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• u ^- ,1 ANNUAL REPORT OF THE , SECRETARY OF THE TREASURY oN^li STATE OF THE FINANCES FOR FISCAL YEAR ENDEDJUNE 30,1940 •t 1 , ''/ ) J ^\ . \/ -- .\,^ 'V . / ^. J," { ; ' '^^ -^^ ;^v> •. / /.^ r 'v \ .' ' . . . • , , ; , ; /A ' \ ^ V '>- ;\' ^L^ • ^ ' \ \ •^ ^/', %W^ ^ ^ ^^iz/^.-v.-y ' ' : i l ^. \i ' ', ^ W ^ ^ ^ ^ ^ ^ p*^^^ ; / ' j i/^^^T-^^N/' --vf w^^i^l^^^^^M^^'*^ ^ ^ L ^ .^;ivfeI^^^^E^^" >^^^H[M ^H M ^^^S^f M M ^ ° - ^ ^ ^ ^ ^ S R U ^ - I B ^ ' ' ^ ^^^^WM>'-'' «B^mirMp'^^fe 'li^^^S^ ^ ^ 1 ^ ^R ai'''**!!^^^? ii^^^^^^^S ^ ^ 1 ;;||H|i flllR |S telilH U MMl 1 % • r \ m^ H^^'^^^w • Iv^^S ^Sffl ^K IW-^P^^^MJ ^~^^^i'^|p7j l l i W t^^^wlf^B'W ^B B9IwH IrfmW KslS'Mi ^^*-?fx^^fflfck| f l ^ S iP^^. "^^^M ^H wi / ' ''j- ,j I / . > * , 'C^^. '^^'. • vJi^ \;',.Mi,',f 1 1 "^ ] ^B^Mr^^^l^ftS^l^OB'iP^Pr^ f M ^H I ' r'^^^X ^^^^? Hi ' T ' " ^ " f ^ i ^ i Uk ^ ^^^M^^^^^^^^^^^W »^ s I ^ KS ^ ; : ' J , ) , ^ ^ » ^ W ^ a i^ J "1 • • , YA v'^:v '• /.I yr:^. ...\ ''. - . ' • • { - • ^ .' A http://fraser.stlouisfed.org/ / ' Federal Reserve Bank of St. Louis / • ' ; / ^ ' ANNUAL REPORT OF THE SECRETARY OF THE TREASURY ON THE STATE OF THE FINANCES FOR THE FISCAL YEAR ENDED JUNE 30 1940 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1941 For sale by the Superintendent of Documents, Washington, D, C. - Price $1.00 (Paper) TREASURY DEPARTMENT DOCUMENT N O . Secretary 3111 4^ CONTENTS Page . Introduction ^ 1 Budget results: Receipts in general and special accounts: Fiscal years 1933 to 1940_____ 1 Revenue Act of 1932 7 Fiscal year 1933 8 Fiscal year 1934 9 Fiscalyear 1935 11 Fiscalyear 1936 12 Fiscalyear 1937 15 Fiscal year 1938 16 Fiscalyear 1939 18 Fiscal year 1940 _. i 19 Expenditures from general and special accounts: Fiscal year 1940 22 Fiscal years 1933 to 1940 24 Relief and work relief25 Grants to States under the Social Security Act_ 27 Public works 28 Aid to agriculture 29 National defense-32 Veterans'pensions and benefits 33 Other departmental expenditures ---34 Interest on the public debt _^ 34 Other expenditures 35 Deficit . __36 Receipts and expenditures in trust accounts and checking accounts of corporations and credit agencies, fiscal years 1933 to 1940 37 Trust accounts 37 Government corporations and credit agencies maintaining checking accounts with the Treasurer of the United States 39 The public debt: Fiscal year 1940 43 Treasury bonds and Treasury notes 44 Treasury bills .. 45 United States savings bonds 46 Adjusted service bonds 48 Special issues . 48 Cumulative sinking fund 49 Amendment to the Second Liberty Bond Act 49 Fiscal years 1933-to 1940: Financing the deficit 49 Changes in the composition of the debt, by classes of securities_50 Public issues: Bonds and notes 53 Certificates of indebtedness and Treasury bills 58 United States savings bonds 60 Adjusted service bonds ^ . 64 Special issues 64 Matured debt and debt bearing no interest 66 Interest charge on the public debt 66 Debt retirements 68 Statutory debt limitation -_ 69 Securities guaranteed by the United States: Fiscal year 1940 72 Fiscal years 1932 to 1940- — 74 Reconstruction Finance Corporation 77 Federal land banks. 80 III '3) C -p^ IV OON'TgN'SS Securities guaranteed by the United States—'Continued. Fiscal years 1932 to 1940—Continued. Home Owners' Loan Corporation Federal Farm Mortgage Corporation Federal Housing Administration Commodity Credit Corporation : •United States Housing AuthorityUnited States Maritime Commission Tennessee Valley Authority Estimated absorption, by classes of holders, of the increase in the public debt and obligations guaranteed by the United States during the period June 30, 1932, to June 30, 1940 Market movements in Government securities, 1932 to 1940: Major movements . Relationship between yields on long- and short-term securities -Negative yields on short notes and bonds Premiums on Treasury bills Movements of Treasury bond yields compared with movements of yields of other high grade securities General Fund Securities owned by the United States and proprietary interest in governmental corporations and credit agencies: Securities owned Proprietary interest in governmental corporations and credit agenciesMonetary developments: Fiscal year 1940_. i Fiscal years 1933 to 1940 : Banking crisis of 1933 Gold policy : Increment on gold- Silver policy Seigniorage on silver International monetary cooperation Revenue legislation: Fiscal year 1940 Social Security Act Amendments of 1939 Revenue Act of 1940 •--.-.. Government contraJcts for naval vessels and aircraft Other revenue legislation Fiscal years 1933 to 1940 Estimates of receipts Fiscal year 1941 Income taxes Miscellaneous internal revenue Employment taxes -_ Railroad Unemployment Insurance Act Customs Miscellaneous revenues and receipts . ^ Fiscal year 1942 -_ Income taxes __Miscellaneous internal revenue. Employment taxes Railroad Unemployment Insurance Act Customs Miscellaneous revenues and receipts Estimates of expenditures . Treasury activities under the old-age provisions of the Social Security Act, fiscal years 1936 to 1940 Neutrality and national defense activities Strategic and critical materials Coordination of foreign and domestic military purchases Munitions control Regulation and control of vessels Credits to belligerents Foreign funds control . . Fiscal matters Changes in organization and procedure Page 81 83 85 87 88 89 90 92 108 109 110 110 112 112 114 115 116 117 117 119 128 130 134 135 137 137 139 141 142 143 143 146 146 149 150 151 151 151 151 151 152 152 153 153 153 154 154 157 157 158 159 159 161 161 162 163 CiONTEINTS V A D M I N I S T R A T I V E R E P O R T S O F BUREAUS AND D I V I S I O N S Page Accounts and Deposits, Office of t h e Commissioner of , 169 Daily S t a t e m e n t of t h e United States Treasury 169 Combined s t a t e m e n t of assets and liabilities of governmental corporations a n d credit agencies ... 170 Special financial s t a t e m e n t s of Government corporations and agencies171 Annual appraisal of assets a n d liabilities of t h e Commodity Credit Corporation 171 Securities owned by t h e United States Government 172 Contingent liabilities of t h e United States 172 Accounting and disbursing of emergency relief funds 172 F e d e r a l savings and loan associations 176 Federal home loan banks 178 Federal land b a n k s : Capital stock 180 P a y m e n t s on account of reductions in interest rate on mortgages and subscriptions to paid-in surplus 181 Federal F a r m Mortgage Corporation 183 Advances to Federal Reserve Banks for industrial loans 184 Appropriations and expenditures under t h e Social Security Act 186 Obligations of foreign governments 187 Finland _._ 190 Hungary , 190 Nicaragua 190 Rumania ^ 190 Receipts from Germany 191 Army costs 191 Mixed claims, United States and Germany 191 Annuities under moratorium agreement 191 Treasury administriation of alien and mixed claims ^ 192 Mixed Claims Commission and Private Act No. 509: Claims against Germany 192 W a r Claims Arbiter 194 Claims of German nationals 194 Claims of Hungarian n a t i o n a l s . 194 German special deposit account 194 Tripartite Claims Commission: Claims against Austria 195 Claims against H u n g a r y _195 Claims of American nationals against T u r k e y _ - _ 196 Claims of American nationals against Mexico 197 Railroad obligations 198 Section 207, Transportation Act, 1920, as a;mended 199 Section 210, Transportation Act, 1920, as amended 199 Federal control of railroads ' 200 Administration _ 200 Finances 201 Securities, etc 202 Claims against t h e Director General 203 Compensation p a y m e n t s — U n i t e d States railroad employees 203 Canadian Workmen's Compensation Board 203 Claims in favor of t h e Director General 203 T r u s t and special funds invested by t h e Treasury 204 Adjusted service certificate fund 204 Civil service retirement and disability fund 205 Canal Zone retirement and disability fund 206 Foreign service retirement and disability fund 207 Alaska Railroad retirement and disability fund 207 District of Columbia teachers' retirement fund 208 Longshoremen's a n d harbor workers' compensation fund___ 209 District of Columbia workers' compensation fund 210 District of Columbia water fund 210 United States Government life insurance fund 211 Federal old-age and survivors insurance t r u s t fund 212 Unemployment t r u s t fund 214 Railroad unemployment insurance account 214 VI .OONTEIKTIS Accounts and Deposits, OflSce of the Commissioner of—'Continued. Trust and special funds invested by the Treasury—Continued. Pag-e Railroad retirement account-217 Library of Congress trust fund 218 National Cancer Institute gift fund 220 National Institute of Health gift fund 221 National park trust fund 222 Ainsworth Library fund, Walter Reed General Hospital 222 Pershing Hah Memorial fund 223 Alien property trust fund 224 Philippine funds in the United States Treasury 224 Special fund: Colorado River Dam fund 226 Division of Deposits . 226 Depositary functions i 226 Federal savings and loan associations and Federal credit unions-_ 228 Social security 229 Government Losses in Shipment Act 229 Section of Surety Bonds 231 Division of Bookkeeping and Warrants 231 Division of Disbursement 232 Suspension of delivery of foreign checks'.. 234 Appointments, Division of 234 Number of employees in the Treasury Department 234 Retirement of employees 235 Budget and Improvement Committee 235 Coast Guard: Activities during the fiscal year 1940 236 Administrative organization 238 National defense 239 Promoting safety of marine commerce and of life and property at sea --__ 239 Maritime law enforcement 243 Aviation 246 Communications ' 246 Personnel and training 247 Floating equipment 250 Stations, bases, repair depot, etc _250 Awards of lifesaving medals 251 Legislation and Executive authorizations 251 Funds available, obligations, and balances 252 Review of activities since 1933: Administrative organization 253 National defense 254 Promoting safety of marine commerce and of life and property at sea 254 Maritime law enforcement 255 Aviation 256 Personnel and training : 256 Coast Guard facilities 258 Comptroller of the Currency, Bureau of: Activities during the fiscal year 1940 259 Changes in the condition of active national banks 259 Summary of changes in the National Banking System 261 Administration of unlicensed national banks 262 Review of activities since 1933 262 Bank holiday 262 Reopening of banks 263 Reorganization of banks that did not reopen after the bank holiday -___ 264 National bank receiverships . 265 Strengthening the capital structure of the banks 268 Changes in the condition of all active banks '. 271 CIONTEINTSCustoms, Bureau of: Activities during t h e fiscal year 1940: Collections Volume of business : Entries of merchandise Vessel, airplane, and highway traffic Neutrality activities Drawback t r a n s a c t i o n s . Protests and appeals Law enforcement activities: Seizures Legal proceedings . Fines, penalties, etc Coordination with other agencies _Tariff administration Customs Agency Service . Undervaluation •.., D r a w b a c k investigations ; Foreign investigations Enforcement Unit Miscellaneous: Appraisement Unit Customs School of Instruction Division of Laboratories Customs liaison officers Traveling auditors Division of Engineering and Weighing Changes in ports and stations-; Cost of administration Review of activities since 1933: Collections Volume of business: Entries of merchandise Vessel, airplane, and highway traffic Law enforcement activities Fines, penalties, etc Tariff administration: Trade agreements. . Antidumping . Countervailing d u t y Trade-marks Anti-Smuggling Act Customs Administrative Act of 1938 Changes in organization and procedure Cost of a d m i n i s t r a t i o n . ; Engraving and Printing, Bureau of: Activities during t h e fiscal year 1940 Review of activities since 1933 Enrollment and Disbarment, Committee on Federal Alcohol Administration: Activities during t h e fiscal year 1940 P e r m i t Division ^ Label Examination Division Statistics and Reports Division Enforcement Division -j Legal Division Review of activities since September 24, 1935 Foreign. F u n d s Control I n t e r n a l Revenue, Bureau of: Activities during the fiscal year 1940: General: Internal revenue collections Refunds, drawbacks, and s t a m p redemptions Additional assessments , Cost of administration VII Page 279 281 281 282 283 283 284 284 287 288 289 289 291 292 292 292 292 293 293 293 294 294 294 294 295 _^ 295 296 .297 297 299 300 300 300 301 301 301 302 302 303 306 310 ___- 311 312 312 313 313 314 315 318 319 320 321 321 VIII lOQNTEINTS I n t e r n a l Revenue, Bureau of—Continued. Activities during t h e fiscal year 1940—Continued. Income T a x Unit: General functions---: N u m b e r of returns filed Examination of income tax returns by t h e Washington office Investigations a n d adjustments of returns by t h e field officesI n v e n t o r y of returns in t h e field offices Unagreed adjustments pending Revenue results of audit a n d investigations Stage a t which additional tax was assessed Refunds, a b a t e m e n t s , and credits Miscellaneous T a x Unit _. E s t a t e T a x Division Tobacco Division Sales Tax Division . Capital Stock Tax Division Processing T a x Division 1 Alcohol Tax Unit Enforcement Division Field Inspection Division Laboratory Division Audit Division Procedure Division Alcohol Tax Division of the Office of the General Counsel Accounts and Collections Unit Taxes under the Federal Insurance Contributions Act T a x under t h e Federal Unemployment Tax Act Carriers taxes . Technical Staff Operations of field divisions Office of the Chief Counsel Appeals Division Civil Division I n t e r p r e t a t i v e Division Penal Division Review Division Legislation and Regulations Division Intelligence Unit Review of activities since 1933: Progress in income, estate, and gift tax administration: Accomplishments in adjustment of income tax liabilities Reasons for increased accomplishments Verification of income tax returns Settlement of cases not before t h e Board of Tax Appeals Settlement and trial of cases before the United States Board of T a x Appeals Alcohol tax administration T a x collections and cost of collecting Office of t h e Chief Counsel Intelligence Unit Legal Division . Legislative Counsel, Office of t h e Mint, Bureau of t h e : Activities during t h e fiscal year 1940: Institutions of t h e M i n t Service Coinage . Bullion deposit transactions a n d t r a n s f e r s . . Gold operations . Silver operations Refineries New design coins .. Stock of coin and monetary bullion in t h e United States Production of gold and silver Industrial consumption of gold and s i l v e r . . _. Page 321 322 322 322 322 322 323 323 324 325 325 326 327 328 328 329 330 330 331 331 332 332 332 333 334 336 337 338 339 340 341 344 344 345 345 346 346 347 349 349 352 354 359 360 361 362 364 365 365 366 366 366 367 367 367 368 368 O0NTE[NTSMint, Bureau of the—Continued. Activities during the fiscal year 1940—Continued. Appropriations, expenses, and income General activities ^ Review of activities since 1933 . Monetary Research, Division of Narcotics, Bureau of: Activities during the fiscal year 1940 Review of activities since 1933 . Printing, Division of . Printing and binding Stationery supplies Engraving work Processing Tax Board of Review Procurement Division: Activities during the fiscal year 1940 Review of activities since 1934 Procurement activities Emergency relief activity Public Debt Service Division of Loans and Currency Issue and retirement of securitiesUnited States savings bonds Individual registered accounts Claims Safekeeping of securities Mutilated paper and redeemed currency Register of the Treasury Division of Public Debt Accounts and Audit Division of Paper Custody Destruction Committee Research and Statistics, Division of Savings Bonds, Division of Secret Service Division: Activities during the fiscal year 1940 Review of activities since 1933 Tax Research, Division of Treasurer of the United States War Finance Corporation (In Liquidation) IX Page 368 368 369 372 ..• _. - — 372 375 376 376 378 378 379 379 381 381 383 385 385 385 386 387 388 389 389 389 392 393 394 394 395 396 397 399 399 403 EXHIBITS PUBLIC DEBT Public issues and redemptions of Treasury bonds and Treasury notes Exhibit 1. Offering of 1 percent Treasury notes of series B-1944 ___ Exhibit 2. Allotments, Treasury notes of series B-1944 Exhibit 3. Offering of 2 percent Treasury bonds of 1948-50 Exhibit 4. Subscriptions and allotments, Treasury bonds of 1948-50 Exhibit 5. Offering of 2J4 percent Treasury bonds of 1951-53 and 1 percent Treasury notes of series C-1944 Exhibit 6. Allotments, Treasury bonds of 1951-53 and Treasury notes of series C-1944 ; Exhibit 7. Offering of % percent Treasury notes of series A-1945 Exhibit 8. Allotments, Treasury notes of series A-1945 Exhibit 9. Redemption of 3% percent Treasury bonds of 1940-43. _ Exhibit 10. Offering of 1 percent Treasury notes of series C-1943 Exhibit 11. Allotments, Treasury notes of series C-1943 407 408 408 410 411 412 413 414 414 418 419 Issues of Treasury bills Exhibit 12. Inviting tenders for Treasury bills dated July 5, 1939 Exhibit 13. Acceptance of tenders for Treasury bills dated July 5, 1939.. Exhibit 14. Summary of information contained in press releases issued in connection with Treasury bills offered during the fiscal year 1940 420 421 422 X-' lOCNTENTS United States savings bonds Page Exhibit 15. First amendment to Department Circular No. 596, restricting the sale of United States savings bonds series D to individuals Exhibit 16. Regulations governing United States savings bonds Exhibit 17. Announcement, by the Secretary of the Treasury, March 22, 1940, relative to the registration and sale of United States savings bonds. 424 425 441 Miscellaneous Exhibit 18. An act to amend the Second Liberty Bond Act, Exhibit 19. Title III of the act to provide for the expenses of paredness by raising revenue and issuing bonds, to provide paying for such bonds, and for other purposes Exhibit 20. Regulations governing adjusted service bonds of as amended. national prea method for 1945 442 442 442 SECURITIES GUARANTEED BY THE UNITED STATES Exhibit 21. Offering of % percent notes of series D of the Commodity Credit Corporation Exhibit 22. Subscriptions and allotments, Commodity Credit Corporation notes of series D Exhibit 23. Offering of 1 percent notes of series E of the Commodity Credit Corporation Exhibit 24. Allotments, Commodity Credit Corporation notes of series E._ Exhjibit 25. Offering of 1 percent notes of series S of the Reconstruction Finance Corporation Exh^ibit 26. Subscriptions and allotments, Reconstruction Finance Corporation notes of series S . •.. Exhibit 27. Partial redemption, before maturity, of 2 ^ percent mutual mortgage insurance fund debentures, series B (second call) "._ Exhibit 28. Partial redemption, before maturity, of 2% percent mutual mortgage insurance fund debentures, series B (third call) Exhibit 29. Portion of the act to amend the Tennessee Valley Authority Act of 1933, relative to the issue of bonds by the Tennessee Valley Authority 443 444 .445 446 446 448 448 451 454 MONETARY DEVELOPMENTS Exhibit 30. An act to extend the time within which the powers relating to the stabilization fund and alteration of the weight of the dollar may be exercised Exhibit 31. Proclamation, July 25, 1939, modifying the proclamation of December 21, 1933, as modified, relating to newly mined domestic silver Exhibit 32. Statement by the Secretary of the Treasury, September 11, 1939, that the tripartite declaration relative to France continued in effect Exhibit 33. Announcement of the Treasury Department, April 16, 1940, relative to the official rate for certain foreign currencies 455 456 456 457 TAXATION Exhibit 34. Tax rate changes made by the Revenue Act of 1940 and the rates which they superseded 457 Exhibit 35. Title I of the act to expedite national defense, and for other purposes, relating to Army, Navy, and Coast Guard contracts 458 Exhibit 36. An act to eliminate the tax on brandy and wine spirits used in the fortification of wine; to increase the tax on wine; to compensate for the loss of revenue occasioned by the elimination of the tax on brandy and wine spirits used in the fortification of wine; and for other purposes . . 463 Exhibit 37. Taxes of the United States, 1913 to 1940 466 CiONTEiNTS XI GOVERNMENT LOSSES IN SHIPMENT Page Exhibit 38. An act to amend the Government Losses in Shipment Act Exhibit 39. Declaration of valuables, August 28, 1939, under the Government Losses in Shipment Act, July 8, 1937, amended August 10, 1939. _ 535 536 FOREIGN FUNDS CONTROL Exhibit 40. Joint resolution to amend section 5 (b) of the act of October 6, 1917, as amended, and for other purposes Exhibit 41. Executive orders relating to foreign funds control Exhibit 42. Regulations of the Secretary of the Treasury relating to foreign funds controL 538 538 542 OBLIGATIONS OF FOREIGN GOVERNMENTS Exhibit 43. Correspondence exchanged between the Government of the United States and various foreign governments, legislation, statements, etc., concerning foreign debts owing to the United States 544 ORGANIZATION AND PROCEDURE Exhibit 44. Orders relating to organization and procedure in the Treasury Department ExhijDit 45. Extracts from Reorganization Plans Nos. I l l and IV submitted by the President to the Congress, pursuant to the provisions of the Reorganization Act of 1939, approved April 3, 1939 J Exhibit 46. Joint resolution providing for the taking effect of Reorganization Plans Nos. I l l , IV, and V j Exhibit 47. Supervision of bureaus, oflices, and divisions of the Treasury Department -_ Exhibit 48. An act to amend the Annual and Sick Leave Acts of March 14, 1936 Exhibit 49. Time and leave regulations, departmental service Exhibit 50. Time and leave regulations, field forces . Exhibit 51. Amendment, July 28, 1939, to Department Circular No. 591, dated August 15, 1938, prescribing regulations governing the disclosure of official information 555 558 560 561 562 562 573 577 MISCELLANEOUS Exhibit 52. Letter of the Postmaster General to the Secretary of the Treasury, dated November 5, 1940, certifying extraordinary expenditures contributing to the deficiencies of postal revenues for the fiscal year 1940, in pursuance of Public No. 316, Seventy-first Congress, approved June 9, 1930 Exhibit 53. Section 201 of the act to amend the Social Security Act, and for other purposes, creating the Federal old-age and survivors insurance trust fund Ex:hibit 54. Proclamation, June 27, 1940, relating to the control of vessels in the territorial waters of the United States Exhibit 55. An act for the relief of Katherine M. Drier ^ 577 578 579 5B0 TABLES Explanation of bases used in tables Description of accounts through which Treasury operations are effected. _ 583 584 RECEIPTS AND EXPENDITURES General tables Table 1. Details of receipts, by sources and accounts, fiscal year 1940 (warrant and daily statement bases) . Table 2. Details of expenditures, by organization units and accounts, fiscal year 1940 (checks-issued and daily statement bases) ^,-^ 586 596 •.XII CIONTEINTS Table 3. Classified receipts and expenditures, monthly July 1939 to June 1940, with totals for the fiscal years 1939 and 1940 (daily statement basis) Table 4. Classified receipts and expenditures of the Government for the fiscal years 1932 to 1940 (daily statement basis) . Table 5. Public debt receipts and expenditures, monthly July 1939 to June 1940, with totals for the fiscal years 1936 to 1940 (daily statement basis) Table 6. Receipts and expenditures for the fiscal years 1789 to 1940 (warrant and daily statement bases) . Table 7. Receipts in general and special accounts, by major sources, for the fiscal years 1933 to 1940 _._ Table 8. Expenditures by major functions, fiscal years 1933 to 1940 (daily statement basis) . Table 9. Tax collections, excluding miscellaneous receipts, ahocated by specific sources to estimated year of incurrence of the tax liability, calendar years 1933 to 1939 (collection basis) Page 612 628 638 642 650 652 654 Specific receipts and expenditures Table 10. Expenditures of the several activities of the Treasury Department in each of the States and Territories, fiscal year 1940 Table 11. Comparison of detailed internal revenue collections, fiscal years 1939 and 1940 (collection basis) . Table 12. Internal revenue receipts, by tax sources, fiscal years 1916 to 1940 (collection basis).. Table 13. Internal revenue receipts, by States and Territories, fiscal year 1940 (collection basis).. Table 14. Expenses of the Internal Revenue Service, fiscal year 1940 (checks-issued basis) Table 15. Values of dutiable and taxable imports for consumption and estitnated duties and taxes collected, by tariff schedules, fiscal years 1939 and 1940 . . Table 16. Estimated customs duties, value of imports entered for consumption, and ratio of duties to value of dutiable imports and to value of all imports, for the calendar years 1930 to 1939 and by months from January 1939 to June 1 9 4 0 . . . Table 17. Estimated customs duties, value of dutiable imports, and ratio of estimated duties to value of dutiable imports, by tariff schedules, for the calendar years 1930 to 1939 and by months from January 1939 to June 1940 Table 18. Values of dutiable imports for consumption and estimated duties collected, by countries, fiscal years 1939 and 1940 Table 19. Customs statistics, by districts, fiscal year 1940 Table 20. Receipts and expenditures and statement of account under the Social Security, Railroad Retirement, and Railroad Unemployment Insurance Acts (daily statement basis) . Table 21. Amounts appropriated and expended to June 30, 1940, under authorizations contained in the Social Security Act Table 22. Panama Canal receipts and expenditures for the fiscal years 1903 to 1940 (warrant basis) . . 658 662 664 667 668 672 673 674 677 678 683 694 695 Miscellaneous Table 23. Receipts and expenditures in general and special accounts, actual for 1940 and estimated for 1941 and 1942, in detail, as exhibited in the Budget for 1942 1 Table 24. Receipts and expenditures, trust accounts, increment on gold, etc., actual for 1940 and estimated for 1941 and 1942, as exhibited in the Budget for 1942 Table 25. General Fund balance and effect on the public debt of financing the deficit, as exhibited in the Budget for 1942 Table 26. Financial status of appropriations provided in the Emergency Relief Appropriation Acts of 1935, 1936, 1937, 1938, and 1939, as of June 30, 1 9 4 0 . - . - . . , . , . - , - - . , , ^ . --- 696 710 712 714 OONTEQiq'TS XIII Page T a b l e 27. Expenditures by organizations and by fiscal years from April 8, 1935, to J u n e 30, 1940, under t h e Emergency Relief Appropriation Acts of 1935, 1936, 1937, 1938, and 1939 (checks-issued basis) Table 28. Expenditures by States and by fiscal years from April 8. 1935, to J u n e 30, 1940, under t h e Emergency Relief Appropriation Acts of 1935, 1936, 1937, 1938, and 1939 (checks-issued basis) .. 723 725 PUBLIC DEBT Public debt outstanding Table 29. P u b h c d e b t outstanding J u n e 30, 1940, by issues (revised daily s t a t e m e n t basis) Table 30. Description of t h e public d e b t issues outstanding June 30, 1940 (revised daily s t a t e m e n t basis) Table 31. Principal of t h e public debt outstanding a t t h e end of each fiscal year from 1853 t o 1940 (revised daily s t a t e m e n t basis) Table 32. Comparative s t a t e m e n t of t h e public debt outstanding June 30, 1933 to 1940 (revised daily s t a t e m e n t basis) Table 33. Composition of t h e public debt a t the end of the fiscal years 1916 to 1939 and by mo'nths from July 1939 to June 1940 (revised daily s t a t e m e n t basis) 726 730 742 744 746 Public debt operations Table 34. Public debt retirements chargeable against ordinary receipts during t h e fiscal year 1940, and cumulative totals from July 1, 1917, to J u n e 30, 1939 and 1940, by sources and issues (revised daily s t a t e m e n t basis) . Table 35. S u m m a r y of transactions in interest-bearing and noninterestbearing securities, fiscal year 1940 (revised daily s t a t e m e n t basis) Table 36. S u m m a r y of transactions in interest-bearing securities, by form of issue, fiscal year 1940 (revised daily s t a t e m e n t basis) Table 37. Changes in interest-bearing debt, by issues, fiscal year 1940 (revised daily s t a t e m e n t basis) . Table 38. Transactions in noninterest-bearing securities, by issues, fiscal year 1940 (revised daily s t a t e m e n t basis) Table 39. Issues, maturities, and redemptions of interest-bearing securities, exclusive of t r u s t account and other special issues, July 1939 through J u n e 1940 . Table 40. Sources of public debt increase or decrease, fiscal years 1915 to 1940 (daily s t a t e m e n t basis) Table 4 1 . Transactions on account of the cumulative sinking fund, fiscal year 1940 (revised daily statement basis) Table 42. Transactions on account of t h e cumulative sinking fund, fiscal years 1921 to 1940 (revised daily s t a t e m e n t basis) Table 43. Securities retired through t h e cumulative sinking fund, par a m o u n t a n d principal cost, to June 30, 1940 (revised daily s t a t e m e n t basis) . 748. 750 753 754 758 765 768 770 770 771 Interest on the public debt Table 44. Interest on t h e public debt, payable, paid, and outstanding unpaid, fiscal year 1940 (revised daily s t a t e m e n t basis) __ Table 45. Interest paid on t h e public debt, by issues, fiscal years 1938 to 1940 (warrant basis) ._ Table 46. Amount of interest-bearing debt outstanding, the computed a n n u a l interest charge, and t h e computed r a t e of interest, for the fiscal years 1916 to 1940, a n d by m o n t h s from July 1939 to J u n e 1940 (revised daily s t a t e m e n t basis) 772 772 774 MiscellaneousTable 47. Contingent liabihties of t h e United States, J u n e 30, 1940 Table 48. Contingent habilities of t h e United States as of J u n e 30, 1933 to 1940 _Table 49. Average yield on long-term United States Government bonds, by months, J a n u a r y 1919 to June 1940 775 780 781 XIV OONTEINTS Table 50. Prices and yields of Treasury bonds and notes and of securities guaranteed by t h e United States 782 CONDITION OF THE TREASURY EXCLUSIVE OF PUBLIC DEBT LIABILITIES Table 51. Current assets and liabilities of t h e Treasury a t the close of t h e fiscal years 1939 and 1940 (daily s t a t e m e n t basis) Table 52. Balance in t h e General F u n d of t h e Treasury a t t h e end of each m o n t h , fiscal year 1940 (dailj^ s t a t e m e n t basis) Table 53. Assets and liabilities of t h e exchange stabilization fund as of J u n e 30, 1939 and 1940 Table 54. Assets a n d Liabilities of the exchange stabilization fund a t the close of t h e fiscal years 1934 to 1940 Table 55. Securities owned by the United States Government as of J u n e 30, 1933 to 1940 Table 56. Principal of t h e f.unded and unfunded indebtedness of foreign governments to t h e United States, t h e accrued and unpaid interest thereon, a n d p a y m e n t s on account of principal and interest, as of Nov. 15, 1940 Table 57. Principal of t h e funded and unfunded indebtedness of foreign governments to t h e United States, t h e accrued and unpaid interest thereon, and p a y m e n t s on account of principal and interest, as of November 15 of each year from 1928 to 1940 _-. 784 786 786 789 790 795 796 ASSETS AND LIABILITIES OF GOVERNMENTAL CORPORATIONS AND AGENCIES Table 58. Combined s t a t e m e n t of assets and liabilities of governmental corporations a n d credit agencies of the United States, as of J u n e 30, 1940...-Table 59. Proprietary interest of t h e United States in governmental corporations and credit agencies, as of J u n e 30, 1929 to 1940 797 805 STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES Table 60. Stock of money, money in the Treasury, in the Banks, and in circulation J u n e 30, 1913 to 1940 Table 61. Stock of money, by kinds, a t t h e end of each 1913 to 1940 Table 62. Monev in circulation, by kinds, a t t h e end of from 1913 to 1940 Table 63. Stock of money, money in the Treasury, in t h e Banks, and in circulation, by kinds, J u n e 30, 1940 Federal Reserve 807 fiscal year from ___each fiscal year 809 810 Federal Reserve 811 TAX-EXEMPT SECURITIES Table 64. E s t i m a t e d a m o u n t of securities outstanding, interest is wholly or partially exempt from t h e Federal income tax, J u n e Table 65. E s t i m a t e d a m o u n t of securities outstanding, interest is wholly or partially exempt from the Federal income tax, 1913 to 1940, by types of borrowers-- on which 30, 1940on which June 30, 812 814 MISCELLANEOUS Table 66. N e t expenditures for Federal aid to States, individuals, etc. (exclusive of funds allocated for recovery and relief), fiscal years 1920, 1939, a n d 1940, a n d a m o u n t s appropriated for 1941, by a p p r o p r i a t i o n s - . Table 67. Expenditures made by t h e Government as direct p a y m e n t s to States, etc., under cooperative arrangements and expenditures within States which provided relief and other aid during t h e fiscal year 1940 Table 68. N u m b e r and a m o u n t of awards of t h e Mixed Claims Commission, United States and Germany, certified to the Secretary of t h e Treasury by t h e Secretary of State and t h e a m o u n t paid and balance due, by classes, as of September 30, 1940 Table 69. Food order stamps issued for the Federal Surplus Commodities Corporation from May 16, 1939, to J u n e 30, 1940 818 822 830 832 CONTENTS i^V PERSONNEL Pag« Table 7!0. Number of employees in the departmental service of the Treasury in Washington, quarterly from June 30, 1939, to June 30, 1940 Table 71. Number of employees in the departmental and field services of the Treasury on June 3,0, 1939, and June 30., 1940_ Table 72. Number of persons retired, departmental and field services of the Treasury, August 20, 1920, to June 30, 1940, and number of persons eligible for retirement but retained, as of June 30, 1940 Index 834 834 835 837 SECRETARIES, UNDER SECRETARIES, AND ASSISTANT SECRETARIES OF THE TREASURY DEPARTMENT FROM MARCH 4, 1933, TO NOVEMBER 15, 1940,1 AND THE PRESIDENT UNDER WHOM THEY SERVED Term of service Official From- To- Mar. 4,1933 Jan. 1,1934 Dec. 31,1933 William H. Woodin, New York Henry Morgenthau, Jr., New York. Under Secretaries May 19,1933 Nov. 17,1933 May 2,1934 Nov. 16,1933 Dec. 31,1933 Feb. 15,1936 Jan. 29,1937 Nov. 1,1938 Jan. 18,1940 Sept. 16,1938 Dec. 31,1939 Dean G. Acheson, Maryland. Henry Morgenthau, Jr., New York. Thomas Jefferson Coolidge, Massachusetts. Roswell Magill, New York John W. Hanes, North Carolina.... Daniel W. Bell, Illinois Apr. June June Dec. Feb. July June Jan. Feb. Sept. Dec. Nov. Feb. Oct. Secretary of theTreasury President Secretaries of the Treasury Roosevelt. Roosevelt. Woodin Woodin Morgenthau.. Roosevelt. Roosevelt. Roosevelt. Morgenthau.. MorgenthauMorgenthau.. Roosevelt. Roosevelt. Roosevelt. Woodin, Morgenthau... Woodin, Morgenthau... Woodin Morgenthau Morgenthau Morgenthau Morgenthau Morgenthau. _L Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Assistant Secretaries 18,1933 6,1933 12,1933 1,1934 19,1936 1,1938 23,1939 18,1940 15,1936 30,1939 12,1933 1,1937 28,1939 31,1938 Lawrence W. Robert, Jr., Georgia., Stephen B. Gibbons, New Y o r k . . . Thomas Hewes, Connecticut Josephine Roche, Colorado Wayne C. Taylor, Illinois John W. Hanes, North Carolina. _. Herbert E. Gaston, New York John L. Sullivan, New Hampshire. 1 For oflficials since 1789 see annual report for 1932, pp. xvii to xxi, and corresponding table in annual report for 1933. XVII PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE TREASURY DEPARTMENT AS OF NOVEMBER 15, 1940 OFFICE OF T H E SECRETARY Henry Morgenthau, Jr.— Daniel W. Bell Herbert E. Gaston John L. Sullivan... (Vacant).. Harold N. Graves Philip Young John W.Pehle Henrietta S. Klotz H. Merle Cochran W. N. Thompson Charles S. Bell Charles R. Schoeneman Edwin R. Ballinger Elmer L. Irey Beriah M. Thompson Thomas Tarleau Charles Schwarz Herbert J. Wollner William T. Heffelfinger H. R. Sheppard .. Francis C. Rose F. A. Birgfeld John D. Fox Frank J. Wilson... L. C. Spangler... Gabrielle E. Forbush Secretary of the Treasury. Under Secretary of the Treasury. _. Assistant Secretary of the Treasury. Assistant Secretary of the Treasury. Fiscal Assistant Secretary of the Treasury. Assistant to the Secretary. Assistant to the Secretary. Assistant to the Secretary. Assistant to the Secretary. Technical Assistant to the Secretary. Administrative Assistant to the Secretary. Assistant Administrative Assistant to the Secretary. Special Staff Assistant. Director of Personnel. Coordinator of Treasury Agency Services. Consulting Expert. Legislative Counsel. Director of Press Relations. Consulting Chemist. Executive Assistant to the Fiscal Assistant Secretary. Assistant to Assistant Secretary. Assistant to Assistant Secretary. Chief Clerk. Superintendent of Treasury Buildings. Chief, Secret Service Division. Chief, Division of Printing. Chief, Correspondence Division. OFFICE OF T H E GENERAL COUNSEL Edward H. Foley, Jr Huntington Cairns Lawrence J. Bernard.. Bernard Bernstein N. O. Tietjens Charles L. Kades Oscar S. Cox Joseph J. O'Connell, J r . . Samuel Klaus John P. Wenchel Ralph H. Dwan General Counsel. Assistant General Counsel. Assistant General Counsel. Assistant General Counsel. Assistant General Couosel. Assistant General Counsel. Assistant to the General Counsel. Special Assistant to the General Counsel. Special Assistant to the General Counsel. Chief Counsel, Bureau of Internal Revenue. Chief Counsel, Bureau of Customs. DIVISION OF RESEARCH AND STATISTICS George C. Haas. Henry C. Murphy Al F. O'Donnell... Russell R. Reagh.Anna M. Michener.. Isabella S. Diamond Director of Research and Statistics. Assistant Director. Assistant Director. Assistant Director (Government Actuary). Assistant to the Director. Librarian. DIVISION OF MONETARY RESEARCH Harry D. White V. Frank Coe Director of Monetary Research. Assistant Director. DIVISION OF TAX RESEARCH Roy Blough Louis Shere Director of Tax Research. Assistant Director. BUREAU OF THE PUBLIC DEBT William S. Broughton Edwin L. Kilby Rene W. Barr Edward G. Dolan Byrd Leavell Eugene Sloan James W. Bryan Marvin Wesley Melvin R. Loafman Maurice A. Emerson XVIII Commissioner of the Public Debt. Assistant Commissioner of the Public Debt. Deputy Commissioner of the Public Debt. Register of the Treasury. Assistant Register of the Treasury. _. Chief, Division of Savings Bonds. Chief, Information Section, Division of Savings Bonds. Chief, Division of Loans and Currency. Chief. Division of Public Debt Accounts and Audit. Chief, Division of Paper Custody. PRIINOIIPAL. ADM'I(N:ilS<TRA'TaVE AND STAFF OFFiIOElRS" BUREAU OF ENGRAVING AND P R I N T I N G Alvin W. Hall Clark R. Long Jesse E. Swigart Director, Bureau of Engraving and Printing. Assistant Director (Administration). Assistant Director (Production). . BUREAU OF ACCOUNTS Edward F . Bartelt Robert W. Maxwell A. L. Peterson Paul D. Banning.. Joseph Greenberg Guy F . Allen L. L. Collie B. M . MulvihUl Harry R. Sch\valm Eugene P . 0'Daniel Commissioner of Accounts. Chief Accountant. Assistant Commissioner of Accounts. Assistant Commissioner of Accounts. Executive Assistant to the Commissioner. Chief Disbursing Officer, Division of Disbursement. Chief, Division of Bookkeeping and Warrants. .- Chief, Division of Deposits. Chief Examiner, Section of Surety Bonds. Chief, Sfection of Investments. . - BUREAU OF THE COMPTROLLER OF THE CURRENCY Preston Delano CyrilB. Upham Eugene H. Gough A. J. Mulroney W. P . Folger Comptroller of the Currency. Deputy Comptroller. Deputy Comptroller. Deputy Comptroller. Chief National Bank Examiner. . OFFICE OF T H E TREASURER OF T H E U N I T E D STATES William A. Julian Marion Banister George 0 . Barnes M . E. Slindee Louis P . Allen 1 Treasurer of the United States. Assistant Treasurer. Assistant to the Treasurer. Administrative Assistant. Chief Clerk. BUREAU OF NARCOTICS Harry J. Anslinger W i l i s . Wood Malachi L. Harney Commissioner of Narcotics. Deputy Commissioner of Narcotics. Assistant to the Commissioner. BUREAU OF INTERNAL REVENUE Guy T. Helvering Jonas W. Graber Timothy C. Mooney George J. Schoeneman D. Spencer Bliss Steward.Berkshire Eldon P . King A. R. Marrs.. Elmer L. Irey Bertha Wetherton, . Commissioner of Internal Revenue. Assistant to the Commissioner. Deputy Commissioner. Deputy Commissioner. Deputy Commissioner. _ Deputy Commissioner, Special Deputy Commissioner. H(iad, Technical Staff. Chief, Intelligence Unit, Special Assistant to the'Commissioner. . BUREAU OF CUSTOMS W.R.Johnson Frank Dow Thoirias J. Gorman A.S.Johnson.— (Vacant) Commissioner of Customs. Assistant Commissioner of Customs. Deputy Commissioner. Deputy Commissioner. Deputy Commissioner. BUREAU OF T H E M I N T Nellie Tayloe Ross Leland Howard . Director of the Mint. Assistant Director. U N I T E D STATES COAST GUARD Rear Admiral Russell R. Waesche Rear Admiral Leon C. Covell.. .._.. Rear Admiral Harvey F . Johnson Capt. N . B. Hall Capt. C. H.Jones Capt. P. F, Roach Commander Frank J. Gorman Kenneth S. Harrison Commandant. Assistant Commandant and Chief of Operations, Engineer in Chief and Chief, Material Division. Inspector in Chief. Chief, Personnel Division. Chairman of Permanent Board. Chief, Finance Division. Chief, Legal Division. XIX XX" PRINCIPAL ADIMINIST'RAT'IVE. AND' STAFF OFFIiCERS P R O C U R E M E N T DIVISION Clifton E, Mack Robert LeFevre George Landick, Jr W. N. Rehlaender . .' L Director of Procurement. Assistant Director. Assistant to the Director. Administrative Assistant to the Director. BOARD OF AWARDS George Landick, Jr., Assistant to the Director, Chairman. Harry B. Dyche, Special Assistant to the Director. Thomas A. Manning, Jr., Chief Counsel. STANDING DEPARTMENTAL COMMITTEES BUDGET AND I M P R O V E M E N T C O M M I T T E E C. R. Schoeneman, Chairman. E. R. Ballinger. F. A. Birgfeld, Vice Chairman. L. C. Spangler. George 0 . Barnes. Arthur E. Wilson. M". E. Slindee. E. C. Nussear, Secretary. Charles S. Bell. C O M M I T T E E ON E N R O L L M E N T AND DISBARMENT Guy C. Hanna, Chairman. W. W. Cook. George D. Carrington. E. B. Van Veen, Attorney for the Government. C O M M I T T E E ON P E R S O N N E L F. A. Birgfeld, Chairman. James E. Harper. (Vacant.) BOARD OF REVIEW (Refunds of Processing Taxes) William Schwartz, Chairman. (Vacant), Vice Chairman. John W. Edwards. H. Stewart McDonald. Percy S. Crewe. Annabel Matthews. Temple W. Seay. Bernard D. Hathcock. DEPARTMENT OF THE TREASURY N o v e m b e r 15. 1940 THE SECRETARY OF THE TREASURY THE UMOER lECRETARy GENERAL COUNSEL ASSISTANT CHARSEOF COAST 6UAR0, CUSTOMS, NARCOTICS AND ASSISTANT SECRETARY INTERNALREVENUE ASSISTANT TO THE SECRETARV OrriCE Of THE LEGISLATIVE COUNSEL BUREAU OF ENGRAVING LEGAL DIVISION DIVISION DIRECTOR DF RESEARCH NO STATISTICS COAST GUARD O f F I C E OF THE TRtASURSR OF TMI UNITED STATES OC DEPARTMENT ACCOUNTS AND AUDIT SAVINGS BONOS ADMINISTRATIVE ASSISTANT TO THE SECRETARV ANNUAL REPORT ON THE FINANCES TREASURY D EPARTMENT, WashingtoUj D. C , January ff, 1941. SIR : I have the honor to make the following report on the finances of the United States for the fiscal year ended June 30, 1940. The fiscal year 1940 marked the transition from a period of about eight years during which the fiscal policy was concerned primarily with the problems arising out of the depression to a period in which it appears that the emphasis is likely to be placed upon fiscal problems connected with the country's rearmament program. I t seems appropriate, therefore, to review at this time developments relating to the Treasury and the fiscal operations of the Government for the entire eight-year period, as well as those for the fiscal year just closed. BUDGET RESULTS Receipts in general and special accounts Fiscal years 1933 to 194-0 ! Total receipts in general and special accounts amounted to $5,925 millions in the fiscal year 1940, and net receipts, i. e., total receipts less net appropriations to the Federal old-age and survivors insurance trust fund, totaled $5,387 millions. This level of total receipts represents a resumption, after a reversal in the fiscal year 1939, of the rise in total receipts from the low level of $2,080 millions in the fiscal year 1933 and comes within $317 millions of equaling the 1938 total receipts which were next to the highest (1920) of any year of our history. The table below shows total and net receipts in the fiscal year 1940 and the trend of receipts during the eight fiscal years, 1933 to 1940. Total receipts and net receipts under general and special accounts, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 583] . Year 1933 1934 1935 1936 Net appropriations to oldTotal Federal age and receipts - survivors insurance trust fund * 2,080 3,116 3,800 4,116 1 Formerly old-age reserve account. Net receipts—total receipts less net appropriations to Federal oldage and survivors insurance trust fund 2,080 3,116 3,800 4,116 Net reNet appro- ceipts—total receipts less priations to net approold- priations Total Federal to age and receipts oldsurvivors Federal age and insurance survivors . trust fund > insurance • trust fund Year 1937 1938 1939 1940 ..-. 5,294 6,242 6,668 5,925 265 387 503 538 5,029 5,855 5,165 5,387 REPORT OF THE SECRETARY OF THE TREASURY The following chart shows total receipts including employment taxes, by principal sources, for the fiscal years 1933 to 1940. Figures on which the chart is based appear in the table on page 650. The 1940 receipts are discussed on pages 19 to 22. TOTAL RECEIPTS.! FISCAL YEARS 1933 TO 1940, BY PRINCIPAL SOURCES 1935 1936 F I S C A L 1937 Y E A R S 1938 CHART 2. Total revenue has increased $3,845 millions between the fiscal years 1933 and 1940. Of this amount, $3,801 millions is represented by increased internal revenue taxes, contributions under the Railroad Unemployment Insurance Act, and customs. If the taxes based on employment including contributions under the Railroad Unemployment Insurance Act are deducted, the increase is $2,963 millions. Both legislative changes and improvement in business conditions have contributed to the revenue increases. The relative effects of the legislation itself can be separated approximately from the effects of business conditions by computing estimated tax liabihties under the same business conditions imder revenue laws which existed at the beginning and end of this period. In this manner there has been prepared a comparison of the relative strength of the tax structure now (December 1940) with the laws ^Excludes trust accounts. REPORT OF THE SECRETARY OF THE TREASURY 6 which prevailed immediately prior to the fiscal year 1933, i. e., just before the passage of the Revenue Act of 1932 and also under the Revenue Act of 1932. The table below presents forecasts of the estimated tax liabilities (excluding miscellaneous receipts) for the calendar year 1941 (which will, in many cases, represent tax collections in the fiscal year 1942 or subsequent years) on three bases: (1) The laws in effect immediately prior to June 6, 1932—immediately prior, that is, to the first major revision of revenue legislation after the onset of the depression, (2) the laws in effect immediately after the passage of the Revenue Act of 1932, and (3) existing legislation as of December 31, 1940. The estimates in this table are based upon a classification which groups Federal receipts from related sources. Estimated Federal tax liabilities^ for calendar year 1941,^ based on the tax structures of (1) May 1932, (2) immediately following the passage of the Revenue Act of 1932, and (3) December 1940 [In millions of dollars] Under laws- Tax group Individual income, estates, and gifts. Corporate income and profits Liquor _ Tobacco Other miscellaneous i n t e r n a l revenue... .Employment *. Customs ^ Total tax liabilities. Of May 1932, immediately preceding the passage of the Revenue Act of 1932 Increase (+) or Increase (+) decrease ( - ) or decrease laws in exist(—) laws in ence December Of July 1932. existence 31,1940, over immediately Of Decem- December 31, laws immedifollowing ately following ber 31, 1940, over passage of laws of May 1940 passage of Revenue Act 1932 Revenue Act of 1932 of 1932 594 1,277 1,308 1,594 39 654 2.230 3.723 825 704 -f-2,446 +922 +2,129 +816 +50 39 777 879 957 295 +840 +957 +6 +102 +957 +6 9,613 +6,751 +4,982 289 2,862 4.631 -\-l, 636 -1-816 +60 1 Excluding miscellaneous receipts. In preparing this table the tax base was assumed to be independent of the tax structure. * These estimates are based upon the same estimated levels of business activity for calendar year 1941 as those used in making the revenue estimates contained in the 1942 Budget Message of the President. 3 This estimate assumes the eighteenth amendment in effect. Application of the 1932 liquor tax rates to the present volume of liquor consumption would yield a much higher amount. < Includes collections under Railroad Unemployment Insurance Act. The tax structure of May 1932, as shown in the table, would have provided $2,862 millions of tax liability, based on business conditions similar to those estimated to affect liabilities during the calendar year 1941. Under the tax structure after the passage of the Revenue Act of 1932j it is estimated that tax liabilities would amount to $4,631 millions, indicating that the Revenue Act of 1932 strengthened the tax structure by $1,769 millions at the indicated business levels. The strengthening of the tax structure since the passage of the Revenue Act of 1932 has been principally attributable to taxes collected from liquor largely as a result of the repeal of prohibition 4 REPORT OF THE SECRETARY OF THE TREASURY and others levied for special purposes—namely, those collected in conjunction with the insurance features of the Social Security program, and those levied under the two revenue acts of 1940, which were passed in connection with financing the defense preparedness program. These three items account for nearly $4,000 millions of the $4,982 millions increased revenue yield of the present tax structure over the tax structure existing immediately after the passage of the Revenue Act of 1932. The balance of the strengthening came about principally by increasing the progressive taxes levied upon incomes, estates, and gifts. Under taxes existing on December 31, 1940, the total tax liability is estimated at $9,613 millions. The table on page 654 is in terms of tax collections (excluding miscellaneous receipts) allocated to estimated calendar years of incurrence of tax liability. In studying changes in taxes the movement of liabilities accrued in a particular year is often more illuminating than is the movement of receipts. Tax statutes frequently result in receipts being reflected in the Treasury's receipts months after the corresponding liabilities accrue to the taxpayer. Tax liabilities reflect earlier and more clearly the effects of legislative and economic changes, and probably give a truer picture of underlying conditions. For example, tax receipts in the fiscal year 1930 were higher thaii in 1929, and in the fiscal year 1938 were higher than in 1937, chiefly because of the long lags involved between the incurrence of tax liability and payments to the Treasury. The summary table below shows for the calendar years 1933 to 1939 the total tax collections (excluding miscellaneous receipts) allocated to the estimated years of incurrence of the tax liability. The classes are indicated-in the table itself, and details as to the classification of any particular tax may be found in the table on page 654. Tax collections allocated by groups to estimated year of incurrence of the tax liability,^ calendar years 1933 to 1939 [In millions of dollars. On basis of reports of collections , see p. 584] Tax group I. Individual income, estates, and gifts _ II. Corporate income and profits III. Liquors IV. Tobacco. _ V. Other miscellaneous internal revenue VI. Employment 2.. VII. Agricultural adjustment V i n . Customs Total tax liabilities 1933 1934 612.7 574.1 138.5 409.3 514.7 858.4 1, 206. 3 1, 741.7 1, 605. 5 1, 248. 5 1, 389.4 783.3 960.4 1,469. 8 1, 507. 0 1,090.4 1, 440. 5 366.9 566.8 459.8 588.0 561.3 601; 4 451.9 535.8 566.7 477.9 562.8 592.8 560.7 488.2 569.1 613.2 498.6 614.0 734.1 81.3 790.1 809.5 508.0 277. 5 414.0 332.8 308.1 363.8 482.7 309.0 183.9 288.2 1935 1936 1937 1938 1939 2, 721.4 3,764.8 4, 244. 3 5, 378. 5 6,149. 3 5,070. 7 5,780.4 1 These estimates, which exclude miscellaneous receipts, are not to be confused with data of actual flscal or calendar year collections in the indicated years. 2 Includes collections under Railroad Unemployment Insurance Act. SOURCE.—Table on p. 654. REPORT OF THE SECRETARY OF* THE TREASURY . The table that follows shows Federal tax liabilities and national income produced for calendar years 1933 to 1939. National income '^produced'' is defined by the Department of Commerce as '^the net value of all goods and services produced within a given period.'^ I t differs from the concept of national income *^paid out'' in that it includes * ^business savings"—i. e., the undistributed net profits of business enterprises—but excludes unearned interest and dividend payments as well as business losses before such payments. I t should, of course, be stressed that Federal tax liabilities should not properly be subtracted from national income, either produced or paid out. They are not a burden or drain upon the sum total of national income. They contribute materially to national income produced when, after being collected as taxes, they are spent by the Government. Any list of the forms in which Federal expenditure increases national income would include such items as salaries, educational services, streets and highways, conservation of natural resources, public works, furnishing of national defense, public health, and emergency relief. National income and Federal tax liabilities, calendar years 1933 to 1939, and at assumed higher levels of national income [In millions of dollars] Calendar year 1933 1934 1935 1936 1937 1938 1939 - National income produced 42,430 50,347 55,870 65,165 71,172 63, 610 69, 378 90,000 100,000 Federal tax liabilities 2,721 3,765 4,244 5,379 6,149 5,071 5, 780 1 11, 200 1 13,400 1 These estimates, which are based on the law existing in December 1940, including the temporary tax rates of the Revenue Act of 1940, are rough and may vary somewhat either way. They are presented as an indicator and not a gauge. The $90,000 million and $100,000 million levels of national income are not predictions for any particular year. In addition to the tax liabilities the Federal Government collects miscellaneous revenues and receipts which are not estimated at the $90,000 million and $100,000 million levels of national income produced. In the fiscal year 1942 these are estimated at $169 millions. SOURCES.—Table on page 654 for tax liabilities. Survey of Current Business, U. S. Department of Commerce, June 1940, table I, page 7, for national income produced. The last two lines in the table above have been included in order to present some idea of the strength of the tax structure as of December 31, 1940, at higher levels of national income than now exist. These estimates are of a different type than those appearing elsewhere in the table. They are not predictions of the indicated levels of national income for any particular year but are rough indications of the level of receipts under certain assumed conditions. I t is not meant to imply that Federal tax liabilities correlate merely with national income produced or t h a t they may be estimated merely by reference to it. There is no one answer as to the amount of revenue at a giveii 6 REPORT OF THE SECRETARY OF THE TREASURY level of national income. The course of the national income—upward, downward, irregularly fluctuating, or lateral—has a great influence upon tax liabilities. The composition of the income—i. e., its division between types of income and classes of income receivers—also has a great influence. The assumption in connection with the estimates at the $90 billion and $100 billion national income levels is that the income remain constant at each level for some years. The assumptions with respect to composition have been made with special reference to the existing international situation. Under these assumptions, if the national income were to achieve an annual level of $90 billions for several years, it is estimated that the existing tax structure would produce approximately $11,200 millions in annual tax liabilities. Under comparable circumstances an annual $100 billions national income would provide annual Federal tax liabilities of $13,400 millions. This tax yield would be unprecedented in our national history. The table below shows these estimates of total tax receipts at national income levels of $90 billions and $100 billions by principal sources. Employment taxes in each of these estimates are computed at calendar year 1940 rates. Estimated total Federal tax receipts,^ in general and special accounts, by principal sources, at assumed levels of national income [In billions of dollars] National income produced Source Income taxes _ Miscellaneous internal revenue Customs Employment taxes 'Total tax receipts s $90 billion level __ $100 billion level 6.6 3.3 .3 1.0 8.5 3.5 .3 1.1 11.2 13.4 » Based upon the law existing in December 1940, including the temporary tax ratas of the Revenue Act of 1940. These estimates of receipts assume continuation of the present international situation. » At 1940 rates; includes collections under Railroad Unemployment Insurance Act. 3 Miscellaneous receipts have not been estimated at the mdicated national income levels. In the fiscal year 1942 they are estimated at $169 millions. The Federal tax structure as it exists in 1940 and as it existed after the passage of previous revenue laws is shown in summary form in the exhibit beginning on page 466. The discussion that follows summarizes legislation and developments that affected revenues during the eight fiscal years between July 1, 1932, and June 30, 1940. This discussion, except for fiscal year 1940, excludes discussion of miscellaneous revenues and receipts and is therefore confined to other tax receipts and customs and to the changes therein. Miscellaneous revenues and receipts constitute a very small proportion of the total Federal receipts. Although a few small tax items are included in this group, the bulk of it is nontax revenues, such as fees, fines, tolls. REPORT OF THE SECRETARY OF THE TREASURY 7 interest on obligations held by the Government, seigniorage charges, gifts, etc. These revenues amounted to from $162 millions to $268 millions annually in the period under review. Revenue Act oj 1932.—The Revenue Act of 1932, approved June 6, 1932, was the first major revenue law passed after the onset of the depression. I t was passed in the face of the necessity of increased revenues at a time when there had been a drastic decline in the existing tax base. Though the date of its passage would include it in the events of the fiscal year -1932, its provisions did not affect Federal revenues or liabilities until the fiscal year 1933. The principal provisions of the Revenue Act of 1932 were the following: (1) Increase in the corporation income tax rate from 12 percent to 13% percent, with an additional tax of % of 1 percent for consolidated returns and the removal of a specific credit of $3,000. (2) Increase in the normal rates on individual incomes from 1}^, 3, and 5 percent to 4 and 8 percent; elimination of any tax credit for earned income; reduction in personal exemptions from $3,500 and $1,500 to $2,500 and $1,000 for married persons or heads of families and single individuals, respectively; surtaxes graduated from 1 percent on net income in excess of $6,000 (as compared with $10,000 under the previous revenue act), up to 55 percent on net income in excess of $1,000,000 (as compared with a maximum surtax of 20 percent on net income in excess of $100,000 under the previous act); changes in the capital gains provision of the law to limit losses from the sale or exchange of stocks and bonds held two years or less to the amount of gains from similar transactions, with a one-year carryover of the disallowed losses. (3) An additional tax at graduated rates on estates, with an exemption of only $50,000 (it had been $100,000 under the Revenue Act of 1926), the additional tax to be paid to the Federal Government without tax credit for payment of State inheritance taxes. (4) A gift tax at rates graduated up to 33K percent on net gifts in excess of $10,000,000, with an exemption of $50,000 plus an annual exemption for each donee of $5,000. This tax was included to assist in the collection of the income and estate taxes and partially prevent their avoidance through the splitting up of estates during the lifetime of the taxpayer. (5) Special manufacturers' excises on specific articles. The list included lubricating oil and gasoline, automobiles, trucks, parts and accessories, tires and inner tubes, brewer's wort, candy, chewing gum, soft drinks, jewelry, toilet preparations, furs, domestic and commercial consumption of electricity, radios, mechanical refrigerators, sporting goods, cameras, malt and grape concentrates, matches, firearms, shells 8 REPORT OF THE SECRETARY OF THE TREASURY and cartridges. Of these taxes, that on gasoline proved the most productive as a source of revenue. These taxes, in general enacted for a 2-year period, were originally intended to be temporary. The majority remained in effect until 1938 and certain ones are now scheduled to expire in 1945. (6) Other miscellaneous taxes, including new and increased stamp taxes, increased taxes on admissions, and new taxes on telephone, telegraph, cable, and radio messages, checks, leases of safe deposit boxes, transportation of oil by pipe line, and the use of yachts and boats. Fiscal year 1933.—The fiscal year 1933 saw the first effects of the revenue act of the preceding year and the creation of a tax base in the liquor industry. The tax revenues decreased from the level of the previous year but the decrease was only slight—approximately $34 millions. Revenues other than those from income taxes and customs actually increased. Income tax revenues declined by $311 millions—the decline in incomes between 1930 and 1932 (1931 being common to both years) more than offsetting the increase in rates. Customs declined by $77 millions, reaching their lowest level since 1919, as the quantity of imports fell and depreciation of foreign currencies lowered ad valorem duties. The new manufacturers' excises of the Revenue Act of 1932 brought in $248 millions the first year, half from gasoline, and the other new taxes accounted for another $68 millions. The Volstead Act was amended to permit the sale of beer and light wines, and the act which legalized them (approved March 22, 1933) also provided for taxes upon fermented liquor which yielded $35 millions before the close of the fiscal year. This act was the only significant new item of revenue legislation m the fiscal year 1933 to affect the revenues in that year. The Agricultural Adjustment Act, approved May 12, 1933, and the National Industrial Recover}^ Act, approved June 16, 1933, included new taxes which added to the revenues of subsequent fiscal years. These taxes did not affect the revenues during the fiscal year 1933. The Agricultural Adjustment Act of 1933 imposed taxes upon processors of selected farm products at rates to be determined by the Secretary of Agriculture to equal ^Hhe difference between the current average farm price for the commodity and the fair exchange value of the commodity . . ." Corresponding taxes were also placed on floor stocks and imports of the commodities taxed, and on rival products competing with these basic agricultural commodities. The tax was designed primarily to finance the activities of the Agricultural Adjustment Administration, in its program to raise the prices of farm products to ''parity" by crop reductions and otherwise. The processing tax provisions of this act, together with its amendments of later fiscal REPORT OF THE SECRETARY OF THE TREASURY 9 years, were held unconstitutional on January 6, 1936, by the United States Supreme Court. The main tax provisions of the National Industrial Recovery Act were four in number: (1) A capital stock tax at the rate of $1 for each $1,000 of the declared value of a corporation's capital stock. (2) An excess-profits tax on corporations at the rate of 5 percent on the portion of the net income in excess of 12}^ percent of the adjusted declared value of the stock of each corporation. (3) A tax of 5 percent upon all dividends paid by corporations to individuals and to foreign corporations, to be withheld by the dividend-paying corporation. (4) The manufacturers' excise and other taxes imposed by titles IV and V of the Revenue Act of 1932 were extended for one year after June 30, 1934. The rate of the gasoline tax was increased from 1 cent to Iji cents a gallon, and Public No. 73, approved the same day, placed the expiration date of the gasoline tax on the same basis as the other temporary manufacturers' excise taxes imposed by the Revenue Act of 1932. I t was provided that the new and increased taxes imposed under the National Industrial Recovery Act should cease to be effective at stated periods after the President proclaimed the date of (1) the close of the fiscal year ending June 30 of any year after 1933, during which the total receipts of the Government exceeded its total expenditures, or (2) the repeal of the eighteenth amendment to the Constitution, whichever was the earlier. Fiscal year 1934-—The first fiscal year to reflect approximately a full year's collections under the income and estate tax provisions of the Revenue Act of 1932 was 1934, as 1933 had been the flrst to reflect the manufacturers' excise and other miscellaneous provisions of this act. Total tax revenues amounted to $2,954 millions, a gain of $1,099 millions over revenues in the fiscal year 1933. Both personal and corporate income' tax receipts rose during this year despite the fact that their base was now the two low income years, 1932 and 1933. The increase in current corporation income tax was $2 millions, the increase in current individual income tax receipts was $60 millions, and the increase in estate tax receipts was $74 millions over the levels of the previous fiscal year. The other outstanding increases in revenue came in the gasoline excise which yielded $78 millions more due to the increase to 1 ji cents a gallon by the National Industrial Recovery Act, and in fermented malt liquors where, following the repeal of prohibition, there was an increase of $134 millions in tax revenue. The new taxes imposed under the National Industrial Recovery Act yielded $133 miUions (capital stock tax $80 millions, dividends tax $50 millions, excess-profits tax $3 millions), and the Agricultural Adjustment Act processing taxes yielded $371 millions. In addition, the eighteenth amendment had been repealed, and the sale of distilled spirits was now legal in many States. Federal 10 REPORT OF THE SECRETARY OF THB TREASURY revenues from the taxation of distilled liquors in the fiscal year 1934 amounted to $90 millions. This amount included the small receipts from the taxation of liquor sold for medicinal and other legal purposes during the period from the beginning of the fiscal year to the repeal of prohibition on December 5, 1933, the receipts from the application of the pre-prohibition rates on liquor sales from December 5, 1933, until the effective date of the Liquor Taxing Act on January .11, 1934, and the receipts at rates levied by this act for the remainder of the fiscal year. All other major taxes showed increasing returns, with the upturn in business. Even customs, with a $63 millions increase, reversed a downward trend which had covered the previous four years. Important changes in Federal taxes occurred during this fiscal year. The Liquor Taxing Act, approved January 11, 1934, raised the excise rates on distilled spirits and still wines and lowered the license taxes on brewers and the excises on beer. When the eighteenth amendment was formally repealed (December 5, 1933), the President, acting in accord with the National Industrial Recovery Act, issued a proclamation which had the effect of repealing certain of the National Industrial Recovery Act taxes as of the following dates: The dividends tax was repealed as of December 31, 1933, and the rate of the gasoline tax reverted to its 1 cent a gallon rate after that date, the capital stock tax was not to apply to any year except the year ending June 30, 1933, and the excess-profits tax was not to apply to any taxable year ending after June 30, 1934. The Revenue Act of 1934 was approved May 10, 1934. This act provided for four principal changes from the 1932 rates: (1) The corporate income tax was amended to allow consolidated returns only in the case of railroads. This meant that under this act two corporations under the same ownership, other than railroad corporations, could not cancel the losses of one against the profits of another for the purpose of diminishing or avoiding the payment of the income tax. The consolidated return rate was increased to 15% percent while the regular rate remained at 13% percent. A further change in the corporate income tax was designed to discourage a method of personal income tax avoidance. Individuals and groups of individuals had been arranging to have their incomes received by closely held corporations which would then invest such incomes but make little or no distribution of such incomes to shareholders. These corporations carried on no business other than the investment of their income, and were known as ''personal holding companies." The 1934 act placed special taxes on these corporations. ^ The taxes on capital stock and excess profits of corporations, originally imposed under the National Industrial Recovery Act and repealed upon the adoption of the twenty-first amendment to the Constitution, were again imposed. REPORT OF THE SECRETARY OF THE TREASURY 11 (2) The personal income tax was made more sharply progressive by lowering the normal tax rate to a flat 4 percent, raising surtax rates, and restoring a 10 percent earned income credit against the normal tax. However, this was partially offset by permitting the personal exemption and credit for dependents as a credit in determining surtax net income. The entire method of taxing capital gains— previously taxed as ordinary income or subject to a flat rate of 12)^ percent, at the option of the taxpayer—was altered. Depending on the length of time the assets had been held, the taxpayer was to include a varying proportion of the capital gain as net income. Deduction of capital losses was limited to capital gains plus $2,000, regardless of the time for which such assets had been held. For corporations no distinction was made for the length of time for which the assets were held but capital losses were limited to capital gains plus $2,000. (3) Tax rates on both estates and gifts were raised. The increase in the gift tax was not to take effect until the calendar year 1935, although the estate tax rates were effective immediately upon the signing of the law by the President. Donors took advantage of the period between the effective date of the act on May 10, 1934, and the end of the year to make a large amount of gifts at the 1932 act rates. (4) Manufacturers' excise taxes were altered somewhat. Imports of various marine animal and fish oils which competed with domestic products were tax.ed, and processing taxes on vegetable and coconut oils, either domestic or imported, were imposed. Taxes collected on Philippine coconut oil were to be held as a separate fund and paid to the treasury of the Philippine Islands. On the other hand, certain of the excises of the 1932 act were modified. The taxes on soft drinks, candy, and checks were repealed, increased exemptions were added to the taxes on furs and jewelry, and the stamp tax on the sale of produce for future delivery was reduced. (5) A special tax, to apply to contracts and subcontracts for the construction of naval vessels and aircraft, was included in the VinsonTrammell Act, approved March 27, 1934. This act limited all such profits.to 10 percent of the contract price. (6) The Reciprocal Trade Agreements Act was approved on June 12, 1934. This act authorized the President for three years to enter into reciprocal trade agreements with foreign governments wherein, among other things, existing duties might be modified by not more than 50 percent of the duty imposed under the Tariff Act of 1930. This act w^s renewed in 1937 and again in 1940. Fiscal year 1935.—Continued improvement in business conditions combined with the higher rates of the 1934 Revenue Act to make for continued increase in Federal revenues during the fiscal year 1935. Current corporation income taxes rose $144 millions and current individual income taxes rose $93 millions. Aside from these, the largest 269677—41 3 12 REPORT OF THE SECRETARY OF THE TREASURY increase came in the liquor schedule. Liquor production and consumption were mounting steadily, and liquor tax receipts rose from $259 millions m 1934 to $411 millions m 1935, the first full fiscal year after repeal of prohibition. Additions to the list of commodities covered by the Agricultural Adjustment Act probably were responsible for the greater part of the $155 million increase recorded in these taxes. The very great increase in gift tax receipts to $72 millions from $9 millions probably was caused by gifts made because of immediately higher estate and prospectively liigher gift tax rates imposed under the Revenue Act of 1934. Receipts from the tax on gasoline totaled $162 millions as compared with $203 millions in 1934. This decrease was more than accounted for by the reduction in rate from IK cents in the first half of the fiscal year 1934 to 1 cent in subsequent periods. A rise of $30 millions in customs receipts reflected increased liquor and agricultural imports, the latter brought about by the drought of 1934. Total receipts from taxation rose from $2,954 millions to $3,621 millions. The principal revenue legislation of the flscal year 1935 was the extension for two years of the special taxes imposed by the Revenue Act of 1932, except for the tax on checks which was repealed as of January 1, 1935. These taxes had been originally designed to expire on Jime 30 or July 31, 1934, and the National Industrial Recovery Act had postponed the expiration date for one year. There were also enacted a considerable number of additions to and modifications of the Agricultural Adjustment Act, chiefly concerned with extending the list of commodities covered and extending temporary provisions in time. Fiscal year 1936.—The bulk of revenue changes during the flscal year 1936 represented the effects of continued business improvement. However, a portion of the $145 millions increase in current corporation tax returns may be ascribed to altered Treasury regulations regarding deductions for depreciation. Income tax collections, current and back, continued to increase as did all major sources of revenue with the exception of agricultural adjustment taxes. Almost immediately following the beginning of the flscal year, cases attacking the constitutionality of the processing taxes began to be supported by the courts, so that tax funds were impounded and taxpayers delayed filing their returns. The taxes were declared unconstitutional in January 1936 and returns ceased, leaving the total collections for the year at $68 millions, a decrease of $459 millions from the previous year. The rising level of industrial activity and a 50 percent reduction in the rates on imported distilled spirits more than offset the drop in agricultural imports foUowing normal domestic crop production so t h a t receipts from customs duties increased, and total tax revenues rose $279 miUions to $3,900 miUions. REPORT OF THE SECRETARY OF THE TREASURY 13 Two revenue acts were passed during the fiscal year 1936, neither of which was to affect revenue materially until the following fiscal year. The Revenue Act of 1935 was approved August 30, 1935. All individual income surtax rates were raised for surtax net incomes above $50,000 and the maximum of 59 percent (on incomes above $1,000,000) increased to 75 percent (on incomes above $5,000,000). (The 75 percent rate compares with the previous top rate of 65 percent levied on incomes above $1,000,000 in 1918-1921.) All estate and gift tax rates were raised also; the maximum estate tax rate was revised from 60 percent on net estates over $10,000,000 to 70 percent on net estates over $50,000,000; the maximum gift tax rate was increased from 45 percent on net gifts over $10,000,000 to 52^ percent on net gifts over $50,000,000. The date of filing estate tax returns was extended to 15 months after decedent's death, and optional valuation of estates either at the time of death or 1 year later was permitted. The specific exemptions for both estate and gift taxes were reduced from $50,000 to $40,000. Two new features were introduced into the corporation income tax by the Revenue Act of 1935. The first was a progressive tax. Instead of the flat rate of 13% percent the rate scale was graduated from 12}^ percent on the first $2,000 of net income to. 15 percent on net incomes of over $40,000. The second required 10 percent of the dividends received from domestic corporations to be included as ordinary income by the receiving corporation. These dividends had previously been tax-exempt except in the calendar years 1913 to 1916 when the tax rate was only 1 percent and 2 percent. The corporation income tax provisions did not, however, go into effect, but were superseded by those of the Revenue Act of 1936, approved June 22, 1936. The 1936 act retained the progressive principle of the previous legislation as applied to corporate income, but lowered the rates in all but the highest bracket, and in addition imposed graduated surtaxes of from 7 to 27 percent upon undistributed corporate net income arising in taxable years beginning after December 31, 1935. The applicable rate was based upon the percentage of corporate net income remaining undistributed. The Revenue Act of 1936 also made 15 percent of intercorporate dividends (instead of 10 percent as in the act of 1935) subject to the normal tax, and all corporate dividends received by individuals were made subject to the normal tax as weU as the surtax. Aside from the above income tax provisions, the Revenue Acts of 1935 and 1936 made further changes in the revenue structure, the principal ones being: (1) The 1935 act increased the rate of tax on the declared value of capital stock and also permitted a redeclaration of the value. The 14 REPORT OF THE SECRETARY OF THE TREASURY higher rate, which was to become effective June 30, 1936, did not become effective as it was superseded by the Revenue Act of 1936, which was passed prior to that date, and contained rates the same as had been in effect. (2) The excess-profits rates of the 1935 act were increased from 5 percent of all income in excess of 12}^ percent of the declared value of capital stock to 6 percent of the excess above 10 percent and less than 15 percent, and 12 percent on all other excess income. (3) After the Agricultural Adjustment Act processing taxes were declared unconstitutional, the Revenue Act of 1936 imposed an 80 percent tax on Federal excise taxes shifted but unpaid and on refunds of such taxes as had been shifted to others, in order to avoid an unfair competitive advantage being given processors who had not paid processing taxes over those who had. (4) The 1935 act reduced the tax on producers of crude petroleum. The 1936 act eliminated the jewelry tax, lowered the rate on furs while removing exemptions, and imposed taxes on the importation of certain additional types of seeds and oils. Further legislation included the Social Security Act, approved August 14, 1935. This act imposed two taxes in connection with the old-age insurance provisions of the act: (1) An income tax on employees (with certain occupational exceptions) starting at 1 percent in 1937 and rising gradually to 3 percent after 1948, based on wages received not in excess of $3,000 per annum; and (2) an excise tax on employers (with certain occupational exceptions) starting at 1 percent in 1937 and rising gradually to 3 percent after 1948, based on wages paid, not in excess of $3,000 per annum, to each individual in his employ. In addition, the act imposed in connection with the unemployment insurance features of the social security program an excise tax on employers of eight or more (with certain occupational exceptions) equal to 1 percent of the total wages payable in the calendar year 1936, 2 percent in 1937, and 3 percent in 1938 and thereafter. The act allowed a credit of 90 percent of the tax imposed for contributions paid into an unemployment fund under a State law. Shortly after the passage of the Social Security Act the Carriers Taxing Act of 1935 was approved (August 29, 1935). After August 29, 1935, it provided for a tax upon the income of carriers' employees equivalent to 3K percent of the compensation received up to $300 a month, and an excise tax upon carriers equivalent to 3K percent of the compensation not in excess of $300 a month paid to their employees. The Bituminous Coal Conservation Act of 1935, approved August 30, 1935, imposed an excise tax of 15 percent of the sale price of bituminous coal produced after November 1, 1935. Of this tax, 90 percent was to be refunded to producers complying with the Bituminous Coal Code. The Supreme Court held this act unconstitutional EEPOiR'T OF T H E SE:CIlJETAEiY OF T H E TREASURY 15 before the end of the fiscal year. Two acts pertaining to liquor, the Federal Alcohol Administration Act of 1935 and the Liquor Tax Administration Act of 1936, made improvements in liquor tax administration. The latter act reduced by 50 percent the rates on wines. These rate decreases did not, however, become effective until the following fiscal year. Fiscal year 1937.—The fiscal year 1937 covers the period of the highest business activity during the recovery period. Income tax receipts reflected the business conditions and tax structure of the two previous years, but all other revenue items changed chiefly due to the tide of business advance. Tax receipts rose by $1,184 millions during the year. The rise in income taxes was especially marked—$407 millions in individual and $284 millions in corporation. The provisions of the Revenue Act of 1936 as well as the business upturn were having their effect. Receipts of $253 millions from social security taxes constituted a new source of income. Customs receipts accelerated a rise which had begun in 1934, increasing by $100 millions to $486 miUions. While imports of all classes of merchandise increased and the value of imports exceeded the value of exports for the first time since 1893, the excess amounting to $104 millions, much of the increase in customs duties was due to the drought in 1936. The only drastic decreases in receipts were in processing taxes, which ceased following invalidation of the Agricultural Adjustment Act, and gift taxes, where there was a fall from $72 milhons in 1935 and $160 miUions in 1936 to $24 miUions. This decline may be ascribed to the gifts made in the earlier years in anticipation of the higher rates of the 1934 and 1935 Revenue Acts and the removal of any comparable incentive to make gifts in 1937. Revenue legislation enacted during the fiscal year was confined to three measures: (1) The temporary taxes of the Revenue Act of 1932, originally designed to expire on June 30 or July 31, 1934, had been previously extended (with slight modifications) to 1937. On June 29, 1937, these taxes were further extended for two years. (2) The old-age insurance provisions of the Social Security Act had excepted carriers and their employees from its provisions and this class of workers had been covered by a special act of August 29, 1935. This act was repealed by the Carriers Taxing Act of 1937, approved June 29, 1937, which lowered the rates of the 1935 act retroactively to January 1, 1937, but no coUections were due under it until the fiscal year 1938. (3) Following the invalidation of the Bituminous Coal Conservation Act of 1935, the Bituminous Coal Act of 1937 was enacted on April 26, 1937, and became effective on June 21, 1937. This act imposed 16 REPORT OF THE SECRETARY OF THE TREASURY an excise tax of 1 cent a ton on coal sold by the producer who conformed with the code. In addition a tax of 19K percent on the market value of coal sold by producers not members of the code was imposed if its sale was in interstate commerce or if the National Bituminous Coal Commission held that such transactions in intrastate commerce imposed an undue disadvantage on interstate commerce. This act is scheduled to expire on April 26, 1941. Fiscal year 1938.—A business recession which began in the spring and summer of 1937 continued into the fiscal year 1938. Income taxes, both individual and corporate, estate taxes, and gift taxes continued to reflect conditions of the prosperous calendar years 1936 and 1937 and the tax increases of the Revenue Act of 1936. Most other sources of revenue showed small changes, or resulted from new laws. The total receipts from taxation increased $950 millions to $6,034 millions. Half the increase ($477 mUlions) was in income taxes, another $101 millions in estate taxes, and there was a $502 millions increase in employment taxes, which reflected for the flrst time receipts of a full year's liabilities and the collection of an additional quarter's liability in the case of the Carriers Taxing Act of 1937. New taxes on bituminous coal and sugar yielded $34 mUlions. The largest decreases came in liquors, $26 millions, and in customs, where a decline of $127 mUlions was due to a substantial contraction in imports, especially in the agricultural schedule. The Revenue Act of 1937 was approved on August 26, 1937. This act was concerned chiefly with an effort to check income tax avoidance. The principal speciflc provisions were: (1) Broadening of the concepts of personal holding companies and personal holding company net income. In addition, the surtax rates were sharply increased on the income of such companies. (2) Nonresident aliens, previously subject'only to a flat 10-percent tax on income received from the United States, were made subject to full surtax rates if these would be over 10 percent. (3) "Personal" exemptions were removed from trusts which allowed their income to accumulate. The Revenue Act of 1937 affected only taxable year incomes of 1937, except insofar as its provisions were re-enacted by the Revenue Act of 1938, which became law on May 28, 1938, of that year without the President's signature. The principal provisions of the Revenue Act of 1938 were the following: (1) One corporation income tax was substituted for the normal income and undistributed profits taxes of the Revenue Act of 1936. For corporations with incomes in excess of $25,000, the rate of tax varied from 16K percent to 19 percent depending upon the percentage of net income distributed as dividends. For small corporations the REPORT OF THB SECRETARY OF THE TREASURY 17 progressive feature of corporation taxation, instituted by the Revenue Act of 1935, was retained, with rates substantially higher. Corporations improperly accumulating surplus were taxed at increased rates. The corporate income tax provisions of this act were applicable only for taxable years beginning after December 31, 1937, and before January 1, 1940. (2) The provisions of the 1936 act regarding capital gains and losses of individuals were simplified and time categories into which different percentages of capital gains and losses were to be included in net income were established. The flat rate method of taxing long-term capital gains and losses in effect prior to 1934 was reinstated. Individuals were now to compute their tax liabilities on two bases. Under the flrst method the stated percentages of long-term gains and losses were included as ordinary income. Under the second they were subject to a flat rate of 30 percent. If capital assets transactions resulted in a net gain, the method giving the lower tax was allowed. If a net loss, the higher tax had to be paid. (3) Increased taxes were placed on distilled spirits other than brandy. (4) A number of the excises of the Revenue Act of 1932 were repealed; namely, those on certain toilet preparations, furs, phonograph records, sporting goods, cameras, chewing gum, the production and reflning of crude petroleum, brewer's wort, malt syrup, sales of produce for future delivery, and matches except fancy wooden ones. The tax on imports of hemp seed, periUa seed, and sesame seed was reduced. New taxes were also placed on certain tractors used in combination with a trailer or semi-trailer. The net effect of these changes was a decline in Federal revenue from miscellaneous nonregulatory taxes. However, the principal revenue-yielding excises of the 1932 act, the taxes on gasoline, lubricating oil, automobiles, and automotive equipment, were all retained. (5) The capital stock tax was amended to permit corporations to revalue their capital stock every three years. (6) The annual gift tax exemption was reduced from $5,000 per person to $4,000 per person and gifts in trust were excluded from this exemption. (7) The option of applying the last-in flrst-out method of inventory valuation with respect to raw materials was granted certain industries, namely those processing certain nonferrous metals or tanning hides or skins. Aside from the two revenue acts, there were other legislative enactments of this fiscal year which led to revenue increases. The Sugar Act of 1937 (approved [September 1, 1937) imposed excises on the manufacture of sugar and also on imports of manufactured sugar and articles composed in chief value of manufactured sugar. 18 REPORT OF THE SECRETARY OF THE TREASURY The Railroad Unemployment Insurance Act, approved June 25, 1938, provides for contributions from carriers and their employees to cover costs of unemployment insurance. Various other miscellaneous internal revenue taxes were also amended. Fiscal year 1939.—For the first time since 1933, tax revenues fell as business recovery during the fiscal year 1939 was not entirely reflected in the revenues for that year owing to the lag in income, estate, gift, and capital stock taxes, receipts from which reflected 1938 recession levels of business. The total decrease amounted to $554 millions (from $6,034 millions to $5,480 millions). I t was chiefly accounted for by a decline of $434 millions in current corporation and individual income taxes. Customs revenue, reflecting a further decline in imports, fell by $40 millions. The repeal of certain of the 1932 Revenue Act excise taxes was largely responsible for a decline of $20 millions in manufacturers' excise tax receipts. The $50 million decline in estate tax receipts was at least partially due to taxpayers taking advantage of the lower levels of security prices by valuing estates a year after death, and a $12 million decline in the capital stock tax indicated the lower cajpital stock declarations made in accordance with the Revenue Act of 1938, by corporations anticipating lower income levels. The principal tax increases were in distilled spirits (upon which rates had been raised) and wines ($30 millions), tobacco ($12 millions), and the Sugar Act of 1937, now effective for a full fiscal year ($35 millions). Employment taxes declined by $14 millions. Rising collections from other employment taxes were more than offset because receipts under the Carriers Taxing Act of 1937 reflected liabilities of only four quarters as compared to five quarters in the previous fiscal year. In the case of the tax on employers of 8 or more, the basic rate rose from 1 percent in 1936 and 2 percent in 1937 to the maximum of 3 percent in 1938 and thereafter. A general revenue act was approved on June 29, 1939. I t made a number of administrative changes, but altered the substantive tax law only in scattered particulars, the most important being: (1) Extended for two more years the unrepealed excise taxes of the Revenue Act of 1932. (2) Eliminated completely the undistributed profits tax which originated in the 1936 act and was continued to a minor extent by the Revenue Act of 1938. Instead of the rates of the 1938 act, which varied between 16)^ percent and 19 percent, depending upon the percentage of net income distributed in dividends, a flat rate of 18 percent was substituted for corporations with net incomes in excess of $25,000. The 1938 act rates for smaller corporations remained unchanged. Certain types of corporations such as banks and insurance companies REPORT OF THE SECRETARY OF THE TREASURY 19 had never been subject to the undistributed profits tax and had been taxable at flat rates, 15 percent under the 1936 act and 16K percent under the 1938 act. These corporations now became taxable under the rates applying to other corporations. (3) Except for the period during which the Revenue Act of 1932 was in effect, no distinction had been made in the tax treatment of long-term and short-term capital losses of corporations. Prior to 1932, all capital losses were allowed in full against other income. During the period covered by the 1934 to 1938 acts, capital losses were limited to capital gains plus $2,000. Under the 1932 act, losses in sales of stocks and bonds held less than two years were limited to gains from similar transactions with a provision that the losses thus disallowed could be carried forward one year. Under the 1939 act, losses on capital assets held 18 months or less were limited to gains from simUar transactions with a one-year carryover of disaUowed losses permitted. Losses on assets held more than 18 months were allowed in full as deductions from other income. (4) The act provided for a two-year carryover of business losses. (5) Many corporations, which had established low capital stock valuations in 1938, were made subject to high excess-profits taxes by the unanticipated rapidity of the subsequent recovery. The 1939 act permitted them to raise (but not decrease) capital stock valuations. In addition to the Revenue Act of 1939, the Public Salary Tax Act of 1939, approved April 12, 1939, added the salaries of previously exempt State and local employees to the personal income tax base for taxable years beginning after December 31, 1938. Fiscal year 1940.—Total receipts in general and special accounts amounted to $5,925 millions during the fiscal year 1940, an increase of $257 millions from the previous fiscal year. The increase was spread throughout the major sources of receipts with the one exception of income taxes. The decrease of $51 millions in current income tax collections was a result of the fact that income levels in the calendar year 1939, upon which part of the fiscal year 1940 receipts are based, were lower than those existing in the calendar year 1937 which were partially reflected in the fiscal year 1939 revenues—the calendar year 1938 being common to both fiscal years. As corporation income tax rates had been generally increased by the Revenue Act of 1938 whereas individual rates remained unchanged, current corporation income taxes decreased only $5 mUlions as compared to a decrease of $46 millions in current individual income taxes. Excess-profits tax collections are subject to the same statutory lag as income taxes and decreased $9 miUions, but this was partially offset by an increase of $6 millions in collections of the capital stock 20 REPORT OF THE SECRETARY OF THE TREASURY tax which is complementary to the excess-profits tax. The increase in the capital stock tax was due to higher income levels anticipated by corporations for calendar year 1939 as compared to calendar year 1938. The remainder of the internal revenue schedule shows increases under almost every tax group. The upward movement of business was the principal cause, unobscured by the statutory lag which affects income tax collections. The largest increase was of $32 millions in distilled spirits and wines. Here an additional factor was increased purchases of European liquors following the outbreak of war in September 1939. Tobacco tax receipts rose $28 miUions because of increased consumption of tobacco products, chiefly cigarettes. Rising business activity was also reflected in increased receipts from the bulk of manufacturers' excises, particularly in gasoline with an increase of $19 miUions and in the automotive group where collections rose $28 mUUons. Receipts under the Federal Insurance Contributions Act, formerly title V I I I of the Social Security Act, were affected by the Social Security Act Amendments of 1939, approved August 10, 1939. The major changes in coverage under this act were the inclusion of service on American vessels, employees of member banks of the Federal Reserve System, individuals aged 65 and over, and the exclusion of certain groups of farm workers. Inasmuch as the inclusion of individuals aged 65 and over was made retroactive to January 1, 1939, taxes for five quarters' liabilities were coUected in the fiscal year 1940. The other major changes in coverage became effective January 1, 1940, so that the revenues from such coverage were included in fiscal year 1940 receipts to the extent of only one quarter's liabUity. I t should be noted that the Social Security Act Amendments of 1939 prevented the increase in rates on January 1, 1940, which would have applied to wages in the calendar years 1940, 1941, and 1942 in accordance with the original Social Security Act. The bulk of the $74 million increase in receipts was due to increased employment, and the remainder to increased coverage provided by the amendments. The revenue effects of the Social Security Act Amendments of 1939 will not be refiected in receipts under the Federal Unemployment Tax Act, formerly Title I X of the Social Security Act, until January 1941. The fiscal year 1940 was the first full fiscal year that all receipts were based upon the maximum 3 percent rate of tax, a factor which, together with a rise in taxable wages, effected an increase of $7 millions in receipts. The Railroad Unemployment Insurance Act, placing employees of railroads under a separate unemployment compensation system, became effective July 1, 1939, thus excluding revenues hitherto derived from railroads, from the Federal Unemployment Tax Act. Employment taxes on carriers and their employees were REPORT OF THE SECRETARY OF THE TREASURY 21 unaffected by the amendments. An increase of $12 millions in revenue from these taxes reflects one quarter's receipts under increased tax rates as well as increased employment. Ten percent of the contributions required by the Railroad Unemployment Insurance Act, which are deposited with the Secretary of the Treasury for the credit of the railroad unemployment insurance administration fund, amounted to $5 mUlions, representing liabilities for three quarters of the year. The increase of $30 millions in customs duties was due to heavier imports of sugar, wool, liquors, and metals which offset declines in the remaining tariff schedules except the free list. Duties collected on imports from each continent except Europe increased sharply. An increase of $80 millions in miscellaneous receipts from nontax sources was concentrated in the "other miscellaneous" item. Here the bulk of the $47 millions increase included $44 millions on account of repayment of capital funds by the Commodity Credit Corporation. An increase of $21 millions in seigniorage arose principally from the coinage of a large amount of silver and minor coins which were necessary to meet the needs of business. As in other years, the bulk of receipts in the fiscal year 1940 was derived from a relatively few sources. As shown by the data in the table on page 650, 86 percent of the receipts came from customs and the following 11 taxes arranged in order of magnitude: Current corporate income, current individual income, employment by others than carriers, tobacco, distilled spirits and wines, estate, fermented malt liquors, gasoline, capital stock, taxes on employment by carriers and their employees, and automobiles, trucks, tires, tubes, and parts or accessories. The Revenue Act of 1940, approved June 25, 1940, increased taxes generally. The basic income tax law was changed by increasing the corporation rate 1 percent, raising individual surtax rates on surtax net income between $6,000 and $100,000, and decreasing personal exemptions 20 percent. Certain temporary changes to last five years were also made, and the proceeds were to be used for retiring obligations of the "National Defense Series" which were to be issued in connection with financing the national defense program. Income, capital stock, declared value excess-profits, estate, and gift tax rates were increased 10 percent. In the individual income tax, the defense tax was 10 percent of the basic tax or of net income after tax, whichever was less. With the principal exceptions of regulatory taxes and taxes on tobacco (other than cigarettes) and communication facilities, increases were also made in other internal revenue taxes. The rate of increase, generally 10 percent, varied from S% percent in the case of the cigarette tax to 50 percent in the case of the gasoline tax. The exemption on the tax on admissions was lowered from 40 cents to 20 cents. 22 REPORT OF THE SECRETARY OF THE TREASURY Receipts in the fiscal year 1940 were not affected by the Revenue Act of 1940 except indirectly as taxable activity was advanced in anticipation of the higher rates effective in the next fiscal year. Expenditures from general and special accounts Fiscal year 1940 Total expenditures of the Federal Government from general and special accounts excluding debt retirement amounted to $8,998 mUlions in the fiscal year 1940, an increase of $291 millions over the preceding year. Included in the expenditures for 1940 was $120 millions applicable to the fiscal year 1939 to restore the capital of the Commodity Credit Corporation, a payment made in accordance with the act of August 9, 1939. If this is taken into account, the actual increase in expenditures for 1940 is $51 millions. The distribution of the total expenditures by major functions is shown in table 8 on page 652, and in chart 3. The distribution of the actual increase of $51 millions is shown below. Items showing increase: National defense : Departmental Interest on public debt Aid to agriculture . Grants to States under the Social Security Act Other Items showing decrease: Relief and work relief Public works ._. .._ Amount (in miUions of doUars) 396 106 :__ 100 ' 92 36 60 790 . . 695 44 739 Net increase _ 51 1 After adjustment of payment to restore capital of Commodity Credit Corporation applicable to the flscal year 1939. I t should be noted that in this review of expenditures for 1940, and also in the review of expenditures for the years 1933 to 1940, which follows, the basis used is the classification shown in the table on page 652, wherein expenditures are grouped by major objects of expenditures, such as national defense, veterans' pensions and benefits, aid to agriculture, relief and work relief, public works, etc. Where reference is made to departmental expenditures, the amounts classified under these major objects of expenditure are excluded. Reflected in the increase of $396 millions in the cost of national defense are payments on account of the War Department (military), which rose 36 percent; and payments on account of the Navy Department, which increased 32 percent. The increase of $106 millions in departmental expenses was due principally to the large expenditures of the United States Maritime Commission for the construction of merchant vessels, passenger and cargo; payments for this agency were $55 millions greater than in REPORT OF THE SECRETARY OF THE TREASURY 23 1939. Other departments showing increases were Commerce, $17 millions (due primarily to the cost of the 1940 census); Justice, $12 millions; Treasury, $7 miUions; State, $5 millions; Civil Aeronautics Authority, $5 millions. The Department of the Interior showed a decrease of $7 millions. Expenditures for aid to agriculture increased $92 mUlions in the aggregate. Payments on account of the agricultural adjustment program were $234 millions more in 1940 than in 1939, mainly because of increased parity payments and increased pajonents under the SoU Conservation and Domestic Allotment Act. Offsetting this increase were decreases in cotton-price adjustment pa3rments, payments under the Sugar Act of 1937, payments on account of the Agricultural Adjustment Administration, and payments (for capital stock) to the Federal Crop Insurance Corporation. Payments under the Farm Tenant Act increased $15 mUlions; and net payments of the Farm Credit Administration (payments in excess of credits) increased $2 mUlions, largely because of diminishing repajnnents by the regional agricultural credit corporations in liquidation. On the other hand, there were decreases of $25 miUions in the expenditures of the Farm Security Administration, other than under the Farm Tenant Act, of $11 millions in subscriptions to paid-in surplus of the Federal land banks, and of $3 miUions in payments to the Federal land banlis and the Federal Farm Mortgage Corporation as reimbursement for the statutory reduction in interest on farm mortgages, making a total decrease of $39 mUlions. After making adjustment in the fiscal year 1940 expenditures for the $120 millions in payment to the Commodity Credit Corporation for restoration of capital which was appropriated for the fiscal year 1939, the net increase in expenditures for agricultural aid was $92 millions. Details concerning the repayments made by the Commodity Credit Corporation during 1940 (which were included in miscellaneous receipts) appear on page 171 of this report. The increase of $36 millions in grants to States under the Social Security Act is explained by the normal growth of the several programs of the Social Security Board, exclusive of the old-age and survivors insurance benefits program, the receipts and expenditures of wliich are handled as trust funds. The increase of $60 millions in "other" payments is accounted for chiefly by an increase of $26 millions for transfers to trust accounts; of $23 millions for Treasury refunds of taxes and duties; and of $15 millions for expenditures for the Panama Canal. The decrease of $695 millions in the cost of relief and work relief was due almost entirely to a decline of $684 millions in payments on account of the Work Projects Administration. Decreases in the 24 REPORT OF T H E SECRETARY OF T H E TREASURY expenditures of the Civilian Conservation Corps and the regular departments (work relief) were almost wholly offset by an increase of $17 millions in the expenditures of the National Youth Administration. The decrease of $44 millions in the cost of public works was due primarily to decreases in the grants and net loans of the Public Works Administration and in the expenditures of the Public Roads Administration. These more than overbalanced increases in the expenditures for public buildings, reclamation, river and harbor work, and flood control. Fiscal years 1933 to 1940 The total expenditures of the Federal Government from general and special accounts for the eight fiscal years from July 1, 1932, through June 30, 1940, amounted to approximately $60,827 millions, or if debt retirements be excluded, to approximately $58,672 millions. The following table exhibits the trend of expenditures during these eight fiscal years and the course of debt retirements chargeable against ordinary receipts. Total expenditures from general and special accounts, fiscal years 1933 to 1940 [In millions of dollars. Year 1933 1934 1935. 