, also completing cases under these prior acts
involving repealed sections imposing other sales taxes, tax on telegraph and telephone messages, and tax on transportation charges;
the administration of laws and regulations relating to taxes on
tobacco, snuff, cigars and cigarettes, cigarette papers and tubes,
oleomargarine, adulterated and renovated butter, mixed flour, filled
cheese, phosphorous matches, playing cards, documentary st

Full text of Annual Report of the Secretary of the Treasury on the State of the Finances : Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1926, with Appendices

FRASER