1936 1937 _. On basis of daily Treasury statements (unrevised), see p. 683] Total expenditures Public debt retirements chargeable against ordinary receipts T o t a l expenditures less public debt retirements 4,325 6,371 7,583 9,069 8,281 462 360 574 403 104 3,864 6,011 7,010 8,666 8,177 Year 1938 1939... 1940 Total.... Total expenditures Public debt r e t i r e m e n t s T o t a l expenditures less chargeable public debt against retirements ordinary receipts 7,304 8,765 9,127 65 58 129 7,239 8,707 8,998 60,827 2,155 58,672 NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. The largest single object of expenditure during the past eight years, it will be observed from the table that follows and chart 3, has been relief and work relief. The figures in this table and in the discussion that follows have been classified by function and are on the basis of the daily Treasury statement as it appeared on July 1, 1940 (see table 4 on page 628). They differ in total, therefore, from the daily Treasury statement figures presented in the years 1936 to 1940 in that receipts from taxes under the Federal Insurance Contributions Act, formerly title VIII of the Social Security Act, have been excluded from total receipts and amounts transferred to the Federal old-age and survivors insurance trust fund, formerly the old-age reserve account, have been excluded from expenditures. 25 REPORT OF THE SECRETARY OF THE TREASURY Expenditures in general and special accounts, July 1, 1932, to June SO, 1940, classified by functions [In millions of dollars. On basis of daily Treasury statements reclassified as shown in the table on p. 628] Amount Function Relief and work relief . Grants to States under Social Security Act. Public works --• Aid to agriculture -. National defense Veterans' pensions and benefits 0ther departmental Interest on the public debt.. Other (see table on page 35) . 15,507 1,143 6,500 7, 643 7,497 7,212 3,188 6,790 3,193 Total ordinary expenditures.. Debt retirements 58,672 2,155 Total expenditures chargeable against ordinary receipts. 60,827 NOTE—Figures are rounded to nearest million and will not necessarily add to totals. EXPENDITURES,! FISCAL YEARS 1933 TO 1940, BY PRINCIPAL CLASSES 1935 1936 F I S C A L 1937 1938 Y E A R S CHAET 3. Reliej and work reliej.—The relief and work rehef programs of the Federal Government have been carried on during the last eight years mainly by the Work Projects Administration (WPA) and its predecessors, the Works Progress Administration, the Federal Emergency 1 Excludes debt retirements. 26 REPORT OF T H E SECRETARY OF T H E TREASURY Relief Administration (FERA) and Civil Works Administration (CWA), and by the Civilian Conservation Corps (CCC) and the National Youth Administration (NYA). Funds for the initial program were provided by the Reconstruction Finance Corporation (RFC). Expenditures for relief and work relief, classified by agency, appear in the table that follows. Expenditures for relief and work relief, classified by agencies, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements reclassified as shown in the table on p. 628] Year 1933 1934 1935 1936 1937... 1938. . 1939... 1940.. Total RFC 298.1 .5 ^13.3 K3 282.8 FERA CWA 137.9 1 707. 4 11,821.0 1 495. 6 112.4 4.4 1.7 .5 805.1 11.3 .7 .3 .2 .2 3, 080. 9 817. 8 WPA NYA Executive de. partmt;nts CCC 1, 228. ] 1, 830. 8 1.421.3 2,161. 5 1, 477. 5 35.5 65.6 51.2 78.1 94.6 46.8 94.3 65.7 69.8 50.4 14.2 331.9 435. 5 486.3 385.8 326.4 290.4 283. 2 8,119. 3 325.0 326.9 2, 553. 8 Total 350.2 . 1,844. 9 2, 267. 0 2, 291. 7 2, 375. 9 1,869. 0 2,601. 6 1,906.4 15, 506. 7 1 Includes Federal Surplus Relief Corporation. 2 Credit, deduct. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. The Emergency Relief and Construction Act of July 21, 1932, authorized the Reconstruction Finance Corporation to make loans to States, municipalities, and other public bodies for use by them in furnishing relief and work relief to needy and distressed persons and in alleviating the hardships resulting from unemployment. Loans to States and to the Territory of Hawaii were to be repaid by annual deductions from future highway grants; other loans were to be repaid by agreement. This program came to an end shortlj'^ after the passage of the Federal Emergency Relief Act of May 12, 1933, which created the Federal Emergency Relief Administration. This latter act was grounded on a principle different from that which underlay the Emergency Relief and Construction Act of 1932, in that it authorized the Administrator to make outright grants to States instead of making them loans repayable out of highway grants. To June 30, 1936, approximately $3,062 millions have been expended for relief by this agency. While the Federal Emergency Relief Administration program was getting under way, a work program was begun under the Civil Works Administration, an agency created to substitute work for direct relief by furnishing employment on local improvement projects. This program reached its peak during the fiscal year 1934. REPORT OF THE SECRETARY OF THE TREASURY 27 The Works Progress Administration, created by Executive order of May 6, 1935, pursuant to authority contained in the Emergency Relief Appropriation Act of 1935, was established to substitute work relief for direct relief. Its program superseded the Federal Emergency Relief Administration. The Works Progress Administration, which on July 1, 1939, was renamed the Work Projects Administration, had expended over $8,119 millions by June 30, 1940. The National Youth Administration was established under Executive order of June 26, 1935, to initiate and administer a program of approved pro j ects to provide relief, work relief, and employment for persons between the ages of 16 and 25 years. During 1940 its program was greatly enlarged and extended. The regular executive departments also undertook work projects under the various Emergency Relief Appropriation Acts. These projects are of the same general type as those operated by the Work Projects Administration. For purposes of this summary, it should be noted that some of these expenditures have been classified in the same categories as expenditures for the executive departments, e. g., national defense or aid to agriculture. There is an additional work relief program which differs substantially from the relief and work relief programs described above. The Civilian Conservation Corps, originally established by an Executive order of April 5, 1933, was made a statutory establishment under the act of June 28, 1938. The primary purpose of the Civilian Conservation Corps has been to provide youths with employment on public works relating to the conservation and development of the national resources. By June 30, 1940, expenditures aggregated approximately $2,554 millions. Grants to States under the Social Security ^c^.—Certain relief activities of the Government are carried on as grants to States under the Social Security Act, approved August 14, 1935. These grants are administered by three agencies of the Government: Social Security Board, Public Health Service, and Children's Bureau. Upon certification of these agencies, payments are made by the Secretary of the Treasury for (a) the administration of unemployment compensation programs, (b) old-age assistance (not to be confused with old-age and survivors insurance benefits paid from trust accounts), (c) aid to dependent children, and (d) aid to the needy blind, public health work, maternal and child-health services, services for crippled children, and child-welfare services. Payments made during the fiscal years 1936 to 1940 are shown in the following table. 269677—41- 28 REPORT OF THE SECRETARY OF THE TREASURY Grants to States under the Social Security Act, fiscal years 1936 to 1940 [In millions of dollars. On basis of daily Treasury statements reclassified as shown in the table on p. 628] 1936 Federal S e c u r i t y Agency: Social Security B o a r d : Old-age assistance (title I) .. . Aid to d e p e n d e n t children (title I V ) . Aid t o t h e blind (title X ) Unemployment Compensation Administration (title I I I ) --. . . T o t a l , Social Security B o a r d . P u b l i c H e a l t h Service: Public health work T o t a l , F e d e r a l Security Agency 19.7 2.0 1.0 1937 1938 1939 1940 124. 8 14.3 4.7 182. 2 25.5 . 5.2 208.8 31.0 5.3 227.6 45.4 6.2 T o t a l to J u n e 30, 1940 763.2 118.1 22.3 .9 9.1 41.9 58.9 58.3 169.2 23.6 152.9 254.8 304.0 337.5 1, 072. 8 . . 2.4 7.8 8.9 8.0 9.4 36.5 - - 26.0 160.7 263.7 312.0 346.9 1,109. 3 1.0 .6 .2 3.1 2.1 1.0 3.8 2.7 1.3 3.7 3.1 1.5 4.8 3.3 1.5 16.5 11.7 5.5 D e p a r t m e n t of L a b o r : M a t e r n a l a n d child h e a l t h services (title V ) . . Servicesfor crippled children (title V) C h i l d welfare services (title V) T o t a l , D e p a r t m e n t of Labor T o t a l , g r a n t s to States . 1..8 6.2 7.8 8.3 9.6 33.7 27.8 166. 9 271.5 320.3 356.5 1,143.0 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Public works.—The public works expenditures made during the fiscal years 1933 to 1940 may be classified into six broad categories: (1) Expenditures for the improvement and maintenance of rivers and harbors for navigation (including flood control); (2) those for the construction of public roads in cooperation with the States; (3) those for the construction of new public buildings; (4) those for the construction of irrigation and reclamation projects; (5) those of the Tennessee Valley Authority (TVA), a Government corporation created by act of Congress on M a y 18, 1933; and (6) those of the Federal Emergency Administration of Public Works (PWA), established pursuant to title I I of the National Industrial Recovery Act, approved June 16, 1933, to promote the construction of useful projects by means of loans and grants to public bodies. Expenditures for public works, classified by these types, are shown in the table that follows. Expenditures for public works, classified by types, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements reclassified as shown in the table on p. 628] Rivers and harbors Year 1933 1934 1935 1936 1937 1938 1939 1940. - Total Public roads i Public buildings Reclamation 2 PWA 3 TVA 118.4 150.7 203.0 223.7 235.0 198.6 193.0 212.9 171.3 267.9 317.4 243.9 350.6 236.6 204.5 176.4 127.4 87.8 67.4 79.7 88.9 91.5 66.3 75.0 25.2 24.7 40.9 64.0 58.7 65.4 79.3 96.4 155.9 218.5 69.5 248.8 148.7 407.9 347.7 11.0 36.1 48.8 42.0 42.0 40.8 39.1 442.4 698.0 883.4 729.7 1,023.9 782.9 991.8 947.5 1, 535. 3 1, 968. 6 684.1 454.5 1, 597.0 260.0 6, 499.6 1 Includes forest roads and trails. Department of Agriculture. 2 Greater part of expenditures is reimbursable. 3 Net figures; the repayments of loans are treated as deductions from expenditures. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Total 29 REPORT OF THE SECRETARY OF THE TREASURY Aid to agriculture.—During tbe past eight years the Federal Government has furnished financial aid to agriculture in a number of dift'erent forms and through a number of different agencies for the purpose of giving relief to the financially distressed farmers and improving their economic position. This aid includes the expenditures relating to farm credit, agricultural adjustment, farm security, rural electrification, and other expenditures by the Department of Agriculture.^ They are shown, classified by programs, in the table that follows. Expenditures for aid to agriculture, classified by programs, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements reclassified as shown in the table on p. 628] Farm credit Year 1933 . 1934 1935. 1936 1937 . 1938 1939 1940-... -. _- - Total Agricultural adjustment program Farm security 131.1 415.6 202.4 38.8 73.6 71.1 46,5 35.0 291.9 792.8 632.0 527.5 456.0 786.7 1,139. 7 2.4 5.4 138.0 209.7 183.2 210.3 200. 3 1,014.1 4, 626. 7 949.3 Rural electrification Department of Agriculture Total 1.4 8.9 15.2 37.8 38.0 77.9 70.0 75.5 127.8 , 156.6 135.0 154.2 154. 3 . 209.0 779.9 1,076. 3 938.0 976.4 860. 5 1, 235.4 1. 567.4 101.3 951.4 7,642. 7 (*) •Less than $50,000. NOTE.—Net figures; repayments to revolving funds are treated as deductions from expenditures, Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Federal aid to agriculture, through the medium of farm credit, consisted of three principaPclasses: Direct loans, interest subsidies, and subscriptions to capital stock and surplus of agricultural credit corporations. More important than making direct loans or granting interest reductions to farmers out of appropriations made by Congress, however, has been the financial aid extended farmers by Government corporations engaged in supplying farmers with credit. Among these corporations are the Federal land banks, the Federal Farm Mortgage Corporation, the Federal intermediate credit banks, the regional agricultural credit corporations, the production credit corporations, and the banks for cooperatives. The expenditures in the table above refiect the operations of these agencies only to the extent of capital stock and paid-in surplus provided these agencies pursuant to appropriations. Further details with respect to the operations of these agencies appear in the article beginning on page 39. Expenditures under the agricultural adjustment program shown in the table above" include not only expenditures made under the various agricultural adjustment acts but also under related acts, such as the Sugar Act of 1937, approved September 1, 1937, the Soil Conservation and Domestic Allotments Act of February 29, 1936, 1 Although it is convenient to classify all the expenditures of this department as aid to agriculture, many of them are primarily of general benefit, e. g., those for meat inspection, for tuberculosis eradication, for the Weather Bureau, for the Forest Service, for the Bureau of Biological Survey, and for the Food and Drug Administration. 30 REPORT OF THE SECRETARY OF THE TREASURY and payments made to the Federal Crop Insurance Corporation and to the Commodity Credit Corporation for capital stock or restoration of capital. The agricultural adjustment program was initiated by the Agricultural Adjustment Act of 1933, enacted May 12, 1933. The program was supplemented by the provisions of the Bankhead Cotton Act, the Kerr-Smith Tobacco Act, and the Potato Act, approved April 21, 1934, June 28, 1934, and August 24, 1935, respectively. The rentals and benefits contracted to be paid to farmers under these acts constitute the bulk of the expenditures of the Agricultural Adjustment Administration, and in the peak year, 1935, such payments approached $712 millions. On January 6, 1936, the Supreme Court of the United States in the case of United States v. Butler (297 U. S. 1) invalidated the production control and processing tax provisions of the Agricultural Adjustment Act. Payments of obligations and commitments existing as of the date of the Supreme Court decision were made in considerable volume until the end of the fiscal year 1937. On February 29, 1936, the Soil Conservation and Domestic Allotment Act was approved. This act replaced the program invalidated by the Supreme Court with a program of agricultural land conservation. Unaffected by the Supreme Court decision of January 6, 1936, was a program authorized by section 32 of the Agricultural Adjustment Act of 1935, approved August 24 of that year. Under this section Congress appropriated for each fiscal year beginning with 1936 an amount equal to 30 percent of the gross customs receipts for~ the preceding calendar year, these sums to be used for the disposition of crop surpluses, especially through the exportation and domestic consumption thereof. In addition to this permanent appropriation. Congress appropriated for the same purposes an additional $113 millions. The principal expenditures from this fund have been incurred in connection with the cotton-price adjustment program of 1935 and 1937 and the activities (since July 1, 1937) of the Federal Surplus Commodities Corporation. The Sugar Act of 1937, approved September 1, 1937, authorizes the Secretary of Agriculture, among other things, to make conditional payments of 60 cents per one-hundred poxmds, raw value, of commercially recoverable sugar to domestic sugar-cane and sugar-beet producers, with downward graduations in the case of large producers, provided that the growers meet certain conditions incorporated in the act. Expenditures under this act were $6 millions in 1938, $62 millions in 1939, and $49 millions in 1940. By section 303 of the Agricultural Adjustment Act of 1938, approved February 16, 1938, the Secretary of Agriculture was authorized and REPORT OF THE SECRETARY OF THE TREASURY 31 directed, if and when funds should be appropriated by Congress for this purpose, to make payments to producers of corn, wheat, cotton, rice, or tobacco, on their normal production of such commodities in amounts sufficient to provide a return to such producers as nearly equal to parity prices as the available funds would permit. The Price Adjustment Act of 1938, approved June 21, 1938, made an appropriation of $212 millions, to be available until expended, for parity payments on the 1939 crops. A further appropriation of $225 millions was made for payments on the 1940 crops. Expenditures in 1940 amounted to more than $215 millions. The Commodity Credit Corporation, chartered under the laws of Delaware on October 17, 1933, was created primarily to make loans to farmers on agricultural commodities with respect to which programs for agricultural adjustment were in effect. The original capital stock of the Corporation, in the amount of $3 millions, was subscribed for on behalf of the United States by the Secretary of Agriculture and the Governor of the Farm Credit Administration. In 1936, however, at the direction of Congress, $97 miUions of additional stock were issued and subscribed for by the Reconstruction Finance Corporation. The act of March 8, 1938, provided for maintaining the capital of the Corporation at $100 millions. Further details with respect to operations under this act appear on page 171 of this report. The Resettlement Administration, as the Farm Security Administration was denominated prior to September 1, 1937, was created by Executive Order No. 7027 of April 30, 1935. Until the passage of the Farm Tenant Act of 1937, its payments were chiefly of an emergency character, such as rural rehabilitation and loans and grants in stricken agricultural areas. On July 22, 1937, the President approved the Bankhead-Jones Farm Tenant Act and the Secretary of Agriculture assigned the duties under this act to the Resettlement Administration, that agency having been transferred to his jurisdiction by Executive Order No. 7530, signed December 31, 1936. Payments of the Farm Security Administration since 1936 have ranged from about $150 millions to $200 millions a year. The Rural Electrification Administration, . established by an Executive order of May 11, 1935, was made a statutory agency about a year later by the Rural Electrification Act of May 20, 1936. This agency makes no grants but finances, through loans of public funds at low rates of interest on a self-liquidating basis, the extension of electrification facilities to persons in rural areas. Prior to the fiscal year 1936, expenditures of the Department of Agriculture (exclusive of those discussed above) averaged about $75 millions a year; in 1936 they were $128 millions; after 1936 they averaged $150 millions. The explanation of the increase is to be 32 REPORT OF THE SECRETARY OF THE TREASURY found in the addition to the Department of a new bureau, the Soil Conservation Service, charged with the conduct of soil conservation and land utilization projects; in the passage of the Bankhead-Jones Act of June 29, 1935, authorizing additional expenditures for agricultural researches including grants to State experiment stations, and additional grants to States for agricultural extension work and for the support of land-grant colleges; in legislation authorizing the payment of indemnities to owners of cattle destroyed by the Government as being tuberculous or afflicted with Bang's disease; and finally in large expenditures by the Forest Service and the Bureau of Entomology and Plant Quarantine for forests, plant disease, and insect eradication programs conducted as work relief projects and financed from relief funds. National dejense.—During the past eight years the annual expenditures of the Departments of War and of the Navy for military and naval purposes have more than doubled, this being true even if proper allowance be made for the effect during 1933 of the economy provisions of the Legislative Appropriation Act of June 30, 1932. For this fact six principal causes may be assigned: First, the gradual restoration of the pay cuts imposed by the act of June 30, 1932, and the removal of the prohibitions against automatic increases in compensation; second, the increase in the average enlisted strength of the Army from 118,750 to 165,000 men; third, the policy declared in the Vinson-Trammell Act of 1934 of building up the Navy to the strength permitted by the naval treaties of 1922 and 1930; fourth, the program for building up the air forces of both Army aiid Navy; fifth, the program for mechanizing and motorizing the Army; sixth (this applies only to 1940), the provisions of Executive orders dated September 8, 1939, directing that the enlisted strength of the Army, Navy, and Marine Corps and of the National Guard be increased and authorizing, under certain conditions, the ordering to active duty of such officers and men of the Reserves as might be deemed necessary. During this period, the Treasury has classified in the daily Treasury statement as ''national defense'' only the military expenditures made by the War Department and all expenditures by the Navy Department. Expenditures by other departments and agencies which relate in some respects to national defense have been classified under the respective agencies making such expenditure. National defense expenditures of this latter class have grown in importance, especially with the advent of the enlarged defense program initiated by the Government in the latter part of 1940. The trend of expenditures is shown in the table that follows and in chart 4. 33 REPORT OF THB SECEETAKY OF THE TREASURY Expenditures of the War and. Navy Departments for national defense, fiscal years 19S3 to 1940 fin millions of dollars. Year 1933-.-. 1934 .1935 1936 1937 On basis of daily Treasury statements reclassified as shown in the table on p. 628] War Department Navy Department 301.6 243.3 273.4 382.6 378.2 349. 6 297.0 436.4 529.0 556.9 Total 651.2 540.3 709.9 911.6 935.1 Year 1938 1939 1940 Total...- War Department Navy Department Total 431.5 489. 5 667.1 596.3 673.0 891.6 1,027.8 1 162 5 1, 558.8 3,167. 2 4, 329. 8 7,497. 2 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. NATIONAL DEFENSE EXPENDITURES BY THE NAVY AND WAR DEPARTMENTS, FISCAL YEARS 1933 TO 1940 "DOLLARS. M i l lions DOLLARS" Millions Noyy Deportment War Department 800 600 600 ,400 200 1936 S C A L 1937 1938 Y E A R S CHART 4. Veterans' pensions and benefits.—Expenditures for veterans^ pensions and benefits may be divided into two parts: the payment of the soldiers^ bonus (adjusted service certificates) and ^'other pensions and benefits.^' In regard to the soldiers' bonus the figures for 1933, 1934, and 1935 in the table that follows represent payments to the adjusted service certificate fund based on estimates of the current requirements of that fund during each year. The figures for^;1936land ,1937;iireflect the transfers from the General Fund to the adjusted service certificate fund necessitated by the passage of the act of January 27, 1936, declaring the certificates to be immediately payable. These transfers were completed in 1937. In regard to other veterans' expenditures the decrease in payments in 1934 is accounted for primarily by the legislation of March 20, 1933, authorizing the President to reduce veterans' benefits and pen- 34 REPORT OF THE SECRETARY OF THE TREASURY sions. The rise in 1935 is due to the subsequent reestablishment of these benefits. The expenditures in each of the past eight years for veterans' pensions and benefits were as follows: Expenditures for veterans^ pensions and benefits, fiscal years 1933 to 1940 Iln millions of dollars. Year 1933 1934... 1935 IQ^fi 1937 On basis of daily Treasury statements reclassified as shown in the table on p. 628) Adjusted service certificates 100.0 50.0 50.0 1, 773. 5 556. 7 Other 763.2 507.0 557.1 577.9 580. 6 Total Adjusted service certificates Year 863.2 557.0 607.1 2. 351. 4 1,137. 3 1938 1939... 1940 Total... 2, 530. 2 Other Total 582.0 557.1 556.7 582.0 557.1 556.7 4, 681. 4 7, 211. 6 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Other departmental expenditures.—The expenditures of the Department of Agriculture have been discussed under the caption '^aid to agriculture"; those of the War Department (military) and of the Navy Department under ^'national defense"; those of the Army engineers for river and harbor work and flood control under ^^public works." The remaining expenditures of the Federal Government for ordinary departmental activities aggregated $3,188 millions. These are shown in the table that follows: Expenditures of certain departments and agencies {exclusive of expenditures for relief and work relief), fiscal years 1933 to 1940 [In millions of dollars. Treasury Department Interior Department Justice Department 1 Legislative Establishment 112.8 113.8 124.6 142.0 143.8 144.8 155.8 162.4 50.9 53.2 77.4 56.8 73.4 76.9 103.8 96.9 44.1 31.7 33.1 36.9 38.9 41.4 46.9 55.1 21.5 17.8 20.1 22.9 23.8 25.8 21.9 23.0 T o t a l . . . . 1,099. 9 589.3 328.1 176.7 Year 1933 1934 1935 1936 1937 1938 1939 1940 On basis of daily T r e a s u r y s t a t e m e n t s reclassified as s h o w n in t h e t a b l e on p . 628J Commerce Department U n i t e d Civil States AeroMarit i m e nautics Other Com- A u t h o r mission2 i t y 3 State Department Labor Department 22.5 16.1 21.6 19.4 • 17.5 18.3 19.9 36.9 15.2 11.9 18.5 17.7 17.8 20.8 19.2 24.3 12.9 11.0 12.2 12.7 12.7 14.3 14.9 17.9 28.5 ^9.5 ^21.3 il2.1 *6.1 1.0 43.6 98.7 9.3 5.3 6.9 7.1 6.7 10.1 18.4 23.6 172.2 145.4 108.8 122.7 87.5 6 357.0 3,187. 6 5 6 8 6 8 6 6 38.3 51.5 42.6 39.0 37.4 47. 8 44.3 56.1 Total 356 0 302.8 335 7 342 4 365 9 401 2 488 7 594 9 1 Includes the Judiciary. • 2 Includes expenditures classified prior to July 1, 1939, as U. S. Shipping Board. 8 Includes expenditures classified prior to July 1, 1938, under Department of Commerce. * Credit, deduct. * Includes about $12 millions paid for in 1933 by other agencies and in later years from postal revenues. 6 Includes adjustments for disbursing officers' checks outstanding. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Interest on the public debt.—Expenditures for interest on the public debt have risen over the past eight years though not as rapidly in proportion as the interest-bearing debt itself. D a t a on interest payments appear in the table that follows. D a t a on the computed annual interest charge and computed annual interest rate appear on page 68 and in table 46. 35 KEPORT OF THE SECRETARY OF THE TREASURY Expenditures for interest on the public debt and premiums received and credited to interest, fiscal years 1933 to 1940 [In millions of dollars. Gross interest Year 1933 1934 1935.. 1936 1937 On basis of daily Treasury statements reclassified as shown in the table on p. 628] .. . .. Premiums o b t a i n e d on N e t insecurities offered a t terest prices above p a r 689.4 764 1 824 3 757.5 866.4 689 4 756 6 7 5 3 4 8.1 1938. 1939- 820 9 1 1940. 749 4" 866 4 Total Premiums obtained on securities N e t interest offered a t prices above p a r Gross interest Year ... 926.3 970.3 1,040. 9 29 8 . 926.3 940.5 1.040.9 6,839.2 48 8 6, 790.4 Other expenditures.—Other expenditures totaled $3,193 millions during the eight years ended June 30, 1940, as shown below. Expenditures for transfers to trust accounts, refunds of taxes, etc., fiscal years 1933 to 1940 [In millions of dollars. O n basis of daily T r e a s u r y s t a t e m e n t s reclassified as shown in t h e table on p . 628] Transfers Refunds to t r u s t of taxes and accounts i duties Year /933 1934 1935 1936 1937 1938 1939 1940 .. ... . . Total 21 3 21 1 21 0 40.7 46.7 219.7 182.2 207.9 70.3 63.9 76.5 54.3 55.9 99.7 67.9 91.1 760 5 579.6 U.S. PanaFederal Federal Security H o u s i n g Postal dema Loan ficiency A uthorCanal Agency 2 Agency 3 ity 49 206 96 57 48 25 18 14 7 8 4 0 2 1 3 2 515 7 Other Total 2 3 4 4 7 9 8 6 4 0.4 4 6.5 4 24.9 "50.7 443.1 8.6 1.9 117 4 52 0 64 0 86 0 41 9 44 3 41 2 40.9 12 7 9 9 9.0 11.5 11.9 11.4 9.8 25.0 77 5 155 3 4 9 5 9 10 5 3 6 8 3 13 5 302.3 531.7 309.7 323.7 329.5 517.8 409.1 469.1 402 1 136.1 487 7 101 1 210.2 3,193.0 23 22 31 43 63 70 72 74 1 Excludes transfers to Federal old-age and survivors insurance trust fund, formerly the old-age reserve, account as explained on p. 24, and transfers to adjusted service certicate fund. 2 Excludes Reconstruction Finance Corporation loans and grants to States, municipalities, etc. 3 Excludes Civilian Conservation Corps, National Youth Administration, and grants to States under Social Security Act. 4 Includes emergency housing. 5 Includes $150 millions paid by the Treasury for capital stock of the Federal Deposit Insurance Corporation. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Part of the increase in transfers to trust accounts shown in the table above was due to larger appropriations to Governrnent employees' retirement funds. A major portion of the increase, however, was due to the operation of the Railroad Retirement Act of 1937. This act created the railroad retirement account in the Treasury of the United States and authorized the appropriation to the account in each fiscal year of an amount actuarially determined by the Railroad Retirement Board to be sufficient as a premium to provide for the payment of all annuities, pensions, and death benefits under the Railroad Retirement Acts of 1935 a n d 1937. Transfers to the account in 1938, 1939, and 1940, were $146 millions, $107 millions, and $121 millions, respectively. 'The column headed Federal Loan Agency in the foregoing table shows net payments from general and special accounts pertaining 36 REPORT OF THE SECRETARY OF THE TREASURY to the constituent corporations and administrations of that establishment. The larger expenditures include nearly $125 millions for the capital stock of the Federal home loan banks, $200 millions for the capital stock of the Home Owners' Loan Corporation, $49 millions for the purchase of shares in Federal savings and loan associations, $24 millions for capital stock in the Disaster Loan Corporation, approximately $1 million for capital stock in the Electric Home and Farm Authority, $1 million for capital stock in the Export-Import Bank of Washington, $75 millions for meeting the expenses of the Federal Housing Administration not covered by current income, and $33 millions for interest on notes of the Reconstruction Finance Corporation held by the Treasury but canceled pursuant to the provisions of the act of February 24, 1938. Some of these expenditures provided capital stock for corporations which carried out programs of vast magnitude, the payments for which are not reflected in the general and special accounts of the Treasury Department. Further details concerning these expenditures appear on pages 41 and 42. The expenditures classified under the heading Federal Security Agency are principally those of the Office of Education, the Public Health Service, the United States Employment Service, and the administrative expenses of the Social Security Board. They exclude payments for grants to States, shown on page 28 of this report. The expenditures of the United States Housing Authority exhibit the net payments from general and special accounts pertaining to the low-reiit housing projects and slum clearance programs administered, first, by the Public Works Administration Housing Division, and after October 27, 1937, by the United States Housing Authority. Deficit The deficit (excess of expenditures over receipts) for the fiscal year 1940 in general and special accounts, amounted to $3,740 millions. If public debt retirements are deducted, the net deficit for the year amounted to $3,611 millions. The table that follows shows the deficit, the public debt retirements, and the net deficit for the fiscal years 1933 to'1940. Deficit, public debt retirements, and net deficit, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 683.] Year 1933 1934 1935.. 19.36 Deficit 2, 245.5 3, 255.4 3,783.0 4, 952. 9 Public debt retirements 46L6 359.9 573.6 403. 2 Net deficit 1,783.8 2,895. 5 3, 209. 4 4, 549..7 Year 1937 1938 1939 1940-... Deficit - 3, 252.5 1,449.6 3, 600. 5 3. 740. 2 Public debt retirements 104.0 65:5 58.2 129.2 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Net deficit 3,148.6 1, 384. 2 3, 542. 3 3, 611.1 REPORT OF THE SECRETARY OF THE TREASURY 37 RECEIPTS AND EXPENDITURES IN TRUST ACCOUNTS AND CHECKING ACCOUNTS OF CORPORATIONS AND CREDIT AGENCIES, FISCAL V YEARS 1933 TO 1940 In addition to receipts and expenditures under general and special accounts, discussed above, certain receipts and expenditures of the Government are reported on the Daily Statement of the United States Treasury under the title of ^*Trust accounts, increment on gold, etc.'^ There are four main classes of receipts and expenditures reported under this title, two of which, increment on gold and seigniorage on silver, are discussed on pages 128 and 134 of this report. The operations of the other two classes of accounts, namely, trust accounts and checking accounts of governmental corporations and credit agencies, are summarized below. Neither the receipts nor the expenditures of these accounts affect the Federal Budget except to the extent that appropriations are made to these accounts from the General Fund. Such appropriations appear as expenditures under general and special accounts, and as receipts under trust accounts, increment on gold, etc. The trust accounts dispose of the excess of their receipts over expenditures by investing such excess in Government securities, as provided by statute. The corporations and credit agencies maintaining checking accounts with the Treasurer of the United States generally apply the cash balances not needed for operations to the purchase of Government securities for investment or to debt or capital stock retirement. Trust accounts The trust accounts maintained by the Treasury may be classified into four groups: (1) The veterans' funds established after the war, (2) the Government employees' retirement funds, (3) the retirement and unemployment insurance accounts established by the Social Security, Railroad Retirement, and Railroad Unemployment Insurance Acts, and (4) the miscellaneous trust accounts, including accounts of the District of Columbia. The first group consists of the adjusted service certificate fund and the United States Government life insurance fund. The United States Government life insurance fund was established pursuant to the provisions of an act approved December 14, 1919, as a trust fund to be administered by the Government for the sole benefit of the policyholders. The act directed that all converted insurance premiums ^ should be credited to the fund and that the fund should be available for the payment of converted insurance claims and for investment. The receipts side of the account comprises premiums, interest, considerations for supplementary installment contracts under claims, receipts from the United States on account of extra hazard of the military and naval service, and other income. The 1 United States Government life insurance policies are conversions of war-risk term insurance policies issued to persons in the service of the War and Navy Departments during the first World War. 38 REPORT OF THE SECRETARY OF THE TREASURY expenditures side consists of claims, payments of surrender values, payments on supplementary installment contracts under claims, and dividends. The balance in the fund consists of obligations of the United States, policy loans, adjusted service certificate loans,^ and cash on hand. During the 8-year period from 1933 to 1940, the receipts amounted to $657.5 miUions and the expenditures amounted to $653.6 millions, the latter figure including net investments of $524.4 millions, i. e., investments less redemptions. The adjusted service certificate fund was established pursuant to an act of May 19, 1924, to provide a means for paying, over an extended period, the bonus voted by Congress to men who had served during the War in the Army, Navy, and Marine Corps. The receipts of the fund consist of transfers from the General Fund of the Treasury and interest on investments; its expenditures consist of certificate payments and the purchase of $500 millions of adjusted service bonds to reimburse the United States Government life insurance fund on account of the loans made from that fund under the provisions of the World War Adjusted Compensation Act, as amended, and the Adjusted Compensation Payment Act, 1936. The receipts of this fund during the 8-year period, 1933 to 1940, amounted to $2,564.5 millions, of which $2,530.2 millions represented transfers from the General Fund. Disbursements from the fund amounted to $2,570.7 millions, including expenditures from amounts transferred from the General Fund. Under group two there are the civil service, foreign service. Canal Zone, and Alaska Railroad retirement funds. Total receipts and disbursements of these funds over the period, 1933 to 1940, follow: RECEIPTS [In millions of dollars] Transfers from General Fund Fund Civil service retirement fund Foreign service retirement fund Canal Zone retirement fund Alaska Railroad retirement fund 381.6 1.8 2.5 .5 Deductions from salaries Interest on investments 279.2 1.7 4.0 .5 113.2 1.0 1.0 .1 Total 774.0 4.5 7.5 1.1 EXPENDITURES Fund Civil service retirement fund Foreign service retirement fund Canal Zone retirement fund Alaska Railroad retirement fund Annuities, etc. 444.1 2.1 5.2 .2 Investments (net) 327.5 2.3 2.2 .8 Total 771 6 4.5 74 1.0 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. 1 An act of March 3, 1927, authorized the Director of the United States Veterans' Bureau (now the Administrator of Veterans' Affairs) to make loans to veterans from the life insurance fund on the security of their adjusted service certificates. When the prepayment of the bonus was authorized (January 26, 1936) the Secretary of the Treasury was directed to issue to the fund $500 millions of bonds to payoff the liens against the certificates. The cost of the bonds was charged to the adjusted service certificate fund. REPORT OF THE SECRETARY OF THE TREASURY 39 The civil service retirement and disability fund was created by the Civil Service Retirement Act, approved May 22, 1920, to provide, among other things, for the payment of annuities to qualified permanent civil servants in the event of retirement for age or total disability. The costs of the system are borne partly by the employees subject to the provisions of the act and partly by the Government. The third group includes the unemployment trust fund, the railroad retirement account, and the Federal old-age and survivors insurance trust fund. For information concerning the operations of these accounts for the fiscal year 1940, see pages 212 and 218, and also tables 20 and 21. In group four are included the District of Columbia accounts and Indian tribal funds and other miscellaneous accounts. The total receipts of the District of Columbia for the 8-year period, excluding amounts transferred from the General Fund, were $346.7 millions; and the total disbursements, excluding amounts paid from the General Fund of the Treasury, were $347.4 millions. Government corporations and credit agencies maintaining checking accounts with the Treasurer oj the United States Certain corporations and credit agencies of the Government have been established as self-financing organizations. Their cash operations are conducted through checking accounts maintained with the Treasurer of the United States and the net balances of the transactions in these accounts are shown under the title ^'Trust funds, increment on gold, etc." The operations of these Government corporations and credit agencies are reflected in the general and special accounts of the Treasury only to the extent that appropriations are made from the General Fund. Under the act of January 22, 1932, creating the Reconstruction Finance Corporation, it was contemplated that the Corporation's funds would be used only^for loans and administrative expenses, and it was assumed that the latter would be taken care of through receipts from earnings. An appropriation from the General Fund of the Treasury in the amount of $500 millions was made for the purchase of capital stock of the Corporation. Expenditures from funds provided through such appropriation were reflected in the expenditures of the Government, as and when the Corporation's checks were paid by the Treasurer of the United States. I t was assumed that the amount so charged in the Budget would more than take care of losses, if any, sustained by the Corporation in connection with its lending activities. Pursuant to section 9 of the act, expenditures made by the Corporation from funds derived from the sale of its obligations to the Secretary of the Treasury were treated as public debt transactions and, therefore, were not included as expenditures in the Budget. This provision was 40 REPORT OF THE SECRETARY OF THE TREASURY based upon the assumption that the money loaned by the Recon struction Finance Corporation from the proceeds of such obligations, when repaid, would be available for the retirement of the Corporation's obligations held by the Treasury and used by the Treasury to retire an equivalent amount of public debt obligations. Effective July 1, 1933, this procedure was changed so that all operations of the Reconstruction Finance Corporation, including expenditures from funds derived through the sale of its obligations to the Treasury, were included in the Budget, in the same manner as if the money had been appropriated by the Congress directly to the Reconstruction Finance Corporation, in accordance with customary procedure, for specified purposes. Although the change involved a departure from the previous practice of basing expenditures of the Federal Government upon direct appropriations made by the Congress for specified objects of expenditure, the change was justified because of the fact that under several laws enacted by the Congress subsequent to January 22, 1932, large sums of money were paid out by the Reconstruction Finance Corporation for grants under relief acts and for other purposes for which no provision had been made for repayment to the Corporation. Between 1932 and July 1, 1938, the financial transactions of the Reconstruction Finance Corporation, Commodity Credit Corporation, and Export-Import Banl^ of Washington were included in the general and special accounts of the Treasury on a net basis; i. e., checks paid by the Treasurer of the United States less receipts deposited by such corporations in their disbursing accounts with the Treasurer. Beginning July 1, 1938, the financial transactions of these corporations were reflected in the trust accounts, increment on gold, etc., section of the daily Treasury statements. The purpose of this change was to simplify the daily Treasury statement, and to eliminate the confusion and misunderstanding concerning the effect of such corporations' transactions on the Federal Budget, particularly in cases where the Treasury acts only in tKe nature of a depositary of funds derived by the corporations from the sale of their own obligations on the market. The figures on expenditures in this report have been revised retroactively, however, on the basis of the new procedure. Under authority of the act of February 24, 1938, the Secretary of the Treasury canceled approximately $2,726 millions of the obligations purchased from the Reconstruction Finance Corporation pursuant to the act of January 22, 1932, as amended, with respect to which the Reconstruction Finance Corporation had no means of making repayment to the Treasury. In the reclassification of expenditures in comparative statements covering the fiscal years 1932 to 1940, amounts aggregating the foregoing sum of $2,726 millions are reflected as a charge against the 41 REPORT OF T H E SECRETARY OF T H E TREASURY Budget during the fiscal yeai's in which such expenditures were made. Beginning with the fiscal year 1939, expenditures of all Federal agencies from funds allocated by the Reconstruction Finance Corporation, for which there is no provision made for repayment, have been included as charges against the Budget, and notes of the Corporation, in amounts equivalent to such allocations, have been canceled by the Secretary of the Treasury. Because the Government corporations mentioned above and certain other Government corporations and credit agencies maintain only checking accounts with the Treasurer of the United States, the transactions shown under ^'Trust accounts, increment on gold, etc." represent only the net balance of their operations, and, therefore, do not furnish sufficient data for a detailed analysis of the financial transactions of these agencies. Arrangements have been made with these corporations, however, whereby certain data are submitted to the Treasury so that the Treasury's books can reflect the operations of these corporations and agencies. These data have been combined and appear below in a table showing sources and uses of funds from the date of inception of the various corporations to June 30, 1940. These data are not on the basis of the daily Treasury statement and the figures, therefore, do not tie in exactly with the figures shown in other tables in this report. Sources and uses of funds of certain governmental corporations and agencies from inception of organization to June 30, 1940 [In millions of dollars. Compiled from latest reports received by the Treasury] Central Bank for Cooperatives Sources of funds: Appropriations from General Fund of the Treasury i Sale of stock to other agencies . . Allocations, rediscounts, and loans from other agencies (net). Sale of obligations (net): To the Treasury . _. In the market Sale of other property acquired . Repayment of loans * Income from interest, dividends, assessments, and property. Other receipts _. _ ._ Total — Uses of funds: Loans Investments (net): In Government securities In other securities . . Allocations, rediscounts, and loans to other agencies Purchase and improvement of property owned Footnotes at end of table. Elec- ExportCom- Disastric modity ter' Home Import Bank Credit Loan and of Corpo- Corpo- Farm Washration ration Author- ington ity 50.0 2 270.1 .5 24.0 1.0 Federal Deposit Insurance Corporation 1.0 74.0 150.0 139.3 Federal Farm Federal Mort- home gage loan Corpo- banks ration 200.0 124.7 1.4 190.4 25.0 406.8 31.7 663.4 4.3 15.0 35.9 46.0 1, 269.4 9.2 246.4 473.6 9.7 2.3 15.4 2.0 .6 .1 2.6 .2 243.1 3.9 369.8 9.2 35.0 35.0 254.4 1, 414.4 29.0 30.0 6.3 .7 117.9 582.4 2,103.9 759.5 204.3 1, 310.1 26.0 27.3 87.7 153.5 993.1 631.0 275.0 73.5 "'76i.'9' 35.4 19.5 11.2 24.1 14.8 10.8 50.4 .6 26.2 10.2 91.1 42 REPORT OF THE SECRETARY OF THE TREASURY Sources and uses of funds of certain governmental corporations and agencies from inception of organization to June 30, 1940—Continued C o m p i l e d from latest reports received b y t h e T r e a s u r y ] [In millions of dollars. ElecCentral Comtric DisasBank modity . ter Home for Co- C r e d i t Loan and opera- Corpo- Corpo- F a r m ration A u t h o r tives ration ity Uses of f u n d s — C o n t i n u e d . A d m i n i s t r a t i v e expenses . N o n - a d m i n i s t r a t i v e expenses Interest and dividends p a i d . . . . . Other expenditures 8.9 .5 3.2 19.3 13.6 2.2 .1 — --y- 247.6 1,413.2 Total Net balance.. 6.8 Sources of funds: A p p r o p r i a t i o n s from General F u n d of t h e T r e a s u r y 1 Sale of stock t o other a g e n c i e s . . . Allocations, rediscounts, a n d loans from other agencies (net) Sale of obligations (net): To t h e Treasury In the market Sale of other p r o p e r t y a c q u i r e d . R e p a y m e n t of loans * I n c o m e from interest, divi• d e n d s , assessments, a n d property O t h e r receipts Total Total. (.') 0.4 29.7 117.0 .3 .9 20.0 62.4 3.4 230.8 14.1 17.8 .2 564.2 2,075.9 712.4 2.3 "6"4i.'4" .8 .5 18.2 Reconstruction Finance Corporation 200:0 500.0 63,114.5 87.0 776.8 7.0 1,096. 4 18.6 4, 985. 4 .4 97.5 763. 5 15.1 553.6 68.1 9.5 2.8 129.3 4, 956. 9 7, 229. 2 3,243. 3 6, 600. 2 3.6 303.0 110.0 11.0 15.2 29.2 .1 179.3 14.7 108.2 28.0 Rural Electrification Administration 47.1 United States Housing Authority 108.5 33.0 85.2 10.7 3.2 RFC Mortgage Company 8 4 32.7 "'"25.'6" 100.0 60.0 . 128.3 1.6 20 0 114 2 .8 178 2 5.7 12.4 2 168.2 244.1 358 3 157.7 221.3 255.3 (3) 3.8 187.3 479.6 1.5 1.4 3.2 .1 185.4 . 29.0 1.2 1.4 .6 .2 .2 Home Federal Federal OwnN a t i o n a l aSavings ers' n d Loan Mortgage Insurance Loan Associa- CorporaCorporation tion tion 185.4 Uses of funds: Loans. . Investments (net): In Government securities... I n other securities Allocations, rediscounts, a n d loans t o other agencies. R e t i r e m e n t of obligations issued i n exchange for m o r t gages . P u r c h a s e a n d i m p r o v e m e n t of p r o p e r t y owned Admmistrative expenses.. Non-administrative expenses... I n t e r e s t a n d d i v i d e n d s paid Other e x p e n d i t u r e s . N e t balance 0.7 Export- Federal Federal I m p o r t D e p o s i t F a r m Federal Insur- MortBank home ance gage of loan W a s h - Corpo- Corpo- b a n k s ration ington ration 123.9 197.8 93.3 421.9 8.0 74.1 6.5 232.3 14.4 128. 7 4, 874. 4 7, 224. 8 i.6 (3) 5 4.1 .6 .6 82.5 4.4 1.8 .4 26.1 10.2 4.3 1.7 .1 168.2 231.7 301.5 (') 12.4 56.8 3.6 3.2 3.7 (3) 8.3 1 These are the only items on this statement which constitute a charge against the Federal Budget (general and special accounts). Included are funds furnished by the Reconstruction Finance Corporation frqm the proceeds of notes sold to and subsequently canceled by the Secretary of the Treasury, (see p. 114). 2 Includes $170.1 millions appropriated to restore impairment of capital in 1938 and 1939. Excludes repayment of $43.8 millions which are reported as miscellaneous receipts representing surplus on basis of the March 31,1940, appraisal of the Corporation's assets. 3 Less than $50,000. 4 Receipts from the sale of property acquired in liquidation of loans are shown as "sale of other property acquired." «Includes expenditures for contributions and subrogated shares or claims in insured financial institutio ns 8 Retirement of these obligations is shown as "retirement of obligations issued in exchange for mortgag es.' NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. REPORT OF THE SECRETARY OF THE TREASURY 43 Further data on the operations of^governmental corporations and credit agencies maintaining checking accounts with the Treasurer of the United States appear for the period ended June 30, 1939, in a letter from the Secretary of the Treasury transmitted in response to Senate Resolution No. 150, agreed to June 27, 1939, further details concerning which appear on page 171 of this report. THE PUBLIC DEBT Fiscal year 1940 The gross pubhc debt outstanding at the close of the fiscal year 1940 amounted to $42,968 millions, an increase of $2,528 millions since June 30, 1939. This increase is reconciled with the deficit incurred in general and special accounts as shown on page 36 as follows: Amount (in miUions of dollars) 3,740.2 . 129.2 Excess of expenditures in general and special accounts Less public debt retirements included in expenditures Net deficit to be financed '. Means of financing: Excess of receipts over expenditures in trust and miscellaneous accounts Reduction in the balance in the General F u n d . . . __ Increase in the gross public debt: Public issues: Marketable issues Nonmarketable issues Special issues Matured debt and debt bearing no interest 3,611.1 .._ . 470.8 1,014.7 1,005.0 37.5 Total means of financing.. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarUy add to totals. 135.6 947.6 2, 528.0 3,611.1 The net changes during the year in the various classes of securities which constitute the outstanding debt are shown in the table which follows. Further details on the classes of securities which make up the public debt are shown in the table on page 726 of this report. 269677—41- 44 REPORT OF THE SECRETARY OF THE TREASURY Comparison of public debt outstanding June 30,1939 and 1940, by classes of securities [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 683] Class J u n e 30,1939 J u n e 30, 1940 Interest-bearing; P u b l i c issues: M a r k e t a b l e issues: P r e - w a r a n d postal savings b o n d s Treasury bonds T r e a s u r y notes T r e a s u r y bills Increase or decrease (—) 196.5 25,218. 3 7, 242. 7 1, 307. 6 196.3 26, 654. 8 6, 382. 6 1,302.2 -0 2 1,336. 5 —860 1 —5.4 T o t a l m a r k e t a b l e issues 33, 965.1 34,435. 9 470.8 N o n m a r k e t a b l e issues: U n i t e d States savings b o n d s A d j u s t e d service b o n d s of 1946. 1 1. 868.1 282.9 1 2, 904. 7 26L0 T o t a l n o n m a r k e t a b l e issues. T o t a l p u b l i c issues Special issues: A d j u s t e d service b o n d s , G o v e r n m e n t life insurance fund series.__ T r e a s u r y notes _ Certificates of i n d e b t e d n e s s . •... T o t a l special issues T o t a l interest-bearing d e b t M a t u r e d d e b t o n which interest h a s ceased D e b t bearing n o interest _ _. T o t a l gross d e b t . . .._ . I 1,036.6 —21.9 2,151. 0 3,165. 7 1, 014. 7 36,116.1 37. 601. 6 1,485. 6 500.2 1, 983. 2 1, 286. 5 600.2 2, 553.4 1, 721.3 570 2 434.8 3, 769. 9 4, 774. 9 1,005. 0 39,886. 0 142.3 411.3 42, 376. 5 204.6 386.4 2, 490.5 62.3 —24.8 40, 439. 5 42, 967. 6 2, 528.0 » Current redemption value (cash receipts plus earned accruals less redemptions). NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. During the year the computed average rate of interest on the interest-bearing debt outstanding decreased from 2.600 percent to 2.583 percent. The computed annual interest charge on the debt increased from $1,037 millions at the beginning of the year to $1,095 millions at the end of the year. The actual expenditures for interest during the fiscal year 1940 amounted to $1,041 millions. The interest due and payable on the various classes of securities during 1940 and the amounts paid and outstanding unpaid are shown in table 44 on page 772. The interest paid on the public debt by issues for the years 1938 to 1940 is shown in table 45 on page 772. The major public debt operations during the year included: (1) Two offerings of Treasury bonds, (2) four offerings of Treasury notes, (3) weeldy offerings and redemptions of Treasury bills, and (4) the continued sale of United States savings bonds. Treasury bonds and Treasury notes The major public debt operations involving Treasury bonds and Treasury notes were carried out on various dates from November 1, 1939, to June 15, 1940. Tbe issues of bonds and notes aggregated $3,485 millions, of which $671 millions were issued for cash, and $2,814 45 REPORT OF THE SECRETARY OF THE TREASURY millions for the refunding of three series of Treasury notes maturing during the year and one issue of Treasury bonds which was called for redemption on June 15, 1940, the aggregate maturities amounting to $2,996 millions. These operations are summarized in the following table: Bond and note financing, fiscal year 1940 Issue Date Nov. 1,1939 Dec. 8,1939 Dec. 22,1939 Dec. 22,1939 Mar. 15,1940 June 15,1940 Amount 1% Treasury notes, series B-1944, due Mar. 15, 1944 (at par): In exchange for 1%% Treasury notes of series B-1939, maturing Dec. 15, 1939 2% Treasury bonds of 1948-50, due Dec. 15, 1960 (at par): For cash . Government investment accounts $521,431,150 50,000,000 2H% Treasury bonds of 1951-53, due Dec. 15, 1953 (at par): In exchange for 1H% Treasury notes, series A-1940, maturing Mar. 15,1940 Government investment accounts 1,018,051,100 100,000,000 $515, 210,900 1% Treasury notes, series C-1944, due Sept. 15, 1944 (at par): In exchange for 1H% Treasury notes of series A-1940, maturing Mar. 15, 1940 %% Treasury notes, series A-1945, due Mar. 15, 1945 (at par): In exchange for 1 ^ % Treasury notes, series B-1940,. maturing June 15, 1940... 1% Treasury notes, series C-1943, due Sept. 15, 1943 (at par): In exchange for 3%% Treasury bonds of 1940-43, called for redemption on June 15, 1940 571, 431,150 1,118,051,100 283,006,000 718,024,200 279,473,800 3,485,197,150 RECAPITULATION Issued For cash In exchange. _ Total ., _. Treasury bonds Treasury notes Total $671,431,150 1,018,051,100 $i, 795, 714,900 $671,431,150 2,813, 766,000 1,689,482,250 1, 795, 714,900 3,485,197,150 All ofl&cial circulars and statements relating to these transactions are included in the exhibits beginning on page 407. Treasury bills Offerings of Treasury bills were made each week during the year and all issues were for a term of 91 days. All weeldy offerings were for amounts of approximately $100 millions except three issues offered in October and November 1939 which were for approximately $150 millions each. The 13 series outstanding at the beginning of the year totaled $1,308 millions and the 13 series outstanding at the end of the year $1,302 millions. Of the 52 series offered during the year, 45 series were sold at a positive average rate of discount, the highest average rate computed on a bank discount basis having been 0.159 percent for the bills dated September 13, 1939, and the lowest average rate having been 0.0003 percent for bills dated April 10, 1940. For 6 series sold the buyers paid the Treasury a slight premium for the privilege of holding the bills offered on those dates. One series was sold exactly 46 REPORT OF THE SECRETARY OF THE TREASURY at par. Including bills sold at premiums, the average rate on all bills issued during the year was 0.029 percent. Further information concerning Treasury biUs will be found in exhibits 12 to 14, beginning on page 420, and in table 39 on page 765. United States savings bonds The sale of United States savings bonds continued during the year without any change in the terms of the bonds as fixed by Department Circular No. 596, dated December 15, 1938. Regulations governing the bonds, as set forth in Department Circular No. 530, Second Revision, dated December 15, 1938, were amended on September 14, 1939, effective September 15, 1939, so as to provide additional facilities for the execution of requests for payment, and were again amended on January 18, 1940, effective January 23, 1940, so as to provide that each duly constituted trust estate would be considered as an entity, without regard to beneficial interests. The regulations were revised and further amended on March 27, 1940, and reissued as the Third Revision of Department Circular No. 530, the principal change being provision that the registration of savings bonds sold on and after April 1, 1940, would be restricted to natural persons, that is individuals, in their own right, who are residents of the continental United States, the Territories and insular possessions of the United States, the Canal Zone, and the Philippine Islands, or citizens of the United States temporarily residing abroad. At the same time the offering circular. No. 596, was amended to conform with these changes. The amendments above referred to, and the Third Revision of Department Circular No. 530, together with the press release of March 22, 1940, explaining the changes in regulations effective April 1, 1940, will be found on pages 424 to 441 of this report. Sales of savings bonds by months and denominations during the year are shown in the following table: 47 EEPOiRT OF T H E SECKETATOY O F T H E TKEiASURY Sales of United States savings bonds, by months and denominations, fiscal year 1940 [On basis of Treasury audit] $25 $50 $100 $500 $1,000 Total M a t u r i t y value 1939—July August September OctoberNovember December 1940—January February March April May June Total $2,211,025 2,209,100 2,000,450 2,096,375 2,067,800 2,540,650 3,058,925 2, 748,175 2,756,900 2,600,726 2,409,350 2,171,525 $3,145,350 3,027,800 2,634,700 2,834,400 2, 816,900 3,350,850 4, 413,200 3,866,400 3,935,700 3, 658, 550 3,284,500 3,021,850 $10, 534,200 9,828,800 7,765,200 8,707,100 8, 752,000 10,959,600 15,662,200 12,339, 700 13, 665,800 11, 667,900 10,007,000 9,205,900 $14,872,000 12,219,000 8,472,000 9,919,500 10,049,500 15,616, 000 28,309,000 16,295,000 18, 753,000 14,582,000 11,387,500 10,301,000 $79,409,000 61,462,000 34, 662,000 41,682,000 56,243, 000 121,499,000 320,919,000 96,173,000 141,162, 000 63,920,000 46, 569,000 38,762,000 $110,171,575 88, 746, 700 65,534,350 65,239,375 78,929,200 153,966,100 372,362,325 131, 422,275 180,273,400 96, 329,175 73,667,360 63,462,275 28,871,000 39,990,200 128,995,400 170,776,600 1,101,462,000 1,470,094,100 Sal B price Total $21,653,250 $29,992,650 $96,746,650 $128,081,625 $826,096,500 $1,102,670,675 The preceding table is compiled from the standpoint of the effective issue date of the bonds upon the basis of the Treasury audit of original registration stubs representing sales by the Postal Service, the Federal Reserve Banks, and the Treasury Department during the year, after all items in transit have been cleared, and does not exactly correspond and agree with other totals appearing in this report made up on the basis of the actual cash credits in the Treasurer's account within the fiscal year. For other data concerning savings bonds, reference is made to the article beginning on page 60, and to the administrative reports of the Division of Savings Bonds on page 395 and of the Division of Loans and Currency on page 385. 48 REPORT OF THE SECRETARY OF THB TREASURY Adjusted service bonds Adjusted service bonds of 1945 amounting to $8 millions were issued during the year, making a total of $1,837 millions of such bonds issued since June 15, 1936, in payment of amounts due on adjusted service certificates, Redemptions of $30 millions of these bonds during the year brought the total redemptions since June 15, 1936, to $l'',576 millions, leaving $261 millions outstanding on June 30, 1940. Further data on adjusted service bonds appear on page 64, and in the table on page 726. Special issues During the year the Treasury continued to issue special series of interest-bearing securities for the investment of trust or other funds deposited in the Treasury or pursuant to appropriations for specific purposes. The amount of such obligations increased by $1,005 millions during the year, due primarily to investments for trust funds and accounts established by the Social Security Act, as shown in the following table: Comparison of special issues of Treasury obligations outstanding June 30,1939 and 1940 [In millions .of dollars. On basis of daily Treasury statements (unrevised), see p. 683] June 30, 1939 Special issues Adjusted service bonds, Government life insurance fund Treasury notes: Federal old-age and survivors insurance trust fund notes: 3% Old-age reserve account 2^i% Federal old-age and survivors insurance trust fund 3% Railroad retirement account Civil service retirement fund: 4% Series ._ 3% Series . 4% Foreign service retirement fund . 4% Canal Zone retirement fund 4% Alaska Railroad retirement fund 2% Postal Savings System 2% Federal Deposit Insurance Corporation 2% Government life insurance fund Total Certificates of indebtedness: 4% Adjusted service certificate fund 2}Wo Unemployment trust fund Total Grand total . . 1 June 30, 1940 Increase or decrease ( - ) 600.2 500.2 1,177.2 1, 413. 2 236 0 324.9 79.4 324.9 12.2 3.5 3.9 .6 128.0 1010 36.4 650.0 .2 3.9 4.3 .8 96.6 56.0 24.3 84.6 .2 .4 3 .2 — 31 5 —45.0 — 12.1 1,983. 2 2, 663. 4 670.2 19.5 1,267.0 11.3 1, 710.0 -8.2 443.0 67.2 466. 4 1,286.5 1, 721. 3 434,8 3, 769.9 4,774.9 1, 005. 0 Further details of the special issues outstanding on June 30, 1940, are shown in the statement of the public debt appearing on page 726. Other data on special issues appear in the article beginning on page 64. REPORT OF THE SECRETARY OF THE TREASURY 49 Cumulative sinking jund Credits accruing to the cumulative sinking fund during the year amounted to $582 millions which with the unexpended balance of $)1,664 millions brought forward from the previous year made $2,246 millions available for the year. Of this amount, $128 millions were applied to the retirement at par of Treasury notes and Treasury bonds maturing during the year and presented for cash redemption. The unexpended balance of $2,117 millions was carried forward to the fiscal year 1941. Tables presenting the transactions on account of the fund for 1940 and since its inception on July 1, 1920, will be found on pages 770 and 771 of this report. Amendment to the Second Liberty Bond Act During the fiscal year 1940 there were two amendments to the Second Liberty Bond Act, as amended, the law under which public debt operations are now carried on. The act of July 20,1939, amended section 21 to remove the limitation on the amount of bonds that could be issued. It made no change, however, in the total amount of bonds, Treasury notes, certificates of indebtedness, and Treasury bills—$45 billions—which may be outstanding at any one time. Title III of the Revenue Act of 1940, approved June 25,^ 1940 (see exhibit 19, page 442), further amended the Second Liberty Bond Act to provide for ^'National Defense Series'' of Treasury notes, certificates of indebtedness, and Treasury bills. These new obligations may be issued to provide funds to meet expenditures made after June 30, 1940, for the national defense or to reimburse the General Fund of the Treasury therefor. The aggregate amount of these obligations that may be outstanding at any one time may not exceed $4 billions less any retirements from the special fund made available under section 301 of the Revenue Act of 1940. Fiscal years 1933 to 1940 Financing the deficit During the period from June 30, 1932, to June 30, 1940, the gross deficit, that is, the excess of expenditures over receipts in general and special accounts, amounted to $26,280 millions. During this period, expenditures in general and special accounts for debt retirement amounted to $2,155 millions. Excluding these expenditures from the gross deficit, the net deficit between June 30, 1932, and June 30, 1940, aggregated $24,125 millions. During the same eight years the 50 REPORT OF THE SECRETARY OF THE TREASURY balance in the General Fund increased by $1,474 millions. The total amount required to be financed for the account of the regular Budget during this eight-year period thus amounted to $25,599 miUions. The financing of $18,489 millions, or a little more than 72 percent of this amount, is indicated by the net increase in the outstanding public debt obligations issued to the public for cash. These figures are shown in the table below. Means of financing the deficit and the increase in the General Fund, June 30, 1932 to 1940 [In millions of dollars. On basis of daily Treasury statements (unrevised), see p.583] Amount to be financed: Gross deficit in general and special accounts Less public debt retirements _ Net deficit in general and special accounts.. Increase in balance in the General Fund: Increment on gold Seigniorage on silver , Working balance . 26,280 2,155 . ^ 24,125 '. 143 585 746 Total increase in balance in the General Fund Total to be financed . 1,474 _. Means of financing: Increase in public.debt: Public issues: For cash . Adjusted service bonds of 1945 Special issues to Government agencies and trust funds Matured and noninterest-bearing debt Total increase in public debt. Increment on gold Seigniorage on silver Excess of receipts in trust accounts Excess of receipts in checking accounts of governmental agencies 25,599 18,489 261 —^ _ _ 18,750 4,466 265 . 23,481 i 816 685 196 521 Total means of financing . 25,699 1 Of this amount, $27.6 millions were used for payments to Federal ReserveBanks for industrial loans and $645.4 millions were used for retirement of national bank notes. These amounts are reflected in the "increase in the working balance," referred to above. Further details appear in the table on p. 130. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. The increase in the public debt shown in the table above is discussed by classes of issues in the paragraphs that follow. Further data with respect to other items in the table appear on the following pages: Deficit, page 36; increment on gold, page 128; seigniorage on silver, page 134; trust accounts, page 37; and checking accounts, page 39. Changes in the composition oj the debt, by classes oj securities The composition of the public debt outstanding at the end of each fiscal year since June 30, 1932, by classes of securities, is shown in the table that follows and in chart 5 on page 52. I t can be seen from the table that since June 30, 1932, there have been major alterations in the composition of the public debt. The Liberty bonds, which totaled $8,201 millions on that date, have been refunded and have disappeared entirely. Most of the pre-war issues 51 REPORT OF THE SECRETARY OF THE TREASURY have also^been retired. On the other hand, there were included in the public debt on June 30, 1940, approximately $2,905 millions in United States savings bonds, a new type of Government obligation issued on a discount basis. Included also were $261 millions of adjusted service bonds of 1945. These bonds, dated June 15, 1936, were issued to veterans in the amount of approximately $1,837 millions in payment of their adjusted service certificates. The bonds were redeemable at the option of the holder, and a large proportion of the issue was presented for redemption immediately after issue. Comparison of public debt outstanding on June 30,1932 to 1940, by classes of securities [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 683] Class 1935 1932 1933 1934 790 8,201 5,259 1,261 616 806 8,201 6,216 4,548 954 831 855 200 6,346 1,336 9,333 12, 684 17,168 6,653 . 10,023 11,381 1,404 2,063 2,354 2,726 2,108 1,517 Total marketable issues- 18,852 21,835 26,084 Interest-bearing: Public issues: Marketable issues: Pre-war and postal savings bonds . . . . Liberty bonds... Treasury bonds.. Treasury n o t e s . . Treasury bills.... Certificates of indebtedness..- 26,950 Nonmarketable issues: United States savings bonds ^. Adjusted service bonds of 1946. 62 Total nonmarketable issues.. 62 Total public issues.- - . 18,852 Special issues: A d j u s t e d service bonds, Government life insurance fund series Treasury notes Certificates of indebtedness 204 Total special issues. 26,084 27,012 231 278 478 1937 1938 1939 1940 198 197 19,936 10,617 2,303 21,846 9,147 1,154 25, 218 26,665 7,243 6,383 1,308 1,302 31,102 33,054 32,344 33,965 34,436 196 196 316 800 1,238 1,868 2,905 945 389 319 283 261 1,261 1,188 1,556 2,161 3,166 32, 363 34,242 33,900 36,116 37,602 500 708 500 1,278 500 1,983 600 2,653 480 105 92 118 156 146 350 898 1,287 1,721 309 323 396 633 626 1,558 2,676 3,770 4,775 22,168 26,480 27,646 32,989 35,800 36,576 39,886 42,376 66 316 54 618 231 826 ' 169 620 119 506 141 448 142 411 205 386 22,539 27,063 28,701 33,779 36,425 37,165 40,440 42,968 Total interest-bearing debt -_. 19,161 Matured debt on which interest has ceased 60 Debt bearing no interest 266 Total gross debt 21,835 1936 19,487 1 Current redemption value (cash receipts plus earned accruals less redemptions). For full account, see p. 62. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. A part of the public debt which has become of growing importance since 1932 is that represented by special obligations issued to Government corporations and trust accounts. Such obligations totaled only 52 REPORT OF THE SECRETARY OF THE TREASURY COMPOSITION OF THE INTEREST-BEARING PUBLIC DEBT OUTSTANDING, BY TYPES OF OBLIGATIONS, MONTHLY, JULY 1932 TO JUNE 1940 1932 1933 1932 1933 1934 1935 1936 1935 1936 C A L E N D A R 1937 1938 1939 1940 DOLLARS 1937 1938 Y E A R S PERCENTAGE COMPOSITION OF THE INTEREST-BEARING PUBLIC DEBT OUTSTANDING, MONTHLY, JULY 1932 TO JUNE 1940 1932 1933 1932 1933 1935 1936 C A L E N D A R 1937 1938 V E A R S CHART 5. NOTE.—Pre-war and postal savings bonds included with Treasury bonds. Special issues include all such securities issued to Government agencies and trust funds whether in the form of bonds, notes, or certificates of indebtedness. 53 REPORT OF THE SECRETARY OF THE TREASURY $309 millions on June 30, 1932, and amounted to less than 2 percent of the gross public debt. By June 30, 1940, the total of such obligations had increased to $4,775 millions, or 11 percent of the public debt. The large increase was due principally to fiscal operations under the Social Security Act. Under various titles of that act, certain trust funds were established in the Treasury, and the Secretary of the Treasury invested the receipts of these funds, to the extent that they were not needed for current expenditures, in special obligations of the Government. Further details with respect to these special issues appear on page 64 and in table 30. Public issues Bonds and notes.—The major public debt operations involving Treasury bonds and notes that were carried out on various dates from August 1, 1932, to June 15, 1940, are itemized in the table below. During this period the issues of bonds and notes aggregated $41.7 billions. Of this amount $16.6 billions were issued for cash, $6.9 billions for the refunding of Liberty bonds called for redemption during the period, and $18.2 billions for the refunding of Treasury bonds, notes, and certificates of indebtedness. Offerings of marketable issues of Treasury bonds and Treasury notes, July 1, 1932, to June 30, 1940 [In millions of dollars! Amount issued Issued In exchange for- Date of iwssue Rate Call and maturity dates Bonds 1932 Aug. 1... Do.. Sept. 15Oct. 15.. Dec. 15.. 1933 Feb. 1... May 2 . . June 15.. Aug. 15DoOct. 15.. Percent Notes For cash Treasury bonds, Liberty notes, and cer- bonds tificates Aug. 1, 1934... 3K Aug. 1, 1936... 3J€ Sept. 15, 1937.. Apr. 16, 1937-. 3 Dec. 16,1936.. 345 365 834 508 361 307 226 426 190 148 38 139 408 318 213 Feb. 1,1938 23^ Apr. 15, 1936.... June 16, 1938.... Aug. 1, 1935 3K Aug. 1, 1941 131^ Oct. 15, 1943-46.. 278 572 624 354 201 429 445 240 479 500 77 143 179 114 356 m 1934 835 1,401 66 Apr. 16,1934.... 56 Jan. 16. 528 528 Jan. 29.. 2 ^ Mar. 15,1935.— 418 Dec. 15,1935.... 418 Feb. 19.. 2H 429 429 Feb. 15, 1937 : . Do.. 3 455 455 Mar. 15,1938.... Mar. 15. 3 234 1,062 Apr. 15, 1944-46-. Apr. 16.. 336 825 June 15, 1946-48June 15.. 629 Junel5, 1939 Do.. 629 1 Interest at 414 percent paid during the first year after issuance of the bonds. 2 Treasury bonds of the series of Apr. 16,1934, were offered for payment in gold. All bonds of this were redeemed before maturity. NOTE.—Figures are rounded to nearest]million and will not necessarily add to totals. m 901 54 REPORT OF THE SECRETARY OF THE TREASURY Offerings of marketable issues of Treasury bonds and Treasury notes, July 1, 1932, to June 30, 1940—Continued [In millions of dollars] Issued Amount issued In exchange for— Date of issue Rate Call and maturity dates Bonds Percent IH Sept. 15, 1936 2H Sept. 15, 1938 3H Apr. 15, 1944-46 IH June 16, 1936 2H June 16, 1939 3H Dec. 15, 1949-52 1934 Sent 15 Do Do Dec. 15 Do Do Mar 16 Do June 3 June 15 Do Do July 1 July 15 July 22 Aug. 5 Aug. 19 Sept. 16 Do Dec. 16 Do Mar. 16 Do Jnne 15 Do Sept. 16. Dec. 15 Do Mar. 15June 15 Do Sept. 15 Do Dec. 15 Do 1935 491 2H Mar. 15, 1965-60 Mar. 16, 1940 3 ^ June 16, 1946-48 IH Mar. 15, 1940 ?^ 3 m . 1936 in 1,658 99 Mar. 15, 1955-60.. 1 . . . . June 16,1940 June 16,1946-48. Dec. 15,1939 Mar. 16,1956-60 .- do ... .. do .. Sept. 15,1946-47 Mar. 15, 1939.. Sept. 15, 1945-47 . . . . Dec. 16, 1940 IH ,. . .... Mar. 15, 1948-61 Mar. 16, 1941 2H June 15, 1951-54 June 16, 1941.. 2H Sept. 15, 1956-69 Dec. 1949-53 2H Dec. 15, 16, 1941 1937 1938 Mar. 15 June 15. . Do. Sept. 15. Do Dec. 15 Do Do 467 . . „-. 1939 Mar. 15 Do - Do June 16 . _ _ Nov. 1 Dec. 8 Dec. 22 Do.. 1940 Mar. 16-. June 15 Total 2H IH IH IH 2 2H IH Dec. 16,1949-63 Sept. 15, 1939 Mar. 15, 1942 Dec. 15, 1938 Sept. 15, 1942 Dec. 16, 1945 Dec. 15, 1942 . - 2H 2H IH 2H 2H 2 IH Sept. 15,1948 June 15, 1958-63... June 15,1943 Sept. 15, 1960-52 June 15,1943 Dec. 15,1960-65 Dec. 16, 1947 Dec. 15, 1943 113 102 107 98 669 646 1,223 _ 1,627 982 1,303 . . 484 641 461 919 ..- .. 866 591 701 894 319 2H Dec. 16,1960-65 2H Sept, 15, 1950-62 Dec. 15, 1943 June 15, 1944. 1 * Mar. 15, 1944 2 Dec. 16, 1948-50 Dec. 15,1951-53 2H Sept. 15, 1944 1 Mar. 16,1945 . . . Sept. 15, 1943 746 571 1,118 . . . . Notes For cash 614 596 687 766 514 """864" 738 """"526" 942 """"737" "•"677" "•"604" """'204" 427 426 433 342 514 477 ""'"491' 99' ""•"m" 526 102 107 98 496 .48 956 69 512 561 204 427 426 368 329 '""'57i" 100 19,990 16,638 NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. 596 457 1,658 864 746 669 429 484 433 342 247 13 451 919 268 405 19 188 701 39 894 319 63 416 515 1,018 283 718 279 718 279 21,754 738 727 629 671 435 470 762 """".461" 342 403 "•'283' 514 161 249 """361" 53 416 615 210 765 513 485 488 """"294" """"232" 219 268 Treasury bonds, Liberty notes, and cer- bonds tificates 18,158 6,948 55 REPORT OF THE SECRETARY OF THE TREASURY The sale of. Treasury bonds and notes was carried on by means of public offerings by the Secretary of the Treasury pursuant to the authority of the Second Liberty Bond Act, as amended. In general, applications were received at the Federal Reserve Banks and their branches, and at the Treasury Department. Banking institutions were auchorized to submit subscriptions for customers as well as subscriptions for their own account. Since 1935, subscriptions for their own account have been restricted, at each offering of securities for cash, to an amount not exceeding one-half of the combined capital and surplus of the subscribing institution. Until 1935, cash subscriptions for amounts up to and including $10,000 were given preferred allotments and aU other cash subscriptions were aUotted on an equal percentage basis. In 1935, preferred allotments to small subscribers were limited to subscriptions of $5,000 or less. Further reductions in the limit up to which preferred allotments would be made occurred subsequently, and in December 1938 no preferred aUotments were made at aU. A new preferred aUotment system was established in December 1939 by which subscriptions up to $5,000 were allotted in fuU provided that the subscriber agreed to accept delayed delivery in registered bonds and entered no other subscription. Subscriptions were usuaUy invited at par and accrued interest for both cash and exchange offerings, but on a number of occasions other practices were foUowed. In 1935, for example, five small cash offerings of Treasury bonds were made at prices which were determined by competitive bidding. On a few occasions, issues of Treasury bonds and notes were offered at specified prices above par. D a t a with respect to these issues appear in the table that follows. Treasury bonds and notes issued at prices above par, June 30, 1932, to June 30, 1940 Price Description Date of issue For cash Oct. 16,1933 June 15,1935 June 3,1935 July 1,1936 July 22,1936 Aug. 5,1935 Aug. 19,1936 Mar. 15,1939 Do Do 3H% 1 bonds of 1943^5 2H% bonds of 1965-60 .. 3% bonds of 1946-48 do 2H% bonds of 1956-60 do do2H% bonds of 1960-52 2H% bonds of 1960-65 iyi% notes of Dec. 15, 1943.. lOlH 3 3 3 3 3 103.125 103. 5625 101.69375 101. 6626 100.78125 For exchange 100 'lOOH 102H 102^^ 101 1 Interest at 4H percent paid during first year after issuance. 2 Offered in exchange for First Liberty bonds at par on Apr. 22,1935; price increased to lOOH on May 8, 1935. 3 Average price of bids accepted. I n the bond and note refunding operations carried out by the Treasury between July 1, 1932, and June 30, 1940, the holders of maturing securities were offered the right to exchange the entire 56 REPORT OF THE SECRETARY OF THE TREASURY amount of their holdings for new obligations of the Government and were generally assured of an allotment equal to the amount of securities turned in. On many occasions, moreover, more than one issue was offered in exchange and the holder of the maturing security was allowed to select the issues and the amounts desired. Most of the major refunding operations engaged in between 1932 and 1940 involved the refunding of Treasury note maturities into new notes or bonds. The largest individual refunding operations undertaken, however, were those which concerned the Liberty bonds, two issues of which, the Fourth Liberty Loan and the First Liberty Loan, were called for redemption and refunded between 1933 and 1935. The refunding of the Fourth Liberty Loan, the final maturity date of which was October 15, 1938, was announced in October 1933 and concluded in October 1935. The issues refunded amounted to $6,268 millions of 04 percent obligations, in connection with which there were four calls for redemption and seven offerings of securities for exchange—each call treating a particular fraction of the entire series of Fourth Liberty Loan bonds by specifying in the call the last digit of the serial number of the bonds called. Thus, the first call for redemption specified that only those outstanding bonds whose final digit numbers ended in 9, 0, or 1 were subject to the call. The table that foUows shows the portions called and the securities into which the holders exchanged the bonds. Refunding of the Fourth Liberty Loan [Dollars in millions] Amount Issue Issue of Fourth Liberty Loan 4H% bonds called: First call—redemption on Apr. 15, 1934 (numbers ending in 9, 0, or 1). Second call—redemption on Oct. 15, 1934 (numbers ending in 8 or 2).. Third call—redemption on Apr. 15,1936 (numbers ending in 5, 6, or 7). Fourth call—redemption on Oct. 16,1935 (numbers ending in 3 or 4).. Total outstanding at time of fiirst call Securities issued in exchange: 3H% ^ Treasury bonds of 1943-45 3H% Treasury bonds of 1944-46 2jl% Treasury bonds of 1956-60 2%% Treasury bonds of 1945-47 2H% Treasury notes due Sept. 15,1938 1H% Treasury notes due Mar. 15,1939 Total issued in exchange ... ... . Approximately Approximately Approximately Approximately . . ._ Balance for cash redemption by the Treasury three-tenths. two-tenths. three-tenths. two-tenths. $6,268.1 900.7 1, 284.4 1,558.0 568: 7 596.4 429.2 6,337.4 930.6 1 Interest at 4)^ percent paid during the first year after issuance of the bonds. Of the Fourth Liberty Loan bonds outstanding prior to the announcement on October 12,1933, of the first call for redemption, about S5 percent were exchanged for new issues. On the exchanged portion of the bonds, the annual interest charge to the Government was reduced $74 mUlions and the saving of interest to the maturity date REPORT OF THE SECRETARY OF THE TREASURY 57 originally fixed for the bonds (October 15, 1938) was estimated at $267 mUlions. The First Liberty Loan bonds, which were outstanding in the amount of $1,933 millions, were called for redemption on June 15, 1935. At the time of the call, the First Liberty Loan was divided into four issues as a result of conversion privileges that had arisen subsequent to the original issuance of the obligations. The table that follows shows the amounts outstanding and the amounts exchanged as a result of the refunding offering. Refunding of the First Liberty Loan [In millions of dollars] Issue Issues of First Liberty Loan bonds called: First 3H's (fully tax-exempt) First converted 4's (partially tax-exempt). First converted 4H's (partially tax-exempt) First-second converted 4H's (partially tax-exempt). Total called. Securities issued in exchange: 2%% Treasury bonds of 1966-60 1H% Treasury notes due Mar. 15, 1940. Total issued in exchange Amount. 1,392.2 5.0 532.6 3.5 1,933.2 746.4 864.5 1,610.9 Balance for cash redemption by the Treasury. Full accounts of the refunding of the Fourth and First Liberty Loan bonds will be found in the Annual Reports of the Secretary of the Treasury for the fiscal years 1934 to 1936. About the same time the First Liberty Loan bonds were called, three issues of the 2 percent circulation privilege bonds were called for redemption. The 2 percent perpetual consols callable at any time after April 1, 1930, outstanding in the amount of $600 millions, had been issued between 1900 and 1907 to refund higher coupon issues. The 2 percent Panama Canal bonds of 1916-36 and 1918-38, outstanding in the amounts of $49 millions and $26 millions, had been issued in 1906 and 1908, respectively, to provide funds for the construction of the Panama Canal. These three bond issues had, for some years prior to 1932, been the only outstanding bonds avaUable for deposit as security for the issue of circulating notes of national banks. However, a provision of the Federal Home Loan Bank Act, approved July 22, 1932, attached the circulation privUege as an emergency measure to all bonds of the United States bearing interest at a rate not exceeding 3% percent per annum, but this privUege terminated July 22, 1935. The call for the redemption of the 2 percent bonds in July and August 1935, therefore, provided for the ultimate elimination of the national bank notes as a medium of circulation. 58 REPORT OF THE SECRETARY OF THE TREASURY (See page 66 of this report for further data on the retirement of national bank notes outstanding.) At the time the calls were issued it was announced that in retiring the 2 percent bonds the Treasury would make use of part of the balance of gold in the General Fund resulting from the reduction in the weight of the gold dollar, and that gold certificates and gold certificate credits would be issued to the Federal Reserve Banks in an amount about equal to that of the bonds retired, a like amount of gold being withdrawn from the General Fund and held as security for the gold certificates and gold certificate credits issued. Such gold certificates and gold certificate credits were issued to the Federal Reserve Banks as rapidly as the national bank currency in circulation was actually retired up to a total amount of $645 mUlions, the amount of the increment on gold available to be set aside for this purpose. Certificates oj indebtedness and Treasury bills.—One of the major alterations in the composition of the public debt that has taken place since 1932 has been the complete elimination from the outstandingdebt of public issues of certificates of indebtedness. The displacement of these certificates by Treasury bills issued on a discount basis as the Treasury's principal instrument for short-term financing occurred in 1933 and 1934. No public issues of certificates of indebtedness have been made since January 1934. Certificates of indebtedness were, in the period prior to the Thirties, the only instrument available to the Treasury for loans maturing in less than one year. Treasury bills not having been authorized until June 17, 1929. Between 1917 and 1934, inclusive, the Treasury issued substantial amounts of certificates in every year. The issues during those years were largely in anticipation of income taxes, with maturities arranged on quarterly tax-payment dates when the maturing certificates were. receivable in payment of taxes. However, during the first World War and early post-war years, and again in 1932, certificates were also used as ordinary short-term loan instruments and in anticipation of longer-term issues. While certificates of indebtedness constituted an extremely useful instrument of short-term Treasury financing, they have been displaced by Treasury bills since 1934 for a number of reasons, among which are the following: (1) The sale of discount obligations through competitive bidding enabled the Treasury to take full advantage of the extremely low rates of interest on short-term securities obtaining REPORT OF THE SECRETARY OF THE TREASURY 59 in the market—a level that made the use of fractional coupon rates inconvenient. (2) The ready market in the financial centers for short-term discount obligations permitted bill offerings to be timed to coincide very accurately with the Treasury's needs for funds. Certificates of indebtedness, on the other hand, when issued to mature at quarterly tax dates in amounts sufficient to provide for the entire excess of ordinary expenditures over receipts during a quarter, naturally provided a larger volume of funds than could be used immediately. (3) The availability of weekly issues of Treasury bills permitted the Treasury to undertake large scale borrowings at its own convenience and to postpone such operations for temporary periods during unfavorable market conditions. Flexibility in its financing program through this means was maintained by the Treasury throughout the 1932-40 period. (4) The relatively small amount of each individual bill offering permitted the Treasury to schedule its tax date maturities so as to provide the greatest assistance to the money markets. Thus in March 1938 the maturities of approximately $450 miUions of Treasury bills coming due in the middle of the month were spread over four days, $150 millions maturing on March 16, and $100 millions maturing on each of the three days, March 17, 18, and 19. When certificates were used for short-term financing, however, they were.scheduled to mature on one day—the 15th of the month. The Treasury, therefore, borrowed temporarily from the Federal Reserve Banks on one-day certificates of indebtedness which were renewed in part for several days until aU tax coUections were finally cleared. The staggered bill maturities, however, provided a better method for obtaining the same results at each quarterly tax date. The Banking Act of 1935, moreover, provided that the FederaL Reserve Banks could purchase Government securities only in the open market. Between June 30, 1932, and June 30, 1935, the volume of Treasury bills outstanding was increased from $616 millions to $2,053 millions. At the same time, the entire volume of market issues of certificates of indebtedness outstanding on June 30, 1932—$2,726 millions—was retired. Since 1935 the bill volume outstanding has varied in amount and on June 30, 1940, it stood at $1,302 millions. Further data with respect to the amount of biUs and public issues of certificates of indebtedness outstanding semiannuaUy between June 1932 and June 1940 are shown in the following table. 269677—41- 60 REPORT OF THE SECRETARY OF THE TREASURY Public issues of certificates of indebtedness and Treasury bills outstanding at the end of J u n e and December 1932 to 1939, and J u n e 1940 [In millions of dollars] Certificates of indebtedness Date 1932—June December 1933—June... December 1934—June December 1935^ June December.. 1936—June.. December 1937—June . December. _ 1938—June. December 1939—June . . . _ December._ 1940—June Treasury biUs 2,726 2.158 2,108 1,628 1,-517 . . . . .. . .^ . ..... ... 616 642 954 . 1,003 1,404 1,954 2,053 2,404 2,354 2,203 2,303 1,962 1,164 1,306 1,308 1,455 1,302 Total 3,341 2,799 3,063 2,630 2,921 1,964 2,053 2,404 2,354 2,203 2,303 1,962 1,154 1,306 1,308 1,455 1,302 NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Until February 1934 and again after the beginning of December 1937 practically all Treasury bill issues were for a term of approximately 91 days. From February 1934 to February 1935, however, bills were usually for a term of 182 days and between 1935 and 1937 were, except for issues scheduled to mature at income tax periods, for a term of 273 days. Further details with respect to bill offerings, including the amounts of the issues and the average prices of the bids accepted, appear among the exhibits in the Annual Reports of the Secretary of the Treasury for each year during the period. United States savings bonds.—United States savings bonds, to be issued on a discount basis with maturities not less than 10 nor more than 20 years, were authorized by the act of February 4, 1935, amending the Second Liberty Bond Act, as amended. They were first placed on sale on March 1, 1935, and have been on continuous sale since, over-the-counter sales for cash being conducted at about 16,000 post oJS&ces, including all those of the first, second, and third classes and selected post offices of the fourth class, and maU order transactions being conducted by the Treasurer of the United States and the Federal Reserve Banks. Between 1935 and 1940 four series of savings bonds have been issued, constituting six calendar year series. The general terms of all the bonds issued have been identical. The bonds are issued on a discount basis at a price of $75 for each $100 maturity value; they are fully registered and nontransferable. The bonds are dated on the first day of the month in which sold, and mature ten years from such date. They are redeemable before maturity at the option of the owner (but not within 60 days from issue date) at fixed redemption values, which increase at the end of the first year and each six months thereafter to maturity. If bonds are held to maturity the investment yield is REPORT OF THE SECRETARY OF THE TREASURY 61 about 2.9 percent per annum, compounded semiannually. If redeenied before maturity at the owner's option, the investment yield is less. The following table shows the issue price, the redemption value at the end of the first year and at the end of successive half-year periods following issue, and approximate investment yields for each of the denominations in which the bonds are issued. Issue prices of United States savings bonds, redemption values during successive half-year periods following issue, and the approximate investment yields Maturity value. Issue price $26.00 $18.76 $1,000 Approximate $750 investment yield at beginning of each halfyear period (rate percent| per annum, Redemption values during each period compounded semiannually) Period after issue date First 3^ y e a r . . . K to 1 year 1 to IH years..IK to 2 years... 2 to 2K years... 2}/^ to 3 years... 3 to 3H years... Z}4 to 4 years... 4 to 43^ years..i}4 to 5 years.5 to 5H years... 6H to 6 years... 6 to &}4 y e a r s . . . 63^ to 7 y e a r s . . . 7 to 73^ y e a r s . . . 73^ to 8 y e a r s . - . 8 to 83^ y e a r s . . . 83^ t o 9 y e a r s . . . 9 to 93^ years.._ 93^ to 10 years.. Maturity value $18.76 18.75 19.00 19.25 19.50 19.75 20.00 20.25 20.50 20.75 21.00 . 21.25 21.50 21.75 22.00 22.60 23.00 23.50 24.00 24.60 25.00 $50.00 $37. 50 $37.60 37.60. 38.00 38.50 39.00 39. 50 40.0(1 40.50 41.0CI 41. 5(1 42.0(1 42. 5(1 43.0(1 43.60 44.00 46.00 46.00 47.00 48.00 49.00 60.00 $100 $76 $500 $376 $75 75 76 77 78 79 80 81 82 $375 8ci 8^: 85 86 87 8J; 9(1 92 94 96 98 100 376 380 385 . 39( , 395 40( 405 41( 416 42( 425 43( 435 440 450 460 470 480 490 1 600 $760 750 760 770 780 790 800 810 820 830 840 850 860 870 880 900 920 940 960 980 1,000 Percent O.OOl 0.00 1.33 1.76 1.97] 2. 2.16| 2.21 2.241 2.26 2. 281 2.29 2.29 2.30| 2. 2.46| 2.67 2.671 2.76 2.84 2.90 Yield during remainder of 10-year period if held to maturity Percent 2.90 3.05 3.07 3.10 3.13 3.17 3.21 3.27 3.34 3.42 3.52 3.64 3.81 4.02 4.31 4.26 4.21 4.17 4.12 4.08 The statute provides that a single ownership of bonds issued in any one calendar year be limited to $10,000 maturity value. In addition to the statutory limitations imposed on the purchase of savings bonds, other limitations on their purchase have been provided by administrative action. A regulations amendment dated January 18, 1940, sharply limited further sales to pension funds, retirement funds, etc. A regulations amendment dated March 27, 1940, and effective April 1, 1940, restricted registrations of savings bonds sold after that date to natural persons (individuals) in their own right, who are residents of the continental United States, the Territories and insular possessions of the United States, the Canal Zone, and the Philippine Islands, or citizens of the United States temporarUy residing abroad. The table that follows summarizes the issues and redemptions of United States savings bonds from March 1, 1935, through June 30, 1940, by years. 62 REPORT OF T H E SECRETARY OF T H E TREASURY Issues and redemptions of United States savings bonds, by years. Mar. 1, 1935, to June 30, 1940 [In millions of dollars. O n basis of daily T r e a s u r y s t a t e m e n t s (unrevised), see p . 583] Fiscal year 1936 ( M a r . 1 t o J u n e 3 0 ) . . . 1936 1937 1938 1939. . . 1940 Total Issued (issue price) Outstanding T o t a l issue R e d e e m e d at end of price p l u s (redemp- year ( c u r r e n t . accruals tion value) r e d e m p t i o n value) Accruals certified 62.6 264.0 512.6 487. 5 684.5 1,108. 7 1.2 7.2 17.1 28.0 42.1 62.6 265.2 619.7 504.7 712.6 1,160.8 0.5 11.2 36.2 66.6 82.0 114.3 3,119. 8 96.6 3,215. 5 310.8 - 62.0 316.1 799.6 1,237.7 1,868.1 2,904. 7 NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Sales of savings bonds have been tabulated in some detail of classification by type of purchaser and by denomination. Redemptions have not been so tabulated but these have not been large enough to invalidate the usefulness of the figures based on sales. The sales data by purchaser appear in the table that follows. These data are on a calendar year basis rather than on the fiscal year basis used in other savings bonds tables. Issues of United States savings bonds, classified by type of purchaser [Maturity value] T y p e of purchaser M a r . 1D e c . 31, 1935 Calendar year 1936 1937 1938 1939 JanuaryJune 19401 Total M a r . 1, 1935, to J u n e 30, 1940 A m o u n t i n millions of dollars Individuals . Fiduciaries B a n k s a n d t r u s t companies O t h e r corporations a n d associations Unclassified (purchasers in Territories, possessions, a n d abroad) Total 205.6 15.1 34.8 13.2 379.1 20.9 34.6 23.7 523.0 32.1 60.8 32.8 .3 1.0 2.5 269.0 459.3 661.2 657.9 43.1 66.8 44.0 837.7 109.1 94.8 73.1 2.8 5.2 2.5 14.3 714.6 1,119. 9 939.4 4,153. 3 67.7 14.3 10.7 7.0 75 6 8.5 9 4 6.1 636.0 134.7 100.1 66.0 3,139.2 356.0 391.9 252.9 P e r c e n t of total Individuals Fiduciaries B a n k s a n d t r u s t companies O t h e r corporations a n d associations Unclassified (purchasers in Territories, possessions, a n d abroad) . Total 76.6 5.6 12.9 4.9 82.5 4.6 7.5 6.2 80.4 4.9 9.3 6.0 78.1 6.0 9.3 6.2 74.8 9.7 8.5 6.5 .1 •2 .4 .4 .5 .3 .4 100.0 100.0 100.0 100.0 100.0 100.0 100 0 1 Regulations amendments dated Jan. 18, 1940, and Mar. .27, 1940, limited future sales to individuals. Further details with respect to these amendments appear on p. 46 of this report. NOTE.—Dollar figures are rounded to nearest tenth of a million and will not necessarily add to totals. Details on issues of savings bonds, by denominations, appear in the table that follows. This table is compiled from the standpoint of the effective issue date of the bonds on the basis of the Treasury audit of original registration stubs representing sales by the Postal 63 REPORT OF T H E SECRETARY OF T H E TREASURY Service, the Federal Reserve Banks, and the Treasury Department. Accordingly, the figures do not agree exactly with those set forth in the second preceding table which was compiled from the standpoint of actual cash transactions. Issues of United States savings bonds, by denominations, fiscal years 1935 to 1940 [Dollars in millions. On basis of Treasury audit] $25 Fiscal year $50 $100 $500 . $1,000 Total Aggregate maturity value 1935 (4 months). 1936 1937.. 1938... 1939... 1940 . Total $2.7 6.4 11.7 16.2 21.8 28.9 $3.8 10.6 19.2 24.1 29.8 40.0 $17.8 42.9 66.0 76.2 92.3 129.0 $32.4 74.5 106.3 99.9 123.8 170.8 $72.1 235.6 426.0 435.1 660.6 1,101. 6 $128.8 370.0 629.3 651.5 928.3 1, 470.1 87.7 127.6 424.3 607.6 2, 930.8 4,178.0 Aggregate sale price 1935 (4 months)... 1936 1937 1938 1939... 1940 • Total $2.0 4.8 8.8 12.1 16.3 21.7 $2.8 8.0 14.4 18.1 22.4 30.0 $13.3 32.2 49.5 67.2 69.3 96.7. $24.3 55.9 79.7 75.0 92.8 128.1 $64.1 176.7 319.5 326.3 495.5 826.1 $96.6 277.5 471.9 488.6 696.2 1,102.6 65.8 95.7 318.2 466.7 2,198.1 3,133. 5 Percentage distribution of sales 1935 (4 months) . 1936... 1937 1938-. 1939 1940 Total Percent 2.1 1.7 1.9 2.5 2.3 2.0 . . . . Percent 2.9 2.9 3.0 3.7 3.2 2.7 Percent 13.8 11.6 10.5 11.7 9.9 8.8 Percent 25.2 20.1 16.9 15.3 13.4 11.6 Percent 66.0 63.7 67.7 66.8 71.2 74.9 Percent 100 100 100 100 100 100 2.1 3.1 10.2 14.5 70.1 100 NOTE.—Dollar figures are rounded to nearest tenth of a million and will not necessarily add to totals. Additional information on redemptions up to June 30, 1940, of the various series of savings bonds appears in the table below. Proportion of savings bonds redeemed by the end of various selected periods, by denomination Redeemed by the end of— Denomination $26 $50 $100 $500 $1,000 . . All denominations . . . . lyear (1935-39 series) 2 years (1935-38 series) 3 years (1935-37 series) 4 years (1936-36 series) 5 years (1935 series) Percent 11 9 8 6 4 Percent 21 18 16 13 10 Percent 29 26 23 19 14 Percent 34 31 28 23 17 Percent 8 16 23 27 35 32 30 25 20 29 NOTE.—In preparing this table the redemptions of each series of savings bonds were taken at the end of 1, 2, 3, 4, and 5 years, respectively, from the date of issuance and were expressed as a percentage of the total amount of that series. The percentages for similar periods were then averaged. The time periods are only approximate because it was assumed that June 30 was the average date of all savings bonds issued during each calendar year. 64 REPORT OF THE SECRETARY OF THE TREASURY Adjusted service bonds.—^The Adjusted Compensation Payment Act of January 27, 1936, provided for the immediate payment of the face amount of adjusted service certificates issued under the World War Adjusted Compensation Act, less outstanding loans and unpaid accrued interest thereon to September 30,1931. All unpaid loan interest which accrued subsequently to September 30, 1931, was canceled insofar as the veteran was concerned. Payment was to be made by the issuance of bonds, in the denomination of $50, registered in the name of the veteran only, any odd amount to be paid by check. The bonds are dated June 15, 1936, mature June 15, 1945, and are redeemable at any time at the option of the veteran. Interest accrues at the rate of 3 percent per annum from June 15, 1936, payable with the principal sum, except that if the veteran chose to redeem his bonds before June 15, 1937, no interest was payable. During the period immediately following the issuance of adjusted service bonds, their redemption was handled through the post offices. Beginning January 16, 1937, however, the Federal Reserve Banks were designated as the places of redemption. Of the $1,837 millions of adjusted service bonds issued to veterans, $261 millions remained outstanding on June 30, 1940. Issues and redemptions by fiscal years and amounts outstanding at the end of each fiscal year are shown in the table following. Adjusted service bonds issued, redeemed, and outstanding, fiscal years 1936 to 1940 [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 683] Issued Fiscal year Redeemed 1936 (June 15-30) 1937 1938 1939 1940 1,668.8 140.6 12.8 6.6 8.4 724.2 696.5 82.6 42.4 30.2 Total 1,837.0 1, 576.0 Outstanding June 30 944.5 388.6 . 318.7 282.9 261.0 NOTE.—Figures are rounded to nearest_tenth of a million and will not necessarily add to totals. In addition to the adjusted service bonds issued to veterans, a special series of 4K percent bonds in the amount of $500 millions was issued to the Government life insurance fund in accordance with section 5 of the Adjusted Service Compensation Payment Act. Further details with respect to this issue appear in the 1936 and 1937 Annual Reports of the Secretary of the Treasury. Special issues For many years the Secretary of the Treasury has made special issues of Government interest-bearing securities authorized by the 65 REPORT OF THE SECRETARY OF THE TREASURY Second Liberty Bond Act available for the investment of trust and other funds deposited in the Treasury, or available pursuant to appropriations for specific purposes. The practice of issuing special obligations to Government trust funds, instead of permitting them to satisfy their investment requirements through open market purchases of Government obligations, has been followed because of certain important advantages that have become apparent. Among these have been the following: (1) The bond market is not disturbed periodically by purchases and sales of large blocks of securities; (2) the trust funds are provided with a ready avenue of investment and no attention need be given to short-term .fluctuations in market prices; (3) in the case of retirement and social security funds, the funds can always earn the interest return specified by Congress when it fixed the appropriations for the funds; and (4) savings can be effected because of the smaller number of securities to administer, and commissions to brokers on purchases and sales are eliminated. Until the end of 1934 the issuance of special obligations was confined largely to Government employees^ retirement funds and the adjusted service certificate fund. The Social Security Act, enacted August 14, 1935, however, established new trust funds in the Treasury to which large sums were soon appropriated or deposited and to which large amounts of special obligations have been issued. This is shown in the following table which summarizes, for the period since 1932, the amounts of special issues outstanding. Special issues of public debt securities outstanding June-SO, 1932 to 1940 [In millions of dollars. Face amount. Fund or account On basis of daily Treasury statements (unrevised), see p. 683] 1932 1933 1934 1935 1936 Retirement funds: Civil service retirement and disability fund.. 200 Foreign service retirement and disability 2 fund 2 Canal Zone retirement and disability fund.. Alaska Railroad retirement and disabOity fund - _- _ Veterans: 106 Adjusted service certificate fund. ._ Government life insurance fund Social security and railroad retirement: Unemployment trust fund... Old-age reserve account * Federal old-age and survivors insurance. trust fund i Railroad retirement account... Other: Postal Savings System Federal Deposit Insurance Corporation Total 309 1937 1938 1939 1940 227 239 248 275 309 389 465 650 2 2 2 2 3 2 3 3 3 3 3 4 4 4 4 4 1 1 92 118 166 127 38 500 26 523 • 20 637 11 524 19 312 267 872 662 1,267 1,177 1,710 66 67 1,738 79 (*) 323 (*) 35 126 100 100 100 30 95 45 86 128 101 97 56 396 633 626 1,658 2,676 3,770 4,775 •Less than $500,000. 1 On Jan. 1,1940, the Federal old-age and survivors insurance trust fund took over the assets of the old-age reserve account. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. 66 REPORT OF THE SECRETARY OF THE TREASURY In connection with the issue of bonds dated December 8, 1939, the Secretary of the Treasury made an additional provision for some of the investment needs of Government agencies and trust funds. He announced that in addition to the $500 miUions of 2 percent bonds of 1948-50 being offered to the public he would sell $50 miUions of this series to these agencies and trust funds. A similar allotment in the amount of $100 millions was made in connection with the sale of 2}i>^' percent bonds of 1951-53, dated December 22, 1939. Matured debt and debt bearing no interest In addition to its interest-bearing obligations, the United States carries in its outstanding public debt certain noninterest-bearing obligations. These include the matured debt on which interest has ceased and debt bearing no interest—mainly the liabihty on account of United States notes, and that for national bank notes and Federal Reserve Bank notes assumed by the United States on deposit of lawful money for their retirement. The law provides that, upon deposit of lawful money with the Treasury to meet the redemption of these notes when presented, the outstanding notes shall be treated as public debt obligations. The transfer to the United States of the liability for the major portion of the national bank notes outstanding occurred in 1935 following the call for redemption of the consols and Panamas bearing the circulation privilege and the expiration of the circulation privilege on certain Treasury bonds, as described on page 57 of this report. The amount of this liabUity at the end of each fiscal year since 1932 and the total amount of national bank notes outstanding on those dates are shown in the table below. National bank notes outstanding at the end of the fiscal years 1932 to 1940 [In millions of dollars] United Amount States liaoutstanding bility for redemption End of year 1932 1933 1934 1935 1936 -- . 741 976 962 773 372 • 67 117 223 645 371 End of year 1937 1938 1939 1940 United States liaAmount outstanding bility for redemption 273 221 189 167 272 221 189 167 Interest charge on the public debt Chart 6 on page 67 and the table that follows show the computed annual interest charge and interest rate on |public debt obhgations by classes of securities, quarterly from June 30, 1932, to June 30, 1940. Summary data, by fiscal years from 1916 to 1940, appear in REPORT OF T H E SECRETARY OF T H E 67 TREASURY COMPOSITION OF THE COMPUTED INTEREST CHARGE ON AN ANNUAL BASIS. MONTHLY, FROM JUNE 1932 TO JUNE 1940 1933 1932 1934 1935 1936 1937 1935 1936 C A L E N D A R 1933 1938 1937 Y E A R S m9 1939 1938 1940 1940 COMPUTED INTEREST RATES ON AN ANNUAL BASIS, MONTHLY, FROM JUNE 1932 TO JUNE 1940 1932 1933 1934 1935 1936 1937 1938 1939 1940 PER CENT PER CENT ^ 3.0 y ^^^^^^I^ • \ ^ " . • ^.-.. %^_ " ^Special Is.-u<is a.:: r •-..A - — ^ '^^''^^"C. 3.5 3.5 ^ Qor)ds ^ • • ^ 3.0 y ^ ^ - N ^ 2.5 2.5 ^^'^--... \ s J\ TOTAL^ •"•>^ — X -.-, T r e a s u r y Al o t z s ^ V 1.0 Tr<zos u r y B i l l s a n d Ca> r t i f i c a t z s .5 ^ -«»_„ 1932 1933 - ^ 1935 1936 C A L E N D A R CHAET 6. '" N^'-^^^'-^ 1937 1938 Y E A R S , 1939 1940 68 REPORT OF THE SECRETARY OF THE TREASURY table 46 on page 774. Data on the net expenditures for interest during the various fiscal years appear in table 6 on page 642. Computed annual interest charge and interest rate for bonds, notes, certificates of indebtedness, and bills, and special issues, quarterly, from June 1932 to June 1940 FDollars in millions. O n basis of daily Treasury statements (unrevised), see p .5831 Public issues Special issues Month Bonds Charge Rate Notes Charge •Percent 1932: June Sept Dec 1933: M a r June Sept Dec 1934: M a r June Sept Dec 1935: M a r June Sept.. Dec 1936: Mar_ June S(3pt._ Dec. 1937: M a r June Sept Dec 1938: M a r June... SeptDec 1939: M a r June Sept Dec. 1940: Mar June i __. _.__ :._-_ - - _ _-_ $542 542 541 542 641 569 590 590 609 581 573 553 494 470 473 609 .584 600 633 652 653 655 670 686 714 738 771 811 815 820 861 876 869 3.8053 3.8047 3.8066 3.8068 3.8062 3. 7740 3. 7895 3. 7888 3. 6881 3. 6514 3. 6294 3. 4041 3.3087 3. 2867 3. 2219 3.1840 3.1357 3.1180 3. 0785 3.0634 3. 0629 3.0623 3.0480 3.0359 3.0242 3. 0053 2.9718 2.9584 2.9581 2. 9577 2.9127 2.9119 2.9063 Rate Charge Percent $39 86 91 99 133 139 138 188 185 206 231 226 233 254 255 249 237 228 209 194 207 192 189 175 146 144 135 108 105 105 84 78 80 3.1190 3.0527 2.9700 2. 9414 2.9239 2. 8302 2.8296 2.8045 2. 7767 2. 6724 2. 5109 2.4619 2. 3246 2. 2146 2.1596 2.0895 2. 0798 2.1053 2. 0305 1.9804 1.9450 1.8175 1.7960 1. 7403 1. 5976 1. 5932 1.6836 1. 4860 1.4477 1.4478 1. 3592 1. 2679 1. 2555 Total Certificates and bills $78 60 60 66 56 28 30 39 34 25 4 3 3 2 3 2 3 3 3 6 10 12 9 5 1 1 R (*) Rate Percent 2.3248 2.0922 1.7814 2.1394 1. 7928 1.2218 1.1433 1. 2661 1.1603 .9819 .1878 .1656 .1304 .1274 .1355 .1228 .1455 .1487 .1462 .2519 .4241 .5032 .4638 .2666 .1006 .0640 .0199 .0027 .0101 .0576 .0224 . 0016 .0378 Charge Rate Percent $12 15 14 13 13 15 15 15 15 18 19 19 21 25 25 25 21 21 20 25 55 65 74 82 86 94 100 108 117 126 131 137 145 4. OOOO 4. OOOO 4. OOOO 4. OOOO 4. OOOO 4. OOOO 4. OOOO 4.0000 3.8233 3. 8470 3. 4800 3.4759 3. 2894 3. 6202 3. 4509 3.4412 3. 3169 3. 2803 3. 2158 3.1612 3.5279 3.4295 3. 3218 3.2528 3. 2180 3. 2135 3.1726 3.1235 3. 0913 3.0981 3.0979 3.0623 3.0266 Charge Rate Percent $672 3.6052 703 3.4630 3.4069 697 719 3. 4266 3. 3497 742 751 3.3132 3. 2964 773 831 3. 2345 3.1810 842 830 3.1180 827 2.9601 801 2.8574 751 . 2. 7156 2. 6432 751 756 2. 6537 786 2. 5683 2. 5617 845 853 2. 5780 2. 5696 866 2. 5731 876 2. 5822 924 2. 5495 924 2. 5678 942 2. 5631 948 2. 5894 947 2. 5820 977 2.6858 1,006 2 6032 1,027 1, 037 2. 5998 1,052 2.6073 1,077 2. 5977 2. 5974 1.090 1,095 2. 5831 *Less than $500,000. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Debt retirements The cumulative sinking fund, provided for by section (6) of the Victory Liberty Loan Act, as amended, was affected by the passage of three acts in 1932 and thereafter. Section 308 of the Emergency Relief and Construction Act of 1932, approved July 21, 1932, as amended, provided for annual additions to the sinking fund appropriations in amounts equal to 2^ percent of the aggregate expenditures under title I I I (public works) of that act. Section 210 (b) of the National Industrial Recovery Act, approved June 16, 1933, as amended, provided annual additions to the sinking fund appropriation in amounts equal to 2]^ percent of the aggregate expenditures under title I I (public works and construction projects) of that act. Section 20 (b) of the Gold Reserve Act of 1934, approved January 30, 1934, provided that the appropriations to the sinking fund. REPORT OF THE SECRETARY OF THE TREASURY 69 which had previously been restricted to the retirement of issues outstanding on July 1, 1920, and to issues subsequently made for refunding purposes, be extended to cover the retirements of any bonds and notes issued under the Second Liberty Bond Act, as amended. Between 1932 and 1940, the operations of the cumulative sinking fund were confined largely to the payment of maturing bonds and notes presented to the Treasury for cash redemption. Inasmuch as most bonds and notes maturing during the period were refunded into new securities, the sinking fund appropriations were allowed to accumulate, since to have exhausted the full credit available by redeeming maturing securities for cash would have required a corresponding increase in the cash offerings of securities without changing the net amount of the public debt outstanding. Tables covering transactions on account of the fund for each fiscal year, together with accumulation figures since 1920, will be found in the tables in this and previous Annual Reports of the Secretary of the Treasury. In addition to the requirements for the sinking fund, the statutes require that certain other funds received by the Treasury be applied to debt retirement. The amounts of such funds so applied during each fiscal year since 1915 and the amount of the public debt retirements chargeable against the sinking fund are shown in the table on page 768. Title I I I of the Revenue Act of 1940, approved June 25, 1940, established a special fund for the retirement of the national defense series of Treasury obligations issued pursuant to the authority of that act amending the Second Liberty Bond Act, as amended. The statutory provisions with respect to this fund appear in exhibit 19 on page 442. Statutory debt limitation The Second Liberty Bond Act of September 24, 1917, as amended, under which public debt operations are now conducted, authorizes: (1) In section 1, the issuance of bonds of the United States, bearing interest, and in section 22, the issuance of United States savings bonds on a discount basis, both adapted for long-term financing; (2) in section 5, the issuance of interest-bearing certificates of indebtedness and Treasury bills sold on a discount basis for maturities not exceeding one year; and (3) in section 18, the issuance of interest-bearing notes of the United States for maturities from one to five years. The total amount of these classes authorized to be issued and outstanding at any one time is limited by section 21 of the act (as added February 4, 1935, and amended May 26, 1938, July 20, 1939, and June 25, 1940), which provides as follows: "(a) The face ainount of bonds, certificates of indebtedness, Treasury bills, and notes issued under the authority of this act, and certificates of indebtedness issued under the authority of section 6 of the First Liberty Bond Act, shall not exceed in the aggregate $45,000,000,000 outstanding at any one time. 70 REPORT OF THE SECRETARY OF THE TREASURY *'(b) In addition to the araount authorized by the preceding paragraph of this section, any obligations authorized by sections 5 and 18 of this act, as amended, not to exceed in the aggregate $4,000,000,000 outstanding at any one time, less any retirements made from the special fund made available under section 301 of the Revenue Act of 1940, may be issued under said sections to provide the Treasury with funds to meet any expenditures made, after June 30, 1940, for the national defense, or to reimburse the General Fund of the Treasury therefor. Any such obligations so issued shall be designated 'National Defense Series'." An historical summary of the debt limitation now fixed by section 21 of the Second Liberty Bond Act, as amended, follows. Summary of the history of the debt limitation under section 21 of the Second Liberty Bond Act, as amended Provision Act Sept. 24,1917 Do A p r . 4,1918 Do July Mar. 9,1918 3,1919 Do N o v . 23,1921 J u n e 17,1929 Mar. 3,1931 Jan. 30,1934 Feb. 4,1935 Do Do M a y 26,1938 July 20,1939 J u n e 25,1940 Sec. 1 (40 Stat. 288) authorized b o n d s in t h e a m o u n t of Sec. 6 (40 Stat. 290) authorized certificates of indebtedness o u t s t a n d i n g at a n y one t i m e (revolving a u t h o r i t y ) .... (40 Stat. 302) a m e n d i n g sec. 1, increased authorized a m o u n t of b o n d s to (40 Stat. 604) a m e n d i n g sec. 5, increased authorized a m o u n t of certificates o u t s t a n d i n g to (40 S t a t . 844) a m e n d i n g sec. 1, increased authorized a m o u n t of b o n d s to (40 S t a t . 1311) a m e n d i n g sec. 5, increased authorized a m o u n t of certificates outstanding t o . . (40 S t a t . 1309) sec. 18 a d d e d , authorized issue of n o t e s ^ n t h e a m o u n t of (42 Stat. 321) a m e n d i n g sec. 18, created revolving a u t h o r i t y for issue of notes. a n d limited a m o u n t o u t s t a n d i n g a t a n y one t i m e to (46 S t a t . 19) a m e n d i n g sec. 5, authorized issue of T r e a s u r y bills as well as certificates, limiting a m o u n t of b o t h o u t s t a n d i n g a t a n y one t i m e to (46 S t a t . 1506) a m e n d i n g sec. 1, increased authorized a m o u n t of b o n d s to (48 S t a t . 343) a m e n d i n g sec. 18, increased authorized a m o u n t of notes outs t a n d i n g to (49 S t a t . 20) a m e n d i n g sec. 1, created a revolving a u t h o r i t y for t h e issue of b o n d s , limiting t h e a m o u n t o u t s t a n d i n g a t a n y one t i m e to (49 Stat. 21) sec. 21 a d d e d , consolidating t h e limitation on issue of certificates a n d bills (sec. 5) a n d limitation on issue of notes (sec. 18). Aggregate a m o u n t o u t s t a n d i n g of securities u n d e r b o t h sections (49 S t a t . 21) sec. 22 a d d e d , authorizing issue of U n i t e d States savings b o n d s , a m o u n t issued to b e included in t h e limitation in sec. 1. (52 Stat. 447) a m e n d i n g sees. 1 a n d 21, consolidated in sec. 21 all limitations on issue of b o n d s , certificates, T r e a s u r y bills, a n d notes ( o u t s t a n d i n g b o n d s limited to $30,000,000,000). S a m e aggregate total o u t s t a n d i n g (53 S t a t . 1071) a m e n d i n g sec. 21, r e m o v e d limitation on bonds w i t h o u t change in total authorized o u t s t a n d i n g of b o n d s , certificates, T r e a s u r y bills, a n d notes ( P u b l i c N o . 656, 76th Cong.) a m e n d i n g sec. 21, authorized additional issues of certificates. T r e a s u r y bills, a n d notes " n o t to exceed in t h e aggregate $4,000,000,000 o u t s t a n d i n g a t a n y one t i m e , less a n y r e t i r e m e n t s m a d e from t h e special f u n d " arising from specified defense taxes, a n y such issue to be designated " N a t i o n a l Defense Series" > L i m i t a t i o n on issue. > L i m i t a t i o n on a m o u n t o u t s t a n d i n g . » L i m i t a t i o n on issue less r e t i r e m e n t s . Amount » $7, 538,945,460 3 4,000, 000,000 1 12,000, 000,000 2 8,000, 000,000 1 20,000, 000,000 210,000, 000,000 1 7,000, 000,000 2 7, 500,000,000 210,000, 000,000 000,000 1 28,000, 000, 000 210,000, 000,000 2 25,000, 2 20,000,000,000 2 45,000,000,000 2 45,000,000,000 3 4,000,000,000 REPORT OF THE SECRETARY OF THE TREASURY 71 The two tables t h a t follow show the debt position of the United States Government on June 30, 1940, under limitations imposed by section 21 of the Second Liberty Bond Act, as amended. Statement of the debt position of the Government under limitations imposed by section 21 of ihe Second Liberty Bond Act, as amended, as of June SO, 1940 General limitation under sec. 21 (a): Total face amount which may be outstanding at any one time Face amount outstanding as of June 30,1940: Interest-bearing securities: Bonds: Treasury $26,554,797,450 United States savings (maturity value) 13,754,222,850 Adjusted service... 761,187,775 Total bonds Treasury notes Certificates of indebtedness Treasury bills (maturity value) $46,000,000,000 $31,070,208,075 8,936,036,100 1,721,300,000 1,302,194,000 Total interest-bearing securities Matured obligations on which interest has ceased $43,029,738,175 189,385,200 Total face amount of securities outstanding 43,219,123,375 Total amount of authorization unused as of June 30,1940 1,780,876,625 National defense limitation under sec. 21 (b): 2 Total face amount which may be outstanding at any one time Less: Eetirements under sec. 301, Revenue Act of 1940. ... Net face amount which may be outstanding at any one time Total face amount of securities outstanding as of June 30,1940 Total amount of authorization unused as of June 30, 1940 1 Approximate miaturity value; current redemption value, $2,904,699,343. 2 These securities may consist of notes, certificates of indebtedness, and Treasury bills. 4,000,000,000 None 4,000,000,000 None 4,000,000,000 Reconciliation of the debt position under section 21 of the Second Liberty Bond Act, as amended, with the gross public debt of the Government as shown in the daily Treasury statement as of June SO, 1940 Total face amount of securities outstanding limited by sec. 21 of the Second Liberty Bond Act, as amended: Under limitation imposed by sec. 21 (a) $43,219,123,375 Less: Unearned discounton savings bonds (difference between current redemption value and maturity value) 849,523,607 Under limitation imposed by sec. 21 (b) Total Add: Securities outstanding not subject to limitation under sec. 21: Interest-bearing Matured obligations on which interest has ceased Debt bearing no interest Gross public debt outstanding $42,369,599,868 None $42,369,699,868 196,281,260 15,205,990 386,443,919 597,931,169 42,967,531,037 72 REPORT OF THE SECRETARY OF THE TREASURY SECURITIES GUARANTEED BY THE UNITED STATES Fiscal year 1940 Certain governmental corporations and agencies are authorized to issue bonds and other obligations which are guaranteed as to the payment of principal and interest by the United States. These bonds and obligations are classified as contingent liabilities of the United States. They are primarily the obligations of the issuing agencies, and the assets of such agencies are to be used for their payment. The Treasury has made available to the governmental corporations and credit agencies, authorized to issue obligations guaranteed as to principal and interest by the United States, all of its facilities for the issuance, redemption, etc., of public debt obligations of the United States, so that those corporations and agencies desiring to do so can arrange to have their obligations serviced through Treasury facilities. As a result of this policy the Secretary of the Treasury during the fiscal year 1940 made available the facilities of the Department to handle the issuance to the public of obligations of the Commodity Credit Corporation and Reconstruction Finance Corporation, and the redemption of obligations of the Home Owners' Loan Corporation, the Commodity Credit Corporation, and the Federal Farm Mortgage Corporation. Major financing operations conducted during the year are shown below. Major financing operations conducted by the Treasury during the fiscal year 1940 for agencies issuing securities guaranteed by the United States Date Issue Aug. 1,1939 H% Commodity Credit Corporation notes of series D, due Aug. 1,1941: For cash (at par) 1% Commodity Credit Corporation notes of series E, due Nov. 15,1941: In exchange (at par) for %% Commodity Credit Corporation notes of series C, maturing Nov. 2, 1939 1% Reconstruction Finance Corporation notes of series S, due July 1, 1942: For cash (at par) Amount New offerings Nov. 2,1939 Nov. 10,1939 Maturities Aug. 1,1939 Sept. 3,1939 Nov. 1,1939 Nov. 2,1939 May 15,1940 2^4% Home Owners' Loan Corporation bonds' of series B, maturing Aug. 1, 1949, called for redemption Aug. 1, 1939, which did not accept exchange offering dated June 1,1939 ... IH% Federal Farm Mortgage Corporation bonds, maturing Sept. 3,1939... 1H% Federal Farm Mortgage Corporation bonds, maturing Nov. 1,1939.-. H% Commodity Credit Corporation notes of series C, maturing Nov. 2, 1939. Of the amount maturing, $204,241,000 were exchanged for series E, issued Nov. 2, 1939. %% Home Owners' Loan Corporation bonds of series K, maturing May 16, 1940 .... $202, 653,000 204,241,000 275,868,000 682,662,000 217,494,150 100,122,000 9, 900,000 206,174,000 127,867, 400 661, 557, 550 EEPORT OF THE SECRETARY OF THE TREASURY 73 Copies of offering circulars, announcements of subscriptions and allotments, etc., relating to the foregoing operations will be found as exhibits 21 to 29 on pages 443 to 455. The information above does not include small amounts of 2% percent mutual mortgage insurance fund debentures, series B, called on March 24, 1939, and October 6, 1939, for redemption on July 1, 1939, and January 1, 1940, respectively. The instructions issued by the Secretary of the Treasury for the redemption of the second-called debentures and also of the third-called debentures are included in the exhibits on pages 448 and 451. The net changes during the year of the various classes of securities guaranteed by the United States are shown in the table that follows. A detailed statement of these obligations and of certain other contingent liabilities of the United States as of June 30, 1940, will be found on page 775. Comparison of the obligations guaranteed by the United States outstanding June 30, 1939 and 1940, by agencies ^ [In millions of dollars] Increase or June 30, 1939 June 30, 1940 decrease (—) Corporation or agency Unmatured obligations: Commodity Credit Corporation Federal Farm Mortgage Corporation Federal Housing Administration: Mutual mortgage insurance fund Housing insurance fund Home Owners' Loan Corporation Reconstruction Finance Corporation United States Housing Authority 206.2 1,379.4 406.8 1,269.4 200.6 -110.0 2.6 2, 927. 9 819.7 114.2 5.5 2.0 2, 603.4 1,096. 4 114.2 2.8 2.0 -324. 6 276.7 Total unmatured obligations. Matured obligations, all agencies Matured interest, all agencies 5,450. 0 .8 19.6 5,497.6 31.3 3.3 47.5 30.4 -16.3 Total, based on guarantees... 2 6,470. 4 3 5, 532.1 _ . .. _. 61.7 1 Does not include obligations held by the Treasury and reflected in the public debt. 2 Does not include $8.3 millions of obligations issued on the credit of the United States by the Tennessee Valley Authority. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. 74 REPORT OF THE SECRETARY OF THE TREASURY The table that foUows compares, by agencies, the amounts authorized to be outstanding as of June 30, 1940, with the amount actually outstanding on that date. Borrowing power and outstanding issues of governmental corporations and credit agencies whose obligations are guaranteed by the United States,^ June 30, 1940 [In millions of dollars] Corporation or agency Borrowing power Agencies issuing obligations for cash or in exchange for mortgages: Commodity Credit Corporation . 900.0 Federal Farm Mortgage Corporation 2,000.0 Home Owners' Loan Corporation 2 4,750.0 Reconstruction Finance Corporation 3 3.988.2 Tennessee Valley Authority . _ __ _ ... 70.1 United States Housing Authority 800.0 Subtotal 12,508. 3 Agencies issuing obligations only in payment of defaulted and foreclosed insured mortgages: Federal Housing Administration United States Maritime Commission Subtotal Grand total Outstanding obligations Held by Held by Treasury others 7.0 52.3 20.0 406.8 1,269.7 2, 634. 3 1, 096. 4 8.3 114.2 431.8 1,269.7 2,634. ? 1,103.4 60.6 134.2 104.3 5, 529. 7 6,634.0 25.0 7.5 3,000.0 200.0 3, 200.0 15,708.3 Total 7.5 104.3 4 5, 637.2 7.5 7.5 6,64L6 1 Includes Home Owners' Loan Corporation obligations guaranteed as to interest only the issue of which is included under the Corporation's debt authorization. Includes bonds issued on the credit of the United States by the Tennessee Valley Authority and held by the Reconstruction Finance Corporation. 2 This is an authorization for the total amount to be issued. The act of May 28,1936, provided that the $4,750,000,000 may be increased for the purpose of retiring outstanding bonds. This would not affect the net amount outstanding after June 13,1936, since the Corporation's authority to make loans expired on that date. 3 Including, to the extent availed of, certain indefinite authorizations for which there is no statutory limitation. 4 Excludes matured interest, all agencies, in amount of $3.3 millions. Fiscal years 1932 to 1940 Since 1932, certain governmental corporations and agencies have been authorized to issue bonds, notes, and debentures which are guaranteed by the United States. These securities are classified as contingent liabilities of the United States since they are primarily the obligations of the issuing agencies and the assets of such agencies are to be used for their payment. These obligations have been of three types: (1) Those guaranteed as to payment of both principal and interest, (2) those guaranteed as to the payment of interest only, and (3) those issued on the credit of the United States. D a t a as of Jime 30, 1940, on the aggregate amount of these obligations authorized to be outstanding (exclusive of certain indefinite authorizations for which there is no statutory limitation) appear in the table above. The tables below show the amounts of these obligations outstanding at the end of each fiscal year from 1934 to 1940, excluding issues sold directly to the United States Treasury since the funds for their purchase were obtained by the Treasury by issues of public debt securities. (Excluding such issues, no guaranteed obligations were outstanding at the end of the fiscal years 1932 and 75 REPORT OF T H E SECRETARY OF T H E TREASURY 1933.) The chart on page 76 shows the composition of the debt guaranteed as to payment of both principal and interest, monthly, December 1933 to June 1940, by agency. Obligations guaranteed by the United States as to both principal and interest,^ outstanding June 30, 1934 to 1940 [In millions of dollars] Issuing agency and type of security U n m a t u r e d obligations (principal amount): Reconstruction Finance Corporation, notes .; .. Home Owners' Loan Corporation, bonds Federal Farm Mortgage Corporation, bonds Federal Housing Administration: Mutual mortgage insurance fund, debentures. Housing insurance fund, debentures.. J__ _ _ _ _ Commodity Credit Corporation, notes. _United States Housing Authority, notes Total unmatured obligations Matured obligations (principal amount) _ Interest on matured and unmatured obligations 3 Total 1934 1935 1936 249.8 1937 1938 1939 1940 261.6 255.2 298.9 819.7 1,096. 4 134.3 2,647. 3 3,044.2 2,987.1 2,937.2 2,927.9 2,603 4 311.6 1, 225. 6 1,422. 2 1,409.8 1,379.4 1, 269. 4 .6 2.6 6.5 206.2 206.2 406.8 234.8 1, 422. 2 .1 2.0 680.8 4,122. 7 4, 718.0 4, 664. 6 (2) 3.5 684.3 28.0 31.6 114.2 114.2 4,852. 6 6,450.0 .2 .8 5,497.6 31.3 30.0 4,150. 7 4,749. 6 4, 694. 6 25.6 19.6 3.3 4,878. 4 6,470. 4 5,532.1 1 Exclusive of obligations sold directly to the Treasury because funds for the purchase of these obligations were obtained by the Treasury by the issue of public debt securities. 2 Data not available. 3 From 1934 to 1939 amounts represent matured interest plus interest accrued but not due, after deducting amounts of funds deposited with the Treasury to meet interest payments; for 1940 amount represents matured interest only, for the payment of which funds have been deposited with the Treasury. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. Obligations guaranteed by the United States as to interest only, outstanding June 30, 1934 to 1936 [In millions of dollars] 1934 Issuing agency and type of security Unmatured obligations (principal amount): Federal land banks, bonds Home Owners' Loan Corporation, bonds Total unmatured obligations Matured obligations (principal amount): Home Owners' Loan Corporation, bonds Interest on matured and unmatured obligations L 1935 331.1 611.7 79.1 .... 942.8 79.1 . 6.6 1936 3.4 (?) (2) 1 Matured interest plus interest accrued but not due after deducting amounts of funds deposited with the Treasury to meet interest payments. 2 Less than $50,000. Securities issued on the credit of the United States, outstanding June 30, 1939 to 1940 [In millions of dollars] Issuing agency and type of security Unmatured obligations: Tennessee Valley Authority, bonds 269677—41- 1939 8.3 1940 8.3 76 REPORT OF T H E SECRETARY OF T H E TREASURY The legislative provisions dealing with the issuance of obligations guaranteed in whole or in part by the United States appear, in general, as parts of the acts establishing the various corporations and agencies. As a result thereof, the provisions covering the obligations of the different agencies vary considerably from each other. There are important differences between agencies, for example, in (1) the limitations on the amounts and types of guaranteed obligations INTEREST-BEARING DEBT GUARANTEED AS TO BOTH PRINCIPAL AND INTEREST, OUTSTANDING MONTHLY FROM DECEMBER 1933 TO JUNE 1940, CLASSIFIED BY ISSUING AGENCY 1938 1936 1936 1937 C A L E N D A R 1938 Y E A R S CHART 7. authorized to be issued; and (2) the requirements set forth with respect to the manner of issuance, terms, and conditions of the obligations authorized to be issued. The limitations on the amount of obligations authorized for each agency or corporation are stated in a number of ways in the statutes. Thus, in the case of the Federal Farm Mortgage Corporation this limitation is set at an aggregate amount authorized to be outstanding at aiiy one time. In the case of the Home Owners' Loan Corporation, however, the limitation is set at an aggregate amount of obligations authorized to be issued. In the case of the Eeconstruction Finance Corporation, the limitation was originally expressed as a multiple of the Corporation's capital stock, but since 1933 this provision has been amended from time to time for specific purposes. REPORT OF THE SECRETARY OF THE TREASURY 77 The statutes relating to guaranteed obligations all provide that the terms and conditions of such obligations must be approved by the Secretary of the Treasury. This coordination of operations has prevented the issuance of guaranteed obhgations from conflicting with the issuance of Treasury obligations. Further details with respect to types of obligations authorized to be issued and data with respect to the statutory requirements covering their terms and conditions and exemptions from taxation appear in the paragraphs that follow. Reconstruction Finance Corporation The first guaranteed obligations authorized by Congress were those authorized to be issued by the Reconstruction Finance Corporation. Section 9 of the Reconstruction Finance Corporation Act, approved January 22, 1932, as amended, provides in part as follows: "The corporation is autliorized and empowered, witli tlie approval of tlie Secretary of the Treasury, to issue, and to have outstanding . . . its notes, debentures, bonds, or other such obligations; such obligations to mature not more than five years from their respective dates of issue, to be redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obhgations, and to bear such rate or rates of interest as may be determined by the corporation: Provided, That the corporation, with the approval of the Secretary of the Treasury, may sell on a discount basis short-term obligations payable at maturity without interest . . . Such obligations may mature subsequent to the period of succession of the corporation as provided by Section 4 hereof . . . The said obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States and such guaranty shall be expressed on the face thereof. In the event that the corporation shall be unable to pay upon demand, when due, the principal of or interest on notes, debentures, bonds, or other such obligations issued by it, the Secretary of the Treasury shall pay the amount thereof, which is hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amounts so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such notes, debentures, bonds, or other obligations . . ." Section 10 provides as follows: ''Any and all notes, debentures, bonds, or other such obligations issued by the corporation shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority." The first series of obligations issued by the Reconstruction Finance Corporation under the authority of the foregoing statute—a series which was sold to the Secretary of the Treasury—was dated April 27, 1932. The first series offered to the public, however, was dated October 31, 1933. The amounts of these series and of all other series issued by the Corporation, the redemptions to June 30, 1940, • and the balance outstanding on June 30, 1940, are shown in the table that follows. The second following table gives the detail of the issues and redemptions. Further data covering the individual issues outstanding on June 30, 1940, appear in table 47, page 775. 78 REPORT OF T H E SECRETARY OF T H E TREASURY Reconstruction Finance Corporation notes—Issues and retirements, fiscal years 1932 to 1940, and amounts outstanding June 30, 1940 [In millions of dollars] Date of issue Series and coupon rate Apr. 27,1932 Various, June 30,1932, to Aug. 3,1932.. Various, Aug. 11,1932, to Oct. 22,1932.. Various, Oct. 27,1932, to Feb. 23,1933.. Various, Feb. 23,1933, to Apr. 29,1933.. Various, May 1,1933, to Oct. 30,1933.. Various, Oct. 31,1933, to Jan. 17,1934.. First, 3M% Second, 3>i%._ Third, 3H%—A,3H% B,3M% C,3^% "Feb. 1, 1934," discount. C-2, 3M% D-1, H% D-2, 2% D-3, H% D-4, 3% E,2M% F,2% G,3%..:. H,2%. DA-1, H % . . . . . DA-2, 3% J-l,y8% J-2,23^% J-3,H% J-4,2M% K, 1H% — L-l, H % L-2, 2 H % . . . — L-3, 3^%L-4,2M% M-1, 2% M-2, 2% N, K% 0-1, 1H% 0-2, 1M% P,3^% —Q,l% R, y8% —S,l% -— Various, Nov. 1,1933, to Dec. 19,1933.. Nov. 1,1933 Nov. 1,1933 Various, Dec. 20,1933, to Oct. 26,1934.. Various, Dec. 20,1933, to Oct. 31,1934.. Dec. 15, 1933 _.. Jan. 10, 1934 Jan. 10, 1934 July 1, 1934-.__ Various, Nov. 26,1934, to Apr. 30,1935. Various, Nov. 28,1934, to July 1,1935.. Nov. 1, 1934 _. Nov. 1,1934.._ Various, Nov. 26,1934, to Mar. 16,1936. Various, Mar. 29,1935, to June 3,1936.. Dec. 16, 1935 July 1,1936 July 1,1936 Various, Nov. 10,1936, to July 7,1937.. Various, Aug. 29,1936, to Apr. 11,1938. Jan. 1, 1938. Various, Jan. 3,1938, to July 5,1938... July 20, 1938 July 1, 1938 Various, July 5,1938, to Nov. 2,1938... Nov. 1, 1938 July 1, 1938 Feb. 15, 1939 Nov. 10,1939 TotaL. Maturity date Amount issued Amount retired to June 30, 1940 Oct. 27, 1932.. Oct. 27, 1932.. Oct. 27, 1932.. Apr. 30, 1933. Apr. 30, 1933. Nov. 1, 1933.. Feb. 1,1934.. 250 250 175 1,000 335 1,765 134 250 250 175 1,000 335 1,765 134 Demand Nov. 1, 1934.. Nov. 1,1934.. Nov. 1, 1934.. Nov. 1, 1934.. Dec. 15, 1935. Jan. 10,1935-. June 10,1936. July 1,1937.Demand Demand Demand Demand Demand Demand Dec. 15, 1938Demand Demand Demand Demand Demand Demand July 20, 1941. Demand-.-.. Demand Nov. 1, 1941-. Jan. 1, 1942— Jan. 15, 1942._ July 1,1942. _ 460 475 1, 290 960 860 155 64 16 90 305 260 1,715 1,525 835 445 460 475 1,290 960 860 155 64 16 90 305 260 1,715 1,525 835 445 300 2,640 1,340 25 320 916 116 2,640 1,340 25 320 916 116 211 720 168 299 1,027 310 276 Amount outstanding June 30, 19401 720 168 1,020 22,032 7 310 276 1,103 1 Includes issues sold to the Treasury. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Reconstruction Finance Corporation notes—Details.of issues and retirements, fiscal years 1932 to 1940 [In millions of dollars] Issues To the Treasury To the public Series and coupon rate Total First, 3H% Second, 3 ^ % Third, 33^% A, 3H% B, 33^% C, 3H% '"Feb. 1, 1934," discount C-2, 3H% D-1, ^ % D-2, 2% n - 3 , H% -D-4, 3% 1 In accordance with the act Retirements For cash For refunding For cash For refunding 250 250 250 250 175 175 325 1,000 675 335 335 430 1,765 1,335 134 134 460 460 475 475 1,290 1,290 960 "'"765" 195 860 595 265 of February 24,1938, see page 114. Total cash 250 250 175 1,000 335 1,765 134 """i34" 460 475 1,290 960 860 """"345' By Byre- cancelfunding ation » 250 250 175 1,000 335 1,765 460 475 1,290 960 515 79 REPORT OP THE SECRETARY OF THE TREASURY Reconstruction Finance Corporation notes—Details of issues and retirements, fiscal years 1932 to IP^^—Continued [In millions of dollars] Issues To the Treasury Series a n d coupon r a t e Retirements To t h e public Total Total For cash E, 2M% F, 2% G, 3%_ H, 2% DA-1, K % DA-2, 3% J - 1 , Ysfo T—2 2 V ^ J-3, 3^% J-4, 23^% K , 11/^% L - l , y8% L-2, 2 H % L-3, H % L-4, 23^% M - 1 , 2% M-2, 2% N, ^ % . . . 0-1, 13^%--0 - 2 . 13^% P, %% Q, 1% R , 74% s,i% Total - - -._. 155 64 16 90 305 •305 260 260 1,715 1,525 835 "'""530" 265 445 300 2,640 1,340 25' 25 320 320 916 4i" 116 211 720 168 " " " ' i 6 3 " 299 354 1,027 310 276 . . . . 22, 032 5,848 F o r refunding For cash F o r refunding 155 64 16 26 64' 1,715 1,525 305 180 51 248 2,640 1,340 916 75 By B y refunding cancelation 1 cash 155 6 64 16 90 305 8O" 260 1,715 1, 525 " " " 9 5 ' 835 445 " " " 4 4 5 ' 3 300 2,640 1,340 625 25 120 320 207 916 97 116 _. 149 64 16 83 305 180 1,715 1,430 835 297 791 2,640 24 25 200 706 19 3 505 168 5 211 720 5 2 720 168 210 1,020 991 20,929 3,265 297 673 29 310 276 14, 328 1,246 610 14,938 2,726 1 In accordance with the act of February 24^ 1938, see page 114. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. The tables above include all of the issues made by the Reconstruction Finance Corporation. In the table on page 75, however, the amount of Eeconstruction Finance Corporation securities which were issued to the Secretary of the Treasury has not been included, because the funds for their purchase were obtained by the Treasury by issues of public debt securities. The Reconstruction Finance Corporation issues offered to the public for cash and exchange in 1938 and 1939 were general offerings for which public subscriptions were invited. The Reconstruction Finance Corporation issues offered to the public from 1933 to 1935 were special purpose obligations, however, and public subscriptions were not invited. Thus the issue dated October 31, 1933, was offered in payment for gold. The other public issues during these years aggregated $325 millions. Of this amount $261 millions was issued for cash and $64 milhons was issued upon refunding. These public issues were offered to banks and insurance companies from which the Corporation purchased preferred stock, capital notes, and debentures. By June 30, 1940, all b u t $7 millions of the issues sold to the Secretary of the Treasury had been retired by the Corporation from proceeds of collections from its outstanding loans and investments, or from funds derived by the sale of its issues to the public, or by reason 80 REPORT OF THE SECRETARY OF THE TREASURY of the cancelation of notes provided by the act of February 24, 1938. Under that act the Secretary of the Treasury was authorized to cancel obligations of the Reconstruction Finance Corporation incurred in supplying funds for relief at the authority or direction of Congress or allocated to other Government agencies. Accordingly, the Secretary canceled $2,726 millions of the Corporation's notes. Further details concerning this operation appear on page 114 of this report. In authorizing the Reconstruction Finance Corporation to issue guaranteed obligations, Congress originally limited the total amount of such obligations to be outstanding at any one time to a multiple of the Corporation's capital stock (which at that time amounted to $500 millions). Thus, under the act of January 22, 1932, the Corporation was authorized to have bonds, notes, and debentures outstanding in an amount aggregating not more than 3 times its subscribed capital stock. Under the act of July 21, 1932, the basic limitation was increased to 6% times the subscribed capital stock. Further amendments subsequently adjusted the basic limitation by adding or subtracting fixed amounts (as the Emergency Appropriation Act of 1935) or by adding indefinite amounts depending on actual expenditures made under specific legislation (as the authorization in the Emergency Banking Act of 1933 for the purchase of preferred stock in banks). The act of June 25, 1940, authorized the Corporation to retire a portion of its capital stock and provided that this retirement would not reduce the aggregate amount of obligations authorized to be outstanding. On June 30, 1940, the total amount of Reconstruction Finance Corporation obligations authorized to be outstanding was $3,988 millions, exclusive of indefinite authorizations for which there was no limitation. To the extent that further expendir tures are made for specific purposes, this limitation would be increased by such amounts without further act of Congress, in accordance with the terms of the indefinite limitations. Federal land banks The Emergency Farm Mortgage Act of 1933, approved May 12, 1933, provided for a series of Federal farm loan obligations which were to be guaranteed as to interest only by the United States. Section 21 of that act provided in part as follows: "Until such time as the Farm Loan Commissioner determines that Federal farm loan bonds (other than those issued under this paragraph) are readilj^ salable in the open market at a yield not in excess of 4 per centum per annum, but in no case more than two years after this paragraph takes effect, Federal land banks may issue farm loan bonds as authorized under this act . . . The aggregate amount of the bonds issued under this paragraph shall not exceed $2,000,000,000, and such bonds shall be issued in such denominations as the Farm Loan Commissioner shall prescribe, shall bear interest at a rate not in excess of 4 per centum per annum, and shall be fully and unconditionally guaranteed as to interest by the United States, and such guaranty shall be expressed on the face thereof. In REPORT OF THE SECRETARY OF THE TREASURY 81 the event that it shall appear to the Farm Loan Commissioner that the issuing bank or banks will be unable to pay upon demand, when due, the interest on any such bonds, the Secretary of the Treasury shall, upon the request of the Commissioner, pay the amount thereof, which is hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated." Under the provisions of the foregoing section, the Federal land banks issued approximately $333 millions, par value, of consolidated Federal farm loan bonds guaranteed by the United States as to interest only. All these obligations were issued during the fiscal year 1934 and retired during the following fiscal year. They were all issued to other Farm Credit Administration institutions, or pledged as security with the Reconstruction Finance Corporation for notes payable or with the United States for deposits of public money. The statutory authority for further new issues of these obligations was canceled by the Federal Farm Mortgage Corporation Act, approved January 31, 1934, section 5 of which provided that after 90 days after the enactment of the act no Federal land bank should issue any new consolidated farm loan bonds carrying the interest guaranty, except for the purpose of refinancing bonds issued subject to this guaranty. Home Owners^ Loan Corporation The Home Owners' Loan Corporation, created under the act approved June 13, 1933, was established for the purpose of refinancing home mortgages and other obligations and liens secured by home property. The Corporation obtained its capital funds by the sale of $200 millions of capital stock to the Secretary of the Treasury. Funds for this subscription were allocated to the Secretary by the Reconstruction Finance Corporation as provided by Congress. The major portion of the funds for the Corporation's refinancing operations was not derived from capital, however, but was obtained by the sale of the Corporation's bonds for cash or by the issue of its bonds in exchange for mortgages. Under the 1933 act, the Home Owners' Loan Corporation was authorized to issue obligations guaranteed as to interest only by the United States. During the fiscal years 1934 and 1935 approximately $635 millions of such obligations carrying an interest rate of 4 percent were issued. By the act of April 27, 1934, however, the Corporation was empowered to issue obligations guaranteed by the United States both as to interest and as to principal. In accordance with the provisions of this act, the Corporation discontinued issuing obligations guaranteed only as to interest and offered to refund such outstanding obligations with obligations at a lower rate, which were guaranteed both as to interest and principal. On July 1, 1935, the remaining outstanding 4 percent obligations were called for redemption. The table that follows shows the issues and retirements of these obligations to Jime 30, 1940. 82 REPORT OF THE SECRETARY OF THE TREASURY Home Owners^ Loan Corporation--Issues and retirements of bonds guaranteed as to interest only, and amount outstanding June 30, 1940 [In millions of dollars] Bonds Amount Issued. 635.4 Retired: By exchange into other issues. By exchange for cash By purchase before maturity.. By cash retirements 554.7 40.0 2.6 37.8 Total Outstanding June 30,1940-.- 635.1 . Under the 1933 act the total volume of obligations that the Corporation was authorized to issue cumulatively was set at $2,000 millions. By the act of June 27, 1934, this total was increased to $3,000 millions and by the act of M a y 28, 1935, was further increased to $4,750 millions, with an additional amount on the account of debt retirement. The statute, as amended, covering the issuance of obligations by the Corporation guaranteed as to both principal and interest by the United States appears in part below. " . . . the Corporation is authorized to issue bonds in an aggregate amount not to exceed $4,750,000,000, which may be' exchanged as hereinafter provided, or which may be sold by the Corporation to obtain funds for carrying out the purposes of this section or for the redemption of any of its outstanding bonds; and the Corporation is further authorized to increase its total bond issue for the purpose of retiring its outstanding bonds by an amount equal to the amount of the bonds to be so retired (except bonds retired from payments of principal on loans), such retirement to be at maturity or by call or purchase or exchange or any method prescribed by the Board with the approval of the Secretary of the Treasury: Provided, That no bonds issued under this subsection, as amended, shall have a maturity date later than 1952. Such bonds shall be in such forms and denominations, shall mature within such periods of not more than eighteen years from the date of their issue, shall bear such rates of interest not exceeding 4 per centum per annum, shall be subject to such terms and conditions, and shall be issued in such manner and sold at such prices, as may be prescribed by the Corporation, with the approval of the Secretary of the Treasury. Such bonds shall be fully and unconditionally guaranteed both as to interest and principal by the United States, and such guaranty shall be expressed on the face thereof, . . . In the event that the Corporation shall be unable to pay upon demand, when due, the principal of, or interest on, such bonds, the Secretary of the Treasury shall pay to the holder the amount thereof which is hereby authorized to be appropriated out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such bonds . . . The bonds issued by the Corporation under this subsection shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any District, Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority." The table t h a t follows summarizes the issues and redemptions of Home Owners' Loan Corporation bonds guaranteed as to both principal and interest from 1934 to 1940 and shows the amount outstanding on June 30, 1940. The second following table gives the detail of the issues and redemptions. Further data covering the individual issues outstanding on June 30, 1940, appear in table 47, page 775. REPORT OF T H E SECRETARY OF T H E 83 TREASURY Home Owners^ Loan Corporation bonds guaranteed as to both principal and interest— Issues and retirements, fiscal years 1934 to 1940, and amounts outstanding J u n e SO, 1940 [In millions of dollars] Date of issue May 1, 1934 Aug. 1, 1934 Aug. 15, 1934 Aug. 15, 1934 Aug. 15,1934 June 1, 1935 July 1-. 1935 Oct. 15, 1936 Oct. 15, 1937 Oct. 15, 1938 May 15, 1939 May 15, 1939 June 1, 1939 Oct. 15, 1939 Series and coupon rates Call and maturity dates M a y l , 1944-52. Aug. 1, 1939-49. Aug. 15, 1936... Aag. 15, 1937... Aug. 15, 1938... J u n e l , 1939 July 1, 1942^4.. Oct. 15, 1937..... Oct. 15,1938.— Oct. 15, 1939.... May 15, 1940.... May 15, 1941.... J u n e l , 1945-47-. Oct. 15, 1940..... A,3%..-. B,2%%.. C,1H%-- n, m%.. E, 2 % . . . . F, 1>^%.G,2^%.. H, K%— I, M%-— J,K%—- t, %%... L,H%... M, 1H%.. Amount issued Amount Amount retired outstandto June ing June 30, 1940 30, 1940 1 1,116 1,340 50 50 50 325 879 132 60 94 128 192 764 69 Total.. 1,316 60 50 49 325 779 24 0) (2) 879 (2) 132 60 94 121 1 5,248 2,614 7 191 755 2,634 1 Includes matured issues on which interest has ceased. 2 Less than $500,000. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Home Owners' Loan Corporation bonds guaranteed as to both principal and interest— Detailsof issues and retirements, fiscal years 1934 to 1940 [In millions of dollars] Issues Series and coupon rates A, 3% B, 2H% c,iy2% D, IH% E, 2% F, 13^% Q,2H%H, }4%. I/K% J, }4% :.... K,||% L, ^ % M, 13^%...... N, K % Total Total 1,116 1,340 50 50 50 325 879 132 60 94 128 192 764 69 5,248 For cash 98 50 50 50 40 50 2 132 2 60 2 94 2 69 692 Retirements For refunding In exchange for home mortgages 309 709 1,340 285 736 93 128 192 764 2,414 2,142 Total By cash 338 1,316 50 50 49 325 0) 132 60 94 121 1 9 69 2,614 Byrefunding 117 50 50 49 5 2 35 336 1,164 320 0) 132 60 94 121 1 9 69 748 By purchase prior to maturity 1,819 47 1 Less than $500,000. 2 Issued to the Treasury. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Federal Farm Mortgage Corporation The Federal Farm 'Mortgage Corporation, created under the act approved January 31, 1934, was established to facilitate the financing of loans to farmers by the Land Bank Commissioner, and to aid in financing the Federal land banks. The authorized capital of the Corporation was subscribed by the Governor of the Farm Credit 84 REPORT OF THE SECRETARY OF THE TREASURY Administration on behalf of the United States. For the purpose of such capital subscription, a $200 million fund which had been previously made available to the Land Bank Commissioner, together with the proceeds thereof, and the notes and mortgages which had aheady been taken by the Commissioner, were by the act expressly transferred to the Corporation. The act authorized the Federal Farm Mortgage Corporation to obtain such additional funds for its operations as were necessary by the issuance of obligations guaranteed by the United States both as to interest and as to principal. Section 4 (a) of that act as amended provides in part as follows: "With the approval of the Secretary of the Treasury, the corporation is authorized to issue and have outstanding at any one time bonds in an aggregate amount not exceeding $2,000,000,000. Such bonds shall be in such forms and denominations, shall have such maturities, shall bear such rates of interest, shall be subject to such terms and conditions, and shall be issued in such manner and sold at such prices as may be prescribed by the corporation, with the approval of the • Secretary of the Treasury. Such bonds shall be fully and unconditionally guaranteed both as to interest and principal by the United. States and such guaranty shall be expressed on the face thereof, . . . In the event that the corporation shall be unable to pay upon demand, when due, the principal of, or interest on, such bonds, the Secretary of the Treasury shall pay to the holder the amount thereof, which is hereby authorized to be appropriated out of any moneys iri the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such bonds . . . On such terms and conditions as may be agreed upon, the corporation may exchange such bonds, upon application of any Federal land banli for consolidated farm loan bonds of equal face vaiue issued under the Federal Farm Loan Act, as amended, and may exchange such consolidated farm loan bonds held by it for bonds of the corporation of equal face value." Section 12 (b) as amended provides as follows: "IVIortgages executed to the Land Bank Commissioner and mortgages held by the Corporation, and the credit instruments secured thereby, and bonds issued by the Corporation under the provisions of this Act shall be deemed and held . to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation (except surtaxes, estate, inheritance, and gift taxes)." Within two years after it was organized, the Corporation had approximately $1,400 millions of guaranteed bonds outstanding, of which approximately $1,000 millions had reached the public as the proceeds of loans made either by the Land Bank Commissioner, as agent for the Corporation, or by the Federal land banks. In the latter case the land banks had obtained Federal Farm Mortgage Corporation bonds from the Corporation in exchange for their own obligations, and disbursed these bonds as loan proceeds instead of cash. . The table that follows summarizes the issues and redemptions of Federal Farm Mortgage Corporation bonds from 1934 to 1940, and shows the amount outstanding on June 30, 1940. The second following table gives the detail of the issues and redemptions. Further data covering the individual issues outstanding on June 30, 1940, appear in table 47, page 775. 85 REPORT OF THB SECRETARY OF THE TREASURY Federal Farm Mortgage Corporation bonds—Issues and retirements, fiscal years 1934 to.1940, and amounts outstanding June.30,1940 [In millions of dollars] Date of issue Mar. 1, 1934 Mar. 15, 1934 May 15, 1934 Jan. 15, 1935 Feb. 15, 1935 Mar. 1, 1935 Sept. 3, 1935 Aug. 16, 1937 Nov. 1, 1937 Sept. 1, 1939 Sept. 1, 1939 Call and maturity dates Series and coupon rate 1935,2% 1944-64, 3 ^ % . . 1944-49, 3%.._. 1942-47,3%... 1937, 1K% 1942-47, 2M%-. 1939, 13^%. — . 1938,^8%- — . 1939, l y % . . . . . 1940, H% 1940,^% TotaL. Amount Amount retired to issued June 3 1940 Mar. 1 1935 Mar. 15, 1944-64.. May 15,, 1944-49.. Jan. 15, 1942-47... Aug. 15,,1937 Mar. 1, 1942-47... Sept. 3, 1939 Feb. 16, Nov. 1, 1939.. Mar. 1, 1940Sept. 1, 1940.. 77 106 984 238 22 105 100 10 10 15 10 77 12 149 1 22 2 100 10 10 15 10 407 Amount outstanding June 30, 19401 95 835 236 103 (2) 1, 270 1 Includes matured issues on which interest has ceased. 2 Less than $500,000. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Federal Farm Mortgage Corporation bonds—Details of issues and retirements, fiscal years 1934 to 1940 [In millions of dollars] Issues Retirements In exchange for— Series and coupon rates 1935, 2% 1944-64, 3}4% 1944-49, 3% 1942-47, 3% 1937. iy.% 1942-47, 2 ^ % 1939,1M% 1938,5^% 1939, 1M% 1940, y % 1940. M% Total Total 77 106 984 238 22 105 100 10 10 15 10 • 1, 677 In exchange for— Other For Mortgages (Land Federal F F M C cash bonds Bank farm issued Commisloan for resioner bonds funding loans) 177 1 278 21 22 77 100 3 10 10 3 15 3 10 621 44 255 103 61 407 103 12 15 414 587 43 11 (2) 54 Total cash By purchase prior to Federal Other FFMC maturity farrn loan bonds bonds 77 30 12 149 1 22 " " 2 6 ' 2 100 "ioo" 10 5 10 10 15 10 407 164 12 3 101 1 2 1 35 8 10 37 (2) (2) 1 5 (2) 15 10 151 37 54 1 $35 millions of this amount issued to the Treasury. 2 Less than $500,000. 3 Issued to the Treasury. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Federal Housing Administration The Federal Housing Administration was created by the National Housing. Act, approved June 27, 1934, which was subsequently amended from time to time. The principal purpose of the Federal Housing Administration is to provide long-term insurance for real estate mortgages on small homes and on large scale rental housing projects. In event of default by the mortgagor, the property secur 86 REPORT OF THE SECRETARY OF THE TREASURY ing the mortgage may be conveyed after foreclosure by the mortgagee to the Federal Housing Administrator in exchange for which the Federal Housing Administration issues debentures guaranteed as to principal and interest by the United States. The debentures are obligations of either the mutual mortgage insurance fund, which provides protection for insured mortgages on small homes, or the housing insurance fund, which provides protection for insured mortgages on rental housing projects. Section 204 of the National Housing Act, as amended, provides in part as follows: ''The debentures issued under this section to any mortgagee with respect to mortgages insured under section 203 shall be executed in the name of the IVIutual Mortgage Insurance Fund as obligor, shall be signed by the Administrator by either his written or engraved signature, and shall be negotiable and the debentures issued under this section to any mortgagee with respect to mortgages insured under section 210 shall be executed in the name of the Housing Insurance Fund as obligor, shall be signed by the Administrator by either his written or engraved signature, and shall be negotiable. All such debentures shall be dated as of the date foreclosure proceedings were instituted, or the property was otherwise acquired by the mortgagee after default, and shall bear interest from such date at a rate determined by the Adniinistrator, with the approval of the Secretary of the Treasury, at the time the mortgage was offered for insurance, but not to exceed 3 per centum per annum, payable semiannually on the 1st day of January and the 1st day of July of each yeiar, and shall mature three years after the 1st day of July following the maturity date of the mortgage on the property in exchange for which the debentures were issued. Such debentures as are issued in exchange for property covered by mortgages insured under section 203 or section 207 prior to the date of enactment of the National Housing Act Amendments of 1938 shall be subject only to such Federal, State, and local taxes as the mortgages in exchange for which they are issued would be subject to in the hands of the holder of the debentures and shall be a liability of the Fund, but such debentures shall be fully and unconditionally guaranteed as to principal and interest by the United States; but any mortgagee entitled to receive any such debentures may elect to receive in lieu thereof a cash adjustment and debentures issued as hereinafter provided and bearing the current rate of interest. Such debentures as are issued in exchange for property covered by mortgages insured after the date of enactment of the National Housing Act Amendments of 1938 shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, countj^ municipality, or local taxing authority; and such debentures shall be paid out of the Fund, or the Housing Fund, as the case may be, which shall be primarily liable therefor, and they shall be fully and unconditionally guaranteed as to principal and interest by the United States, and such guaranty shall be expressed on the face of the debentures. In the event that the Fund or the Housing Fund fails to pay upon demand, when due, the principal of or interest on any debentures issued under this section, the Secretary of the Treasurj^" shall pay to the holders the amount thereof which is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures." The table t h a t follows summarizes the issues and redemptions of Federal Housing Administration debentures from 1936 to 1940 and shows the amount outstanding on June 30, 1940. 87 EEiPORT OF T H E SECHETARY OF T.HE: TE.EASURY Federal Housing Administration debentures—Issues and retirements, fiscal years 1936 to 1940, and amounts outstanding June SO, 1940 [In millions of dollars] Date of issue and fund Series and coupon rate Maturity date Amount retired Amount issued in to June 30,1940 exchange for propAmount erties outstandpuracquired By ing June chase By cash under to redemp- 30, 1940 terms of prior matution insurrity ance • Mutual mortgage insurance fund: Various from Apr. 18, 1936. Various from July 2, 1936. Housing insurance fund: Nov. 13, 1939 A, 3% Various from July 1, 1944. B , 2 3 / 4 % . . . . . Various from July 1, 1943. D , 23^% J u l y l , 1969 3.8 0.3 3.5 .2 1.3 3.5 2.0 .5 1.3 7.5 2.0 2.0 9.4 NOTE.—Figures are rounded to nearest tenth of a million and do not necessarily add to totals. Commodity Credit Corporation The Commodity Credit Corporation was created as an agency of the United States under the laws of the State of Delaware on October 17, 1933, pursuant to Executive Order No. 6340, dated October 16, 1933. Its functions as an agency of the Government have been extended from time to time, and pursuant to the act of March 4, 1939, its functions were extended to June 30, 1941, or such earlier date as may be determined by the President. The Corporation makes loans principally to producers to finance the carrying and orderly marketing of agricultural commodities. Funds for these operations have been obtained by the sale of $100 millions of capital stock ($3 millions of which was subscribed by the Secretary of Agriculture and the Governor of the Farm Credit Administration in 1933, and $97 millions of which was subscribed by the Reconstruction Finance Corporation in 1936), and by the sale of obligations to the Reconstruction Finance Corporation, the Treasury, and the public. Sales of the Corporation's obligations in the market have been carried on under the act of March 8, 1938, as amended, which authorizes the Corporation to issue obligations guaranteed by the United States both as to interest and as to principal. The statutory provisions with respect to these obligations are in part as follows: "With the approval of the Secretary of the Treasury, the Commodity Credit Corporation is authorized to issue and have outstanding at.any one time, bonds, notes, debentures, and other similar obligations in an aggregate amount not 88 REPORT OF THE SECRETARY OF THE TREASURY exceeding $900,000,000. Such obligations shall be in such forms and denominations, shall have such maturities, shall bear such rates of interest, shall be subject to such terms and conditions, and shall be issued in such manner and sold at such prices as may be prescribed by the Commodity Credit Corporation, with the approval of the Secretary of the Treasury. Such obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States, and such guaranty shall be expressed on the face thereof, . . . In the event that the Cominodity Credit Corporation shall be unable to pay upon demand, when due, the principal of, or interest on, such obligations, the Secretary of the Treasury shall pay to the holder the amount thereof which is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such obligations. *'Bonds, notes, debentures, and other similar obligations issued by the Commodity Credit Corporation under the provisions of this Act shall be deemed and held to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation (except surtaxes, estate, inheritance, and gift taxes).'' The table that follows summarizes the issues and retirements of Commodity Credit Corporation notes from 1936 to 1940. Commodity Credit Corporation notes—Issues and retirements, fiscal years 1936 to 1940, and amounts outstanding June 30, 1940 [In millions of dollars] A i n o u n t issued D a t e of issue Maturity date Series a n d coupon r a t e Total J u l y 15,1936 A u g . 2,1937 M a y 2,1938 Jan. 6,1939. J u l y 31,1939 A u g . 1,1939 N o v . 2,1939 J u n e 29,1940 A,H%-- - B , 1% C,H% First, H % First, 3 ^ % . D,^% E , 1% Second, y % Total - J a n . 15,1937 M a y 2,1938 N o v . 2,1939 A u g . 1,1939 D e c . 31.. 1939 A u g . 1,1941 Nov.-15,1941 D e c . 29,1940 For cash 72 72 60 60 206 148 10 110 190 1190 . 203 203 204 25 " • • T 2 5 ' 970 707 F o r refunding 58 A m o u n t retired to J u n e 30, 1940 A m o u n t outstanding J u n e By Byre30,1940 cash funding 72 2 2 10 190 58 204 203 204 1 25 204 ... _ 263 275 263 432 I Issued to the Treasury. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. United States Housing Authority The United States Housing Authority was created by the act approved September 1, 1937, which provided for financial assistance to States and political subdivisions thereof, for the elimination of unsafe and insanitary housing conditions, for the eradication of slums, and for the provision of decent, safe, and sanitary dwellings for families of low income. The assistance may take the form of capital grants to public housing agencies or of long-term loans to such agencies accompanied by annual contributions designed to permit the charging of low rentals. Funds for the purpose of making loans to these agencies are raised by the Authority through the issuance of corporate obligations guaranteed both as to interest and principal by the 89 REPORT OF T H E SECRETARY OF T H E TREASURY United States. The statutory provisions with respect to these obligations are in part as follows: ''The Authority is authorized to issue obligations in the form of notes, bonds, or otherwise, which it may sell to obtain funds for the purposes of this Act. The Authority may issue such obligations in an amount not to exceed $800,000,000. Such obligations shall be in such forms and denominations, mature within such periods not exceeding sixty years from date of issue, bear such rates of interest not exceeding 4 per centum per annum, be subject to such terms and conditions, and be issued in such manner and sold at such prices as may be prescribed by the Authority with the approval of the Secretary of the Treasury. "Such obligations shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or by any State, county, municipality, or local taxing authority. ''Such obligations shall be fully and unconditionally guaranteed upon their face by the United States as to the payment of both interest and principal, and, in the event that the Authority shall be unable to make any such payment upon demand when due, payments shall be made to the holder by the Secretary of the Treasury with money hereby authorized to be appropriated for such purpose out of any money in the Treasury not otherwise appropriated. To the extent of such payment the Secretary of the Treasury shall succeed to all the rights of the holder." Under the foregoing authority, the United States Housing Authority had offered one issue of $114 millions for public subscription by June 30, 1940. Issues were also made to the Secretary of the Treasury to provide temporary funds pending the sale of obligations in the market. The table that follows summarizes issues and redemptions of United States Housing Authority notes to June 30, 1940. United States Housing Authority notes—Issues and retirements, fiscal years 1938 to 1940, and amounts outstanding June 30, 1940 [In millions of dollars] Date of issue Various May 3, 1938, to Jan. 19, 1939. Feb. 1, 1939 Various Nov, 4, 1939, to Apr. 2, 1940. May 8, 1940 Amount issued for cash Series and Maturity date coupon rate To the To the Total public Treasury A, M%.... June 30,1939 25 B, 1 ^ % - . . Feb. 1,1944 C, M%—- June 30,1940 D, M%—- Dec, 31,1940 114 25 20 184 Total 114 Retired by cash to June 30, 1940 25 25 25 25 20 114 . 70 Amount outstanding June 30,1940 1 114 20 50 134 1 Includes issues sold to the Treasury. United States Maritime Commission The Merchant Marine Act, approved June 29, 1936, as amended, created the Federal ship mortgage insurance fund, administered by the United States Maritime Commission, to insure preferred mortgages on vessels of the United States merchant marine, which had secured new loans or advances to aid in financing the construction, reconstruction, or reconditioning of such vessels subsequent to June 23, 90 REPORT OF THE SECRETARY OF THE TREASURY 1938. The act provided that, in event of default of the mortgage, the fund issue debentures to mortgagees of such vessels in exchange for tbe mortgaged property. The statutory provisions with respect to the debentures are, in part, as follows: "Debentures issued under this section shall be in such form and denominations in multiples of $50, shall be subject to such terms and conditions, and shall include such provisions for redemption, if smy, as may be prescribed by the Commission with the approval of the Secretary of the Treasury, and may be in coupon or registered form. Any difference between the value of the mortgage determined as herein provided and the aggregate face value of the debentures issued, not to exceed $50, shall be adjusted by the payment of cash by the Commission to the mortgagee from the fund. "The debentures issued under this section shall be executed in the name of the fund as obligor, shall be signed by the Chairman of the Commission by either his written or engraved signature, and shall be negotiable. All such debentures shall be dated as of the date foreclosure proceedings were instituted, or the property was otherwise acquired by the mortgagee after default, and shall bear interest from such date at a rate determined by the Commission, with the approval of the Secretary of the Treasury, at the time the mortgage was offered for insurance, but not to exceed 3 per centum per annum, payable semiannually on the 1st day of January and the 1st day of July of each year, and shall mature three years after the 1st day. of July following the maturity date of the mortgage on the property in exchange for which the debentures were issued. They shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority. They shall be paid out of the fund, which shall be primarily liable therefor, and they shall be fully and unconditionally guaranteed as to principal and interest by the United States, and such guaranty shall be expressed on the face of the debentures. In the event that the fund fails to pay upon demand, when due, the principal of, or interest on, any debentures so guaranteed, the Secretary of the Treasury shall pay to the holders the amount thereof, which is hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures." By June 30, 1940, there had been no issues of debentures by the fund. Tennessee Valley Authority The Tennessee Valley Authority, a corporation owned entirely by the Federal Government, was created by the act of M a y 18, 1933. The Corporation has no capital stock and its operations are financed (1) by congressional appropriations, (2) by income from the sale of power and fertilizer, and (3) by issuance of bonds for specific purposes. By June 30, 1940, the Tennessee Valley Authority had been authorized to issue bonds by three separate acts—the acts of M a y 18,1933, August 31, 1935, and July 26, 1939. The act of July 26, 1939, however, canceled the authorization of further issues of obligations under the 1933 and 1935 acts. The statutory provisions under the various acts are in part as follows: Act of May 18, 1933, section 15: "In the construction of any future dam, steam plant, or other facility, to be used in whole or in part for the generation or transmission of electric power the REPORT OF THE SECRETARY OF THE TREASURY 91 board is hereby authorized and empowered to issue on the credit of the United States and to sell serial bonds not exceeding $50,000,000 in amount, having a maturity not more than fifty years from the date of issue thereof, and bearing interest not exceeding 3}i per centum per annum. Said bonds shall be issued and sold in amounts and prices approved by the Secretary of the Treasury, but all such bonds as may be so issued and sold shall have equal rank . . . All of such bonds so issued and sold shall have all the rights and privileges accorded by law to Panama Canal bonds. . . . " Act of August 31, 1935, section 15 (a): "With the approval of the Secretary of the Treasury, the Corporation is authorized to issue bonds not to exceed in the aggregate $50,000,000 outstanding at any one time, which bonds may be sold by the Corporation to obtain funds to carry out the provisions of section 7 of this amendatory Act. Such bonds shall be in such forms and denominations, shall mature within such periods not more than fifty years from the date of their issue, may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated therein, shall bear such rates of interest not exceeding 3)4 per centum per annum, shall be subject to such terms and conditions, shall be issued in such manner and amount, and sold at such prices, as may be prescribed by the Corporation, with the approval of the Secretary of the Treasury: Provided, That such bonds shall not be sold at such prices or on such terms as to afford an investment yield to the holders in excess of 3J^ per centum per annum. Such bonds shall be fully and unconditionally guaranteed both as to interest and principal by the United States, and such guaranty shall be expressed on the face thereof, . . . In the event that the Corporation should not pay upon demand, when due, the principal of, or interest on, such bonds, the Secretary of the Treasury shall pay to the holder the amount thereof, which is hereby authorized to be appropriated out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such bonds." Act of July 26, 1939, section 15 (c): "With the approval of the Secretary of the Treasury the Corporation is authorized, after the date of enactment of this section, to issue bonds not to exceed in the aggregate $61,500,000. . . . Such bonds shall be in such forms and denominations, shall mature within such periods not more than fifty years from the date of their issue, may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated therein, shall bear such rates of interest not exceeding 3J^ per centum per annum, shall be subject to such terms and conditions, shall be issued in such manner and amount, and sold at such prices, as may be prescribed by the Corporation with the approval of the Secretary of the . Treasury: Provided, That such bonds shall not be sold at such prices or on such terms as to afford an investment yield to the holders in excess of 3J^ per centum per annum. Such bonds shall be fully and unconditionally guaranteed both as to interest and principal by the United States, and such guaranty shall be expressed on the face thereof, . . . In the event that the Corporation should not pay upon demand when due, the principal of, or interest on, such bonds, the Secretary of the Treasury shall pay to the holder the amount thereof, which is hereby authorized to be appropriated out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such bonds." Bonds issued under the 1933 authorization provided the Authority with funds to finance the purchase of electric transmission properties in and about Knoxville and Memphis, Tenn., and western Kentucky, and the construction of lines connecting these properties with the Tennessee Valley Authority system. These obligations were issued on the credit of the United States and are held in their entire amount by the Reconstruction Finance Corporation. They bear interest at 269677—41 8 92 REPORT OF T H E SECRETARY OF T H E TREASURY the rate of 2 ^ percent per annum. Details concerning the amount issued appear in the following table: Bonds issued under the 1933 authorization of the Tennessee Valley Authority Act and sold to the Reconstruction Finance Corporation Issue Series A, Bond No. 1.. Series A, Bond No. 2.. Series B, Bond No. 1.. Series B, Bond No. 2. Series B, Bond No. 3. Total Date of issue Sept. Sept. June June June 1,1938 1,1938 15,1939 15,1939 15,1939 Maturity date Sept. Sept. June June June 1,1943 1,1945 15,1959 15,1960 15,1961 Principal amount $2,000, 000 1,000,000 1,300,000 2,000,000 2, 000, 000 8, 300, 000 The bonds shown above are accorded all the privileges of Panama Canal bonds, including the circulation privilege. The circulation privilege, however, is no longer accorded other outstanding issues of United States obligations and at the time that bonds were issued under section 15 of the Tennessee Valley Authority Act, the Reconstruction Finance Corporation agreed to hold the bonds until their maturity. As a result of this agreement, these bonds can never become collateral for circulating notes. By the act of July 26, 1939, no further issues of obligations can be made under section 15. Bonds issued under section 15 (a) of the act, as amended, provided the Authority with funds to finance loans to municipalities and cooperatives made in connection with the disposal of the Authority's surplus power. These obligations were issued in the amount of $272,500 and have been sold to the Secretary of the Treasury. By the act of June 26, 1939, no further issues of these obligations can be made. Under section 15 (c) of the act $52 millions have been advanced to the Tennessee Valley Authority by June 30, 1940, by the Secretary of the Treasury. These amounts were to finance the acquisition of certain electric utility properties of the Tennessee Electric Power Company and the Southern Tennessee Power Company. ESTIMATED ABSORPTION, BY CLASSES OF HOLDERS, OF THE INCREASE IN THE PUBLIC DEBT AND OBLIGATIONS GUARANTEED BY THE UNITED STATES DURING THE PERIOD JUNE 30, 1932, TO JUNE 30, 1940 . In the eight fiscal years between June 30, 1932, and June 30, 1940, the total interest-bearing public debt and obligations guaranteed by the United States increased by $28.7 billions. Approximately $13.1 billions, or about 46 percent of this increase, was absorbed by commercial and savings banks; $5.3 billions, or 18 percent, by insurance REPORT OF THE SECRETARY OF THE TREASURY 93 companies; $6.5 billions, or 23 percent, by Federal agencies and trust funds; and $0.7 billion, or 2 percent, by the Federal Reserve Banks. Other holders—individuals and corporations other than banks and insurance companies—absorbed the remaining $3.2 billions of these obligations, $2.9 billions of which occurred through their acquisition of United States savings and adjusted service bonds. The figures are shown in greater detail in the table that follows. Estimated absorption, by classes of holders, of the increase in the public debt and obligations guaranteed by the United States, fiscal years 1933 to 1940 [In billions of dollars] Estimated amount Increase in the public debt and obligations guaranteed by the United States: Public issues: Marketable: Public debt obligations _ __ Obligations guaranteed by the United States ..Total marketable issues Nonmarketable: United States savings and adjusted service bonds Special issues .---' Total ___ Absorption i of the debt b y Commercial and savings banks Insurance companies Federal agencies and trust funds Federal Reserve Banks Other holders: i Marketable issues Nonmarketable iissues _.- 15.6 5.5 21.1 3.2 4.5 _ - _ 28.7 13.1 5.3 6.5 .7 . 0.3 2.9 Total absorption of public debt and guaranteed securities 3.2 28.7 1 The figures on the commercial and savings bank holdings of Government securities used in arriving at the increases are taken at book value rather than at par value. As a result, the absorption of Government securities by these institutions tends to be overstated and the absorption by "other holders" to be understated when Government bonds are selling generally at a premium, as has been the case during most of the period. The errors so involved are not sufficiently large, however, to invalidate the general conclusions stated here. The figures for insurance companies. Federal agencies and trust funds, and the Federal Reserve Banks are reported at par value. NOTE.—Figures are rounded to nearest tenth of a billion and will not necessarily add to totals. I t is apparent from the figures in the table above that, since 1932, individuals and corporations other than banks and insurance companies—classed in the table as ^^other holders'^—have absorbed, on net balance, a very small proportion of the total increase in the public debt and guaranteed securities outstanding. In recent years these individuals and corporations, in the aggregate, have been important sellers of marketable issues of Government securities. On the other hand, however, they have been increasing their holdings of United States savings bonds. Data on the amount of the Government security holdings of these and of other classes of purchasers, and the changes, by years, since 1932 appear in the table that follows. Data on annual and cumulative absorption of such securities are also shown in the charts on pages 94 and 96. CO ESTIMATED ANNUAL ABSORPTION OF THE INCREASE IN THE PUBLIC DEBT AND OBLIGATIONS GUARANTEED BY THE UNITED STATES, BY CLASSES OF HOLDERS, FISCAL YEARS 1933 TO 1940 DOLLARS" DOLLARS" Billions C o m m e r c i a l and Savings Banks Insurance Companies 2.0 1.5 I Q .5 0 1933 1.5 1934 1936 1937 1938 1939 1940 O t h e r Holders (Marketable issues)" 1.0 .5 =r?3 0 - .5 -1.0 1935 1933 2.0 1934 1935 1936 1937 1938 1939 1940 1937 1938 1939 V E A R S 1940 Other Holders -(Non-Marketable Issucs9- 1.5 1.0 .5 0 1933 1934 1935 1936 F I S C A L 1937 1938 1939 Y E A R S 1940 ^ United States savings bonds and adjusted service bonds. 1933 1934 1935 1936 F I S C A L CHART 8. 1937 1938 1939 Y E A R S 1940 - .5 1933 1934 1935 1936 F I S C A L 95 REPORT OF THE SECRETARY OF THE TREASURY Estimated distribution, by classes of holders, of the public debt and obligations guaranteed 1 by the United States outstanding at the end of each fiscal year 1932 to 1940 [In billions of dollars] June 30 Commercial and savings banks 2 O t h e r holders Insurance companies Federal agencies and trust funds 3 Federal Reserve Banks Total securities Marketable issues N o n m a r - • outstanding ketable issues 4 Amount held 1932. 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940. 6.6 7.9 11.7 14.3 17.4 17.0 16.8 18.8 19.7 0.6 .7 1.5 2.0 2.3 3.6 4.8 5.9 7.1 0.8 1.0 1.6 2.6 3.9 0 5.0 6.2 6.8 6.1 1.8 2.0 2.4 2.4 2.4 2.5 2.6 2.6 2.6 9.3 10.5 10.7 10.5 10.5 11.3 10.7 10.4 9.7 .1 1.2 1.1 1.4 1.9 2.9 19.2 22.2 27.8 31.8 37.7 40.5 41.4 46.3 47.9 0.1 1.2 -.1 .3 .5 .9 3.0 5.6 4.1 6.9 2.8 1.0 3.9 2.6 0.1 1.2 1.1 1.4 1.9 2.9 3.0 8.6 12.7 18.6 21.3 22.3 26.2 28.7 Annual increase or decrease (—) in amount held 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940. 1.3 3.7 2.6 3.1 -.4. -.2 2.0 0.2 .5 1.1 1.3 1.1 .2 .6 .3 ' 0.1 .8 .6 .3 1.3 1.2 1.1 1.2 0.2 .4 0) (') . 1 («) (')- . 1 1.2 .2 -.3 («) .8 -.6 -.3 -.7 Cumulative increase in amount held 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940. 1.3 5.0 7.7 10.7 10.3 10.1 12.2 13.1 0.2 .7' 1.8 3.1 4.2 4.4 6.0 6.3 0.1 .9 1.4 1.7 3.0 4.2 6.3 6.6 0.2 .6 .6 .6 .7 .8 .8 .7 1.2 1.4 1.1 1.1 2.0 1.3 1.0 .3 1 Includes Home Owners' Loan Corporation issue guaranteed as to interest only. 2 Figures for 1932 and 1933 do not correspond to those published by the Comptroller of the Currency because of the inclusion of data on certain private banks which were not reported to the Comptroller in those years. 3 Includes exchange stabihzation fund. 4 Excludes United States savings bonds held by banks and insurance companies. 6 Less than $50 millions. NOTE.—Figures are rounded to nearest tenth of a billion and will not necessarily add to totals. The foregoing table shows that in nearly every year during the period covered commercial and savings banks and insurance companies absorbed substantial amounts of Government securities. In 1935, as a matter of fact, this absorption was nearly equal to the total increase in public issues. This institutionalization of investment has been one of the significant phenomena that has been noted in the capital markets. Individuals and nonfinancial corporations appear to have preferred to place their funds available for investment in bank accounts and insurance policies, instead of undertaking directly the investment of these funds in securities. CUMULATIVE ABSORPTION OF THE INCREASE IN THE PUBLIC DEBT AND OBLIGATIONS GUARANTEED BY THE UNITED STATES, BY CLASSES OF HOLDERS, SINCE JUNE 30, 1932 DOLL> Billio ns » DOLLARS ^'"'°"^ 1 1 1 In :re<asc in To t a l Dc b t I i^x 2 32 i 28 1 1 8 i 1 i 24 4 n 20 16 12 8 4 n 1 I I C o m m e r c i a l <and Savings B.ankfl,., A i • 1 i 1934 1935 C A L E N D A R i 1 1 1938 V E A R S 1 1 ^ S3 O % O W O t h e r Holders ' ( M a r k e t a b l e Issues) w O Federal Reserve Banks 1932 1934 1936 1938 O I 1 III HI ii.i'iHi'l*v'x"x'^^vr 1932 1934 1936 \ I I ' Other Holders ( N o n - M a r k e t a b l e Issues')] 1938 W S3 1934 1936 C A L E N D A R CHART 9. 1 United States savings bonds and adjusted service bonds. CO 1932 1934 1936 C A L EN D A R 1938 Y E A R S 1940 97 REPORT OF THE SECRETARY OF THE TREASURY The importance of bank and insurance company investment operations in absorbing additions to the amount of Government securities outstanding is shown in greater perspective in the table below. This table relates the absorption of public debt and guaranteed securities by each of the major classes of holders to (1) the total increase in such securities, (2) the increase in the ^^ privately held d e W and (3) the increase in the '^privately held marketable supply'^ of Government securities. The concept of the ''privately held debt^^—i. e., the amount of obligations that are available for purchase by individuals and corporations—excludes from the total of the public debt and the obligations guaranteed by the United States the amount of securities owned by Federal agencies and trust funds and by the Federal Reserve Banks, since obligations held by these agencies are not available to private purchasers. The concept of the ''privately held marketable supply/' takes into account only those issues traded in the market and excludes the nonmarketable issues (United States savings and adjusted service bonds) from the "privately held debt.'' Increase in {1) the total public debt and obligations guaranteed by the United States, (2) the privately held public debt and obligations guaranteed by the United States, and (3) the privately held marketable supply of Government securities, fiscal years 1933 to 1940; and the estimated absorption of each by the various classes of holders [Dollars in billions] Privately Privately held Total debt held debt i marketable supply 2 ^ Increase in the public debt and obligations guaranteed by the United States during the fiscal years 1933-40: Marketable issues Nonmarketable issues . .. Special issues -.. Total - Amount.absorbed by: Commercial and savings banks Insurance companies . _ - _ Federal agencies and trust funds Federal Reserve Banks Other holders: Marketable issues Nonmarketable issues ^ . . . _ , ... .. .. . . Total... Percent absorbed by: Commercial and savings banks Insurance companies Federal agencies and trust funds Federal Reserve Banks Other holders: Marketable issues.. Nonmarketable issues ^ Total .... $21.1 3.2 4.5 $18.4 3.2 $18.4 28.7 21.6 18.4 13.1 5.3 6.5 .7 13.1 5.3 12.8 5.3 .3 2.9 .3 2.9 .3 18.4 28.7 21.6 Percent 46 18 23 2 Percent 61 25 1 10 1 13 2 100 100 100 Percent 69 29 1 Comprises total debt less holdings of Federal agencies and trust funds and Federal Reserve Banks. 2 Comprises privately held debt less nonmarketable issues. 3 Excludes United States savings bonds absorbed by banks and insurance companies. NOTE.—Figures are rounded to nearest tenth of a billion dollars and to nearest even percent and do not necessarily add to totals. 98 REPORT OF THE SECRETARY OF THE TREASURY The trends in the absorption of the increase in the public debt and obhgations guaranteed by the United States, described in the paragraphs above, have been reflected by marked changes in the distribution of such obligations among the various classes of holders. Banks and insurance companies, for example, held 72 percent of the privately held marketable supply of Government securities on June 30, 1940, compared with approximately 45 percent on June 30, 1932. Data on the distribution of holdings of the total public debt and guaranteed securities outstanding on June 30, 1932, and June 30, 1940, by classes of holders, and a comparison of these holdings with (1) the total debt, (2) the privately held debt, and (3) the privately held marketable supply of Government securities appear in the table that follows. Distribution of (1) the total public debt and obligations guaranteed by the United States, {2) the privately held public debt and obligations guaranteed by the United States, and {3) the privately held marketable supply of Government securities on June 30, 1932, and June SO, 1940, by classes of holders Amount (billions of dollars) Percent of total Class of holder June 30, 1932 June 30, 1940 Increase June 30, 1932 June 30, 1940 Total debt Commercial and savings banks Insurance companies Federal agencies and trust funds Federal ReserveBanks Other holders: Marketable issues Nonmarketable issues Total debt. 6.6 .8 .6 1.8 19.7 6.1 7.1 2.5 13.1 5.3 6.5 .7 35 4 3 9 41 13 15 5 9.3 9.7 2.9 .3 2.9 49 20 6 19.2 47.9 28.7 100 100 Privately held debt Commercial and savings banks Insurance companies Other holders: Marketable issues Nonmarketable issues ._ Total privately held debt 6.6 .8 19.7 6.1 13.1 5.3 40 5 51 16 9.3 9.7 2.9 .3 2.9 56 25 7 16.8 38.3 21.6 100 100 Privately held marketable supply Commercial and savings banks Insurance companies.__ Other holders: Marketable issues.- . _ Total privately held marketable supply 6.6 .8 9.3 19.4 6.1 9.7 12.8 5.3 .3 40 5 56 65 17 27 16.8 35.2 18.4 100 100 NOTE.—Figures are rounded to nearest tenth of a billion dollars and to nearest even percent and do not necessarily add to totals. In addition to the foregoing data, there is certain other information available on the holdings of Government securities by the various classes of investors. Data on the holdings of commercial and savings REPORT OF THE SECRETARY OF THE TREASURY 99 banks, by classes of banks and by classes of securities; of the Federal Reserve Banks, by classes of securities; and of Federal agencies and trust funds, by funds and by classes of securities are presented in the tables and paragraphs that follow. The first table that follows and the charts on pages 100 and 104 show the absorption of public debt and guaranteed securities during the eight fiscal years 1933 to 1940, by various classes of banks. The principal market among banks for these securities, it is shown, was among banks in the larger cities. Distribution of the public debt and guaranteed ^ securities held at the end of each fiscal year 1932 to 1940, by classes of banks [In millions of dollars. Book values] June 30 Weekly reporting Weekly member reporting banks in member cities outbanks in side of New York New York City City Other member banks Mutual savings banks Other com- All commercial mercial and savand savings banks ings banks Amount held 1932. 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940. 1,921 2,438 2,926 3,640 4,582 3,447 3,563 4,259 5,238 2,333 3,055 4,213 5, 294 6,217 6,006 5,695 6,312 6,372 1,374. 1,394 2,506 2,496 2,873 3,236 3,085 3,206 3,112 531 550 1,061 1,571 2,082 2,391 2,685 3,043 3,113 467 499 957 1,296 1,604 1,888 1,746 1,971 1,876 2 6,626 2 7,936 111,663 114, 297 17, 358 16, 968 16, 774 18, 791 19,711 Annual increase or decrease (—) in the amount held 1933. 1934 1935. 1936. 1937. 1938. 1939. 1940. 517 488 714 942 -1,135 116 696 979 722 1,158 1,081 923 -211 -311 617 20 1,112 -10 377 363 -151 121 -94 19 511 510 511 309 294 358 70 32 458 339 308 284 -142 225 -95 1,310 3,727 2,634 3,061 -390 -194 2,017 920 32 490 829 1,137 1,421 1,279 1,504 1,409 1,310 6,037 7,671 10,732 10, 342 10,148 12,165 13,085 Cumulative increase in amount held 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940. 517 1,005 1,719 2,661 1,526 1,642 2,338 3,317 722 1,880 2,961 3,884 3,673 3,362 3,979 4,039 20 1,132 1,122 1,499 1,862 1,711 1,832 1,738 19 530 1,040 1,651 1,860 2,164 2,512 2,582 1 Includes Home Owners' Loan Corporation obligations guaranteed as to interest only. 2 These figures exceed those appearing on page 272 of this report and in the Annual Reports of the Comptroller of the Currency, 1932 and 1933, by amounts estimated to be held by certain private banks which were not included in the tabulations made by the Comptroller of the Currency in 1932 and 1933. SOURCE.—Data for member banks from Federal Reserve Bulletins, JL932 to 1940; for mutual savings banks and for "all commercial and savings banks," from Annual Reports of the Comptroller of the Currency, 1932 to 1940; figures for "other commercial and savings banks" are residual items. ESTIMATED ANNUAL ABSORPTION BY BANKS OFj THE INCREASE IN THE PUBLIC DEBT AND OBLIGATIONS GUARANTEED BY THE STATES, BY CLASSES OF BANKS, FISCAL YEARS 1933 TO 1940 DOLLARS" Billions 1933 1934 1935 1936 F I S C A L 1937 1938 1939 V E A R S 1940 1933 DOLLARS Billions Weekly R e p o r t i n g M e m b e r Banks in New York C i t y 1934 1935 1936 F I S C A L CHART 10 1937 1938 1939 Y E A R S 1940 1933 UNITED O t h e r M e m b e r Banks 1934 1935 1936 F I S C A L 1937 1938 1939 V E A R S 1940 O O HE'POBT O'F THE: SEiClilETAIlY OF T H E TOEASUEY 101 Data on the types of public debt and guaranteed securities absorbed by banks can be derived, to a limited extent, from an analysis of investment information contained in reports made at periodic intervals to the various supervisory agencies. The table that follows shows the holdings by member banks of the Federal Keserve System of public debt and guaranteed securities at the end of each fiscal year since 1932, classified by type of security. On June 30, 1940, these banks owned 75 percent of the public debt and guarinteed securities held by all the commercial and savings banks in the country. Holdings of public debt securities and obligations guaranteed by the United States by member banks, J u n e 30, 1932 to 1940, by classes of bdnks and by types of security [In millions of dollars. Book valuesl Public debt securities June 30 Bills and certificates Notes Bonds Total Obligations guaranteed by the United states Total Holdings of member banks in New York City 1932. 1933. 1934. 1935. 1936. 1937 1938. 1939. 1940. 615 638 954 898 1,096 543 222 168 421 185 987 1,084 1,623 1,760 1,426 1,358 908 1,092 1,208 926 i, 015 941 1,340 1,207 1,451 2,284 2,650 • 2,008 2, 551 3,053 3,462 4,196 3,176 3,031 3, 360 4.162 1157 348 567 454 709 1,123 1,324 2,008 2,551 3,210 3,809 4,763 3,630 3,740 . 4, 484 5,486 Holdings of member banks in Chicago 1932. 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940 106 206 123 63 29 30 12 185 254 57 82 194 373 584 366 313 2? 4 161 72 97 268 330 401 511 535 621 710 234 384 585 766 1,014 907 859 1,040 1,125 176 87 92 U 122 135 134 234 384 661 853 1,106 1,001 981 1,175 1,258 119 571 651 635 718 889 969 1,953 2,483 3,535 4,283 5,000 4.902 4,658 4,991 4,947 125 553 640 635 579 683 695 1,432 1,469 2,007 2,484 2,802 3,155 2,964 3,127 3,030 Holdings of reserve city banks 1932. 1933. 1934, 1935. 1936. 1937. 1938. 1939. 1940. 189 205 281 120 115 li5 69 78 87, 124 681 1,1^8 1,774 2,081 1,777 1,26S 1,014 839 1,639 1,597 2,088 1,818 2,153 2,295 2,603 3,010 3,052 1,953 2,483 3,516 3,712 4,349 4,267 3,940 4,102 3,978 Holdings of country banks 1932. 1933. 1934. 1935. 1936. 1937. 1938 1939. 1940, Footnote at end of table. 51 64 69 19 26 52 13 ].l 36 136 299 446 543 735 792 715 563 451 1,244 1,106 1,467 1, 370 1,402 1, 676 1,657 1,870 1,849' 1 1,432 1,469 1,982 1,931 2,163 2,520 2,385 2,444 2,335 102 KEiPORT GE T H E SEiQRETARY OF T H E TREASURY Holdings of public debt securities and obligations guaranteed by the United States by member banks, J u r i e 3 0 , 1 9 3 2 to 1940, by classes of banks a n d by types of security-— Continued [In millions of dollars. Book values] P u b l i c d e b t securities J u n e 30 Bills a n d certificates Notes Bonds: Total Obligations guaranteed by the United states Total T o t a l holdings—All m e m b e r b a n k s 1932 1933 1934 1935 1936 1937 19381939 1940 . . 962 1,113 1,427 1,099 1,266 821 316 441 797 . _-. .. . 503 2,049 2,871 4,314 5,161 4,361 3,653 2,720 2,543 4,163 3,725 4,838 4,458 5, 295 5,689 6,246 7,786 8,261 6,628 6,887 9,137 9,871 11, 721 10, 870 10, 215 10,946 11, 601 1276 1,558 1,950 1,819 2,128 2,831 3,121 5,628 6,887 9,413 11, 430 13,672 12,689 12, 343 13, 777 14, 722 1 A small amount of Home Owners' Loan Corporation bonds guaranteed by the United States as to both interest and principal are excluded from these figures. SOURCE.—Board of Governors of the Federal Reserve System, Member Bank Call Reports and Federal Reserve Bulletins. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. Further data on bank absorption of public debt and guaranteed securities can be derived from the data on the investments of all commercial and savings banks contained in the reports made to the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System. The table that follows summarizes these data for December 31, 1938, June 30, 1939, and June 30, 1940. Similar data in the same detail are not available for previous years. B a n k holdings of public debt securities and of obligations guaranteed by the United States, Dec. 3 1 , 1938, J u n e 30, 1939, and J u n e 30, 1940 [In millions of dollars. Book values] I n s u r e d commercial b a n k s Member banks T y p e of security New York City Chicago Reserve C o u n city try banks banks Nonmember banks Total insured commercial banks Other banks Totalall commercial and savings banks i Dec. 31,1938 T'reasury bills _ __ . T r e a s u r y notes Treasury bonds: M a t u r i n g w i t h i n 5 years M a t u r i n g in 5 to 10 years M a t u r i n g in 10 to 20 years M a t u r i n g after 20 years T o t a l p u b h c d e b t securities R F C notes H O L C bonds F F M C bonds Other g u a r a n t e e d obligations. Total guaranteed obligations... Total Footnotes at end of table. 158 1,142 59 291 57 1,224 11 732 4 259 290 3,648 (2) (2) (2) (2) 348 581 534 199 2,963 235 505 98 56 894 3,857 36 134 353 133 1,005 80 11 5 13 109 1,114. 217 1.117 1.185 479 4,278 65 451 166 58 740 5,018 126 622 816 329 2,636 47 358 164 28 597 3,233 53 241 319 181 1,057 9 136 69 14 780 2,694 3,206 1,321 11,939 436 1,460 503 170 2,568 14, 507 (2) (2) 228 1,284 (2) (2) 3,132 (2) (2) (2) (2) 364 3,495 8 (2) 15, 070 (2) (2) (2) (2) 2,932 18, 002 I 103 REPORT OF T H E SECRETARY OF TH;E TREASURY I Bank holdings of United States Government securities and of securities guaranteed by the United States, Dec. 3 1 , 1938, J u n e 30, 1939, 'and J u n e 30,1940—Con. [In millions of dollars. Book values] I n s u r e d commercial b a n k s Member banks T y p e of security New York City Chicago CounReserve try city banks banks Total Nonm e m - insured comber b a n k s mercial banks Totalall comO t h e r mercial banks and savings banks i J u n e 30,1939 T r e a s u r y bills • 168 T r e a s u r y notes . .. 908 Treasury bonds: 328 M a t u r i n g w i t h i n 5 years _ M a t u r i n g i n 5 to 10 years 827 M a t u r i n g in 10 to 20 y e a r s . . - - - . . 756 M a t u r i n g after 20 years 373 Total pubhc debt securities.... R F C notes H O L C bonds FFMC bonds.O t h e r g u a r a n t e e d obligations 185 234 78 1,014 11 563 5 206 446 2,925 (2) (2) 36 119 301 164 273 1,224 1,091 422 144 655 741 329 55 294 262 180 837 3,120 3,152 1,468 (2) (2) . 3,360 1,040 4,102 2,444 1,002 11,948 3,275 15,223 362 504 165 92 94 18 6 17 112 541 154 82 75 395 161 52 17 158 64 21 659 1,616 551 264 65 293 75 45 724 1,909 625 309 (2) (2) (2) (2) (2) (2) Total guaranteed obligations... 1,123 135 889 683 259 3,090 477 3,568 Total 4,484 1,175 4,991 3,127 1,261 15,038 3,753 18, 791 J u n e 30,1940 T r e a s u r y bills Treasury notes. Treasury bonds: M a t u r i n g w i t h i n 5 years.._ M a t u r i n g in 5 t o 10 years M a t u r i n g i n 10 t o 20 years M a t u r i n g after 20 years T o t a l p u b h c d e b t securities R F C notes H O L C bonds F F M C bonds... Other g u a r a n t e e d obligations 421 1,092 254 161 87 . 839 36 451 8 156 805 2,699 (2) (2) 281 1,200 1,036 133 25 137 448 100 239 1,179 1,417 217 138 686 875 150 68 287 334 77 750 3,489 4,110 677 (2) (2) (2) (2) 4,162 1,125 3,978 2,335 931 12, 531 3,204 15, 735 473 590 142 119 97 10 4 23 158 513 159 139 111 345 140 99 31 132 53 32 870 1,589 498 412 135 292 86 92 1,006 1,881 584 505 8 (2) (2) Total guaranteed obligations... 1,324 134 969 695 249 3,370 •606 3,976 Total 5,486 1,258 4,947 3,030 1,179 15, 901 3,810 19, 711 1 Includes trust companies, stock savings banks, mutual savings banks, and private banks in United States and possessions. 2 Detail not available. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. SOURCE.—Board of Governors of the Federal Reserve System, Member Bank Call Reports; Federal Deposit Insurance Corporation, Statements of Assets and Liabilities of Operating Insured Banks; Annual Reports of the Comptroller of the Currency; and press release of the Comptroller of the Currency dated October 31,1940. CUMULATIVE ABSORPTION BY BANKS OF T H E INCREASE IN THE PUBLIC DEBT AND OBLIGATIONS GUARANTEED BY THE UNITED STATES, BY CLASSES OF BANKS, SINCE JUNE 30, 1932 DOLLARS t Billions i l DOLLARS Billions 1 e l l l T o t a l - A l l Commercial and Savings Banks 13 M 4 ^m\ 3 1 12 ' 10 ^ ^ ^ ^ ^ ^ .^ ^ ^ ^ ^ 9 i ^ ^ ^ ^ ^ ^^^^^M ^^^^^M 8 ^^^^^M ^^^^^^^ 7 - ^ 6 m 5 ^^M ^^^^^^S ^^fc m m ^^H ^ ^ 4 3 ^^^^^^M 2 - 0 A ^M 1934 CAL 1936 ENDAR 1 1 1 1 1 v^^^^i^iy R e p o r t i n g Member Banks in New York Citv A 2 0 ^ 0 m^B1 B B HM M I l l l 1 1 1 1 O t h e r M e m b e r Ban ts 1 1 1 2 ^ M.B ^^^^ ^^S ^m\ ^m\ ^m\ 1 1 .„J^^^ip^^!^^ ^^M 1 ] DOLLARS Billions •K 1938 Y E A R S HB^H1 J 1 1 1 1 1 M u t u a l Savini^ s Banks 1 ,-,»« 1 ^ ^fc ^^P M^ H ^^H B ^ M ^^B um B ^fc ^^B . ^ PB A 1934 1936 C A L E N D A R . CHART 11. 1 l Weekly Reportmj^ M e m b e r Banks O u t s i d e New York C i t v 1 ^^R ^^M M B ^B I 1938 Y E A R S 1934 1936 C A L E N D A R i- ^B 1 ^H1 O RET*ORT OF T H E SElCiRE'TARY OF T H E 105 TREASURY With respect to the absorption of pubhc debt and guaranteed securities by the Federal Reserve Banks during the period June 30, 1932, to June 30, 1940, there are presented in the table that follows summary data on the amount of such securities held by the Federal Reserve Banks at the end of each fiscal year since 1932, by classes of securities, and the changes by years in the amount held. Further details concerning securities held by the twelve Federal Reserve Banks appear in the Annual Reports of the Board of Governors of the Federal Reserve System. Holdings of public debt securities and obligations guaranteed by the United States by the twelve Federal Reserve Banks, June 30, 1932 to 1940 [In millions of dollars. Par values] Liberty bonds and Treasury bonds June 30 Treasury notes Certificates of indebtedness Guaranteed and Treasury obligations bills Total Amount held 1932 1933 1934 1935 1936 1937 1938 1939 1940 _- _. _ 438 441 468 317 316 733 744 911 1,330 _- _-. . . . 270 708 1,222 1,511 1,494 1,171 1,165 1,176 1,128 1,076 848 742 605 620 623 655 463 9 1,784 1,998 2,432 2,433 2,430 2,526 2,564 2,551 2,466 An nual increase or decrease ( - ) in amount helc1 1933 1934 1935 1936 . . - - . . . 1937 1938... • : 1939..... 1940 .... .;._. ' i 3 27 -151 -1 417 ° 11 167 419 ; 438 514 289 -17 -323 -6 11 -48 -228 -106 -137 15 3 32 -192 -463 NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. 9 214 434 1 —3 96 38 -13 -85 106 KEIPORT OF T H E SE!CRETA'R.Y OF T H E TREASURY With respect to the absorption, of the public debt and guaranteed securities by Federal agencies and trust funds, there are presented in the table that follows data on the amount of such securities held by agencies and in funds at the end of each fiscal year since 1932, by class of security, and the changes by years in the amount held. Holdings of public debt securities and obligations guaranteed by the United States by Federal agencies and trust funds, J u n e 30, 1932 to 1940 [In millions of dollars. Par values] Obligations guaranteed by the United States held b y - Public debt securities Public issues held b y June 30 Other Federal GovernPostal Deposit ment life agencies Savings Insurance insurance and trust System fund funds 1 Corp. Special issues 2 Postal Savings System Other agencies and trust funds Total securities held Amount held 1932 1933 1934 1935 1936 1937 1938 1939 1940 74 132 380 500 693 894 883 876 975 226 213 208 245 264 239 290 28 28 42 197 212 272 61 140 211 238 275 304 239 290 334 406 445 460 309 323 396 633 626 1,558 2,676 3, 770 . 4,775 608 696 35 147 167 167 167 147 147 115 215 209 196 158 139 130 1,466 2,007 2.332 3,604 4,791 5,890 7,080 115 100 -6 -13 -38 -19 771 541 325 1,272 1,187 1,099 1,189 Annual increase or decrease (—) in amount held 1933 1934 1935 1936 1937 1938 1939 1940 58 248 120 193 201 -11 -7 226 -13 -5 37 19 -25 60 14 73 237 -7 932 1,118 1,094 1,005 35 112 20 -20 1 Includes exchange stabilization fund. 2 Detailed information on special issues held by Government agencies and trust funds appears on p. 64. NOTE.—Figures are rounded to nearest million and will not necessarily add to totals. 107 RE'PORT OF T H E SEiORETARY OF T H E TREASURY As indicated in the table above, the details on special issues held by GovernmcDt agencies and trust funds at the end of each fiscal year from 1932 to 1940, and a discussion of such issues appear on page 64. Further details on Federal agency and trust fund holdings of public debt and guaranteed securities as of June 30, 1940, appear in the table that follows. Holdings, ofjpublic debt securities and obligations guaranteed by the United States by Gover^imX^'ust funds and agencies, J u n e 30, 1940 [In millions of dollars^ Par values] P u b l i c d e b t securities Treasury bonds T r u s t fund or agency Special Issues Issues Issues Issues issues m a t u r - m a t u r - m a t u r - m a t u r ing ing ing ing w i t h i n in 5 to in 10 to after 5 years 10 years 20 years 20 years Adjusted service certificate f u n d . )Civil service r e t i r e m e n t a n d disability fund Federal old-age a n d survivors insurance t r u s t fund Individual I n d i a n t r u s t funds M u t u a l mortgage insurance fund a n d housing insurance fund P o s t a l Savings S y s t e m . . Railroad R e t i r e m e n t A c c o u n t Unemployment trust fund.. U. S. G o v e r n m e n t life insurance fund B a n k s for cooperatives . F e d e r a l D e p o s i t I n s u r a n c e Corporation . - F e d e r a l h o m e loan b a n k s Federal i n t e r m e d i a t e credit b a n k s Federal l a n d b a n k s -.. F e d e r a l Savings a n d L o a n I n s u r a n c e Corporation P r o d u c t i o n credit corporations Reconstruction F i n a n c e Corporation O t h e r t r u s t funds a n d c o r p o r a t i o n s . . . 11 11 550 1,738 42 1,738 1 97 79 1,710 524 56 ""(})" 26 14 1 273 20 650 4 22 270 34 11 85 13' 346 54 75 84 6 16 86 8 182 21 53 48 5 5 11 29 17 6 11 4 1 12 2 ........ (0 i47 40 3 11 7 48 17 0) 105 1 6 1 413 1,392 122 20 49 33 10 10 4,775 24 1,218 79 1,710 828 29 12 3 9 0) 135 86 1 Less than $500,000. NTOTE.—Figures are rounded to nearest million and will not necessarily add to totals. 269677—41- Total public debt and guaranteed securities . 550 E xchange stabilization fund T o t a l , t r u s t funds a n d corporai,,.^-tions • Obligations guarOther public anteed by the debt securi- U n i t e d States ties 277 7,080 108 REfPORT OF THE SECRETARY OF THE TREASURY IMARKET MOVEMENTS IN GOVERNMENT SECURITIES, 1932 TO 1940 Major movements On January 11, 1932, the yields of Treasury securities stood at the highest level of the preceding eight years. Since that date, there has been a more or less continuous decline in the yields of Treasury (and other high grade) securities. The declining trend of yields of Treasury securities in the period January 1932 to June 1940 was interrupted by five major upswings (see chart 12). COMPARATIVE YIELDS OF AVERAGE OF ALL LONG-TERM TREASURY BONDS AND AVERAGE OF 3-5 YEAR TREASURY NOTES, MONTHLY, JULY 1931 TO JUNE 1940 l l | M | l l NTT-"- III " l l l | l " l ' l "' IPE 4.5 \ / / K >v/ • ] 1 i long-Tzr m Treas ur Y Bonds r mora y<z ors to ear// est coll da ta M ... 1 i \ ^ v..v^ v\ f^ -^^->v \ ^ . [\ \r yzar rrzos jry Notzs /3-5 Kj: \.'y'^y\i rV^ V. .k \A* 1931 1932 "^ i.liilnlM 1934 1935 1936 C A L E N D A R • -...• ' • • ' • • 1937 E A R S CHART 12. The first of these upswings was in March 1933, on the occasion of the bank holiday. Another upswing in yields of almost equal magnitude ^ occurred during the period of monetary uncertainty at the end of 1933. A third upswing occurred in the summer of 1934 and appears to have been precipitated by the unsettlement in European conditions following the assassination of Chancellor Engelbert Dollfuss of Austria in July of that year. The yields of Treasury securities then continued to decline until March 1937, when a sharp rise in yields occurred immediately following the announcement of the second increase in member bank reserve requirements made in accordance with 1 The monthly averages in the chart show higher yields for December 1933 than for the bank holiday month, March 1933, although the daily figures for March 3, 1933, were appreciably higher than the yields on any day in December 1933. The reasons for this condition were the short duration of the bank holiday crisis and the fact that there were no quotations for the period March 4 to 14, inclusive. When trading was resumed on March 15, yields had decreased considerably. 'RE'PORT OF T H E SEiCRETARY OF T H E 109 TREASURY the discretionary power given to the Board of Governors of the Federal Reserve System by the Banking Act of 1935. The fifth major upward movement of yields occurred at the time of the outbreak of war in September 1939, carrying yields up sharply from the all-time low levels of June 1939. Since September 1939, however, the trend of declining yields has continued. Comparisons in the discussion above have been based on the yields rather than on the dollar prices of the securities. Prices move inversely to yields, i. e., the higher the price the lower the yield and conversely, so that during this period, 1932 to 1940, the decline'in yields has been reflected in a substantial rise in prices of outstanding securities. Factors such as the amortization of price premiums on outstanding issues as their maturity date approaches and the fact that new issues are generally offered at par tend to distort data on prices. However, by basing the discussion on yields, the influence of such technical features is removed and does not cloud the discussion. Price data for all Treasury bonds and notes outstanding on June 30, 1940, and for all guaranteed securities outstanding on that date appear in the table on page 782. As a result of the declining trends in yields, the Treasury has been able to issue securities with lower and lower coupon rates. The extent of this lowering of rates is brought out in the table below which compares the coupon rates carried h j 10-12 year bonds, 12-14 year bonds, and 5-year notes offered on successive dates since March 1931. Coupon rates on new issues of Treasury bonds and notes of comparable maturities, 1931 to 1940 Bonds Date of issue 10-12 years 12-14 years Mar. 16, 1931 Sept. 15, 1932 Apr. 16, 1934 June 15, 1934 Sept. 16, 1935 Dec. 16, 1935 Dec. 15, 1936 Dec. 15, 1937 Sept. 15, 1938 Dec. 15, 1938 . Dec. 22,1939 Mar. 15, 1940 Notes, 5 years 33^ ..... ' 3J^ 234 3K 3 2H • JT/ • n / . . IH 2M _ 2M iKs H Relationship between yields on long- and short-term securities While the yields of all classes of United States Government obligations have been decreasing, as noted above, there has also been a decline of short-term yields relative to long-term yields. This movement, which has been markedly accelerated within the past few years, appears to have been in progress since the first World War. The 110 RE'PORT OF T H E SEiCRETARY OF T H E TREASU'RY. resulting changes in the relationship betwieen yields on short-term obligations and those on long-term securities are shown, as of selected dates, in chart 13 on page 111. An important influence contributing to the present low level of short-term yields, as compared with the yields of longer maturities, is the extreme demand for short maturities which has existed during the greater part of the period since 1932. This demand has come mainly from banks and is very largely the result of the rapid growth in the volume of excess reserves pressing for investment. This is shown by the fact that the principal holders of short maturities in recent years have been commercial banks. As of June 30,1940, insured commercial banks held about 54 percent of the privately held marketable supply of the public debt obligations maturing within five years. Negative yields on short notes and bonds Since 1932, prices in the market giving a negative yield to maturity to the purchaser have become fairly common on Treasury notes and bonds with short periods left to run. The reason for such negative yields on the issues nearing their first call or maturity dates arises from the value which the market has placed on these issues as potential ^ ^rights" to subscribe to new securities which might be offered in exchange for the called or maturing issue. . On June 5, 1939, when prices of Treasury bonds and notes were at all-time high levels, the seven shortest issues of Treasury notes and two shortest issues of Treasury bonds were selling at prices giving negative yields. On June 29, -1940, when prices were below their 1939 highs, there were five issues of notes and two issues of bonds with prices giving negative yields to call or maturity date. (See table 50, p. 782.) Premiums on Treasury bills At various times in 1939 and 1940, the weekly offerings of threemonth Treasury bills were allotted at prices in excess of par. Since these bills are awarded on a discount basis and carry no coupon, there was no return to the purchasers of these securities.- The principal reason for bids in excess of par on Treasury bills appears to arise from the increasingly large amount of uninvested funds of a short-term nature seeking placement coupled with the fact that Treasury bills like all other United States securities are fully exempt from property taxes, and thus offer an inexpensive medium for the holding of liquid funds that would otherwise be taxable. During the period under review Treasury bills were granted no preferential rights of subscription to new issues. . ill REPOKT OF THE SECRETARY OF THE TREASURY YIELDS OF OBLIGATIONS OF THE UNITED STATES ON SELECTED DATES Based on closing prices of bonds, notes, and certificates of indebtedness PER CENT PER CENT ^^..^ 6.0 6.0 MAY 20,1920 5.5 Notes and Bom . r/^artially Tax-Exerr^pt)'^ 1 ^ ^ Certificate (Par tially Tax. -Ex emp t) ' ^. 5.5 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.0 JANUARY 1 7 , l 9 2 i3 3.5 ——. 4 — \ — Certific< (Partially Tax-L'xempt) Notes and Bonds ^ (Partially Tax-EKempt) 2.5 2.0 1.5 1.5 10 YEARS IS TO MATURITY OR 20 CALL 10 15 YEARS TO M A T U R I T Y OR 20 CALL CHART 13. NOTE.—For callable issues, yields are computed to, and issues plotted as of, the earliest call date if the issue is selling above par, and as of the final maturity date if the issue is selling below par. 112 RE'PORT OF T H E SECRETARY OF T H E TREASURY Movements of Treasury bond yields compared with movements oj yields oj other high grade securities From their high level in January 1932, the movement of the yields of long-term Treasury bonds has been similar to that of other high grade bonds. The average yield of Treasury bonds with twelve years or more to earliest call date is compared with the average yield of high grade corporate bonds and the average yield of municipal bonds in the chart that follows. COMPARATIVE YIELDS OF AVERAGE OF ALL LONG-TERM TREASURY BONDS, AVERAGE OF HIGH GRADE CORPORATE BONDS, AND AVERAGE OF MUNICIPAL BONDS, MONTHLY, JULY 1931 TO JUNE 1940 1931 PERCENT 1932 1935 1936 1937 1939 1940 CHART 14. During the period since the beginning of 1932, the spread between the yields of high grade corporate bonds and Treasury bonds and that between the yields of municipal bonds and Treasury bonds have tended to diminish. The lowest yield of Treasury bonds during the period January 1932 to June 1940 was recorded in June 1939. High grade corporate bonds yields reached a low in April 1940 and municipal bonds in May 1940. GENERAL FUND The General Fund includes all moneys of the Government deposited with and held by the Treasurer of the United States including the RE'PORT OF T H E SECRETARY OF T H E TREASURY 113 moneys covered into the Treasury which can be withdrawn only in pursuance of an appropriation by Congress. Every receipt of the Treasury, from whatever source, and every expenditure, of whatever nature, affect either the assets or liabilities, or both, of the General Fund shown in the daily statement of the Treasury. The total amount of the assets over and above the total amount of the liabilities represents the balance in the General Fund available to meet Government expenditures for general, special, and trust accounts. The assets in the General Fund consist of gold, silver, currency, coin, unclassified collection items, etc., and deposits to the credit of the Treasurer of the United States and other Government officers, in Federal Reserve Banks, special depositaries account of sales of Government securities, national and other bank depositaries, foreign depositaries, and the treasury of the Philippine Islands. The liabilities of the General Fund consist of outstanding Treasurer's checks, deposits of certain Government officers composed of balances to the credit of the Post Office Department, the Board of Trustees, Postal Savings System, and postmasters, clerks of courts, . disbursing officers, etc., and uncollected items, exchanges, etc. During the fiscal year 1940 the Department has modified the policy heretofore followed by it of including on page 1 of the daily Treasury statement, as liabilities under the General Fund, balances in accounts carried on the books of the Treasurer of the United States representing funds deposited with him for the payment of the principal of and interest on obligations sold by governmental corporations and agencies. Balances in these accounts amounting to $82,545,606.54 were transferred to the General Fund balance as of September 30, 1939, to be held by the Treasurer of the United States for the redemption of obligations of governmental corporations and agencies. Receipts and expenditures in these accounts were thereafter included in the caption '*Transactions in checking accounts of governmental agencies (net), etc.'' on page 3 of the daily Treasury statement. There was also transferred to the General Fund balance as of September 30, 1939, an amount of $255,615.16, representing the balance in the account previously shown as a liability against the General Fund under the caption ^'Redemption of national bank notes (5 percent fund, lawful money)." This is also included in the caption '^Transactions in checking accounts of governmental agencies (net), etc." The effect of these transfers was to increase the working balance and the balance in the General Fund by $82,801,221.70 on the date of transfer. The balance in the General Fund is classified according to increment on gold, seigniorage, and working balance. 114 REPORT OF THE SEiCRETARY OF THE TREASURY The net'change in the balance of the General Fund from the beginning to the close of the fiscal year is accounted for as follows: Analysis of the change in the General Fund balance between June 30, 1939, and June 30, 1940 [On basis of daily Treasury statements (unrevised), see p. 583. For a description of accounts through which Treasury transactions are effected, see p. 584] Balance June 30, 1939 $2,838,225,532.52 Add: Ordinary receipts: General and special accounts ._ 5,387,124,669.76 Trust accounts, increment on gold, etc 2,076,537,744.59 Net increase in gross public debt... 2,527,998, 626.57 Total funds available. :.. 12,829,886,573.44 Deduct: Expenditures chargeable against ordinary receipts: General and special accounts $9,127,373,806.47 Less public debt retirementsi 129,184,100. 00 • $8,998,189,706.47 Trust accounts, increment on gold, etc _.' 1,940,953,725.63 Total expenditures (excluding retirements of public debt) Balance June 30, 1940..J. - 10,939,143,432.10 1,890,743,141.34 A comparative analysis of the assets and liabilities and the balance of the General Fund is shown for the beginning and close of the fiscal year in the table on page 784 of this report. SECURITIES OWNED BY THE UNITED STATES AND PROPRIETARY INTEREST IN GOVERNMENTAL CORPORATIONS AND CREDIT AGENCIES Securities owned On June 30, 1940, the United States owned securities consisting of capital stock, bonds, etc., of governmental corporations and agencies and indebtedness to the Government by railroads, farmers, shipowners, and others, in the face amount of $3,031 millions; and obligations of foreign governments in the principal amount of $12,661 millions. A statement of the securities owned at the end of the fiscal years 1933 to 1940 is shown in the table on page 790. In accordance with the act approved February 24, 1938, the Secretary of the Treasury canceled obligations of the Reconstruction Finance Corporation during the fiscal year amounting to $14,105,200.46, representing expenditures previously made by the Corporation as shown in the following table: Reconstruction Finance Corporatio;n: Obligations canceled to June 30, 1939 $2,711,952,372.57 Obligations canceled during the fiscal year 1940 on account of expenditures for— Federal Housing Administrator (sec. 4 of National Housing Act).. $7,640,306.25 Stock of Disaster Loan Corporation (act approved Feb. 11,1937)... 6,000,000.00 Expenses of regional agricultural credit corporations (sec. 201 (e) of Emergency Relief and Construction Act of 1932;-sec. 33 of Farm Credit Act of 1937) 464,839.71 Relief (Federal Emergency Relief Act of 1933). _ _ 54.50 • 14,105,200.46 Total to June 30, 1940 .— 2,726,057,573.03 The evidences of indebtedness and capital stock of various agencies acquired by the Reconstruction Finance Corporation in connection with the above disbursements were transferred to the Secretary of the REPORT OF THE SECRETARY OF THE TREASURY 115 Treasury as required by section 1 (b) of the act of February 24, 1938. However, the Secretary of the Treasury assigned to the Secretary of Agriculture on August 21, 1939, the capital stock of the Commodity Credit Corporation under Executive Order No. 8219, dated Aug. 7, 1939. The obligations canceled under the authority of the act of February 24, 1938, represent expenditures previously made by the Reconstruction Finance Corporation for the following purposes: Secretary of the Treasury: . ' Amount For capital of home loan banks (sec. 2 of Reconstruction Finance Corporation A c t ) . . $124, 741,000.00 For capital of Home Owners' Loan Corporation (sec. 4 of Home Owners' Loan Act of 1933) 200,000,000.00 Land Bank Commissioner: For loans to joint stock land banks (sec. 30 (a) of Emergency Farm Mortgage Act of 1933) : . 2,600,000.00 For loans to farmers (sec. 32 of Emergency Farm Mortgage Act of 1933; sec. 3 of Federal Farm Mortgage Corporation Act) 145,000,000.00 Federal Farm Mortgage Corporation—capital (sec. 3 of Federal Farm Mortgage Corporation Act) . 55,000,000.00 Federal Housing Administrator (sec. 4 of National Housing Act) 81,186,380.80 Governor of the Farm Credit Administration (sec. 5 of Farm Credit Act of 1933). 40,500,000.00 Secretary of Agriculture (for crop loans) (sec. 2 of Reconstruction Finance Corporation Act; act approved Feb. 4, 1933). 115,000,000.00 Stock of Commodity Credit Corporation (act approved Apr. 10, 1936).. 97,000,000.00 Stock of regional agricultural credit corporations (sec. 201 (e) of Emergency Relief and Construction Act of 1932; sec. 84 of Farm Credit Act of 1933; sec. 33 of Farm Credit Act of 1937) 17,500,000.00 Stock of Disaster Loan Corporation (act approved Feb. 11, 1937) 24,000,000.00 Expenses of regional agricultural credit corporations (sec. 201 (e) of Emergency Relief and Construction Act of 1932; sec. 33 of Farm Credit Act of 1937) 17,401,068.14 Relief: 1932: Governors of States 1 280,025,143.70 Municipalities, counties, etc. (sec. 1 (a)-(d) of Emergency Relief and Construction Act of 1932; sec. 1 (e) of Emergency Relief and Construction Act of 1932, and any amendatory or supplementary legislation) • 2 2,800,623.00 1933 (FederalEmergency Relief Actof 1933) . 499,999,06,5.72 1934 (first paragraph of title II of Emergency Appropriation Act, fiscal year 1935) • 500,000,000.00 1935 (Emergency Relief Appropriation Act of 1935) 500,000,000.0,0 Expense of 1932 relief advances . 126,87L85 Net interest paid on above 33,177,419.82 Total 2,726,057,573.03 1 $426,660.21 has been repaid to the Treasury. 2 $2,500,000.00 has been repaid to the Treasury. Proprietary interest in governmental corporations and credit agencies The statement of securities owned by the United States is based upon the face or par amount of the securities held by the United States. The amounts of assets behind the securities, however, may be either greater or smaller than the face or par amount of the securities, as losses or gains from operation of the agencies have taken place or as assets have been spent pursuant to congressional authorization. In order to reflect the amount of the Government's interest in governmental corporations and credit agencies, the Treasury compiles a ^'Combined statement of assets and liabilities of governmental corporations and credit agencies of the United States", which is published in the daily Treasury statement at the end of each month. This statement shows the amount and classification of the assets and liabilities of the various agencies, the privately owned proprietary interest in such agencies, and the proprietary interest of the United States. The statement as of June 30, 1940, appears on page 797, and 116 REPORT OF T H E SEiCRETARY OF T H E TREASURY a summary table of the Government's proprietary interest in such agencies as of June 30, 1929 to 1940, is contained on page 805 of this report. MONETARY DEVELOPMENTS Fiscal year 1940 On July 6, 1939, the President approved an act of Congress which contained the following provisions: (1) Extended until June 30, 1941, the powers relating to the stabilization fund, which were granted to the Secretary of the Treasury in section 10 of the Gold Reserve Act of 1934, as amended; (2) Extended until Jun|e 30, 1941, certain powers of the President with respect to gold and silver, which were granted to him in section 43, title III, of the act approved May 12, 1933, as amended by section 12 of the Gold Reserve Act of 1934, as amended; (3) Directed the United States Mints to receive silver mined subsequently to July 1, 1939, from natural deposits in the United States or any place subject to the jurisdiction thereof, subject to regulations prescribed by the Secretary of the Treasury, and requiring the Director of the Mint to deduct and retain 45 per centum of such silver as seigniorage and to deliver to the owner or depositor of such silver 55 per centum in standard silver dollars. The effect of this last provision was to require the Treasury to settle for domestic silver, mined after July 1, 1939, at a return to the depositor of 71.11+ cents per ounce. On July 25, 1939, the President issued a proclamation modifying his proclamation of December 21, 1933, as modified. This action extended until December 31, 1939, the period during which domestic silver mined after December 21, 1933, and on or before July 1, 1939, might be delivered to United States Mints. On September 11, 1939, the Secretary of the Treasury stated that the United States Government recognized the emergency conditions that necessitated the setting up of a system of exchange control in France, and in French territories overseas, and that the Tripartite declaration continued in effect. On April 16, 1940, the Treasury Department instructed collectors of customs and others concerned that the ^'official" rates for the British pound sterling, the Canadian dollar, the Newfoundland dollar, and the Australian pound were to be used in the collection of estimated duties, the appraisement of merchandise, and the final liquidation of duties, wherever the conversion of suc^h currencies into United States dollars was necessary for such purposes. Copies of the act, proclamation, statement, and announcement referred to above appear as exhibits beginning on page 445. REPORT OF T H E SEiCRETARY OF T H E TREASURY 117 The progress of conflict in Europe has led this Government to regulate certain transactions, in areas under its jurisdiction, involving property in which certain foreign countries or their nationals have an interest. On April 10, 1940, an Executive order and implementing Treasury regulations were issued providing that payments, transfers of credit, foreign exchange transactions, the export or earmarking of coin, bullion, or currency and other similar operations involving Danish or Norwegian property would be subject to license by the Secretary of the Treasury. On May 10, 1940, these provisions were extended to include similar transactions involving the Netherlands, Belgium, and Luxembourg; on June 17, they were extended to France. Fiscal years 1933 to 1940 The profound economic.disturbances of the years 1933 to 1940 had their counterpart in the sphere of money. The United States had to cope not only with the domestic monetary problems which arose out of the depression, but also with monetary problems which grew out of the developments in Europe and Asia. At the beginning of this period, the dominating influence on monetary affairs was the world-wide economic and financial collapse. In the industrial nations of the world, unemployment rose to an all time high; and in the raw materials countries, exports and prices of staple commodities fell at an unprecedented rate. In many parts of the world domestic and international tensions mutually aggravated each other. At the end of this period, the dominant infiuence on monetary and general economic affairs was war. In the intervening period, the governments of all the industrial countries increased the scope of their economic activities. These measures differed in the various countries but in general they were differentiated between recovery based upon armament programs and recovery based upon reform and an improved standard of living. Throughout the period the economic and monetary policies of the Government of the United States were dominated by its effort to increase the employment and raise the general standard of living of the people. In contrast to the economic pattern established in Europe, the United States defense program became a major factor in economic policy only toward the end of this period. Banking crisis oj 1938 The decline in economic activity which the United States began to experience in the late summer of 1929 had, by March 1933, become an economic collapse unparalleled in the history of this country. Between 1929 and 1932 the national income produced declined by more 118 REPORT OF T H E SEiCRETARY OF T H E TREASURY than 50 percent in terms of money, and by nearly 40° percent in terms of goods and services. Industrial production as measured by the revised index of the Board of Governors of the Federal Reserve System (1935-39 = 100) fell from 110 for the year 1929 to 54 in March 1933. The Bureau of Labor Statistics index of wholesale prices (1926 = 100) fell from 95 in 1929 to 60 in March 1933, and wholesale prices of agricultural products fell from 105 to 43. Numerous bank failures and suspensions in the months prior to March 1933, together with widespread fear and distrust of the banking system, resulted in hoarding which accentuated the crisis. By March 4, 1933, banks in nearly all States were either closed or operating under restrictions. To meet the unprecedented banking crisis confronting the country, the President, on March 6, proclaimed a bank holiday for all banking institutions located in the United States, its Territories and insular possessions. All banking transactions were suspended except those authorized under regulations issued by the Secretary of the Treasury with the approval of the President. The Secretary of the Treasury, during the period of suspended banking activity, issued regulations allowing the more essential banking services to be performed, such as making change and carrying on transactions necessary to meet tKe needs of the community for food, relief of distress, and payment of salaries and wages. I t was recognized that it was necessary not merely to reopen the banks but also to strengthen the whole financial system of the country. The Emergency Banking Act of March 9 was passed, allowing the Federal Reserve Banks to issue additional currency and to make loans to member banks on additional types of assets, making it possible for the banks which reopened to meet every legitimate call. The Federal Reserve Banks were further empowered to make direct loans to corporations, firms, and individuals on their notes secured by direct obligations of the United States Government. To aid in the rehabilitation of the banks. Congress authorized the Reconstruction Finance Corporation to purchase preferred stock or capital notes of banks upon the request of the Secretary of the Treasury. As a result of this Government aid, further details of which appear on page 268 of this report, many banks whose capital had previously been inadequate or whose assets were frozen were enabled to survive and become sound financial institutions. On March 10 an Executive order was issued authorizing the Secretary of the Treasury to permit any member of the Federal Reserve System and any other banking institution organized under the laws of the United States to perform all of their usual banking functions, except the making of gold payments and gold exports, currency withdrawals for hoarding, and certain foreign exchange transactions In REPORT OF THE SECRETARY OF THE TREASURY 119 order to insure the reopening of only those banks that were in a sound condition, it. was ordered that all banks obtain licenses to reopen. These licenses were issued by the Federal Reserve Banks, with the approval of the Secretary of the Treasury, in the case of member banks and by the State supervisory authorities in the case of non-member banks. A discussion of the reopening of the banks appears on pages 263 to 264 of this report. Soon after the reopening of the licensed banks a rapid return flow of currency to the Federal Reserve Banks took place. With the return of currency to the banks after their reopening and the later establishment of the deposit insurance system, the banking crisis disappeared and confidence in the financial institutions of the country was gradually restored. In order further to strengthen the banking system and to safeguard the interests of depositors, the Banking Act of 1933, approved June 16, 1933, created a Federal Deposit Insurance Corporation to provide a deposit insurance fund. Depositors' accounts were insured up to $2,500 under the provisions of this act. The insurance afforded to each account was increased to $5,000 by the act of June 16, 1934. The Banking Act of 1935 amended the original authority of the Corporation and strengthened its supervisory powers. Participants in the insurance plan included all members of the Federal Reserve System and approved non-member banks. Other important changes by the two banking acts included the liberalization of the provisions for rediscounting by the Federal Reserve Banks. The responsibilities of the Federal Reserve Board were more clearly defined and more firmly fixed, and the operations of the Federal Reserve Banks and the member banks were freed from restrictions which formerly prevented them from rendering effective services during critical times. In addition to the banking powers of licensing and supervision granted the Treasury during the bank crisis, some new and important monetary powers were given by Congress to the President and to the Secretary of the Treasury. Several of these, such as powers to issue new United States notes and to provide for the unlimited coinage of silver, have never been exercised. Gold policy One of the characteristics of the crisis of February-March 1933 was the drain of gold, both internal and external. The internal drain was for hoarding; and the desire to hoard was in turn a product of the fears and uncertainties generated by the severity of the depression and the questions regarding the banking system. The external drain, which appeared at the end of February, was in part a repatriation of 120 REPORT OF T H E SEiCRETARY OF T H E TREASURY foreign deposits and in part a flight of domestic capital. Decisive action to prevent further depletion of the gold reserve was taken on March 6, 1933, when the President ordered that no banking institution should, during the period of the bank holiday, pay out, export, earmark, or permit the withdrawal or transfer in any manner, of any gold or silver coin or bullion or currency, or take any action which might facilitate the hoarding thereof. By Executive order of March 10, these restrictions on gold payments and exports were continued; no gold was to be paid out except under license from the Secretary of the Treasury. The termination of the immediate crisis which led to the bank holiday, and the vigorous steps taken to restore and improve the banking system, produced a return flow of gold and gold certificates from the public to the Federal Reserve Banks. Between March 4 and March 31, $260 millions of gold coin and $370 millions of gold certificates were returned to the Federal Reserve Banks and the Treasury. By March 31, the total amount of gold and gold certificates outside the Treasury and the Federal Reserve Banks was reduced to $760 millions, the lowest figure since 1923. Thereafter, by Executive order issued on April 5, the President forbade the hoarding of gold and gold certificates and all. persons were required to deliver to a Federal Reserve Bank or branch all gold, with certain limitations, among which were included reasonable amounts for use in industry and the arts and a maximum of $100 per person in gold coin and certificates. On April 19, 1933, the Secretary of the Treasury advised that until further notice no further licenses would be granted for the export of gold for the purpose of supporting the dollar in foreign exchange. This was followed, on April 20, by an Executive order definitely prohibiting the export of gold, with specified exceptions, including gold previously earmarked for the account of foreign governments, foreign central banks, and the Bank for International Settlements. With these exceptions, the authority of the Secretary of the Treasury to issue licenses for the export of gold was limited to such transactions as he might deem necessary to promote the public interest and in respect to these he was authorized to issue licenses only with the approval of the President. The general objective of this order was, while keeping control of our domestic monetary policy, to facilitate the adjustment of international payments, to prevent speculation in the exchange value of the dollar, and to prohibit transfers of funds which were not the result of legitimate international business transactions. The Executive orders of April 5 and April 20 were revoked on August 28, 1933, when the President issued a new order containing REPORT OF T H E SEICRETARY OF T H E TREASURY 121 more complete provisions with respect to the hoarding, export, and earmarking of gold and to transactions in foreign exchange. In the act of May 12, 1933, the President was authorized to reduce the weight of the gold dollar by as much as 50 percent of its then existing weight. On June 5, 1933, in a resolution to assure uniform value to the coins and currencies of the United States, gold clauses generally in both public and private obligations were declared by Congress to be no longer binding; dollar contracts, thereby, were made independent of gold, and payment of the dollar amount of contract obligations rather than the payment in gold was enforced. On August 29, 1933, an Executive order was issued in effect permitting producers of gold newly mined from natural deposits in the United States to sell such gold on the world market by consigning it for the purpose to the Secretary of the Treasury, the sales to be made through the Federal Reserve Banks or other agents designated by the Secretary. Transactions under this order continued for about 2 months. On October 25 the President issued an Executive order revoking the order of August 29 and authorizing the Reconstruction Finance Corporation to acquire gold and to dispose thereof. The Corporation accordingly offered to take at an announced price, in exchange for its own 90-day debentures, all gold newly mined in the United States. The price of gold was raised daily, almost without interruption, until the middle of November. From the middle of November to the first of December there were five changes and only one change thereafter until the weight of the gold dollar was reduced on January 31, 1934. The Reconstruction Finance Corporation also engaged in purchases of gold abroad. In all these transactions the Federal Reserve Bank of New York acted as agent. The Executive order of August 28, 1933, was supplemented by an order of the Secretary of the Treasury, dated December 28, 1933, which required all domestically held gold, with certain exceptions, to be delivered for the account of the Treasurer of the United States. This order did not contain the exception of the earlier order with respect to holdings of gold in amounts of less than $100. The President issued an Executive order on January 15, 1934, authorizing the mints and assay offices to receive gold on consignment provided the gold had not been withheld unlawfully; and on the same day the Secretary of the Treasury directed the mints and assay ofl[ices to receive gold newly mined in the United States on consignment for the Federal Reserve Bank of New York. The daily authorized prices for which newly mined domestic gold was acquired under the above orders are shown in the following table. 122 REPORT OF T'HE SEICRETARY OF T H E T'REASURY Daily price quotations for newly mined domestic gold in the United States from Sept. 8, 1933, to J a n . 3 1 , 1934 ^ [Per fine ounce] D a y of month September 1933 October 1933 NoDevember cember 1933 1933 January 1934 D a y of month 1 $32. 26 $34.01 1 17 2- - . 32. 36 .$31.88 18 34.01 "'$34'06 332.12 32.57 34. 06 19 4 31.79 34.06 32.67 ""34'oi" 20 5 31.55 34.06 21 34.01 6 31.72 " 3 2 " 84' 34.06 22. 34.01 31.20 7 ..-. 23 34.01 $29. 62 8 "33" 65' 34.01 " " 3 4 ' 0 6 24 33.15 9 29.12 34. 06 25 34.01 34.06 26...... 33. 20 10 31.26 34.06 11 29.10 33.32 "'34"oi' 2730.91 34.06 29.21 34.01 28 12 34. 06 29.48 34.01 30. 62 13 33. 45 29 29.77 34.01 29.83 14 33.56 30 30.41 34.01 " " 3 4 ' 0 6 15-....33. 56 31 30.49 ""29;00' 34. 01 34.45 16 33.56 "si'ii" September 1933 October 1933 DeNov e m b e r cember 1933 1933 $29.86 $33.56 30.33 $31.44 33.56 '$34'06" 29.18 34.06 31.64 29.13 " 3 3 ' 6 6 ' 34.06 32. 28 29.01 34.06 31.33 33.76 34.06 31.75 33.76 34.06 31.86 " ' 2 9 ' 5 9 ' 33.76 29.80 33.76 31.36 33.76 31.30 31.54 "34'06' 31.49 31.76 " ' 3 3 ' 7 6 ' 34.06 31.35 31.82 34.06 31.05 33.85 34.06 31.33 33.93 34.06 31.46 ""31"96' 32.12 Janu1934 $34.45 34.45 34.45 34.45 34.45 34.45 34.45 34.45 34.45 34.45 • 34.45 34.45 34.45 1 Prices shown from Sept. 8 through Oct. 24,1933, represent the price at which the Secretary of the Treasury was authorized to sell newly mined domestic gold received on consignment under authority of Executive order of Aug. 29, 1933. Quotations from Oct. 25, 1933, through Jan. 15, 1934, represent the price fixed for newly mined domestic gold by the Reconstruction Finance Corporation in consultation with the Secretary of the Treasury and the President, which was offered in payment for notes of the Reconstruction Finance Corporation, under authority of Executive order of Oct. 25,1933. (This order revoked the Executive order of Aug. 29.) Quotations from Jan. 15 to Jan. 31,1934, represent the price at which the Federal Reserve Bank of New York as fiscal agent purchased newly mined domestic gold consigned to the mints and assay oflices. Payment for this gold when coined was made by the Treasury with a special issue of Treasury bonds, series of Apr. 16, 1934. Under regulations issued by the Treasury Department on Jan, 31,1934, the mints are authorized to purchase newly mined domestic gold, unmelted scrap gold, and gold imported into the United States after Jan. 30, 1934, at $35 less one-fourth of 1 percent and less mint charges. The gold policy which was developed in 1933 was given more permanent form in the Gold Reserve Act, approved January 30, 1934. By this act, title to all gold coin and gold bullion held by the Federal Reserve Board, the Federal Reserve Banks, and Federal Reserve Agents was vested in the United States Government. In exchange for this gold, credits in equivalent dollar amounts payable in gold certificates were established in the United States Treasury and it was provided that gold could be dealt with only as permitted by the Secretary of the Treasury with the approval of the President. All gold coins were to be withdrawn from circulation and, together with all other gold owned by the United States, formed into bars. The Secretary of the Treasury was authorized to buy or sell gold, as an operation of the General Fund of the Treasury, at such rates and upon such terms and conditions as he deemed most advantageous to the public interest. The authority contained in the act of May 12, 1933, permitting the President to fix the weight of the gold dollar at not less than 50 percent of its then legal weight, was made more specific by the provision that the weight of the gold dollar should be fixed at not more than 60 percent and not less than 50 percent of its previous weight. The Gold Reserve Act also authorized the Secretary of the Treasury to deal in gold and foreign exchange and such other instruments of credit and securities as he might deem necessary for the purpose of REPORT OF T H E SE'CRETARY OF T H E TREASURY 123 stabilizing the exchange value of the dollar. A stabilization fund of two billion dollars was established for this purpose out of the increment resulting from the reduction in weight of the gold dollar. On January 31, 1934, the President issued a proclamation fixing the weight of the gold dollar at 15^^i grains of gold, 0.900 fine. This action constituted a reduction of the gold in the dollar to 59.06 percent of the former content, and gave to gold a monetary value of $35 a fine ounce. The price of gold in foreign markets had gradually risen to this level in relation to the dollar by January 31, 1934. On the same day, the Secretary of the Treasury issued a statement providing for the sale of gold for export whenever the United States exchange rates with gold standard countries reached the gold export point. Provision was thus made for gold to perform its essential function, in the settlement of international balances. The departure from the traditional gold standard in the spring of 1933 made it possible to protect the domestic price structure from the influence of depreciated foreign currencies. I t tended to increase the prices of internationally traded commodities, including the major farm exports, and to facilitate industrial exports. For these reasons, the decrease in the gold content of the dollar was an adjunct to a domestic policy of economic expansion. Under the Gold Reserve Act of 1934 and its implementing Treasury regulations, all imported gold and gold from domestic sources are, with certain exceptions, sold to the Government. Payment for gold purchased by the Government is usually made by check drawn upon the Treasurer of the United States and paid out of the General Fund of the Treasury, specifically out of the Treasurer's deposit account with a Federal Reserve Bank. The current procedure is to replenish the cash assets in the General Fund by the issuance of gold certificates or gold certificate credits to the Federal Reserve Banks against the gold acquired, the amount of which is credited to the Treasurer's deposit account with those banks. As a result, current purchases of gold involve neither an addition to the interest-bearing public debt nor any use of tax receipts. Thus, gold acquisitions are financed solely by the issuance of gold certificates or gold certificate credits to the full monetary value of gold acquired. Current acquisitions of gold have tended to increase the supply of money and have augmented the reserves of commercial banks. Except to the extent that the proceeds from the sale of gold to the United States by foreign central banks and governments are held iri the form of balances at the Federal Reserve Banks, the deposit liabilities of commercial banks are increased by an amount approximately equal to the value of the gold acquired by the Government. The increase in deposits held by the public resulting from the sale of gold to the Gov269677—41 10 124 REPORT OF T H E SEiCRETARY OF T H E THEAiSURY ernment is accompanied by an almost equal increase in the reserves of commercial banks held in the form of deposits with the Federal Reserve Banks. Inasmuch as only a part of such additional reserves are required by law to be held against their additional deposit liabilities, the remainder serves to increase their ^'excess reserves." For a period of 16 months, between December 1936 and April 1938, a different procedure was followed with regard to gold acquisitions. On December 22, 1936, the Secretary of the Treasury announced that gold acquisitions would thereafter be segregated in an inactive account and that gold certificates or gold certificate credits would not be issued. Insofar as the Treasury needed to replenish its balances at the Federal Reserve Banks, drawn upon in the purchase of gold, additional Treasury public debt obligations would be sold. Therefore, gold acquisitions under this arrangement did not expand total bank reserves but did add to the public debt. This was the so-called '^sterilization" policy. The sterilization policy was undertaken in conjunction with the Federal Reserve Board's actions to reduce the volume of excess reserves. In December 1936 the total reserves of member banks of the Federal Reserve System had reached a new high of $6.8 billions, of which $2.2 billions constituted excess reserves. As matters developed, the banking system still retained a substantial amount of excess reserves throughout the period of the inactive gold account. On February 14, 1938, the Secretary of the Treasury announced that gold acquired by the mints and assay ofl&ces after January 1, 1938, would be included in the inactive gold account only to the extent that such acquisitions in any one quarter exceeded $100 millions. On April 19, 1938, the Secretary of the Treasury announced that the inactive gold account had been discontinued. During this period approximately $1,391 millions had accumulated in the account, which was credited to the Treasurer's deposit account with the Federal Reserve Banks through the issuance of gold certificates or gold certificate credits. As the funds so credited were paid out by the Treasury, bank reserves were increased accordingly. By June 30, 1940, the gold stock of the United States had amounted to almost $20 billions. About two-thirds of this gold had been imported into the United States in the 6K years since the adoption of the Gold Reserve Act. Of the causes of this enormous gold inflow since the beginning of 1934, capital inflow has been the most important. The whole world has preferred to hold capital in dollars; the uncertainty prevailing abroad and the comparative security and profitability of American investments and the strength of the dollar are sufficient explanations of this preference. In addition to the capital inflow, the United States had had a favorable current balance of payments for goods REPORT OF THE SECRETARY OF THE TREASUiRY 125 and services, and this has been especially important since the last quarter of 1937. For reasons which have been given at some length in a letter of March 22, 1939, from the Secretary of the Treasury to Senator Robert F. Wagner, the Treasury has judged that it would be unwise to take drastic steps to reduce the gold inflow. In answer to the question, ^Why doesn't the Treasury stop buying gold?", the Secretary stated: ^*A simple way of stopping gold from coming into the United States would be for the Treasury to announce to the world that we will not buy any more gold for the time being. But, such a step, taken unilaterally, would have disastrous effects on our economy. I t would disrupt the foreign exchanges and gold bullion markets and would very soon cause such drastic disturbances in international trade and even in the domestic sphere as seriously to impede the recovery of business. ^Tresent relationships among the various leading currencies would be upset. The dollar probably would appreciate immediately in terms of other leading currencies. At present, when the demand for dollar exchange increases, foreigners need only obtain gold (either at home or on the London market), ship it here and obtain dollars in exchange. Thus an increased demand for dollar exchange relative to the supply is met. If, however, this means of securing dollar exchange were removed, dollars would rise in value indefinitely in terms of other currencies. While it is impossible to know in advance what rates of exchange would finally emerge, we can be certain of at least one thing— that no country would benefit from the ensuing international monetary disruption. ^'Were the United States, moreover, to declare a complete embargo on gold imports, it might deal a serious blow to the value of gold as a monetary medium. (Such action coming at a period when there was discussion of the possibility of world over-abundance of gold might have repercussions which would disturb the public's confidence in the value of gold.) The leading gold producing areas would be hard hit and some might even be involved in a major economic crisis. '^A closely related question that has frequently been asked is: ^Should not the price of gold be reduced? Is not $35 an ounce too high a price for gold?' Possibly the simplest way to answer this question is to examine the consequences that would ensue from an increase in the gold content of the dollar (or, to phrase it another way, from a decrease in the monetary value of gold). ^*A reduction by Congress in the monetary value of gold would probably not be as calamitous as a complete embargo. I t would limit the extent of possible depreciation of gold (or appreciation of the dollar in terms of foreign currencies) and the psychological disturbance 126 REPORT OF T H E SEiCRETARY OF T H E TREASURY caused by the change would not be as potent, yet it would have disadvantages serious enough to render resort to any such action most unwise. If the reduction made in the price of gold were small, our trade and service balance would not be much affected over the next year or so, nor would the inflow of capital cease. Once the drop in the price of gold was regarded by the rest of the world as definitive, the subsequent effect on capital imports would be virtually nil. Our securities would continue to be bought for the same reasons that they are bought now and dollar balances cn foreign account would also continue to increase for the same reasons that they are increasing now. But, were a small decline in the price of gold to be regarded by numerous domestic and foreign investors and exchange speculators as being but the first of a series of drops, the result might well be to attract more, not less, funds to the United States, and to intensify the inflow of gold—the very thing it is designed to check. Speculators would rush to buy dollars and hold them here in anticipation of the next appreciation. Thus the effect on capital movements, both long-term and short-term, might more than offset the effect on trade and service items; instead of getting less gold we would find ourselves getting more. ^'On the other hand, were the monetary value of gold to be cut with one stroke substantially, and definitely—say, for example, to $25 an ounce—the effect would be quite different from that described above. Such a step might reduce the volume of gold imports and perhaps give rise to an outflow of large dimensions; but, the economic effects on our economy of the change in the foreign exchange value of the dollar would be little short of disastrous. The 40 percent increase in the price of American currencies to foreigners would constitute a severe handicap upon our exports. Our exports play a role in the level of business activity much in excess of the magnitudes involved and so great an appreciation of our currency in terms of other currencies would be bound to curtail our exports seriously. In the past 6 months the dollar has appreciated in terms of other leading currencies by some 5 percent and price movements in the various countries have not been such as to offset this competitive disadvantage to us. The appreciation of the dollar has not been due to a change in the dollar price for gold but rather to a depreciation of foreign currencies in terms of gold. You will note that our exports during January 1939 were more than 40 percent less than they were in January 1938. Although it is too soon to evaluate the full significance of the decline, it is not unreasonable to assume that the less favorable position of the dollar in terms of other currency (i. e., higher prices of foreign currencies in terms of gold) contributed to the drop in exports. REPORT OF T H E SEiCRETARY OF T H E TREASURY 127 '^Our imports on the other hand would, in the event of a reduction in the price of gold t!o $25 an ounce, be 30 percent cheaper. Our domestic producers would then be exposed to greatly sharpened competition in the American market from foreign producers both because the prices in dollars of imports would be less, and also because the numerous ad valorem .duties would constitute smaller protection. ^^ Foreigners would have a greater advantage in this market but unfortunately even this would be of dubious value to them. The ability of Americans to buy goods, whether imports or domestic goods, depends chiefly upon llhe state of business activity here. I t is chiefly for that reason that our imports during the recession of 1938 dropped to almost one-half and that our imports began to increase in the fall of 1938. Thus, though the sharp appreciation of the dollar would make foreign goods cheaper in this country, our imports might actually be less than during the previous period and instead of benefiting the rest of the world we would be hurting world business as well as our own. , ^'Judging from past experience we could not expect the prices of domestic commodities and services to move either at home or abroad with sufl&cient rapidity to adjust quickly and fully to any substantial alteration in exchange rates. For many months, perhaps for years, the economic position of large groups of American producers, including farmers, would be worsened and there would be widespread unemployment. The combined effect on our domestic economy of a sharp drop in exports and of increasing competition in the domestic market would be keenly felt. Domestic prices would begin to fall. Many corporations would suffer loss of business and profits. In times such as the present these short-run effects—and by short-run we mean from a few months to several years—are of paramount importance. To brush aside, as some are prone to do, these short-run effects on the ground that in the long-run appropriate adjustments will take place is to ignore the unstable world in which we live and the real problems which confront us from day to day. '^Moreover, were we to reduce the price of gold and were it to result in an outflow of gold there is no reason to believe that the countries who most need gold would get it. On the contrary, were gold to leave the United States it would probably find a resting place in the very countries whose currencies would for the moment appear most secure. Certainly no gold would flow to Latin American countries in any substantial amount, nor would the Far East or the Balkans obtain more gold. The loss of gold by the United States would not correct the serious maldistribution.. I t would rather operate only to take away some from the United States which has too much and to add it to the holdings of other countries which likewise have too much. 128 REPORT OF T H E SEiCRETARY OF T H E TTIEASURY '^Thus we are confronted with the fact that though we should like to receive less gold and even to get rid of substantial amounts of the gold we, already have, there is, under the existing circumstances, no acceptable alternative to the policy we have been pursuing. In the case of all the proposals we have examined, the remedy has always been worse than the disease. The best way to reduce our gold inflow on commodity and service account is for us to have full recovery so that our imports will rise more rapidly than our exports." At the present time, the only satisfactory way in which the inflow of gold can be reversed is through the return of peace and the removal of severe and arbitrary restrictions that impede the expansion of international trade and the restoration of world-wide economic recovery. Increment on gold Under the provisions of the President's proclamation of January 31, 1934, issued pursuant to section 43, title I I I of the act approved May 12, 1933, as amended by section 12 of the Gold Reserve Act of 1934, approved January 30, 1934, the weight of the gold dollar was reduced from 25.8 grains of gold 0.900 fine to 15^i grains 0.900 fine. Thus, the value of 1 ounce of pure gold (480 grains) was increased from $20.671834+ to $35. The amount of gold held in the gold account when the books were closed at 3 o'clock January 31, 1934, on the basis of daily Treasury statements was $4,034,867,780.67. The Treasury also held in the General Fund on that date $30,623,145 in gold coin which had been purchased under the provisions of section 734 of title 31, United States Code, at a cost of $49,502,356.94. The gold held at the close of business January 31, 1934, together with certain other gold acquired on February 1, 1934, was revalued at $35 an ounce and is reflected in the daily Treasury statement of February 1, 1934, at $7,018,263,925.70, resulting in an increment of $2,805,512,060.87. Increment subsequently arising from acquisitions of gold up to June 30,1940, amounted to $12,040,968.68, making the total to that date $2,817,553,029.55. Five allocations or appropriations have been made from the increment on gold. The act of January 30, 1934, authorized the establishment in the Treasury of a stabilization fund to be operated under the exclusive control of the Secretary of the Treasury with the approval of the President, and appropriated the sum of $2,000,000,000 out of the increment resulting from the reduction in the weight of the gold dollar. This fund was established as of April 27, 1934, by a deposit of $2,000,000,000 with the Treasurer of the United States, which deposit was reflected on the daily Treasury statement as a charge REPORT OF T H E SEiCRETARY OF T H E TREASURY 129 against the increment on gold. A statement of the assets and liabilities of this fund is contained in the table on page 789. Under the provisions of the act of June 19, 1934, the Secretary of the Treasury was authorized to make payments to each of the Federal Reserve Banks not to exceed such portion of the sum of $139,299,557 as was represented by the amount paid by each Federal Reserve Bank for stock of the Federal Deposit Insurance Corporation. The payments thus made to the Federal Reserve Banks were to enable them to make industrial loans and advances. The act provided that the amounts thus expended by the Secretary of the Treasury should be paid out of the miscellaneous receipts created by the increinent resulting from the reduction of the weight of the gold dollar. In another act of Congress also dated June 19, 1934, the Secretary of the Treasury was authorized and directed "when the funds therefor are made available, to establish on the books of the Treasury a credit in favor of the Treasury of the Philippine Islands for $23,862,750.78, being an amount equal to the increase in value (resulting from the reduction of the weight of the gold doUar) of the gold equivalent at the opening of business on January 31, 1934, of the balances maintained at that time in banks in the continental United States by the Government of the Philippine Islands for its gold standard fund and its Treasury certificate fund less the interest received by it on such balances." The act authorized the appropriation of the amounts necessary for this purpose out of the receipts covered into the Treasury by virtue of the reduction in the weight of the gold dollar. However, no money has been appropriated by Congress for carrying this act of June 19, 1934, into effect. Another act of June 19, 1934, appropriated out of the amount covered into the Treasury as a result of the reduction in the weight of the gold dollar an amount "sufiicient to cover the difference between the value of gold as carried in the general account of the Treasurer of the United States and the value of such gold after melting and refining thereof pursuant to the provisions of the Gold Reserve Act of 1934." There has been reserved for this purpose the sum of $2,175,121.93, of which $1,841,763.29 had been expended up to June 30, 1940. On June 28, 1935, the Secretary of the Treasury directed that the balance of the increment as of that date resulting from the reduction in the weight of the gold dollar, not appropriated or authorized to be appropriated, be used m connection with the redemption of national bank notes as they are presented for redemption and retirement. The following statement shows the allocations of the gold increment, charges, and balatices of allocations as of June 30, 1940. 130 REPORT OF T H E SEiCRETARY OF T H E TREASURY Allocation of and charges against increment resulting from the reduction i n the weight of the gold dollar, and unexpended balances, as of J u n e 30, 1940 Allocation of increment Exchange stabilization fund.. Payments tp Federal Reserve Banks for industrial loans Philippine currency reserve Melting losses on gold coin Retirement of national bank notes Unassigned. Charges against increment 12,000,000,000. 00 $2, 000, 000, 000. 00 139, 299, 556.99 23,862, 750. 78 2,175,121.93 645,387,965.45 6,827, 634. 40 27, 546, 310.97 1,841,763. 29 645, 387,965. 45 2, 817, 553, 029. 55 2, 674, 776,039. 71 Unexpended balance of allocated increment • $111, 753, 246. 02 23,862, 750. 78 333, 358. 64 6,827,634. 40 142, 776,989. 84 The unexpended balance of the increment on gold amounting to $142, 776, 989. 84 is segregated in the balance in the General Fund of the Treasury, as shown on the Daily Statement of the United States Treasury. A summary by years of the transactions in allocations from the gold increment to June 30, 1940, follows. Gold increment and charges against such increment, fiscal years 1934 to 1940 Disposition of i n c r e m e n t Gold increment Year Stabilization fund Payments to Federal M e l t i n g R e t i r e m e n t Reserve losses o n of n a t i o n a l B a n k s for gold coin b a n k notes industrial loans $2,811, 375, 757 $2,000,000,000 1, 738,020 $20,931,857 784,465 5,614,454 1,676,188 875,000 1,094,843 125,000 481,399 402,359 1934 1935 1936 1937 1938 1939 1940 Total.. 2,817, 553,029 2,000,000,000 $675,122 $91,415,650 791, 846 397,422,480 333,154 99, 573, 791 34, 679 61,478, 740 2,388 5,497,305 4,575 Total Balance a t close of year $2,000,000, 000 113,022, 629 403,828, 780 100,781,944 61,638, 418 5,499,694 4,574 $811,375, 757 700,091,147 297,046, 832 197, 941,076 147,397, 500 142,379,205 142, 776, 990 27, 546,311 1,841,763 645,387,965 2,674,776,040 NOTE.—Figures are rounded to nearest dollar and will not necessarily add to totals. Silver policy In December 1932 the price of silver fell to the lowest point in history, 24.6 cents per ounce. The annual average price over the preceding two decades had shown the following movement: Average price of silver during selected years, 1911 to 1932 Price (cents per ounce) C a l e n d a r year 1911 1914 1917 1920 __ . - .- 54 56 84 101 0 3 0 9 Price (cents per ounce) C a l e n d a r year 1923 1926 1929 1932 . . 65 2 62 4 53 3 28. 2 REPORT OF T H E SE'CRETARY OF T H E TREASURY . 131 Many factors contributed to this drastic fall in the price of silver. In the first place, the high price of silver and the depreciation of some currencies during the war years and immediately thereafter made the bullion in many silver coins more valuable than the coins themselves. To prevent the unauthorized melting down of their silver coins for use as bullion, and also to provide additional seigniorage, many countries diminished the silver content of their coins, thus reducing their demand for silver and adding substantially to the supplies on the market. Between 1914 and 1929, more than 30 countries—including Great Britain, France, and Germany—decreased the fine metal content of their silver coins. Paper money and metals other than silver (particularly nickel, bronze, and copper) were substituted extensively for silver coins. In the 5 years following 1926, the Indian Government disposed of over 130 million ounces, and this in turn led to extensive sales by other Asiatic countries. During the post-war decade, the output of newly mined silver was increased by almost 40 percent from an average of 185 million ounces for the years 1916 to 1920, to an average of 255 million ounces for the years 1926 to 1930. One of the reasons for this increased supply was the increases in the production of those metals—copper, lead, and zinc—of which silver is a byproduct. With the onset of depression, the price of silver was further depressed by the declining industrial demand for silver. Action to raise the price of silver was taken in the early months of 1933. Title I I I of the act of May 12, 1933, authorized the acceptance, during the ensuing 6 months, of silver tendered by foreign governments in payment of indebtedness due to the United States Government, the silver to be valued at not in excess of 50 cents per ounce. The title also authorized the President to fix the weight of the silver dollar as well as the gold dollar and to provide for the unlimited coinage of silver. Further, the United States delegation at the London Monetary and Economic Conference secured the passage (on July 20, 1933) of a resolution pledging the 66 governments represented at the conference to refrain from further debasement of silver coins and to encourage the substitution of silver coins for currency of small denominations and an agreement among certain governments to purchase specified amounts of silver from the mine production of such countries. I n compliance with this agreement the President, on December 21, 1933, issued a proclamation directing the mints of the United States to receive for coinage into silver dollars all silver mined from natural deposits in the United States subsequent to the issuance of that proclamation. Fifty percent of the monetary value of the silver so received was to be deducted as seigniorage and the remainder to be 132 REPORT OF T H E SEiORETARY OF T H E TTIEA.SURY returned in standard silver dollars. The monetary value of silver being $1.29+ per fine ounce, newly mined domestic silver was bought by the mints under this proclamation at 64.64+ cents per fine ounce. Under subsequent amendments to that proclamation, newly mined domestic silver was bought at 71.11+ cents from April 9, 1935, to April 23,1935, at 77.57+ cents from April 23,1935, to December 31, 1937, at 64.64+ cents from December 31, 1937, to July 1, 1939. Since July 1, 1939, such silver has been bought at 71.11+ cents, as directed by the act of July 6, 1939. Section 12 of the Gold Reserve Act of 1934 made it possible for the Treasury to pay for its domestic silver acquisitions with silver certificates instead of silver dollars. Silver certificates or silver dollars have been issued in an amount equal to the cost of such acquisitions. Further steps to carry forward .the silver policy were authorized by the Silver Purchase Act, approved June 19, 1934. In this act it was declared to be the policy of the United States that the proportion of silver to gold in the monetary stocks of the Uhited States be increased with the ultimate objective of having and maintaining one-fourth of the monetary value of such stocks in silver. So long as the proportion of silver in the stock of gold and silver is less than one-fourth, the Secretary of the Treasury is directed to purchase silver, at such times and upon such terms and conditions as he may deem reasonable and in the public interest, but at a price not to exceed its monetary value. The Secretary of the Treasury is required to issue silver certificates in a face amount of not less than the cost of all silver purchased under the act, but it is left to his discretion whether further silver certificates shall be issued against the difference between the cost of silver purchased and its monetary value. Foreign silver has been purchased in the market under the authority of this act at prices which have averaged approximately 51 cents per ounce. Domestic silver stocks other than newly mined were dealt with in the Executive order of August 9, 1934, issued under powers contained' in the Silver Purchase Act of 1934. The order required that all silver situated in the continental United States, with certain stipulated exemptions, be delivered to the United States mints within 90 days. For silver so received the United States mints were instructed to return to the depositor an amount equal to 50.01 cents per fine ounce. This order was revoked on April 28, 1938, together with other Executive and Treasury orders regulating the holding, import, and export of silver. Under these legislative authorizations, the Treasury has purchased over 2,350 million ounces of silver from the beginning of 1934 to the 133 RJE'PORT O F T H E SEORETAEY O F T H E TREASURY end of June 1940. However, in spite of these extensive purchases, the objective stated in the Silver Purchase Act of 1934 has not been reached. At the time of the enactment of the Silver Purchase Act, additional purchases of about 1,400 million ounces would have sufliced to achieve the desired ratio. Since then, almost 1 billion ounces more than this have been acquired without getting much closer to this ratio because of the increase in the gold stock. The table that follows shows the silver acquired from January 1, 1934, to June 30, 1940, by specified classifications. The second following table shows the composition of the silver monetary stock. Silver acquired January 1, 1934, to June 30, 1940, by calendar years and by specified classifications [In millions of ounces or dollars] Newly mined domestic i Foreign 3 Nationalized 2 Total C a l e n d a r year 1934 1935... 1936 1937 1938 1939 1940 (6 m o n t h s ) Ounces Dollars Ounces Dollars 21.8 38.0 61.1 70.6 61.6 60.7 31.6 14.1 27.3 47.3 54.6 42.2 39.9 22.5 110.6 2.0 .4 55.3 1.0 .2 Ounces 172.5 494.4 271.9 241.5 355. 4 282.8 83.1 Dollars .86.5 318. 2 150.3 108. 7 156.9 120.5 30.9 Ounces 304.9 534.3 333.4 312.2 417.1 343.3 114.7 Dollars 165.9 346.5 197.9 163.4 199.1 160.4 53.4 1 Acquired at 64.64+ cents per fine ounce until Apr. 9, 1935; at 71.11-f cents from Apr. 10 until Apr. 23, 1935; at 77.57+ cents from Apr. 24, 1935, to Dec. 31, 1937; at 64.64+ cents from Jan. 1, 1938, to July 1, 1939; and at 71.11+ cents since July 1, 1939. * Acquired at 50.01 cents per fine ounce. Executive proclamation of Aug. 9,1934, revoked Apr. 28,1938. 3 Acquired at various prices averaging approximately 51 cents per fine ounce. Components of the silver monetary stock, Dec. 31, 1934 to 1939, and June ^ 0,1940 [In millions of dollars] Silver held in T r e a s u r y E n d of calendar y e a r Securing silver certificates 1 Silver, bullion 1934 1935 1936 1937 1938 1939 1940 (June) _. 211.6 576.9 775.9 938.8 1,137.6 1, 298. 2 1.353.2 'Valued at $1.29+ per ounce. 2 Valued at $1.38+ per ounce. Silver dollars 508.4 508.7 505.7 503.7 502.7 499.0 498.1 Silver outside Treasury I n General F u n d Subsidia r y coin 2 4.2 4.2 5.7 5.4 3.5 5.3 3.6 Bullion for recoinage 2 Bullion a t cost Silver dollars 1 8.8. .2 .3 89.3 262.7 347.7 428.6 535.3 616.0 643.3 35.2 38.4 41.3 43.3 44.4 48.1 49.0 .2 .8 Total silver a t $1.29 per ounce Subsidia r y coin 2 305.3 323.5 350.4 366.9 372.8 394.1 398.6 1,279.7 1,970.1 2,402.3 2,806.5 3,346.8 3,790. 2 3,939.6 134 REPORT OF T H E SEICRETARY OF T H E TREASURY Seigniorage on silver Seigniorage arises from three principal sources: (1) As a result of the revaluation of silver bullion from its cost value to its monetary value ($1.29+ per fine troy ounce) when such silver is set aside and held as security for silver certificates; (2) as a result of the coinage of silver dollars and subsidiary silver coin; and (3) as the result of the coinage of minor coins (nickels and cents).« The Silver Purchase Act authorized and directed the Secretary to issue silver certificates to a face amount of not less than the cost of the silver purchased under the act and provided for a reserve in silver bullion or standard silver dollars to be maintained of a monetary value equal to the face amount of silver certificates outstanding. Following the passage of this act the procedure in connection with revaluing silver bullion to be held as security for silver certificates has been to revalue a sufiicient number of ounces thereof at the monetary value of $1.29+ per fine ounce to equal the total cost of the silver acquired, and to issue silver certificates in like face amount against the revalued silver. The difference between the cost of the actual number of ounces of silver revalued and its value at the monetary rate represents seigniorage. The silver that remains and is not used to secure silver certificates is carried at cost in the General Fund. Beginning with October 16, 1934, the amount of seigniorage resulting from the revaluation of silver acquired under the Silver Purchase Act of June 19, 1934, and under the proclamation of August 9, 1934, was reported by the Treasury in its daily statement under the heading ' of ^'Trust funds, increment on gold, etc.,'' and the accumulated balance was segregated in the General Fund of the Treasury... By this procedure the seigniorage profit has been set apart from other funds available for current expenditures of the Government. The amount of seigniorage profits accumulated and segregated in the General Fund was $585 millions. The amount of the seigniorage profits resulting from the revaluation of silver bullion, other than that acquired under the Silver Purchase Act of 1934 and under the proclamation of August 9, 1934, is covered into the Treasury as miscellaneous receipts and is reflected in the working balance of the General Fund. The amounts of seigniorage received from all sources from July 1, 1932, to June 30, 1940, are shown by years in the table that follows. REPORT OF T H E SEORETARY OF T H E 135 TREASURY Seigniorage on silver, by sources, fiscal years 1933 to 1940 [In millions of dollars. On basis of daily Treasury statements (unrevised), see p. 583] N e w l y m i n e d silver Year 1933 1934 1935 1936 1937 1938 1939 1940 --- ProclaraationDec. 21, 1933 - - „ Total 0.4 25.6 19.8 20.5 16.6 4.7 87.6 Actof J u l y 6, 1939 NationalSilver ized silver, P u r c h a s e proclamaActof tion A u g . 1934 9, 1934 Miscellaneous silver 28.5 6.1 (0 (0 48.7 14.3 111.6 169.7 39.8 90.3 90.3 48.9 14.3 550.5 34.7 48.7 Subsidiary silver and minor coins Total 0.9 .5 9.0 13.6 29.1 15.1 6.2 25.0 0.9 .5 198.] 215.1 88.7 126.0 113.0 92.8 99.3 835.1 1 Under $50,000. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. International monetary cooperation The social and economic difficulties of the World War and the succeeding decade imposed tremendous strains on the international g()ld standard. After the war the problem of transfer arising from reparations and war debts, and the reestablishment of numerous currencies on a gold basis, entailed many difficulties. The increasing rigidity of price structures, and the unemployment which accompanied the uneven deflation of prices, made it hard for some countries to adhere to the gold parities which they had selected for their currencies. After 1928, international long-term investments tended to decline and short-term capital tended to move in increasing volume from country to country in search of security. The depression which began in 1929 increased the strains on the system of international exchange and during the depression most countries either had to, oi chose to, depart from the fixed gold parities of their currencies. When the United Kingdom abandoned the fixed gold value for sterling in September 1931, there was inaugurated a period of changing international exchange rates. Since March 1933, the policy of the United States with respect to the international monetary situation has rested upon two basic premises: First, that the calamitous depression which the country was experiencing a t t h a t time demanded, before all else, vigorous and independent domestic monetary action; and, second, that after this country was well on the way to domestic recovery the United States would be in a better position to promote monetary stability and the expansion of international trade and investment, through cooperation with other nations. The preceding sections have described the monetary measures which were taken principally in recognition of the first premise, insofar as 136 REPORT OF THE SEIORETARY OF THE TREASURY the Treasury Department was directly concerned in them. The measures taken in recognition of the second follow. In June 1933, a World Monetary and Economic Conference met in London, with the purpose of reaching an agreement on the stabilization of currencies. I t was at this time that the United States Government was trying to stimulate recovery by bringing about a rise in the domestic price level. Accordingly, President Koosevelt in his message to the Conference defined the monetary aims as follows: ''Let me be frank in saying that the United States seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future. That objective means more to the good of other nations than a fixed ratio for a month or two in terms of the pound or franc.V The independent determination of the monetary policy of the United States was upheld, not in a spirit of national selfishness, but rather with the judgment that the reconstruction of the national monetary system and the further progress of recovery were indispensable prerequisites for the success of international cooperation. The period of active and continuous international monetary cooperation began with the Tripartite Accord of September 1936. For some time, the French Government had experienced great diflSculty in maintaining the gold value of the franc, and France was now determined to restore equilibrium in her balance of payments and to relieve the downward pressure on the French price level through devaluation. I t seemed then of the, highest importance to the future of orderly international exchange relationships that this French devaluation should not set oflF a chain of competitive depreciations on the part of other countries. Accordingly, the Government of the United States and the British Government expressed their concurrence in the decision of the French Government to readjust its currency, and the three governments joined in a Tripartite Accord to promote order in international monetary relationships. This accord was announced on September 25, 1936. To implement this policy of exchange cooperation, the Secretary of the Trciasury announced on October 13, 1936, that the United States would henceforth sell gold to the exchange stabilization funds of those countries which agreed to reciprocate. On the same day, the French and British Governments announced that they had taken the necessary measures for providing the monetary authorities of the other members of the Tripartite Accord with similar facilities. These arrangements were necessary because stabilization operations would result in accumulation of foreign exchange by the participating funds and the several governments desired to be able to convert this foreign exchange into gold at agreed-upon prices rather than continue to bear exchange risks. REPORT OF THE SEORETARY OF THE TREASURY 137 On November 24, 1936, Belgium, the Netherlands, and Switzerland indicated their adherence to the principles of the Tripartite Accord, and these countries were added to the list of those to which the United States would sell gold. The hope that the Tripartite Accord would lead to a more satisfactory and permanent organization of international monetary relationships has not been realized because of the subsequent political and economic developments. In the years before the outbreak of war, however, the accord proved that cooperation among stabilization funds can have definite value. The stabilization funds, working together, can iron out short-term fluctuations and prevent speculative drives from producing erratic exchange movements. The funds can also, in cooperation, facilitate orderly readjustment of a currency to a lower level and prevent explosive movements from carrying exchange rates below the level deliberately sought. But nothing in exchange cooperation, as conceived in this agreement, can prevent fundamental economic changes from exerting their full force on exchange relationships; such cooperation is no substitute for the correction of fundamental maladjustments. The progress of the conflict in Europe has led this Government to regulate certain transactions in areas under our jurisdiction involving property in which certain foreign countries or their nationals have an interest. A discussion of foreign funds control will be found on pages 161 and 318. The exigencies of war have led to the extension of economic and monetary restrictions in many neutral as well as belligerent countries. The complete disruption of normal international relations will add greatly to the difficult problem of monetary reconstruction after the war. REVENUE LEGISLATION Fiscal year 1940 Revenue legislation enacted in the flscal year 1940 included the Social Security Act Amendments of 1939, the Revenue Act of 1940, the act altering the profits-limitation provisions with respect to naval vessels and Army and Navy aircraft, and other acts enumerated below. A brief resume of the major laws follows. Social Security Act Amendments oj 1939 Title VI of the Social Security Act Amendments of 1939 (hereinafter referred to as ''the Amendments") approved August 10, 1939, contains amendments to the Internal Revenue Code; and Title I X , Miscellaneous Provisions, includes further amendments to the Code and changes in those parts of the social security laws which became codified. 138 REPORT OF T H E SEORETARY OF T H E TREASURY Before the enactment of the Amendments, the Code jjrovided that the rates of the taxes on employees and employers (under sections 1400 and 1410 of the Code) were to increase on January 1, 1940, from I percent of the wages to 1}^ percent, with a further increase of ji percent at the end of each 3-year period thereafter, until the maximum rate of 3 percent was reached in 1949. Under the Amendments the increase scheduled for January 1, 1940, was eliminated and it was provided that there should be no increase in the rates until 1943. Then the rates are to be 2 percent for the years 1943, 1944, and 1945, 2}^ percent for the years 1946, 1947, and 1948, and 3 percent for the years 1949 and thereafter. The definitions applicable in the case of both the old-age insurance and the unemployment compensation taxes are amended in certain respects. Among the changes the services of fishermen, in general, are excluded from "employment'' for the purposes of the old-age insurance taxes; and service on an American vessel is included in "employment" for the purposes of the old-age insurance tax. "Agricultural labor" is defined in detail. In the case of the old-age insurance taxes, the term "employment" was revised to include service by individuals attaining the age of 65, beginning January 1, 1939. There is an amendment making it clear that an employer engaged in foreign commerce is on the same basis, as respects the authority of a State to require payments into an unemployment fund, as employers engaged in interstate commerce. Authority is conferred on State legislatures to require instrumentalities of the United States, such as national banks, to comply with State unemployment compensation laws. Instrumentalities wholly owned by the United States or exempt from the Federal unemployment compensation tax are excepted. This authority is made conditional on nondiscriminatory treatment of such instrumentalities by the State and certification of the State law under section 1603, Internal Revenue Code. The Amendments contain provisions designed to facilitate adjustments of overpayment and underpayment of employees' and employers' tax and to allow refunds in cases where an employee has been taxed on wages in excess of $3,000 by reason of having served two or more employers during the ta,xable years and receiving aggregate wages of more than $3,000. In addition, wages under the unemployment tax provisions were to include remuneration only up to $3,000, effective January 1, 1940, whereas all remuneration was covered hitherto. Employers are required to furnish each employee with a written statement or receipt showing the wages paid to the employee and the tax imposed by section 1400 of the Code with respect to such wages, s'uch receipt to cover one or more quarters of the calendar year. REPORT OF THE SECRETARY OF THE TREASURY 139 The conditions of granting a credit against the Federal imemployment compensation tax for contributions paid by a taxpayer to an unemployment fund under a State law are considerably liberalizeo Extensions of time of as much as 90 days, instead of 60 days, for filing returns of the unemployment compensation taxes are authorized. There are miscellaneous provisions clearing up problems of interpretation which had arisen under the Social Security Act and affording relief in various cases of hardship. Revenue Act oj 1940 The Revenue Act of 1940, approved June 25, 1940, consists of four titles. Title I changes the income tax rates for taxable years beginning after December 31, 1939, as follows: (1) Surtaxes on surtax net incomes in excess of $6,000 and not in excess of $100,000, are increased (see exhibit 34A on page 457); (2) the rate of tax on incomes of domestic corporations is increased 1 percent above the prior existing rates; (3) a non-resident alien is taxed on dividends, interest, and other fixed or determinable periodical income at 15 percent instead of 10 percent, except where treaty provisions fix a lower rate; if his gross income amounts to more than $24,000, he is subject to full normal tax and surtax at the increased rates on income of the type described; (4) foreign corporations having an office or place of business in the United States are subject to a rate of 19 percent in lieu of 18 percent under prior existing law; (5) the rate of tax on the fixed or determinable periodical income from United States sources of foreign corporations not engaged in a trade or business in the United States, or not having an office or place of busiaess therein, remains at 15 percent, but dividends, which were formerly taxed at 10 percent, are now taxed at 15 percent, except where treaty obligations require otherwise. The personal exemptions for income tax purposes are reduced from $2,500 to $2,000 in the case of married persons and heads of families and from $1,000 to $800 in the case of single persons. Returns are required of every individual taxpayer having a gross income equal to his personal exemption; of every estate having a gross income of $800 or over; and of every trust having a gross income of $800 or more or a net income $100 or more. Title I I makes certain temporary changes which are to be effective for five years. All Federal taxes are increased, generally by 10 percent, except (1) those of a regulatory nature, (2) excise taxes on imports, (3) taxes levied under the social security program, (4) taxes on communication facilities, and (5) taxes on tobacco and tobacco, products, other than on cigarettes. The increased taxes made under title 269677—41 rll 140 REPORT OF T H E SECRETARY OF T H E TREASUIRY I I are designated as "defense taxes" and the revenue raised thereby will be applied to retirement of the National Defense Series of obligations authorized by title I I I . The income tax payable by individuals or corporations including the surtax on personal holding companies is increased by 10 percent for taxable years beginning after December 31, 1939, and before January 1, 1945. In the case of an individual taxpayer whose income tax, computed without regard to the defense tax provisions, amounts to more than 50 percent of his net income, it is provided that his defense tax will not amount to more than 10 percent of his net income remaining after deduction of his income tax computed without regard to the defense tax provisions. The rates of the excess-profits, capital stock, estate, and gift taxes and of the excise tax on transfers to avoid income tax are increased by 10 percent, effective for the following periods: In the case of the excess-profits tax, for any taxable year ending after June 30, 1940, and before July 1, 1945; capital stock tax, for the year ending June 30, 1940, and for the 4 succeeding years ending June 30; estate tax, from the date of enactment of the Revenue Act of 1940 to the expiration of 5 years thereafter; gift tax, for the calendar years 1940 to 1945, both inclusive, the increase to affect only gifts made after the date of enactment of the act; transfers to avoid income tax, from the date of enactment of the act up to July 1, 1945. The rates of tax on cigarettes, distilled spirits, beer, and wines are increased, and floor stocks taxes equal to the difference between the old and new rate are imposed with respect to all of those products except wines. The floor stocks taxes on distilled spirits and cigarettes are applicable to retailers as well as to manufacturers and wholesalers, except that stocks of spirits of 100 gallons or less held on exclusively retail premises are exempt; the floor stocks tax on beer is not applicable to retailers. The act provides that the temporary import and excise duties which were to expire or have their rates reduced in 1941 are not to expire or have their rates reduced until 1945. The rates of miscellaneous excise taxes are increased, in amounts indicated by the table included as exhibit 34 B on page 458. The exemption from the admissions tax is reduced to 20 cents for the period from July 1, 1940, to June 30, 1945, after which time admissions of $3 or less will be exempt. Provision is made for increasing the amount of credit against the automobile tax on account of taxes previously paid on tires and tubes. The credit is increased to 2^ and 3)^ percent with respect to vehicles sold after June 30, 1940, and before July 1, 1945. Title I I I amended the Second Liberty Bond Act, as amended, to authorize the issuance of $4 billions of public debt obligations with maturities not exceeding 5 years, to be designated "National Defense REPORT OF THE SECRETARY OF T H E TREASURY 141 Series." I t also provides for the creation of a special fund into which is to be paid revenue estimated to be attributable to the increases in taxes made, and to the floor stocks taxes imposed, ,by title I I . Such fund is to be available only for the retirement of the National Defense Series obligations. Title IV amends the Public Salary Tax Act of 1939 with respect to income taxes on compensation received prior to January 1, 1939, for personal service as a State officer or employee, which compensation was paid directly or indirectly by the Federal Government. The amendment provides that if the tax on such compensation is paid with interest on or before March 15, 1941, no criminal penalty shall be imposed, and no addition to tax under sections 291 or 293 of the Internal Revenue Code shall be made, on account of the failure to make a return of such income or to pay the tax on it at the time when such return or payment was due. Government contracts jor naval vessels and aircrajt Public No. 671, " A n act to expedite national defense, and for other purposes," was approved June 28, 1940. Under the provisions of title I of this act contractors for the construction of naval vessels and Army or Navy aircraft are required to agree to pay into the Treasury proflt on such contracts in excess of 8 percent of the contract prices. Proflts in excess of 8.7 percent of the cost of performing such contracts are deemed to be profits in excess of 8 percent of the contract price. Formerly profits of 10 percent were allowed in the case of naval vessels and 12 percent in the case of Army and Navy aircraft. The contractor must further agree to make no subcontract in connection with construction of such vessels and aircraft unless the subcontractor agrees to the same profit-limiting conditions. The new profit-limiting provisions apply after the date of the enactment of the act and for the duration of the emergency proclaimed by the President on September 8, 1939. The act also exempts contracts or subcontracts where the award is less than $25,000 from any profit-limiting provisions. Formerly contracts and subcontracts where the award was less than $10,000 were exempt from the provisions limiting profits. I t is also provided that the cost of additional equipment and facilities necessary to the performance of contracts for the construction of naval vessels and Army and Navy aircraft during the emergency may be charged against the contracts. Any part of the cost thus charged against the contract goes to reduce the contract price for the purposes of the profit-limiting provisions. The Secretary of the Navy or Secretary of War, as the case may be, is to certify to the Commissioner of Internal Revenue the necessity and cost of such additional plant and equipment and the part of such cost to be charged against the contract. 142 REPORT OF THE SBGRETARY OF THE TREASURY Such certification is subject to regulations prescribed by the President, but is binding on the Commissioner unless he makes formal objection to the Secretary who made the certification within 5 days after receipt of the certification. A copy of title I of this act appears as exhibit 35 on page 458. Other revenue legislation Other laws affecting the internal revenue are as follows: Public No. 165, July 6, 1939, to extend the time within which the powers relating to the stabilization fund atid the alteration of the weight of the gold dollar may be exercised. Section 4 (b) exempts from tax the transfers of silver delivered to mints for coinage; see p. 455. Public No. 242, July 28, 1939, to amend the Bankruptcy Act with respect to railroads. Chapter XV, article VI, protects the Government's claims for taxes and customs duties from railroads whose aft'airs are adjusted under chapter XV, exempts from stamp tax the issuance and transfer of securities in carrying out a plan of adjustment, and provides that no income taxable under a Federal or State law shall be deemed to have been realized by reason of cancelation of a petitioner's indebtedness. Public No. 259, Aug. 4, 1939, amending the Merchant Marine and Shipping Acts to provide, among other things, for the nonrecognition of gain, for income tax purposes, on the transfer of an obsolete vessel to the Maritime Commission in return for an allowance for the construction of a new vessel, and to provide for the basis of such new vessel. Public No. 264, Aug. 4, 1939, to authorize the Commissioner of Internal Revenue to make certain allowances, for losses by leakage and evaporation upon withdrawal of packages of brandy or fruit spirits under certain conditions. Public No. 300, Aug. 7, 1939, to amend the act providing for the complete independence of the Philippine Islands, etc., relative to the export tax on articles shipped from the Philippines to the United States. Public No. 334, Aug. 7, 1939, amending section 2857 of the Internal Revenue Code, relative to books of rectifiers and wholesale'jdealers. PublicJ No. 400, Aug. 11, 1939, to provide for the refund or credit of the internal revenue tax paid on spirits, lost or rendered unmarketable by reason of the floods of 1936 and 1937, where such spirits were in the possession of the original taxpayer or rectifier for bottling or use in rectification under Government supervision as provided by law and regulations. REPORT OF T H E SECRETARY OF T H E TREASURY 143 Public Res. No. 61, April 12, 1940, extending the foreign trade agreement program for a further period of 3 years from June 12, 1940. Public Res. No. 81, June 11, 1940, providing for a more uniform coverage under the Railroad Retirement Acts of 1935 and 1937, the Carriers Taxing Act of 1937, and subsection B of chapter 9 of the Internal Revenue Code. Public No. 654, June 24, 1940, to amend sections 2803 (c) and 2903 of the Internal Revenue Code, relative to unused stamps, etc. Public No. 655, approved June 24, 1940, amends section 3030 (a) of the Internal Revenue Code, eliminating the tax on brandy and wine spirits used in the fortification of wine and substituting therefor an increase in the rates of tax on fortified wines. (See exhibit 36 on page 463.) Fiscal years 1933 to 1940 Important revenue legislation was enacted during each of the fiscal years 1933 through 1940. The first important revenue measure enacted during this period was contaiued in the National Industrial Recovery Act, approved June 16, 1933. This was followed by the Revenue Acts of 1934, 1935, 1936, 1937, 1938, 1939, and 1940. Taxes were also levied for special purposes under more than twenty other acts, some of which were subsequently amended. A discussion of the revenue acts and of the major laws enacted from 1933 to 1939 which affect Federal revenues will be found in the article beginniag on page 7. The details of the taxes imposed by these acts and other laws enacted since 1933, together with similar data for the period 1913 through 1932, appear in the exhibit beginniag on page 466. The general laws of the United States and parts of such laws relating exclusively to internal revenue in force on January 2, 1939, were codified and enacted into the Internal Revenue Code, approved February 10,1939. Thisisthefirst codification as absolute law of the Federal statutes relating to the internal revenue since the Revised Statutes of the United States approved June 22, 1874. I t supersedes, by repealing effective February 11, 1939, all laws codified thereia to the extent that they related to internal revenue, with appropriate savings clauses to preserve accrued liabilities and necessary enforcement machinery. ESTIMATES OF RECEIPTS The Secretary of the Treasury is required each year to prepare and submit ia his annual report to Congress estimates of the public revenue for the current fiscal year and for the fiscal year next ensuing 144 REPORT OF T H E SEiORETARY OF T H E TREASURY (Public No. 129, February 26, 1907) .jj These estimates are now made in December of each year. Inasmuch as the tax revenue from practically every major source is directly dependent, although in varying degree, upon business conditions during the period in respect of which the taxes are levied, it is necessary to forecast the general business situation for a period ending approximately 18 months later. This forecast is based upon the analysis of a wide variety of financial and other economic data and includes a forecast of the direction and the magnitude of the movements of industrial production, profits, security and commodity prices, employment, pay rolls, and other components of business activity. In view of the well-recognized uncertainty involved in forecasting the various phases of business activity, accentuated this year by the international situation, such forecasts, and the concomitant estimates of future revenues, may be revised from time to time to take account of changed economic conditions. Upon these business forecasts depend the estimates of the aggregate amounts of corporation and individual incomes as well as the distribution of such incomes among various income classes, and the volume of consumption of commodities upon which taxes are levied. Consideration must be given to the fact that changes in the various indicators of business activity are not refiected immediately or in direct proportion in the various sources of revenue. Thus, in periods of rising business activity profits and taxable incomes rise more than proportionately to the increase in the volume of business because of the relative inflexibility of certain costs. In addition, consideration is given to the fact that the increase in the amount of income tax collections which will result from a given increase in individual incomes is accentuated under a progressive rate schedule because not only is the individual taxpayer's income greater but also the taxpayer pays a larger percentage of the higher income as income tax. Changes in business conditions, in the amounts of income, and in the volume of consumption and importation of commodities are reflected more immediately in the receipts from some taxes than from others because of the variation in the method of coUection of the taxes. For example, many of the miscellaneous internal revenue taxes are collected each month on the tax liabilities of the previous month. However, collections from taxes such as the-^estate and gift taxes and the tax under the Federal Unemployment Tax Act, formerly title I X of the Social Security Act, are made upon liabilities of a much earlier period and therefore do not respond as promptly to changes in general business conditions. The lag between the time income is received by taxpayers and the time of receipt of income taxes based upon such incomes is particularly important in its effect upon total tax receipts in any given year. REPORT OF THE SEORETARY OF THE TREASURY 145 Thus, in general, the changes in incomes in the calendar year 1940 will not be reflected in income tax receipts until the income tax returns are flled on or before March 15, 1941. Because of the privilege of making quarterly installment payments of these tax liabilities, the collections will be received throughout the calendar year 1941, thus falling into the receipts of the flscal years 1941 and 1942. Hence the estimated current income tax receipts, both corporation and individual, for the flscal year 1941 are made up partly from payments on calendar year 1939 incomes and partly from payments on calendar year 1940 incomes. Similarly, flscal year 1942 estimates of income tax receipts include payments based upon the incomes of each of the calendar years 1940 and 1941. The revenue estimates in the table on page 147 contain an adjustment which has been made ia total receipts to reflect the changes brought about by the recent amendments to the Social Security Act. There has been created on the books of the Treasury the "Federal old-age and survivors insurance trust fund," to which was transferred on January 1, 1940, the amounts standing to the credit of the old-age reserve account. For the fiscal year 1941 and each subsequent fiscal year there is appropriated to the fund an amount equivalent to 100 percent of the taxes received under the Federal Insurance Contributions Act, with the proviso that the estimated administrative expenses of the Treasury and the Social Security Board with respect to the collection of taxes and the payments from the fund shall be repaid to the Treasury. In order to show the amount of revenue applicable to the general expenditures of the Government there has been deducted from total receipts a sum equivalent to the net appropriation to the Federal old-age and survivors insurance trust fund. For comparable purposes there has been deducted from total receipts in the fiscal year 1940 the amounts transferred to the old-age reserve account and to the Federal old-age and survivors insurance trust fund. The detailed analysis set forth below is based on total revenues and receipts and not on the net amount after adjustment. Total revenues and receipts, general and special accounts, are estimated (on daily Treasury statement basis, unrevised) in the amounts of $7,653 millions for the fiscal year 1941 and $8,972 millions for the fiscal year 1942. The estimated amoimt of total receipts in the fiscal year 1941 represents an increase of $1,728 millions over total receipts of $5,925 millions in the fiscal year 1940, while the estimated amount of total receipts in the fiscal year 1942 represents an increase of $1,319 millions over the estimated total receipts for the fiscal year 1941. Estimated receipts in the fiscal years 1941 and 1942 and actual receipts in the fiscal year 1940 are presented in summary form in the table on page 147. A more detailed tabulation of receipts and estimates is shown in table 23 beginning on page 696. 146 REPORT OF T H E SEiGRETARY OF T H E TOR-EASTJRY Fiscal year 19^.1 Total receipts in general and special accounts in the fiscal year 1941 are estimated at $7,653 millions. This total is $1,728 millions above actual total receipts of $5,925 millions in the fiscal year 1940. Net receipts—total receipts less the net appropriation for the Federal old-age and survivors insurance trust fund—are estimated at $7,013 millions, an increase of $1,626 millions over the comparable figure for the fiscal year 1940. The percentage distribution of total receipts is shown in the following table: Percentage distribution of total revenues and receipts i n the fiscal years 1940 and 1941 Actual 1940 Source Internal revenue: Income taxes Miscellaneous internal revenue taxes Employment taxes Total internal revenue Railroad Unemployment Insurance Act Customs Miscellaneous revenues and receipts Total • .. . - -.-- Estimated 1941 35.9 39.6 14.0 39.9 37.5 11.7 89.5 .1 5.9 4.5 89.1 .1 100.0 100.0 3.9 6.9 Each broad class of revenue with the exception of customs contributes to the estimated increase in the fiscal year 1941 over the fiscal year 1940. The principal increases come in income taxes and miscellaneous internal revenue. The increases are due both to increasing business activity and new tax legislation. The customs estimate is lowered because of the effect of the war on international trade. Income #axes.—Receipts from income taxes are estimated at $3,055 millions, an increase of $930 millions over actual receipts in the fiscal year 1940. Collections of current corporation and current individual income taxes in the fiscal year 1941 are derived from tax liabilities established in the calendar years 1939 and 1940, whereas fiscal year 1940 receipts depend upon the income levels of the calendar years 1938 and 1939. As the calendar year 1939 is common to both fiscal years, the increase in fiscal year 1941 receipts is attributable to a combination of (1) higher income levels estimated for the calendar year 1940 as compared to the calendar year 1938, and (2) the increased rates applicable to calendar year 1940 incomes because of changes in the Jaw. KEPORT O'F T H E SEiORETARY OF T H E TREAiSURY 147 Actual receipts in the fiscal year 1940 and estimated receipts in the fiscal years 1941 and 1942 [In millions of dollars] Actual 1940 General a n d special accounts 1. I n t e r n a l r e v e n u e : (1) I n c o m e taxes: Corporation, c u r r e n t . . . Individual, current B a c k income Excess-profits tax Declared value excess-profits U n j u s t e n r i c h m e n t tax Estimated 1942 1,443.0 1, 222. 0 255.0 106.0 24.0 5.0 2,092.0 1, 604.0 260 0 522 0 29 0 2 5 2,129. 6 -4.3 3,055. 0 4,509.5 2,125. 3 3,055. 0 4, 509. 5 132.7 330.9 29.2 624.1 608.1 38.7 446.7 149.3 166.8 317.3 31.3 810.5 691.9 36.2 623.5 193.4 193 4 341 7 32 8 839.5 716 6 40 0 666 4 198 9 T o t a l miscellaneous internal r e v e n u e (collection b a s i s ) . . . A d j u s t m e n t to daily T r e a s u r y s t a t e m e n t basis (unrevised) 2, 359. 6 -15.0 2,871.0 3, 029. 3 T o t a l miscellaneous i n t e r n a l r e v e n u e (daily T r e a s u r y s t a t e m e n t basis (unrevised)) 2, 344. 6 2,871.0 3, 029. 3 604. 7 107.5 667.5 88.4 725.3 91 1 712. 2 755.9 816 4 121.0 135. 3 144.9 T o t a l e m p l o y m e n t taxes (daily T r e a s u r y s t a t e m e n t basis (unrevised)) . . _ 833.2 891.2 961.3 T o t a l internal r e v e n u e (daily T r e a s u r y s t a t e m e n t basis (unrevised)) 5, 303.1 6, 817. 2 8, 500.1 4.9 348.6 6.8 302. 0 7.2 295.0 268. 2 527.2 169.4 1 . ..._ 18. 5 8.5 T o t a l income taxes (collection basis) .-. . A d j u s t m e n t to daily T r e a s u r y s t a t e m e n t basis ( u n r e v i s e d ) . T o t a l income taxes (daily T r e a s u r y staternent basis (unrevised)) (2) Miscellaneous internal r e v e n u e : C a p i t a l stock tax E s t a t e tax Gift tax . L i q u o r taxes -.Tobacco t a x e s . S t a m p taxes M a n u f a c t u r e r s ' excise taxes Miscellaneous taxes , (3) E m p l o y m e n t taxes: Taxes on e m p l o y m e n t b y other t h a n carriers: Federal I n s u r a n c e C o n t r i b u t i o n s A c t Federal U n e m p l o y m e n t T a x A c t ^ 958.3 891.8 252.6 Estimated 1941 Total Taxes on carriers a n d their employees (chap. 9, s u b c h a p . B of t h e I n t e r n a l E e v e n u e Code) 2. Railroad U n e m p l o y m e n t I n s u r a n c e Act (daily T r e a s u r y s t a t e m e n t basis (unrevised)) 3 C u s t o m s (daily T r e a s u r y s t a t e m e n t basis (unrevised)) 4. Miscellaneous revenues a n d receipts (daily T r e a s u r y s t a t e m e n t basis (unrevised)) T o t a l receipts, general a n d special accounts (daily T r e a s u r y s t a t e m e n t basis (unrevised)) . 5, 924. 8 7, 653. 2 8, 971. 7 Deduct: N e t a p p r o p r i a t i o n for Federal old-age a n d sm-vivors insurance t r u s t fund 1 representing an a m o u n t e q u a l to taxes collected a n d deposited u n d e r t h e Federal I n s u r a n c e C o n t r i b u t i o n s Act, less r e i m b u r s e m e n t to General F u n d for a d m i n i s t r a t i v e expenses. 537. 7 640. 3 696.3 N e t receipts, general a n d special accounts (daily T r e a s u r y s t a t e m e n t basis (unrevised)) . ._ 5, 387.1 7, 012. 9 8, 275. 4 1 Formerly old-age reserve account. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. 148 RETORT OE THE SEiCRETARY OF T H E TREAStFR-Y Current corporation income taxes are estimated to be $1,443 millions, an increase of $485 millions, or 51 percent over actual receipts in the fiscal year 1940. The two revenue acts passed in 1940 increased the corporation rate from the prevailing 16K-19 percent rates of the 1938 act to 22.1 percent plus a defense tax of 1.9 percent of net income for corporations with net incomes in excess of $25,000. The graduated rates of small corporations were increased 1 percent plus a defense tax of 10 percent of the basic tax by the Revenue Act of 1940, approved June 25, 1940. The increase due to these tax increases is offset to a minor extent by the allowance of a two-year loss carryover (only one year of which is effective in the calendar year 1940) and the full deduction against ordinary income of long-term capital losses, both provisions being part of the Revenue Act of 1939, but effective for the first time in the calendar year 1940. Current individual income tax collections are estimated at $1,222 millions, an increase of $330 millions, or 37 percent over the actual collections of the previous fiscal year. The Revenue Act of 1940 decreased personal exemptions by 20 percent, increased surtax rates on incomes from $6,000 to $100,000 and added a defense tax of 10 percent of the basic tax or net income after the basic tax, whichever is less. The Public Salary Tax Act which eliminated exemption of State and local governmental employees' salaries from Federal taxation was effective for years beginning after December 31, 1938. The fiscal year 1941 is the first year in which a full year's collections from this additional tax base will be received. ^ Back corporation and individual income taxes which reflect collections of delinquent liabilities of past years are estimated at $255 millions, an increase of $2 millions over the fiscal year 1940. Initial collections of the corporation excess-profits tax to be received in the fiscal year 1941, representing only partial collections of calendar year 1940 liabilities, are estimated to be $106 millions. The excess-profits tax, part of the Second Revenue Act of 1940, levies graduated rates from 25 percent on adjusted excess-profits net incomes of less than $20,000, to. 50 percent on adjusted excess-profits net incomes in excess of $500,000. Adjusted excess-profits net income is the difference between the excess-profits net income of the taxable year and the excess-profits credit plus $5,000. The excess-profits credit may be either (a) 8 percent of invested capital of the taxable year, or (b) 95 percent of the average base period (1936-1939) net income plus 8 percent of net capital additions or minus 6 percent of net capital reductions in the taxable year. In determining the average base period income, one deficit year may be treated as zero. Declared value excess-profits tax collections are estimated to amount to $24 millions, an increase of $6 millions over the preceding year. As in the case of the income tax, the increase is due to higher business RE'PORT OE T H E SECRETARY OF T H E TREASURY 149 levels estimated in the calendar year 1940 as compared to the calendar year 1938. The defense tax of 10 percent of the tax rate formerly in effect also contributes to the increase. Unjust enrichment taxes, which are currently back taxes principally based on liabilities incurred in the calendar year 1936, are estimated to decrease from $9 millions in the fiscal year 1940 to $5 millions, as the outstanding claims for these taxes have been decreased by collections. Miscellaneous internal revenue.—Total miscellaneous internal revenue receipts are estimated at $2,871 millions, a total of $526 millions above actual receipts in the fiscal year 1940. Most of the major sources of revenue in this group contribute tp the estimated increase. Capital stock tax receipts are estimated at $167 millions, an increase of $34 millions over the previous fiscal year. The increase represents a higher declaration of capital stock value because of increased earnings anticipated by corporations in the calendar year 1940 as compared with the calendar year 1939 and the defense rate increase of 10 percent. Estate tax collections in the fiscal year 1941 are estimated at $317 millions as compared with $331 millions in the fiscal year 1940. The 1940 collections included a large payment from one estate and allowance for the nonrecurrence of this item more than offset the estimated rising value of the property composing the estates on which taxes will be paid in the fiscal year 1941. The defense taxes on estates in the fiscal year 1941 are small for two reasons: First, because the act was approved June 25, 1940, just prior to the beginning of the fiscal year 1941, and second, because there is a fifteen-month interval between the date of death of a decedent and the due date for payment of the tax. Gift tax collections are estimated to be $31 millions, an increase of $2 miUions over collections of $29 millions in the fiscal year 1940. Liquor taxes are expected to produce $811 millions or $186 millions above actual receipts in the fiscal year 1940. Tobacco tax receipts are estimated at $692 millions, or $84 millions above actual receipts of $608 millions in the fiscal year 1940. The tax on cigarettes, including the fioor stocks tax, estimated to provide $614 millions, will bring most of the total revenues under this group as well as $81 millions of the increase. Stamp taxes are expected to bring $36 millions, or a decrease of $2 millions from actual receipts in the fiscal year 1940. Manufacturers' excise tax collections are estimated at $624 millions. Defense taxes are estimated to bring a large part of the estimated gain of $177 millions over actual collections in the fiscal year 1940. Each tax source within this group is estimated to show a gain over 1940, with gasoline showing the largest part of the rise. Miscellaneous tax collections are estimated at $193 millions, or $44 millions aboye fiscal year 1940 collections. 150 RE'PORT OF T H E SECRETAR;Y OF T H E TIIEASTJIRY Employment taxes.—Total employment taxes for the fiscal year 1941 are estimated at $891 millions, an increase of $58 millions over actual receipts of $833 millions in the fiscal year 1940. Receipts.under the Federal Insurance Contributions Act, formerly title VIII of the Social Security Act, are estimated at $668 millions. This is an increase of $63-millions over actual receipts of $605 millions in the fiscal year 1940, which, to date, is the highest fiscal year figure attained since taxes were first received under this act in 1937. Since the rates of tax are the same, the increase is the result of estimated higher levels of business activity plus the inclusion for the first full fiscal year of the net addition to the legal tax base resulting from the Social Security Act Amendments of 1939, approved August 10, 1939. The major changes in coverage under this act were the inclusions of service on American vessels, employees of member banks of the Federal Reserve System, individuals aged 65 and over, and the exclusion of certain groups of farm workers. Inasmuch as the inclusion of individuals aged 65 and over was made retroactive to January 1, 1939, taxes for five quarters were collected on this base in the fiscal year 1940. The other major changes in coverage became effective January 1, 1940, so that revenues from such coverage were included in the fiscal year 1940 receipts to the extent of only one quarter's liability. I t should be noted that the Social Security Act Amendments of 1939 prevented the 50 percent increase in rates on January 1, 1940, which would have applied to wages in the calendar years 1940, 1941, and 1942. Receipts from the Federal Unemployment Tax Act, formerly title I X of the Social Security Act, are expected to decline to $88 millions from actual receipts of $108 millions in the fiscal year 1940. The drop will be the first since taxes under this act and its predecessor were first received in 1936. The passage of the Social Security Act Amendments of 1939 is primarily responsible for the decline in revenues because it effected a decrease in coverage of individuals' wages, i. e., wages in excess of $3,000 a year, which more than offset an increase in coverage of employees. Another reason for the decline is the fact that railroad employees were removed from coverage under this act by the Railroad Unemployment Insurance Act which became effective July 1, 1939. The decline in the tax base is partly offset by an increase in the taxable compensation which has been forecast for the remainder of the base. Receipts from the Carriers Taxing Act of 1937 are estimated at. $135 millions. The increase, as compared to fiscal year 1940 receipts of $121 millions, is attributable only in. part to the higher level of railroad pay rolls in April 1940-March 1941, the period for. which liabilities are paid in the fiscal year 1941, as compared with pay rolls in the corresponding period^ of the previous year. The larger portion REPORT OF T H E SEiCRETARY OF T H E TREASURY 151 of the increase is due to the rise in the rate bf tax from 2% percent on both employees and employers to 3 percent on both employees and employers, effective January 1, 1940. Only one quarter's tax liabilities were collected at the 3 percent rate in the fiscal year 1940 as against the four quarters of the fiscal year 1941. Railroad Unemployment Insurance Act.—Receipts under this act are estimated at $7 millions, an increase of $2 millions over receipts in the fiscal year 1940. This act, which became effective July 1, 1939, was in effect throughout the fiscal year 1940, but because of the lag of one quarter in making payments of liabilities, receipts in 1940 included contributions covering only three quarters' liabilities as compared to four quarters' liabilities in the fiscal year 1941. The Railroad Unemployment Insurance Act requires carriers to pay contributions under 'it rather than under the Federal Insurance Contributions Act, as was the case prior to July 1, 1939. Customs.—Customs duties are expected to fall to $302 millions in the fiscal year 1941. This total represents a drop of $47 millions, or 13 percent, from the fiscal year 1940 level, which was unusually high, in the light of the state of foreign affairs, principally because of large imports of sugar, liquors, and wool. Miscellaneous revenues and receipts.—These are estimated at $527 millions in 1941. The increase of $259 millions over 1940 is accounted for principally by the repayment of $300 millions of capital funds by Government corporations. Fiscal year 191^2 Total receipts in general and special accounts in 1942 are estimated at $8,972 millions which is $1,319 millions above the estimated receipts of $7,653 millions in 1941. Income taxes.—Total income taxes, which wiU refiect for the first time the full effect of the revenue acts passed in 1940, are estimated to amount to $4,510 millions. This total represents an increase of $1,455 millions or 48 percent over the estimated collections in 1941 and $2,384 millions or 112 percent over actual receipts of $2,125 millions in 1940. The same factors responsible for the increase in receipts in 1941 as compared to 1940, increases in both business levels and tax rates, are accountable for the continuation of the increase in 1942. Current corporation income taxes are estimated to be $2,092 millions, an increase of 45 percent over 1941 estimated receipts, while current individual income tax collections are estimated to increase 31 percent to $1,604 millions. Back income tax;es are estimated to be $260 millions. Fiscal year 1942 collections of corporation excessprofits taxes, representing a full year's collections, are estimated at $522 millions, an increase of $416 millions over the estimate of 1941. 152 REPORT OF THE SEiORETA'RY OF THE TREASURY As a result of the estimated higher incomes, the declared value excess-profits tax collections are estimated at $29 millions, an increase of $5 millions over the preceding year. Unjust enrichment taxes are estimated to decline to $3 millions as the collections still further reduce the remaining claims for this back tax. Miscellaneous internal revenue.—Miscellaneous internal revenue receipts are estimated at $3,029 millions, an increase of $158 millions over estimated receipts in the fiscal year 1941. Each major classification of receipts shows an increase over the 1941 estimates. Estimated fiscal year 1942 receipts from the capital stock tax amounting to $193 millions reflect the effect of higher business levels estimated for the calendar year 1941 as compared to the calendar year 1940. Estate tax collections of $342 millions are expected in the fiscal year 1942, an increase over the fiscal year 1941, principally because a larger percentage of the estate taxes paid will have been subject to the defense tax as compared with those of the previous fiscal year; Collections from the gift tax are expected to be $33 millions as compared to $31 millions in the fiscal year 1941. Liquor tax collections are estimated at $840 millions, an increase of $29 millions over the fiscal year 1941 estimate. The gain takes place in spite of the nonrecurrence of $23 millions in floor stocks taxes applicable only in the fiscal year 1941. I t is estimated that collections from tobacco taxes will rise to $717 millions or $25 millions above the fiscal year 1941 estimates. While the floor stocks taxes on cigarettes are a nonrecurring item, this is the only item of this group which shows a decrease. Collections from stamp taxes are estimated at $40 millions, a gain of $4 millions over the estimate for the fiscal year 1941. Manufacturers' excise taxes are expected to advance to $666 millions. This is a gain of $43 millions over estimated 1941 collections. Each of the taxes in this group shows an increase over the estimates for 1941. Miscellaneous taxes are estimated at $199 millions, a figure $5 millions over the 1941 estimate. The only significant decrease in this group is in the tax on bituminous coal, which is scheduled to expire April 26, 1941. Employment taxes.—Employment taxes receipts are estimated at $961 millions, an increase of $70 millions over estimated receipts in the fiscal year 1941. Receipts under the f'ederal Insurance Contributions Act, formerly title VIII of the Social Security Act, are estimated at $725 millions. REPORT OF THE SEiORETARY OF T H E TREASURY 153 The increases of $121 millions over actual receipts of $605 milllions iu the fiscal year 1940, and of $58 millions over estimated receipts of $668 millions in the fiscal year 1941 are largely the result of substantial increases in the forecast of taxable pay rolls. The increase over the fiscal year 1940 is accounted for by the fact that the latter year included receipts of only one quarter's liabilities from the groups brought under the act by the Social Security Act Amendments of 1939. The fiscal year 1940 did, however, include receipts from five quarters' liabilities from individuals aged 65 and over as compared to four quarters in later years, but the net effect is a large increase in the tax base since the fiscal year 1940. Receipts from the Federal Unemployment Tax Act, formerly title I X of the Social Security Act, are expected to increase slightly from $88 millions in the fiscal year 1941 to $91 millions. Prior to July 1, 1939, when the Railroad Unemployment Insurance Act placed employees of railroads under a separate unemployment compensation system, such tax liabilities of railroads were included under the Federal Unemployment Tax Act. Tax liabilities occurring in the calendar year 1939 were payable in the calendar year 1940, and therefore the receipts in the first six months of the fiscal year 1941, July through December 1940, refiect some of the tax liability now transferred entirely to the Railroad Unemployment Insurance Act. This decrease in the legal tax base in the fiscal year 1942 as compared to 1941 has been more than compensated by a forecast rise in income taxable under this act. . Receipts under the Carriers Taxing Act of 1937 are estimated at $145 millions as. compared to $135 millions in the fiscal year 1941. The entire increase is attributable to the increased railroad pay rolls which are expected to follow the forecast expansion of industrial activity since there have been no changes in the act. Railroad Unemployment Insurance Act.—The receipts under the Railroad Unemployment Insurance Act are expected to increase slightly from $6.8 millions in the fiscal year 1941 to $7.2 millions. Customs.—Receipts from customs duties are estimated to decrease slightly from the level of 1941, to $295 millions. The decline is small because larger imports from areas not affected by hostilities are expected to somewhat offset further decline in imports from countries whence imports are cut off. Miscellaneous revenues and receipts.—Miscellaneous revenues and receipts are estimated at $169 millions, a decrease of $358 millions from estimated receipts in the fiscal year 1941. This decrease is accounted for principally by the fact that the 1941 receipts included $300 millions of repayments of capital funds by Government corporations. 154 REPORT OF T H E SEGRETARY ESTIMATES OF OF T H E TREASURY EXPENDITURES Actual expenditures for the fiscal year 1940 and estimates for the fiscal years 1941 and 1942 are summarized in the following table. Further details will be found in table 23 beginning on page 696. The estimates are based upon figures submitted to the Congress in the Budget for 1942. Actual expenditures for the fiscal year 1940 and estimated expenditures for the fiscal years 1941 and 1942 [In millions of dollars] General and special accounts Actual 1940 Estimated 1941 Estimated 1942 General (including recovery and relief). Revolving funds (net) •. Transfer to trust accounts, etc Debt retirements , 736.4 53.9 207.9 129.2 12, 526. 6 216.2 100.0 15,111.5 9.5 274.6 100.0 Total, exclusive of special items. Supplemental items: Regular National defense Work relief , 127.4 12, 702.4 15, 495. 5 150.0 100.0 350.0 100.0 1, 000. 0 990.0 13,302.4 17,585. 5 Grand total, general and special accounts. a Excess of credits, deduct. NOTE.—Figures are rounded to nearest tenth of a million and will not necessarily add to totals. TREASURY ACTIVITIES UNDER T H E OLD-AGE P R O V I S I O N S OF SOCIAL S E C U R I T Y ACT, FISCAL YEARS 1936 T O 1940 THE Title I I of the Social Security Act, approved August 14, 1935, established a system of Federal old-age benefits payable after December 31, 1941, to employees in covered industries who thereafter attained the age of 65. Death benefits and lump sum payments to employees attaining age 65, but not eligible for annuity benefits, were payable from January 1, 1937. Title VIII of the act levied an income tax upon the wages of employees and an excise tax on employers. These taxes were collected b y the Bureau of Internal Revenue under the direction of the Secretary of the Treasury. Section 201 (a) of the act established an account in the Treasury to be known as the ^^Old-Age Reserve Account," and there was authorized to be appropriated to the account for each fiscal year beginning with 1937 '^an amount sufficient as an annual premium to provide for the payments required under this title," and ^*to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 per centum per annum compounded annually." The Secretary of the Treasury was required to submit annually to the Bureau of the Budget estimates of the appropriations to be made to this account. REPORT OF THE SEORETARY OF THE TREASURY 155 Under these provisions of the law, appropriations to the old-age reserve account were not required to equal the amount of taxes levied and collected under title VIII, though in practice these appropriations were approximately equivalent to taxes collected less an allowance for administrative expenses. This procedure was predicated upon the approximate correspondence, on a 3 percent reserve basis, between taxes levied under title VIII and benefits specified under title I I , as determined in accordance with section 201 (f) of the act. This section required that ^^The Secretary of the Treasury shall include in his annual report the actuarial status of the Account." The term ''actuarial status" was interpreted to mean a comparison of future benefit payments with funds on hand plus future income of the account. The annual reports of the Secretary of the Treasury for the the fiscal years 1937 (page 49) and 1938 (page 55) describe the methods and results of this comparison. These reports point out the considerable margin of error inherent in calculations of this nature, since they must necessarily involve assumptions as to future mortality rates, wage levels, population growth, coverage under insured employment, and rates of retirement. I t was also the duty of the Secretary of the Treasury to invest such portions of the amounts credited to the account as were not, in his judgment, required to meet current benefit payments. These investments were made solely in 3 percent special Treasury notes, authorized under an extension of the purposes for which obligations of the United States may be issued under the Second Liberty Bond Act, as amended. Interest on investments was credited to and formed a part of the account. All amounts credited to the account were available for making payments required under title I I of the act. The Secretary of the Treasury made all benefit payments from the account in accordance with certifications by the Social Security Board. The Social Security Act was amended by an act approved August 10, 1939, the amendments to become effective on January 1, 1940 (see exhibit 53 on page 578, and the discussion on page 212). During the first 6 months of the fiscal year 1940, the financing of the program continued to operate under the provisions of the original act. On January 1, 1940, the balance to the credit of the old-age reserve account was transferred to the Federal old-age and survivors insurance, trust fund, created by the amending act. Operations under the old-age reserve account have been shown in the annual reports for 1937 to 1939, and are summarized in the following table. 269677—41——12 156 REPORT OF T H E SEiCRETARY OF T H E TREASUORY Receipts, expenditures, and assets of the old-age reserve account for specified periods, J a n . 1, 1937, to Dec. 3 1 , 1939 i [In thousands of dollars] J a n . 1, 1937, to D e c . 31, 1939 Item J a n . 1, 1937, t o J u n e 30, 19.37 J u l y 1, 1937, to J u n e 30, 1938 J u l y 1, 1938 to, J u n e 30, 1939 J u l y 1, 1939, t o D e c . 31, 1939 Receipts: A p p r o p r i a t i o n s b y Congress I n t e r e s t on i n v e s t m e n t s 1,705,000 44, 625 265,000 2,262 2 500,000 15, 412 390,000 26,951 T o t a l receipts E x p e n d i t u r e s : Benefit p a y m e n t s 1, 749, 625 25, 228 267, 262 27 515,412 5,404 416, 951 13,892 . N e t a d d i t i o n to a c c o u n t - Balance a t beginning of period 1, 724, 397 267, 235 510,008 267, 235 403,059 777, 243 544,095 1,180, 302 1, 724, 397 267, 235 777, 243 1,180, 302 1, 724,397 Assets (at e n d of period): I n vestments—3 % special T r e a s u r y notes m a t u r i n g J u n e 30, 1941 J u n e 30, 1942.. J u n e 30,1943.. J u n e 30, 1944 264,900 2,200 264,900 382,000 15, 400 264,900 382,000 497, 400 32,900 264, 900 382,000 497, 400 290,900 267,100 662, 300 1,177, 200 1, 435, 200 62 73 113,012 1,931 66 3,036 282,068 7,129 267, 235 777, 243 1,180, 302 1, 724, 397 B a l a n c e a t e n d of period U n e x p e n d e d balances: T o credit of fund account T o credit of disbursing oflBcer . _. T o t a l assets (at e n d of period) 3 550,000 550,000 5,905 1 On basis of daily Treasury statements (unrevised), see p. 683. 2 $113,000,000 of this amount was not transferred until the fiscal year 1939. 3 $282,000,000 of this amount was not transferred until the second half of the fiscal year 1940. Under the amended act, the Secretary of the Treasury is no longer required to report on the actuarial status of the trust fund. This is now a function of the Board of Trustees, whose first annual report to the Congress is to be made on the first day of the regular session in 1941. A statement of the operations under the trust fund for the second half of the fiscal year 1940 is shown in the following table. Operations for the complete fiscal year 1940, which were conducted under both the old-age reserve account and the trust fund, are given on page 212 of this report. Receipts, expenditures, and assets of the old-age and survivors insurance trust fund, J a n . 1, 1940, to J u n e 30, 1940 ^ [In thousands of dollars] Receipts: Transfers from the old-age reserve account (Jan. 1, 1940): Investments To credit of fund account To credit of disbursing oflScer _. Interest on investments.. Total receipts _ Expenditures: Benefit payments Reimbursement for administrative expenses 1,435,200 282,068 7,129 1,724,397 42,489 1,766,886 ".. 9,900 12,288 22,188 Balance on June 30, 1940 Assets on June 30, 1940: 3 % special Treasury notes. 2J^% special Treasury notes Unexpended balances Total assets on June 30,1940....: » On basis of daily Treasury statements (unrevised), see p. 583. 1,744,698 1,413,200 324,900 6,598 1,744,698" RE'PORT OF THE SEORETARY OF THE TREASURY 157 NEUTRALITY AND NATIONAL DEFENSE ACTIVITIES After the outbreak of European hostilities on September 3, 1939, existing activities of the Treasury Department concerned with the preservation of our neutrality and the strengthening of the national defense were augmented by provisions of the President's neutrality proclamation and Executive Order No. 8233 of September 5 and of the proclamations of September 5 and 8. From time to time related duties were imposed. All the activities derive from basic statutory functions of the Secretary of the Treasury for the administration and enforcement of certain laws, performance of other public services, and for the management of the national finances. The responsibilities relate to the acquiring of supplies, equipment, and materials required for preparation of the national defense, the guarding of our coastal, boundaries, the prevention of various kinds of unneutral acts, and supervision of certain fiscal matters. Strategic and critical materials Strategic and critical materials were purchased during the year, to supply the industrial, military, and naval needs of the country for defense. Acquisitions are made at the direction of the Secretary of War and the Secretary of the Navy, by the Secretary of the Treasury through the medium of the Procurement Division, in accordance with specifications prepared by that Division and approved by the Secretary of War and the Secretary of the Navy. Determination of which materials are strategic and critical and the quality and quantities which shall be purchased is made by the Secretary of War, the Secretary of the Navy, and the Secretary of the Interior acting jointly through the Army and Navy Munitions Board. In accordance with the. law the Secretary of the Treasury designated as his representative the Director of Procurement to cooperate in making such determination. Authority for procurement of these materials by the Treasury Department is contained in the act of June 7, 1939 (Public No. 117), an act to provide for the common defense by acquiring stocks of strategic and critical materials essential to the needs of industry for the manufacture of supplies for the armed forces and the civilian population in time of a national emergency, and to encourage further development of the materials within the United States. Under the date of August 9, 1939, Congress appropriated $10,000,000 for this purpose. On March 25, 1940, an additional sum of $12,500,000 was appropriated, of which $3,000,000 was made immediately available, thus making a total of $13,000,000 available for expenditure during the fiscal year 1940. A statement of the obligations incurred as of June 30, 1940, follows. 158 RE'POKT OF T'HE SBCRETA'EY OF T H E TREASTJIEY Status of the strategic and critical materials program as of J u n e 30, 1940 Material Quantity ordered Source 64, 500 L. T. Total Cuba -Philippines.-. United States South Africa and British India. Manganese ore Total-Manila fiber. . Optical glass Quartz crystals..-. Quinine sulphate... .Philippines United States . Brazil Dutch East Indies —. Bolivia (refined United States). China. Straits Settlements Tin (pig) 86, 500 L. T. ._ 14,800 bales 11,400 pounds 14,800 pounds 700,000 ounces in China $2,168, 668. 24 20,^07 L. T. 27,500 L. T. 31, 500 L. T. 7, 500 L. T. 20,000L. T. 2,889,000.00 100 S. T. 5,924 S.T. 425 S. T. 6,081, 328. 00 3,630 S. T. 500, 444. 56 448 S. T. Total obligated for material. Administrative expenses Contingent expenses (advances and transfers to other agencies). 12, 400,142. 00 Total amount obligated. Unobligated balance of allotment. 12, 578, 728. 00 Total allotment 46,350 L. T. 245,921. 20 10,200 bales. 1 6, 200.00 99, 580.00 4,179 pounds. 409,000. 00 700,000 ounces. 100 S. T. 6,124 S.T. Total Tungsten ore Quantity delivered 20, 000 L. T. 25,000L. T. 19, 500 L. T. Turkey Alaska Rhodesia Chrome ore Amount obligated 9,066. 00 169, 520. 00 421, 272. 00 13, 000, 000. 00 1 In addition to $73,800 advanced to Bureau of Standards for manufacturing. The materials acquired under this program are stored on Army and Navy bases, as provided in the act. Rotation of the materials, in order to prevent deterioration, as provided for in the act, was unnecessary in the first year of the program. Coordination oj joreign and domestic military purchases By direction of the President, the Secretary of the Treasury is the President's personal representative in matters relating to purchases of war materials by foreign sources. An Assistant to the Secretary is a member, by appointment of the President, of the Interdepartmental Committee for Coordination of Foreign and Domestic Military Purchases, which was appointed on December 6, 1939. Liaison between the President and the Committee is effected through the Secretary of the Treasury. The Committee serves as the exclusive liaison with reference to procurement matters between the United States Government and interested foreign governments. The requirements of such foreign governments with regard to war supplies, equipment, and materials REPORT OF T H E SEIORETARY OF T H E TREASURY 159 are considered by the Committee in relation to availability, priority, and prices of the desired articles. An important part of the Committee's function is to prevent confiict in United States markets between such foreign requirements and the requirements of the United States Government and its citizens. Munitions control The Secretary of the Treasury serves as a member of the National Munitions Control Board, which supervises and controls, tlirough a system of registration and licenses, the manufacture of, and international traffic in, arms, ammunition, and implements of war. The Board was established by the joint resolution approved August 31, 1935, and continued by the Neutrality Act of November 4, 1939 (Public Resolution No. 54), which repealed the joint resolution of August 31, 1935, as amended. During the fiscal year 1940 the Coast Guard and the Customs Service continued to cooperate in assisting the Department of State, in whose administration the licensing system is vested, in the control of international trafl&c in arms. Regulation and control oj vessels The Customs Service in cooperation with the Coast Guard assisted other departments in preventing outgoing merchant vessels from carrying passengers or cargo contrary to the provisions of the Neutrality Act and regulations. Cooperation was given also by both agencies in preventing unauthorized travel by United States citizens on United States ships and on vessels of belligerents, and in the detection of espionage and sabotage. i The Customs Service assisted the Department of State in the enforcement of passport regulations. Upon an order of the State Department declaring all passports issued by the United States Government invalid unless first validated by the State Department on or after September 4, 1939, Customs officers were stationed at departing vessels to examine passports of travelers going to Europe and to take from such travelers United States passports not so validated. Merchandise being exported, and documents relating thereto, were examined to insure compliance with the requirements of the Neutrality Act regarding transfer of title. In certain circumstances, depending upon the nature and destination of the merchandise and the nationality of the vessel transporting it, merchandise cannot be exported until all right, title, and interest therein has been transferred to the foreign purchaser. The use of United States vessels for certain types of exportations is forbidden. The enforcement of these and other provisions of the Neutrality Act and regulations has increased and mad§ 160 REPORT OF T H E .SECRETARY OF T H E TREASURY more complex the work of the Customs Service in connection with the exportation of merchandise. The Customs Service and the Coast Guard cooperated in determining whether armament borne by merchant vessels was for defensive or for offensive purposes. Following passage of the Neutrality Act of May 1, 1937 (Public Res. No. 27), since superseded by the Neutrality Act of November 4, 1939, the Coast Guard conducted continuous vessel and aircraft patrols of the coasts and harbors of the United States, its Territories and possessions, and maintained surveillance over certain merchant shipping, both foreign and domestic, off the coasts and within the territorial waters of the United States. This involved primarily the identification and maintenance of a daily record of all foreign merchant vessels adjacent to the coasts of the United States as well as within its territorial waters and harbors; the sealing of the radio apparatus on merchant vessels of belligerent countries while within the jurisdiction of the United States to prevent unauthorized transmissions, and the responsibility for the security of the seals placed on such apparatus; supervision through formally designated captains of the ports over vessels lading and discharging explosives and other dangerous cargo and control of the movement and anchorage of such vessels within the harbors and waters of the United States. Any control necessary with respect to vessels of war in territorial waters or ports of the United States was exercised by the United States Navy, to which the full cooperation of the Coast Guard and the Customs Service was extended. The exercise of statutory powers with respect to control of foreign and domestic vessels in United States harbors and waters, vested in the Secretary of the Treasury and the Governor of the Panama Canal by section 1 of title I I of the so-called Espionage Act, approved June 15, 1917, was made possible by the proclamation of the President on June 27, 1940. A copy of this proclamation is shown on page 579. Regulations to carry out the provisions of the proclamation were issued by the Secretary of the Treasury, with the approval of the President on June 27, 1940 (5 Fed. Reg. 2442, D. I.), and an Oflace of Merchant Ship Control was established as an integral part of the OflSce of Operations, Coast Guard Headquarters, under the Commandant of the Coast Guard. Cooperation is given by the Customs Service. Those regulations were supplemented in considerable detail on October 29, 1940. The function of the OflB.ce of Merchant Ship Control is twofold. First, departure of vessels from any port or place in the United States, or subject to the jurisdiction of the United States, on voyages on which clearance by a customs oflScer is required, must be authorized by the Secretary of the Treasury through the principal customs officer RE'POBT OF THE SEICHETARY OF THE: TREASURY 161 in charge of the port of departure. Second, control is strengthened over the anchorage and movement of vessels in the United States harbors. Movement of any vessels within the area of a port and the movement, lading, and discharging of explosives and other dangerous cargo are under the supervision and control of the captain of the port or, where the port has no such officer, of an officer of the Coast Guard or of the Customs Service designated by the Secretary. The captain of the port or other officer designated is authorized to have inspected and searched any vessel within the territorial waters of the United States, or any person or package thereon, to place guards upon such vessels, and to remove any or all persons not authorized to go or to remain on board. The collector of customs, through the captain of the port or other agency acting for the collector, subject to the approval of the Secretary, is directed to take full possession and control of any vessel in such waters to secure such vessels from damage or injury, or to prevent damage or injury to any harbors or waters of the United States. Licensing of small craft operating in the harbors or waters of any ports of entry may be required by the Secretary, such licenses to be granted by the collector of customs. Credits to belligerents On September 6, 1939, the President issued a regulation excepting from the operation of the section of the Neutrality Act relating to financial transactions (sec. 3 of the joint resolution approved May 1, 1937), as made applicable to the various belligerents by the proclamation of September 5, 1939, '^ordinary commercial credits and shorttime obligations in aid of legal transactions and of a character customarily used in normal peacetime commercial transactions." That regulation authorized the Secretary of the Treasury to administer the provisions thereof and to promulgate any necessary rules and regulations. A number of questions arising in connection with the provisions of the regulation of the President were handled by the Treasury Department. The regulation expired on November 4, 1939, with the enactment of the Neutrality Act of 1939. Foreign junds control The foreign funds control was established in April 1940. Pursuant to section 5 (b) of the act of October 6, 1917 (40 Stat. 411), as amended. Executive Order No. 8389 was issued by the President on April 10, 1940. This order so amended a previous order. Executive Order No. 6560 of January 15, 1934, as to prohibit, except under license, certain transactions involving property in which Norway or Denmark, or any national thereof, has any interest. The prohibited transactions con 162 RE'POKT OF T H E SEiCRETARY OF T H E T'REASUiRY sist of transfers of credit between banking institutions within the United States and transfers of credit between banking institutions within the United States and banking institutions outside the United States; payments by or to banking institutions within the United States; transactions in foreign exchange by any person within the United States; the export or withdrawal from the United States or the earmarking of gold or silver coin or bullion or currency by any person within the United States; transfers, withdrawals, or exportations of, or dealings in, any evidences of indebtedness or evidences of ownership of property by any person within the United States; and transactions for the purpose, or which have the effect, of evading or avoiding the foregoing prohibitions. Public Resolution No. 69, approved May 7, 1940, amending section 5 (b) of the act of October 6, 1917, appears as exhibit 40 on page 538. On May 10 and June 17, 1940, the Executive order of April 10 was amended to extend the provisions thereof to and with respect to property in which the Netherlands, Belgium, Luxembourg, and France, or any national thereof, have any interest. The Executive orders of April 10, May 10, and June 17, 1940, appear as exhibit 41 on page 538. Pursuant to the Executive order of April 10, 1940, as amended, and the regulations issued thereunder, reports are required with respect to all property situated in the United States in which any of the countries named in the Executive order, or nationals thereof, had an interest on the indicated date. The regulations set up a procedure for the filing of applications for licenses to engage in transactions covered by the Executive order. Such applications are filed with the Treasury Department through the various Federal Reserve Banks and the Governors and High Commissioners of the Territories and possessions of the United States. The Regulations of May 10, 1940, appear as exhibit 42 on page 542. Fiscal matters In connection with fiscal matters relating to the national defense, the Treasury has certain additional duties under the Revenue Act of 1940, an act to provide for the expenses of national preparedness by raising revenue and issuing bonds. That act, approved June 25, 1940 (Public No. 656), amending the Second Liberty Bond Act, as amended, authorized the Secretary of the Treasury to issue, subject to certain requirements, obligations not to exceed in the aggregate $4 billions outstanding at any one time, less any retirements made from the special fund made available under section 301 of the act, in order to provide the Treasury with funds to meet any expenditures for the national defense made after June 30, 1940, or to reimburse the General Fund of the Treasury therefor. ; REPORT OF THE SEiCRETARY OF THE TREASURY 163 By the terms of title I I I of the Revenue Act of 1940, the Secretary of the Treasury is directed, at the end of each quarter, to determine the additional amount of taxes collected attributable to the increases in taxes, with certain exceptions, and to set aside the amounts so determined as a special fund for retiring any obligations issued pursuant to the authority contained in section 21 (b) of the Second Liberty Bond Act, as amended. If at any time the amounts in the fund are not sufficient for such purpose, the Secretary of the Treasury is directed to transfer to the fund moneys out of the General Fund of the Treasury. Any amounts in the special fund not necessary for the retirement of such obligations shall be deposited in the General Fund of the Treasury. CHANGES IN ORGANIZATION AND PROCEDURE Reorganization Plans Nos. I l l and IV, which became effective June 30, 1940, in accordance with Public Resolution No. 75, approved June 4, 1940, made various changes in the organization of the Treasury Department. Reorganization Plan No. I l l consolidated into a Fiscal Service, under the direction of a permanent Fiscal Assistant Secretary, the functions of the Treasury Department pertaining to financing and fiscal activities. There were brought together in the Fiscal Service the OflBce of the Commissioner of Accounts and Deposits and the Office of the Commissioner of the Public Debt, including their various subdivisions, the Division of Savings Bonds, and the Office of the Treasurer of the United States. These activities, together with the Office of the Comptroller of the Currency, were at the time of transfer under the supervision of the Under Secretary, such assignment having been made effective January 18, 1940, by Treasury Department Order No. 28. Reorganization Plan No. I l l also made some adjustments in the assignment of functions of the units comprising the Fiscal Service and certain changes in titles, the net effect of which was to establish within the Fiscal Service the Office of the Fiscal Assistant Secretary, the Office of the Treasurer of the United States, a Bureau of Accounts under the Commissioner of Accounts, and a Bureau of the Public Debt under the Commissioner of the Public Debt. In addition to responsibility for the administration of these four segments of the Department's operations, the Fiscal Assistant Secretary was vested with the former financing functions of the Under Secretary of the Treasury and the Assistant Secretaries. The Fiscal Assistant Secretary will be appointed by the Secretary of the Treasury in accordance with civil service laws and will perform his duties under the general direction of the Secretary. One of the three existing positions of Assistant Secretary was abolished by the plan. 164 REPORT OF T H E SEICRETARY OF T H E TR.EASUIRY Reorganization Plan No. I l l also abolished the Federal Alcohol Administration and provided that its functions be administered under the direction and supervision of the Secretary of the Treasury through the Bureau of Internal Revenue. Under Treasury Department Order No. 30, June 12, 1940, the Basic Permit and Trade Practice Division, in charge of an Assistant Deputy Commissioner of Internal Revenue, was established on June 30, 1940, and derived the personnel, records, and property by transfer from the Federal Alcohol Administration. All functions of the Federal Alcohol Administration, except as provided in Treasury Department Order No. 31, were delegated to the Deputy Commissioner of Internal Revenue in charge of the Alcohol Tax Unit, to be exercised by him through the Basic Permit and Trade Practice Division or any other division of the Unit. All regulations, orders, instructions, and forms formerly issued by the Federal Alcohol Administration for the enforcement of the laws theretofore administered by the Administration were effective as if issued by the Alcohol Tax Unit. The legal functions, personnel, and property connected with the legal activities of the Federal Alcohol Administration were transferred to the Legal Division of the Treasury Department, effective on June 30, 1940, by Treasury Department Order No. 31, June 12, 1940. Reorganization Plan No. IV, effective June 30, 1940, transferred to the Secretary of the Treasury the functions of the Attorney General relating to the approval of compromises made in accordance with the provisions of section 7 of the Federal Alcohol Administration Act (with the exception of compromise cases pending in the courts or which had been or may be referred to the Department of Justice for action). The functions of foreign funds control under the provisions of Executive Order No. 8389 of April 10, 1940, as amended, were placed in the Office of the Secretary under the supervision of an Assistant to the Secretary. A Division of Personnel, under the Director of Personnel, was established in the Office of the Secretary on July 1, 1940, by Treasury Department Order No. 32, June 25, 1940, in accordance with Executive Order No. 7916, June 24, 1938, and the 1941 Treasury Department Appropriation Act. The general functions of the Division are to give effect to the Department's responsibility for personnel supervision under the provisions of the Executive order. The Division of Appointments and the office of Classification Officer, Treasury Department, were consolidated with the Division of Personnel, and their respective functions, personnel, etc., were transferred to the Personnel Division. During the year various changes were made by Treasury Department orders in assignments for purposes of general supervision of REPORT OF T H E SECRETARY OF T H E TREASURY 165 Treasury activities. The Coast Guard, Bureau of Narcotics, and Secret Service Division were assigned to an Assistant Secretary, to whom were also to report the coordinator of the enforcement branches of the Treasury and the Committee on Enrollment and Disbarment. The Bureau of Customs was assigned to an Assistant to the Secretary but this assignment was transferred at the beginning of the fiscal year 1941 to the Assistant Secretary in charge of Coast Guard, Narcotics, and Secret Service. The Procurement Division, Bureau of Engraving and Printing, and the Bureau of the Mint were assigned to an Assistant to the Secretary. The Administrative Assistant to the Secretary was charged with the direction and control of the activities of departmental and bureau officers in all matters relating to obtaining or releasing quarters for agencies of the Treasury Department in the District of Columbia and in the field, whether in Federal or privately owned buildings. The assignments in effect on June 30, 1940, are shown in Department Circular No. 244, June 28, 1940. Copies of the extracts from the reorganization plans, legislation. Treasury orders, department circular, etc., referred to above, will be found as exhibits 44 to 51, beginning on page 555 of this report. Attention is invited to the attached reports of bureaus and divisions of the Treasury Department and to the exhibits and tables accompanying the report on the finances. H E N R Y MORGENTHAU, Jr., Secretary oj the Treasury. To the SPEAKER OF THE H O U S E OF REPRESENTATIVES. REPORTS OF BUREAUS AND DIVISIONS ADMINISTRATIVE 167 OFFICE OF THE COMMISSIONER OF ACCOUNTS AND DEPOSITS Under the provisions of the President's Reorganization Plan No. I l l , which became effective on June 30, 1940, the Bureau of Accounts, headed by the Commissioner of Accounts, was established as a part of the new Fiscal Service of the Treasury Department. The Bureau oi Accounts replaced the Office of the Commissioner of Accounts and Deposits. The plan provides that the supervision of the administration of the accounting functions and activities in the Treasury Department and all its bureaus, divisions, and offices shall be exercised under the direction of the Secretary of the Treasury by the Fiscal Assistant Secretary through the Commissioner of Accounts. The plan further provides that the function of authorizing the installation, maintenance, revision, and elimination of accounting records, reports, and procedures in the Treasury Department (except the Coast Guard) shall be exercised by the Fiscal Assistant Secretary through the Commissioner of Accounts. During 1940 the Office of the Commissioner of Accounts and Deposits had administrative supervision over the Division of Bookkeeping and Warrants and its relation to the office of the Treasurer of the United States, over the Division of Disbursement, the Division of Deposits, and the Section of Surety Bonds. I t supervised collections of principal and interest on foreign obligations; kept the accounts, and handled generally matters relating to the indebtedness of foreign governments to the United States, including matters arising under funding agreements; supervised collections of railroad obligations owned by the Government, and kept the accounts relating thereto; handled the collection of other obligations owned by the United States which were turned over to the Treasury by other departments for collection; and made payments, kept accounts, and handled matters generally relating to awards under the Settlement of War Claims Act of 1928, under the claims agreement of October 25, 1934, between the United States and Turkey, and under the act of April 10, 1935, covering claims against the Republic of Mexico. The Commissioner likewise was responsible for the proper custody of investments and securities held by the Treasurer of the United States and the Federal Reserve Banks for which the Secretary was responsible, other than those related to public debt operations. The Commissioner also had supervision over the emergency accounting organization in the several States under the several Emergency Relief Appropriation Acts. Daily Statement oj the United States Treasury In addition to the changes in the classification of expenditures shown on the Daily Statement of the United States Treasury, effective July 1, 1939, as explained on page 60 of the annual report for 1939, a change was made beginning September 30, 1939. The preliminary public debt statement shown on the daily Treasury statement for the last day of each month includes a memorandum with respect to obligations of governmental agencies guaranteed by the United States, showing unmatured principal and matured principal and interest for which cash has been deposited with, or held by, the Treasurer of the United States. 169 170 REPORT OF T H E ; SIECRETARY OF T H E TREASURY Arrangements were made, effective July 1, 1940, to show trust account receipts and expenditures and transactions in checking accounts of govermental agencies in more detail. Sales and redemptions of their obligations in the market are now segregated from other transactions of governmental agencies. Other changes, beginning July 1, 1940, in the manner of showing receipts on account of social security taxes (employment taxes) and the appropriation of an equivalent amount of such receipts to the Federal old-age and survivors insurance trust fund were made necessary by section 2D1 of the Social Security Act Amendments of 1939 (see exiiibit 53, page 578). Combined statement oj assets and liabilities oj governmental corporations and credit agencies A combined statement of assets and liabilities of governmental corporations and credit agencies as of June 30, 1940, will be found as table 58 on page 797 of this report. This statement is published in the Daily Statement of the United States Treasury, for the last day of each month, as required by Executive Order No. 6869 oJf October 10, 1934.* The following is a summary of assets and liabilities of these corporations and agencies as of the close of each fiscal year, 1933 to 1940, inclusive: S u m m a r y of assets and liabilities of governmental corporations and credit agencies of the United States as of J u n e 30, 1933 to 1940 [In millions Of dollars. On basis of daily Treasury statements (unrevised), see p. 583.] 1934 1935 1936 1937 1938 1939 Loans 3.603 Preferred capital stock, e t c 31 Cash 2 74 Investments: 115 U n i ted S t a t e s securities . Securities g u a r a n t e e d b y U n i t e d S t a t e s . . "••"56' Another 147 A c c o u n t s a n d o t h e r receivables 106 R e a l e s t a t e a n d o t h e r business p r o p e r t y 88 Other 3 5,764 780 302 8.019 873 453 8,312 799 279 7,785 765 288 7,645 793 444 7,600 790 585 7,687 708 412 362 79 269 97 97 106 444 220 840 175 156 194 486 211 884 264 183 373 551 196 907 287 222 595 651 158 889 287 430 853 713 140 893 377 481 889 748 131 911 404 562 1,219 4. 220 7,856 11,374 11, 791 11, 596 12,150 12, 468 12. 782 G u a r a n t e e d b y U n i t e d States (includes accrued interest) __ N o t guaranteed b y United States.. . . 1,357 692 2,636 4,191 2,407 3,328 1933 1940 ASSETS i Total LIABILITIES AND R E S E R V E S i 4. 751 4,744 2, 470 '2, 553 4,889 2,814 6,483 2,909 5,561 3,177 6,598 7,221 7,297 7,703 8,392 8,738 4,528 . 4, 776 4,570 4.299 4,447 4,076 4,044 4,008 244 6,144 177 2,072 6,930 324 2,831 6,673 361 2,811 6,628 6.475 3.228 328' 585 • 641 S,01S 2,982 181 3.291 558 210 T o t a l G o v e r n m e n t owned P r i v a t e l y owned __ 2,774 89 4,249 279 4.423 353 4,223 347 3,943 356 4,078 369 3,688 388 3,639 405 T o t a l p r o p r i e t a r y interest _. 2,863 4,528 4,776 4.570 4.299 4,447 4,076 4,044 1,357 Total-. Excess of assets over liabilities ' - 2,863 PROPRIETARY INTEREST Owned b y United States: C a p i t a l stock 4 Surplus . I n t e r a g e n c y interests ^ ^-- 1 Exclusive of interagency assets and liabilities (except bond investments and deposits with Reconstruction Finance Corporation). 2 Excludes unexpended balances of appropriated funds, but includes cash deposited with the Treasurer ofthe United States. 3 Also includes real estate and other property held for sale. 4 Includes nonstock proprietary interest. 5 Excess interagency assets (deduct). •Superseded by Executive Order No. 8512, August 19, 1940. REPORT OF THiE SEORETARY OF T H E TREA^SURY 171 A summary statement of the proprietary interest of the United States in such corporations and credit agencies as of June 30, 1939 and 1940, appears as table 59 on page 805. The investment holdings of certain governmental corporations and other organizations which handle their own investment transactions are presented as of June 30, 1940, in table 58, page 797 and a summary statement for the fiscal years 1933 to 1940 may be found in the table on page 170. Special jinancial statements oj Government corporations and agencies Under the provisions of Senate Resolution No. 150, agreed to June 27, 1939, the Secretary of the Treasury was authorized and directed to prepare and transmit to the Senate a complete financial statement of each Government corporation or agency listed therein. The list included practically all Government corporations and credit agencies in active operation and involved 1,476^ separate organizations. The major part of the information requested by the resolution was not contained in the accounting records of the Treasury Department so that it was necessary for the corporations and agencies to furnish the detailed statements. The financial statements of each corporation or agency covered the period from date of its organization to June 30, 1939, and refiected the amount of recoverable assets based upon the latest appraisals or available information, the proprietary interest of the United States Government, the accounting and other procedures followed, the financial aid received from the United States Treasury and the extent to which the corporation or agency was self-supporting, the authority for incurring liabilities, inter-agency relationships, information on loans, and other related data. In addition to these financial statements, narratives for each corporation or agency were prepared covering its history and development, the circumstances leading up to its creation, its functions and operations, and similar information. Both the narratives and financial statements were summarized by the Treasury Department and made a part of the Secretary's report consisting of 32 volumes. The entire report was printed as Senate Document No. 172 (76th Cong., 3d sess,). The Secretary of the Treasury was authorized and directed by Senate Resolution No. 292, agreed to July 29, 1940, to prepare and transmit to the Senate a similar report covering the fiscal year 1940. Annual appraisal oj assets and liabilities oj the Commodity Credit Corporation Under an act of Congress, approved March 8, 1938, the Secretary of the Treasury is required to make an appraisal as of March 31 of each year of the assets and liabilities of the Commodity Credit Corporation for the purpose of determining the net worth of the Corporation. In the event any such appraisal shall establish that the net worth of the Corporation is less than $100,000,000, the Secretary of the Treasuryis required to restore the amount of the capital impairment, appropriations for which are authorized in the act.. In the event that any appraisal shaU establish that the net worth of the Corporation is in ^ Includes 1,383 Federal savings and loan associations. 269677—41 13 172 REPORT OF T H E ; SIEiCRETARY OF THF, TREASURY excess of $100,000,000, such excess must be deposited in the Treasury as miscellaneous receipts. The following statement shows the results of such appraisals: Appropriations for restoration of capital impairment: Act of June 25, 1938 (appraisal as of Mar. 31, 1938) Act of Aug. 9, 1939 (appraisal as of Mar. 31, 1939) Total . Less amountreturnedtoTreasury (appraisal as of Mar. 31,1940). Net payments to corporation to June 30,1940, as a result of capital impairment Amount $94, 285,404.73 119, 599,918.05 213,885,322.78 ___ 43,756,731.01 170,128, 591. 77 Securities owned by the United States Government Exclusive of foreign obligations, the aggregate amount of securities owned by the Government on June 30, 1940, based on the latest reports received, was $3,031,219,470.25. A detailed statement of the securities held at the end of the fiscal years 1933 to 1940 will be found as table 55 on page 790. A summary comparison of the holdings at the end of the fiscal years 1933 to 1940 follows: Summary of securities owned by the United States Government, exclusive of foreign obligations, J u n e 30, 1933 to 1940 June 30— 1933 1934 1935 1936 1937 1938 1939 1910 - Paid-in surplus Bonds and notes Capital stock governmental of governmental Other securities i of governmental of corporations corporations and corporations agencies and agencies $799, 867, 962. 40 1, 260, 612, 675. 00 1, 747,418, 795. 43 1, 882,428, 329. 93 1, 857, 737, 480. 82 1, 877, 277, 538. 36 1,919,560,698.18 1, 704, 373, 919. 86 $55, 863,477.16 104,493, 662. 75 136, 961, 657. 38 172,160, 468. 78 206,137, 966. 31 217, 728, 901. 53 218, 296, 764. 50 $1,486,107, 803. 00 $807,805,124.14 574, 712,142. 01 2, 991,165,147. 98 2, 986, 215, 554. 93 791, 501, 654.14 3, 262, 734, 653. 76 657,072, 480. 91 701, 384, 098.18 2,824, 389, 546.17 2 789, 537, 591. 74 655,459,486.13 812,035, 569. 28 128,472,552.89 104, 272, 500. 00 1, 004, 276, 285. 89 Total $3,093, 780, 889. 54 4, 882, 353, 442.15 5, 629, 629, 667. 25 5, 939,197,121. 98 5, 555, 671, 693.95 2 3,528,412,582.64 3,077, 797, 721. 88 3,031, 219,470. 25 1 Includes loans and advances by Farm Security Administration, Eural Electrification Administration and Public Works Administration. 2 Reflects cancelation of Reconstruction Finance Corporation notes held by the Treasury under authority of the act of February 24,1938, see p. 114. Contingent liabilities oj the United States The contingent liabilities of the United States are discussed on page 72 of this report; and a detailed statement of such liabilities as of June 30, 1940, and a comparative statement as of June 30, 1933 to 1940, appear as tables 47 and 48 on pages 775 and 780, respectively. Accounting and disbursing oj emergency reliej junds Under authority of section I I (A) of Executive Order No. 7034, dated May 6, 1935, and Department Circular No. 543, approved by the President, the Commissioner of Accounts and Deposits continued during the year to maintain accounting and disbursing facilities for handling appropriations made by the Congress for the emergency relief program. The provisions of this Executive order were extended by Executive Orders Nos. 7396 and 7649, and by Department Circulars Nos. 592 and 616, approved by the President, to apply to funds appropriated in the Emergency Relief Appropriation Acts of 1936, 1937, 1938, and 1939. At the beginning of the fiscal j^ear 1940 there were 55 TreasuryState accounts offices and an equal number of Treasury-State dis REIPORT OF T H E ISECRETARY OF T H E TREASURY 173 bursing offices, together with two branch offices of each class. During the year, due to consolidation of work in other Treasury-State accounts and disbursing offices, a reduction of two Treasury-State accounts oflBces and one Treasury-State disbursing office was made. Also 10 Treasury-State disbursing ofl&ces were consolidated with regional disbursing offices. The Treasury-State accounts and disbursing ofl&ces had 3,676 employees on June 30, 1940, which is a reduction of 1,004 employees, or 21 percent, since June 30, 1939. The Treasury-State accounts ofl&ces have handled more than 275,000 emergency relief project accounts for approximately 80 administrative agencies. Of these accounts about 40,000 are now active. The disbursing ofl&ces during the 3^ear issued 66,000,000 checks payable from emergency relief funds, which were verified for accuracy in the accounts offices. The procedure established at the inception of the program for the purpose of handling the emergency relief appropriations was designed to throw every protection around the allocation and use of the funds. In setting up the accounting and disbursing procedures under the Executive order of May 6, 1935, the Treasury recognized the following as fundamental requirements: 1. Making payments promptly. 2. Maintaining effective accounting control of appropriated funds by Congressional limitations. Presidential limitations, appropriation warrants and limitations established by administrative agencies. 3. Determining administratively, in advance of payment, the legality of vouchers and pay rolls and seeing that funds are used only for authorized purposes. 4. Providing internal accounting check upon the operations of disbursing officers. 5. Rendering to the General Accounting Ofl&ce detailed accounts for independent post audit. 6. Informing administrative agencies currently concerning the financial status of funds under each ofl&cial project. 7. Compiling for administrative purposes periodic reports showing the financial status of all funds. 8. Making a complete annual accounting by the Executive to the Congress, as required by the Emergency Relief Appropriation Acts. The Secretary of the Treasury issued Regulation No. 1 on June 18, 1935, covering the administrative and fiscal procedures for the maintenance of a system of accounts under the Emergency Relief Appropriation Acts. The regulation, approved by the President, prescribed the principles upon which the accounting system is based. Pursuant to Regulation No. 1 there were established Treasury central accounts and disbursing ofl&ces in Washington, D . C , and Treasury accounts and disbursing offices in the various States, Territories, and insular possessions. The operations of the central ofl&ces and the field offices are so correlated that an enormous volume of accounting and disbursing transactions can be handled expeditiously involving a minimum of expense. Funds are made available for work relief projects in the several States, Territories, and insular possessions, through the use of governmental radio and telegraphic facilities upon approval of the Treasury warrant and the issuance of appropriate authorization documents by the administrative agencies. In this manner, projects can be started promptly upon fulfillment of all legislative, executive, and 174 REPORT OF THE SEORETARY OF THE TREASrURY administrative requirements involving the allocation of money under the Emergency Relief Appropriation Acts. The Treasury-State accounts ofl&ces, in their respective accounts divisions, maintain control on ofl&cial project limitations, allotments, encumbrances, and expenditures. In these ofl&ces the general ledgers are supported by project ledgers in wliich are recorded detailed accounting transactions. The accounts division ascertains that all payments are kept within the limitations fixed by the President or the administrative agency, with respect to each project. Through a system of correlated accounts, the records of Treasury-State accounts ofl&ces are controlled by summary records in the Treasury central accounts ofl&ce. From the detailed accounts maintained in the State ofl&ces, financial statements are produced which are transmitted to the central office in Washington for verification and subsequent compilation into consolidated financial reports. The field offices also prepare reports which are utilized in making the administrative examination of disbursing officers' accounts. The examination divisions of the Treasury-State accounts ofl&ces conduct the executive preaudit of vouchers with respect to expenditures made from emergency relief funds. These divisions examine authorizations for setting up projects according to limitations fixed by the President, or the administrative agencies, and all obligation documents such as requisitions, purchase orders, contracts, leases, etc. They also examine all pay rolls and vouchers prior to payment to insure that the expenditure is made within the purview of all Federal laws and regulations. They further maintain control over the disbursing officers' blank checks and conduct quarterly audits of their stock of checks. The Treasury emergency organization from April 8, 1935, to June 30, 1940, has transmitted to the General Accounting Ofl&ce accounts covering expenditures totaling $11,290,716,206.23. Against this amount, the General Accounting Office has issued formal certificates of settlement of account for $7,833,412,361.59 or 69 percent of the expenditures. Disallowances by the General Accounting Ofl&ce now outstanding against the amount settled are $205,820.39, or twenty-six ten-thousandths of 1 percent of the amount settled. Of the remaining $3,457,303,844.64 awaiting settlement, the tentative disallowances reported amount to $96,565.99, or about twenty-nine ten-thousandths of 1 percent of the total unsettled accounts. These latter disallowances are subject to further examination and possible clearance. An important function of the Treasury-State accounts ofl&ces is to prepare periodic financial reports from the accounts maintained in the field. These reports are verified and tabulated in the central ofl&ce and comprise the basic data from which statements are compiled according to act limitations, organization units. States, administrative programs, types of work, and periods and objects of expenditure. The form of statement shows the amounts made available by Congress, amounts allocated, amounts obligated, amounts expended, unobligated allocations (available and not available for obligation) and unliquidated obligations. In addition, a consolidated balance sheet is prepared covering activities of the work relief program. Reports of operations, obligations, and expenditures, as required by law, have been submitted by the President to the Congress before January 15 of each calendar year. Such reports set forth the status of EEiPOET OF THE SECKETAEY OP THE TBEASTJRY 175 funds as of the close of the previous calendar year. The following comparative financial statements show summary information relative to expenditures under the emergency relief and work relief program from its inception to June 30, 1940: Expenditures (checks issued) under the emergency relief program, by types of work, April 8, 1935, to June SO, 1940 Type of work Fiscal years 1935 and 19361 Highways, roads, streets, $541,183,252 etc.. 194, 840,353 Public buildings 22, 800,498 Housing projects Public recreational facil272,765,142 ities . Conservation work 593,980, 694 Electric utilities, water and sewage systems, 144,576,283 etc . 89, 762,989 Transportation facilitiesEducational, professional, and clerical 178,124,273 projects.. 206,465,030 Miscellaneous Administrative expenses. 154, 476, 341 Rural rehabilitation, suburban projects, loans, relief 105, 864,160 Grants to States for con919, 725, 501 tinuing relief Total.- Fiscal year 1937 Fiscal year 1938 Fiscalyear 1939 Fiscal year 1940 Cumulative to June 30, 1940 $852,404,727 $595,153, 732 $916,225, 657 $580,101,448 $3,485,068,716 265,756, 541 171,174,235 218,240, 793 145,967, 569 995, 979,481 37, 471, 980 2,146, 721 121,446, 689 51,435,854 7, 590,536 215, 539, 910 144, 889, 687 189,937,965 271,262,585 140,181,-442 128,194, 981 96,972,490 920,105,194 80,107, 267 1, 213, 726, 969 198,921,467 158,269,725 200, 512,028 91,731,109 . 40, 325, 249 61, 245,093 144,277, 531 846,567,034 27, 530,131 300, 694, 671 344,200, 582 263,458,275 359, 680,885 234,154,709 190,466,983 259,144,153 159,176,315 127,953, 761 129, 336,701 336, 503,098 1,481,967,113 176,225,420 1,066, 456,295 110,909,466 681, 852, 574 173, 330, 674 131,872,081 2, 594, 459 157, 766, 679 134,546,635 703,380,229 2,732 922,446,328 23, 239 99,397 3,424,564,516 2,860,508,932 2,001,240,379 2,617,974,768 1,835,290,498 12,739,679,093 1 Includes $625,848,046 for fiscal year 1936 (April 8 to June 30,1936). Expenditures {checks issued) under the emergency relief program, by objects of expenditure, April 8,1935, to June SO, 1940 Object of expenditure Fiscal years Fiscal year 1935 and 1937 Fiscal year 1938 Fiscal year Fiscal year 1940 Cumulative to June 30, 1940 Personal services (Federal pay roll only) $1,604,281,923 $1,828,362,831 $1,488,419,503 $2,139,113,369 $1,523,498,796 8,583,676,421 Supplies and materials.. 288,068,807 206,899, 665 104, 603, 552 140, 668, 640 87,149,310 827,189, 874 65, 354, 382 29, 753, 511 346,927,967 56,604,849 Rent ..,_.. 65,681, 781 129,633,434 Construction, m a i n t e nance and repair con76,311,6 .100,476,945 16,858,149 tracts 69,620,275 7,670, 260, 837, 728 1, 821,940, 212 Grants 1,152,846,3 399,223,723 157,623, 806 68,739,705 43,606, Contractual services: 4,276, c 5,176,993 3,190, 964 2,405, Communications. -. 3,- 307, 881 18,357,079 Travel, including 28, 294, 26,126, 633 16,116,872 17,275, 359 16, 669, subsistence 104,471,465 Printing and bind3,043, 2, 971, 247 2, 510, 585 2,468,471 . 12, 824,125 ing.... 1,830, Other contractual 32,601, 13, 899,262 6,973,287 67, 095, 508 services— 7,980,937 5,640, 45,190, 24, 394, 871 11, 368,128 16,659, 697 11,123, 108, 726,264 Equipment purchased-. 23,068, 37,124, 710 16,014, 713 10, 738, 782 86, 231,329 Land acquisition .284, 73,411,060 122,401,135 99,337, 80,497,366 473,175,031 Loans 97,528, Employees' (accident) 5, 822,262 7, 632,938 4, 768, 218 28,126,110 compensation 1, 562,808 8,339,884 TotaL 3,424, 664,616 2,860,608,932 2,001,240,379 2, 617,974, 768 1, 836, 290,498 12,739,579,093 1 Includes $525,848,046 for fiscal year 1935 (April 8 to June 30, 1936). 176 EEPOET OP T H E SiEiCRETARY OF T H E TR-EASiUHY Expenditures {checks issued) under the emergency relief program, by months, April 8, 1935, to J u n e 30, 1940 A M O U N T OF E X P E N D I T U R E S Month July August SeptemberOctober November.. December.. January February.-. March April May June Total expenditures Fiscal year 1935 Fiscal year 1936 Fiscal year 1937 • Fiscal year 1938 $106. 632, 659 $276,016, 564 $162, 435,989 179, 816,164 239, 770,852 164, 717,469 176, 928,452 253, 646, 760 145, 631, 306 181, 866, 668 272,496,416 144,663, 339 215.809, 361 248, 667, 849 142, 266,451 285, 644, 848 268,052,490 156,255, 321 279,132,026 219, 274,826 144,977,983 258, 633, 293 180,812, 792 149, 559, 258 304,870, 366 246,193, 761 193, 367,450 320,898, 997 212, 766,163 186, 392, 214 $127,008,358 165, 755,118 290,809, 753 203, 883, 798 197,038,008 233,084, 570 297, 773,883 239,926, 671 223,955,691. Fiscal year 1939 $200, 601, 723 224, 398,400 228, 648, 380 229,881,972 218,820, 722 243,806,203 211,720,732 194,921,460 252, 689,052 207,154, 675 199,075, 346 206,466,113 525,848,046 2,898, 716,470 2,860, 608,932 2,001, 240, 379 2, 617,974, 768 Fiscal year 1940 $166, 842, 701 166, 267,880 123, 634,080 135,993, 389 142, 722, 271 157, 752, 654 148, 328, 283 160, 327,963 183,834, 339 173,864, 722 161,474,123 146, 258,093 1,835, 290,498 N U M B E R OF P A Y M E N T S Month Fiscal years 1935 a n d 1936 July.. - . August September . October... . . Novembei: December... . January : _ . . _ - . . . ._ February March April _• __ May-. .- June -- _-- 177, 277 1, 520, 298 2,010, 599 3,102, 294 4, 535, 332 7, 567,162 8, 256, 096 7, 872, 717 9,186, 386 8, 419, 048 7, 689, 746 7,424,215 T o t a l n u m b e r of p a y ments _ --_ 67, 761,170 Fiscal y e a r Fiscal y e a r 1937 1938 Fiscal year 1939 Fiscal year 1940 6,853, 559 6,454,427 6,814, 540 7, 613, 028 7, 032, 860 7, 989,478 6, 632, 353 6, 218, 368 7, 565, 657 6, 653, 540 6, 392,445 6, 553, 932 5, 002,874 4, 273, 789 4, 095,828 4, 271, 291 4, 272, 730 5, 003,810 4,847, 958 4, 941, 351 6, 784, 986 6, 475, 557 6,844, 258 7, 521, 659 6, 976, 666 7, 687, 508 7, 601,271 8,214,831 8,195, 920 8, 934, 048 7, 810, 869 6, 915, 252 8, 663, 956 7, 080, 200 6, 792, 201 6, 665, 297 5, 751, 752 5,378, 951 4,480, 420 4, 913, 273 5,112,827 5,870,892 5, 843,135 5, 710, 956 6, 521, 372 5, 990, 224 5, 719,132 6,171, 977 24, 762,128 25, 314, 973 25, 002, 658 28,114, 717 29,149, 669 35, 365, 390 33,390,411 31, 658, 644 38, 722, 357 34, 618, 569 33, 437, 782 33, 337, 080 82, 774,187 64, 336, 091 91, 538, 019 66,464, 911 372,874, 378 Total Additional tables showing t h e status of emergency relief appropriation funds by organizations and by States may be found in tables on pages 723 and 725 of this report. Federal savings and loan associations The Federal Home Loan Bank Board was authorized under the Home Owners^ Loan Act of 1933, approved June 13, 1933 (48 Stat. 133), to provide for the organization, incorporation, examination, operation, and regulation of Federal savings and loan associations, and to issue charters therefor, in order to provide local mutual thrift institutions in which people might invest their funds and in order to provide for the financing of homes. Under section 5 (g) of the act, the Secretary of the Treasury was authorized on behalf of the United States to subscribe for preferred shares in such associations, upon request of the Federal Home Loan Bank Board, but the subscription was not to exceed $100,000 in shares of any one association. The Home Owners' Loan Act of 1933, as amended by an act approved April 27, 1934 (48 Stat. 645), provided under section 5 (j) that, in addition to the authority to subscribe for preferred shares in these associations, the Secretary of the Treasury REiPO'RT OF T H E SEOKETARY OF T H E TREASlUGRY 177 was authorized, on behalf of the United States, to subscribe for any amount of full-paid income shares in such associations, upon request of the Federal Home Loan Bank Board, but the amount paid in by the Secretary of the.Treasury for full-paid income and preferred shares together shall at no time exceed 7 5 percent of the total investment in the shares of such association by the Secretary of the Treasury and other shareholders. An appropriation of $50,000,000 to enable the Secretary of the Treasury to purchase preferred shares in Federal savings and loan associations was provided by the Fourth Deficiency Act, fiscal year 1933, approved June 16, 1933. This appropriation was extended by the act approved April 27, 1934, to cover the purchase of full-paid income shares. Pursuant to amendments in the acts of April 27, 1934, and May 28, 1935, $700,000 of the $50,000,000 appropriation was allocated and made available to the Federal Home Loan Bank Board to enable the Board to encourage local tln-ift and local home financing and to promote, organize, and develop these associations. The amount available to the Secretary of the Treasury for subscription to shares in Federal savings and loan associations was $49,300,000. The Home Owners' Loan Corporation also was authorized to purchase full-paid income shares of Federal savings and loan associations after the funds available to the Secret ary of the Treasury for the purchase of such shares had been exhausted. The funds available to the Secretary of the Treasury were exhausted on October 25, 1935. During the fiscal year 1940, the sum of $9,8 54,600 was received on account of shares i-epaid, making the total shares repaid to June 30, 1940, $15,162,900. The following statements show the transactions in connection with the subscriptions by the Secretary of the Treasury to preferred and full-paid income shares in these associations during the fiscal year 1940, and for the 8-year period 1933 to 1940: Preferred and full-paid income shares of Federal savings and loan associations subscribed by the Secretary of the Treasury to June 30, 1940, and dividends received [Par value of shares] Preferred shares Total shares sub.scribed and paid $637,800 -... Shares held on June 30, 1939 Less shares repaid during 1940 Shares held on June 30, 1940.... Dividends received on preferred and full-paid income shares: To June 30, 1939 ..„ During 1940 To June 30,1940 Full-paid income shares Total $48, 662, 200 $49, 300,000.00 43,991,700 43,991, 700.00 9, 854, 600 9,854, 600.00 ..- 34,137,100 34,137,100.00 6,440,907. 73 1, 438, 861. 29 7,879,769.02 178 REPORT OF T H E SEiORETARY OF T H E TREASURY Par value of preferred and full-paid income shares of Federal savings and loan associations subscribed. by the Secretary of the Treasury, and dividends received, by fiscal years 1934 to 1940 [In thousands of dollars] 1934 Preferred shares: Subscriptions Repaid Full-paid income shares: Subscriptions Repaid Shares held June 30 _. Dividends received _ 1935 511 127 575 31, 251 1,086 32,464 77 1936 12 1937 1938 1939 585 22 19 16,836 454 65 49, 223 48,184 1,146 1,790 359 47,803 1,739 3,792 43,992 1,689 1940 Total 638 638 9,856 34,137 1,439 48,662 14, 625 34,137 7,880 Federal home loan banks Twelve Federal home loan banks were established pursuant to the Federal Home Loan Bank Act, approved July 22, 1932 (47 Stat. 728). These banks are supervised by the Federal Home Loan Bank Board. The act provides that the Board, with the approval of the Secretary of the Treasury, shall determine the minimum capital of each bank, which shall be not less than $5,000,000. I t further provides t h a t the Secretary of the Treasury shall subscribe, on behalf of the United States, for such part of the minimum capital of each Federal home loan bank as is not subscribed for by members within 30 days after books had been opened for stock subscriptions. Payments for stock subscriptions by the Secretary of the Treasury are subject to call in whole or in part by the Board, with the approval of the Secretary of the Treasury, at such time or times as may be deemed advisable. To enable the Secretary of the Treasury to make payments upon stock of Federal home loan banks subscribed for by him, the sum of $125,000,000, or so much thereof as may be necessary for such purpose, was allocated and made available to the Secretary of the Treasury out of the capital of the Reconstruction Finance Corporation and the proceeds of notes, debentures, bonds, and other obligations issued by the Corporation. Pursuant to the act approved February 24, 1938, the Secretary of the Treasury canceled notes of the Reconstruction Finance Corporation aggregating $126,301,906.17, equivalent to the amount of funds advanced by the Corporation for capital of the Federal home loan banks, plus interest paid to the Treasury on account of such notes. The act of July 22, 1932, provided that the capital subscribed for by the United States was entitled to receive dividends at a rate of 2 percent per annum cumulative from the date of investment, but in any case in which the rate of dividend is in excess of 2 percent the stock subscribed for by the United States shall be entitled to dividends at a rate not in excess of that paid on other stock. The act of May 28, 1935, amending the act of July 22, 1932, provides, however, that all stock of any Federal home loan bank shall share in dividend distributions without preference. Under the provisions of the act of June 25, 1940, the Reconstruction Finance Corporation is authorized to purchase at par any part of the stock of any Federal home loan bank owned by the United States, and the Secretary of the Treasury is authorized on behalf of the United States to sell such stock to the Corporation. No sales were made during the fiscal year 1940. REiPORT OF T H E ISQECQRETARY OF T H E 179 TRiEA.SiUa:iY During the fiscal year 1940, there were no transactions affecting the shares of stock subscribed for and held by the Secretary of the Treasury. T h e dividends received during the year aggregated $1,490,391.27. The following statement shows the shares of stock subscribed for and held by the Secretary of the Treasury and the dividends received and covered into the Treasury as miscellaneous receipts to June 30, 1940: Subscriptions by the Secretary of the Treasury to stock of the Federal home loan banks to J u n e 30, 1940, a n d dividends received Federal home loan bank Shares subscribed and held June 30, 1940 (par value) Boston--. New York Pittsburgh Winston-Salem Cincinnati Indianapolis.-. Chicago -Des Moines Little Rock TopekaPortland Los Angeles Total Dividends received To June 30, 1939 $12,467,600 18,963, 200 11,146,300 9, 208, 200 12,775,700 6, 577,400 14,173,900 7,394,900 8,772,400 7,333,600 5,960,000 9,967,900 124, 741,000 $658,464. 61 1,401,036. 75 834, 111. 39 603,825. 29 1,435,749. 79 574,986. 59 1, 378, 209.45 634,313. 31 551,304. 66 313, 262. 66 349, 790. 88 426, 733. 36 9,161, 768. 53 Fiscal year 1940 $124, 676.00 189, 632.00 111, 463.00 92,082.00 223, 574. 75 98, 661.00 212,608.60 92, 436. 26 87, 724.00 73, 336. 00 59, 600.00 124, 598. 76 1,490, 391. 27 Total to June 30, 1940 $783,129. 61 1, 690, 668. 76 945, 574. 39 696,907. 29 1,659,324. 64 •673, 647. 59 1, 590,817.96 726,749. 57 639,028.66 386,688. 66 409, 390.88 551, 332.11 10, 652,159.1 The following statement shows subscriptions to capital stock of the Federal home loan banks by the Secretary of the Treasury and dividends received for the fiscal years 1933 to 1940: Subscriptions by the Secretary of the Treasury to stock of the Federal home loan banks a n d dividends received, fiscal years 1933 to 1940 [In thousands of dollars] F e d e r a l h o m e loan b a n k 1933 1934 1936 1936 1937 1938 1939 1940 Total Subscriptions t o stock (par value) Boston New York Pittsburgh Winston-Salem Cincinnati Indianapolis Chicago - Des Moines Little Rock Topeka Portland _ _Los Angeles — - Total 2,500 3,000 4,300 4,100 9,000 4,400 6,100 2,200 3,800 1,500 1,110 960 42,970 2,600 8, 500 4,200 1,600 3,776 1,600 3,900 2,300 2,100 " " 2 0 6 ' 3,200 2,200 2,600 4,174 2,000 2, 672 600 2,350 1,700 2,034 300 4,708 200 17, 696 21,172 38,476 300 1,000 1,100 1,800 6,150 3, 500 1,300 1,708 1,018 2,963 246 12,468 18,963 11,146 9, 208 12, 776 6,577 14,174 7,395 8,772 7,334 6,960 9,968 4,227 124, 741 577 896 D i v i d e n d s received Boston New York Pittsburgh Winston-Salem Cincinnati Indianapolis Chicago Des Moines L i t t l e Rock Topeka Portland Los Angeles— 96 •77 119 68 77 146 287 128 184 319 119 199 68 119 23 63 233 174 122 255 89 212 72 93 109 118 72 653 1,691 1,612 116 - - Total 87 264 196 114 254 . 92 281 131 86 68 71 69 176 332 109 92 256 99 284 148 88 73 87 123 187 285 111 92 256 99 283 148 88 73 74 150 125 190 111 92 223 99 213 92 88 74 69 124 783 1,691 945 696 1,669 674 1,591 727 639 387 409 651 1,693 1,867 1,846 1,490 10, 652 180 (REPOKT OF T H E SEORETARY OF T H E TREAStURY Federal land banks Capital stock.—UndiQT the act of January 23, 1932, amending the Federal Farm Loan Act, it is the duty of the Secretary of the Treasury on behalf of the United States, upon the request of the board of directors of any Federal land bank made with the approval of the Farm Credit Administration, to subscribe from time to time for capital stock of such bank. The act further provides that such stock may at any time, in the discretion of the directors and with the approval of the Farm Credit Administration, be paid off at par and retired in whole or in part and that the Farm Credit Administration may at any time require such stock to be paid off at par and retired in whole or in part if in its opinion the bank has resources available for such purpose. The proceeds of all repayments on account of stock subscribed for by the Secretary of the Treasury are held in the Treasury and are available for the purpose of paying for other stock thereafter issued pursuant to said act. To enable the Secretary of the Treasury to pay for said stock, $125,000,000 was appropriated under the act approved February 2, 1932. The following statements show the transactions in connection with subscriptions to stock of Federal land banks during the fiscal year 1940, and a summary of such transactions for the fiscal years 1933 to 1940. Subscriptions by the Secretary of the Treasury to stock of Federal land banks and repayments thereon, fiscal year 194-0 [Par value of shares] Federal land bank sub- Shares repaid Shares held Shares held Shares fiscal fiscal year June 30,1940 June 30,1939 scribed year 1940 1940 Springfield-.-. Baltimore Columbia Louisville New Orleans... St. Louis St. Paul Wichita. Houston Berkeley Omaha Spokane Total-. $38, 715 - 124,952,320 , 146,310 1, 620, 655 1,023,380 69,340 2, 035, 016 83, 080 34, 700 65, 695 59,145 36,145 108, 915 1, 043, 845 128, 590 750, 315 610, 635 064,145 603, 555 691, 435 816,845 569, 600 156, 235 536, 955 816, 370 256,420 6,146, 310 6, 098, 630 126, 000,000 EEPOKT O F THiE SEdRETAEY OF T H E 181 TKiEASiUKY Subscriptions by the Secretary of the Treasury to stock of Federal land banks, and repayments thereon, fiscal years 1933 to 1940 [In thousands of dollars] Shares subscribed a n d held J u n e 30, 1933 Federal l a n d b a n k Springfield Baltimore-— Columbia Louisville -N e w Orleans--! St. Louis St. P a u l Wichita Houston Berkeley Omaha .-.Spokane Total - 6,665 6,729 13,188 8,210 12,879 9,638 19,103 7,134 9,475 7,212 9,662 14,883 2 124, 758 Repayments 1934 29 63 90 168 20 182 323 59 196 102 443 63 1,738 1936 1936 1937 1938 1939 1940 82 1,059 228 49 1,040 39 68 44 34 27 1,621 1778 44 21 16 18 1,023 1 2, 635 214 1,082 56 1,012 1,665 69 21 2,013 21 1 5, 869 34 2,036 452 109 812 215 94 83 1,902 1 1, 376 1 3, 299 1 5, 434 1 6, 718 ' 6, 111 363 67 818 146 65 56 157 ' 1,097 63 699 2,048 69 164 61 690 1,067 1,566 36 764 1,881 360 180 99 109 93 41 42 43 1,044 1699 1 1, 939 1,046 3,848 1 4, 737 1 151 147 N e t subscriptions J u n e 30, 1940 4,129 6,750 14,611 4,064 14, 604 7,691 39, 816 5,670 5,156 3,637 5,816 14, 256 125,000 1 Excess of subscriptions over repayments. 2 Excludes capital stock amounting to $114,274.25 subscribed for under the Federal Farm Loan Act of July 17, 1916, as amended, which amount was repaid during the fiscal year 1934 and credited as a miscellaneous receipt. Payments on account oj reductions in interest rates on mortgages and subscriptions to paid-in surplus.—The Secretary of the Treasury is directed, under certain conditions, to make payments to Federal land banks equal to the amount by which interest payments on mortgages held by such banks have been reduced pursuant to the Federal Farm Loan Act, as amended, and he is also to subscribe, imder specified conditions and in the manner prescribed by the Federal Farm Loan Act, as amended, to the paid-in surplus of each Federal land bank an amount equal to the amount of all extensions and deferments of any obligation that may be or may become iloapaid under the terms of any mortgage. Amendments to the law under which subscriptions are made to the paid-in surplus of the Federal land banks are contained in the Farm Credit Act of 1937, approved August 19, 1937. The period for which payments to Federal land banks on account of reductions in interest rates may be made was extended to June 30, 1942, pursuant to Public No. 672, enacted June 29, 1940. 182 'REPOIRT OF THE; SEORETAR-Y OE T H E TIREAS'URY A statement as of June 30, 1940, of the amounts appropriated on account of reductions in interest rates on mortgages and of payments to Federal land banks for this purpose is here set forth, followed by a summary of such transactions for the fiscal years 1934 to 1940: Appropriations on account of reductions in interest rates on mortgages, and payments to Federal land banks for this purpose to June 30, 1940 1. Amounts appropriated: To June 30, 1939 Treasury Department Appropriation Act, 1940, May 6, 1939 $151,400,000.00 29,700,000.00 Total to June 30, 1940 2. Payments to Federal land banks: 181,100,000.00 A m o u n t paid A m o u n t paid A m o u n t paid to J u n e 30,1939 fiscal year 1940 to J u n e 30,1940 Federal land bank Springfield Baltimore Columbia LouisvilleN e w Orleans St. Louis St. Paul Wichita Houston Berkeley . Omaha. Spokane $5, 287, 407. 92 6,448,138.46 6,047, 376. 27 14, 693,406. 23 8,084, 716. 89 12,557,058.91 20, 367, 663.96 11,760,127.21 16, 626, 239.98 8, 467, 313.45 24, 762,057.98 9,064, 311. 82 $1,068,808.17 1,230, 509.12 1,124,129. 97 2, 889, 830. 76 1,191,874.15 2, 599, 312.83 4, 293,049.11 2,314,117.75 3, 233,361. 88 1, 746, 631.05 5, 289,159. 78 1, 720, 540.15 . 144,156, 819.08 28, 700, 224. 72 -.--.._ .- - -- - Total-.3. Amount available for expenditure, June 30,1940... $6,356, 216.09 7, 678, 647. 68 7,171, 506. 24 17, 583, 236.99 9, 276, 591.04 15,156, 371. 74 24, 660, 713.07 14,074, 244. 96 19, 859, 601. 86 10,212,844.50 30,051,217.76 10, 774, 851. 97 172, 856,043.80 $8,243,956.20 Payments to Federal land banks on account of reductions in interest rates on mortgages, fiscal years 1934 to 1940^ [In t h o u s a n d s of dollars] Federalland bank Springfield Baltimore Columbia Louisville.. . N e w Orleans St. Louis . . . St. P a u l Wichita Houston Berkeley Omaha Spokane 1934 - - -_ Total 1 No transactions prior to 1934. 267 413 314 709' 848.642 656 679 890 306 876 630 7,029 1935 1936 1937 1938 1939 1940 499 701 '690 1,285 922 1,014 1,403 996 1,621 687 1,792 969 1,018 1,277 1,299 3,061 1,769 2,637 4,061 2,324 3,296 1,715 4,860 1,858 1,186 1,410 1,342 3,347 1,615 2,900 4,878 2, 681 3,765 1,976 5,847 1,983 1,179 1,349 1,283 3,220 1,656 2,830 4,804 2,667 3,615 1,921 6,771 . 1,819 1,138 1,298 1,220 3,072 1,384 2,734 4,667 2,514 3,440 1,862 5,616 1,795 1,069 1,231 1,124 2,889 1,192 2,599 4,293 2,314 3,233 1,746 6,289 1,721 6,356 7,679 7,172 17, 683 9,276 16,156 24, 661 14, 074 19,860 10, 213 30, 051 10, 776 12, 478 29, 065 32, 830 32,114 30, 640 28, 700 172,856 Total I^'PORT OF THE. SECRETARY OF T H E 183 TREA^lURY A statement as of June 30, 1940, of the amounts appropriated for subscriptions to the paid-in surplus of Federal land banks on account of extensions and deferments, and payments to Federal land banks for this purpose, is here set forth, together with a summary of such subscriptions for the fiscal years 1934 to 1940: A p p r o p r i a t i o n s for subscriptions to the p a i d - i n surplus of Federal land banks on account of extensions a n d deferments, and payments for this purpose to J u n e 30, 1940 1. Amounts appropriated: To June 30, 1939 - - T o t a l to J u n e 30. 1940 2. P a y m e n t s t o Federal l a n d b a n k s : A m o u n t paid to J u n e 30, 1939 Federal land bank Springfield -_ Baltimore Columbia Louisville N e w Orleans St. L o u i s St. P a u l Wichita HoustonBerkeley Omaha.Spokane - . . - ^ . - - ---• - .- Total 19,000,000.00 189, 000, 000 00 - '. Net amount p a i d fiscal year 1940 A m o u n t paid to J u n e 30, 1940 $10, 816, 876. 33 4, 717. 604. 53 9. 601, 364. 43 . . 10, 206, 602. 36 16, 306, 254. 39 13, 035, 530. 96 28, 642, 491. 25 15, 538,166. 70 - - 13, 326,869. 71 20, 747, 843. 93 27, 827, 009. 59 15, 963, 287. 35 ' $863,327. 67 ' 182. 353. 24 52, 688. 99 ' 372, 084. 43 ' 1, 454. 223. 98 ' 441, 709. 39 2, 042, 074. 79 967,053. 51 ' 446, 621. 02 ' 1,175.000.00 2, 456, 367.98 ' 14,902. 57 $9, 953, 548. 66 4, 535, 251. 29 9, 663, 953. 42 9,833, 517. 93 14,852, 030. 41 12, 593, 821. 57 30, 684, 566. 04 16, 505, 220. 21 12, 880, 248. 69 19, 672,843. 93 30, 283, 377. 57 15. 948. 384. 78 186, 728,901. 53 667, 862.97 187, 296, 764. 50 3. Amount available for expenditure, June 30,1940- $1,703,235.50 ' Excess of credits (deduct). Subscriptions by the Secretary of the Treasury to p a i d - i n surplus of the Federal land banks, fiscal years 1934 to 1940^ [In thousands of dollars] 1934 Federal land bank Springfield Baltimore Columbia Louisville N e w Orleans St. Louis St. Paul Wichita. HoustonBerkeley Omaha Spokane 1935 1936 1937 1,626 1,710 2,463 2,137 6,726 3,442 6, 297 3,351 _. _ 2,758 1,761 3,663 4,932 1,949 680 952 2,118 4,053 2,036 3,984 2,238 2,422 4,623 4,206 4,371 2,400 447 1,036 1,727 1,901 3,039 2,412 3,468 1,675 4,730 6,930 2,703 2,340 1,975 80 . 1,679 2,220 1,795 2,412 1,909 1,602. 1,190 2,343 1, 831 5,685 6,992 3,943 2,021 2,366 2,678 4,049 4,650 6,666 4,683 1,615 1,674 40,864 33, 630 32,468 .-. . . _ _ Total 36,199 1938 32,977 1939 1940 2 863 628 2 182 121 63 1,135 2 372 2 97 835 2 1,454 2 442 346 2,042 3,273 967 517 2 447 1,439 935 2 1,176 2,466 1,791 2 15 768 11, 591 568 Total 9,964 4,636 9,664 9,834 14,852 12, 594 30, 686 16, 605 12,880 19, 673 30,283 16, 948 187, 297 1 No transactions prior to 1934. 2 Decrease (deduct). Federal Farm Mortgage Corporation Under the Emergency Farm Mortgage Act of 1933, approved May 12, 1933, as amended, the Secretary of the Treasury is authorized to pay to the Federal Farm Mortgage Corporation such amount as the Governor of the Farm Credit Administration certifies to the Secretary of the Treasury is equal to the amoimt by which interest payments on mortgages held by such Corporation have been reduced. 184 'REPOiRT OE T H E SEORETARY OF T H E TREASiURY A statement of the amounts appropriated and payments to the Federal Farm Mortgage Corporation follows. Appropriations on account of reductions i n interest rate on mortgages, and payments to the Federal F a r m Mortgage Corporation for this purpose, fiscal years 1938 to 1940 1. Amounts appropriated: Third Deficiency Appropriation Act, 1937, Aug. 26, 1937 $5,000,000.00 First Deficiency Appropriation Act, 1938, Mar. 6, 1938 2,600,000.00 Treasury Department Appropriation Act, 1939, March 28, 1938 8,200,000.00 Treasury Department Appropriation Act, 1940, May 6, 1939 7,425,000.00 Total to June 30, 1940 2. Payments to Federal Farm Mortgage Corporation: Fiscal year 1938 Fiscal year 1939. Fiscal year 1940 Total to June 30, 1940 (deduct) 3. Amount available for expenditure, June 30, 1940 23,125,000.00 $5,726,515.05 7,818,547.62 7,126,168.14 . . 20,670,220.81 _ 2,464,779.19 Advances to Federal Reserve Banks jor industrial loans Under section 1 of the act approved June 19, 1934 (48 Stat. 1105), amending the Federal Reserve Act by adding section 13 (b), the Secretary of the Treasury was authorized to pay Federal Reserve Banks for industrial loans an amount not to exceed the par value of the holdings of each Federal Reserve Bank of Federal Deposit Insurance Corporation stock. ^ The maximum amount payable to each bank, based upon its holdings of such Federal Deposit Insurance Corporation stock, is shown in the table on page 185. Section 13 (b) provides that in exceptional circumstances, when it appears to the satisfaction of a Federal Reserve Bank that an established industrial or commercial business located in its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, the Federal Reserve Bank, pursuant to authority granted by the Board of Governors of the Federal Reserve System, may make loans to, or purchase obligations of, such business, or make commitments with respect thereto, on a reasonable and sound basis, for the purpose of providing it with working capital. The section also provides that each Federal Reserve Bank, under certain conditions, shall have power to discount for, or purchase from, any bank, trust company, mortgage company, credit corporation for industry, or other financing institution operating in its district, obligations having maturities not to exceed 5 years, entered into for the purpose of obtaining working capital for any such established industrial or commercial business; to make loans or advances direct to any such financing institution on the security of such obligations; and to make commitments with regard to such discount or purchase of obligations or with respect to such loans or advances on the security thereof, including commitments made in advance of the actual undertaking of such obligations. Before any advances were made, each Federal Reserve Bank was required to file with the Secretary of the Treasury an agreement to hold its stock in the Federal Deposit Insurance Corporation unencumbered and to pay to the United States all dividends, all payments on liquidation, and all other proceeds of such stock for which dividends, payments, and proceeds the United States is secured by such stock up to the total amount paid each Federal Reserve Bank by the 1 The amount of stock held was $139,299,557. GRIEPOOEIT OF T H E SEORETARY OF T H E TREAStURY 185 Secretary of the Treasury. Each Federal Reserve Bank, in addition, was required to agree that, in the event such dividends, payments, and other proceeds in any calendar year did not aggregate 2 percent of the total payment made by the Secretary of the Treasury, it would pay to the United States in such year such further amount, if any, up to 2 percent of the said total payment, as would be covered by the net earnings of the bank for that year derived from the use of the sum so paid by the Secretary of the Treasury, and that for the amount so due, the United States would have a first claim against such earnings and stock; and further, that it would continue such payments until the final liquidation of such stock by the Federal Deposit Insurance Corporation. All amounts required to be expended by the Secretary of the Treasury, in order to carry out the provisions of this section, were appropriated and authorized to be paid out of moneys derived from the increment resulting from the reduction of the weight of the gold dollar under the President's proclamation of January 31, 1934.^ No advances were requested by the Federal Reserve Banks during the fiscal years 1939 and 1940. The maximum amount of advances authorized for each Federal Reserve Bank, and the total amount advanced to June 30, 1940, are shown in the following table: Federal Reserve Bank Atlanta Boston Chicago Cleveland Dallas _ Kansas City Minneapolis-New York Philadelphia Richmond St. LouiSSan Francisco - - - - __ _ . . Total— . . _ _. . - - .- Maximum payments authorized Tbtal amount advanced $5, 272,031. 55 10, 230,236.88 19, 748, 616. 70 14,146,863. 66 4,359,338.10 4,131, 276.30 3, 509,467.66 42, 629,210.65 14,620, 883.62 6,808, 291.43 6,093,112.25 9, 850,328. 30 $756,934.44 2,875,116.98 1,417,701.33 1,016, 571.33 1,261,788.08 1,146,717.73 1,007,746.96 7,752,044.63 4,198,400.60 3,420,662.05 647,832.83 2,156,796.01 139, 299, 656.99 27, 546,310.97 The Uniteci States has received no payments from dividends, payments on liquidation, or other proceeds from the Federal Deposit Insurance Corporation stock held by the Federal Reserve Banks. The total amount of advances to the Federal Reserve Banks and the amounts paid by such banks to the Treasury Department are shown below: Excess Advances advances Payto Federal ments over payto Reserve Treasury ments (cuBanks mulative) Year 1935 1936 1937 1938 1939 1940 - ^ Total1 See p. 129. - . $20,931,857 6, 614,454 876,000 125,000 -27, 546, 311 $297, 667 227, 517 176, 760 119, 319 24,579 $20,931,867 26, 248, 644 26,896,127 26,844, 367 26,725,048 26,700,469 845, 842 26, 700,469 186 TilEPORT OE T H E SECRETARY OF T H E THEASURY The following statements summarize the transactions in connection with advances to Federal Reserve Banks under section 13 (b) of the Federal Reserve Act, by years: Advances to the Federal Reserve Banks for industrial loans, by fiscal years 1935 to 1938^ 1935 Federal Reserve B a n k Atlanta ...: Boston __ Chicago-Cleveland Dallas Kansas City Minneapolis New York Philadelphia Richmond _._ St. LouiS- __ San Francisco _.-- _-- _- .- .- -. Total 1936 $766,934 2,166,638 1,417, 701 1,016,671 938,841 778,791 1,007, 747 6, 686,067 2,099,200 2,918,649 547,833 697,895 20,931,857 1937 1938 Total 459,000 $875,000 $125,000 $766,934 2,875,116 1,417,701 1,015, 571 1, 251,788 1,145, 718 1,007,747 7, 752,045 4,198,401 3,420, 662 547, 833 2,156, 795 6,614,464 875,000 125,000 27, 646,311 $708,478 312,947 366,927 1,165,988 2,099, 201 601,913 1 No advances made during the fiscal years 1939 and 1940. . Payments received by the Treasury from the Federal Reserve Banks, by fiscal years 1936 to 1940 1936 F e d e r a l Reserve B a n k Atlanta .. Boston . Chicago C l e v e l a n d - - ___ •Dallas Kansas City Minneapolis.-New York Philadelphia Richmond St. L o u i s - S a n Francisco $9,066 49,012 17,637 8,734 23,428 _ _ Total. : _ 16,854 64,238 41,984 .66, 714 297,667 1937 $34,488 28,354 14,431 26,036 11,028 16,460 13,762 83,968 227, 517 1938 1939 $6,647 28, 354 13,476 25,036 9,925 $1, 544 20, 714 227 10,270 1,005 4,997 83,968 83,968 4,357 1,591 176,760 119,319 1940 Total 617 3,981 $23,876 91,742 100,179 36,868 74,117 35,204 34,319 82,987 293,888 66,714 5,948 24,579 845,842 $14,810 61 6,120 Appropriations and expenditures under the Social Security Act The Social Security Act, approved August 14, 1935, as amended, provided, among other things, for the establishment of a system of Federal old-age benefits, and for grants-in-aid to the several States to enable them to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws. Under the provisions of section 201 (a) of the Social Security Act and amendments of 1939, approved August 10, 1939 (see exhibit on page 578), appropriations to the Federal old-age and survivors insurance trust fund for the fiscal year 1941 and each year thereafter are equal to 100 percent of the taxes received under the Federal Insurance Contributions Act and covered into the Treasury. The amounts appropriated to June 30, 1940, under the various authorizations contained in the Social Security Act and total expenditures from such appropriations to June 30, 1940, are shown in the 187 TiEPODElT OF THE. SEORETARY OF THE TREASfURY table on page 683. The responsibilities of the Treasury Department and its activities in connection with the Federal old-age and survivors insurance trust fund and the unemployment trust fund are described under ^^Trust funds" beginning on page 212. Obligations oj joreign governments The United States received, during the year, payments aggregating $413,747.32 on account of the indebtedness of foreign governments, of which $74,000 was for account of principal, $301,686.32 was for account of interest, and $38,061 was for account of annuities under the moratorium agreements. This does not include a payment of $100,000 by the Rumanian Government on June 15, 1940, made as ''a token of its good faith and of its real desire to reach a new agreement covering" Rumanian indebtedness to the United States. The following statement shows the payments due during the period July 1 to December 31, 1939, and the amounts actually paid on account by certain governments: AMOUNTS DUE AND PAYABLE, JULY 1 TO D E C E M B E R 31. 1939 Funding agreements Country Principal Belgium Czechoslovakia. Estonia Finland France Great Britain.-Greece--. Hungary -. Italy Latvia Lithuania-Poland Rumania Yugoslavia $1,500,000.00 141,000.00 74.000.00 37,000,000.00 475, 000. 00 14, 850.00 $4,168,000.00 19, 75, 1, 67, 600.00 'i,'623,"6oo."oo' Total- 40,885,450.00 Moratorium agreements Total Interest 3, 286. 265.00 141, 662. 50 261. 432. 50 950, 000.00 217, 920.00 33, 185. 08 245. 437. 50 119, 609. 00 107, 783. 67 582, 810.00 907, 559. 81 515. 63 106,060,180. 69 $484,463.88 182, 812. 78 36, 586. 29 19,030.60 3,046,879. 72 9, 720, 765.05 67.137. 38 4, 225. 58 896,155.88 15, 274. 26 13, 683. 26 456, 229. 71 48, 750.08 $4,642, 463. 88 1, 682, 812. 78 463. 850. 29 284, 693.00 22, 308, 312. 22 122, 670, 766.05 760, 067. 38 52, 260. 66 2,141, 593. 38 192. 483. 26 121, 466. 93 5, 662, 039. 71 966, 309.89 38, 615. 63 14, 991,983. 37 161,927,614. 06 AMOUNTS ACTUALLY PAID Finland Hungary - Total 269677—41- -14 . $74,000.00 $141,662.50 9, 828.16 $19,030. 50 $234, 693.00 9,828.16 74,000.00 161,490. 66 19,030. 50 244, 521.16 188 TIEPORT OF T H E SEORETAllY OF T H E TREASURY The following statement shows payments due during the period January 1 to June 30, 1940, and the amounts actually paid on account: AMOUNTS DUE AND PAYABLE, JANUARY 1 TO JUNE 30, 1940 Funding agreements Moratorium agreements Country Belgium Czechoslovakia Estonia Finland France Germany (Austrian indebtedness). Great Britain . Greece Hungary Italy . Latvia . Lithuania Poland Rumania Yugoslavia. Total Principal Interest $4,800,000.00 1, 500,000.00 . $4,158,000.00 80,063, 798. 30 1 460,093.00 480,000.00 "is," 800," OOO." 65" 61, 336.00 430, 560. 43 488,000.00 104,073,786.73 19,261, 432. 50 76,950,000.00 217,920.00 33,185.08 1, 245,437. 50 119, 609.00 107, 783.67 3, 582,810.00 907, 559. 81 38, 515. 63 106,048,886. AMOUNTS ACTUALLY Finland Hungary Rumania ^ $484.453.88 182, 812. 78 36, 585. 29 19,030. 60 3,046,879.72 34, 767. 23 9, 720, 765.06 67,137. 38 286, 266.00 140, 367. 60 4, 225. 68 896,155.88 16, 274. 26 13,683. 26 456, 229.71 48,750.08 15,026, 750. 60 Total $9, 442, 463.88 1, 682, 812. 78 322, 850. 29 169, 398.00 102, 372, 110. 52 494, 860. 23 85, 670, 766.06 765, 057.38 37, 410.66 17,941, 593.38 134, 883. 26 172, 801.93 4,039, 039. 71 1, 386, 870.32 526, 616. 63 225,149,423.02 PAID $140,367.50 9,828.16 ------ Total 150,195.66 $19,030.60 19,030. 50 $169, 398.00 9,828.16 169, 226.16 1 The German Government has been notified that the Government of the United States will look to the German Government for the discharge of this indebtedness of the Government of Austria to the Government of the United States. 2 Payment of $100,000 made by Rumanian Government on June 15, 1940, which was made as "a token of its good faith and of its real desire to reach a new agreement covering" Rumania's indebtedness to the United States. The following statement summarizes the payments made on account of the indebtedness of foreign governments during the fiscal years 1933 to 1940, classified by countries and also by the application of the payments to principal, interest, and annuities under the moratorium agreements: Payments made on account of indebtedness of foreign governments to the United States, fiscal years 1933 to 1940, classified by countries and also as to principal, interest, and annuities under the moratorium agreements 1933 1934 1935 1936 $1, 500,318.98 186, 355. 59 95, 550. 000. 00 66, 376.00 $329, 595.19 544, 632.91 17, 500, 518.42 $393, 991.00 $394, 768. 50 272,400.00 152, 544.00 1, 245,437. 50 117, 862.12 92, 386.01 2,000, 020. 76 9, 530.16 16, 990. 36 29,061. 46 98, 757, 726. 20 20, 430, 349. 25 666, 391.00 547, 312. 60 31, 567, 618.98 67,190,207.22 391, 595.19 20,000, 693.06 38,061.00 62,000.00 1 566, 330.00 38,061.00 65,000.00 444, 251. 50 38,061.00 98, 757, 726.20 20,430,349.25 666,391.00 547, 312. 50 COUNTRY Czechoslovakia Finland--Great Britain Greece Hungary Italy Latvia Lithuania Rumania -. -- -- - Total ACCOUNT F u n d i n g agreerc e n t s : Principal Interest M o r a t o r i u m agreements Total 1 Does not include $1,433.01 received and credited to interest on unfunded indebtedness of Russia. 189 BE'POiRT OF T H E SBORETAUY OF T H E TEEASUEY Payments made on account of indebtedness of foreign governments to the United States, fiscal years 1933 to 1940, classified by countries and also as to principal, interest, and annuities under the moratorium agreements—Continued 1937 1938 1939 1940 Total . $394, 458. 60 $394,078.50 $393,628.50 $394,091.00 196,128. 00 174,336.00 19, 656. 32 87,168.00 19,656.32 19,656.32 0) $1,829,914.17 3,096,004. 50 113,060,618.42 947,952.00 68,968.96 3, 246,458. 26 127, 382. 28 109, 376. 36 29,061.46 690,586. 60 588,070.82 500, 462,82 3 413,747.32 122,494, 636. 41 67.000.00 485, 525. 60 38,061.00 69, 000. 00 481,009. 82 38,061. 00 71, 000.00 391, 391.82 38,061.00 74,000.00 301, 686. 32 38,061. 00 32,367,114.17 89,861,096. 24 266,427.00 690, 586.50 688,070.82 600,452.82 2 413,747.32 122,494, 636.41 COUNTRY Czechoslovakia Finland Great Britain GreeceHungary Italy Latvia Lithuania Rumania •_ Total-.. - ACCOUNT Funding agreements: Principal Interest Moratorium agreementsTotal 2 Does not include payment of $100,000 by Rumanian Government on June 16, 1940, which was made as "a token of its good faith and of its real desire to reach a new agreement covering" Rumania's indebtedness to the United States. Press releases of the Treasury Department and correspondence exchanged between the Government of the United States and various foreign governments regarding the amounts due during the fiscal year will be found as exhibit 43 on page 544 of this report. A statement showing the principal of the funded and unfunded indebtedness of foreign governments to the United States, the accrued and unpaid interest thereon, and payments on account of principal and interest as of November 15, 1940, appears as table 56 on page 795. The total amounts previously due from foreign governments on account of their indebtedness to the United States under the funding and moratorium agreements and not paid as of November 15, 1940, according to contract terms, are shown in the following statement: TOTAL AMOUNTS DUE AND NOT PAID, AS OF N O V E M B E R 15, 1940 F u n d i n g agreements Country Principal Interest Belgium - - $36,100,000.00 $55,830,000.00 22,170.085. 83 Czechoslovakia 4, 539,345.00 Estonia . - -1, 000.000. 00 438, 730,128. 79 308,182, 920.00 France 2, 300,466. 00 G e r m a n y (Austrian indebtedness)! Great Britain - 239, 000,000.00 1,121,749,481. 58 2, 713, 607. 50 6,863, 000. 00 Greece Hungary 2 457,770.13 108, 026. 00 16. 681, 541. 74 111, 200, 000.00 Italy . 1, 778,604. 84 Latvia - . 403, 700.00 1, 553, 571. 70 364,160. 00 Lithuania . . . . 66,813,130.00 Poland . . . . . . - 11, 973, 000.00 Rumania 3 11, 630, 560. 43 1,815,119. 62 231, 093. 78 3, 213. 000. 00 Yugoslavia - . . . . _ Total 886, 056.125. 05 1,572,346,086. 89 Moratorium agreements Total $98, 712, 364. 32 $6, 782, 364. 32 24, 729,464. 76 2, 559, 378.92 512,194.06 6, 051, 539.06 789, 569, 364.87 42, 656, 316. 08 2 474,301.15 173, 836.15 136,090, 710. 70 1,496, 840,192. 28 10, 583, 568. 20 1,007,060.70 624, 953. 25 59,158.12 140,427,724. 06 12, 646,182. 32 2, 396,144.48 213, 839. 64 2,109, 297. 34 191, 565. 64 75,173, 345. 94 6, 387, 216. 94 14,128,181.17 682, 501.12 3,444. 093. 78 209.862, 313. 71 2, 667, 264, 624. 65 1 The German Government has been notified that the Government of the United States will look to the German Government for the discharge of this indebtedness of the Government of Austria to the Government of the United States. 2 The Hungarian Government has deposited with the foreign creditors' account at the Hungarian National Bank an amount of Hungarian currency equivalent to the interest payments due from December 15, 1932, to June 15, 1937. The debt funding and moratorium agreements with Hungary provide for payment in dollars in the United States. 3 The Rumanian Government paid to the Treasury on June 16, 1940, the amount of $100,000 as "a token of its good faith and of its real desire to reach a new agreement covering" Rumania's indebtedness to the United States. 190 iREPOiRT OF THOE S E 0 R E ; T A R Y 0 ^ T H E TfREAStTBY Finland.—Finland continued during the year to make full payment of amounts due on its indebtedness to the United States. The amount of the December 1939 payment, $234,693, at the direction of the President was held in suspense ^^pending such action, if any, as the Congress might desire to take with respect to it.'' (See the copy of a communication from the President to the Congress on page 545.) On March 2, 1940, legislation was enacted ^'To provide for increasing the lending authority of the Export-Import Bank of Washington, and for other purposes.'' Thereafter the Export-Import Bank established certain credits to the Finnish-American Trading Corporation, an American Corporation organized by the Finnish minister with a paid-in capital stock of $1,000,000, and guaranteed by the Finnish Government, for commodity and supply purchases in this country. Later Congress passed a joint resolution ^'To authorize the postponement of payment of amounts payable to the United States by the Republic of Finland on its indebtedness under agreements between that Republic and the United States dated May 1, 1923, and May 23, 1932." (See exhibit 43, page 546.) This joint resolution authorized postponement of amounts payable during the period January 1 to December 31, 1940. Following approval of the joint resolution on June 15, 1940, the December 1939 payment was covered into the Treasury. On June 15, 1940, Finland made a payment of $159,398 due on that date without exercising its option under the joint resolution. Hungary.—In accordance with its proposal of August 16, 1937, the Hungarian Government made semiannual payments of $9,828.16 on December 14, 1939, and June 14, 1940, for application on account of the funded indebtedness of the Hungarian Government to the United States. When making such payments the Hungarian Minister expressed the hope of his government that the Congress would give favorable consideration to its offer, made in February 1938, seeking a new debt arrangement on a permanent basis providing for payment of the original debt, without interest, in equal installments covering approximately 30 years. This proposal (see exhibit 48 on page 297 of the annual report for 1938) was recommended to the consideration of the Congress by the President on March 28, 1938, with an expression of the belief that it represented a noteworthy wish and effort of the Hungarian Government to meet its obligations to the United States. Nicaragua.—In pursuance of Article I I of the Treaty of April 14, 1938, covering the adjustment of certain accounts and refund of income taxes, which was ratified by the Senate on June 13, 1938, 59 obligations against the Republic of Nicaragua in the principal amount of $289,898.78 were marked canceled and returned to the Government of Nicaragua through the Department of State on October 6, 1939. Rumania.—On June 15, 1940, the Rumanian minister addressed a communication to the Secretary of State referring to the note of May 3, 1939, containing a notice that he had been designated by his government to negotiate with the United States Government for the purpose of reaching a new agreement in respect to the debt owed by the Rumanian Government to the United States (see page 294 of the annual report of the Secretary of the Treasury for 1939). The minister's letter informed the Secretary of State that as a token of its good faith and of its real desire to reach a new agreement concerning TREiPOtRT OP T'HE, SEiQREiTARY OF T H E TRE'ASfURY 191 its indebtedness to the Government of the United States the Rumanian Government was paying the sum of $100,000 to the American Government, this sum to be held in a special account and 'Ho be used if, as and when the new agreement to be negotiated by our two governments will have entered in force * * * ?? Press releases of the Department of State dated June 15, 1940, with respect to the indebtedness of the Government of Rumania will be found on page 553 of this report. Receipts jrom Germany During the fiscal year 1940 the United States received no payments from the Government of Germany under the debt funding agreement of June 23, 1930, covering the costs of the American Army of Occupation and the awards of the Mixed Claims Commission, United States and Germany. Army costs.—Payments of 9,300,000 reichsmarks were due on September 30, 1939, and March 31, 1940, respectively, from the Government of Germany on account of army costs under the provisions of the debt agreement of June 23, 1930. Interest amounting to 4,971,687.50 reichsmarks was also due on those dates. There has been no change in the army cost account from that shown in the statement appearing on page 39 of the annual report of 1932. Mixed claims^ United States and Germany.—Payments of 20,400,000 reichsmarks were due on September 30, 1939, and March 31, 1940, respectively, from the Government of Germany on account of mixed claims awards under the provisions of the debt agreement of June 23, 1930. Interest amounting to 16,830,000 reichsmarks was also due on those dates. Annuities under moratorium agreement.—The semiannual installments, aggregating 3,058,098.90 reichsmarks, of the annuities under the moratorium agreement with the Government of Germany dated May 26, 1932, which were due during the fiscal year 1940, were not paid by Germany. The status of the indebtedness of Germany to the United States as of June 30, 1940, under the funding and moratorium agreements is summarized in the foUowing tables: AMOUNT OF I N D E B T E D N E S S Class Army costs (reichsmarks) Mixed claims (reichsmarks) __ Total (reichsmarks) Total (in dollars, at 40.33 cents to the reichsmark)... Indebtedness as funded Total indebtedness, June 30, 1940 Principal Interest accrued and unpaid i 1,048,100,000 2,121,600,000 1, 022,946,007. 78 2,112,420,000. 00 997,500,000 2,040,000,000 26,446,007. 78 72,420,000.00 3,037, 500,000 97,866,007. 78 3.169, 700,000 2 3.136,366,007.78 $1, 278, 340,010 $1, 264,493, no. 94 $1, 225,023, 750 $39,469,360.94 1 Includes interest accrued under unpaid moratorium agreement annuities. 3 Includes 4,027,611.95 reichsmarks deposited by the German Government in the Konversionskasse fiir Deutsche Auslandsschulden and not paid to the United States in dollars as required by the debt and moratorium agreements. 192 REPOiRT OF T H E SEORET'AR-Y O'F T H E TREASIURY PAYMENTS RECEIVED Total payments received to June 30,1940 Class Payments of principal Army costs (reichsmarks)... Mixed claims (reichsmarks) 51,466,406.25 87,210,000.00 60,600.000.00 81, 600,000.00 Total (reichsmarks)-Total (in dollars) 138, 666,406. 25 $33, 587,809. 69 132, 200, 000. 00 $31. 639, 595. 84 Payments of interest ' 856,406. 25 5,610.000.00 6,466,406. 25 $2,048, 213.86 AMOUNTS NOT PAID ACCORDING TO CONTRACT T E R M S , J U N E 30, 1940 F u n d i n g agreement Moratorium agreement Date due Principal Sept. Mar. Sept. Mar. Sept. Mar. Sept. Mar. Sept. Mar. Sept. Mar. Sept. Mar. 30, 1933 --- -. 31, 1934 30, 1934 31,1935 30, 1935 31, 1936 30, 1936 31, 1 9 3 7 . . . . 30, 1937 : 31, 1938 30, 1938 31, 1939 30,1939—31, 1940 reichsmarks.do dO—---.do.--. do.... do.... do.... do.... ..do.... ...do.... do—do--do.-.. do.... TotaL. T o t a l (in dollars, a t 40.33 cents t o t h e reichsmark) . 2,498, 562. 60 122,400,000 20,400,000 82,900,000 29, 700,000 29, 700,000 29, 700,000 29, 700,000 . 28,600,000 28, 600,000 28, 600,000 28, 600,000 29, 700,000 29, 700, 000 Total Interest 3,855, 687. 50 4, 534, 250.00 6, 212,812. 50 6, 891, 375.00 6, 669,937. 50 7, 248, 500.00 7, 927,062. 50 8, 586, 687. 50 9, 244, 312. 50 9,902, 937. 50 10, 561, 562. 50 11, 240,125.00 1, 529,049.45 1, 529,049.45 1, 529,049.45 1, 529,049.45 1, 529,049.45 1, 629,049.45 1, 629,049.45 1, 529,049.45 1, 529,049.45 1, 529,049.45 1, 529,049.45 1, 529,049. 45 1, 529,049.46 1, 629,049.45 1 4,027,611. 95 123, 929,049.45 26, 784,736.95 88,963,299.45 36,441,861. 95 37,120, 424.45 37, 798,986.96 38,477, 549.45 38,056,111.95 38, 714,736.96 39, 373, 361. 96 40,031,986. 95 41, 790, 611. 95 42,469,174.45 518, 300, 000 93, 272, 812. 50 21,406,692.30 632, 979, 504.80 $209,030,390 $37, 616, 925. 28 $8,633,319.00 $255, 280, 634. 28 1 Includes 4,027,611.95 reichsmarks deposited by the German Government in the Konversionskasse fiir Deutsche Auslandsschulden and not paid to the United States in dollars as required by the debt and moratorium agreements. Treasury administration oj alien and mixed claims The Settlement of War Claims Act of 1928 authorized the Secretary of the Treasury to make payments on account of (1) awards of the Mixed Claims Commission, United States and Germany, for claims of American nationals against the Government of Germany; (2) awards of the War Claims Arbiter for claims of German, Austrian, and Hungarian nationals against the Government of the United States; and (3) awards of the Tripartite Claims Commission for claims of American nationals against the Governments of Austria .and Hungary. The time within which claimants could file applications for payment of awards from the Mixed Claims Commission, United States and Germany, and the Tripartite Claims Commission, United States, Austria and Hungary, has been extended from time to time, and was further extended until March 10, 1940, under the joint resolution of Congress approved M a y 23, 1938, a copy of which wiU be found as exhibit 64 on page 346 of the annual report for 1938. Executive Order No. 6981, dated March 2, 1935, as amended by Executive Order No. 7111, dated July 22, 1935, removed in certain cases the re,strictions imposed by Public Resolution No. 53 of June 27, 1934, as to payments, transfers, and deliveries of property under the Trading with the Enemy Act, as amended, and the Settlement of War Claims Act of 1928, as amended. Mixed Claims Commission and Private Act No. 509: Claims against Germany.—On October 31, 1939, the Secretary of State certified to RjE*P0iRT OF T H E SE'OREiTARY OF T H E TREASfUIRY 193 the Secretary of the Treasury for payment additional awards of the Commission on account of sabotage claims aggregating $21,157,227.01. The interest on these awards from various dates to January 1, 1928, aggregates $10,236,826.74, making the total as of January 1, 1928, $31,394,053.75. No payments have as yet been made on account of these awards. There is still pending in the courts a suit filed in the District Court of the United States for the District of Columbia by the Z. & F. Assets Realization Corporation, plaintiff, v. Secretary of State and Secretary of the Treasury, defendants. On July 19, 1940, Private Act No. 509 for the relief of Katherine M. Drier was approved. Under the provisions of this law the Secretary of the Treasury was authorized to make payments from the German special deposit account as if an additional award had been entered by the Mixed Claims Commission, United States and Germany, on behalf of Katherine M. Drier. Private Act No. 509 is set forth in detail in exhibit 55, page 580. No payments were made during the year on account of awards of the Mixed Claims Commission. On August 15, 1940, the sum of $159,070.39 was payable under the provisions of Private Act No. 509, of which $119,501.63 was paid and there was withheld for future disposition the sum of $39,568.76. The following summary shows the number and amount of awards certified to the Treasury by the Secretary of State, the amount paid on account, and the balance due thereon as of September 30, 1940. Further details by classes of awards may be found in table 68, page 830. Number and amount of awards of the Mixed Claims Commission, United States and Germany, certified to the Secretary of the Treasury by the Secretary of State and the amount paid and balance due, as of September 30, 1940 ^ Total number of awards Awards certified 1. Amount due on account: Principal of awards Less amounts paid by Alien Property Custodian and others _ 7,026 Total payments to Sept. 30,1940 Less one-half of 1 percent deduction from each payment . 91, 938, 763.08 354 914 857 89 • 2. Payment made on account to Sept. 30,1940: Principal of awards ' _. __ Interest to Jan. 1,1928, at rates specified in awards Interest at 5 percent per annum from Jan. 1, 1928, to date of payment as directed by the Settlement of War Claims Act of 1928 6,600 2125, 771, 505. 69 8, 558,952. 60 1, 542,888. 09 136,873, 346. 38 679, 566.16 _ Net payments made to claimants to Sept. 30,1940 3. Balance due on account: Principal of awards . : Interest to Jan. 1,1928, at rates specified in awards _ -Accrued interest at 5 percent per annum from Jan. 1,1928, on total amount payable as of Jan. 1,1928, to Sept. 30,1940 -.. Balance due claimants as of Sept. 30,1940 $181, 698, 235. 30 187, 226 86 181,511,008.45 81,466,086.36 Interest to Jan. 1,1928, at rates specified in awards Interest thereon to date of payinent or, if unpaid Sept. 30, 1940, at 5 percent per annum as specified in the Settlement of War Claims Actof 1928 ._ Total due claimants Total amount 136,193, 781. 22 626 128,258, 220.01 387, 416. 51 90,395,874.99 219,041, 511. 61 ' Includes payments on account of Private Act No. 609, approved July 19,1940. 2 Includes payments on account of interest to .Jan. 1, 1928, on Class III awards and Private Act No. 509. Payments on this class of awards are first applied on account of the total amount payable as of Jan. 1, 1928, as directed by the Settlement of War Claims Act of 1928 until total of all payments on the three classes equals 80 percent of the amount payable Jan. 1, 1928. Payinent of accrued interest since Jan. 1, 1928, on this class of claims deferred in accordance with act. 194 •REPOUT OF T H E SEORETARY OF T H E TREASURY War Claims Arbiter.—Under the Settlement of War Claims Act of 1928, it was the duty of the War Claims Arbiter, within certain limitations, to hear the claims of German, Austrian, and Hungarian nationals and to determine the fair compensation to be paid by the United States for ships seized, patents sold or used by the United States, and a radio station sold to the United States. War Claims Arbiter: Claims oj German nationals.—The Treasury completed up to June 30, 1935, payment of 50 percent of the amount of all awards made by the War Claims Arbiter in favor of German nationals as required by paragraph 7 of section 4 (c) of the Settlement of War Claims Act of 1928. No payments were made on these awards subsec[uent to that date. The following summary shows the number and amount of awards in favor of German nationals certified to the Treasury for payment, the payments made on account, and the balance due thereon as of September 30, 1940: Number of awards of the War Claims Arbiter on account of claims of German nationals for ships and patents andaradio station and the aniount paid and balance due on each, September SO, 1940 Total amount (315 awards) Awards certified Ships, amount (27 awards) 1. Amount due on account: Principal of awards, including interest to Jan. 1, 1929 -.. $86,738,320.83 ' $74, 252,933.00 Interest at 6 percent per annum from Jan. 1,1929, on total amount payable as of Jan. 1,1929, or on the principal amount remaining unpaid to Sept. 30,1940 30,163,155.74 25,671,570.29 Total due claimants - __ 2. Payments made on account to Sept. 30, 1940: Principal of awards Interest at 5 percent per annum from Jan. 1,1929, on total amount payable as of Jan. 1,1929, or on the principal amount remaining unpaid to Sept. 30,1940 Total payments to Sept. 30,1940 3. Balance due on account: Principal of awards---- _ .. Interest accrued at 5 percent per annum from Jan. 1, 1929, on total amount payable as of Jan. 1,1929, or on the principal amount remaining unpaid to Sept. 30,1940 Balance due claimants.. .__. Patents and radio station, amount (288 awards) $12,485,387.83 4,491, 685. 45 116,901,476. 57 99,924, 503.29 16,976,973. 28 43,368,899.24 37,126,205.21 6, 242, 694.03 43,368,899.24 37,126,205.21 6,242,694.03 43, 369, 421. 59 37,126, 727. 79 6,242, 693.80 30,163,156. 74 25, 671, 570. 29 4,491, 585. 45 73,632, 577.33 62,798,298.08 10, 734, 279.25 1 Includes awards amounting to $522.58 to members of former ruling family of Germany (sec. 3 (j), Settlement of War Claims Act of 1928, as amended). War Claims Arbiter: Claims oj Hungarian nationals.—The awards made by the Arbiter to Hungarian nationals in the sum of $39,125, with interest at the rate of 5 percent per annum from July 2, 1921, to December 31, 1928, amounting to $14,675, have been paid with the exception of one award amounting to $137.51, together with interest thereon at the rate of 5 percent per annum from December 31, 1928. No payments were made during the year on these awards. German special deposit account.—The following statement shows the total amounts deposited in the German special deposit account, the R.E'P0QEIT OF THE SEORETARY OF THE TREASIURY 195 amounts paid therefrom up to September 30, 1940, and the balance held in the account: Funds deposited in the German special deposit account and payments made therefrom up to September SO, 1940 RECEIPTS From investments by Alien Property Custodian under Trading with the Enemy Act, as amended: Unallocated interest fund __ $25,000,000.00 Less refunds 6,167,944.37 19,832,055.63 17,552,096.91 20 percent German property retained $37, 384,152. 54 From Germany: 2H percent of Dawes' annuities available for reparations (ParisagreementofJan. 14,1926)...32,183,060.87 Under German-American debt agreement, June 23,1930-- 19,469,964.00 Interest on payments postponed under terms of debt agreement dated June 23,1930 1,743,738.70 Appropriation for ships, patents, and radio station 86,738,320.83 Expenses of Administration, War Claims Arbiter, on account of German nationals 113,624.20 Deposits by Attorney General of the United States (Alien Property Bureau) under sec. 25 (d) of Trading with the Enemy Act, as amended: German Government --. German nationals 137,268.13 856.401.72 Earnings and profits on investments by Secretary of the Treasury .--. ' Total receipts 53,396,763. 67 86,851,945.03 993,669. 85 5,446,763.85 — $184,073,294.5 PAYMENTS ON ACCOUNT Awards of the Mixed Claims Commission: Under agreement of Aug. 10,1922 _ Under agreement of Dec. 31,1928 .- Private Act No. 509-Awards of War Claims Arbiter: For ships For patents and radio station .-. $129,727,690.98 5,347,383.96 37,126,205.21 6,242,694.03 One-half of 1 percent deducted from mixed claims payments covered into Treasury ($88.87 withheld but not paid) :.One-half of 1 percent deducted from mixed claims payments on account of awards entered under agreement of Dec. 31,1928 (act of June 21,1930), and paid to Germany ($2,720.95 withheld but not paid) One-half of 1 percent deducted on account of Private Law No. 509 ($795.35 withheld but not paid) Advances to special fund, expenses of administration of the settlement of War Claims Act of 1928 (OflQce of the Secretary of the Treasury)... -... Expenses of administration. War Claims Arbiter account of German nationals _ Total payments -- $135,075,074. 94 118,706.28 43,368,899.24 651,809.90 24,150.09 47,175.00 113,624.20 -, 179,399,439.65 Balance in German special deposit account (including investments) Made up as follows: , $4,500,000 face amount 2 ^ percent Treasury bonds, 1954-66 Accrued interest paid on investment Cash b a l a n c e - - - — 4,673,856.19 -— -- ""• 4,500,000.00 8,.575. 82 165,279.37 4, 673,855. 19 Tripartite Claims Commission: Claims against Austria.—The total amount of awards, including interest, certified by the Tripartite Claims Commission to the Treasury for paynient was $370,032.14. Payments on these awards were completed during the fiscal year 1939. Tripartite Claims Commission: Claims against Hungary.—The awards entered by the Tripartite Claims Commission against Hungary, 196 REPORT OF THE; SEORETARY OF THE TREASURY in favor of American nationals, amounted to $199,975.57. During the fiscal year 1940 no payments were made on account of such awards. As of June 30, 1940, awards aggregating $7,257.35 had not been paid because claimants had not filed applications as required by law. Claims oj American nationals against Turkey Representatives of the United States and Turkey signed at Istanbul on October 25, 1934, a final agreement for the settlement of the claims of the nationals of each country against the other, embraced within the agreement concluded between the United States and Turkey through an exchange of notes on December 24, 1923, and confirmed by a further exchange of notes on February 17, 1927. The agreement provides that the Republic of Turkey will pay to the Uniteci States the sum of $1,300,000, without interest, in full settlement of claims of American citizens which are embraced by the agreement of December 24, 1923, in 13 annual installments of $100,000 each; the first installment to be paid on June 1, 1936, following ratification of the agreement by the Great National Assembly of Turkey. The agreement was approved by the Assembly on December 23, 1934. Under an exchange of notes in October and November 1937 the United States consented to a change of the due date for the payment of the annual installments under the agreement from June 1 to June 20 because June 1 coincides with the beginning of the Turkish fiscal year and was therefore an inconvenient time for the Turkish Government to make payments of an important nature. Under the joint resolution approved June 18, 1934, authorizing an appropriation to cover the expenses incurred by the United States in connection with such claims, it was provided that the expenses shall become a first charge upon any moneys received from the Turkish Government and the amount of such expenditures shall be deducted from the first payment by the Turkish Government and deposited in the Treasury as miscellaneous receipts, and that the Secretary of State in distributing to the respective claimants the balance of the amounts received from the Turkish Government shall apportion the amount withheld on account of expenses in such manner as to constitute a uniform percentage of deduction from the amount found to be due each claimant. The Special Claims Commission, United States and Turkey, established under the agreement of December 24, 1923, made awards in 33 cases aggregating $899,338.09, which were reduced by $70,891.06 on account of expenses incurred by the United States, leaving net awards amounting to $828,447.03 payable from funds received from the Republic of Turkey. Under the provisions of the act of February 27, 1896 (29 Stat. 32), these awards were certified on August 19, 1937, by the Secretary of State to the Secretary of the Treasury for payment. During the fiscal year 1940 a pro rata payment was authorized to be made to the claimants by the Treasury from funds amounting to $100,000, available for that purpose. An additional sum of $100,000 was received on June 20, 1940, but too late to enable the Treasury to make payments to claimants prior to June 30, 1940. 'RE^POORiT OF T H E SEOREiTARY OF T H E TREAuSURY 197 Statement of awards made by Special Claims Commission, United States and Turkey, as of J u n e 30, 1940 Amount awarded to claimants: Amount of claims Interest allowed Total $539,844.13 359,493.96 . 899,338.09 Less deductions on account of expenses incurred by the United States 70,891.06 Amount of awards $828,447.03 Amount received from Republic of Turkey: To June30, 1939 : -.During fiscal year 1940 1 Total -Less reimbursement for expenses by the United States Available for payment to claimants Amount paid to claimants: To June30, 1939. During fiscal year 1940 -. Total :.- - 300,000.00 200,000.00 500,000.00 70,891.06 429,108. 94 -.. - 229,057.95 • 99, 977. 75 - Balance due claimants for which vouchers have not been received,- 329,036.70 . 100,073. 24 1 Installment of $100,000 due on June 20,1940, received by Treasury on June 20,1940. Claims oj American nationals against Mexico The Special Mexican Claims Commission was established pursuant to the act approved April 10, 1935, with jurisdiction to hear and determine, conformable to the terms of the convention of September 10, 1923, and justice and equity, all claims against the Republic of Mexico, notices of which were filed with the Special Claims Commission, United States and Mexico, established by the convention of September 10, 1923, in which the said Commission failed to award compensation, except such claims as may be found by the Commission provided for in the Special Claims Convention of April 24, 1934, to be general claims and recognized as such by the General Claims Commission. Section 4 of the act provides that if, after all claims have been passed upon and all awards have been entered, the total amount of such awards is greater than the amount that the Government of Mexico has agreed to pay to the Government of the United States in satisfaction of the claims, less expenses of the Commission, it shall reduce the awards on a percentage basis to such amount, and shall enter final awards in such reduced amounts. Pursuant to section 9 of the act of April 10, 1935, the Secretary of State shall transmit to the Secretary of the Treasury a list of all claims allowed in whole or in part, together with the amount of each claim and the amount awarded by the Commission, and the Secretary of the Treasury, after making the deduction to cover the expenses of the United States incurred in connection with such claims, shall distribute in ratable proportions, among the persons in whose favor awards shall have been made, or their assignees, heirs, executors, or administrators of record, according to the proportions which their respective awards shall bear to the whole amount then available for distribution, such moneys as may be received from the Government of Mexico under the convention of April 24, 1934. Under the convention between the United States and Mexico dated April 24, 1934, covering the en bloc settlement of the claims presented by the Government of the United States to the Commission established by the Special Claims Convention concluded September 10, 1923, the amount to be paid by the Government of Mexico to the Government 198 'REPORT OF THE SEORETARY OF THE TREASURY of the United States was fixed at $5,448,020.14. This amount is to be paid at the rate of $500,000 per annum, beginning January 1,1935, and continuing until the whole amount shall have been paid. Deferred payments, that is, payments made after January 2, 1935, shall bear interest at the rate of one-fourth of 1 percent per annum for the first year counting from January 1, 1935, and an adciitional one-fourth of 1 percent for each additional year until the maximum of 1 percent is reached, which shall be applied beginning January 1, 1939. In the event of failure to make annual payments when due, this rate shall be increased at the rate of one-fourth of 1 percent per annum on the amount of deferred payments during the period of any such delay until a maximum additional rate of 3 percent on such overdue amounts is reached. On June 20, 1938, the Secretary of State certified to the Secretary of the Treasury for payment a list of awards entered by the Special Mexican Claims Commission aggregating $9,137,341.79, subsequently adjusted to $9,140,541.89, which were subject to reduction on a percentage basis as provided in section 4 of the act approved April 10, 1935. The final awards as adjusted aggregated $5,210,108.92. The total appropriations to cover the expenses incurred by the United States amounted to $250,000 and pending a final determination as to the actual amount of expenses paid by the United States, $250,000 of the appropriations has been withheld from the payments made by the Government of Mexico. As of June 30, 1940, there had been received and made available for distribution to claimants the sum of $2,878,180.70. Amounts aggregating 55.24 percent of the final awards of $5,210,108.92 have been authorized to be distributed to the claimants. Statement of awards made by Special Mexican Claims Commission, United States and Mexico, as of June 30, 1940 Amount of final awards to claimants after application of sec. 4 of the act approved Apr. 10, 1935 -$6,210,108.92 Amount received from Government of Mexico: To June 30, 1939, $2,500,000 principal and $98,700. 50 interest Jan. 2, 1940, $500,000 principal and $29,480.20 interest - - -.- -— $2, 698,700. 60 529,480.20 Total to June 30, 1940 ..... Less amount reserved to cover expenses incurred by the United States Available for payment to claimants •:. . ..Amount paid to claimants during fiscal year 1939 --Amount paid to claimants during fiscal year 1940 ." Total to June 30, 1940 - Balance due claimants: For which vouchers have not been received For subsequent distribution 2, 087,193.47 678,717.90 . - - _ 3,128.180. 70 250,000.00 2,878,180.70 2,765,911.37 112,162,80 116.53 : 112,269.33 Railroad obligations Total receipts during the fiscal year on account of railroad securities amounted to $103,509.14, of which $1,075.99 was collected by the Director General of Railroads under the Federal Control Act, as amended, and $102,433.15 was collected by the Treasury Department under section 210 of the Transportation Act, 1920, as amended. The following statement shows the total amount of railroad obligations, by classes, originally held by the United States Government (exclusive of certain miscellaneous obligations held by the Director RE'PORT OF THE. SECRETARY OF T H E TRE'ASURY 199 General of Railroads), the amount held on June 30, 1940, and payments received on account: Summary of railroad obligations held by the Government as of J u n e 30, 1940, by classes Principal araount originally Class Federal Control Act: Equipment trust notes Sec. 7 Sec. 12 Transportation Act: Sec. 207 Sec. 210Total Principal amount held on June 30, 1940 $346, 556,750. 00 98,401,755. 00 62,103,463. 28 - Total payments received Principal Interest $346, 656, 750. 00 98,401,766. 00 62,103,463. 28 $45,338,918.25 23,100, 562. 27 4, 248,171. 96 54, 360, 339. 70 90,904, 943. 95 282,712,837.36 290,800,667. 00 $5,007,000.00 25,178, 927. 88 1 277,695,167.90 265, 621, 739.12 1, 080, 575,462. 64 30,186,927.88 1, 050,378,865. 30 217, 952,936.13 1 stock of the Kansas, Oklahoma & Gulf Ry. Co. in the face amount of $212,500 was sold on the market for $201,830.64, resulting in a difference of $10,669.46 between the receipts and the principal originally held. Section 207j Transportation Act, 1920, as amended.—The following statement shows the amount of obligations of carriers acquired under section 207 and held on June 30, 1940: Obligations acquired under the provisions of sec. 207 of the Transportation Act, 1920, and held as of J u n e SO, 1940 Carrier Principal amount of promissory Collateral, note or of face directly amount held security Class of collateral or of directly held security Chicago, Milwaukee, St. Paul & Pacific R. R. Co. Minneapolis & St. Louis R. R. Co. $3,207,000 (0 5% noncumulative preferred stock of carrier. 1,260,000 $1, 500,000 Wa.<?hington, Brandywine & Point Lookout R. R. Co. Waterloo, Cedar Falls & Northern Ry. Co. 50,000 76,000 Refunding and extension mortgage, 5% bonds of carrier. First mortgage, 6% bonds of carrier. 500,000 626,000 Total 5,007,000 Temporary general mortgage, 7% bonds of carrier. Principal in Interest in default default $1,250,000. $1,275,000.00 60,000 25,408.98 500,000 574,931. 50 1,800,000 1,875,340.48 1 Securities directly held. Section 210, Transportation Act, 1920, as amended.—This section established a revolving fund of $300,000,000 to be used for loans to railroads under the conditions set forth in a certificate of the Interstate Commerce Commission authorizing each loan, and also for paying judgments, decrees, and awards, rendered against the Director General of Railroads. No new loans are being made as the time for making apphcation has expired. No expenditures under this section were made by the Director General during the fiscal year. The net ex:penditures by him on this account amounted to $33,640,740.24 to June 30, 1940. Total loans (including renewal loans and repayments thereof aggregating $59,800,000) to June 30, 1940, amounted to $350,600,667, repayments amounted to $325,421,739.12, and loans outstanding as of that date amounted to $25,178,927.88. 200 REPORT OF T H E SECRETARY OF T H E TrREASnCJRY In an opinion dated February 7, 1939, the Attorney General of the United States advised the Secretary of the Treasury that the Treasury Department had authority under section 3469 of the Revised Statutes of 1873 to accept a cash offer in compromise on account of a loan to a railroad company under section 210 of the Transportation Act, 1920, as amended, provided that the facts are such as to warrant a compromise under the principles commonly applied and having due regard to the question of collectibility. I n view of this opinion the Secretary of the Treasury accepted $44,304.67, representing the unpaid principal of a loan of $50,000.00 made to the Aransas Harbor Terminal Railway, in full satisfaction and settlement of the unpaid principal and interest amounting to $17,357.57, accrued to February 1, 1939. The total payments by the carrier on this loan aggregate $81,613.09 of which $50,000.00 represented principal and $31,613.09 represented interest. The following statement shows the amount of obligations held on June 30, 1940, on account of loans to carriers under section 210, and the amount of principal and interest in default: Obligations held on J u n e SO, 1940, on account of loans to carriers under sec. 210 of the Transportation Act, 1920, as amended, and the amount of principal and interest i n default Loans outstanding Carrier Alabama, Tennessee & Northern R. R. Corporation Des Moines & Central Iowa R. R. Co. (formerly the Interurban Ry. Co.) . Fort Dodge, Des Moines & Southern R. R. Co '. Gainesville & Northwestern R. R. Co Georgia & Florida Ry. (receiver) Minneapolis & St. Louis R. R. Co --1 Missouri & North Arkansas Ry. Co Salt Lake & Utah R. R. Co Seaboard Air Line Ry. Co Seaboard-Bay Line Co Virginia Blue Ridge Ry. Co Virginia Southern R. R. Co Waterloo, Cedar Falls & Northern Ry. Co Wichita, Northwestern Ry. Co Wilmington, Brunswick & Southern R. R. CoTotal '. Principal in default Interest in default $161,500.00 $151,500. 00 9,085.00 633, 600.00 200, 000.00 1 76,000. 00 792, 000.00 1,382, 000.00 1 3, 600,000. 00 1872, 600.00 14,440, 677. 88 1, 256, 000.00 106, 000.00 138, 000.00 1, 260, 000.00 381, 760. 00 90, 000.00 633, 500.00 200,000.00 460,178.14 125,164. 91 792,000.00 1, 382,000. 00 498, 960. 00 1,372,289. 73 14,440, 577. 88 1, 266,000. 00 106,000. 00 7,866,049. 73 640, 560.00 88,827. 86 1, 260,000.00 381, 750. 00 90,000. 00 1,346, 461. 97 377, 932. 40 20, 693,327. 88 12,889, 509. 74 26,178,927.88 54,000.00 1 Assets of these carriers have been completely liquidated, and were insufficient to meet these claims. Federal control oj railroads Effective July 1, 1939, under Reorganization Plan No. I I dated May 9, 1939, the office of the Director General of Railroads was abolished and the functions and duties previously performed by the Secretary of the Treasury as Director General of Railroads were transferred to the Secretary of the Treasury. T h e last report covering operations of the former United States Railroad Administration was for the calendar year 1937. This report covers the period of thirty months from January 1, 1938, to June 30, 1940. Administration.—Considerable progress has been made in closing out and liquidating matters growing out of the control of the American transportation system, which was exercised through the United States Railroad Administration during the period from December 28, 1917, to February 29, 1920. Under the general supervision of the Secretary RiEPORT OF THE. SEORETARY OF T H E 201 TRE^fURY of the Treasury as Director General of Railroads the task of winding up the affairs of the Railroad Administration subsequent to March 1, 1937, was carried on by employees of the Treasury Department as an incident to the performance of their regular duties. Total administrative expenses for the calendar years 1937 and 1938 and for eighteen months from January 1, 1939, to June 30, 1940, are shown in the. following table. The expenses for the last period cover eighteen months' salary of one clerk at $1,740 per annum whose time is devoted to the searching of files in connection with the handling of inquiries. Calendar year 1937 Class Personal services (pay roll)__ Rent Electricity Printing supplies and services Telephone and telegraph Total-- -_ — „ Calendar year 1938 $5,867.00 1,500.00 82.24 63.93 27.89 $1. 740.00 7, 641. 06 1,778. 21 January 1, 1939, to June 30,1940 $2, 610.00 38.21 2, 610.00 Finances.—Total receipts for the calendar year 1938 were $9,391.63, and expenditures were $4,948.67, resulting in net receipts of $4,442.96, as compared with net receipts of $130,984.98 for 1937. During the eighteen months from January 1, 1939, to June 30, 1940, total receipts were $221,124.73, and expenditures were $4,692.27, resulting in net receipts of $216,432.46. At the close of business on June 30, 1940, the cash and appropriation balances aggregated $344,646.69 as compared with $2,385,158.16 at the close of 1937, and with $128,214.23 at the close of 1938. A statement of receipts and expenditures follows: Receipts and expenditures, calendar year 1938 and for eighteen months from J a n u a r y 1, 1939, to J u n e 30, 1940 Calendar year 1938 Balances at beginning of period: Director General of Railroads Unrequisitioned appropriation balances: Federal control of transportation systems. Loans to railroads after termination of Federal control -. Total balances Receipts: Collections of principal on obligations of carriers Collection of interest on obligations of carriers. Income taxes of Federal carriers repaid by Treasury Collection of miscellaneous claims referred to Washington from field, including transportation charges, undercharges, e t c . - - . . - $783,868. 72 $80, 680. 38 939,902. 66 47, 533.85 661,386.89 1,535.81 1,000. 00 3, 587.97 6, 095. 49 215,971. 03 1, 760. 33 565.73 221,124. 73 9, 391.63 Total balances and receipts- $128,214. 23 85,158.16 Total receipts Expenditures: Employees, compensation liability awards Deposit with the Workmen's Compensation Board of Ontario, account of compensation liability--Claims for unpaid wages, back pay awards and Liberty bond subscription refunds Jan. 1, 1939, to June 30, 1940 349,338.96 2, 394, 549. 79 782.13 1,172.12 1,116.10 1,272.23 910.15 202 REPORT OF T H E SEORETARY OF T H E TREASTJRY Receipts and expenditures, calendar year 1938 and for eighteen months from J a n u a r y 1, 1939, to J u n e 30, 1940—Continued Jan. 1,1939, to June 30, 1940 Calendar year 1938 Expenditures—Continued Administrative expenses: Payrolls Other, material and supplies, etc Total expenditures -. . -- -Transferred to surplus fund of the Treasury: Federal control of transportation systems Loans to railroads after termination of Federal control - $1, 740.00 38.21 $2, 610.00 $4,948. 67 $4 692 27 1,600,000.00 661,386.89 Total transferred.-- 2,261,386.89 Total expenditures and transfers Balances at end of period: Director General of Railroads. _ Federal control of transportation systems 2,266, 335. 56 80,680.38 47, 533.85 Total 128, 214. 23 4,692 27 76, 233.01 - 268,413.68 2,394,649.79 344,646.69 349,338.96 During 1938, pursuant to section 12 of the Federal Control Act $700,000 realized from operation of carriers during Federal centre was paid into the revolving fund created by that act. This sum, together with $900,000 of unexpended appropriation balances, or a total of $1,600,000, was transferred to the surplus fund of the Treasury. There was also transferred to the surplus fund from the revolving fund for loans to railroads after termination of Federal control the sum of $661,386.89. Securities, etc.—No collections were made since November 24, 1936, on account of the obligations of carriers acquired under section 207 of the Transportation Act, 1920, as amended, which are listed on page 199. The misceUaneous securities acquired under section 202 of the Transportation Act, 1920, as amended, were obtained from nonFederal controlled railroads and others for indebtedness, such as isuterline balances, freight charges, undercharges, etc. From January 1, 1938, to June 30, 1940, $6,123.78 was collected from this source. A statement of these items, showing the amounts carried on December 31, 1937, the changes from that date to June 30, 1940, and the amounts carried on June 30, 1940, is as follows: Carrier Indebtedness Dec. 31,1937 A m o u n t collected A m o u n t collected Jan. 1,1939, to June Jan. 1, to Dec. 31, 30,1940 1938 Principal Wichita, Northwestern Ry. Co. (receivers' certificates) E. F. Drew & Co.,Inc. (stock).Virginia Blue Ridge Ry. Co. (loans and bills receivable) Total —- $44,000.00 4,065.00 Interest Principal $1,535.81 $1,000.00 Interest $3,587.97 $43,000.00 4,065.00 16,592.36 64, 657.36 Indebtedness June 30, 1940 i6,692.36 1,535.81 1,000.00 3, 687.97 63,657. 36 There were held in the custody of the Division of Loans and Currency on June 30, 1940, for account of employees of carriers formerly under Federal control, $600 principal amount of Fourth Liberty Loan bonds of 1933-38. REPOKT OF THE SECRETARY OF THE TREASrCTRY 203 Land comprising 160 acres in Bingham County, Idaho, was transferred to the United States on September 24, 1938, by quitclaim deed. This land has been transferred to the Federal Works Agency for disposition under the act of August 27, 1935 (49 Stat. 885; U. S. C , Supp. v., title 40, sec. 304a). Claims against the Director General.—The principal claims presented . during the period were on account of refunds of installments paid on subscriptions for Liberty Loan bonds by employees of carriers during Federal control and for unclaimed wages and back pay earned by employees. Total payments on account of allowed claims of this character amounted to $1,272.23 during the calendar year 1938, and $910.15 for eighteen months from January 1, 1939, to June 30, 1940. Compensation payments— United States railroad employees.—Expenditures on account of the compensation award of a railroad employee residing in the United States amounteci to $782.13 for 1938. From January 1, 1939, to June 30, 1940, such expenditures amounted to $1,172.12. Canadian Workmen's Compensation Board.—The Canadian Workmen's Compensation Board, located at Toronto, Canada, has jurisdiction over certain cases of disability resulting from accidents during the period of Federal control on those railroads having lines extending into Canada. Pursuant to the demand of the Michigan Central Railroad Company a further payment of $1,116.10 was made during the calendar year 1938 to the carrier to reimburse it for a deposit made with the Board to complete pajmaent on certain compensation awards. Payments under Canadian compensation awards, made from funds so deposited with the Board, amounted to $2,691.00 during the calendar year 1938. Interest amounting to $1,375.10 was added to the fund, leaving a balance of $29,086.92 to cover awards as of December 31, 1938. The figures showing the balance as of June 30, 1940, are not available inasmuch as the Board's reports to the Director General of Railroads are on a calendar year basis. However, the status of the fund as of December 31, 1939, was as follows: Balance Dec. 31, 1938... Payments from Director General of Railroads during 1939 Interest Jan. 1, 1939, through Dec. 31, 1939 Payment of awards by Board during 1939 Balance Dec. 31,1939...- - $29,086.92 1,366.32 30, 452. 24 2, 721.00 27, 731. 24 Claims in javor oj the Director General.—Under the terms of the Federal Control Act and the standard contract with the carriers, the Director General paid 2 percent of all Federal income taxes assessed against carriers formerly under Federal control. Subsequently, the United States Board of Tax Appeals held that such taxes should not have been assessed against either the carriers or the Director General. As a result of further tax adjustments during 1938, there was received $6,095.49 on account of these items, and for eighteen months from January 1, 1939, to June 30, 1940, there was received $215,971.03. The Commissioner of Internal Revenue advised under date of March 14, 1938, that no adjustment was due the Director General on such income taxes amounting to $10,306.93 and paid by him on account of one carrier. The amount of the claims pending has, therefore, been reduced by $232,373.45. Further claims for such paid taxes amoimting to $908,130.55 are still pending before 269677—41 15 204 HEPOTIT OF T H E SEORETARY OF T H E TREASURY the Board of Tax Appeals and it is anticipated that substantial sums will be received when such cases are finally adjusted by the Bureau of Internal Revenue. All unpaid judgments which have not expired by reason of the statute of limitations, and other claims are being reviewed from time to time to determine whether any amounts can be collected thereon. Collections from this source amounted to $1,760.33 during 1938, and $565.73 from January 1, 1939, to June 30, 1940. Trust and special junds invested by the Treasury Under various provisions of law creating trust and special funds, the Secretary of the Treasury or the Treasurer of the United States is authorized to invest such portions of the funds as are not required to meet current withdrawals. The following statement shows the amount of Government and other securities held in these funds: Securities held as investments in trust and special funds, J u n e 30, 1940 (000 omitted) Government securities Fund Adjusted service certificate fund.. Ainsworth Library fund,. Walter Reed General Hospital Alaska Railroad retirement and disability fund Canal Zone retirement and disability fund..-'. Civil, service retirement and disability fund 1Civil service retirement and disability voluntary contributions fund--- . . District of Columbia teachers' retirement fund District of Columbia water fund. . . District of Columbia workers' compensation fund.. Foreign service retirement and disability fund Library of Congress trust fund Longshoremen's and harbor workers' compensation fund National Institute of Health gift fund National park trust fundFederal old-age and survivors insurance trust fundPershing Hall Memorial fund Railroad retirement account --Unemployment trust fund -. U. S. Goviernment life insurance fund Total --- Government guaranteed securities Other securities Total $11,300 $11,300 10 767 4,284 560, 200 10 767 4,284 560,200 200 6,772 1,673 22 3,926 1 $95 $1,694 11 218 140 81 14 1, 738,100 191 79,400 1,710,000 828,342 10 4, 935, 423 105 200 8,661 1,673 33 3,926 219 41,999 193 81 14 1,738,100 191 79,400 1,710,000 870,341 43,965 4,979,493 43 Adjusted service certificate jund:—^Amounts held for the account of the adjusted service certificate fund, created by the act of May 19, 1924, were reinvested during the fiscal year 1940 in special issues of Treasury certificates of indebtedness bearing interest at the rate of 4 percent per annum, in accordance with the procedure outlined in the Annual Report of the Secretary of the Treasury for the fiscal year 1925. In accordance with the provisions of the Adjusted Compensation Payment Act, 1936, enacted January 27, 1936, payments were made from the fund during the fiscal year 1940 on account of the issuance of $8,356,800 of adjusted service bonds and on account of checks for amounts less than $50, totaling $337,140.59. During the year, $8,200,000 net face amount of certificates were redeemed to meet current payments from the fund. REPORT OF THE SECRETARY OF THE TREASIURY 205 A statement of the fimd as of June 30, 1940 (exclusive of fund assets held by the Veterans' Administration on account of bank loans on adjusted service certificates redeemed), follows: Adjusted service certificate fund, June 30, 1940 FUND ACCOUNT Appropriations: To June 30, 1936 (including $2,230,157,966.40 appropriated in the Independent Offices Appropriation Act, 1937, approved Mar. 19,1936) $3,626,167,966.40 Interest on investments: To June 30, 1939 $130,669,020.68 July 1, 1939, to June 30, 1940 ---. 767,299.23 131, 436, 319. 81 Total 3, 757, 594, 276. 21 Payments under Adjusted Compensation Payment Act, 1936, enacted Jan. 27, 1936: Adjusted service bonds $1,837,007,950.00 Checks for amounts less than $50 83,430,787.72 Adjusted service bonds (Government life insurance fund series)-. 600,167,956.40 Total 2,420,596,694.12 Checks paid by Treasurer of the United States other than in final settlement of certificates under the Adjusted Compensation Payment Act, 1936, less credits on account.of repayments of loans and interest thereon 1,325,142,869.10 3,745,739,563.22 Balance in fund June 30, 1940 -.. 11,854,712.99 FUND ASSETS i Investments, 4% Treasury certificates of indebtedness - -. ... Unexpended balances: To credit of Chief Disbursing Officer, Division of Disbursement, and disbursing officers of the Veterans' Administration with the Treasurer of the United States-. To credit of fund on books of the Division of Bookkeeping and Warrants Total fund assets June 30,1940 1 Exclusive of assets held by Veterans' Administration. '• 11,300,000.00 529,947.22 24,766.77 11,864,712.99 Civil service retirement and disability jund.—In accordance with the provisions of the act of May 22, 1920 (41 Stat. 614), creating the civil service retirement and disability fund, the Treasury continued during the year to make investments for account of the fund in special issues of Treasury nbtes bearing interest at the rate of 4 percent per annum, in accordance with the procedure outhned in the Annual Report of the Secretary of the Treasury for 1926. ^ The act of August 4, 1939 (53 Stat. 1202, sec. 4), made provision for the acceptance of voluntary contributions from employees in multiples of $25. Such contributions which bear interest at the rate of 3 percent per annum, compounded annually, will be available at date of retirement for the purchasing of additional annuity. The voluntary contributions to June 30, 1940, amounted to $246,075; of this amount $200,000 has been invested in 3 percent special Treasury notes payable June 30, 1944. Investments are made at 3 percent per annum, which corresponas to the earning requirements of the act. The foUowing statement shows the status of the fund as of June 30, 1940, as reflected by the accounts of the Treasury Department: 206 REPORT OF THE SECRETARY OF THE TREASURY Civil service retirement and disability fund, June 30, 1940 "^ Credits: On account of deductions from basic compensation of employees and service-credit payments: From Aug. 1, 1920, to June 30, 1939 -2 $493,132,698.91 J u l y l , 1939, to June 30, 1940 .43,022,562.15 $636,155,261.06 On account of voluntary contributions Appropriations: To June 30, 1939----Available July 1,1939 Interest and profits on investments: . From Aug. 1, 1920, to June 30, 1939July 1, 1939, to June 30, 1940 - 246, 075.00 - 380,121,620.00 3 87,171,760.00 -- 131,153,942.40 21,564.999.99 , Total — Less checks paid by Treasurer of the United States on account of annuities and refunds, Aug. 1, 1920, to June 30,1940 — - 467, 293, 280. 00 152, 718, 942. 39 1,156,413,558.46 Balance in fund June 30,1940 Assets: Face amount $97,900,000 4% special 122,300,000 4% special 146,400,000 4% special 125,400,000 4% special 69,000,000 4% special 200,000 3% special Treasury Treasury Treasury Treasury Treasury Treasury 602,659,043.54 663,764,514.91 notes payable notes payable notes payable notes payable notes payable notes payable June June June June June June Principal cost $97,900,000.00 122, 300,000.00 145,400,000.00 125,400,000.00 69,000,000.00 200,000.00. 30, 1941 30,1942... 30, 1943 30, 1944 30, 1946 30, 1944 560,200,000 Unexpended balances June 30, 1940: To credit of disbursing officers .-_ On books of Division of Bookkeeping and Warrants --. 2,451,845.66 * 1,102,669.35 • 550,200,000.00 3,664,614.91 Total fund assets June 30, 1940 _ .-553,754, 514.91 1 On basis of daily Treasury statement (unrevised). 2 Exclusive of $1,430,808.84 transferred to the Canal Zone retirement and disability fund pursuant to act of May 2, 1931. Adjusted by $323,807.73 for amounts received in the fiscal year 1939 but not classified on the daily Treasury statement until the fiscal year 1940. 3 Includes $86,329,000 appropriated from the General Fund to cover the liability of the United States and $842,760 appropriated from the revenues of the District of Columbia to cover its liability in connection with the financing of the fund. . < Exclusive of $161,305.25 deposits in transits Canal Zone retirement and disability jund.—Under section 10 of the act of March 2, 1931 (46 Stat. 1477), creating the Canal Zone retirement and disability fund, the Secretary of the Treasury makes investments of such portion of the fund as in his judgment is not immediately required for the payment of annuities, refunds, and allowances, in accordance with the procedure outlined in the Annual Report of the Secretary of the Treasury for 1931. The following statement shows the status of the fund as of June 30, 1940: Canal Zone retirement and disability fund, June 30, 1940 ^ Credits: On account of deductions from basic compensation of employees subject to retirement act: From July 1, 1931, to June 30, 1939 „ - - $6,650,128.11 J u l y l , 1939, to June 30, 1940 600,181.34 — : $6, 250, 309.45 Appropriations: To June 30, 1939 ..2,000,000.00 Available July 1, 1939 600,000.00 Interest and profits on investments: From July 1, 1931, to June 30, 1939 July 1, 1939, to June 30, 1940 2,600,000.00 . 877,076.49 170,131.47 1,047,207.96 Total9,797,617.41 Less checks paid by Treasurer of the United States on account of annuities and refunds, July 1,1931, to June 30, 1940 _ 5,418,019.67 Balance in fund June 30,1940 1 On basis of daily Treasury statement (unrevised). . 4,379,497.74 'REPORT OF THE. SEORETARY 01^' THE TREASOGTRY 207 Canal Zone retirement and disability fund, June 30 1940—Continued Assets: Face amount $2, 294,000 4% special 603,000 4% special 599,000 4% special 624,000 4% special 164,000 4% special Treasury Treasury Treasury Treasury Treasury notes notes notes notes notes payable June payable June payable June payable June payable June 30, 194130, 1942.—' 30, 1943 30, 1944 30, 1945 4, 284,000 Unexpended balances June 30, 1940: To credit of disbursing officers On books of Division of Bookkeeping and Warrants Total fund assets June 30, 1940 2 Exclusive of $134.27 deposits in transit. Principal cost $2, 294,000. 00 603, 000.00 -_ 699,000.00 624,000.00 164,000.00 --_ -- 86,366.31 29,131.43 • - $4,284,000.00 95, 497. 74 4,379, 497.74 Foreign service retirement and disability jund.—Under section 18 of the act of May 24, 1924 (43 Stat. 144), estabhshing the foreign service retirement and disability fund, the Secretary of the Treasury invests such portion of the fund as in his judgment is not immediately required for authorized payments, in accordance with the procedure outlined in the Annual Report of the Secretary of the Treasury for 1927. The following statement shows the status of the fund as of June 30, 1940: Foreign service retirement and disability fund, June 30, 1940^ Credits: On account of deductions from basic compensation and service-credit payments: From May 24, 1924, to June 30, 1939 2$2, 642,939.19 July 1, 1939, to June 30, 1940 433,425.85 Appropriations: To June 30, 1939 Available July 1, 1939Interest and profits on investments: From May 24, 1924, to June 30, 1939 J u l y l , 1939, to June 30, 1940__ — .- - $2,976,365.04 2,461,100.00 199,400.00 2,660,600.00 . 1,025, 236. 70 162,333.66 1,177,570. 26 Total — 6,804,436.30 Less checks paid by Treasurer of the United States on account of annuities and refunds. May 24, 1924, to June 30, 1940 . 2,780,636.43 Balance in fund June 30, 1940 - 4,023, 898.87 Assets: Face amount Principal cost $659,000 4% special Treasury notes payable June 30, 1941 - - $659,000.00 886,000 4% special Treasury notes payable June 30, 1942.. 885,000.00 738,000 4% special Treasury notes payable June 30,1943 738,000.00 872,000 4% special Treasury notes payable June 30, 1944 . 872,000.00 772,000 4% special Treasury notes payable June 30, 1945 772,000.00 — 3,926,000.00 3,926,000 Unexpended balances June 30,1940: To credit of disbursing officers _.. 48,746.32 On books of Division of Bookkeeping and Warrants 3 49,163.55 " — 97,898.87 Total fund assets June 30, 1940 ..^ 4,023,898.87 1 On basis of daily Treasury statement (unrevised). 2 Adjusted by $238.92 for amount received in the fiscal year 1939 but not classified on the daily Treasury statement until the fiscal year 1940. 3 Adjusted by $3,774.82 sent to surplus in the fiscal year 1940, but added back to balance here for the reason that the same amount was not refiected in the daily Treasury statement as a debit against receipts until the fiscal year 1941. Alaska Railroad retirement and disability jund.—ThQ Alaska Railroad retirement and disability fund was created pursuant to section 9 of the act of June 29, 1936 (49 Stat. 2022), for the retirement of employees of the Alaska Railroad, Territory of Alaska, who are citizens of the United States. Under section 10 of the act, the Secretary of the Treasury invests such portion of the fund as in his judgment may not be immediately required for the payment of annuities, refunds, and allowances authorized by the act, in accordance with a procedure similar to that outlined in the Annual Report of the Secretary of the 208 'REP0R:T O F T H E : SEORETARY OF THE TREASfURY Treasury for 1931 covering investments for the Canal Zone retirement and disability fund: The following statement shows the status of the fund as of June 30, 1940: Alaska Railroad retirement and disability fund, June 30, 1940^ Credits: On account of deductions from basic compensation of employees subject to retirement act: To June 30, 1939-. 21359,861.40 J u l y l , 1939, to June 30, 1940 ____ 106,873.23 : Appropriations: To June 30, 1939 350,000.00 Available July 1,1939 176,000.00 Interest and profits on investments: From June 29, 1936, to June 30, 1939 J u l y l , 1939, to June 30, 1940 32,563.11 29,500,87 $466, 734.63 625,000.00 62,053.98 Total 1,063, 788.61 Less checks paid by Treasurer of the United States on account of annuities and refunds to June 30, 1940 245,308.41 Balance in fund June 30,1940 ____ Assets: Face amount $62,000 4% special Treasury notes payable June 30, 1941 266,000 4% special Treasury notes payable June 30,1942 225,000 4% special Treasury notes payable June 30, 1943 196,000 4% special Treasury notes payable June 30,1944 29,000 4% special Treasury notes payable June 30,1945 767,000 Unexpended balances June 30,1940: To credit of disbursing officers On books of Division of Bookkeeping and Warrants 808,480.20 ^ Principal cost $52,000.00 265,000.00 225,000.00 196,000.00 29,000.00 24,682.98 3 le, 797.22 : 767,000.00 41,480.20 Total fund assets June 30,1940 808, 480. 20 1 On basis of daily Treasury statement (unrevised). 2 Adjusted by $6,442.24 for amount received in the fiscal year 1939 but not classified on daily Treasury statement until the fiscal year 1940. 3 Exclusive of $7,418.78 deposits in transit. District oj Columbia teachers' retirement jund.—In accordance with the act of January 15, 1920, as amended by the District of Columbia Appropriation Act of June 5, 1920, the Treasurer of the United States makes investments of the funds derived from deductions from teachers' compensation. A further amendment of June 11, 1926, created a reserve fund and provided for annual appropriations to the fund which are also invested by the Treasurer. During the fiscal year 1940, the Treasurer acquired by purchase on the market and by subscription to new issues for account of the deductions fund $40,000 face amount of 2 percent Treasury bonds of 1948-50 and $215,000 face amount of 2% percent Treasury bonds of 1960-65, at a total principal cost of $266,913.45; and for the Government reserve fund $25,000 face amount of 2 percent Treasury bonds of 1948-50, $100,000 face amount of 2% percent Treasury bonds of 195560, and $85,000 face amount of 2% percent Treasury bonds of 1960-65, at a total principal cost of $214,194.70. REPORT OF THE SE'ORETARY OF THE TRE^fQRY 209 The following statement shows the assets of the two funds as of June 30, 1940: District of Columbia teachers' retirement fund, June 30, 1940 DEDUCTIONS FUND Assets: Face amount $860,200 4M% Treasury bonds of 1947-52 122,000 4% Treasury bonds of 1944-54 87,000 3 ^ % Treasury bonds of 1946-66 48,000 3 ^ % Treasury bonds of 1943-47 142,000 3M% Treasury bonds of 1941-43 232,000 3M% Treasury bonds of 1943-45 .-.• 1,896,850 27^% Treasury bonds of 1955-60 77,000 2 ^ % Treasury bonds of 1951-54 106,000 2M% Treasury bonds of 1966-59 293,000 23^% Treasury bonds of 1958-63 468,000 2%% Treasury bonds of 1960-65 182,000 43^% Philippine Islands bonds 16,000 4M% Puerto Rican bonds . • 72,000 33^% Federal Farm Mortgage Corporation bonds of 1944-64 385,400 4% consolidated Federal land bank bonds of 1944-46 177,000 3% consolidated Federal land bank bonds of 1945-56 .: 536,500 3% consolidated Federal land bank bonds of 1946-56 40,000 2% Treasury bonds of 1948-50.-- Principal cost _ $956,962.07 123, 387.50 87,437.81 49,600.00 137,657.50 232,000.00 1,927,412. 21 79,382.19 . 107,920.63 300,245.94 ._ 483, 302.82 197,669. 56 . 16,962.67 73, 786.00 403,077.40 173,460.00. 534,630.00 40,000.00 5,729,950 $5,923,793.20 GOVERNMENT RESERVE FUND Assets: Face amount Principal cost $282,000 4M% Treasury bonds of 1947-62. $313,717.51 12,000 4% Treasury bonds of 1944-54 .-12,285.00 31,000 3M% Treasury bonds of 1946-56---..31,145.31 199,000 3M% Treasury bonds of 1943-47 204,701.25 178,000 3K% Treasury bonds of 1941-43..177,606.66 1,085,000 2K% Treasury bonds of 1955-60 1,097,915.04 17,000 2H% Treasury bonds of 1951-54.... 17, 525.94 126,000 2H% Treasury bonds of 1956-59 128, 283. 76 313,000 2M% Treasury bonds of 1958-63. 318,227.20 143,000 2 ^ % Treasury bonds of 1960-66--150,467.82 55, 000 4H% Puerto Rican bonds --. 55,109. 56 23,000 3M% Federal Farm Mortgage Corporation bonds of 1944-64 23, 566.26 62,100 4% consolidated Federal land bank bonds of 1944-46 54, 623.76 290.200 3% consolidated Federal land bank bonds of 1946-56 289,474. 50 25,000 2% Treasury bonds of 1948-50.-'26,000.00 $2, 899, 649. 46 2,831,300 • Total --8,823,442.65 Unexpended balance June 30, 1940, on books of Division of Bookkeeping and Warrants. 232, 205.19 Total fund assets June 30, 1940 - . 9,055, 647.84 Longshoremen's and harbor workers' compensation jund.—This fund was established under the act of March 4, 1927 (44 Stat. 1444, sec. 44), to provide for the payment of compensation for disability or death resulting from injury to employees in certain maritime employments, and for the maintenance of employees undergoing vocational rehabilitation. The fund is administered by the United States Employees' Compensation Commission. Moneys not required for immediate disbursement are invested by the Treasurer of the United States. During the fiscal year 1940, the Treasurer acquired by subscription to new issues for account of the fund $10,000 face amount of 2 percent Treasury bonds of 1948-50. 210 REPORT OF THE SEORETARY OF THE TREASrCJRY The following statement shows the assets of the fund as of June 30, 1940: Longshoremen's and harbor workers' compensation fund, June 30, 1940 Assets: Face amount $10,000 2%^Treasury bonds of 1948-50— .15,600 3 ^ % Treasury bonds of 1944-46 34,500 4 ^ % Treasury bonds of 1947-62 11,550 3 ^ % Treasury bonds of 1943-45 10,000 3% Treasury bonds of 1951-55 14,800 2>g% Treasury bonds of 1955-60 14,860 2M% Treasury bonds of 1956-59 15,600 23^% Treasury bonds of 1958-63 13,900 2 ^ % Treasury bonds of 1960-65. 9,700 33^% Federal Farm Mortgage Corporation bonds of 1944-64 11,000 3% consolidated Federal land bank bonds of 1946-56 9,700 3}4% consolidated Federal land bank bonds of 1945-56 22,000 3% consolidated Federal land bank bonds of 1945-56 193,200 Unexpended balances: Disbursing officer (checkbook balances) Division of Bookkeeping and Warrants - $198,962. 41 1,423.40 16, 371. 32 _ Total fund assets June 30, 1940 Principal cost $10,000.00 15,600.00 38,646. 56 -.11, 650.00 9,969. 38 14,920.26 14,976. 20 15,936.38 14,985.94 9,953.46 ...10,972.60 9,901. 74 21, 560.00 -.- - 17,794.72 -- 216,757.13 District oj Columbia workers' compensation jund.—This fund was established under the act of May 17, 1928 (45 Stat. 600), which, extended the provisions of the Longshoremen's and Harbor Workers' Compensation Act, approved March 4, 1927, inciluding all amendments thereto, to apply in respect to the injury or death of an employee of an employer carrying on certain employments in the District of Columbia, irrespective of the place where the injury or death occurs. The fund is derived from collections of awards against employers made by the United States Employees' Compensation Commission, as compensation for death of employees resulting from injuries, in each case where no person is found to be entitled to such compensation. Any portion of the fund which, in the opinion of the Commission, is not needed for current requirements is invested by the Treasurer of the United States. During the fiscal year 1940, the Treasurer acquired by subscription to new issues $12,000 face amount of 2 percent Treasury bonds of 1948-50 at a principal cost of $12,000. The following statement shows the fund assets as of June 30, 1940: District of Columbia workers' compensation fund, June 30, 1940 Assets: Face amount $10, 000 2%% Treasury bonds of 1955-60 11,000 3% consolidated Federal land bank bonds of 1946-5612,000 2% Treasury bonds of 1948-50 33,000 Unexpended balances: Disbursing officer (check book balances) Division of Bookkeeping and Warrants Total fund assets June 30,1940 - - Principal cost $10,165. 63 10,972.60 12,000.00 $33,138.13 2,113. 25 4,852.91 6,966.16 -- 40,104.29 District oj Columbia water jund.—The District of Columbia Appropriation Act of July 15, 1939, authorized the Secretary of the Treasury REPODRT OF THE SEORETARY OF THE TREiASfURY 211 to invest in United States securities, for account of the water fund of the District of Columbia, such funds as may be determined by the Commissioners of the District of Columbia to be available for that purpose during the fiscal year 1940. This was in addition to previous authorizations under winch securities were acquired for the water fund. During the year the Secretary acquired by purchase for account of the fund $476,000 face amount of 2% percent Treasury bonds of 1960-65 at a principal cost of $493,521.25. The following statement shows the securities held for account of the District of Columbia water fimd as of June 30, 1940: Face amount $736,000 2%% Treasury bonds of 1968-63— 937,000 2%% Treasury bonds of 1960-66 1, 673,000 Principal cost $749,110.01 987,511.66 1,736,621.57 United States Government lije insurance fund.—The United States Government life insurance fund was established under the World War Veterans' Act, 1924, approved June 7, 1924 (43 Stat. 607), which among other things, consolidated, codified, revised, and reenacted the laws affecting the administration of the War Risk Insurance Act, as amended. Under section 17 of the World War Veterans' Act, 1924, as amended, the Secretary of the Treasury is authorized to invest and reinvest the United States Government life insurance fund, or any part thereof, in interest-bearing obligations of the United States or bonds of the Federal farm loan banks and to sell such investments for the purposes of the fund. The fund is also available to the Administrator of Veterans' Affairs for making loans upon the security of Government life insurance policies. The act approved March 3, 1927, as amended by the Emergency Adjusted Compensation Act of February 27, 1931, authorized the Administrator of Veterans' Affairs to make loans to veterans upon their adjusted service certificates out of the United States Government life insurance fund. All of the funds available for investment during the fiscal year 1939 were invested in obligations of the United States. The amount of policy loans outstanding decreased $763,608.88 during the year. The Administrator of Veterans' Affairs reported outstanding loaus from this fund on June 30, 1940, aggregating $150,159,944.58 to veterans on policies. On June 30, 1940, the principal of and accrued interest on outstanding loans made subsequent to the enactment of the Adjusted Compensation Payment Act, 1936, upon adjusted service certificates amounted to $2,905,460.92. Monthly reports are made by the Treasury to the Veterans' Administration of all securities in the fund and the principal cost thereof as the result of investments made by the Secretary of the Treasury, and periodic verifications of the security holdings are made through 212 HEPOUT OF THE. SEORETARY OF T H E TREASrURY reports rendered to the Administrator by the safekeeping offices. The investments as of June 30, 1940, were as follows: United States Government life insurance fund, June 30, 1940 Investment 43^% Treasury bonds of 1947-52 . 4% Treasury bonds of 1944-54 3%% Treasury bonds of 1946-56-—_ 3% Treasury bonds of 1961-55 --.-2%% Treasury bonds of 1956-60 2%% Treasury bonds of 1948-51--_ _ 23|% Treasury bonds of 1951-54 23|% Treasury bonds of 1956-59 . 2%% Treasury bonds of 1958-632M% Treasury bonds of 1960-65 23^% Treasury bonds of 1960-52 3% consolidated Federal land bank bonds of 1945-55 3% consolidated Federal land bank bonds of 1946-66 43^% adjusted service bonds. Government life insurance fund series, 1946—^ . 2% special Treasury notes. Government life insurance fund series, payable June 30, 1943-44 -_-_ ' Par value Principal cost $40, 772,000. 00 14,106, 000.00 2, 200,000. 00 5,900, 000. 00 122, 559,250. 00 5, 300,000.00 17, 745,000. 00 36, 824,300.00 8,840, 000. 00 26, 078,000.00 24, 600,000. 00 19, 280,000. 00 22, 719,000. 00 $42, 234,926. 78 15,078, 333. 48 2, 384,625.00 6, 051,109. 38 124, 639,945. 36 5, 315,000.01 17,979, 950.02 37,173, 874.80 9, 017,525.05 26,161, 381. 34 24, 710,950. 54 18,894, 400.00 22, 662,202. 50 500,157, 956. 40 600,157, 966. 40 24, 259,000.00 24, 259,000.00 Total investments made by Secretary of the Treasury. 870, 340, 506. 40 876, 711,180. 66 Policy loans outstanding i -_ Adjusted service certificate loans outstanding i Total outstanding loans made by Administrator of Veterans' Affairs 150,159,944. 58 2,905,460.92 150,159,944. 68 2, 905,460.92 153,065,405. 50 153,065,405. 50 1,023,405, 911.90 1,029, 776, 586.16 Total investments in fund.. ^ Includes interest accrued to anniversary dates of loans. Federal old-age and survivors insurance trust jund.—Under section 201 (a) of the Social Security Act Amendments of 1939, approved August 10, 1939 (53 Stat. 1362) (see exhibit on page 578), there was created the 'Tederal Old-Age and Survivors Insurance Trust F u n d " consisting of the securities held by the Secretary of the Treasury for the old-age reserve account and the amount standing to the credit of the old-age reserve account on the books of the Treasury on January 1, 1940 (see page 156). This section also appropriates to the trust fund for the fiscal year 1941, and for each fiscal year thereafter, amounts equivalent to 100 percent of the taxes (including interest, penalties, and additions to the taxes) received under the Federal Insurance Contributions Act and covered into the Treasury. Under paragraph (b) of this section, the Board of Trustees of the Federal old-age and survivors insurance trust fund was created, composed of the Secretary of the Treasury, the Secretary of Labor, and the Chairman of the Social Security Board, all ex officio. The Secretary of the Treasury is designated as the Managing Trustee of the Board of Trustees and is required under section 201 (c) to invest such portion of the trust fund as is not, in his judgment, required to meet current withdrawals. Such investments may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. Special issues of obligations under the Second Liberty Bond Act, as amended, are authorized at a rate equal to the average rate of interest, computed as to the end of the calendar month next preceding the date of such issue, borne by all interest-bearing obligations of the United States then forming a part of the public debt, except that where such average rate is not a multiple of one-eighth of 1 percent, the rate of such special obligation shaU be the multiple of one-eighth of 1 percent next lower than such average rate. All such special obligations issued from REPOiRT OF THE SEORETARY OF THE TREASfURY 213 January 1 to June 30, 1940, have borne an interest rate of 2K percent. Such special obligations are to be issued only if the Managing Trustee determines that the purchase of other interest-bearing obligations of the United States, or of obligations guaranteed as to both principal and interest by the United States on original issue or at the market price, is not in the public interest. All amounts credited to the fund are made available for payments to individuals entitled to Federal old-age and survivors insurance benefits. Under paragraph (f) of section 201, the Managing Trustee is directed to pay from the trust fund into the Treasury the amount estimated by him and the Chairman of the Social Security Board which will be expended during a three-month period by the Social Security Board and the Treasury Department for the administration of title I I and title V I I I of the Social Security Act and the Federal . Insurance Contributions Act. Such payments are required to be covered into the Treasury as repayments to the account for reimbursement of expenses incurred. These repayments are not available for expenditure, but are required to be carried to the surplus fund of the Treasury. If estimates for any particular three-month period are too high or too low, the Managing Trustee is required to make appropriate adjustment in future payments. In accordance with section 201 (a), the balances in the old-age reserve account were transferred as of January 1, 1940, to the Federal old-age and survivors insurance trust fund, and investments were made in obligations as authorized by section 201 (c). The following statement shows the cumulative transactions (including the former old-age reserve account) to June 30, 1939, and for the fiscal year 1940, and the status of the fund as of June 30, 1940 „ Federal old-age and survivors insurance trust fund, June 30, 1940 ^ Credits: Appropriations: To June 30, 1939 Fiscal year 1940-• Interest on investments: To June 30, 1939 Fiscal year 1940 $1,165,000,000.00 650,000,000.00 -.. — Total Less payments on account of benefits: To June 30, 1939 Fiscal year 1940 44,625,098.67 42,488,827:85 .- Balance in account June 30,1940 - $264,900,000.00 382,000,000.00 497,400,000.00 268,900,000.00 • -- 23^% special Treasury notes p a y a b l e June 30, 1944-. June 30, 1945 --- Unexpended balances June 30, 1940: To credit of Chief Disbursing Officer On books of Division of Bookkeeping and Warrants Total assets June 30, 1940 1 On basis of daily Treasury statement (unrevised). 2 Purchased at par value. 36,127,704.00 12, 288,267.00 . ---. 87,113,926. 52 1,792,113,926.52 19,322,615.46 15,805,088.55 : Reimbursements in fiscal year 1940 for administrative expenses under sec. 201 (f) of. the Social Security Act, 1939 Assets: 2 . 3% special Treasury notes p a y a b l e June 30, 1941 June 30, 1942 June 30, 1943 June 30, 1944-----.- $1,705,000,000.00 . .-' 283,000,000.00 41,900,000.00 6,097,713.19 600,242.33 — 47, 416,971.00 ,1,744,697,955.62 1,413,200,000.00 324,900,000.00. 1,738,100,000.00 6, 597,955.52 1,744,697,955.52 214. REPORT OF T H E SEORETARY OF T H E TREASIURY Unemployment trust jund.—The unemployment trust fund was established pursuant to section 904 (a) of the Social Security Act, approved August 14, 1935, as amended. The Secretary of the Treasury is authorized and directed to receive and hold in the fund all moneys deposited therein by a State agency from a State unemployment fund, and 90 percent of the contributions collected pursuant to section 8 of the Railroad Unemployment Insurance Act, approved June 25, 1938 (railroad unemployment insurance account), and to invest such portion of the fund as is not, in his judgment, required to meet current withdrawals, in accordance with the procedure outlined in the Annual Report of the Secretary of the Treasury for 1937. The Social Security Act, as amended, provides that the fund shall be invested as a single fund, but the Secretary of the Treasury shall maintain a separate book account for each State agency and the railroad unemployment insurance account and shall credit quarterly on March 31, June 30, September 30, and December 31 of each year to each account, on the basis of the average daily balance of such account, a proportionate part of the earnings of the fund for the quarter ending on such date. The Railroad Unemployment Insurance Act, approved June 25, 1938, established, effective July 1, 1939, an unemployment insurance system for individuals employed by c'ertain employers engaged in interstate commerce. Under this act the Secretary of the Treasury is required to maintain in the unemployment trust fund an account known as the railroad unemployment insurance account. This account shall consist of 90 per centum of all contributions collected pursuant to section 8 of the act, all amounts transferred to the account from State unemployment compensation funds, and funds from certain other sources. Moneys in the account are to be used solely for the payment of benefits and refunds. In order to provide for the payment of benefits beginning July 1, 1939, before the collection of contributions or the receipt of funds to be transferred from the State unemployment compensation funds, the act provides that the Secretary of the Treasury advance to the credit of the account such sums, but not more than $25,000,000, as the Railroad Retirement Board requests for the purpose of paying benefits. Such sums are to be repaid from the account on January 1, 1941, or at such earlier time as the Board may, by agreement with the Secretary, determine. An appropriation of $23,750,000 for advance to the account was contained in the Treasury Department Appropriation Act, 1940, approved May 6, 1939. Under the provision of the act of June 25, 1938, the Social Security Board is directed to determine for each State, after agreement with the Railroad Retirement Board, and after consultation with such State, the amount in the State unemployment compensation fund representing the balance collected from employers and employees who come within the purview of the Railroad Unemployment Insurance Act. These amounts are to be transferred to the railroad uneniployment insurance account in the unemployment trust fund. During the fiscal year, $1,800,818.02 was transferred to the railroad unemployment insurance account under this provision. Under section 13 (d) of the act, it is provided that the Social Security Board shall withhold from certification to the Secretary of the Treasury griants to States for administrative expenses under section 302 (a) of REPOiRT OF T H E SEiORETARY OF THE, TRE^ASfCTRY 215 the Social Security J^ct from States which failed to pass laws authorizing the Secretary of the Treasury to make transfers to the railroad unemployment insurance account. Section 13 (f) directs the Social Security Board to certify to the Secretary of the Treasury for payment into the railroad unemployment insurance account the amounts withheld from any State. The State of Connecticut failed to amend its law authorizing the Secretary of the Treasury to make these transfers. The Board accordingly withheld from Connecticut and deposited in the railroad unemployment insurance account during the fiscal year grants for administrative expenses aggregating $783,000, which is included in the amount of $1,800,818.02. The foUowing statements show the status of the account as of June 30, 1940, and a summary of receipts and expenditures for the fiscal years 1936 to 1940: Unemployment trust fund, J u n e SO, 1940 ^ Credits: On account of deposits by State agencies: To June 30. 1939 J u l y l , 1939, to June 30, 1940__ -- - $1,869,471,414.37 .. 859,863,884.26 J Pro rata share of earnings to June 30, 1939 $44,837, 507.14 Pro rata share of earnings July 1,1939, to June 30, 1940 37,523,953.28 On account railroad unemployment insurance account: Deposits made by Railroad Retirement Board on account of contributions July 1, 1939, to June 30, 1940... Transfers froin States on account of railroad unemployment insurance account July 1, 1939, to June 30,1940. Advances from appropriation to the railroad unemployment insurance account... ' 82, 361,460. 42 • $2,811,696,759.05 44,248, 661.68 1,800,818.02 46, 049,479. 70 16, 000, 000.00 61,049,479.70 201,845.56 Pro rata share of earnings July 1,1939, to June 30,1940 Total : Less withdrawals by State agencies: To June 30, 1939 J u l y l , 1939, to June 30, 1940 Transfers to railroad unemployment insurance account July 1, 1939, to June 30, 1940.. Total 2, 729, 335, 298. 63 — 633,770,000.00 482,963,000.00 1,800,818.02 1,118,533,818.02 Less withdrawals from railroad unemployment insurance account: Repayment of advances from appropriations to railroad unemployment insurance account Railroad unemployment benefit payments.. Total... 15,000,000.00 14,552,455.95 29,562,456.95 Balance June 30, 1940 1,148,086,273.97 1,724,861,810.34 Assets: $1,710,000,000 face amount 2J.^% Treasury certificates of indebtedness, unemployment trust fund series, maturing June 30, 1941 Unexpended balances June 30, 1940: Unemployment trust fund Chief Disbursing Officer Total fund assets June 30, 1940 1 On basis of daily Treasury statement. 61, 261, 325. 26 2,872,948,084.31 - 1,710,000,000.00 13,414,266.29 1,447,544.05 — 14,861,810.341,724,861,810.34 216 REPORT OF THE. SEORETARY OF T H E TREASURY Summary of receipts and expenditures for the period 1936 to 1940 Deposits by States and pro rata share of earnings $2,811,696,759.05 Less withdrawals and transfers to railroad unemployment insurance account 1,118,633,818.02 Balance to credit of States in the unemployment trust fund Deposits in railroad unemployment insurance account, transfers from States, and pro rata share of earnings Advance from appropriation -Less repayment of advance from appropriation --- $1,693,162,941.03 46,261,325.26 15,000,000.00 61, 251, 326: 26 15,000,000.00 46, 251, 326. 26 il4,562,456.95 Less railroad unemployment benefit payments 31,698,869.31 Total fund liabilities June 30, 1940 >. -1,724,861,810.34 1 Net transfers to Chief Disbursing Officer for benefit payments amounted to $16,000,000.00; railroad unemployment benefit payments amounted to $14,552,456.95; leaving a balance of $1,447,544.06. The following statement shows the amounts deposited, earnings, and withdrawals from the inception of the fund to June 30, 1940, and the amounts to the credit of State agencies and of the railroad unemployment insurance account as of June 30, 1940: Amounts of unemployment trust fund, cumulative to June 30, 1940, credited to account of each State agency and of the railroad unemployment insurance account Total deposits Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia. Florida --. Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana^ Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri. Montana Nebraska Nevada New Hampshire New Jersey... New Mexico New York.. North Carolina North Dakota Ohio Oklahoma.. Oregon.--Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington 469,843.42 1, 587,618.04 7, 001, 767.41 10, 350,393.49 243, 521, 266. 67 16, 164, 283. 22 64, 083,000. 00 7, 479, 314. 47 22, 486, 421.48 19, 595,820. 77 27, 217,192. 82 5,970, 369. 75 6, 416, 767.06 220, 239,013. 81 69, 603,112. 61 26, 791,000. 00 17, 734, 797. 78 34, 910,000.00 30, 742, 000.00 13, 015,000. 00 37, 576, 000.00 134, 780,000.00 146, 494, 592. 91 44, 667, 299. 69 8, 094, 978. 76 62, 719, 668. 20 8, 575, 697. 20 12. 434,135. 90 2, 892, 320.17 11, 456, 068. 01 136, 026,000.00 4, 535, 000. 00 402, 676, 673. 85 36, 699, 000. 00 3, 248, 257. 84 180, 861, 574. 72 21, 726, 000.00 20, 617, 567. 48 261, 278, 000. 00 29, 197, 727. 95 14, 325, 000. 00 3, 590, 000. 00 27, 390, 000. 00 74, 667, 000.00 8, 588, 367. 70 4, 894, 206. 40 31, 645,000.00 32, 770, 602. 61 Net earnings credited to account Total withdrawals from account 445. 97 46, 194. 34 153, 604. 39 334, 248. 43 7, 891,015.15 594, 012. 65 1, 453,306. 86 255, 038. 33 847, 841.18 624, 373. 62 941, 876.85 213, 620. 88 183, 940.02 7, 732,878. 45 2,139, 201.16 783, 170. 43 656, 666. 79 1, 306,616.43 893, 488.01 224, 347. 55 812, 951. 72 4,105, 762.43 3, 317,707. 60 1,170, 709. 96 238, 144. 27 2, 205,372. 39 301, 377. 89 443, 727. 67 779. 02 334, 036. 49 4,816, 974. 71 167, 653.30 10, 466,588. 43 929, 469. 78 111, 906. 82 6,902, 537. 63 841, 797. 36 482, 397. 63 6,808, 551.34 578, 326. 84 547, 151.13 142, 166. 64 702, 463. 36 2, 433,956. 90 191, 840.39 145, 590. 05 893, 453. 69 1,088, 709.17 $14,880, 000. 00 650, 000.00 4,170, 000.00 3, 586,000.00 97, 660,000.00 5,970, 000. 00 21, 733,000. 00 i, 270,000. 00 4,160, 000.00 6,125, 000.00 5,800, 000.00 610, 000.00 4,050, 000.00 42,000, 000.00 32, 260,000.00 10,385, 000.00 3, 580,000.00 7,465, 000. 00 13, 225,000.00 9, 500,000.00 19, 876,000.00 62, 700,000.00 89, 850,000.00 22,175, 000.00 4,066, 000.00 9, 360,000.00 3,136, 000.00 2, 486,000.00 1, 506,000.00 6, 280,000.00 24, 726,000.00 1,865, 000.00 218, 660,000.00 16,000, 000. 00 976, 000.00 38, 708,000. 00 6, 463,000.00 12, 925,000.00 154,000, 000.00 20, 600,000.00 4, 740,743.96 623, 000. 00 14,124, 000.00 25, 600,000.00 4,990, 000.00 2,357, 074.06 13, 290,000. 00 12, 216,000.00 Balance, June 30, 1940 $14, 281,289. 39 983, 812. 38 2, 986,371. 80 7,099, 641.92 153, 752,281. 82 10, 788.295.87 33, 803,305.86 6, 464,362. 80 19,174, 262. 66 14,095, 194. 39 22, 359,069. 67 5,673, 990. 63 2, 660,697.07 185,971, 892. 26 39,492, 313. 77 16,189, 170. 43 14,811,363. 67 . 28, 750,515.43 18,410, 488.01 3, 739,347. 55 18, 513,961.72 76,186, 762. 43 59,962, 300. 51 23, 663,009. 55 4, 268,123. 03 55, 576,040. 59 6, 742,076.09 10, 392,863. 57 1,474, 099.19 5, 610,104. 50 115,116,974. 71 2,837,653. 30 194, 392,162.28 21,628, 459. 78 2,384, 163. 66 149,066, 112. 35 16,104, 797.36 8,174. 965. 01 113,086, 561.34 9,176,064.79 10,131, 407.17 3,109, 166. 64 13,968, 463. 36 51,490, 966. 90 3, 790,208.09 2, 682, 722. 39 19, 248,453. 69 21, 644.311. 78 BEPOET OF THE. SEOEBTAUY OF THE TKEiASrUKY 217 Amounts of unemployment trust fund, cumulative to June 30, 1940, credited to account of each State agency and of the railroad unemployment insurance account— Continued Total deposits $33, 343,467. 76 67, 705, 760. 26 4,298, 655. 32 West Virginia-.. Wisconsin Wyoming Total 2, 731, 043, 495.41 Deposits not cleared by the - 1 , 708,196. 78 Treasurer of the United States Outstanding checks ... Total . . . 2, 729, 335, 298. 63 Railroad unemployment insurance account: Deposits and transfers.. Appropriation: Advance and repayment Unexpended balance in Disbursing Office account available for railroad unemployment benefits.Total railroad unemployment insurance account. Total adjusted to daily Treasury s t a t e m e n t basis (unrevised)- 46,049, 479. 70 Net earnings credited to account $649,901.50 3, 356. 423.32 133, 387. 61 2,790,384,778.33 Balance, June 30, 1940 $18,210,000.00 17,700,000.00 2,055,000. 00 $15,783, 369. 26 63,362,183. 57 2, 377,042.93 1,121,194,818.02 1,692,210,137.81 -2,661,000.00 —1,708,196.78 -f 2, 661,000.00 82, 361, 460. 42 1,118, 633, 818.02 1, 693,162,941.03 82,361,460.42 201, 845. 56 15,000, 000. 00 61, 049, 479. 70 Total withdrawals from account 16,000,000.00 30, 251, 325. 26 16,000,000.00 -1,447,544.05 +1, 447. 544. 05 201,845. 66 29, 552,456.96 31,698,869.31 82, 563, 305.98 1,148,086,273.97 1,724,861,810.34 Railroad retirement account.—The railroad retirement account was established pursuant to section 15 (a) of the Railroad Retirement Act of 1937, approved June 24, 1937. The Railroad Retirement Board is required to submit annually to the Bureau of the Budget an estimate of the appropriation to be made to the account for each fiscal year, beginning with the fiscal year 1937, in an amount as an annual premium sufiicient, with a reasonable margin for contingencies, to provide for the payment of all annuities, pensions, and death benefits, and all amounts credited to the account are available for such purposes. I t is the duty of the Secretary of the Treasury, at the request and direction of the Railroad Retirement Board, to invest such portion of the amounts credited to the account as, in the judgment of the Board, is not immediately required for the payment of annuities, pensions, and death benefits, in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. Investments may be made in the following manner: (1) Purchase of original issues at par; (2) purchase of outstanding obligations at the market price; and (3) the issuance at par of special public debt obligations exclusively to the account. Such special obligations shall bear interest at the rate of 3 per centum per annum and obligations other than special obligations may be acquired only on such terms as to provide an investment yield of not less than 3 per centum per annum. 218 REPORT OF THE. SEORETARY OF T H E TREAS'URY The following statement shows the status of the account as of June 3.0, 1940: Railroad retirement account, J u n e 30, 1940 ^ Credits: Appropriations: To June 30, 1939 J u l y l , 1939, to June 30, 1940- , . $263,600,000.00 120,650,000.00 $374,150,000.00 Interest on investments: To June30, 1939 -J u l y l , 1939, to June 30, 1940 ---_ 3,612,698.64 2,282,516.39 — Total Less payments on account of benefits: To June 30, 1939 J u l y l , 1939, to June 30, 1940 Balance in account June 30, 1940 ._. 186,623,133.49 113,099,073.50 - Assets: Face amount $56,000,000 3% special Treasury notes payable June 30, 1942 12,200,000 3% special Treasury notes payable June 30, 1943 10,000,000 3% special Treasury notes payable June 30, 1944 2,200,000 3% special Treasury notes payable June 30,1945 , 79,400,000 Unexpended balances June 30, 1940: To credit of Chief Disbursing Officer On books of the Division of Bookkeeping and Warrants - _ 6,895,215.03 380,045,216.03 - Principal cost $55,000,000.00 12, 200,000.00 10, 000,000.00 2, 200,000.00 1,825,954.30 97,053. 74 298, 722, 206.99 2 81, 323,008.04 79,400,000.00 1,923,008.04 Total assets June 30,1940 81,323,008.04 1 On basis of daily Treasury statement (unrevised). 2 Excludes $10,750,000 unexpended balance of General Fund appropriation on booksof Treasury not yet transferred in the daily Treasury statement to trust fund receipts. Library oj Congress trust jund.—Under the act of March 3, 1925, as amended, the Library of Congress Trust Fund Board, consisting 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, is authorized 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 h j 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. The act approved June 23, 1936, amended section 2 of the act of March 3, 1925, so as to authorize the Board in its discretion, unless prevented by the terms of a gift or bequest, to deposit the principal of any gift or bequest with the Treasurer of the United States as a permanent loan with interest at the rate of 4 percent per annum, payable semiannually, provided that such principal sums held by the Treasurer shall not exceed $5,000,000 at any time. Additional gifts amounting to $110,000 were received during the year and deposited in the permanent loan account. The Board continued during the fiscal year 1940 its authorization to sell from time to time certain securities held under various donations and to deposit the principal proceeds of such sales in the permanent loan account. Total deposits in the permanent loan account from this source during the year amounted to $65,509.83. The Board also authorized the transfer to the permanent loan account of such balances of funds remaining to the credit of the investment (principal) account of any endowment held by the Board after all securities contained in the endowment 219 REPORT OF T H E SEORETARY OF THE, TRE^Snj!RY shall have been sold or otherwise disposed of and the proceeds therefrom deposited in the said permanent loan account. Such transfers during the year amounted to $434.39 and placed the full value of the endowments on an interest-earning basis. Total deposits in the permanent loan account from these sources during the year amounted to $175,944.22. All investments during the year were made by deposits in the permanent loan fund. The following statement shows the earnings credited to each donation as of June 30, 1940: Library of Congress trust fund earnings to June 30, 1940 T o t a l to J u n e 30, 1939 Donation Fiscal year 1940 T o t a l to J u n e 30, 1940 I n c o m e > c c o u n t , securities B a b i n e . <. Beethoven Benjamin Bowker Carnegie Coolidge G u g g e n h e i m . _ ._ Huntington Longworth Pennell --Wilbur Total .- ----- --- -. - $1,783.08 4,429.73 30,410.90 1,169.38 36, 688. 36 92,386. 70 32,759.36 71,613.75 767.02 34,191.40 107,346.09 413,434. 77 - $1,352.00 84.41 126.00 3,318. 68 I 25,677. 50 7,597.37 38,154.96 $1,783.08 4,429.73 31,762. 90 1, 253. 79 36, 713.36 • 95,706. 38 32,759.36 97,291.25 757.02 41,788. 77 107,345.09 451,689.73 I n c o m e account, p e r m a n e n t loan fund Babine Beethoven Carnegie Coolidge Guggenheim Huntington Longworth Pennell.. Whittall-1 Wilbur Total - -. . ' $266.18 483.44 3,634.62 3,975.60 3,625. 54 4,536.88 306.00 6,005. 94 8,469. 96 12,228.02 69,962.91 43,430.17 113,393.08 483,397.68 81,685.13 664,982.81 -- ..- -. - . . . . . . G r a n d total $796.72 916.70 9,670.63 10,001.65 6,894. 26 13,607. 64 914.69 12,265.21 26,379. 26 31,946.32 $530. 54 433. 26 6,136.01 6,026.05 3,268. 72 9,071.76 609. 69 6, 259. 27 17,909.31 19, 718. 30 ' Includes income under deed of trust dated Nov. 17,1936, administered by designated trustees, including Bank of New York. The status of the permanent loan account as of June 30, 1940, is as follows: Library of Congress Trust Fund Board, permanent loan account, June 30, 1940 Donation Babine Beethoven Carnegie-Coohdge Guggenheim Amount .- . . . . • .-- $6,684.74 12,088.13 88,365.58 108, 080. 32 90, 654. 22 Donation Huntington Longworth. Pennell Whittall... Wilbur Total Amount . . ...-- $113,396.99 7,691.69 174,257.51 285,000. 00 306,813. 57 1,192,032. 65 The following statement shows the securities held by the Board for account of each donation as of June 30, 1940. The securities are held in safekeeping by the Treasurer of the United States and certain 269677—41- 16 220 REPOKT OF THE. SEORETARY OF T H E TREASOJRY Federal Reserve Banks, subject to the order of the Secretary of the Treasury, for account of the Board. Securities held by the Library of Congress Trust Fund Board, June 30, 1940 Face amount or par value Name of security William E. Benjamin donation standard Oil Co. of Cahfornia-- Rate of interest Percent - ---- $33,800.00 Class of security Common stock, 1,352 shares. R. R. Bowker donation i U. S. Government German Government Japanese Government American Telephone & Telegraph Co - - 1,000.00 2,000.00 2,000. 00 4,800. 00 2 ^ Treasury bonds of 1955-60. German external loan. 7 Sinking fund gold bonds. Common stock, 48 shares. 5, 000. 00 6 First and refunding mortgage bonds. 5 5 First mortgage bonds. First and refunding mortgage bonds. Common stock, 100 shares. Common stock, 171 shares. Common stock, 7 shares. Common stock, 496 shares. 49, 500. 00 6 First and refunding mortgage bonds. 5,000.00 4 Carnegie donation Missouri Pacific R. R. Co Elizabeth Sprague Coolidge donation Chicago Railways Co _-Missouri Pacific R. R. Co --— American Ship Building Co 1 American Telephone & Telegraph Co Board of Trade Building Trust of Boston Commonwealth Edison Co Archer M. Huntington'donation Missouri Pacific R. R. Co Joseph Pennell donation Lehigh Valley R. R. Co 3, 750. 00 2, 000. 00 6, 000. 00 17,100. 00 700. 00 12,400. 00 Great Northern Railway Co 2,000. 00 Lehigh & New England R. R. Co National Railways of Mexico Do Pennsylvania R. R. Co Do Pennsylvania and New York Canal & Railroad Co_ _ 3, 000.00 45.00 3, 000. 00 5, 000. 00 6,000.00 1,000. 00 Reading Co Erie Lighting Co Georgia Power Co Penn Central Light & Power Co..Potomac Edison C o . . Consolidation Coal Co Do — — Do Philadelphia & Reading Coal & Iron Co United States of Mexico Do Lehigh Valley Coal Corp ..-.. Pennsylvania Railroad Co Westmoreland Coal Co Westmoreland, Inc --Total • 11, 000. 00 5, 000. 00 7,000.00 - . .-- 10,000.00 10, 000.00 900.00 900. 00 1, 200. 00 1, 000.00 429. 30 810. 00 300.00 6, 700.00 (3) 0) General consohdated mortgage gold bonds. mortgage gold 63^ General bonds. 4 General mortgage bonds. 6 Secured gold note. 4M Prior lien gold bonds. 4 ^ General mortgage bonds. Do. 4M Consolidated mortgage 5 bond. 4>^ General and refunding mortgage bonds. 5 Sinking fund gold bonds. 5 First and refunding mortgage bonds. 4M First mortgage gold bonds. 5 Do. Preferred stock,^ 9 shares. Common stock,2 36 shares. 5 Sinking fund bonds. 5 Sinking fund gold bonds. Rights to interest in arrears. Do. Common stock, 6 shares. Common stock, 134 shares. Common stock, 105 shares. Common stock, 105 shares. 219, 334. 30 1 Life interest in ^ of income retained under terms of donation. 2 Voting trust certificates. 3 No par. Exchanged for $20 par value stock in July 1940. 4 No par. Exchanged for $10 par value stock in July 1940. National Cancer Institute gijtjund.—Under section 6 of the National Cancer Institute Act of August 5, 1937 (50 Stat. 559), the Secretary of the Treasury may accept unconditional gifts for study, investigation or research into the cause, prevention, and methods of diagnosis and treatment of cancer, or for the acquisition of grounds or for the erection, equipment, and maintenance of premises, buildings, and equipment for the National Cancer Institute. Conditional gifts may REPOIRT OF THE. SEORETARY OF THE TREiASURY 221 be accepted if recommended by the Surgeon General of the Public Health Service and the National Cancer Advisory Council. Any such gifts, if in money, shall be held in trust and shall be invested by the Secretary of the Treasury in securities of the United States. There was received from the American Society for the Control of Cancer, on March 31, 1938, a conditional gift of $120 for the preparation of educational posters on cancer. In April 1940 an unconditional gift of $100 was received from Lt. Col. Stanley C. Ramsden. To June 30, 1940, no expenditures from these gift funds have been made. National Institute oj Health gijt jund.—By the act of May 26, 1930 (46 Stat. 379), the Secretary of the Treasury is authorized to accept unconditional gifts for study, investigation, and research in the fundamental problems of the diseases of man, and for other purposes. I t is also provided that he may accept conditional gifts upon the recc)mmendation of the Surgeon General of the Public Health Service and the National Institute of Health. Any such gifts are to be held in trusts and invested by the Secretary of the Treasury in securities of the United States. The receipts and expenditures of the conditional gift fund during the year were as follows: National Institute of Health conditional gift fund, receipts and expenditures, fiscal year 1940 Unexpended balance June 30,1939 Receipts: Donations: Corn Industries Research Foundation.-Josiah Macy, Jr., Foundation _ -. •. $10,764.49 : $6,000.00 3,200.00 Proceeds of sale of $2,000 4^4% Treasury bonds of 1947-62, Chemical Foundation Net earnings collected on investment account of Chemical Foundation Total Expenditures, advances to institute: Chemical Foundation donation Corn Industries Research Foundation Infantile paralysis fund Unexpended balance June 30,1940 __ 8,200.00 2,231.36 3,687.04 24,872.88 6,416.58 6,000.00 5,936.00 . 16,351.58 8,621.30 The following statement shows the status of the fund as of June 30, 1940. National Institute of Health conditional gift fund, June 30, 1940 Credits: Donations: Chemical Foundation . Rockefeller Foundation J Corn Industries Research Foundation The National Foundation for Infantile Paralysis, Inc. Josiah Macy, Jr., Foundation .: Net earnings on investments, Chemical Foundation Total... Less advances to meet expenditures on account of the institute: Chemical Foundation Rockefeller Foundation, dental survey Rockefeller Foundation, county health work Corn Industries Research Foundation Infantile paralysis fund Balance in fund June 30, 1940 43,316.92 15,000.00 7,000.00 10,000.00 6,935.00 . $81,000 face amount 4H% Treasury bonds of 1947-52, principal cost Unexpended balance on books of Division of Bookkeeping and Warrants: Chemical Foundation The National Foundation for Infantile Paralysis, Inc Josiah Macy, Jr., Foundation Total fund assets June 30,1940.. $100,000.00 22,000.00 10,000.00' 10,000.00 3,200.00 • $145,200.00 34,942.08 180,142.08 81,250.92 98,891.16 90,369.86 1,256.30 4,066.00 3,200.00 •' 8,521.30 98,89L16 222 REPORT OF THE SEORETARY OF T H E TREASIURY National park trust jund.—Under the act of July 10, 1935 (49 Stat. 477), the National Park Trust Fund Board, consisting of the Secretary of the Treasury, the Secretary of the Interior, the Director of the National Park Service, and two persons appointed by the President, was created and established and is authorized to accept, receive, hold, and administer such gifts or bequests of personal property for the benefit of, or in connection with, the National Park Service, its activities, or its service, as may be approved by the Board, but no such gift or bequest which entails any expenditure not to be met out of the gift, bequest, or the income thereof shall be accepted without the consent of Congress. 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. Income from investments shall be covered into the national park trust fund. No expenditures have been made from this fund except for investments. The following statement shows the status of the fund as of June 30, 1940: National park trust fund, J u n e 30, 1940 Credits: Donations: Metro-Goldwyn-Mayer Distributing Corporation Universal Pictures Corporation Twentieth Century Fox Film Corporation.... Metro-Goldwyn-Mayer Corporation ^ Paramount Pictures, Inc Loew's, Inc Interest earned on investments. _Total - . '. - 14,567.06 Assets: $14,200 face amount of 2%% Treasury bonds of 1955-60, principal cost Accrued interest paid on investments Unexpended balances: To credit of disbursing officers Totalfund assets June 30, 1940 $6,000.00 3,000.00 --- 1,175.00 3,000.00 304.00 - 1,000.00 1,088.05 --_ 14,548.64 12.94 5.57 14,567.05 Ainsworth Library jund, Walter Reed General Hospital.—Under the joint resolution of Congress approved May 23, 1935 (49 Stat. 287), the adjutant, Walter Reed General Hospital, was authorized to accept the bequest of the late Maj. Gen. Fred C. Ainsworth, as contained in his last will and testament, and to receipt therefor on behalf of the United States, and to deposit the funds so received in the Treasury of the United States as a special fund dedicated to the purpose of establishing a permanent library at the Walter Reed General Hospital, to be known as the ' T r e d C. Ainsworth Endowment Library,'' said fund to be subject to disbursement for such purpose upon vouchers submitted by the adjutant, Walter Reed General Hospital, and to be available until expended. The administration, control, and expenditure of the fund and its application to the purposes intended shall be according to the sole discretion of the adjutant, Walter Reed General Hospital. The Treasurer of the United States, upon the written request of the adjutant, Walter Reed General Hospital, is authorized to invest and reinvest any part or all of the corpus of the bequest, as well as any income therefrom, in interest-bearing United States Government bonds, and to retain custody thereof. REPORT OF T H E SEORETARY OF T H E TREi^fURY 223 The following statement shows the status of the fund: Ainsworth Library fund, Walter Reed General Hospital, J u n e SO, 1940 Receipts: Bequest of Maj. Gen. Fred C. Ainsworth Net earnings on investments Expenditures $10,700.00 959.02 - Balance in fund June 30, 1940 $9,700 2%% Treasury bonds of 1966-60, principal cost Unexpended balance on books of Division of Bookkeeping and Warrants Total fund assets June 30,1940.... 11,659.02 1,629.17 10,129.85 9,972.81 157.04 10,129.85 Pershing Hall Memorial jund.—The act of June 28, 1935 (49 Stat. 426), authorized the appropriation of $482,032.92 of the recreation fund—Army, created by the War Department Appropriation Act, approved March 4, 1933, for effecting a settlement of any indebtedness connected with Pershing Hall, a memorial already erected in Paris, France, under the auspices of the American Legion, Inc., to the commander-in-chief, officers, men, and auxiliary services of the American Expeditionary Forces. It provided that this amount would not be used for the purposes set forth in the act until legal title to Pershing Hall had been vested in the United States Government for the use and benefit of all American officers and enlisted men of the World War. It further provided that the balance remaining after settlement of the indebteciness would be retained in a special fund to be loiown as the Pershing Hall Memorial fund. Under the terms of the act, the Secretary of the Treasury is authorized (a) to invest and reinvest the corpus of this fund in interest-bearing United States Government bonds, and (6) upon request of the American Legion, Inc., to pay to the national treasurer of the Legion any part of the earnings upon the fund for use in the maintenance and/or perpetuation of Pershing Hall. An appropriation for those purposes was provided by the act of August 12, 1935 (49 Stat. 594). On August 3, 1936, the Secretary of the Treasury^ acting in conjunction with the Attorney General, completed acquisition of Pershing Hall for the United States. Liquidation of the mortgage on Pershing Hall required an expenditure of $213,643.28. An additional $74,986.42 has been expended for the payment of contractors' and other claims constituting indebtedness connected with Pershing Hall. During the fiscal year 1939 the American Legion took over the maintenance and perpetuation of Pershing Hall. Accumulated earnings on investments amounting to $18,742.04 were paid during 1940 to the national treasurer of the American Legion for that purpose. 224 REPORT OF THE SECRETARY OF THE TREASURY The following statement shows the status of the fund as of June 30, 1940: Pershing Hall Memorial fund, June 30, 1940 Credits: Appropriation by Congress Profits on investments Interest earned on investments Total Less: Disbursements on account of current claims and expenses Disbursements on account of National Treasurer, American Legion Total $482,032.92 573. 20 21,263.41 $503,869.63 288,629.70 18,74.2.04 -. Balance in fund June 30, 1940 -- -- 307,371.74 --- --- Assets: $191,300 2H% Treasury bonds of 1951-54, amortizedBalance to credit of fund on books of Treasury and in the hands of disbursing officers Total 196,497.79 193,698.50 2,799.29 : : 196,497.79 Alien property trust jund.—Under the act of October 6, 1917, as amended, and the Settlement of War Claims Act of 1928, approved March 10, 1928 (45 Stat. 254), as amended, securities previously held by the Secretary of the Treasury for account of the Attorney General, Alien Property Bureau, were all sold during the fiscal year. A statement of the alien property trust fund as of September 15, 1940, follows: Alien property trust fund, September 15, 1940 Credits: Trusts Earnings on investments, etc Total --- - . $37,491,563.64 35,404,039.51 -- 72,895,603.15 Assets: Participating certificates issued under sec. 25 (e) of the Trading with the Enemy Act: Noninterest-bearing $19,832,065.63 5% interest-bearing17,652,096.91 37,384,162.54 36,511,460.61 Cash balance with Treasurer of the United States • Total fund assets Sept. 16, 1940.-.. _ 72,896,603.15 Checks were issued by the Treasury Department during the fiscal year to the Attorney General, Alien Property Bureau, on account of the alien property trust fund for the following purposes: Distribution of income Distribution of Government earnings Administrative expenses Total . $315,000 __ 105,000 220,000 -- - 640.000 Philippine junds in the United States Treasury.—Under an act of March 8, 1902 (32 Stat. 54), reenacted in section 3343 (b) of the Internal Revenue Code, approved February 10, 1939, it was provided that all duties and taxes collected in the United States upon articles coming from the Philippine Archipelago and upon foreign vessels coming therefrom were to be held as a separate fund and paid into the treas'ury of the Philippine Islands to be expended for the government and benefit of the Islands. A summary follows showing customs duties, tonnage taxes, and internal revenue taxes, exclusive of taxes with respect to coconut oil, appropriated to Philippine accounts and payments therefrom during the fiscal years 1933 to 1940, 225 EiE'POiRT OF THE. SBORBTAKY OF T H E TKEiAiSrUEY Receipts i appropriated Fiscalyear 1933 1934 1935 1936 1937 1938...1939 1940 - - - -- --- - -- $381, 500.46 627,426.40 491,458. 50 645,890.13 756,866. 76 813,862. 30 669,468. 06 703,874. 28 Payments to Philippine Government 2 Unpaid balance $59.67 813,371. 78 602, 551. 53 746,967. 75 891,726.93 934,689.47 626, 347. 68 482,106. 02 3 $864, 598.97 568,663. 59 657, 660. 56 457,492. 94 321, 632. 77 200, 795. 60 143,915 98 366,684.24 • 1 Reduced by amounts carried to surplus fund under act of June 20, 1874, as follows: 1936, $17,540.28; 1937, $9,783.76; 1939, $16,151.70; and 1940, $957.78. 2 Includes certain refunds and adjustments. 'Includes balances of $473,168.18 in Philippine accounts as of July 1, 1932. Under an act of June 11, 1934 (48 Stat. 929; U. S. C. title 48, sec. 1157), the Secretary of the Treasury was authorized to accept, upon such conditions as he might prescribe, deposits of public moneys of the Philippine Government. The act provided an indefinite appropriation for the payment of interest on such deposits other than demand deposits at such rates not in excess of 2 percent per annum as the Secretary might prescribe. Thereafter, the Secretary of the Treasury agreed to accept not to exceed $55,000,000 of Philippine moneys in a time deposit account, amounts deposited with the Treasury by the Philippine Government in excess of that sum to be maintained in a demand deposit account. Since December 10, 1934, the balance in the time deposit account has been maintained at $55,000,000. The balance in the demand deposit account as of June 30, 1940, was $49,655,001.15. Section 602^ of the. act of May 10, 1934 (U. S. C. title 26, sec. 999), provided that taxes collected with respect to coconut oil wholly of Philippine production or produced from materials wholly of Philippine growth or production should be paid to the treasury of the Philippine Islands subject to certain conditions. An agreement was consummated between the Secretary of the Treasury and the Philippine Government under which coconut oil moneys payable to the Philippine treasury would be transferred on periodic settlements of the General Accounting Ofiice to a special deposit account in the name of the Secretary of the Treasury subject to withdrawal by the Philippine Government on ninety days' notice in writing. A summary of transactions in the account from the time of its establishment to date follows. Fiscal year 1938 . 1939 1940 Deposits $56,864, 779. 06 20,366,455.66 4, 559, 016.46 Withdrawals $32,000,000.00 I 17, 564, 016.41 Balance at end of year $56,854, 779. 06 45,210, 234. 71 32,205,234. 76 1 Includes $7,564,016.41 transferred to new account established under act of August 7, 1939. Section 6 of an act of August 7, 1939 (53 Stat. 1232-33), provided that collections on or after January 1, 1939, on account of the excise taxes imposed by section 2470 of the Internal Revenue Code, and the import taxes imposed by sections 2490 and 2491 of the Internal Revenue Code and any moneys hereafter appropriated in accordance with the authorization contained in section 503 of the Sugar Act of 226 'REPOIRT OF THE. SEORETARY OF T H E TREASfURY 1937 (50 Stat. 915) shall be held as separate funds and paid into the treasury of the Philippines to be used for the purpose of meeting new or additional expenditures which will be necessary in adjusting Philippine economy to a position independent of trade preferences in the United States and in preparing the Philippines for the assumption of the responsibilities of an independent state. A new account was established for the deposit of the funds referred to in section 6 of the act of August 7, 1939. Withdrawals by the Philippine Government from this account are subject to ninety days' notice in writing. During the fiscal year 1940 a total of $17,274,092.01, including the amount of $7,564,016.41 transferred from the old account, was deposited in the account, b u t there were no withdrawals. Special j u n d Colorado River Dam jund.—This fund was established under the act of December 21, 1928, to provide for the construction of works commonly referred to as the Boulder Canyon project. All revenues received in carrying out the provisions of the act are payable into the fund and expenditures are made out of the fund under the direction of the Secretary of the Interior. The Secretary of the Treasury is authorized to advance to the fund from time to time, within the appropriations therefor, such amounts as the Secretary of the Interior deems necessary for carrying out the provisions of the act, except that the aggregate amount of such advances shall not exceed $165,000,000. Further information with respect to this fund appears on page 105 of the annual report for 1936. The status of the advances made to the fund was as follows: Advances to Colorado River Dam Fund, J u n e SO, 1940 Advances from General Fund: Fiscal years 1931-39 Fiscalyear 1940 Interest: Fiscal years 1931-39 Fiscalyear 1940 _-.- $117,810,000.00 4,050,000.00 $121,860,000.00 25,115,492.69 5,494,266.74 -- Total--.. -.-Less amount covered into the Treasury as miscellaneous receipts Total liability to General Fund -. — 30,609,749.43 10,225,631. 58 1 20,384,117.85 142,244,117.86 1 Payment of interest due June 30, 1940, $20,384,117.86, deferred for 1 year under sec. 2 (d) of the act of Dec. 21, 1928. Division oj Deposits The Division of Deposits is charged with the administration of all matters pertaining to the designation and supervision of Government depositaries and the deposit of Government funds in such depositaries, as prescribed by regulations incorporated in Department Circulars Nos. 92 and 176, as amended; the qualification of Federal savings and loan associations and Federal credit unions as fiscal agents of the United States under Department Circular No. 568; and the execution of the duties devolving upon the Secretary of the Treasury as a result of the enactment of the Government Losses in Shipment Act, as amended. Depositary junctions.—The following statement shows the number and classes of depositaries maintained by the Treasury and the Government deposits held by such depositaries: 227 RBPOtRT OF THE. SBOKETABY OF T H E TBEiA^SfaKY Number of depositaries and amount of Government deposits held on June 30, 1940, by class of depositaries Depositaries Amount $263,934,903. 21 Federal Reserve Banks (including branches) Federal Reserve member bank depositaries: To credit of Treasurer of the United States . To credit of other Government officers Insular and Territorial depositaries (including Philippine treasury) To credit of Treasurer of the United States To credit of other Government officers Foreign depositaries: To credit of other Government officers Special depositaries . — 52,173, 223.11 25,996, 265.49 3,208,353.69 6, 325. 726. 63 189, 214.44 805, 379, 000. 00 Total- 1,147,206, 686. 47 1 In addition 296 branch banks are carried on the depositary list of the Treasury under the designation of the parent banks. 2 Includes 1,198 national banks and 892 State banks and trust companies, of which 1,684 held deposits on June 30, 1940. During the fiscal year 1940, there were 2,348 changes and adjustments effected in the depositary system of the Treasury. These changes and adjustments are summarized in the following table: Member bank depositaries Adjustments Designated Discontinued Amounts for which qualified: Increased Decreased Miscellaneous changes ._ Total -- - . _. - - - 600 787 229 70 285 1.871 Special depositaries 93 361 . 30 3 477 The unusually large number of designations and discontinuances among member bank depositaries during the fiscal year was accounted for by the discontinuance of 768 limited depositaries and the redesignation of 484 such banks as depositaries of public moneys and financial agents of the Government. This major revision in the depositary system was effected pursuant to the general survey initiated in 1936 for the purpose of determining the possibility of improving the procedure of depositing the revenues of the Government and the desirability of modernizing the depositary system of the Treasury to meet current conditions. As the activities of the Government expanded, it became increasingly evident that the depositary machinery of the Treasury should be modernized to keep pace with other developments. The principal objectives of the Treasury were: (1) To eliminate all unnecessary expense to the Government and to the depositaries, and to provide for the transaction of the essential fiscal business of the Government through banking institutions in a manner corresponding with customary banking practices; and (2) to provide a more fiexible system, i. e., a system which would permit the use of banking facilities to the fullest extent required and at the same time be adapted to changes or modifications currently to meet changing conditions. To that end, the Treasury canceled the existing designations of limited depositaries and redesignated such banks as depositaries of public moneys and financial agents of the Government in conformity with the language 228 ^REPOORT OF T H E SECrRETARY OF T H E TREASfURY and apparent intent of the statutes under which such banks were designated. The new designation eliminates all unnecessary costs, facilitates the transaction of the Government's business, and, subject to mutual agreements between the banks and the Treasury, makes possible a wider use of the banking system in connection with the collection and transmission of the revenues of the Government. I t has already been demonstrated that, in addition to other benefits derived from this procedure, the savings, both to the Treasury and to depositary banks, will be substantial. A detailed statement of the circumstances creating the necessity for such revision is contained in the Annual Report of the Secretary of the Treasury for the fiscal year 1937, pages 105 to 107. I t is anticipated that the modernization of the depositary procedure will be continued during the ensuing fiscal year. Limited depositaries were first designated in 1919 and 1920 in conjunction with the adoption of certain new policies resulting from the establishment of the Federal Reserve System and the discontinuance of the subtreasuries, as outlined in the Annual Report of the Secretary of theTreasury for the fiscal year 1920, pages 167 to 177. The primary reason for the establishment of this class of depositaries was for the purpose of safeguarding deposits maintained on the books of banks to the official credit of postmasters or other duly authorized Government officers. With the development and growth of the system of Federal insurance of deposits administered by the Federal Deposit Insurance Corporation, the necessity for the designation and continuance of this class of depositaries, solely for the purpose of safeguarding the funds through the hypothecation of collateral security by such depositaries, was eliminated in many cases. The survey indicated that at 284 points, postmasters were able to secure adequate protection under the guaranty of the Federal Deposit Insurance Corporation; therefore, the Treasury proceeded during the current fiscal year to discontinue limited depositaries at those points, thus substantially reducing the expense involved in the designation and supervision of such depositaries. Federal savings and loan associations and Federal credit unions.— On June 30, 1940, a total of 909 Federal savings and loan associations and Federal credit unions were reported to the Treasury as being eligible to qualify as fiscal agents under Treasury Department Circular No. 568 for the purpose of taking applications from their own members and forwarding remittances for, and making delivery of. United States savings bonds, and, of this number, 144 have qualifieci either by the pledge of collateral security or the execution of surety bonds in the amount of $5,000 each. The Federal savings and loan associations so qualified may be employed also as fiscal agents of the United States for the purpose of collecting delinquent accounts arising out of insurance and loan transactions of the Federal Housing Administrator under title I of the National Housing Act. In addition, on account of their limited membership, 886 Federal savings and loan associations were reported as being eligible to qualify as fiscal agents, under Treasury Department Circular No. 568, solely for the purpose of collecting delinquent accounts arising out of insurance and loan transactions of the Administrator under title I of the National Housing Act, and 45 associations of this group qualified for this purpose RlE'POIRT OF T H E SE'OREiTARY OF THE, TREASIURY 229 either by the pledge of collateral security or the execution of surety bonds in the amount of $1,000 each. Social security.—Under agreements entered into between the Treasury and the Social Security Board, arrangements were made to maintain balances of Treasury funds with various depositaries of public moneys, designated by the Secretary of the Treasury, in such cases where it is desirable in order to provide appropriate banking and depositary facilities for handling benefit payment accounts under the unemployment compensation provisions of the Social Security Act. During the year these banking arrangements were extended to provide similar facilities for the handling of clearance accounts. Up to June 30, 1940, 44 banks were designated for either or both of these purposes with authority to carry fixed balances totaling $35,390,000. Government Losses in Shipment Act.—The Government Losses in Shipment Act, approved July 8, 1937 (50 Stat. 479), was designed to provide within the Government an adequate means of prompt replacement of losses resulting from the shipment of certain articles, things, or representatives of value, thus eliminating the necessity of the Government's purchasing insurance for this purpose. That act was amended by an act approved August 10, 1939 (53 Stat. 1358), a copy of which appears as exhibit 38 on page 535 of this report. In general, the amending act served to extend the scope of the insurance features of the act and to clarify certain details relating to administration. The amendments to the act extended the provisions of section 3 of the original act in two principal respects. First, in the case of the agency functions performed by the Post Office Department for the Treasury, the fund is made available irrespective of the manner in which losses may occur. Second, the fund is made available with respect to claims arising out of the payment of any obligations incurred by reason of the execution of agreements of indemnity by the Secretary of the Treasury. These agreements may be issued in connection with instruments or documents lost in transit or otherwise, providing, of course, that the instruments or documents were first received by the United States or any agent of the United States acting in his official capacity. Section 7a of the original act was amended to give the Secretary of the Treasury authority to declare the articles or things which qualify under the provisions of that section as ^^ valuables'' under the act. A list of such valuables declared during the fiscal year appears as exhibit 39 on page 536 of this report. The amendments added a further provision to the original act authorizing and directing the Secretary of the Treasury to transfer to the revolving fund established under the Government Losses in Shipment Act the amount standing to the credit of the securities trust fund established under authority of the indefinite appropriation '^Expenses of Loans, Act of September 24,. 1917, as amended and extended." In pursuance to this provision there was transferred during the fiscal year the sum of $91,803.13. The value of the declared articles or things reported to have been shipped under the act during the fiscal year 1940, of classes which were covered by the Treasury's contracts with insurance companies prior to the enactment of the Government Losses in Shipment Act, amounted to $14,604,374,635. The table following indicates the premium savings resulting from such shipments to be over a half a 230 REPORT OF T H E SEGRETARY OF T H E TREASIURY million dollars for the fiscal year 1940 and a savings since the inception of the act of over $1,100,000 under each of the three alternate bases upon which the estimates are made: Estimated premium savings during the fiscal years 1938, 1939, and 1940, and the total estimated savings to June 30, 1940 Aug. 16,1937, to June 30, 1938 On basis of premium rates forFiscal year 1938 1-Fiscalyear 1937 2.Fiscal year 1936-38 $160,000 200,000 192,000 Fiscal year 1939 $456,000 615,000 503,000 Aug. 16, 1937, to June 30, 1940 Fiscal year 1940 $1,120, 000 1,290,000 1, 232,000 $504,000 575,000 537,000 1 Lowest rates under insurance contract system. 2 Rates in effect at time estimates of premium savings were presented to Congress. 3 Average based on rates effective in last 3 years of Government insurance contract system. Other classes of articles shipped during 1940, having a total face value of $26,530,922,383, which are covered under the provisions of the Government Losses in Shipment Act, have not been included in the calculation of the estimated premium savings in the above table because, as a practice, the Government did not insure the subject articles prior to the enactment of the act. Following is a table of the loss experience resulting from shipments of valuables eff'ected under the act: Number and value of shipments reported lost, settled, and unadjusted, fiscal year 1940 Number Shipments reported lost Unadjusted July 1, 1939 Reported lost during year - Value 1 19 $66.88 29, 545.25 .- 20 29, 611.13 Settled by replacement out of fund .-. Settled without replacement or credit 4 6 93.75 837. 88 Total to be settled Total settled Unadjusted June 30, 1940 - -. - - 10 931. 63 10 28,679.60 There were no recoveries of the shipments reported lost and settled by replacement out of the fund; therefore, the total payments on account of losses under the act from August 15, 1937, to June 30, 1940, amounted to $469.85. In addition, a refund of $64.44, representing an excess recovery included in funds transferred to the fund for the payment of Government losses in shipment, was authorized during the year; consequently, the total payments out of the fund from August 15, 1937, to June 30, 1940, amounted to $534.29. During 1940, pursuant to section 3b of the act as amended, there were three agreements of indemnity executed, amounting to $15,347.04 on which no payments were made. REPORT OF THE SE'CRETARY OF THE TREASURY 231 Statement of balance of fund for payment of Government losses in shipment (revolving fund) at beginning of fiscal year, additions thereto, payments therefrom, and balance at close of fiscal year 1940 Balance July 1,1939 Appropriated to fund during year Transfer from securities trust fund, act of Aug. 10,1930 (net of refund) Total available to fund during year Losses paid during year Balance June 30, 1940 : _- _- _-_- -.- $599,623.90 1,000.00 91, 738. 69 692,362.59 93.76 692,268.84 Section oj Surety.Bonds On June 30, 1940, there were 76 domestic companies holding certificates of authority from the Secretary of the Treasury under the act of Congress approved August 13, 1894, as amended by the act approved March 23, 1910, qualifying them as sole sureties on recognizances, stipulations, bonds, and undertakings permitted or required by the laws of the United States, to be given with one or more sureties. There were also seven branches of foreign companies holding certificates of authority authorizing them to act only as reinsurers on bonds in favor of the United States. During the year one certificate of authority of a domestic company, which had voluntarily ceased to write business, was revoked; one certificate of authority was issued to a branch of a foreign company authorizing it to act as a reinsurer on Federal bonds; and eight certificates of authority were issued to domestic companies to qualify as sole sureties on bonds in favor of the United States. Division oj Bookkeeping and Warrants The Division of Bookkeeping and Warrants, in the name of the Secretary of the Treasury, issues all warrants on the Treasurer of the United States, and under section 10 of the act of July 31, 1894 (U. S. C , title 5, sec. 255), keeps the official accounts relating to the receipt, appropriation, and expenditure of the public moneys, covering all departments and establishments of the Government. The Division makes analyses of acts of Congress carrying appropriations and maintains the necessary appropriation accounts on its ledgers; it issues warrants for placing disbursing funds to the credit of disbursing officers, for the payment by the Treasury of claims settled by the General Accounting Office, and for covering into the Treasury the revenues and receipts of the Government. I t handles the work involved in the Secretary's special deposit accounts, including ahen property trusts and offers in compromise, the approval of the issuance of duplicate checks (sec. 9 of the Government Losses in Shipment Act), and outstanding liability claims; compiles, for submission to the Bureau of the Budget, the estimates of appropriations for the service of the Treasury; and maintains budgetary accounts relating to apportionments and obligations of funds pertaining to all departments and establishments of the Government, including governmental corporations operating on public funds, pursuant to the provisions of the Executive order of July 27, 1933. In addition to the above, there is compiled and published an annual digest of the appropriations made by Congress and an annual com- 232 RIEPO'RIT OF T H E ,SE;CRETAiRY OF T H E TREASUR^Y bined statement of the receipts, expenditures, and unexpended balances under each appropriation account, by fiscal years. Statements of the receipts and expenditures of the Government for the fiscal year 1940, compiled by this Division, are shown in tables 1 and 2, pages 586 to 611 of this report. Division oj Disbursement The Division of Disbursement, organized December 16, 1933, under the provisions of section 4 of Executive Order No. 6166, has absorbed disbursing functions formerly exercised by 584 separate disbursing offices of the departments and establishments of the Government located in Washington and in the field. This includes disbursements for all departments and establishments with the exception of the Post Office Department, United States marshals, the Panama Canal, and that portion of the War and Navy Departments relating to national defense. I t has also assumed the disbursing functions which would have been performed by 94 separate disbursing offices for new:agencies created since the Executive order of June 10, 1933. These functions of disbursement are now performed through the Central Office of the Division of Disbursement in Washington, D. C , and regional offices. Treasury-State disbursing offices were established for making disbursements under the Emergency Relief Acts. Pursuant to requests made by some of the corporations, the Chief Disbursing Officer acts in the capacity of Disbursing- Agent for the Federal Surplus Comniodities Corporation (the Surplus Marketing Administration under Reorganization Plan No. Ill," effective June 30, 1940), the Federal Crop Insurance Corporation, and the United States Housing Authority. This arrangement has proved satisfactory and economical, as it avoided the necessity for the corporations to establish separate disbursing offices in Washington and the field. During the latter part of the fiscal year 1939 the Federal Surplus Commodities Corporation started its experimental program of distributing surplus agricultural food products by the issue of food order stamps to relief clients. The Chief Disbursing Officer was selected by the Corporation as its agent for the purpose of issuing and redeeming these stamps. The plan was started in Rochester, N. Y., and Dayton, Ohio, during] the fiscal year 1939, and during 1940 there were selected 116 other cities for the installation of the plan, in 80 of which operations were actually begun prior to June 30, 1940. Generally, the plan provides that cities which cooperate with the Corporation purchase 'books containing a number of orange colored 25-cent stamps and one-half as many blue 25-cent stamps, paying for the orange colored stalmps and receiving the blue stamps without cost. The cities sell the books for the price of the orange colored stamps to persons who are eligible under certain regulations of the Federal Surplus Commodities Corporation. The orange colored stamps are exchangeable at stores for any class of groceries but the blue stamps are exchangeable only for foods which have been declared surplus by the Secretary of Agriculture. Moneys received by the Division of Disbursement from the cities are held for the redemption of the orange colored stamps and the blue stamps are redeemed from funds placed with the Division of Disbursement by the Corporation. •REPOiRT OF T H E SEORETARY OF T H E TREASIURY 233 The following table shows the total money value of orange colored and blue stamps issued, redeemed, and outstanding. Transactions i n food order stamps for the Federal S u r p l u s Commodities Corporation, M a y 1939 to J u n e 1940 [Money'value] Date Cumulative amount outstanding Issued Redeemed $67,419.00 329,910.00 428,759.00 702,447.00 691,290.00 903,491.00 1,364,127.00 1,866,358.00 $37, 230.75 219,704.00 324,116.75 534,601. 25 656,712.60 728,663.60 869,362.00 1,430,568.00 3,109,716.00 4,648, 288.00 6,590,672.00 7,397,729.00 7,978,287. 50 8,728,796.00 2, 383,562. 50 2,280,104.75 3,332,144.00 3,496, 248.75 5,266,717.75 4,830,103.00 6,156,109. 25 6,072,722.76 7,196,776.00 6,854, 234. 25 7,638,003.25 7,945,027. 00 1939 May June July August September October November December — $30,188. 25 140,394. 25 246,036. 50 412,982.25 448,569. 75 623,387. 25 1,118,162. 25 1,563,942.25 1940 January February.— March April May June ^ _ -_ Total - 44,707,188.50 36,762,161. 60 The $36,762,161.50 of redeemed stamps represents 147,048,646 stamps which were presented for redemption to the several offices of the Division of Disbursement, where they were examined, canceled, and forwarded to the General Accounting Office as vouchers supporting the payments made therefor. The money value of orange and blue stamps issued and redeemed for each city in which the plan is in operation is shown in table 69, page 832. During the latter part of 1940 a similar program for the issuance and redemption of stamps exchangeable for cotton and cotton surpluseswas established in Memphis, Tenn., Springfield, Mass., and Minneapolis and St. Paul, Minn. Green stamps are used for the purchase of cotton products and brown stamps are exchangeable for cotton products declared surplus by the Secretary of Agriculture. The present indications are that many more cities will participate in these programs during the coming fiscal year. Of the 55 Treasury-State disbursing offices maintained during the fiscal year 1939, 1 was consolidated with another Treasury-State disbursing office and 10 were consolidated with regional offices during the fiscal year 1940. On June 30, 1940, the Division maintained one central and 19 regional offices where all regular payments and some payments from relief appropriations were made, and 44 TreasuryState disbursing offices in the field disbursing only emergency appropriations. Payments under the special programs of the Agricultural Adjustment Administration were continued during the year. The total number of payments under these programs, including the Soil Conservation payments, was 12,728,067. On June 30, 1940, the total personnel of the Division, including regular, temporary, and emergency employees, was 2,226, and in addition there were 115 employees of the Agricultural Adjustment Administration assigned to offices of the Division to assist in the disbursing work incident to the special programs of that agency. 234 iREPOeT OF THE SEORETARY OF THE TREASURY During the year the regular and emergency offices of the Division made 105,778,977 payments by check and raade cash payments in 964,948 instances. These payments were supported in the disbursing accounts by 8,818,448 vouchers. The Division also received, deposited, and accounted for 5,118,985 collections items. Suspension oj delivery oj joreign checks During the year it was necessary under Executive Order No. 8389, dated April 10, 1940, as amended (see exhibit 41 on page 538), to suspend delivery of Government checks to Norway, Denmark, Belgium, Luxembourg, the Netherlands, and France. The order was extended on July 15, 1940, to include Latvia, Estonia, and Lithuania. Due to the war, difficulty has also been experienced in effecting delivery of Government checks to other European countries. DIVISION OF APPOINTMENTS In accordance with Treasury Department Order No. 32 of June 25, 1940, the Division of Appointments was transferred and consolidated with the Personnel Division, which was established on July 1, 1940, pursuant to Executive Order No. 7916 of June 24, 1938, and Treasury Department Appropriation Act, 1941. Number oj employees in the Treasury Department On June 30, 1940, there were 18,859 employees in the departmental service and 54,312 employees in the field service of the Treasury, as compared with 19,529 employees in the departmental service and 48,211 in the field service on June 30, 1939. The figures for June 30, 1939, exclude 2,063 employees in the departmental service of the Public Buildings Branch of the Procurement Division, the Public Health Service, and the Bureau of the Budget, and 8,502 employees in the field service of the Public Buildings Branch and the Public Health Service, all of which agencies were transferred from the Treasury Department on July 1, 1939; and include 362 employees in the departmental service and 815 in the field service of the Bureau of the Comptroller of the Currency, which employees are paid from assessments against national banks and were not included in previous reports. During the year there was a decrease of 670 in the departmental service and an increase of 6,101 in the field service. The principal decrease resulted from the reduction in the force of employees paid from emergency relief funds. The largest increase was in the Coast Guard due to the transfer to that Service on July 1, 1939, of the Lighthouse Service from the! Department of Commerce and to the increase in the military personnel. The number of employees in the departmental service of the Treasury, classified according to bureaus and offices, at the end of each quarter from June 30,1939, through Jime 30, 1940, is shown in table 70, page 834 of this report. A comparison of the number of employees in the departmental and field services of the Treasury on June 30, 1939, and June 30, 1940, is contained in table 71, page 834. REPOIRT OF T H E SECRETARY OF T H E TRIEASIURY 235 Retirement oj employees During the year there were 546 persons retired from the departmental and field services of the Treasury Department. Under the provisions of the Civil Service Retirement Act, as amended, and of section 204 of the Economy Act of June 30, 1932, 272 persons were retired from the departmental service of the Treasury Department, 18 of whom were retired at their own option before the compulsory retirement age; and 274 were retired from the field service, 20 at their own option before the compulsory retirement age. As of June 30, 1940, four employees in the departmental service and five in the field service who had reached the retirement age were retained under the authority of the President provided in section 204 of the Economy Act. Table 72, page 835, shows the number of persons retired in the departmental and field services of the Treasury from August 20, 1920, to June 30, 1940, and the number who have passed the compulsory retirement age but who are retained as of June 30, 1940. B U D G E T AND I M P R O V E M E N T . C O M M I T T E E The Budget and Improvement Committee is responsible, under the direction of the Budget Officer, for the preparation and review of estimates submitted by Treasury bureaus and divisions for annual or deficiency appropriations. I t is also responsible, under the direction of the Budget Officer, for the investigation of administrative methods and procedure in their relation to appropriation estimates and for other investigations upon assignrnent by the Administrative Assistant to the Secretary. To facilitate the investigations, a Subcommittee on Investigations is assigned the responsibility for determining, through the inspection of field as well as departmental activities, the justification for proposed increases in appropriations. The review of appropriation estimates includes a thorough examination of the items by the individual committee members to whom respective bureaus or divisions are assigned. The entire committee then conducts formal hearings at which the bureau or division heads, or their representatives, present oral testimony in further support of the estimates. The committee, after deliberation, submits its recommendations to the Budget Officer for his guidance in determining the items which should be approved for transmittal to the Bureau of the Budget. Subsequent to the submission of the regular estimates of appropriations for the fiscal year 1941, supplemental and deficiency estimates aggregating $262,356,354 were received. After examination, these estimates were reduced to $262,342,094 and submitted to the Director of the Bureau of the Budget. Reserves amounting to $469,704 were set aside from the ordinary appropriations for the fiscal year 1940 by the bureaus and offices of the Department. During the year, reserves amounting to $270,534 were released by the Director of the Bureau of the Budget after approval of the committee, leaving a reserve of $199,170 at the end of the year. Of the appropriations made to the Treasury Department for the fiscal year 1941, $84,000 has been set aside as reserves. 269677—41 17 236 TElEPOfRT OF THE. SECRETARY OF T H E TREASIURY For the fiscal year 1942, heads of Treasury bureaus and offices submitted estimates for annual, permanent, and indefinite appropriations aggregating $3,882,414,092. After examination by the Budget and Improvement Committee, items aggregating $720,814 were disapproved in estimates for annual appropriations. Of the $3,881,693,278 approved and submitted to the Director of the Bureau of the Budget, $341,686,000 was for annual appropriations; $6,266,433 for permanent and indefinite appropriations and special funds; $1,743,875,845 for trust funds; $1,200,000,000 for interest on the public debt; and $589,865,000 for public debt retirements chargeable against ordinary receipts. COAST GUARD Activities during the fiscal year 1940 The Coast Guard, as the Federal maritime police agency, has carried on the interrelated duties, embraced within such function, of law enforcement, promotion of safety of life at sea and protection of life and property, and the maintenance of a state of preparedness for national defense. With its shore units forming a coordinated network of protective and marine observation stations along all the coasts of the United States, Hawaii, Alaska, Puerto Rico, and Virgin Islands, and with its vessels patrolling the entire length of our coastal and navigable waters, the services of the Coast Guard, involving use of vessels, aircraft, and coastal units, have been utilized in various cooperative measures with other branches of the Government, in addition to carrying on the regular duties of the Service. The regular activities of the Coast Guard include prevention of the smuggling of liquor, narcotics, and other contraband; patrol of the waters of the North Pacific Ocean and Bering Sea and southeastern Alaska in the enforcement of laws and regulations for the protection of the fur seal, sea otter, and fisheries, and of certain other laws in Alaska; patrol in the enforcement of the North Pacific Halibut Act; enforcement of the Whaling Treaty Act and Oil Pollution Act; supervision of the anchorage and movements of vessels and of the handling of explosives, infiammable material, and other dangerous cargo aboard vessels; enforcement of the customs, navigation, motorboat, and other related laws of the United States; International Service of Ice Observation and Ice Patrol in the North Atlantic Ocean; winter patrol of the Atlantic coast to aid vessels and persons in distress; removal of derelicts and other obstructions to navigation from the paths of marine commerce; patrol of regattas and marine parades; administration of the United States Maritime Service; and the saving and protection of life and property at sea and along the coasts. Application of the neutrality laws in the existing international situation has resulted in the Coast Guard assuming an important role in their enforcement. The following table summarizes several of the principal operations of the Coast Guard for the fiscal year 1940, including comparison with the preceding year: BiDPOIRT OP T H E SEOKETABY OF THE. TREASraKY Activity Instances of lives saved and vessels assisted Value of vessels assisted (including cargoes).-. Persons on board vessels assisted Lives saved or persons rescued from peril. _ Persons in distress cared for... Instances of miscellaneous assistance Vessels boarded and papers examined Vessels seized .: • Vessels reported Fines and penalties incurred by vessels reported. Derelicts and other obstructions to navigation removed or destroyed Value of derelicts and other obstructions recovered Regattas and marine parades patrolled Persons examined for certificates as lifeboat men 1939 Increase or 1940 9, 3S3 $63, 723, 566 32, 645 10, 615 9,330 $88, 016, 268 32, 084 9,249 412 410 4,858 32, 656 4.056 39, 450 6 1,854 $470.081 237 21 1, 300 $235,459 -63 $24, 292, 702 -561 -1,366 -2 -803 6,796 16 -554 -$234, 622 266 193 $117, 390 $82,945 -73 -$34,446 443 481 38 3,496 2,527 While the number of lives saved or persons rescued from peril shows a decrease in 1940, when considered in the light of the absence during the year of any extensive hurricane and fiood assistance and the fact that the 1940 figure is higher than any other year except 1939, the record indicates no downward trend in the general activities of this character. The number of vessels boarded and papers examined was the largest since the prohibition era of 1924-33. The major portion of these boardings was to insure that the safety requirements of the navigation laws and regulations were being complied with by shipping and motorboats. Regattas and marine parades patrolled, in the interest of safety to life, exceeded all previous records. No additional funds were allotted to the Coast Guard by the Public Works Administration during the year, projects previously provided for being carried to a conclusion. Approximately $70,000 was allotted by the Works Progress Administration which was expended upon miscellaneous undertakings at stations. Cooperation continued with other departments embracing activities in which the vessel and aircraft facilities of the Coast Guard could be used advantageously, including waterfowl surveys for the Biological Survey, transportation of mail where commercial shipping was disrupted, particularly between Miami, Fla., and Habana, Cuba, and from Seattle, Wash., to Alaskan ports; transporting the Federal Court in Alaskan waters on its annual visit to ports west of Valdez; towing vessels of the Maritime Commission between various Atlantic and Gulf ports; and detailing vessels to assist in the conduct of target practice drills by the Coast Artillery. At the request of the State Department, two cutters were operating during June 1940 in West Greenland waters making a survey of conditions in Greenland ports. This duty showed promise of being extended to the east coast of Greenland. Also at the request of the State Department, a good will cruise of two Coast Guard cutters to ports of Mexico, Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica was made during J a n u a r y March 1940. At ports visited the Coast Guard gave drills in the various methods used in saving life and in demonstrating to the people the peace-time functions of the Coast Guard; visits were exchanged between the officers of the vessels and representatives of the foreign governments; and sports competition were engaged in between the vessels' teams and those of the local governments. 238 !REP0tRT OF THE. SEORETARY OF T H E TREASURY Upon the request of the Director of the Bureau of the Census, small vessels were detailed to transport census enumerators to sparsely settled coastal sections of the United States and Alaska. Arrangements were made for the assignment during July and August 1940 of one cutter, in cooperation with the Bureau of Fisheries, to carry out a program of fishery observations and oceanographic studies in the Bristol Bay, Alaska, region. The Coast Guard cutter stationed at Honolulu continued its quarterly cruises to the South Pacific Islands, including Fanning, Baker, Howland, Jarvis, and Enderbury Islands, servicing the settlements of those islands for the Department of the Interior. The New York District of the Coast Guard provided an armed detail from April 16 to June 6,1940, for guarding approximately 9,299 tons of silver bullion valued at $90,297,200 during transportation by the Treasury Department from New York, N. Y., to the depository at West Point, N. Y. Coast Guard relief forces, consisting of aircraft, boats, and mobile radio stations, were dispatched to the aid of communities stricken by the flood of the Susquehanna River, during April 1940; and a relief expedition was sent into the southern Alabama region during the flood there in August 1939. Considerable survey work and planning concerning Coast Guard activities in future floods in the Ohio and Mississippi Valleys were undertaken during the year. I n conformity with the duty of the Coast Guard to assist in keeping channels and harbors open to navigation by means of icebreaking operations in accordance with the reasonable demands of commerce, service was rendered upon numerous occasions on the North Atlantic Seaboard and Great Lakes during the winter season of 1939-40. The demands along the New England coast were less than usual, due to comparatively mild ice conditions in that region, but an increasing number of calls arose in the Delaware and Chesapeake Bays section. Administrative organization Consolidation of the Lighthouse Service and other considerations making for economy and efficiency have led to substantial changes in the administrative organization of the Coast Guard. In the field the former 9 divisions and 13 districts of the Coast Guard and 17 districts of the Lighthouse Service have been combined into 13 districts, whichinclude districts embracing Puerto Rico and nearby United States possessions and waters, Hawaiian Islands, and other Pacific possessions and waters of the United States, Alaska, and the interior rivers area. The separate field organization of former life-saving activities has been integrated with other functions of the Coast Guard. A grouping of shore stations (including lifeboat and light stations and certain bases) has been studied and is being put into effect as rapidly as practicable. Greater correlation of cutters and other vessels of the Service and a more systematic nomenclature for the several types have been worked out. The district headquarters staffs have been much systematized and placed on as uniform a basis as practicable in relation to the scope and volume of their respective activities. At Washington headquarters, material changes in organization have been made in the direction of more effective utilization of the staff principle. REPOIRT OF THE. SEORETARY OF T H E TREASfURY 239 National dejense Under the act of January 28, 1915, the Coast Guard constitutes a part of the military forces of the United States, operating under the Treasury Department in time of peace and as a part of the Navy in time of war or when the President directs. While the Service is constantly prepared for national defense operations, the existing international situation has led to preparations especially to fit and augment the resources and capacity of the Coast Guard for national defense. Appropriations were provided by the First Supplemental National Defense Appropriation Act of June 26, 1940, for increasing the armament of vessels, and plans have been made, in collaboration with the Navy, to provide for the most effective utilization of the Coast Guard organization. Promoting safety oj marine commerce and]oj lije']and property at sea The duty of promoting safety of life at sea has been carried forward through both protective and preventive measures, the former through such means as the maintenance of a cordon of Coast Guard lifeboat stations, equipped with life-saving boats and apparatus along our coasts; aircraft and vessel patrols to warn of danger and to assist in case of peril; aids to navigation marking the shoals and channels and to guide the mariner along safe courses during fog and storm; and the International Ice Patrol in the North Atlantic. The training of merchant marine personnel, the operations of the Coast Guard Reserve, and enforcement of those navigation laws pertaining to safety requirements are part of the preventive phase of reducing marine casualties and protecting life and property from loss at sea and upon our navigable waters. Aids to navigation.—With the integration of the former Lighthouse Service into the Coast Guard on July 1, 1939, the duty of establishing and maintaining aids to navigation became one of the principal activities of the Coast Guard. For many years there has been a continuing demand for new establishments due in major part to the improvement and extension of navigable channels by the Corps of Engineers, United States Army, and in part to the constantly increasing activity in navigation by small craft requiring aids for their protection in waters not heretofore marked. During the past year 1,581 new aids were established consisting largely of daymarks, buoys, and minor lights; 767 aids were discontinued; leaving a net increase of 814 aids, and bringing the total at the close of the year to 30,420. The number of lightship stations has been reduced by one through the replacement of Lake St. Clair Lightship by a fixed structure. Radio navigational aids continued to be more widely used by marine craft, necessitating the establishment of additional ''marker'' radiobeacons and one intermediate power radiobeacon. An important extension of the system of minor aids has been made in the Tennessee River with the completion of the Chickamauga Dam and the extension of navigable water resulting therefrom. 240 T:IEP0QRT O F T H E SECRETARY O F T H E TREAS'URY The following table gives general information as to the status of the system of aids in various categories at the close of the fiscal years 1939 and 1940: Number of aids to navigation and changes during the fiscal year 1940 D u r i n g 1940 Types J u n e 30, 1939 Established Discontinued Increase or decrease J u n e 30, 1940 (-) L i g h t e d aids: Lights, 200 c a n d l e p o w e r a n d above Lights, below 200 c a n d l e p o w e r L i g h t s h i p stations 1 L i g h t e d b u o y s (including float lights) Lighted t r u m p e t buoys L i g h t e d whistle b u o y s ..-. L i g h t e d bell b u o y s L i g h t e d gong buoy's . ._._.._. T o t a l lighted aids F o g signals: R a d i o b e a c o n s 2. __ __ S o u n d fog signals (in air) S u b m a r i n e fog signals . , .__ .. L i g h t e d b u o y s w i t h whistles, bells, gongs, or trumpets 3 _ U n l i g h t e d b u o y s w i t h whistles, bells, gongs, or trumpets. .. _. T o t a l fog signals. ._ Silent a n d u n l i g h t e d aids: Buoys :_._ Daymarks 116 3 11 18 8 21 306 1 33 1 2 13 1 29 199 —1 83 2 9 6 7 1,830 6,379 29 1,288 8 172 480 39 9,862 710 376 334 10,196 141 570 9 1 16 1 12 1 4 —1 141 574 8 23 699 1,801 6,180 30 1,206 6 163 476 32 50 504 676 40 17 368 9 9 1,764 66 40 26 1,790 13, 468 5,188 329 516 196 172 133 344 13, 601 5,532 368 T o t a l silent a n d u n l i g h t e d aids 18, 656 846 368 477. 19,133 G r a n d total 29, 606 1,581 767 814 30,420 1 Lightship stations not counted in totals. Signals maintained thereon are counted. 2 Includes auxiliary warning radiobeacon on Nantucket Shoals Lightship. 3 Lighted sound buoys counted only once in grand total. The service of information with respect to aids to navigation for the guidance of mariners was continued during the year. Six light lists, covering the North Atlantic coast. South Atlantic coast, Intracoastal Waterway, Mississippi and Ohio Rivers, Pacific coast, and Great Lakes, were published as in previous years and sold to mariners and others. A weeldy Notice to Mariners, relative to aids to navigation in all navigable waters of the United States except the Great Lakes, is printed in Washington and distributed to mariners; and a similar notice is published by the District Commander, United States Coast Guard, at Cleveland, Ohio, for the Great Lakes area. Local notices in mimeograph form are prepared from time to time in the district offices of the Coast Guard and distributed when the safety of navigation warrants immediate information. I n addition three radiobeacon charts, covering the Great Lakes and Atlantic and Gulf and Pacific coasts, are prepared annually and distributed to vessels equipped with radio direction finders. The unusually severe ice conditions which prevailed during January and February of this year resulted in about $170,000 of damage to aids to navigation, particularly in the Chesapeake Bay area. Funds REPOORT OF T H E SECRETARY OF T H E TRE^S^URY 241 are now available for the complete restoration and the work is proceeding rapidly. In addition to establishment of new aids, attention has been given to the improvement of existing aids through modernization and the application of scientific developments to the technical work of sound, radio, and light signalling, with resultant improvement of the aids and in many cases marked economies in their operation. International Service oj Ice Observation and Ice Patrol.—Although the European War affected the movement and customary routes followed by shipping in the North Atlantic, the Coast Guard carried out during the season of 1940 its usual ice observation and ice patrol service, pursuant to the International Convention for the Safety of Life at Sea, signed at London on May 31, 1929, and the act of Congress of June 25, 1936. Four cutters were designated for this duty, but it was necessary to assign only two of them to the task. The oceanographic cutter based at St. John's, Newfoundland, and the ice patrol cutter based at Boston, Mass., instead of at the normal base at Halifax, Nova Scotia. The oceanographic cutter sailed from Woods Hole, Mass., on March 21, 1940, to carry out not only a program of scientific investigations bearing upon the location, rate of drift, and direction of fiow of ocean currents, but also to determine the extent and location of the ice which might be approaching the lanes of North Atlantic shipping. In peace time, the cooperation of merchant shipping in radioing reports of ice sighted in the North Atlantic permitted the Coast Guard to obtain a fairly accurate indication of conditions prevaihng, but this year the ships refrained from using their radio, and the absence of such reports contributed to the difficulty in obtaining an accurate estimate of prevailing ice conditions. However, the oceanographic vessel on its cruises throughout the Grand Banks region gave particular attention to ice scouting, and because of the few bergs drifting into the ice-menace region, together with the laiowledge developed of existing ocean currents and water temperatures, the Commander of the International Ice Patrol was in a position to determine the general ice situation. After completion of four oceanographic cruises from March 21 to June 19, the oceanographic cutter sailed from St. John's on June 22 for the purpose of continuing the investigation of ocean currents in the area between South Wolf Island, Labrador, and Cape Farewell, Greenland. This cruise extended for 1,872 miles and was completed on June 29. On M a y 12, 1940, the ice patrol cutter sailed from Boston, Mass., to devote its entire time to observation of ice conditions, extending its cruise far to the northward of the customary ice-menace region. The 1940 season was found to be practically an ice-free year, insofar as constituting a menace to North Atlantic commerce. I t thus became unnecessary for the ice patrol cutter to make subsequent cruises, and she returned to Boston on June 3. Throughout this brief season, the ice patrol cutter s^nt out scheduled radio broadcasts of existing ice conditions, insuring to shipping advice and information affecting its safe navigation. Also, a program of weather observations through the use of radio-sonde apparatus, was carried out in cooperation with the United States Weather Bureau, 18 observations being made between May 15 and June 2. Throughout the ice observation cruise 242 'REPORT OF THE. SEORETARY OF T H E TREASURY only one berg was sighted south of latitude 48°, and none was observed or reported south of the forty-fifth parallel. Weather and marine injormation.—Due to the marked decrease and almost total lack of weather data normally furnished the United States Weather Bureau by ships of all nationalities, the means of making weather forecasts adequate to the needs of marine and air commerce was endangered. Consequently, an Atlantic weather patrol was established in February 1940, with two weather observation stations located between Bermuda and the Azores, maintained at all times by Coast Guard cutters especially equipped for such service and to which technical employees of the Weather Bureau were assigned. In addition to the data furnished the Weather Bureau, the cutters on this duty furnished weather information to trans-Atlantic planes and gave added security to such aircraft operations. At a conference held by the Civil Aeronautics Authority on January 17, 1940, it was tentatively agreed by the representatives of the various Government departments and agencies that the Coast Guard mobilize assistance and coordinate efforts to locate and relieve aircraft in distress at sea. A safety operation plan is now in effect for the protection of aircraft making trans-Atlantic flights, and a ship's position office was established in the New York district for the assistance of shipping and aircraft. The number of storm warning display stations operated in cooperation with the Weather Bureau increased to 92 on June 30, 1940. The reporting by radio, of weather observations in the Hurricane Warning Service of the Weather Bureau was expanded, communication trucks being added to the reporting system. At favorably located Coast Guard stations along the coasts of the United States, daily broadcasts of weather and marine information, furnished by the Weather Bureau and the Hydrographic Office, were made by radio-telephone. These broadcasts were primarily for the benefit of small craft of which increasing numbers are being radioequipped. Grand Banks Patrol.—Incident to the breaking out of war in Europe early in September 1939 and the distress caused to maritime commerce in the North Atlantic, six Coast Guard cutters were employed, in cooperation with the United States Navy, on what was known as the Grand Banks Patrol during the fall of 1939 and early months of 1940. Winter cruising.—DiiTing the period December 1, 1939, to March 31, 1940, 15 cutters were designated as a special patrol, pursuant to Executive order, to assist distressed vessels during the season of severe weather on the North Atlantic coast. These cutters cruised 865,556 miles; afforded assistance to 125 vessels; and destroyed 11 derelicts which were a menace to navigation. In the enforcement of Federal maritime laws, 51 vessels were boarded and examined. Maritime training.—The Coast Guard has continued since September 1, 1938, to administer the United States Maritime Service for the United States Maritime Commission. The purpose of the Maritime Service is to assist in the maintenance of a trained and efficient merchant marine personnel by providing an adequate training system for seamen who serve aboard American merchant vessels on the Great Lakes or the high seas. For licensed officers and experienced men of the merchant marine, an original 3 months' training.period with pay is provided, and, after satisfactory completion of this probationary training, the regular en •REPOtRT OF THE SEiORETARY OF THE TRE'ASTJRY 243 rollees who continue to go to sea in the merchant marine become eligible for one month's annual active duty training with pay in addition to 1 month's retainer pay each year. For men without previous seagoing experience, the original probationary period is 9 to 12 months, after which those men who satisfactorily complete the course become eligible for the same benefits in annual active duty training and retainer pay offered other regular enrollees. The Maritime Service maintained training stations for merchant marine officers at Fort Trumbull, New London, Conn., and Government Island, Alameda, Calif.; and training stations for unlicensed seamen were maintained at Hoffman Island, New York Harbor, and at Alameda. Apprentice seamen without previous sea experience underwent instruction on the training ship American Seaman and at training stations established at St. Petersburg, Fla., on November 30, 1939, and at Gallups Island, Boston, Mass., on June 1, 1940. These facilities , have a capacity for approximately 600 licensed officers and 2,400 unlicensed men each year for a 3 months' training course, and for approximately 800 inexperienced unlicensed men for a 9 to 12 months' course. During the year 6,145 applications for enrollment were received, and from these 3,368 men were enroUed; 2,185 licensed officers and unlicensed men were regularly enrolled after completing the training courses in a satisfactory manner; and from September 1, 1938, to June 30, 1940, a total of 2,868 licensed officers and unlicensed men have been regularly enrolled in the Maritime Service. On June 30, 1940, 801 enrollees were under training as follows: licensed, deck, 73, engineering 73; unlicensed, deck 127; engineering 148, stewards 106, apprentice seamen 274. There were on detail from the Coast Guard in the Maritime Service on June 30, 1940, 31 commissioned officers, 42 chief warrant and warrant officers, and 222 enlisted men. Thirty-two licensed enrollees and 282 unlicensed enrollees of the Maritime Service were on active duty in connection with the administration of the Service. Coast Guard Reserve.—The organization of the Coast Guard Reserve—a voluntary, nonmilitary organization of motorboat and yacht owners—established by the act of June 23, 1939, was effected during the year, units being established in 10 of the 13 Coast Guard districts (the Juneau, Honolulu, and San Juan districts being excepted) with an approximate enrollment as of June 30, 1940, of 2,600 Reservists and 2,300 Reserve boats. The operation of the Reserve has proven a distinct contribution to the promotion of safety of life at sea, to competency in boat operation and safe navigation among vessels of all sizes upon the navigable waters of the United States. Reservists have acted in collaboration with the Coast Guard in safety patrols of regattas, in saving life and property, and, in general, bringing into daily use more modern seagoing knowledge. They were also active in distributing information and giving advice to others relative to safety equipment and operation of boats. Maritime law enjorcement The Coast Guard, with its broad authority under the act of June 22, 1936, to make inquiries, examinations, inspections, searches, seizures, and arrests upon the high seas and the navigable waters of the 244 iREPOUT OF T H E SEORETARY OF T H E TREASIURY United States in enforcement of any law of the United States, acts as the maritime law enforcement agency of the Government. Customs and antismuggling laws.—At the principal ports the vessel facilities of the Service are used by the customs and immigration authorities in contacting foreign vessels upon arrival, and in otherwise cooperating with those officials in the conduct of their duties. While during the year there was a complete absence of organized smuggling of alcoholic liquors, it has been necessary to maintain a vigilant surveillance over- coastal activities to act as a deterrent against any resumption of such practice. The prevention of the smuggling of narcotics presents a current problem. Coast Guard patrol vessels have continued the practice of contacting well out to sea and trailing vessels suspected of having on board narcotics intended for unlawful traffic. This surveillance, prior to the arrival of a vessel at port for search by the customs officers, prevents the disposition of narcotics off harbor entrances by means of prearranged delivery to speed boats, fishing craft, and aircraft, or by dumping overboard in buoyed packages to be picked up by accoraplices. During the year there were 4,199 instances of vessels trailed or kept under surveillance. In cooperation with the Alcohol Tax Unit of the Internal Revenue Bureau, Coast Guard aircraft located 725 illicit distilleries and assisted in the seizure of 79. Navigation laws.—In the enforcement of the navigation laws 481 regattas were patrolled and 39,450 vessels, including motorboats, were boarded and examined. Of the latter number, 1,300 were reported for penalties and 21 were seized for violations. Although 6,795 more vessels were boarded than during the previous year, the total number of vessels on which violations were found was 554 less. This situation is attributed in a degree to the systematic boarding methods of the Service as well as to the cooperation of yachtsmen and small boat operators in increasing the standard of safety in equipping and operating small craft. Neutrality.—Upon the proclamation of the President of the neutrality of the United States in the European war under date of September 5,1939, and pursuant to Executive Order No. 8233 of the same date, the Coast Guard assumed a wide field of responsibility with respect to preventing unneutral acts by merchant vessels of the United States or other neutral countries and against the commission of belligerent action by merchant vessels of warring nations within the United States. To give full effectiveness to the strict enforcement of neutrality by the Coast Guard, a systematic and extensive patrol by aircraft, vessels, and coastal stations has been carried out along all the coasts of the United States. As a part of this control exercised over merchant vessels, the radio apparatus aboard such craft belonging to belligerent nations was inspected and sealed in 4,397 instances up to June 30, 1940, to prevent unneutral communications while within territorial waters of the United States. Also, 613 defensively armed merchant vessels were inspected to insure that they were not operating as auxiliary merchant cruisers or commerce raiders and basing in United States ports in violation of the neutrality law. In maintaining a strict surveillance over maritime activities in territorial waters and adjacent coastal regions, in protection of neutrality and to provide interested governmental agencies intelligence •REPOIRT OF T H E SEORETARY OF T H E TREIASrURY 245 concerning shipping, there were 41,611 instances of merchant vessels identified at sea or in ports of the United States, 26,535 vessels sighted or identified at sea, and 94,055 instances of foreign vessels identified in ports of the United States by Coast Guard units. Anchorage and movements oj vessels.—Throughout the year Coast Guard officers were detailed as captains of the port at nine ports of the United States in enforcement of the rules and regulations issued by the Secretary of War and the Secretary of Commerce governing the anchorage and movements of vessels, and Coast Guard officers also were enforcing regulations of similar nature in several localities beyond the confines of ports. Pursuant to the Espionage Act of June 15, 1917, the proclamation of the President of June 27, 1940, and Treasury Department anchorage regulations of June 27, 1940, Coast Guard officers were designated captains of the port at 28 ports throughout the United States, its Territories and possessions to enforce the rules and regulations promulgated by the Secretary of the Treasury and approved by the President governing the anchorage and movements of vessels and to supervise and control the movement, lading, and discharge of explosive or infiammable material or other dangerous cargo. The control is being exercised at all ports where there is an appreciable amount of marine activity to insure an orderly and well-regulated movement of marine commerce, a systematic arrangement of anchorages for its accommodation, and particularly, through rigid supervision over the movement and handling of explosives, inflammable material, and other dangerous cargoes, to see that every safeguard is provided. Rules and regulations issued by other agencies of the Government and in effect where captaias of the port had been assigned previously were reaffirmed. At the close of the year a study was beiug made by the Coast Guard for the adoption of uniform rules and regulations applicable to all ports where captains of the port were assigned. Whaling Treaty Act enjorcement.—In enforcement of the provisions of the Whaling Treaty Act, giving effect to the convention between the United States and certain other countries for the regulation of whaling, two Coast Guard officers were assigned as inspectors aboard one American factory vessel which operates in the Indian Ocean and Antarctic waters, and officers were assigned also to two land stations, one in Alaska and one on the California coast. Various violations of the act and of other Federal statutes were reported by the inspectors. Oil Pollution Act.—Coast Guard units reported 47 violations by vessels and shore plants of the Oil Pollution Act, which has for its purpose the prevention of contamination of our navigable waters in the interest of conservation of fish life and wild fowl and the prevention of damage to marine property and beaches by oil. Patrol in North Pacijic waters and Bering Sea.—The patrol of the North Pacific Ocean, Bering Sea, and waters of southeastern Alaska has for its mission the assistance to persons and vessels in distress; protection of the seal herd, sea otter, walrus, and sea lions; assistance to Alaskan natives; law enforcement generally; and cooperation and assistance to other Government departments. The patrol for the 1939 season, which was in progress at the beginning of the fiscal year 1940, was carried on by 8 vessels, which cruised over a radius of 64,032 miles, assisted 13 vessels, boarded 53 craft, afforded medical and 246 IREPOUT OF THE. SEORETARY OF T H E TREASIURY dental aid to 1,028 persons, and transported 297 persons. The patrol for the season of 1940, in progress on June 30, 1940, comprised 8 vessels. Aviation On June 30, 1940, air stations in commission were located at Salem, Mass.; New York, N. Y.; Charleston, S. C.; Miami and St. Petersburg, Fla.; Biloxi, Miss.; San Diego, Calif.; and Port Angeles, Wash.; and an air patrol detachment was located at Cape May, N. J. Fifty-five aircraft were in commission on that date, delivery having been accepted on seven twin-engine long range patrol planes and seven twinengine intermediate range amphibian planes during the fiscal year. A contract for one twin-engine flying boat was awarded, delivery to be made during the fiscal year 1941. Construction has progressed satisfactorily on the new air stations at Elizabeth City, N. C., and San Francisco, Calif., which will be placed in operation during the early part of the fiscal year 1941. Aircraft was employed in law enforcement work on both sea and land in cooperation with other Federal departments, in rescue missions, in promoting safety of life at sea, and in the enforcement of the neutrality laws. The following statistics for the fiscal year indicate certain phases of such activities: Number Number Flights 4,801 Persons warned of impending danger 1,466 Miles cruised _ 1, 2.')8, 344 Obstructions to navigation reported 9 .. Area searched (square miles) 9, 307, 065 Smuggling vessels located... 2 Time in flight (hours) 13,231 Illicit distilleries located 725 Emergency medical cases transported 113 Disabled vessels located 76 Persons transported from disabled vessels. 12 Instances of assistance to other Govern192 ment departments . Persons assisted 223 29, 322 Vessels warned of impending danger 259 Vessels identified Communications The Coast Guard owns and operates a coastal telephone system, consisting of 1,662 miles of pole lines, 3,152 miles of open wire, metallic circuits, 58 miles of aerial and underground cables, and 690 miles of submarine cables, consisting of 200 separate telephone lines. Most of these lines are connected with central office exchanges of commercial telephone systems, thus affording telephone and telegraph service to units of the Coast Guard and to certain Navy direction finder stations. Weather Bureau offices, and units of other Government agencies in various localities along the coastal waters of the United States. Coordination of the former Lighthouse Service communications with those of the Coast Guard into a unified system is being carried out as rapidly as possible. Radiotelephone facilities have been installed in additional surfboats, light stations, tenders, and miscellaneous picket boats, materially increasing the efficiency of the emergency radio communication system in the interests of national defense and in the safety of life and property at sea. The Coast Guard communication system was extended to the San Juan district by the establishment of a primary radio station at San Juan, P. R., and 12 radiotelephone radio stations on the island of Puerto Rico. In the Juneau district, a temporary radio station was established at Ketchikan to improve communication with vessels of the Bering Sea patrol. REPOtRT OF T H E SECRETARY OF THE. TREASiURY 247 Radio engineering.—Research and development work was carried on especially with filtering electrical machinery noises; telescopic type antenna masts for installation in small craft, trucks, and other mobile units; and a new intermediate frequency receiver for improving communications on the lower frequencies. Equipment was modernized by the installation of radio-direction finders in the larger cutters; by the procurement of compact radiotelephone transmitters and of receiving equipment for installation in picket boats and other small craft; and by installation of a completely new and modernized radio equipment in all existing Coast Guard aircraft with the exception of two planes of the P J - 1 and two of the CO-1 types. The predominating requirements and accomplishments were to provide equipment which would satisfy the military needs for the various aircraft, so that they might readily be capable of joint operation with Army and Navy planes, and to provide suitable communication facilities in connection with fiight activity over the civil airways. The radio laboratory facilities of the Coast Guard at Fort Hunt, Va., and at Lazaretto Base, Baltimore, Md., have been jointly used throughout the year for both communication and navigational work. There were in commission on June 30, 1940, 23 shore^adio stations and 10 aeronautical radio stations. The Chief Communications Officer continued to represent the Treasury Department on the Interdepartmental Radio Advisory Committee. Personnel and training Personnel strength.—There were on the active list of the Coast Guard on June 30, 1940, 606 commissioned officers, 427 chief warrant officers, 315 warrant officers, 12,261 enlisted men, 144 cadets, 3 civilian instructors at the Academy, 4,499 civilian field employees, 119 civilians employed on Coast Guard projects for which funds had been provided by the Public Works Administration, 374 civilian employees at Coast Guard headquarters, and 58 Public Works Administration employees engaged on miscellaneous projects. Of the 4,499 civilian field employees, 491 were per diem employees at the Coast Guard Depot, Curtis Bay, Md. The appreciable increase in personnel during the year is attributable to the consolidation of the former Lighthouse Service with the Coast Guard, an authorized increase in personnel for the enforcement of neutrality, for which appropriations were provided by the Emergency Supplemental Appropriation Act of February 12, 1940, and an increase to meet demands by the Maritime Service. The First Supplemental National Defense Act of June 26, 1940, authorized and provided funds for 2,500 additional men, who are to be enlisted during the fiscal year 1941, for the purpose of strengthening the Service in national defense requirements. In accordance with the act of August 5, 1939, providing for the induction of certain civilian employees of the former Lighthouse Service into the Coast Guard in a military status, 665 were inducted as follows: 59 as commissioned officers, 44 as chief warrant officers, 96 as warrant officers, and 466 in enlisted ratings. Cadet instruction and Academy activities.—There were 85 cadets under instruction at the Coast Guard Academy, New London, Conn., on July 1, 1939. During the year 124 cadets were appointed, 45 248 REPOIRT OF T H E SECTR.ETARY OF T H E THEASTIRY resigned, and 20 were graduated. On June 30, 1940, 145 cadets were under instruction, including 1 graduate who was not commissioned. The annual practice cruise of the first and third classes, made during June-August 1939 aboard one cutter, included visits to the Cana] Zone and ports in the countries of Colombia, Ecuador, Peru, and Chile. Cadets of the second class had a summer cruise and also short cruises on several cutters. The Congressional Board of Visitors met at the Academy on May 4, 1940. They reported an excellent state of affairs in the academic instruction, commended the unusually high standard of the curriculum, and recommended improvements in the way of additional buildings to accommodate a larger number of cadets; to provide enlarged facilities for their instruction, better dock facilities, and a replacement for the training schooner Chase. The Advisory Committee of the Academy, consisting of distinguished educators appointed by the Secretary of the Treasury to afford advice and counsel upon the curriculum and other academic matters, held meetings at various times throughout the year. Recruiting.—In order to meet the expansion of enlisted personnel and to prepare for future increases which might occur, new recruiting offices were opened at Chicago, 111.; Detroit, Mich.; St. Louis, Mo.; Mobile, Ala.; Omaha, Nebr.; and Salt Lake City, Utah. Those at San Francisco, Calif., and Boston, Mass., were closed. Twelve recruiting trucks were obtained for traveling recruiting parties in ^siting rural districts and small towns and cities in the various recruiting areas. In order to expedite the securing of 2,000 men for neutrality duty for a short period, units of the Coast Guard other than recruiting offices effected original enlistments. No difficulty was experienced in securing desirable applicants for enlistment. Of the 17,077 applicants at recruiting offices during the year, 5,528 were rejected for physical defects, 8,609 for other causes, and 2,940 were enlisted or reenlisted. A total of 4,262 original enlistments were effected, 2,876 at recruiting offices and 1,386 at other units. Recruit training.—The expansion of enlisted personnel and the demand for trained men to perform the increased duties in the enforcement of neutrality and strengthening of national defense necessitated enlarged training facilities. Two temporary training stations were established, one at Port Townsend, Wash., and one at Ellis Island, N. Y. Recruits were also sent to the Coast Guard Depot at Curtis Bay, Md., and the Coast Guard Base at Fort Lauderdale, Fla., for outfitting and training before assignment to duty afloat. Specialty training.—Facilities for training radiomen, yeomen, machinist's mates, gunner's mates, and other specialists were expanded and additional enlisted personnel assigned to trade and service schools operated by the Army, Navy, and Marine Corps. Three enlisted men qualified as aviation pilots after completing the course in flight training at the N a v a l Air Station, Pensacola, Fla., and seven men were undergoing similar training at the close of the year. The staff of instructors at the Coast Guard Institute at Fort Trumbull, New London, Conn., which provides educational and specialist courses for enlisted men to assist them in preparing for acivancement, for employment in civilian life upon separation from the Service, anci for more proficiency in their duties, was increased to meet the added demands. Ninety-six enrollees of the Institute were awarded diplomas REPORT OF THE SEORETARY OF THE TRE'ASfURY 249 from the International Correspondence School, while 31 were awarded diplomas from the Capitol Radio Engineering Institute. Courses in gasoline, Diesel, and aviation engines and also lathe practice were afforded to groups of enlisted men at the Engine School and Repair Base, Norfolk, Va., where, in addition to receiving instruction, the men reconditioned engines for further use by Coast Guard units. Retirement under 20-year act.—In accordance with the provisions of the act of May 24, 1939, which provided for the retirement annually of a limited number of enlisted men, voluntarily or involuntarily, upon completion of 20 or more years service, 77 men were retired. The operation of this law has had a beneficial effect upon morale, and has contributed to efficiency in the elimination of those lacking the required physical stamina to meet the many arduous duties of the Service. Postgraduate instruction.—Commissioned officer personnel during the year pursued post-graduate courses in marine aeronautical and radio engineering, naval architecture, law, oceanography, meteorology, business administration, and certain other academic subjects in order that the efficiency of the commissioned corps might be increased and at the same time kept abreast of the constant changes in equipment and procedure. During the year 9 commissioned officers completed the flight training course at the Naval Air Station, Pensacola, Fla., and were designated aviators, and 10 were undergoing instruction on June 30, 1940. Gunnery and small arms instruction.—Pursuant to the established practice of maintaining ordnance equipment and gunnery personnel aboard cutters in a state of preparedness and efficiency, there was carried out, in addition to regular maintenance and instruction, a program of short range practice among the larger cutters and a modified target practice among the smaller classes. Long range battle practice was held by 5 cutters, and of 27 cutters equipped for short range practice, 20 participated, 7 being prevented from competing because of the duty missions upon which they were engaged. Of the 108 ordnance-equipped cutters of the 75- to 165-foot class, 102 held target practice. Among the gunnery personnel on vessels carrying 3-inch 50-caliber to 5-inch 51-caliber guns, 50 men qualified as gun pointers, first class, and 22 as gun pointers, second class. In small arms practice, which is a part of the general training program, 1,064 men qualified as expert riflemen, 1,337 as sharpshooters, 1,294 as marksmen, and 962 as pistol experts. The Coast Guard rifle and pistol team won 3 major matches in national competitions at Camp Perry and many medals in team and individual competitions. The training of armed civilian personnel of the Treasury Department by Coast Guard instructors was continued throughout the year. Qualifications totaled 6,846 for an average armed force of 5,046, about 68 percent of what might be expected if every man qualified twice a year according to plan. A gunners' mates school for enlisted men has been established at the Coast Guard Depot, Curtis Bay, Md., augmenting the training facilities already in operation at that place. Modern guns and fire control equipment have been provided so that the men assigned to ordnance duty may be trained in the care and use of this equipment. Cooperative activities with the Army, Navy, and Marine Corps 250 REPOIRT OF T H E SEORETARY OF T H E TREAStTRY have been carried on with the mutual satisfaction and good will which have always characterized such relations. Engineering competition.—Participating in the engineering competition were 32 cutters in class A, and 48 cutters in class B. The performance of the vessels in respect to efficient and economical machinery maintenance and operation is the basis for the award of highest efficiency. The competition promotes a spirit of friendly rivalry and contributes to high standards among the engineering personnel and in the operation of machinery. Floating equipment Cutters, picketboats, etc.—On March 25, 1940, the practice was inaugurated of classifying Coast Guard vessels by two groups—cutters and picketboats—excluding auxiliar}^^ craft, lightships, and ship and station boats. On June 30, 1940, vessels of the following types were in commission: Cutters, 267, viz: 327-foot class, 7; 250-foot class, 10; 240-foot class, 4; 165-foot class, 23; miscellaneous class, 9; 125-foot class, 32; 100-foot class, 1; tug class, 13; tender class, 66; harbor class, 39; 80-foot class, 9; 78-foot class, 6; 75-foot class, 46; 72-foot class, 2; picketboats, 34-foot to 65-foot class, 199; auxiliary craft, which includes maritime training, repair, freight, and cable-laying vessels, 11; lightships, including 9 relief lightships, 39; and ship and station boats, 2,888, embracing craft assigned to ships, Coast Guard stations, and Maritime Service training stations, and including 161 motor lifeboats, 196 motor surfboats, and 479 pulling surfboats designed and maintained especially for rescue missions. Two 110-foot class cutters, of all-welded construction and especially designed for icebreaking, and one tender class cutter were placed in commission. One tender class cutter, designed for deep sea service, was under construction at the close of the year, and a contract was awarded for the construction of two additional tender class cutters for duty on the western rivers. In addition to the small boat building program at the Coast Guard Depot, the following boats were under construction on outside contracts: 6 38-foot cabin picket-boats; 12 30-foot rescue boats, 3 of which are of special design for aviation crash boat service; 2 26-foot motorboats; 2 24-foot motor launches, and 2 whaleboats. There were constructed under contract for the Maritime Service 16 26-foot drill boats and 10 19-foot sailboats; and a contract for 20 additional drill boats was awarded. Stations, bases, repair depot, etc. On June 30, 1940, there were 195 fully manned lifeboat stations, including three houses of refuge in a reduced complement status; 63 inactive lifeboat stations having no crews but being used as boathouses, lookouts, and for other miscellaneous purposes; 33 bases, 30 of which were former Lighthouse Service depots; 16 servicing bases for maintenance of aids to navigation; and 6,379 minor light structures and 1,830 major light structures, 508 of which were resident keeper light stations. A reorganization of lifeboat, and light stations, bases, etc., was in progress on June 30, with the purpose of effecting consolidations. Numerous projects were completed in the station rebuilding program. EJEPOIRT OF T H E SEiORETAIlY OF T H E TRE'ASHJRY 251 Repair depot.—The Repair Depot at Curtis Bay, Md., is maintained for repairing and altering cufters, constructing the small standard life-saving boats of the Service, and manufacturing parts and small items of equipment for the Service in general. There were constructed during the year 18 motor lifeboats, 16 motor surfboats, 33 pulling surfboats, 19 motor launches, and 15 dinghies. In addition to the above, a 40-foot steel lifeboat of all-welded construction was completed for experimental purposes. Two patrol boats were reengined and reconditioned, and several cutters were extensively overhauled. Awards oj lijesaving medals The Secretary of the Treasury, under the provisions of law, awarded during the year 1 gold and 39 silver medals of honor, and 1 silver bar, in recognition of heroism or bravery exhibited in rescue or attempted rescue of persons from drowning in waters over which the United States has jurisdiction, or upon an American vessel. Legislation and Executive authorizations Various laws affecting the administration and organization of the Coast Guard were enacted by the Congress during the fiscal year: Public No. 167, July 12, 1939, authorized the Secretary of the Treasury to establish a Coast Guard station at or near Monterey, Calif. Public No. 183, July 15, 1939, provided for an increase in the membership of the Congressional Board of Visitors to the Coast Guard Academy, and for the appointment of members vice those unable to attend. Public No. 239, July 27, 1939, authorized the acquisition of land for a depot at or in the vicinity of St. Louis, Mo.; the purchase of a site for a servicing base at Atlantic City, N. J.; and the transfer of land from the War Department for enlargement of the depot reservation on Yerba Buena Island, Calif. Public No. 247, July 31, 1939, permits retired officers and enlisted men to hold civil office in any Territory of the United States. Public No. 258, August 4, 1939, authorized the Commandant to detail personnel for duty in connection with maritime instruction and training by the several States, Territories, District of Columbia, and Puerto Rico, and by the United States when requested by the United States Maritime Commission. Public No. 291, August 5, 1939, perfected the consolidation of the former Lighthouse Service with the Coast Guard by authorizing the commissioning, appointment, and enlistment in the Coast Guard of certain officers and employees of the Lighthouse Service. Public No. 292, August 5, 1939, abolished the grades of district commander and constructor and provided for the transfer of officers in such grades to the line of the Coast Guard. Public No. 329, August 7, 1939, authorized the establishment of a Coast Guard station at or near Wrightsville Beach, N. C. Public No. 370, August 10, 1939, provided for the retirement, under certain conditions, prior to July 1, 1940, of certain personnel of the former Lighthouse Service upon reaching the age of 64, or whose positions were abolished. 269677—41 18 o 252 >REPOIRT OF T H E SECiRETARY OF T H E TEEASfURY Public No. 556, June 6', 1940, provided for the procedure to govern the selection of officers for voluntary retirement, who have had 30 or more years service and the retirement of those who have been placed out of line of promotion; and also for recommending lieutenant commanders to be placed out of line of promotion. Public No. 557, June 6, 1940, authorized the acquisition of land to enlarge the depot at Seattle, Wash., and the establishment of a servicing base at or near Chattanooga, Tenn. Public No. 564, June 6, 1940, amended and clarified certain acts pertaining to the Coast Guard in relation to rank upon retirement of Commandant, Assistant Commandant, and Engineer-in-Chief; to the duties of the Assistant Commandant; to the discontinuance and re-establishment of stations, light stations, and houses of refuge; to the reimbursement for operating expenses and for damage repairs to motorboats and yachts of the Coast Guard Reserve while in the service of the Coast Guard; and provided for extension of correspondence courses to members of the Coast Guard Reserve, for ration allowances and commutation thereof, and for the disposition of remains of deceased officers, enlisted men, and civilian personnel. Public No. 671, June 28, 1940, applicable alike to the Navy and Coast Guard, provided for expediting contracts in the interest of national defense, prescribed working hours for civilian employees, provided overtime compensation under certain conditions, and provided for removal from office of civil service employees when warranted in the interest of national security. Executive Order No. 8254, of September 18, 1939, authorized increases in the personnel and facilities of the Coast Guard to meet conditions arising with respect to enforcement of neutrality and the strengthening of national defense. Proclamation No. 2412, of June 27, 1940, authorized the Secretary of the Treasury to exercise control of vessels in territorial waters of the United States. Funds available, obligations, and balances The following table shows the amounts available for the Coast Guard for the fiscal year 1940. The amounts of obligations and unoblierated balances are also shown. Available funds, obligations, and unobligated balances, fiscal year 1940 Source of funds Appropriations: Salaries, Office of Coast Guard, 1940 Pay and allowances, 1940.. Fuel and water, 1940. 1 Outfits, 1940 Rebuilding and repairing stations, etc., 1940 Communication lines, 1940 Civilian employees, 1940... Contingent expenses, 1940.. Repairs to vessels. 1940 Repairs to aircraft, 1940 Additional airplanes, 1939-40 Additional airplanes, 1940-41 Coast Guard air station, Elizabeth City, N. C , 1939-40.. Coast Guard air station, San Francisco, 1939-40 Repairs to vessels, 1939-40 i. Outfits, 1939-40 Rebuilding and repairing stations, etc., 1939-40 Communication lines, 1939-40 Appropriated or aliotted $572, 701 21, 076,937 1, 520, 000 2, 362,188 694, 000 259, 400 206, 750 135, 800 2, 240, 000 613, 000 17,187 477, 000 33, 500 34, 521 Obligated $565, 058 21, 028, 578 1, 514, 291 2, 352, 541 687, 529 257, 841 199, 788 131, 298 2, 236, 216 606, 086 12, 422 453, 754 32, 389 32, 705 184 130 98, 329 1, 287, 060 63,400 97, 586 1,106, 533 63, 400 Unobligated balance $7, 643 47,369 5,709 9,647 6,471 1,559 6,962 4,502 3,784 6,914 4,765 23,246 1,111 1,816 54 743 180, 527 BlEPOtRT OF T H E SEOEBTASY OF T H E TEEEAS>U!EY 253 Available funds, obligations, unobligated balances, fiscal year 1940—Continued Source of funds Appropriations—Continued. General expenses, L . H . S., Coast G u a r d , 1940 Salaries, keepers of L . H . , Coast G u a r d , 1940 Salaries, L . H . vessels, Coast G u a r d , 1940 Salaries, L . H . , Coast G u a r d , 1940 R e t i r e d p a y , L . H . S., Coast G u a r d , 1940 A i d s to n a v i g a t i o n , L . H . S., Coast G u a r d , 1940 Vessels for L . H . S., Coast G u a r d E m e r g e n c y C o n s t r u c tion Act, J u l y 21, 1932 A i d s to n a v i g a t i o n , L . H . S., Coast G u a r d E m e r g e n c y C o n s t r u c t i o n A c t , J u l y 21, 1932 . Special projects, vessels, L . H . S., Coast G u a r d _ Vessels for L . H . S., Coast G u a r d Special projects, L . H . S., Coast G u a r d . . . Special projects, aid to n a v i g a t i o n , L . H . S., Coast G u a r d . Total... O t h e r available funds: P u b l i c W o r k s A d m i n i s t r a t i o n , act of 1938 (allotment to T r e a s u r y , lighthouses) Foreign service p a y a d j u s t m e n t , appreciation of foreign currencies ( T r e a s u r y ) , 1940 .... P u b l i c W o r k s A d m i n i s t r a t i o n , act of 1938 (allotment to T r e a s u r y , Coast G u a r d ) N a t i o n a l I n d u s t r i a l Recovery, T r e a s u r y , lighthouses W o r k i n g fund, T r e a s u r y , Coast G u a r d , 1940 W o r k i n g fund, T r e a s u r y , Coast G u a r d , t r a i n i n g of personnel ( c o n s t r u c t i o n f u n d , U . S. M a r i t i m e C o m m i s s i o n ) . Golden G a t e I n t e r n a t i o n a l Exposition (transfer to T r e a s u r y , Coast G u a r d ) W o r k i n g fund, T r e a s u r y , Coast G u a r d . E m e r g e n c y relief, T r e a s u r y , Coast G u a r d , Federal nonconstruction projects (transfer from W . P . A.) E m e r g e n c y relief. T r e a s u r y , Coast G u a r d , general adm i n i s t r a t i v e expenses (transfer from W . P . A) . E m e r g e n c y relief, Treasm-y, Coast G u a r d , (transfer from W . P . A . 1938-40) - . Total Grand total... Appropriated or allotted $4,441,960 1,890, 000 2, 432, 000 754, 600 830, 000 1, 314 Obligated $4,407, 382 1,817, 270 2, 336, 911 723, 443 802, 540 1,008 Unobligated balance $34, 578 72. 730 95, 089 31,167 27, 460 306 11, 745 9,824 1,921 26,149 1,587,350 15, 615 42, 838 2, 328, 740 16, 595 855, 736 361 28, 466 740, 559 9,554 731, 614 15, 254 14, 372 1, 588,181 45, 953, 268 43, 018, 240 2, 935, 028 453, 950 378, 735 75, 215 500 31 469 1, 312, 924 17, 805 27, 500 1, 268, 252 17. 737 25, 500 44, 672 68 2,000 3, 814, 249 3, 405, 051 409,198 4,739 963 3,389 963 1,350 70, 712 57, 879 12, 833 2.489 2, 485 4 51, 290 48, 372 4,918 6, 757,121 5, 206, 394 550, 727 51, 710, 389 48, 224, 634 3, 485, 756 Review of activities since 1933 Administrative organization The repeal of the eighteenth amendment in 1933 changed conditions with regard to the smuggling of liquor into the United States, which resulted in drastic reductions in the appropriations for the Coast Guard, with consequent reduction in vessels, bases, and personnel. The Service, which had been expanded from 1926 to 1932, was faced with the problem of reorganization and readjustment to carry on within its limited funds. A reorganization of the Service was completed in 1933, providing for a rearrangement of Coast Guard districts and divisions and making other changes so as to definitely fix authority and responsibihty in any section along the coast and to permit greater flexibility and coordination of the forces of the Coast Guard. As a result of this reorganization the efficiency of the Service was markedly increased, and the estimates for the fiscal year 1934 were reduced by over a million dollars. Later, in 1937, the efficiency of the Coast Guard stations was increased through the consolidation and elimination of certain units and by the improvement and modernization of the remaining units. The overlapping areas of field work of the civil engineering force were made to conform with those of the general administrative units in which they were stationed, effecting coordination and better administration in 254 ^REPORT OF TELE. SECRETARY OE T H E TR;EASIURY the prosecution of the construction and repair projects throughout the Service. The consolidation of the former Lighthouse Service with the Coast Guard on July 1, 1939, brought together two of the oldest agencies of the Government, both contributing to safety of life at sea. This development made necessary a further reorganization in the Coast Guard to embrace all combined activities in a coordinated and efficient system of administrative control and direction. National dejense Constituting a part of the military forces of the United States, the. Coast Guard since 1933 has been giving constant attention to preparedness plans, in collaboration with the Navy under which it operates in time of war. Improvements in armament and fire control equipment of the vessels have been made simultaneously with latest developments, and a carefully planned system of small-arms training for personnel, gunnery exercises by vessels, and participation in Army and Navy maneuvers and problems have been attended by increased efficiency of the Service. Promoting sajety oj marine commerce and oj lije and property at sea While the Coast Guard carries on the duty of rendering assistance to persons and property in peril at sea, it is equally concerned in measures and policies designed to prevent disasters occurring at sea. Therefore, when the United States Maritime Service was established pursuant to the Merchant Marine Act of June 23, 1938 (52 Stat. 953), the Coast Guard was selected by the Maritime Commission as the organization best fitted for the administration of the Maritime Service, the function of which is to assist in the maintenance of a trained and efficient personnel by providing an adequate training system, making available facilities for instruction, and contributing other benefits to the seamen who serve the seagoing merchant fleet. This represents the first time in our history that the Federal Government embarked upon the duty of carrying out a systematic program of training for the hcensed and unlicensed personnel of the merchant marine, and never before has such adequate consideration been given to the welfare of the men of the merchant fleet. Since undertaking the administration of the Maritime Service in September 1938 more than 900 licensed and 3,800 unlicensed personnel of the merchant marine have been enrolled, instruction being given at the training stations at Boston, Mass.; New London, Conn.; New York, N. Y.; San Francisco, Calif.; and aboard the 10,000-ton training ship American Seaman and the sail vessel Joseph Conrad stationed at St. Petersburg, Fla. While originally the training was confined to men who had previous service in the merchant marine, the program has been broadened recently to provide training for men without previous sea experience, selected from the membership of the Civilian Conservation Corps. The act of Congress approved June 23, 1939 (53 Stat. 854), creating the Coast Guard Reserve, a voluntary nonmilitary organization, was designed to increase safety at sea and on navigable waters through training and instruction and by securing cooperation of yachtsmen and other small boat owners. ROEiPOIRT OF THE, SEORETARY OF T H E TREASIURY 255 During the past few years the facilities of the Coast Guard, employed in cooperation with the Interior Department, have served in the colonization by the United States of Canton, Baker, Howland, Enderbury, and Jarvis Islands in the mid-Pacific. The progress made by the Service in the modernization of its cutters and their equipment especially fitted them for the extended cruises involved in this undertaking, particularly in connection with trans-oceanic air commerce. While the problem of icebreaking in channels and harbors during the winter season, especially along the North Atlantic coast, has been one of long standing, present-day dependence upon the uninterrupted flow of commodities transported by water, especially fuel oil, has necessitated the Coast Guard giving particular attention to alleviating the economic loss and hardship attendant upon ice-locked channels and ports. As a result, a number of cutters and harbor craft constructed since 1933 have embodied structural features making them adapted for icebreaking and permitting a widening field of service by the Coast Guard in such type of operations. Under an Executive order dated December 21, 1936, the Coast Guard was directed to assist in keeping open to navigation by means of icebreaking operations, insofar as practicable and as the exigencies may require, channels and harbors in accordance with the reasonable demands of commerce, thus making such assistance a duty of the Coast Guard. The inauguration of radiotelephone broadcasts of weather forecasts, storm warnings, hydrographic information, and notices to mariners has aided materially in the promotion of safety of life at sea. These broadcasts are made by Coast Guard stations advantageously located along the Atlantic, Gulf, and Pacific coasts and on the Great Lakes. With trans-oceanic air commerce dependent for its safety, in a measure, upon reliable weather data, increasing responsibility has been assumed by the Service in furnishing meteorological data to the Weather Bureau from Coast Guard vessels at sea. In 1940 the Coast Guard, in cooperation with the Weather Bureau, established an Atlantic Weather'Observation Service, the cutters occupying certain stations between Bermuda and the Azores, particularly for the protection of United States-Europe air commerce. A new 30-caliber shoulder line-throwing gun and equipment was perfected in 1935, and has been supplied to all Service units which would be called upon for rescue or assistance work. Maritime law enforcement Since 1933 several laws have been enacted which have resulted in a great strengthening and broadening of the legal powers of the Coast Guard and extended its jurisdiction and scope of operations to keep pace with the growing interest and concern of the Federal Government in all phases of maritime law enforcement and safety of life at sea Among these are the Antismuggling Act of August 5, 1935 (49 Stat. 517); the act of June 22, 1936, to define the jurisdiction of the Coast Guard (49 Stat. 1820); the Safety of Sea Act of June 25, 1936 (49 Stat. 1922), which provides for the establishment of a patrol service in the North Atlantic in the neighborhood of ice and derelicts; the Whaling Treaty Act of May 1, 1936 (49 Stat. 1246), under which the Coast Guard is specifically designated as one of the enforcement agencies in connection with the conservation of whales; and the North 256 IREPOIRT OF. T H E SEORETARY OF T H E TREASIURY Pacific Halibut Act of June 28, 1937 (50 Stat. 325), which provides for the protection of the North Pacific halibut fishery. Armed with the powers derived from the Antismuggling Act of August 5, 1935, the Coast Guard was able to cope so effectively against the liquor smuggling fieet that by June 1936 organized smuggling by sea was practically completely dispersed. Prior to the enactment of the act of June 22, 1936, to define the jurisdiction of the Coast Guard, the Service carried out several aspects of Federal law enforcement functions without specific statutory authority, acting according to custom, by inference, or by request of some other Federal agency lacking facilities to undertake the task itself. Passage of this act definitely made the Coast Guard the Federal maritime police force charged with the enforcement of all Federal laws on board any vessel, subject to the jurisdiction, or to the operation of any law, of the United States, upon the high seas and the navigable waters of the United States, its Territories and possessions, except the Philippine Islands, and as such it is deemed to be acting as agents of the particular executive department or independent establishment charged with the administration of the particular law. By intensifying and fostering coordination with otherlFederal and State law enforcement agencies and particularly Treasury agencies, much progress has been made in checking and detecting violations of law. Special courses of instruction, to meet developments of new legislation and the complex law enforcement problems, were instituted for the benefit of Coast Guard personnel to fit them better to act as enforcement officers while acting independently or in cooperation with agencies of other departments or bureaus. Aviation In 1933 Coast Guard aviation was limited to three air stations and 12 pilots. At present there are eight air stations and one air patrol detachment in commission; 2 new air stations are nearing completion; the number of aviators and aviation pilots totals 66; and 52 aircraft were in commission on June 30, 1940. The Service has given particular attention to the development and perfection of fiying boats, the present craft being capable of flying to sea for a distance of approximately 800 miles on rescue and patrol missions and of transporting 6 persons upon stretchers. The use of aircraft has grown from its experimental stage in Service operations to a point where it is now an established facility in carrying forward the Service law enforcement work both at sea and upon land,, in rescue missions, and in promoting safety of life at sea in dissemination of hurricane warnings to vessels not equipped with radio, in searching for overdue craft, in observing menaces to navigation, and locating distressed mariners following storms. Aircraft facilities are also provided aboard the latest type of Coast Guard cutters. In 1934 all flying activities under the jurisdiction of the Treasury Departinent were consolidated with and placed under the supervision of the Coast Guard. Personnel and training Since 1933 the Coast Guard has taken advantage of every opportunity to improve the standards of Service personnel. This has been brought about by affording additional opportunities to personnel to pursue certain courses of instruction in academic and professional RjEPOET OF THE. SEORETARY OF T H E TREASURY 257 subjects; by the enactment of the act of May 24, 1939 (53 Stat. 755), permitting retirement of certain groups of enlisted men upon the completion of 20 or more years service; by the enactment of the act of June 6, 1940 (Public No. 556), permitting the selective retirement of commissioned officers; by new or renovated barracks and living quarters for personnel; and by certain improvements in administration. Of far-reaching eff'ect in promoting efficient administration was the merging into the line of the Coast Guard, pursuant to the act of August 5, 1939 (53 Stat. 1217), those officers who had been carried previously in the military grades of district commander and constructor. This had the effect of eliminating two separate divisions in grades of the commissioned corps and bringing the officers formerly in such status into united grade relationship with the officers of the line. Certain advancements have been made at the Coast Guard Academy, New London, Conn., the source from which commissioned officers of the Service are obtained. Five professors and one additional civilian instructor have been added to the instruction staff, and additional courses of instruction have been instituted in order to cover the additional duties assumed by the Coast Guard in the enforcement of maritime laws, training of merchant marine personnel, and maintenance of aids to navigation. An Academy Advisory Committee, composed of distinguished educators who are members of the faculties of outstanding universities, appointed pursuant to the act of April 16, 1937 (50 Stat. 66), is giving its constant attention to the adequacy and improvement of the Academy curriculum, and annually since 1938 a Board of Visitors, composed of Members of Congress, has visited the Academy for inspection and recommendations. The facilities of the Coast Guard Institute at New London have been extended so as to afford officers and men of the Coast Guard, Maritime Service, and Coast Guard Reserve an opportunity to pursue courses of study in academic aud professional subjects. Trade schools have been established for the training of enlisted men in various specialties, and officers are now afforded the opportunity to pursue postgraduate courses at various colleges and universities in the advancement of their professional training. Medical facilities for the officers and men and their families have been broadened through the enactment of the act of July 30, 1937 (50 Stat. 548), and motorized clinics have been provided by the Public Health Service for affording dental care and treatment to enlisted men at isolated stations. A welfare section has been established at headquarters, the primary duty of which is to look after the well-being of the personnel, provide recreational facilities, and to conduct a continuous study in order to improve conditions insofar as personnel are concerned. The Coast Guard, with its disciplined and military trained personnel, was designated by the Secretary of the Treasury in 1934 to conduct a program of training in small arms for the civilian personnel of the Treasury Department who carry firearms in the performance of their official duties. Instruction has been given annually to more than 5,000 men serving the various bureaus of the Treasury Department throughout the United States. This training assures adequate service from those who are entrusted with the guarding of Federal property and personnel. 258 iREPORT OF T H E SEORETARY OF T H E TTlEAuSUR-Y Coast Guard jacilities The facilities of the Service have been improved, augmented, and modernized to efficiently meet the wide field of public service within the sphere of Coast Guard operations and cognizance. Major improvements were made to 147 Coast Guard lifeboat stations and four new stations were constructed. Ten new air stations and six new radio stations greatly contribute to the high efficiency of these branches of the Service. New buildings were constructed at the Coast Guard Academy and Fort Trumbull Training Station, New London, Conn., and at the Coast Guard Depot, Curtis Bay, Md., where Service vessels are repaired. New communication facilities have been provided for ship, shore, and aircraft use which include over 600 new radio transmitters, 900 radio receivers, and 146 radio direction finders. Over 200 miles of additional telephone lines and cables were constructed and over 350 miles of new circuits were added to existing pole lines. A radio loud speaker system has been developed for use on aircraft to warn small vessels of approaching hurricanes. Since 1933 the Coast Guard fleet has been strengthened by the construction of 12 cruising cutters, 18 harbor cutters especially constructed for ice-breaking, 21 patrol cutters, and 20 tenders for servicing lightships and isolated light stations. The 1,698 small boats which were constructed consisted of 91 lifeboats, 224 rescue boats, and 1,383 miscellaneous craft. Major repairs and alterations were made to 127 vessels which consisted of improved living facilities, the replacement of gasoline engines with approximately 15,000 horsepower of Diesel engines to effect economy of operation and reduce fire hazard, the installation of more efficient electric generating sets, and the provision of fresh water for cooling internal combustion engines in place of salt water to prevent rapid deterioration of engines. Modernization of small boats has required the purchase of approximately 60,000 horsepower of light-weight high speed gasoline engines. Aids to navigation have been improved by the construction of new light stations and buoys and by major repairs and alterations to existing facilities. One new lightship was constructed and 7 new major light stations were constructed on the Great Lakes; 4 of these light stations replaced lightships, thus providing stationary aids to navigation at a much less maintenance cost; also 37 new radio beacons were constructed. A large number of lights using acetylene gas were changed to be lighted by electricity, and arranged to be controlled by light beam and sound operated mechanism. River and harbor improvements during this period have required a large part of the 6,286 new aids to navigation to mark new and improved channels. Improvements have been made to existing facilities by the installation of 160 fog signal air compressors, 240 electric generator sets, 175 improvedtype fog signal units, and 240 main power electric batteries. Iniproved signal timing equipment, radio remote control units, radiophone calling devices, visual direction finder indicators, and radio beam transmitters have been improved and developed and installed in the larger buoys. New buildings were constructed at 8 repair bases for servicing aids to navigation and 6 new servicing bases were constructed on the Mississippi River and its tributaries. A new radio laboratory was constructed at Baltimore, Md., where radio equipment and automatic control devices are developed and repaired. Six major light stations REPOtRT OF THE. SEOREiTARY OF THE. TREASURY 259 in Alaska were completely rebuilt and new dwellings to accommodate the families of 30 lighthouse keepers were constructed at other light stations. BUREAU O F T H E C O M P T R O L L E R OF T H E CURRENCY i Activities during the fiscal year 1940 The Bureau of the Comptroller of the Currency is responsible for the execution of all laws relating to the supervision of national banking associations and all banks and building and loan associations in the District of Columbia. The Bureau is also responsible for the liquidation of suspended national banks placed in charge of receivers. Under the Emergency Banking Act of March 9, 1933, the Comptroller of the Currency is required to approve the issuance and retirement of preferred stock of national banking associations. Other duties include those incident to the formation and chartering of new national banking associations, the establishment of branch banks, the consolidation of banks, and the conversion of State banks into national banks. Changes in the condition oj active national banks The total assets of the 5,170 active national banks on June 29, 1940, amounted to $36,885 millions, an increase of $3,704 millions since June 30, 1939, when $33,181 miUions was reported by 5,209 banks. The deposits of the active banks in 1940 totaled $33,074 millions, which was $3,605 millions more than in 1939. The total assets and total deposits in 1940 were greater than on any previous call date in the history of the National Banking System. The loans and investments totaled $22,085 miUions, representing an increase of $958 millions during the year. The assets and liabilities of active national banks on the date of each report from June 30, 1939, to June 29, 1940, are shown in the following statement: Abstract of reports of condition of active national banks on the date of each report from J u n e 30, 1939, to J u n e 29, 1940 [In thousands of dollars] June 30, Oct. 2, Mar. 26, June 29, Dec. 30, 1939 (5,209 1939 (5,202 1939 (5,193 1940 (5,184 1940 (5,170 banks) banks) banks) banks) banks) ASSETS Loans and discounts, including overdrafts._ U. S. Government securities, direct obligations Obligations guaranteed by U. S. Government-._ _ Obligations of States and political subdivisions Other bonds, notes, and debentures Corporate stocks, including stock of Federal Reserve Banks 8,673,7031 764,196 9, 043, 632 9,060, 292 9,179, 227 6,899,885 828,512 7,117,420 7, 079, 569 7,219, 890 1,869,844 921,999 1, 956, 515 1,891, 697 1,891,336 1,693, 684 1,864, 354 793, 798 801, 936 1, 784,899 1, 731,837 1, 920,115 1, 678,163 1,928, 352 1, 648, 245 225,119 224, 704 220, 905 217,894 217,452 . Total loans and investments 21.126,589 21,335,145 21,856,208 •,730 .,602 Cash, balances with other banks, including reserve balances, and cash items in process of collection 11,074,806 12, 374, 891 12,503,613 12,935,818 13,877,104 Bank premises owned, furniture and fix599,694 697. 251 607, 716 600,296 tures -_ 609,146 131,691 127,671 119, 515 141.239 137, 591 Real estate owned other than bank premises. ' More detailed information concerning the Bureau of the Comptroller of the Currency is contained in the annual report of the Comptroller. 260 'REPOIRT OF T H E SECIRETARY OF T H E TREASnjRY Abstract of reports of condition of active national banks on the date of each report from J u n e 30, 1939, to J u n e 29, i^^O—Continued [In thousands of dollars] M a r . 26, 1940 (6,184 banks) J u n e 29, 1940 (5,170 banks) J u n e 30, 1939 (5,209 banks) Oct. 2, 1939 (5,202 banks) D e c . 30, 1939 (5,193 banks) 70,417 69, 218 65,561 66,980 65,392 51, 656 42, 291 56,845 52,121 42,339 60, 652 46,173 65,496 52,329 58,033 49,020 63,699 42,944 58, 672 40,305 33,180, 578 34. 684, 676 35, 319, 257 35, 736, 667 36,885,080 14,633,038 14, 940, 600 15,136,162 15, 976, 786 7, 717,408 7, 792,009 7,875,792 589,190 2, 080,992 5,899, 785 572, 253 2,138, 403 6,031,089 564, 997 2,270,866 6, 084,051 ASSETS—C ontinued I n v e s t m e n t s a n d other assets i n d i r e c t l y representing b a n k premises or o t h e r real estate C u s t o m e r s ' liability on acceptances outs t a n d i n g _. I n t e r e s t , commissions, r e n t , a n d other income earned or accrued b u t n o t c o l l e c t e d . . O t h e r assets .. Total assets: __ LIABILITIES D e m a n d deposits of i n d i v i d u a l s , p a r t n e r . ships, a n d corporations 13, 643,678 T i m e deposits of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations _ 7,665,426 D e p o s i t s of U . S. G o v e r n m e n t , i n c l u d i n g postal savings 543, 258 D e p o s i t s of States and political s u b d i v i s i o n s . 2,290, 992 D e p o s i t s of b a n k s 4,882. 437 O t h e r deposits (certified a n d cashiers' 443, 678 checks, etc.) Total deposits-.. ._ Bills p a y a b l e , rediscounts, a n d other liabilities for borrowed m o n e y M o r t g a g e s or o t h e r liens on b a n k premises a n d o t h e r real e s t a t e . - _ Acceptances executed b y or for account of , reporting banks and outstanding I n t e r e s t , discount, r e n t , a n d o t h e r income collected b u t n o t e a r n e d I n t e r e s t , taxes, a n d other expenses accrued and unpaid _. _ Other liabilities-T o t a l liabilities CAPITAL 7, 673,370 531,902 2,095,159 5, 681,162 366,062 385,017 326,352 301,925 29,469,469 SO, 980, 693 31,612,992 31,996,268 33,074,407 3,540 2,997 2,882 1,794 2,910 117 279 140 120 124 67.636 51,812 64,175 58, 328 60, 641 35, 273 37,084 .37,709 40, 775 41,376 45, 978 178,891 65. 557 136, 620 41,031 165, 230 54,143 147, 734 49, 741 189,447 29, 791,066 31, 264,903 31,914,139 32, 299,166 33,408,639 1, 562, 956 1,170,822 449, 352 206, 382 1, 559.411 1,181,016 467, 404 211, 942 1, 532, 903 1, 216, 222 445, 403 210, 590 1, 524, 973 1,225, 648 475,013 211,857 1, 534, 649 1, 249,961 468,203 223. 628 ACCOUNTS C a p i t a l stock (see m e m o r a n d a below) Surplus _ U n d i v i d e d profits Reserves (see m e m o r a n d a below) 3, 389, 512 3,419, 773 3,405,118 3,437,491 3, 476,441 T o t a l liabilities a n d capital a c c o u n t s . . 33,180, 578 34, 684, 676 36, 319, 257 35, 736, 667 36, 885,080 1 228, 309 1 18, 264 1, 319,430 221, 249 17, 777 1,322, 897 194, 001 17, 732 1,323, 694 185, 651 15, 273 1,326, 593 193, 904 14,859 1,328,180 1, 566,003 1, 561, 923 1, 536, 427 1. 527, 417 1, 636,943 1 259, 738 1 20, 255 253, 989 19, 780 226, 662 19, 755 218,174 17,343 245,165 17,144 279, 993 273, 769 246,417 236, 517 262, 309 5,649 9,687 15,935 175, 211 f 1 211, 942 1 I 6,037 9,006 17,228 [ 178,319 f 211,857 11 I . 5,456 9,116 19,581 189,475 206. 382 211, 942 210, 590 211,857 223. 628 T o t a l capital accounts MEMORANDA P a r v a l u e of capital stock: Class A preferred stock Class B preferred stock Common stock... .. TotaL R e t i r a b l e v a l u e of preferred capital stock: Class A preferred stock Class B preferred stock Total Reserves: R e s e r v e for d i v i d e n d s p a y a b l e in commonstock--. - .. Reserve for other u n d e c l a r e d d i v i d e n d s R e t i r e m e n t account for preferred s t o c k Reserves for contingencies, e t c . . . Total 1 Revised. 261 BBPORT OF T H E SEOKEiTAKY OF T H E TKEiASIUKY Abstract of reports of condition of active national banks on the date of each report from J u n e 30, 1939, to J u n e 29, 1940—Continued [In thousands of dollars] June 30, 1939 (6,209 banks) Oct. 2, 1939 (5,202 banks) Dec. 30, 1939 (5,193 banks) Mar. 26, June 29, 1940 (5,184 1940 (5,170 banks) banks) 2,192,832 2,110,911 2, 297,683 2,311,063 2,397, 702 679,147 608,678 605,760 615, 722 593.605 93i 378 5,998 94,183 13,177 93,789 22, 794 94,538 7,290 93,990 7,929 2,871. 355 2,826,849 3,020, 026 3,028, 613 3,093,186 2,321,687 2, 226, 906 2,406, 791 2,448,056 2, 522, 681 2,915 2,465 2.373 1,560 2,653 967 950 976 219 492 2, 325, 569 2,230,321 2,409,139 2,449,825 2, 525, 726 MEMORANDA—Continued Pledged assets and securities loaned: U. S. Government obligations, direct and guaranteed, pledged to secure deposits and other liabilitiesOther assets pledged to secure deposits and other liabilities, including notes and bills rediscounted and securities sold under repurchase agreement Assets pledged to qualify for exercise of fiduciary or corporate powers, and for purposes other than to secure liabilities .. Securities loaned Total Secured liabilities: Deposits secured by pledged assets pursuant to requirements of law Borrowings secured by pledged assets, including rediscounts and repurchase agreements. . __.. Other liabihties secured by pledged assets Total • Summary oj changes in the National Banking System The authorized capital stock of the 5,174 national banks in existence on June 30, 1940, consisted of common capital stock aggregating $1,329 millions, an increase during the year of $8 miUions, and preferred capital stock aggregating $210 miUions, a decrease (luring the year of $37 millions. The total net decrease of capital stock was $29 millions. During the year charters were issued to 13 national banking associations, which had common capital stock aggregating $2 millions and preferred capital stock of over half a million dollars. There was a net decrease of 43 in the number of national banks in the system during the year by reason of voluntary liquidations and consolidations under the act of November 7, 1918, as amended. Changes in the number and capital stock of national banks during; the fiscal year 1940 are shown in the following summary: 262 IBE'POIET OF TH© SEORETABY OF T H E TKEASIUEY Organization, capital stock changes, and liquidations of national banks, fiscal year 1940 Number of banks Charters granted . _ . Increase of preferred capital stock: 23 banks, by issues of new preferred capital stock 2 banks, by consolidation under act of Nov. 7, 1918, as amended Increase of common capital stock: 45 banks, by regular increases 739 banks, by common capital stock dividends . 1 bank, by conversion of preferred capital stock 3 banks, by consolidation under act of Nov. 7, 1918, as amended Total increases Voluntary liquidations Decreases of capital stock: 36 banks, by reduction of common capital stock __ 1,081 banks, by retirement of preferred capital stock.. 6 banks, by decrease of par value of preferred capital stock.. 1 bank, by reduction of preferred capital stock.. Closed under consolidation under act of Nov. 7,1918, as amended, and capital stock decreases incident thereto Total decreases ...-- Net changes during the year Charters in force June 30, 1939 Charters in force June 30, 1940 { I Capital stock Common $1,800,000 420,000 Preferred $637,000 13,745,000 150,000 3,731,250 10, 396,484 75, 000 110,000 13 16, 632, 734 14, 532,000 51 3, 481.450 1, 630,800 4, 966, 650 49,057,971 561, 760 100, 000 5 332, 600 250,000 66 8, 779, 500 61, 600, 621 -43 5,217 -f 7, 753,234 1, 320, 790, 569 -37, 068, 521 247,161, 045 1 6,174 1,328, 543, 803 210,092, 624 » This figure differs from that shown in the table on p. 259. Banks that have discontinued business although not in formal liquidation do not submit reports of condition but are included in this table. Administration oj unlicensed national banks During the fiscal year 1940, liquidating dividends amounting to $19 millions were paid by receivers and trustees for waiving creditors of banks unlicensed on March 16, 1933, the close of the banking holiday. As of June 30, 1940, a total of 87 percent of the aggregate unsecured liabilities of these banks on March 16, 1933, had been released; 750 banks released 100 percent of unsecured liabilities. A summary with respect to the administration of all unlicensed national banks since March 16,'il933, is shown on page 265. Review of activities since 1933 During the period from March 6, 1933, to June 30, 1940, the Office of the Comptroller of the Currency, in addition to its regular work of examining and supervising approximately 5,000 active national banks, was concerned with (1) the reopening of the banks following the bank holiday; (2) the reorganization of those banks that were unable to reopen and continue business after the bank holiday; (3) the liquidation of national banks placed in receivership; and (4) the strengthening of the capital structure of the open national banks. Bank holiday During February and the first days of March 1933, banking difficulties had become acute in many parts of the country. On February 14, the Governor of Michigan issued a proclamation which closed all banks RiE'POR^T OF T H E SB'QlREiTARY OY T H E TRE'ASfURY 263 in that State. By March 4, banks in practically all States were either closed or were operating uncier restrictions as a result of proclamations made by the Governors. In the Nation's financial centers. New York City and Chicago, banks and such financial institutions as the New York Stock Exchange and the Chicago Board of Trade were closed. In order to place all banks on a uniform basis of restricted operations, the President proclaimed a four-day bank holiday on the morning of March 6, 1933. Reopening oj banks On March 9, 1933, the President recjuested Congress to enact immediately legislation giving the Executive branch of the Government control over the banks for the protection of depositors and further authority necessary for the reorganization and reopening of banks. In accordance with this request. Congress passed, without a dissenting vote, an act known as the Emergency Banking Act, which was approved on March 9. On the same day, immediately subsequent to the passage of this act, and in accordance with authority extended thereby, the President issued a proclamation continuing in fuU force and effect the regulations and orders incorporated in his proclamation of March 6. The bank holiday was thereby extended indefinitely. On March 11, 1933, the President announced that a definite program had been adopted for the reopening of banks, and that in accordance therewith banks throughout the country would be reopened progressively on March 13, 14, and 15. The plan of reopening provided that the Federal Reserve Banks would issue licenses for the Secretary of the Treasury to eligible national and State bank members of the Federal Reserve System located in each of the twelve Federal Reserve Bank cities to open on Monday, March 13; to eligible banks located in the 250 cities having active, recognized clearing-house associations to open Tuesday, March 14; and to all eligible banks located elsewhere to open Wednesday, March 15. State banks which were not members of the Federal Reserve System were to be reopened by the appropriate State supervisory authorities. Under this plan for reopening the banks, 5,077 member banks with deposits of more than $25 billions as of December 31, 1932 (nearly 90 percent of the deposits of all member banks on that date according to the call reports of their condition), were licensed to reopen during the three days, March 13, 14, and 15. Of these, 4,510 were national banks with deposits (as of December 31, 1932) of approximately $16 billions. The number of non-member banks (exclusive of mutual savings banks) authorized by March 29 to resume operations on an unrestricted basis was about 6,800, and by April 12 this number had grown to 7,394 and their deposits of about $5 billions (as of December 31, 1932) represented about 75 percent of the deposits of all such non-member.banks. Of the 1,632 member banks which were not licensed to reopen by March 15, 1933, 1,407,were national banks. Of these, 292 national banks were subsequently licensed and were reopened after capital corrections had been made. The remaining 1,115 national banks were either reorganized, placed in voluntary liquidation, or placed in receivership. The relative position of these banks in the national banking system can be drawn from the following table which compares selected balance sheet items for the 4,902 licensed banks operating on June 30, 1933 (the first date after the bank holiday for which asset 264 'RE'POORT OF T H E SECIRETARY OF T H E TREASfURY and liability figures are available), with similar items for the unlicensed national banks on March 16, 1933. Balance sheet items for licensed and unlicensed national banks [Dollars in millions] Licensed Unlicensed banks, June banks, March 30, 1933 16,1933 Number of banks.. Total assets Total deposits Borrowed money.. Capital stock 4,902 1,116 $2, 273 1,653 194 169 Reorganization oj banks that did not reopen ajter the bank holiday By March 16, 1933, it was found that 1,407 national banks throughout the country and 10 non-national banks located in the District of Columbia (under the supervision of the Comptroller of the Currency), with deposits aggregating $1,972 millions, could not be licensed until further corrective action had been taken. In order to administer these banks in a manner to avoid giving any depositor preference the Comptroller, imder authority granted by title I I (Bank Conservation A.ct) of the Emergency Banking Act, placed 1,105 of these banks in conservatorship; the remaining 312 banks were reorganized or otherwise disposed of without the appointment of a conservator. Under the conservatorships, the assets of the banks were held intact untU such time as the Comptroller deemed it possible to reopen the bank under a plan of reorganization, or found it advisable to appoint a receiver for the bank. The statutory authority for these reorganizations and the procedure followed was provided in the Bank Conservation Act. Under this statute the Comptroller was empowered to p u t into effect reorganization plans when assented to by shareholders owning two-thirds of the outstanding capital stock or depositors and other creditors owning 75 percent of the liabilities, or both, provided he was satisfied in each case that the plan of reorganization was fair and equitable as to all concerned and was in the public interest. The records showing the administration of the 1,417 banks have been segregated into five major groups: First, banks licensed after capital corrections; second, banks placed in voluntary liquidation; third, banks reorganized by a waiver of claims by depositors or creditors and the cooperation of stockholders; fourth, banks reorganized by a court order sale; and fifth, banks placed in receivership because plans for reorganization were disapproved. I n the first and second groups the depositors and creditors obtained 100 percent of their claims. I n the third group the bank was enabled to make all or a portion of its deposits and claims available through the cooperation of all or some of the depositors or stockholders. I n none of these cases was the appointment of a receiver necessary. In the fourth and fifth groups the Comptroller appointed a receiver to administer the affairs of the closed bank. The banks in the fourth group were reorganized under a court order sale plan whereby another bank took over a portion of the good 265 RE'POiRT OF THE. SEORETARY OF T H E TREAiSfURY assets of the bank and the remaining assets were liquidated by a receiver appointed by the Comptroller of the Currency. The banks in the fifth group were placed in receivership following disapproval of plans submitted for reorganization. The. following table summarizes data with respect to these 1,417 banks under the jurisdiction of the Comptroller of the Currency which were not opened by March 16, 1933. These data are classified by the foregoing groups in accordance with the final disposition of the bank. Further data with respect to these banks can be found in the appendix to the annual report of the Comptroller of the Currency. Final disposition of national banks {and of non-national banks in the District of Columbia) which were unlicensed on March 16, 1933 [Dollars in millions] Final disposition of bank Number of banks Capital 1 Unsecured liabilities Total Total Total bordeAmount Percent assets 1 posits rowed 1 money Total released i amount i to June of total 30, 1940 released 292 $28.6 $395.6 $306.8 $15.0 $306. 6 $306.6 100.0 13 .5 2.7 1.3 .4 1.3 1.3 100.0 665 64.1 830.5 594.4 77.4 694.6 632.4 89.5 257 290 82.3 1, 219. 8 238.9 22.9 917.0 152.4 84.0 35.8 882.9 138.2 730.2 99.4 82.7 71.9 198.5 2, 687. 4 1,972.0 212.6 1, 922. 7 1, 668. 9 86.8 Licensed after capital correction Placed in voluntary liquidation Reorganized without appointment of a receiver Reorganized by court order sale plan Placed in receivership 1,417 Total 1 As of December 31,1932, or as reported in conservators' first reports. NOTE.—Figures have been rounded to nearest tenth of a million and will not necessarily add to totals. National bank receiverships During the period November 1, 1932, to June 30, 1940, a total of 1,779 national bank receiverships were administered by the Bureau of the Comptroller of the Currency. The greatest number of insolvent national banks in process of liquidation at any time during the period (and since the establishment of the Bureau in 1863) was 1,568, on July 19, 1934. On June 30, 1940, receiverships numbered 297. D a t a with respect to the number of receiverships appear in the following statement: Receiverships in process November 1,1932 ^ Receiverships established November 1,1932, to June 30,1940: As a result of bank holiday (fourth and fifth groups mentioned on page 204) Prior to bank holiday or to collect stock assessments Subsequent to bank holiday . Total administered during period Receiverships completely liquidated and finally closed Banks restored to solvency Receiverships in process June 30,1940 ... Number 975 647 240 17 1,433 49 804 1,779 1,482 297 In the 1,779 receiverships administered during the period, total collections from assets between November 1, 1932, and October 31, 1939, amounted to $1,722 millions. Total payments to all creditors amounted to $1,558 millions, of which dividends to secured and unsecured creditors amounted to $1,020 millions. The remaining payments consisted of payments of preferred claims and offsets. 266 REPORT OF THE. SECRETARY OF T H E TREASIURY Liquidation expenses amounted to $114 millions or less than 7 percentx of the total collections including offsets. Further data with respect to \ these receiverships are shown in the following table: ^ Results of liquidation of 1,779 receiverships between November 1, 1932, and October 31, 1939 [DollarsIin|millions] Amount Collections: Cash balances in hands of Comptroller and receivers at beginning of period Collections from assets Collections from stock assessments Earnings collected (interest, premiums, rents, etc.) Offsets allowed and settled (against assets) Increase in unpaid balance of Reconstruction Finance Corporation loans Increase in unpaid balance of bank loans $48.9 1,416.9 95.6 81.2 128.5 117.7 37.1 " Total Disposition of collections: Dividends paid by receivers to unsecured creditors Dividends paid by receivers to secured creditors . Distributions by conservators to unsecured creditors Distributions by conservators to secured creditors . Payments to secured and preferred creditors . Offsets allowed and settled (against liabilities) Disbursements for the protection of assets.. Payments of receivers' salaries, legal and other expenses... Payments of conservators' salaries, legal and other expenses Amounts returned to shareholders in cash . Decrease in unpaid balance of Reconstruction Finance Corporation loans Decrease in unpaid balance of bank loans Cash balances in hands of Comptroller and receivers at end of period 1, 926.0 _ Total Losses on assets compounded or sold under order of court . Book value of assets returned to shareholders' agents Amount of assessments upon shareholders Average percentage of total expenses of liquidation to total collections including offsets allowed 787.9 21.4 208.9 L3 410.2 128.5 46.7 102.6 11.5 1.8 127.4 36.8 41.9 1,926.0 529.3 18.2 142.8 6.6% NOTE.—Figures have been rounded to nearest tenth of a million and will not necessarily add to totals. Of the 1,433 receiverships finally liquidated and closed between November 1, 1932, and June 30, 1940, 1,363 cases had been closed by October 31, 1939. Total payments to all creditors in these cases amounted to $647 millions. Other data with respect to these receiverships are shown in the following table: \ REPORT OF T H E SEORETARY OF T H E TREASURY 267 Results of liquidation of 1,363 receiverships finally closed between November 1, 1932, and October 3 1 , 1939 [Dollars in millions] Amount Total assets taken charge of by receivers Disposition of assets: Collections from assets Offsets allowed and settled (against assets) Losses on assets compounded or sold under order of court. Book value of assets returned to shareholders' agents Book value of remaining assets Total. Collections: Collections from assets as above Collections from stock assessments ^.. Earnings collected (interest, premiums, rents, etc.) Offsets allowed and settled (against assets) Unpaid balance Reconstruction Finance Corporation loansTotal. Disposition of collections: Dividends paid by receivers to unsecured creditors.Dividends paid by receivers to secured creditors Distributions by conservators to unsecured creditors Distributions by conservators to secured creditors Payments to secured and preferred creditors Offsets allowed and settled (against liabilities) Unrecovered disbursements for the protection of assets Payments of receivers' salaries, legal and other expenses Payments of conservators' salaries, legal and other expenses.. Amounts returned to shareholders in cash . Total. Capital stock at date of failure United States bonds held at failure to secure.circulating notes . United States bonds held to secure circulation, sold and circulation redeemed Circulation outstanding at date of failure __ Amount of assessments upon shareholders Total deposits at date of failure Borrowed money (bills payable, rediscounts, etc., at date of failure)... Additional liabilities established subsequent to date of failure Claims proved (secured and unsecured) I Average percentage of dividends paid to claims proved Average percentage of deposits paid ; Average percentage of total payments to total liabilities | Average percentage of total expenses of liquidation to total collections including offsets allowed.. Average period required to complete liquidation (exclusive of stock assessment and restored to solvency banks).. i._. $976.3 650.5 67.7 348.8 18.4 0 975.3 650. 6 66.3 36.6 57.7 0 701.0 319.5 21.1 61.6 .6 197.1 57.7 3.7 45.2 3.1 1.7 701.0 109.-2 52.4 52.4 61.2 10L8 609.0 164.3 22.7 566.3 69. 3% 78.3% 31. 3% 7.4% 6 years 6 months NOTE.—Figures have been rounded to nearest tenth of a million and will not necessarily add to totals. The earnings of the 1,363 receiverships terminated between 1932 and 1939 are not available. With respect to the jl,294 receiverships terminated between October 31, 1933, and October 31, 1939, however, total earnings amounted to $37 millions, or 74 percent of the total cost of liquidation of such receiverships. | Under legislation making it possible for receivers to borrow from the Reconstruction Finance Corporation and other sources upon the security of trust assets, receivers had obtained byi October 31, 1939, a total of 2,321 loans from the Reconstruction Finance Corporation in the amount of $395 miUions for the benefit of 1,125 receiverships. On that date, however, only 13 of these loans remained unpaid and the balances due amounted to $1,786,000. Siihilar loans in the amount of $95 millions had been obtained from 45 lending banks for the benefit of 94 receiverships, and on October 31, 1939, only 6 of these loans remained unpaid and the balances totalled $856,000. I 2 6 9 6 7 7 — 4 1 - -19 268 'REPOOEIT OF T H E SECIRETARY OF THE^ TREASfURY Strengthening the capital structure oj the banks The rehabilitation of the national banking system following the bank holiday laid considerable emphasis on the strengthening of the capital structure of the various banks. This program was carried out in the first instance through the subscription to preferred stock of the banks by the Reconstruction Finance Corporation in accordance with section 304 of the Emergency Banking Act of 1933. This section provides, in part, that if in the opinion of the Secretary of the Treasury any bank or trust company is in need of funds for capital purposes either in connection with the organization or reorganization of such bank or trust company, he may, with the approval of the President, request the Reconstruction Finance Corporation to subscribe for preferred stock in such bank or trust company, or make loans secured by such stock as collateral, and the Reconstruction Finance Corporation may comply with such request. Between March 9, 1933, and June 30, 1940, in pursuance of this program, the Reconstruction Finance Corporation, at the request of the Secretary of the Treasury, disbursed approximately $573 millions in loans on and purchases of preferred stock of national banks. Of this total disbursement, $450 millions was made prior to June 30, 1935. Local stockholders also assisted in the capital strengthening program through purchases of both preferred and common stock. In the aggregate the Bureau of the Comptroller of the Currency authorized preferred stock increases in capital in 1,870 banks and preferred stock issuance in 420 newly organized banks. As of June 30, 1940, preferred stock was still outstanding in 1,517 banks as is shown in the following table: Preferred capital stock authorized for national banks under the act of March 9, 1933, as amended, during the period from March 9,1933, to June 30, 1940; and outstanding in associations in existence as of June 30, 1940 Authorized Increases of capital Outstanding in banks in existence, June 30, 1940 Newly organized banks Total States Number of banks Amount Number of banks Amount Number of banks Amount Number Amount (par value) of banks Amount (retirable value) o O Alabama Alaska Arizona ._.Arkansas California. Colorado— Connecticut _. Delaware District of Columbia. Florida.--. Georgia Idaho nimois Indiana.-.. Iowa.Kansas __..-.. Kentucky Louisiana Maine --. Maryland -. Massachusetts Michigan _ .Minnesota - _. Mississippi Missouri Montana Nebraska Nevada -. New Hampshire New Jersey. New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon 23 1 2 18 66 25 21 5 2 11 12 9 114 47 31 42 28 4 17 26 49 24 —92 13 29 19 42 3 12 147 6 272 11 28 71 31 15 $11,086,000 37, 500 300,000 1, 562, 250 41,776,000 3,697, 500 5,636,900 195,000 1,660,000 1,260,000 1,617, 500 1,095,000 84,577, 750 6,212,900 5,970,000 2,174, 600 2,995,000 600,000 3,410,000 3,244,000 13,993,700 3,816,600 - 43,-536,-500 2, 525,000 7,377, 500 1,606,000 6,460,000 175,000 1,563,000 35,900,000 170,000 142,493, 600 1,100,000 2,237,500 31,420,500 6,650,000 776,000 $225,000 , 240,000 200,000 780,000 660,000 200,000 200,000 206,000 1,670,000 3, 620,000 775,000 270,000 1,365,000 3,900,000 625,000 1,076,000 260,000 17,034,000 226,-000230,000 1,792, 500 25,000 410,000 50,000 395,000 300,000 740,000 955,000 203,000 1,247,000 4,380,000 150,000 27 1 3 24 64 34 22 5 2 16 18 9 149 63 52 47 36 15 24 28 53 65 —99 15 34 20 51 3 14 156 8 279 20 31 94 40 20 $11, 310,000 37,500 1,540,000 1, 762,250 42, 665,000 4, 247, 500 6; 836,900 196,000 1,650,000 1,450,000 1; 722, 500 1,095,000 247, 750 832, 900 746,000 2, 444,600 4, 350,000 4,400,000 4,036,000 4, 319,000 14, 253, 700 20, 849, 600 -13i 761,500 2, 766,000 9, 170,000 1,631,000 5,870,000 175,000 1,613,000 296,000 36, 470,000 233,500 143, 055,000 2, 440, 500 2, 667, 600 32, 930,000 10, 925,000 1 13 36 20 17 4 1 9 12 7 107 39 32 31 16 13 16 19 30 42 —5113 23 10 31 1 10 126 6 195 11 17 66 21 6 $4,404,800 $4, 604,800 1,196,600 896, 636 31,269,208 1,223,800 4,281,132 86,000 1,000,000 349,000 826,250 764,100 5,979, 746 4,426,620 2, 566,450 . 1,308, 000 2,247,050 3,216, 500 1,364,105 2, 506,000 4,981, 300 14,126, 601 —47-326,-097 1,621,940 2,352,800 282,980 1,541,950 12, 500 866, 600 22,477,645 293,400 20, 548,861 387, 500 736,900 14,299,236 1,333,794 140,300 1,196, 600 934,600 61,149,208 1,223,800 4,776,632 136,000 1,000,000 349,000 826,250 764,100 6,029,746 4,426,620 2, 556,450 1, 308,000 2,269, 660 3,216, 600 1,488,280 2,785,666 5,736,800 14,136,601 --5,11470971,621,940 2,414,451 282,980 1, 541,960 12, 600 875, 500 31,109,292 293,400 27,375, 390 387, 500 735, 900 18,161,236 1,333, 794 140,300 m i i o W zn to CO Preferred capital stock authorized for national banks under the act of March 9, 1933, as amended, during the period from March 9, 1933, to J u n e 30, 1940; and outstanding in associations in existence as of J u n e 30, 1940—Continued bO O Authorized Outstan ding in b a n k s in existence, J u n e 30, 1940 Increases of capital Total N e w l y organized b a n k s States • Number of b a n k s Amount Number of b a n k s Amount Number of b a n k s Amount N u m b e r A m o u n t (par value) of b a n k s A m o u n t (retirable value) O I o Pennsylvania R h o d e Island S o u t h Carolina South Dakota Tennessee Texas Utah Vermont Virginia Virgin I s l a n d s . Washington West VirginiaWisconsin Wyoming _ .- . - - . --- : .. Total - _ ... .-- - _ ... ... --- — 160,000 675,000 125,000 95,000 620,000 710,000 25,000 238 3 7 34 27 149 9 16 40 1 25 41 61 10 $26,314,550 900,000 1, 560,000 3,063,000 8,062, 500 23,438, 750 1, 575,000 1, 570,000 4,438,000 126,000 3,465,000 4,435,000 15,982, 500 840,000 187 3 3 18 20 98 6 11 22 1 13 29 42 6 $15,440,627 396,065 934,500 1,446,850 6, 626,825 9,652,626 750,000 678,808 1,201, 775 120,000 2,063, 200 1, 317, 250 9,839,900 405,000 $15,736,152 396,066 934,600 1,445,850 5,626,825 10, 307,916 750,000 783,108 1, 201, 775 120,000 2,063, 200 1,831, 350 9,839,900 406,000 55,886,300 2,290 590, 540,400 1,617 210,092, 524 263, 647,072 61 1 3 2 3 47 $4,347,300 100,000 170,000 80,000 475,000 3,227, 600 3, 370,000 3, 915,000 15, 272, 600 816,000 5 7 1 3 11 14 1 534,654,100 420 187 2 4 32 24 102 9 11 33 $21,967,250 800,000 1,390,000 2,983,000 7, 587, 600 20, 211, 250 1, 575,000 1,420,000 3,863,000 22 30 47 9 1,870 H M m > Q ^^ H \^ d HEPORT OF T H E SiEiORETA'EY OF T H E TEEASU'RY 271 The improvement in the total capital position, of national banks since 1933 is shown in the table below, which presents for selected dates the aggregate capital funds of all national banks. To allow the figures to be compared directly, the capital funds as of December 31, 1932, are shown for only those 4,510 national banks which reopenecl at the end of the bank holiday. During the period covered, the capital funds of national banks (starting with only those banks which reopened at the end of the holiday) increased by $600 millions. Capital funds of national banks [Dollars in millions] End of month December 1932 June 1933 . . June 1934 June 1935 June 1936 Number of banks 1 4, 510 4,902 5,422 5,431 5,374 Total capital, surplus, undivided profits, and reserves $2,876 2,857 3,001 3,086 3,166 Endof month June June June June 1937 1938 . 1939 1940 . . .. . Number of banks Total capital, surplus, undivided profits, and reserves 5,299 5,248 5,209 5,170 $3, 212 3,274 3,390 3,476 < L ... L ' _ 1 1 Includes only those banks that reopened at the end- of the bank holiday. | Changes in the condition oj all active banks The Federal law requires that the Comptroller of the Currency assemble and publish annual figures on the assets and liabilities of all banks in the United States. On June 30, 1940, there were 5,170 national banks, 9,239 State commercial banks, 5^1 mutual savings banks, and 57 private banks, for which figures were assembled by the Comptroller. The tables that follow show the assets and liabilities of all active banks in the United States, by classes of banks, on each June 30 between 1932 and 1940. Although earnings figures for all active banks in the country are not available, such figures are available for all national banks. These appear in the table on page 278, which shows earnings, expenses, and dividends of national banks for the years ended June 30, 1933 to 1940. Assets and liabilities of all active banks in the United States and possessions, June 30, 1932 to 1940 bO [Dollars in millions] 1932 NUTTibe^ of b a n k s 1933 1934 1 14,624 1 15, 894 16,053 15, 803 $22, 387.8 $21,431.1 10, 995. 7 667.6 9, 626. 2 714.0 $20, 419. 2 12, 201. 6 2, 082. 5 9, 933.1 784.6 $20,839. 2 14, 840. 2 2, 518.0 10, 501. 3 1, 018.9 7, 092.2 3, 210. 7 9, 501. 8 3, 221. 2 11,613.0 3, 352. 9 57,190.1 51, 293. 9 66,157. 6 14,876. 3 23, 704. 6 1,077. 6 1, 901. 8 3, 236. 9 595.3 14,001.8 20, 245. 6 1, 637. 9 1, 603; 6 3, 364. 9 679.7 45,390. 3 652.2 1, 297.3 1,311.8 48, 651. 6 19,163 1935 1936 1937 1938 1939 1940 16, 580. 16, 341 15,146 15, 017 $22, 698. 2 14, 569. 0 2, 399. 5 10, 305. 6 958.3 $21, 311.1 14,083.1 2,691.2 9,571.2 1,044. 3 $21, 516. 3 15, 223.3 3, 567. 5 9, 595.0 1,042. 4 $22, 657. 6 15, 734. 7 3,975. 8 9, 364.4 1,148.6 14,103. 4 3, 367. 2 14, 670. 3 3, 323.9 16, 426.4 3,160.4 19, 584.1 3,072. 7 24, 535. 3 2, 897. 2 60, 386. 9 67,188. 2 68, 924. 8 68,277. 7 73, 601. 3 80, 213. 6 15, 638.1 21,397. 3 2,407. 7 2, 379. 2 4, 618. 4 384.3 iS, 910.1 22, 418. 9 1,198. 8 3, 001. 5 5, 563. 4 493.4 . 22, 464. 6 23, 446. 7 1, 346.1 3, 342. 8 6, 905.8 833.8 23, 698. 6 24, 571. 7 806.8 3, 579. 3 6, 361. 3 814.7 22, 911.4 24, 658.1 717.2 3, 534. 5 6,838.2 720.2 25,688. 9 25,137. 6 867.0 3, 784.2 8, 242. 6 856.6 29,982. 0 25,826. 4 883.4 3, 713. 6 10, 213. 2 634. 8 41,533.5 730.4 530.7 1,114.0 46,625. 0 698.3 203.0 778. 5 61,586.1 222.1 71.8 67L2 68, 339.8 69,822.4 59,379.6 64,576.7 71,163. 4 47.4 829.9 55.8 810.1 42.5 673.7 26.7 703. 7 27.0 708.1 43, 908.6 48, 304.8 52, 551. 2 69, 217.1 60, 688. 3 60,095.8 66, 307.1 71,888.5 322.5 641.3 2,695.1. 3,174. 7 1,119. 2 274.7 711.1 2, 619. 6 3, 093. 6 1,136. 7 244.7 633.7 2, 542.8 3,408.4 1,141. 5 185.0 472.2 2, 593.5 3, 700. 6 1, 285. 3 164.1 447.1 2, 693. 5 3,611.6 1,365. 6 160.5 420.6 2, 589.0 3, 551. 7 1, 582.4 128.2 367.9 2, 595. 7 3, 492. 3 1, 741.0 ASSETS I • $28, 089. 9 L o a n s a n d discounts, including overdrafts U . S. G o v e r n m e n t securities, direct obligations...' ; } 6,456. 6 Securities fully g u a r a n t e e d b y U . S. G o v e r n m e n t 11, 767. 6 O t h e r b o n d s , stocks, a n d securities . . 791.6 C a s h i n vault . B a l a n c e s w i t h other b a n k s , i n c l u d i n g reserve balances a n d cash 6, 576.1 i t e m s i n process of collection 3, 509. 3 O t h e r assets > . . T o t a l assets . -.. - _ . 7, 796.0 / \ 10,134. 7 672.6 . D e p o s i t s of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations: Demand .. -. Time ..TJ, R. G o v e r n r n e n t a n d postal savings deposits , D e p o s i t s of States a n d political s u b d i v i s i o n s . D e p o s i t s of b a n k s . . O t h e r deposits (certified a n d cashiers' checks, etc.) Total deposits N a t i o n a l b a n k circulation Bills p a y a b l e a n d rediscounts Other liabilities— . Total liabmties CAPITAL ACCOUNTS T o t a l liabilities a n d capital accounts 3, 317.9 1 4, 058.0 1,162. 6 .... T o t a l capital a c c o u n t s . . . m O LIABILITIES C a p i t a l notes a n d d e b e n t u r e s 2 Preferred stock - ._ Commonstock. Surplus U n d i v i d e d proflts a n d reserves o _ . 2,899. 6 If 3, 371. 3 1,114.4 8, 538. 5 7, 386. 3 7,862. 8 7, 835. 7 7, 971.1 8, 236. 6 8,181.9 8, 294.2 8, 325.1 57,190.1 51, 293.9 56,157. 6 60, 386. 9 67,188. 2 68, 924.8 68, 277. 7 73, 601. 3 80. 213. 6 1 Licensed banks; i. e., those operating on an unrestricted basis. 2 For banks other than national. i O I In Assets and liabilities of active national banks, June 30, 1932 to 1940 [Dollars in millions] 1932 Number of banks 6,160 1933 1 4, 902 1934 1 5, 422 1935 6,431 1936 1937 1938 1939 1940 5,374 5,299 5,248 5, 209 5,170 $7, 763.4 7,073. 0 1, 374.4 4, 035. 2 531.6 $8, 812. 9 6, 902. 5 1, 316. 7 3, 903.1 444.6 $8, 334. 6 6, 510.4 1, 477.4 3, 656. 6 528.3 $8, 573. 7 6, 899. 9 1,869. 8 3, 783. 2 530.6 $9,179. 2 7, 219. 9 1,891.3 3, 794.1 582. 3 n a ASSETS o $10, 286.4 L o a n s a n d d i s c o u n t s , i n c l u d i n g overdrafts . U . S. G o v e r n m e n t securities, direct obligations } 3, 352. 7 Securities fully g u a r a n t e e d b y U . S. G o v e r n m e n t . - _ 3,843. 9 O t h e r b o n d s , stocks, a n d securities 338.4 Cash in vault - _ _ Balances w i t h o t h e r b a n k s , including reserve balances a n d cash 3,147. 5 i t e m s in process of collection „ . _. - _ 1, 391. 6 O t h e r assets T o t a l assets - - $8,119.7 $7, 697. 7 f 5, 845. 8 4, 031. 6 1 357.9 3, 340.1 3, 344. 9 352.4 288.5 $7, 368. 7 6, 077. 7 1, 095. 3 . 3, 543.4 405.5 3,830. 4 1, 245. 3 5, 344.6 1,156. 9 6,462. 7 1,103. 2 7, 849. 7 1,069. 4 7, 933. 2 1, 015. 8 8, 922. 3 948.1 10, 544. 2 979. 2 13, 294.8 923.5 22, 360. 5 20, 855. 6 23, 900. 2 26, 056. 5 29, 696. 7 30, 328.8 30, 377. 6 33,180. 6 36, 886.1 6,934.-7 6, 623. 6 663.6 1, 253. 9 1,814. 7 270.5 7, 035. 7 5, 354. 0 1, 024. 4 1, 089.4 2, 000. 7 269.9 8,041.6 6,075. 6 1, 330. 5 1,499.0 2, 767.8 218.1 9, 674. 9 6, 646. 9 679.7 1,845. 3 3, 410. 7 260.7 11, 665. 9 7, 074. 6 829.9 2,108. 5 4,168. 0 353.6 12,430.2 7, 469.8 467.8 2, 203. 6 3, 790. 6 404.0 12,138.1 7, 548. 9 467.3 2,106.3 4, 211.1 344.2 13, 643. 7 7,666. 4 543.3 2,291.0 4,882. 4 443.7 15, 976. 8 7, 875. 8 665.0 2, 270. 9 6, 084. 0 301.9 17, 460.9 652.2 546.4 421.2 16, 774.1 730.4 127.1 367.4 19, 932.6 698.3 20.1 248.1 22,518.2 222.1 8.9 220.9 26, 200.5 26, 766.9 26, 815. 9 29, 469.5 S3, 074. 4 3.7 326.8 9.2 341.6 9.6 278. 3 3.5. 318.1 2.9 331.3 LIABILITIES D e p o s i t s of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations: Demand . . Time U . S. G o v e r n m e n t a n d postal savings deposits D e p o s i t s of States a n d political subdivisions D e p o s i t s of b a n k s . . _ O t h e r deposits (certified a n d cashiers' checks, etc.) Total deposits N a t i o n a l b a n k circulation Bills p a y a b l e a n d rediscounts O t h e r liabilities - - „ „ .-r.. /^ —l-7r999r0- — 2 7 r l l 6 r 6 - - —27,-103r8- —29,-79lT-l- - o ^. i o M 33, 408.6- CAPITAL ACCOUNTS Preferred stock—. . - Commonstock Surplus. . . . . U n d i v i d e d profits a n d reserves T o t a l capital accounts ... _. - -- -. T o t a l liabilities a n d capital accounts.. R e t i r a b l e v a l u e of preferred stock I Licensed banks; i. e., those operating on an unrestricted basis. 1, 569. 0 1, 259. 4 451.4 53.8 1, 461. 9 940.6 . 400.3 412.1 1,325.8 854.1 409.1 625.1 1, 284. 4 831.9 445.0 443.6 1, 247. 8 973.4 601.0 299.0 1, 283.1 1, 073. 2 556. 9 266.1 1, 306. 8 1,118. 4 582.5 246.5 1, 316.4 1,170. 8 655.8 208.8 1, 325. 9 1, 250.0 691.8 3, 279. 8 2,856. 6 3,001.1 3, 086. 4 3,165.7 3, 212. 2 3, 273. 8 3, 389. 6 3, 476. 5 22, 360. 6 20, 855. 6 61.3 23, 900. 2 426. 9 26, 056. 5 634.2 29, 696. 7 457.4 30, 328.8 318.9 30, 377.6 286.0 33,180. 6 280.0 36, 885.1 262.3 to oo Assets and liabilities of all active banks other than national, June 30, 1932 to 1940^ IN:) [Dollars in millions] 1934 13, 013 N u m b e r of b a n k s . 1938 1939 1940 210,472 10, 622 . 10, 429 10, 281 10, 093 9, 937 9,847 ASSETS $17,803. 5 L o a n s a n d discounts, including o v e r d r a f t s . . U . S. G o v e r n m e n t securities, direct obligations | . 3,102.9 Securities fully g u a r a n t e e d by U . S. G o v e r n m e n t 7, 923. 7 Other b o n d s , stocks, a n d securities 453.2 C a s h in v a u l t . Balances w i t h other b a n k s , i n c l u d i n g reserve balances a n d cash 3, 428. 6 i t e m s in process of collection . 2,117. 7 Other assets .. $14, 268.1 3, 764. 4 6, 794. 6 384.0 $13, 733. 4 5,349. 9 309. 7 6. 281. 3 361.6 $13, 050. 5 6,123. 9 987.2 6, 389. 7 379.1 $13, 075. 8 7, 767. 2 1,143.6 6, 466.1 487.3 $13,885. 3 7,666. 5 1,082. 8 6,402. 5 613.7 $12, 976. 6 7, 572. 7 1,213.8 5,914. 7 616.0 $12,942. 6 8, 323. 4 1, 697. 7 5,811.8 611.8 $13, 378. 4 8, 514. 8 2,084. 5 6, 570.3 566.3 3, 261. 8 1, 965. 4 4,167. 2 2, 064. 3 5,150. 3 2, 249. 7 6, 253. 7 2, 297.8 6, 737.1 2,308.1 7, 504.1 2, 202. 3 9,039. 9 2, 093. 5 11, 240. 5 1, 973. 7 34, 829. 6 30, 438. 3 34, 330.4 37, 491. 5 38, 596. 0 37, 900.1 40.420. 7 43, 328. 5 Total assets. D e p o s i t s of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations: Demand Time U. S. G o v e r n m e n t a n d postal savings deposits -... D e p o s i t s of States a n d political subdivisions D e p o s i t s of b a n k s Other deposits (certified a n d cashiers' checks, etc.) 7, 940. 6 17,181. 0 413.9 647.9 1,421. 2 324.8 6, 966.1 14, 891. 6 613. 5 514.2 1, 364. 2 409.8 7, 496. 5 15, 321. 7 1,077.2 880.2 1, 750. 6 166.2 9, 236. 2 15, 772. 0 519.1 1,156. 2 2,152. 7 232.7 10, 798. 7 16, 372.1 516.2 1, 234. 3 2, 737. 8 480.2 11,268.4 17,101. 9 . 339.0 1, 375. 8 2, 560. 7 410.7 10, 773. 3 17,109. 2 249. 9 1,428. 2 2.627.1 376. 0 12, 045. 2 17,472.1 323.7 1,493. 2 3, 360.1 412.9 14, 005. 2 17, 950. 6 318.4 1,442. 7 4,129. 2 232.9 Total deposits Bills p a y a b l e a n d rediscounts '. O t h e r liabilities 27, 929. 4 750. 9 890.6 24, 759. 4 403.6 746.6 26, 692. 4 182.9 530.4 '9,067. 9 62.9 450.3 32,139.3 43.7 503.1 33,056. 5 46.6 468.6 ?, 563. 7 32.9 395.4 35,107.2 23.2 385.6 38,079. 0 24.1 376.8 29, 570. 9 25, 909. 6 27, 405. 7 32, 992. 0 35, 516. 0 38,479. 9 1, 748. 9 2, 798. 6 711.2 1.383. 9 2, 430. 7 714.1 322.5 129.2 1, 369. 3 2,320. 6 710.1 164.1 181.0 1, 286. 7 2,493. 2 783.1 160.5 174.1 1, 272. 6 2,380. 9 926.6 128.2 159.1 1, 269. 8 2, 242. 3 1, 049. 2 5, 258. 7 4, 528. 7 4,851. 7 34, 829. 6 30,438. 3 T o t a l liabilities. CAPITAL ACCOUNTS C a p i t a l notes a n d d e b e n t u r e s . . . Preferred stock C o m m o n stock Surplus U n d i v i d e d profits a n d reserves.. T o t a l capital accounts T o t a l liabilities a n d capital a c c o u n t s . 1 Includes S t a t e (commercial), m u t u a l savings, a n d p r i v a t e b a n k s . o o Q LIABILITIES . n 274.7 186.0 1,335. 2 2, 261. 7 691.7 244. 7 190.2 1, 295.0 2,435. 0 640.5 185.0 173.2 1, 310. 4 2,627. 3 728.4 4, 749. 3 4, 805. 4 6,024. 3 4, 908.1 4,904. 7 34, 330. 4 37,491. 5 38, 596. 0 37,900.1 40,420. 7 2 Licensed b a n k s ; i. e., those operating on a n unrestricted basis. 4,8 43, 328. 5 1^ Kl o i Assets and liabilities of active State (commercial) banks, J u n e 30, 1932 to 1940 ^ [Dollars in millions] 1932 2 8, 962 1935 1936 1937 1938 1939 1940 2 9, 658 9, 808 9, 732 9, 632 9; 458 9,321 9,239 $7, 953. 6 $8, 304. 2 f 4,176. 6 3, 212. 6 \ 239.6 3,008.8 3, 233. 2 306.9 320.0 $7, 686.8 4,476.6 791.0 3, 322. 5 330.4 $7,854. 3 5, 676. 7 908.3 3, 607. 9 433.2 $8, 766.1 6,166. 0 832. 7 3,50L6 456.6 $7, 958. 4 4, 890. 6 913.3 3, 352.8 455.6 $7,975.8 5, 288.8 1, 257.0 3, 391. 3 443.5 $8, 403. 5 5.869. 6 1, 567. 7 3, 394. 3 490. 4 § 2,888.8 1, 465. 6 3, 607.8 1, 367. 3 4, 584. 7 1, 349. 2 6, 620. 5 1, 350.4 6,108.8 1, 325. 3 6,859. 4 1, 269. 9 8, 274. 0 1, 216. 3 10. 291. 6 1, 176. 8 g 23,640.0 19, 424. 3 20, 659. 6 22, 441.1 25, 351. 3 26,146.1 25, 700.0 27, 846.7 31; 193. 9 7,919. 5 7,125. 9 413.7 646.1 1, 420. 9 324.6 6, 942. 3 5,171.1 613.5 512.8 1, 364.0 409.6 7, "300. 9 5, 461. 9 1, 077. 2 876.9 1, 662.8 165.9 8,911.9 5, 799. 7 519.1 1,144. 6 2,071.9 189.3 10, 359. 7 6, 278. 7 516.2 1, 228. 9 2, 633.4 479.4 10, 745.1 6, 856.8 339.0 1, 372. 6 2,469. 7 409.7 10, 372. 0 6,879. 5 249.9 1, 425. 3 2, 552. 3 374.6 11, 545. 0 7,013. 2 323.7 1, 490. 4 3, 224. 5 412.1 13. 912. 9 7, 309.1 318.4 1, 439.9 4, 089. 8 232.0 17,849.7 732.2 861.3 15,013.3 386.5 715. 6 16,544.6 163.0 478.6 18,636. 5 51.2 386. 9 21, 496.3 35.2 438.8 22,192.8 38.0 393.8 21,853.6 28.0 338.9 24,008.9 21.2 345.7 27,302.1 23.7 340.3 19, 443. 2 16,115. 3 17,186. 2 19, 074. 6 21, 970. 3 22, 624. 6 22, 220. 5 24, 375.8 "27, 666.1 12,192 N u m b e r of b a n k s 1934 1933 s ASSETS $11,634.4 L o a n s anfl discounts, including overdrafts U . S. G o v e r n m e n t securities, direct obligations 1 2,570.7 Securities fully g u a r a n t e e d b y U . S. G o v e r n m e n t . 4, 248.8 O t h e r b o n d s , stocks, a n d securities • 396.0 Cash in v a u l t .. . Balances w i t h other b a n k s , including reserve balances a n d cash 3, 034.8 • i t e m s in process of collection . 1, 755. 3 O t h e r assets T o t a l assets . H i^ 1 LLA.BILITIES D e p o s i t s of individuals, p a r t n e r s h i p s , a n d corporations: Demand Time U . S. G o v e r n m e n t a n d postal savings deposits D e p o s i t s of States a n d political s u b d i v i s i o n s . . . D e p o s i t s of b a n k s O t h e r deposits (certified a n d cashiers' checks, etc.) Total deposits Bills p a y a b l e a n d rediscounts . O t h e r liabilities . . - . . Total liabilities.... . £ s>^ Kj § 1 • CAPITAL ACCOUNTS C a p i t a l notes a n d d e b e n t u r e s Preferred stock Commonstock Surplus U n d i v i d e d profits a n d reserves . .. 1, 743. 4 } 1, 904. 6 548.8 . . . -. _ T o t a l capital accounts T o t a l liabilities a n d capital a c c o u n t s . .- 1 Includes loan a n d t r u s t companies a n d stock savings b a n k s . r 1, 379. 0 \ 1, 373.1 556.9 293.8 129.2 1. 313. 7 1,197. 9 538.8 249.1 186. 0 1, 266. 2 1, 235. 2 430.0 226.1 190.2 1, 248. 6 1, 270.9 445. 2 168.0 173.2 1, 266.8 1, 394. 6 518.9 151.7 181.0 1, 242. 6 1, 424.1 480.1 140.6 174.1 1, 231.1 1,318.2 606.9 120.2 159.1 1, 260. 9 1, 360. 0 627.6 4,196.8 3,309.0 3, 473.4 3, 366. 5 3, 381.0 3, 621. 5 3,479. 5 3,470. 9 3, 527. 8 23, 640.0 19,424.3 20, 659. 6 22, 441.1 25, 361. 3 26,146.1 25, 700. 0 27, 846. 7 31,193.9 2 Licensed b a n k s ; i. e., those operating on an u n r e s t r i c t e d basis ^ ^ d ^Kj tsO 07 - Assets and liabilities of active mutual savings banks, June 30, 1932 to 1940 to [Dollars in millions] 1932 N u m b e r of b a n k s _ ......,,.-- 594 1933 1934 1676 1578 1935 571 1936 1937 566 1938 564 1940 1939 562 552 651 ASSETS L o a n s a n d discounts, including overdrafts _ - . _ U . S. G o v e r n m e n t securities, direct obligations } Securities fully g u a r a n t e e d b y U . S. G o v e r n m e n t O t h e r b o n d s , stocks, a n d securities Cash in v a u l t - . Balances w i t h other b a n k s , including reserve balances a n d cash i t e m s in process of collection . O t h e r assets . __ T o t a l assets .3,562.9 62.8 $5,647.3 991.9 69.3 3,195.4 53.4 $5,342. 6 1,379. 5 189.4 2, 942. 5 46.6 $5,113.6 1,851.1 230.9 2,771.4 52.2 $5,010.9 2,145. 5 245.6 2, 787.0 55.6 $4,927.0 2,394.8 289.7 2,491.9 59.1 $4,896.4 2, 653. 7 389.7 2, 310.1 63.7 • $4,926. 5 2, 697.0 516.0 2,148. 6 74.3 387.2 366.8 365.7 494.4 461.0 646.8 476.3 796.8 492.4 897.4 473.5 926.8 516.0 893.6 636.1 850.1 905.1 784.8 11,134.2 10,967.1 11,065.1 11,172. 5 11,409.6 11,644.8 11, 572.0 11,798.8 11, 952. 2. • 2.2 10,429. 2 .001 1.1 .2 .1 2.6 10, 627. 5 .001 1.1 o .1 $6,140.6 530.7 3,663.9 66.0 $5,941.0 550.3 . / \ H i m D e p o s i t s of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations: Demand Time U . S . G o v e r n m e n t a n d postal savings deposits .-D e p o s i t s of States a n d political subdivisions D e p o s i t s nf b a n k s . O t h e r deposits (certified a n d cashiers* checks, etc.) T o t a l liabilities H .O Ul LIABILITIES Total deposits Bills p a y a b l e a n d r e d i s c o u n t s O t h e r liabilities % o -- - . 3.2 10,033.8 .2 1.6 .1 .1 3.1 9,709.7 .02 .3 .1 .1 2.4 9,777.0 .03 .4 .3 .01 1.8 9,917. 3 .01 .6 .2 .04 3.6 10,065.3 3.7 10,208.3 10.6 10,197. 3 .7 .2 .1 1.1 .2 .1 1.2 .2 .1 10,039.0 17.5 26.3 9,713. S 16.3 27.8 9,780.1 6.4 15.4 9,919.9 4.9 23.0 10,059.9 3.6 25.0 10,213.4 2.8 24.8 10,209. 4 3.2 20.2 10,432.8 .5 20.3 W, 631.4 .003 24.7 10,082.8 9,757.4 9, 801.9 9,947.8 10,088.4 10, 241.0 10,232.8 10,463.6 10,656 1 890.0 161.4 1,064.3 156.4 28.7 1,073.1 161.4 25.6 977.2 221.9 18.6 1,131.7 170.3 17.0 1, 200.3 186.5 12.4 1,042.3 284.6 9.9 1, 034.9 300.4 8.0 868.0 420.1 i o CAPITAL ACCOUNTS C a p i t a l notes a n d d e b e n t u r e s Surplus... U n d i v i d e d profits a n d reserves -- -. T o t a l capital accounts T o t a l liabilities a n d capital a c c o u n t s 1 Licensed banks; i. e., those operating on an unrestricted basis. 1,061.4 1,209.7 1,263. 2 1, 224.7 1, 320. 6 1,403.8 1,339.2 1, 345. 2 1, 296.1 11,134. 2 10, 967.1 11,066.1 11,172. 5 11,409.0 11,644.8 11,572.0 11, 798.8 11, 952.2 d Assets and liabilities of active private banks, June 30, 1932 to 1940 [Dollars in millions] 1932 N u m b e r of b a n k s 1934 1933 227 1 184 1236 1935 1937 1936 243 1939 1938 1940 131 85 73 64 57 L o a n s a n d discounts, including overdrafts U . S. G o v e r n m e n t securities, direct obligations . Securities fully g u a r a n t e e d b y U . S. G o v e r n m e n t O t h e r b o n d s , stocks, a n d securities C a s h in v a u l t Balances w i t h other b a n k s , including cash i t e m s in process of collection 1 . O t h e r assets Total assets. _ _ ^ t?^ S • ASSETS _ } $121. 2 267.9 6.8 124.7 2.2 $107.9 339.4 4.4 86.8 L9 $108.3 366.0 4.6 113.9 1.5 $91.1 287.3 10.8 70.0 L3 • $71.4 380.9 61.0 110. 4 4.6 $48. 4 48.2 .8 27.5 1.6 11.0 1.2 8.5 1.2 $132. 6 181.4 .8 77.1 2.3 6.6 6.6 7.3 5.5 88.4 60.2 89.3 104.7 140.8 60.0 164.8 66.0 128.7 38.9 129.8 27.1 43.8 12.1 ^ 65.4 46.9 532. 7 716.8 731.2 805.1 628.1 775.2 182.4 cn 17.9 21.3 20.7 10.8 .002 1.1 .1 .1 193.2 82.8 .02 3.9 87.5 .3 32L5 56.0 .006 11.0 80.6 43.4 435.4 38.1 619.6 36.8 390.7 32.4 498.0 29.7 89.8 14.0 4.7 104.2 .7 2.2 90.8 .9 1.7 74.6 1.3 L7 135.4 .7 1.7 39.2 .8 40.7 1.2 3.0 32.8 .8 3.3 367.7 13.5 36.4 511.6 6.8 40.4 583.1 5.0 39.3 650. S 6.8 50.0 500.7 1.7 36.3 666.5 1.6 19.6 145.6 .4 11.8 H 44.9 36.9 417.6 658.7 627.4 706.1 538.7 686.6 157.7 H3 6.5 4.0 1.0 4.9 3.3 L8 56.6 49.6 9.9 69.0 49.3 39.8 46.4 32.4 26.0 43.6 32.4 23.0 44.1 26.8 18.5 41.5 27.8 19.3 8.9 14.3 1.5 d 10.5 10.0 116.1 158.1 103.8 99.0 89.4 88.6 24.7 s 55.4 46.9 532.7 716.8 73L2 806.1 628.1 776.2 182.4 $28.5 - $22.9 1.5 / I § g LIABILITIES D e p o s i t s of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations: Demand -Time U . S. G o v e r n m e n t a n d postal savings deposits D e p o s i t s of States a n d political subdivisions D e p o s i t s of b a n k s -_O t h e r deposits (certified a n d cashiers' checks, etc.) Total deposits... Bills p a y a b l e and rediscounts O t h e r liabilities . L2 .2 .1 ,,, T o t a l liabilities - . . _.- T o t a l capital accounts ^..^ - ,- - ,. T o t a l liabilities a n d capital a c c o u n t s 1 Licensed b a n k s ; i. e., those operating on a n u n r e s t r i c t e d basis. o ^ W H § CAPITAL ACCOUNTS C a p i t a l stock Surplus. U n d i v i d e d profits a n d reserves 1 f> K! bO Earnings, expenses, and dividends of national banks, fiscal years 1933 to 1940 to [Dollars in millions] 1933 N u m b e r of b a n k s 1 Average capital funds 3 * -_. . --- ... Gross earnings: I n t e r e s t a n d discount o n loans Interest a n d d i v i d e n d s o n b o n d s , stocks, a n d other securities .. O t h e r earnings Total Expenses: Salaries, wages, a n d fees 5. . . . . . . _ _ . I n t e r e s t on deposits a n d borrowed m o n e y Taxes Other expenses Total N e t operating earnings Recoveries, profits on securities sold, etc.: Recoveries on loans Recoveries on b o n d s , stocks, a n d other s e c u r i t i e s } Profits on securities sold ... All o t h e r . Total T o t a l n e t operating earnings, recoveries, etc Losses a n d depreciation: O n loans _._ _ _- O n b o n d s , stocks, a n d other securities ._ On b a n k i n g house, furniture a n d fixtures Other losses a n d d e p r e c i a t i o n . - .. Total ._ N e t additions to profits... Dividends 7 . .. . . . N e t a d d i t i o n s t o profits t o average capital f u n d s . N e t a d d i t i o n s t o profits to n e t earnings Expenses t o gross earnings .. . ... . 1936 1936 1937 1938 1939 1940 5,170 2 4,902 $3,156.2 2 5,422 $2,920.8 6,431 $3, 048. 5 5,374 6,299 $3,123. 5 $3,186. 6 5,248 $3, 246. 9 5,209 $3,331.7 $3,425. 7 473. 7 283:6 125.1 882.4 388.1 291.9 126.5 806.5 347.0 323.5 132.6 803.1 342.7 313.7 141.7 798.1 356.7 331.7 158.8 847.2 377.1 313.4 160.1 850.6 377.1 303.7 158. 3 839.1 400.0 289.4 169.0 858.4 202.2 182. 5 43.6 128.7 209.2 166.1 42.0 135.9 657.0 249.5 653.2 233.3 131.4 54.4 158.7 577.8 249.9 216.5 139.6 46.0 160.7 551.7 246.4 269. 4 244.6 127.4 53.8 100.1 585.9 264.7 249.4 118.4 52.9 156.0 576.7 262.4 255.7 109.1 59.2 163.7 587.7 270.7 26.3 93.6 15.4 64.1 143.1 6 78.8 12.9 298.9 545. 3 64.2 73.2 124.9 17.3 38.7 29.4 76.6 17.0 135.3 384.8 32.3 f 156.7 1 9.3 . 198.3 448. 2 279.6 549.0 161.7 426.4 33.4 35.2 129.8 13.5 211.9 474.3 40.2 33 4 93.6 15 6 182.8 453.5 204.6 271.5 41.0. 149.0 666.0 216.4 . 17.1 51.6 9.9 .78.5 294.9 231.4 236. 6 15.9 29.4 513.3 -218. 4 99.1 379.3 241.8 29.8 37.5 188.2 136.8 22.3 29.5 165.0 93.3 24.4 30.9 111.0 94.1 26.4 30.9 66.2 103.0 24.6 24.2 84.9 116.3 27.4 20.7 65 3 105 6 28 8 28.2 688. 4 -303. 6 76.8 376.8 71.4 103.4 303.6 241.7 125.6 262.4 286.6 153.6 218.0 208.4 143.8 249.3 225.0 137.8 227.8 225 7 137 5 Percent -6.92 -100.92 75.48 Percent -10.39 -121.68 69.06 Percent 2.34 28.57 68.88 Percent 7.74 98.09 69.13 Percent 8.99 106.38 68.20 Percent 6.42 78.73 68.88 Percent 6.75 85.75 68.73 Percent 6.59 83 37 68.47 1 At end of period. 2 Licensed banks; i. e., those operating on an unrestricted basis. 3 Figures for capital funds are averages of amounts from reports of condition for all calls made in each year and the last call made in the preceding year, i. e., from June to June, inclusive. 1934 00 4 Represents aggregate of capital stock, surplus, undivided profits, and reserves. 5 Fees included with other expenses prior to June 30, 1936. 6 6 months ended June 30, 1936. 7 Includes stock dividends of $50,000 in 1933, $710,000 in 1934, $2,243,000 in 1935, $7,342,000 in 1936. $30,141,000 in 1937, $21,863,000 in 1938, $10,109,000 in 1939, and $10,716,000 in 1940. O H O Ui O Kj o H W i In ElE'POiRT OF T H E SEOKEiTABY OF THE, TREiASIUIlY 279 BUREAU O F CUSTOlViS Activities during t h e fiscal year 1940 Collections Customs collections in the fiscal year 1940 turned sharply upward, after two successive years of declining revenues. [The total of $350,851,561 was 9.2 percent larger than in 1939. Warehouse withdrawals snowed tne largest mcrease m auties collected, as mdicat ed m tne following table: Customs collections ^ and refunds, fiscal years 1939 and 1940 [On basis of accounts of B u r e a u of C u s t o m s ] Type Collections: Duties: C o n s u m p t i o n entries Warehouse withdrawals M a i l entries Baggage entries . . Informal entries A p p r a i s e m e n t entries Increased a n d a d d i t i o n a l duties O t h e r duties T o t a l duties ... .. Miscellaneous: F i n e s a n d forfeitures L i q u i d a t e d damages Sale of seizures Sale of G o v e r n m e n t p r o p e r t y , u n c l a i m e d a n d a b a n doned m e r c h a n d i s e . .... All other c u s t o m s receipts Percentage increase or decrease (—) 1939 1940 $185, 652, 884 124, 612, 662 2, 890, 832 1, 009, 063 794, 930 272,446 3, 858, 272 150,057 $190, 974, 994 151,029,141 2, 098, 094 537, 533 689, 326 143, 788 4,187,897 150, 333 2.9 21.2 -27.4 -46.7 -13.3 —47.2 8.5 .2 319, 241,136 349,811,106 9.6 1, 704,458 93,120 233,297 722, 658 105, 873 49, 856 —57.6 13.7 —78.6 56, 992 80, 992 70, 792 91, 276 24.2 12.7 2,168, 869 1,040,456 —52.0 321, 409, 995 350, 851, 561 9.2 Refunds: Excessive duties Drawback payments 4,122, 800 11, 342, 265 4, 954, 275 14,041,580 20.2 23.8 T o t a l refunds 15, 465,065 18,995,855 22.8 T o t a l miscellaneous T o t a l c u s t o m s collections 1 Excludes c u s t o m s duties of P u e r t o Rico, w h i c h are deposited to t h e credit of t h e Governin e n t of P u e r t o Rico, b u t includes fines a n d other m i n o r collections of P u e r t o 1Rico. .^n^^^: 11 ^ £ i.\. ^ Despite the total increase in customs collections in 1940, 11 of the 15 schedules of the Tariff Act yielded smaller revenues than during 1939. The four dutiable schedules in which increases occurred were sugar, wool, metals, and beverages. The increasefi collections under the sugar schedule were due to the suspension from September 13 to December 26, 1939, of the quotas established under the Sugar Act of 1937, and to the assessment of duties at rates in effect prior to the trade agreement with Cuba. The substantial importations at higher duties during this period caused total collections on sugar,and its products to be more than 50 percent larger than during 1939. As the result of increased demand in the United States for foreign wool, revenue collected on wool imports exceeded ilhat for 1939 by 66 percent. Duties collected on sugar and wool were also larger|than in 1938. Collections from imports of metals and beverages, on the other hand, although substantially larger than during the previous year, fell below the 1938 total. 280 'JRJE'POiRT OF THE; SECRETARY OF T H E TREASUEY Taxes specified in the various revenue acts on imported merchandisCj which was free under the Tariff Act of 1930, also yielded slightly larger returns than in 1939, due to increased collections from crude petroleum and copper which more than offset smaller receipts from expressed and extracted oils. The European war adversely affected customs revenues in the latter part of the fiscal year, causing a decline of almost $18,000,000 in duties collected on imports from Europe. Particularly large decreases occurred in revenue on merchandise from Germany, Czechoslovakia, and Poland, while smaller declines were recorded in duties on imports from Italy, Greece, the Netherlands, Hungary, Bulgaria, and Denmark. Increased collections on imports from some European countries during the earlier months of the fiscal year, on the other hand, were sufficient to offset the subsequently diminished collections on their merchandise after their export market was curtailed as a result of their involvement in or shipping difficulties resulting from the conflict. This condition explains increases in duties collected on imports from Belgium, Norway, Sweden, and Yugoslavia, in each of which exports to the United States were greatly reduced toward the end of the year. Although revenues on imports from Europe declined, larger revenues were derived from imports from other areas. By far the largest increase in customs revenue during 1940 came from the products of Cuba, and was due to the suspension of the quota and the consequent increase in the rates of duty on Cuban sugar. Greatly increased revenue also was received from imports from the Union of South Africa, the Netherlands East Indies, Chile, and Uruguay. Heavy receipts of wool from Uruguay and the Union of South Africa accounted for the increased revenues on imports from those regions, and a large increase in direct importations from the Netherlands East Indies offset decreased importations from the mother country and resulted in augmented collections on merchandise from the colonial area. The majority of the tariff schedules also exhibited the effects of the European conflict. The importance of Germany as the source of imports of chemicals, of Czechoslovakia as the source of leather footwear and gloves, linen goods, earthenware and glassware, and of Poland as the chief source of pork products, accounted to a considerable degree for the reduced revenue from imports of chemicals, earthenware and glassware, agricultural products, and sundries. The decrease in revenues on these and other products, from countries from which direct importations could no longer be received, would have been even greater' than they were if warehouse stocks in this country had not been built up prior to the beginning of hostilities, in anticipation of later import difficulties. The value of dutiable imports and the estimated duties collected are shown for the principal countries for the fiscal years 1939 and 1940 in table 18 on page 677. I t will be observed that the aggregate of duty collections as estimated by tariff schedules is somewhat less than the actual collections reported by collectors of customs. This is in part due to the fact that the computations are necessarily based upon the data reported at the time of original entry and do not take into consideration the increased and additional duties levied as a result of the final determination of the correct quantity by the weighers and gangers, changes in EIE'POET O F T H E S^'C>RETARY O F T H E . TRlEAJSnCTRY 281 classification or rates of duty, or clerical errors found upon liquidation of the entry. Furthermore, the import documents, from which the statistics used in the computation of duties are compiled, do not include baggage, mail, and informal entries on which the duties collected amount to a considerable sum. Four-fifths of the total duties collected during 1940 were reported by 9 customs districts, and 45 percent of the total by New York alone. A statement of the duties collected for each customs district appears in table .19 on page 678. Volume oj business In order to present statistics of the volume of custoins business which are analogous to collections, the data which follow are limited to the area in which all collections are turned into the Treasury of the United States. Since all customs receipts in the Virgin Islands and all except fines and other minor collections in Puerto Rico are deposited to the credit of those respective governments, none [of the data for the former and none except those on seizures for the latter are included below. I Entries oj merchandise.-—There were fewer entries of merchandise in 1940 than during the previous year; the only type of entry which was more numerous than in 1939 was warehouse and rewarehouse entries. The decline in the number of warehouse withdrawals and consumption entries during the year, when there was a substantial increase in the amount of duties collected, was due to the fact that sugar and wool, which were largely responsible for the increased jrevenues in 1940, were entered in large lots, the revenues per entry being much greater than for most other merchandise. The decline in the number of those types of entries covering commercial importations, therefore, was quite closely parallel to the decline for those tariff schedules under which the individual importations were comparatively small in quantity and in revenue yield. The reduction in tourist travel accounts for the sharp reduction in the number of baggage entries; and th^ break in communications with many European countries, for the even sharper decline in the number of mail entries. Appraisement entries, which were numerous in 1938 and 1939 as the result of the receipt of a large quantity of the personal effects of European refugees,j returned to their normal number. The increase in the number of miscellaneous entries was largely due to the inclusion of drawback notic|es of intent, which were more numerous in 1940 as the result of the expansion of exports. The number of entries during the past 2 years is shown in the following table: Number of entries of merchandise, fiscal years 1939 and 1940 Type Consumption entries Warehouse and rewarehouse entries.. Warehouse withdrawals Mail entries.. _ __ Baggage entries Informal entries Appraisement entries Another.-.. Total 1 Revised. 1939 514,028 64,118 372, 93g 690, 976' 710,005; 206,322 1 26,307 1 584,104 13,067,798 1940 Percentage increase or decrease (—) 465,988 68,469 360,039 423,000 636,468 191,167 16,721 620,648 -9.3 6.8 -3.5 -28.4 -24.6 -7.3 -33.9 2,681,500 -12.6 282 'RE'POOEIT OF THE. SECRET ARY OF T H E TREASIUUY Vessel, airplane, and highway traffic.—Most of the different types of vehicles used to transport merchandise and passengers to the United States increased in number. Fewer persons arrived in this country from abroad, however, the number arriving by documented vessels being the smallest since 1932. The following statement covers the leading classes of traffic for the last 2 years: Number of vehicles and. persons entering the United States from abroad, fiscal years 1939 and 1940 Kind of entrant Vehicles: Automobiles and busses _ . _ Documented vessels Undocumented vessels Ferries Passenger trains Aircraft-Other vehicles Passengers by: Automobiles and busses Documented vessels Undocumented vessels Ferries . Passenger trains . Aircraft Other vehicles Pedestrians 1939 . ... . . . . . . _. . . . . . . Total passengers and pedestrians _ .... . 1940 . Percentage increase or decrease ( - ) 11, 643, 237 1 32, 220 25, 621 132, 328 33, 427 7,193 337, 686 11, 508,907 34, 331 29, 946 114, 041 33, 502 8,359 438, 964 -1.2 6.6 16.9 -13.8 .2 16.2 30.0 33, 519, 803 1, 019, 313 104,166 2, 209, 600 1, 080, 970 52, 786 1, 524, 621 10, 578, 528 32, 266, 533 733, 338 116, 628 2, 042, 528 1, 094, 023 78, 542 1, 633, 277 10, 597, 458 -3.8 -28.1 12.0 -7.6 1.2 48.8 7.1 .2 50, 089, 787 48, 662, 327 -3.1 1 Revised. Airplane traffic on international lines continued its expansion, showing for the ninth consecutive year an increase in the number of planes used. The number of passengers arriving by air from abroad was almost 50 percent greater than during the previous year, and was more than four times as large as in 1932. More than one-half of the airplane passengers who reached the country on international lines arrived in the Florida customs district, most of these at the port of Miami. Large gains over the previous year were also recorded at Seattle, Wash., Burlington, Vt., Newark, N. J., and Brownsville, Tex. The following table shows the number of airplanes and airplane passengers entering the United States during the past 2 fiscal years: 283 KlE'POtRT OF T H E S^E'CKEiTAIlY OF THE. TBEiA-StUBY Number of airplanes and airplane passengers entering the United States, fiscal years 1939 and 1940 increase Airplane passengers Percentage or decrease ( - ) Airplanes District 1939 Northern border: Maine Vermont... St. Lawrence New York Rochester Buffalo Michigan Dakota Washington Other districts Total . . . . 1940 1939 1940 Airplanes Passengers 61 745 53 805 19 226 164 746 1,077 67 63 1,107 47 890 24 203 96 742 1,254 88 109 1,889 129 6,591 35 433 233 3,186 3,287 275 131 6,253 104 11,890 45 444 158 3,642 4,617 684 3.3 48.6 -1L3 10.6 26.3 -10.2 -42.1 -.6 16.4 31.3 20.2 231.0 -19.4 80.4 28.6 2.6 —32.2 14.3 40.6 112.4 3,963 4,513 16,167 27, 868 13.9 72.4 Southern border: Los Angeles San Diego Arizona El Paso Laredo 156 127 41 9 428 185 105 33 11 603 1,091 295 53 14 3,991 1,811 187 70 18 6,517 18.6 -17.3 -19.6 22.2 17.5 66.0 —36.6 32.1 28.6 63.3 Total 761 837 6,444 8,603 10.0 58.0 611 38 1,820 672 52 2,285 2,107 224 28, 844 2,212 340 39, 619 10.0 36.8 25.5 5.0 51.8 37.0 Alaska Hawaii Florida. Total 2,469 3,009 31,175 42, 071 2L9 35.0 Grand total 7,193 8,359 62, 786 78, 542 16.2 48.8 Neutrality activities.—The European war caused a large increase in the amount of work performed by customs officers. The export declarations increased sharply as a result of shipments of war supplies to belligerent nations. The number of export declarations reached a total of 4,280,109, compared with 3,816,673 in 1939, an increase of 12 percent, and the value of exports totaled $3,829,000,000 in 1940, compared with $2,919,000,000 in the previous year, an increase of 31 percent. Under the Neutrality Act and regulations, customs examination of both the documents and the actual shipments was frequently required in order to prevent the exportation of prohibited commodities. In addition to the increased activity due to the greater volume of exports, outgoing passenger traffic was carefully checked to insure conformance with passport regulations; clearance papers of vessels were examined to insure that all additional requirements were met; and outgoing vessels were frequently searched to prevent them from involving this country in a violation of its neutrality. Drawback transactions.—The number of drawback entries was only slightly smaller than in 1939, while, as a result of the expansion in exports, the amount of drawback paid increased by $2,699,315. The actual payments corresponded very closely to the total allowed under the various provisions of the Tariff Act of 1930. About 99 percent of the drawback allowed consisted of drawback on exported merchandise manufactured from imported materials, the most important of which were sugar, fiaxseed, and copper. The number of notices of intent to export with benefit of drawback during 1940 was 4,378 larger than 269677—41- -20 284 RE'PODRT OF T H E SEGRETARY OF T H E TEEAuSnCJKY during the previous year. A comparison of these transactions during the last 2 years is presented in the table following: Drawback transactions, fiscal years 1939 and 1940 Transaction Drawback entries received Notices of intent: Originating in the district. Received from other districts Forwarded to other districts for disposition. Certificates of manufacture received Import entries used in drawback liquidation Certificates of importation issued 1940 1939 Number 20,063 ._.. Number 19,974 -0.4 244,428 119,400 114, 309 12, 212 22, 318 5,029 1.8 1L3 12.7 -8.1 -1.6 -3.0 240,050 107, 286 101, 406 13, 287 22,676 5,182 Amount Amount Drawback allowed: Manufactures from imported merchandise $n, 263,013.78 $13,886,813.71 Duty paid on merchandise exported from continuous customs custody 31,180. 70 22,151. 37 Merchandise which did not conform to sample or specifications and returned to customs custody and exported . : 84,628.14 102,696.80 Imported materials used in construction and equip817. 58 ment of vessels built for foreigners 11,080. 25 Salt used in curing fish._ 4,708. 31 Total drawback allowed Internal revenue refund on account of domestic alcohol Total - Percentage increase or decrease (—) 11, 398, 788.11 163, 738. 73 13,998, 301. 53 183,149. 73 11, 562, 526.84 14,181,451. 26 23.4 -29.0 -17.6 22.8 11.9 Protests and appeals.—A larger number of protests was filed during 1940 than during 1939, but there were fewer appeals for reappraisement. The following statement shows the progress of this work during the past 2 years: Number of protests and appeals, fiscal years 1939 and 1940 status Protests: Filed with collectors by importers _ .• Allowed by collectors . Denied by collectors and forwarded to customs court Appeals for reappraisement filed with collectors 19391 1940 38, 650 1,470 35, 578 5,779 41, 647 1,828 40, 807 5,332 Percentage increase or decrease ( - ) 7.8 24.4 14.7 —7.7 1 Revised. Law enjorcement activities Seizures.—Seizures for violations of the customs laws declined during the year. Most of the important classes of customs seizures contributed to this decline. The reduced passenger traffic was partially reflected in the reduction in the number and value of merchandise seizures, the value of seizures of those types of goods usually brought by tourists being in most cases much smaller than in 1939. However, the value of wearing apparel and luggage, amounting to $106,149, and the value of jewelry, precious metals and stones, watches and parts, amounting to $284,569, were greater than during 1939, and represented 10.6 and 28.5 percent, respectively, of the total value of all seized merchandise. More than one-third of the total value of the seized merchandise consisted of colors and dyes seized from commercial importations for failure to comply with the require 285 RiE'PO[RT OF T H E SEiCORETARY OF THE, TRIEiASfURY ments of the Tariff Act of 1930 that a plain and complete description of their contents appear on the immediate container and on the invoice. Two unusually large commercial seizures in 1939, one of unmanufactured tobacco valued at $250,000 and the other of oriental rugs valued at $123,600, were each sufficient to account for the entire decrease in value of seized merchandise. The influx of refugees in 1939, many of whom were ignorant of the customs requirements of this country, resulted in a considerable number of seizures of goods which could be readily converted into cash, such as cameras and surgical instruments. The smaller number of such refugees during the past year and a better knowledge of the customs requirements of the United States caused a reduction in the number and value of seizures of this sort. Narcotic seizures were much fewer in number and smaller in value than in 1939, during which year a number of unusually large narcotic shipments were seized. The quantity of narcotics seized during 1940 was smaller than fbr any year in the past decade. Customs officers during 1940 seized 1,956 ounces of marihuana and 2,775 ounces of other narcotic drugs, as compared with 1,518 ounces of marihuana and 28,660 ounces of other drugs during the previous year. The number and principal types of seizures made by the Customs Service and other governmental agencies during the past 2 years are shown on the following table: Seizures for violations of the customs laws, fiscal years 1939 and 1940 1939 Seizure Merchandise: Number _ Value: Jewelry, precious metals and stones, watches and parts... Wearing apparel and luggage Toilet articles and medicine _. Textiles and raw wool ._. Furs—skins and manufactured Edibles and farm produce Whale oil . : House furnishings, excluding rugs Rugs Guns and ammunition Cameras, binoculars, and ship's instruments. Hardware and sport goods..T Cigars, cigarettes, and tobacco . . . . Books and stationer's supplies : Prohibited articles Livestock, etc. (excluding horses).. _._ Colors, dyes, etc Miscellaneous . ' . Total value of merchandise. Prohibited articles: Obscene, number.. Lottery, number... . . . . Narcotics: Number _ Value.. _ . Liquors: Number. . . . Quantity (gallons): Distilled liquors and wines Malt . . Alcohol -. Value, all liquors....i Boats, automobUes, airplanes, and horses, value Grand total: Number Value . ... 1940 Percentage increase or decrease (—) 5,878 5,433 $210,186 67,156 9,023 25, 541 85,147 4,828 99, 311 67, 283 143,931 1,081 90, 406 4,615 257, 419 4,304 4,968 6,441 2,166 45, 788 $284, 669 106,149 8,064 16, 245 56,411 24, 771 20, 629 52,190 . 1, 971 747 21,842 12, 616 5,444 1,991 8,628 6,234 356,631 12, 784 35.4 58.1 -10.7 -36.4 -33.7 413.1 -79.2 -22.4 -98.6 -30.9 -75.8 171.2 -97.9 -53.7 73.7 -3.2 16, 360. 3 -72.1 1,129, 594 997, 706 -11.7 640 148 788 194 23.1 31.1 1,008 $495, 940 859 $20, 867 -14.8 -95.8 -7.6 3, 773 3,114 — 17.5 4,024 157 647 $43, 935 $203, 661 2,673 299 660 $26,922 $208,849 -33. 6 90.4 2.0 -38.7 2.5 11, 447 10,388 $1, 873,130 $1, 254, 334 -9.3 -33.0 286 REPOIRT OF THE. SEGRETARY OF T H E TREIASIUBY In addition to the goods which were seized, claims aggregating $8,467,828 were initiated by the Customs Service against importers in connection with various irregularities and frauds, which either did not necessitate a seizure or were discovered after the goods had gone into consumption. The following table presents the record of customs seizures classified according to the various agencies which were instrumental in apprehending violators of customs laws: Seizures and arrests for violations of customs laws, classified according to agencies participating, fiscal year 1940 Seizures Total Agency Number 1 C u s t o m s A g e n c y Service: Investigative Unit Enforcement Unit C u s t o m s Service, exclusive . of Agency Service 662 588 Narcotics Value Number Value Number 43 46 $4,917 2,270 3 139 $539,231 75, 228 Lottery Merchandise a n d obscene, n u m - N u m - Value Value ber ber Liquor $233 10, 327 6 2 610 $445, 732 21, 951 401 683 8.789 2,905 13, 825 971 4,278 528, 902 T o t a l C u s t o m s Service. 10,087 1, 211,691 I m m i g r a t i o n Service 93 2,430 c u s t o m s Service assisted b y 9,202 71 o t h e r officers - . O t h e r F e d e r a l a n d local of137 31, Oil ficers 772 4 16, 976 25 3,047 47 24, 385 1,569 979 1 5,289 41 996, 585 304 18 4,680 18 923 2 33 • 756 65 176 2 45 10, 388 1, 254, 334 859 20,867 3,114 26,922 G r a n d total 8,837 597,232. 982 70 61 5,433 997, 706 Seizures—Continued Agency Total Boats value boats, automobiles, airNumValue planes, ber and horses C u s t o m s A g e n c y Service: Investigative Unit $88,349 Enforcement Unit 40,680 C u s t o m s Service, exclusive of A g e n c y Service 45, 716 . T o t a l C u s t o m s Serv» 174, 745 ice I m m i g r a t i o n Service 532 C u s t o m s Service assisted b y other officers . 2,843 O t h e r F e d e r a l a n d local 30, 729 officers G r a n d total 208, 849 5 $67,850 1,112 17 Automobiles Number Value 62 $16, 830 119 32,085 525 137 45,030 27 69, 487 318 93,951 495 7 333 1 26 32 69, 845 Horses Arrests, number 6 4 Airplanes 14 Value Num-. Value ber 3 $1,300 4 $3,663 319 6,183 62 256 161 88 334 10,007 2 37 405 38 Number 11 3 1,300 2,449 6 61 18 30, 684 2 20 38 343 10,125 499 93 432 127, 579 3 1, .300 1 Excludes number of boats, automobiles, airplanes, and horses, as they were seized in connection with narcotics, etc., seizures. In accordance with an order of the Secretary of the Treasury of August 31, 1939, issued under authority of the act approved August 9, 1939, relating to the seizure and forfeiture of vessels, vehicles, and aircraft used to transport narcotic drugs, firearms, and counterfeit 287 RlE'POiRT OF T'FIE SEiCOEtEiTARY OF THE. TRlEAiSrQRY coins, obligations, securities, and paraphernalia, officers engaged in the enforcement of the narcotic and internal revenue laws were authorized to seize such vessels, etc., and to perform such duties with respect to seizures and forfeitures as are imposed upon collectors of customs and appraisers with respect to similar seizures under the customs laws. As the result of this order, only 58 automobiles seized by narcotic agents, valued at $18,539, were adopted for forfeiture during 1940 by the Customs Service,' compared with 188 such automobiles valueci at $66,769 in 1939. Regulations also were issued on September 12, 1939, authorizing Secret Service officers to make seizures in connection with violations of counterfeiting laws; and authorizing collectors of customs to adopt such seizures and to institute forfeiture proceedings; and when forfeitures are perfected otherwise than by court decrees, such seizures shall be either returned to the Secret Service Division for official use or shall be held subject to instructions of the Director of Procurement, After September 12, 1939, 31 automobiles valued at $10,245, seized by Secret Service officers, were delivered to the Customs Service for forfeiture. The following table summarizes the number of boats, automobiles, etc., seized for customs violations during the past 2 years: Boats, automobiles, airplanes, and horses seized, fiscal years 1939 and 1940 For liquor violations Seizure 1939 Boats: Number Value . Automobiles: Number Value Airplanes: Number. Value Horses: Number Value Total value _. 1940 For narcotic violations 1939 1940 1 3 1 . $10 $500 $1, 317 82 67 229 93 $9, 706 $18,031 $79, 599 $25,939 4 $61 $11,083 2 $68 $18,109 $80,099 $25,939 For other violations 1939 18 $678 224 .$79,411 1940 Total 1939 31 22 $69,835 $2,495 257 510 $83,609 $168, 716 3 6 6 $1, 300 $23,900 $23,900 341 237 233 $10,067 $8, 551 $8,490 $112, 479 $164,801 $203,661 1940 32 $69,845 432 $127, 579 3 $1, 300 343 $10,126 $208,849 During the year 257 seized automobiles and trucks were either exported or returned to petitioners because the violations were not sufficiently flagrant to warrant forfeiture. Of the 222 automobiles forfeited, 101 were assigned for oflicial use either to the Customs Service or to some other Government agency, and 121 were sold at public auction. In the course of their regular duties, customs officers often apprehend violators of laws other than those relating to customs. During the year, 770 seizures were made for other departments and agencies, all but 10 of which were for the Department of Agriculture. There were 299 persons apprehended, of whom 223 were for the Immigration Service. I n addition, 6,842 violations of the Department of Agriculture laws were detected. Legal proceedings.—As the result of narcotic seizures, 157 defendants were presented for prosecution. Including the cases pending from 288 EE'POIRT OF T H E SEORETARY OF T H E TREASIUEY the previous year, those which were concluded resulted in 82 convictions and only 25 acquittals. Prison sentences aggregating over 91 years and fines amounting to $2,492 were imposed by the court on convicted offenders. In addition, penalties aggregating $77,416 were assessed against the masters of 77 vessels on which narcotic drugs were found concealed; many of these cases have not yet been concluded, only $11,561 having been collected from the masters of vessels. In connection with all seizures, there were 499 arrests, a decrease of 19 during the year. Although there were fewer arrests, there were almost as many convictions as during 1939, and the high ratio of convictions in the number of cases disposed of continued. Of the 577 cases disposed of, 352 convictions were secured, or 61 percent of the total; of the 626 cases disposed of in 1939, 356 convictions were secured, or 57 percent of the total. Prison terms to which customs violators were sentenced aggregated more than 155 years in 1940, compared with 339 years in 1939, while the total amount of fines imposed by the courts was $51^035 in 1940 and $72,167 during the previous year. Fines, penalties, e/c—Collections from fines, penalties, liquidated damages, and sales of seizures aggregated $878,387 in 1940, a decrease of $1,152,488 from the previous year. Of the 1939 total, however, $974,572 represented penalties collected in cases which involved the large scale smuggling of illicit liquors prior to the repeal of the eighteenth amendment, while in 1940 there was a single collection of $7,917 of this type. Penalties collected for the failure of incoming passengers to declare goods purchased abroad aggregated $311,630 during the year, a slightly larger amount than in 1939. More than half ($172,000) of the 1940 total, however, was collected from a single offender. Conspiracy cases, most of which resulted in court fines, irregularities in connection with bonded importations and violations by the masters of vessels, either by failure to manifest imported merchandise or by unlading it without customs supervision, also yielded larger collections than in 1939. The net proceeds from the sale of, seized and forfeited articles was much smaller than in 1939 due to the inclusion in the total for the previous year of the proceeds of a sale of forfeited diamonds by the court, which yielded $192,479. The net proceeds of seizures sold by the collectors amounted to $20,944 in 1940 and $13,751 in 1939, whfle the proceeds of sales by court order aggregated $28,912 in 1940 and $219,546 in 1939. Included in the sales were 123 automobiles for $5,534 and 1 boat for $275, compared with 95 automobiles, 3 boats, and 1 airplane in 1939, which yielded $4,018, $141, and $125, respectively. The following table presents a summary of the amounts collected for the last 2 years in fines, penalties, and forfeitures, and from the sale of seizures, classified according to the type of violation: REPOiRT OF THE SEORETARY OF THE TRJEiA'SajRY 289 Collections for violations of the customs laws, fiscal years 1939 and 1940 Violation 1939 Undeclared articles in baggage of passengers arriving from abroad _• Irregularities in bonded importations (liquidated damages)... False invoicing, including undervaluation Liquor Smuggling (including conspiracy), mostly criminal cases _ Failure of masters of vessels to make complete manifest of im' ported merchandise . —_ Unlading foreign merchandise without customs supervision.__ Narcotic: By masters of vessels on which violations occur Other offenders _ Irregularities in mail importations Failure to report arrival in United States . . _ Miscellaneous Net proceeds from sale of goods seized and forfeited for all violations '.. Total. i_ - 1940 $299, 574. 75 $311, 629.84 93,119. 83 106,872.46 262,279.90 237, 631.30 987, 772. 75 16, 742. 61 39, 549. 86 . 44,414. 77 Percentage increase or decrease ( - ) 4.0 13.7 —9.4 -98 4 12.3 13,137. 68 16, 628. 22 13,491.73 26, 774.09 2.7 62.0 52,600. 86 9,175. 25 10,638.30 7,847. 57 6,363.42 46,128.06 4, 256. 81 2,800.67 5, 209.14 14, 578. 97 -12.3 —63.6 -73.7 —33.6 172.3 233,297.00 49,856.38 -78.6 2,030,875. 28 878,386.73 -56.7 Coordination with other agencies.—The coordination plan adopted in August 1934, which developed closer cooperation between the Coast Guard, Alcohol Tax and Intelligence Units of the Bureau of Internal Revenue, Bureau of Narcotics, Secret Service, and Customs Service, remained in operation. The continued effectiveness of the law enforcement branches of these agencies, as a result of this coordination, has been most gratifying. Tariff administration During the year five findings of dumping were issued, seven findings partially revoked, and one finding revoked as of date of issuance. The findings issued applied to wool knitted berets from France (T. D. 50034) and to ribbon fly catchers from the United Kingdom, Japan, Belgium, and Germany (T. D.'s 50035 to .50038). The seven findings partially revoked appliecl to importations on and after May 11, 1934, but not to importations prior to that date, of safety matches from Finland, Austria, Latvia, the Netherlands, Norway, Poland, and Estonia (T. D. 50169). The finding that was revoked as of date of issuance applied to phosphate rock from Morocco (T. D. 49964). One order was issued imposing countervailing duty on 93-94 score Cheddar cheese from Canada (T. D. 50093). Several other countervailing duty orders previously issued were supplemented or modified but none was revoked. Public No. 450, approved April 11, 1940, an act to amend section 33 of the Copyright Act of March 4, 1909, gave the Treasury Department the machinery for discharging its administrative responsibility of preventing the importation of articles prohibited under the Copyright Act. The Bureau of Customs participated in the preparation and presentation to Congress of these amendments. The quotas provided under the trade agreements with Canada and the United Kingdom were supplemented during the year by provisions in three trade agreements: That with Venezuela set up a quota on crude petroleum and certain petroleum products, effective December 16, 1939; the supplementary trade agreement with Cuba provided a quota on Cuban filler and scrap tobacco, effective January 1, 1940; 290 'REPORT OF THE. SEiORETARY OF THE. TREASIURY and the supplementary trade agreement with Canada provided a quota on black and silver foxes and furs, effective December 1, 1939. An amendment to the Philippine Independence Act established, in addition to the quotas previously in effect, quotas on imports from that country of cigars, scrap and filler tobacco, and pearl or shell buttons, effective January 1, 1940. A proclamation by the President on Septeniber 5, 1939, also provided quotas on certain types of unmanufactured cotton and cotton waste, effective for one year after September 20, 1939. A statement of the commodities imported under quota provisions during the quota periods ended in the fiscal years 1939 and 1940 foUows: Commodities imported under quota provisions during quota periods ended i n the fiscal years 1939 and 1940 Commodity Q u o t a period Sawed timber and lumber, n. s. p. f., of Douglas fir or Western hemlock. Cattle, weighing less tha^n 175 pounds each. Cattle, weighing 700 pounds or more each and h. s. p. f. Cal. year 1 9 3 8 . . - - Cows weighing 700 p o u n d s or more each. i m p o r t e d specially for d a i r y purposes. C a t t l e weighing less t h a n 200 p o u n d s each. C a t t l e weighing 700 p o u n d s or m o r e each, other t h a n cows i m ported specially for d a i r y purposes. W h o l e m i l k , fresh or sour. C r e a m , fresh or sour F i s h , fresh or frozen, filleted, etc., n . s. p . f., cod, h a d d o c k , h a k e , pollock, cusk, a n d rosefish. W h i t e or Irish potatoes. certified seed. Other R e d cedar shingles do- Established quota 250, 000,000 Unit of quantity Board foot. Total imPerports within cent of quota quota limitation filled 172,301,698 68.92 Head.. 40,943 78.84 do 155,799 . . . d o . . . . 124,920 80.18 do 20,000 . . . d o . . . . 7,431 37.16 Cal. year 1 9 3 9 . . . . 100,000 . . . d o - . . . 100,000 100.00 Cal. year 1st q u a r . 1939 2d q u a r . 1939: Canada Other countries. 3d q u a r . 1939: Canada O t h e r countries. 4th quar. 1939: Canada O t h e r countries. 1st q u a r . 1940: Canada O t h e r countries. 2d q u a r . 1940: Canada O t h e r countries. Cal. year 1 9 3 9 . . . . 225, 000 do 60,000 . . . d o . . . . 51,^33 Date quota filled Sept. 12,1939 65,"ooo' 'io5."oo' Feb. 2,1939 51, 720 . . . d o . . . . 8,280 ..-do-— 50,971 8,280 98.55 100.00 61, 720 — d o . . . . 8,280 — d o - . - 60. 909 7, 827 98.43 94.53 40, 350 — d o . . . . 6,663 -.-do.— 35, 663 6,663 88.38 100.00 Oct. 2,1939 51, 720 ...do—8,280 . . . d o . . . . 19, 705 8,280 38.10 100.00 Jan. 2,1940 51. 720 . . . d o — 8,280 . . . d o . . . . 37, 512 8,280 72.63 100.00 Apr. 1,1940 Gallon. 7,124 .24 Cal. year 1, 600, 000 _._do 1938 1939.-Cal. year 1 9 3 9 . . - . '""is," 000," ooo' Pound. 1.527 9, 892,197 """.'34' .10 65.95 45, 000, 000 . . . d o - . . . 90, 000, 000 . . . d o . - . . 60, 000, 000 .__do 44, 726,194 69, 768, 730 1, 284, 909 99.39 66.40 2.14 Square. 864,881 1,051,168 100.00 100.00 12 m o s . from— D e c . 1,1937-_ Sept. 15,193812 m o s . f r o m Sept. 16, 1938. 6 m o s . from— J u l y 1, 1938.... J a n . 1, 1939... 3,000, 000 864,881 1,051,168 ------ Apr. 13,1939 Sept. 28,1938 Apr. 14,1939 EiBPOtRT OF T H E SBOREiTAIlY OF T H E TItEE!A:SiU'RY 291 Commodities imported under quota provisions during quota periods ended in the fiscal years 1939 and 1940—Continued Commodity Quota period Black and silver foxes and furs. 12 mos. from Dec. 1, 1939: Canada Other countries. Cal. year 1939 Molasses and sugar sirups, n. s. p. f., containing soluble nonsugar solids equal to more than 6% of total soluble solids. Crude petroleum, topped crude petroleum, and fuel oil derived from petroleum including fuel oil known as gas oil. Coconut oil from Philippine Islands. Refined sugar from Philippine Islands. Unrefined sugar, from Philippine Islands. Yarns, twines, cords, cordage, rope, and cable, tarred or untarred, wholly or in chief value of manila (abaca) or other hard fiber, from Philippine Islands. Established quota Unit of quantity PerTotal imports within cent of quota quota limitation filled 1 58,300 U n i t . . . 1 41,700 . . . d o . . . . 68,300 41,700 100.00 100.00 Gallon. 1, 500,000 100.00 ...do.... 56, 773, 649 38, 650, 762 38.74 93.40 1,500,000 Dec. 16 to 31, 1939: Venezuela 146, 588,007 Netherlands 41, 387,156 (including overseas territories). Colombia 8,155,105 Other coun7, 747, 360 tries. Cal. year 448,000,000 1938 1939 Cal. year 112,000,000 1938 1939 . . Cal. year 1,792,000,000 1938 1939 12 mos. from— May 1, 1938.. M a y l , 1939.. } 6,000,000 7, 747, 350 100.00 Pound. 363, 632,137 332, 855, 240 81.17 74.30 111, 998, 645 111, 914, 438 99.99 99.92 1,791,772,550 1,784,340,281 99.99 99.57 Pound. Pound. Pound 1r 5, 818, 532 6,889,193 Date quota filled (2) (2) May 31,1939 Dec. 22,1939 96.98 98.15 1 Not to exceed 25% of annual quota during any month. 2 The annual quotas were filled during first 4 months of 1940. Customs Agency Service The investigative unit of the Customs Service, the Customs Agency Service, is charged primarily with the duty of preventing and detecting frauds in customs revenue. This Service conducts all investigations involving fraud or violations of the customs laws, and investigates and reports upon all matters brought to its attention by the Secretary of the Treasury, Department officials, the Commissioner of Customs, collectors, and other customs administrative officers, with respect to -undervaluation, drawback, classification, smuggling, personnel, customs procedure, and other related subjects. All seizures of any consequence and all reported or suspected violations, except those of minor importance, come ultimately within its purview, irrespective of who made the seizure or originally discovered the violation. The value and accomplishments of the Agency Service, therefore, cannot be measured satisfactorily by the number of arrests made by its officers or by the number or value of seizures ascribed to them as contrasted with the accomplishments of the other branches of the service. At the close of the year 700 persons were in this Service, a reduction of 141 from the previous year. Following is a partial sum- 292 REPORT OF T H E SECRETARY OF T H E TREA^SiURY mary of its activities during the year, exclusive of seizures, arrests, and actions connected therewith: Investigations of violations of customs laws: Undervaluation Marking violations .. Diamond and jewelry smuggling Narcotic smuggling Other smuggling . Touring permits. Other investigations: Alleged erroneous customs procedure Drawback -. Classiflcation and market value... Customs bonds to determine solvency and sufficiency Applications for customhouse brokers' licenses Applications for bonded truckmen's licenses Petitions for relief • Personnel Navigation violations Pilferage of merchandise Foreign, by members of domestic service Examinations of customhouse brokers'records... Number 967 214 314 1,248 1,988 863 . ^ . 147 1,464 1,212 . . . 146 88 107 534 280 351 . 163 657 224 In addition to the law-enforcement work in which customs agents and patrolmen, as well as other customs officers, participate, other important aspects of the duties of this Service are outlined in the following paragraphs. Undervaluation.—In the investigations of the use of false invoices, false descriptions or valuations of the merchandise, and other practices designed to deprive the Governm cut of its lawful revenue, many violations were discovered and substantial recoveries were effected, but the number of such cases in 1940 was smaller than during the preceding year. Drawback investigations.—The importance of the investigation of the claims of manufacturers desiring to establish a rate of drawback is indicated by the fact that $14,041,580 was paid as drawback during the year. In addition to the preliminary investigations, frequent examinations are made to determine whether fraud or misrepresentation has existed in connection with drawback payments and claims, to determine whether the company's records are kept in such a manner as to insure that imported materials were actually used in exported products, and to determine whether the products exported with the benefit of drawback were correctly described by the exporter. Several penalties were imposed during the year for the filing of false drawback claims, and several claims for drawback were denied as the result of such investigations. Foreign investigations.—The customs agents in the foreign service, known as Treasury representatives, continued to secure reports regarding foreign values or export values for the use of appraising officers in the United States and, in addition, rendered invaluable service in securing advance information regarding the attempted smuggling of narcotics, jewelry, and other merchandise, which made possible some of the important seizures in this country. Many of the officers stationed in ' the European area were returned to the United States as the result of the spread of hostilities. Enjorcement Unit.—The Enforcement Unit of the Customs Agency Service, established in 1937 to assist in supervising the operations of the customs patrol force, continued to direct and coordinate its activities to insure the maximum of efficiency in light of the everchanging smugglers' technique. The Enforcement Unit also supervised investigations relating to smuggling matters, including all narcotic investigations abroad and in the United States. RE'POiRT OF T H E SECR-ETARY OF THE, TRiEAiSURY 293 The Unit continued its educational program of familiarizing the personnel of the Customs Service with all aspects of the illicit traffic in narcotic drugs. In line with this program, there was prepared and disseminated each week during the year a Weekly Narcotics Intel. ligence Bulletin touching on all phases of the illicit traffic in narcotic drugs coming to the notice of the Customs Agency Service during the preceding week. This bulletin was distributed throughout the field services of the Bureau of Customs and the Bureau of Narcotics; additional copies were forwarded each week to certain European narcotic investigative agencies. The southeastern patrol unit, with headquarters at Jacksonville and officers stationed from North Carolina to New Orleans, was discontinued on December 31, 1939, some of the officers being transferred to other patrol units, and the remainder assigned to the staffs of various collectors of customs. Miscellaneous Appraisement Unit.—Due to world conditions, particularly in Europe, appraisement officers experienced greater difficulty in determining the value of imported merchandise than at any time since the formation of this Unit in September 1937. Wide fluctuations in the valuation of merchandise and the unavailability of foreign records rendered the determination of values unusually difficult. Efforts were continued, however, to create uniformity in the classification and valuation of imported merchandise. The activities of the Customs Information Exchange, which acts as a clearing house for the Appraisement Unit, are summarized as follows: Number Appraisers' reports of values or classification received. 22,049 Appraisement appeals reports received _. 3,636 Changes in value circulated 1,200 Requests for investigation abroad 751 Reports received in response to requests for investigation abroad 1,225 Reports of original investigations by Treasury attaches and price lists from American consuls received and circulated . 3,942 Difference in classification of merchandise between the various field officers reported to the Bureau of Customs 1,105 Difference in value of merchandise between the various field officers reported to the Bureau of Customs • 407 Customs School oj Instruction.—The enrollment in the Customs School of Instruction continued to increase, all customs employees being enrolled in some subject, and two-thirds of them being enrolled for the entire course. Representatives from Chile, Siam, and the Philippines were assisted by the school in their study of the customs law and procedure of the United States. Division oj Laboratories.—This Division maintained throughout the year 9 customs laboratories, at which 91,977 samples of merchandise were tested and analyzed, an increase of 7,011 over the previous year. These analyses included 42,035 samples of sugar, 14,970 of ores, metals, etc., 4,75,1 of textiles, 3,180 of chemicals, 3,137 of fixed oils, fats, etc., and 3,871 of suspected opium and narcotics. The Division prepared and distributed for the use of the chemists new methods of laboratory analysis for 14 commodities and a book containing the approved customs laboratory methods for use in analyzing certain specified commodities. A gauging manual for the information and guidance of all customs officers was prepared and will shortly 294 REPOIRT OF THE. SEORETARY OF THE. TREASIURY . be printed. A wool testing laboratory was set up at Boston to determine the clean content of wool by the use of representative samples taken from greasy wool. Customs liaison officers.—This group was established on July 28, 1939, to take over the duties of the Port Examination Commission with respect to securing greater uniformity in the procedure followed by customs officers. The liaison officers, functioning under the immediate direction of the Commissioner of Customs, follow largely the methods used by the Port Examination Commission, but their decisions become effective immediately unless their recommendations are opposed by the collectors of customs, in which case the procedure in question is submitted to the Bureau for decision. Traveling auditors.—There was established on January 8, 1940, in each of the offices of the Comptrollers of Customs a staff of field auditors, authorized to make periodic physical audits of the fiscal activities of the various customs districts. The work of these auditors has already resulted in a marked improvement in the handling of customs funds, especially in speeding up the collection of outstanding accounts and in the payment of refunds. The auditors also make physical inventories of the property in the custody of customs officers and apply to government accounting the auditing principles widely recognized in private business. Division oj Engineering and Weighing.—The most important function of this Division is the supervision of weighing and gauging practice and the maintenance of the weighing equipment, since the slightest inaccuracy in the weight determination of such commodities as sugar, wool, metals, tobacco, and cattle results in enormous loss. During the past year provision was made for the installation of cattle weighing scales at Pembina, N. Dak., Noyes, Minn., Laredo and Brownsville, Tex., and Antelope Wells, N. Mex., and contracts awarded for the reconditioning of 46 special Treasury automatic weighing and recording scales which have been in constant use in weighing raw sugars and wool for periods in excess of 14 years. The division collaborated in the preparation of plans for new customhouses and appraisers' stores at San Francisco, Los Angeles, New Orleans, Tampa, Port Everglades, and Houston, and for border stations at Laredo and El Paso, Tex., and assisted in the determination of suitability and in the acquisition of building sites for border stations to be erected in the States of Maine, New Hampshire, Vermont, New York, Minnesota, North Dakota, Montana, Washington, California, Arizona, New Mexico, and Texas, Changes in ports and stations.—During the year a port .'was established at Muskegon, Mich., which had previously been a customs station, and 3 new stations were established at Winton, Minn., Fargo, N. Dak., and Port Hueneme, Calif. On the other hand, two customs districts, 6 ports of entry, and 3 customs stations were abolished. The district of Iowa was abohshed and included in the Chicago district after September 23, 1939; and the Utah-Nevada district was abolished and included in the San Francisco district after February 21, 1940. The ports of entry abolished were those at Des Moines, Iowa, Fort Worth, Tex., Oklahoma City, Okla., Tulsa, Okla., Grand Haven, Mich., and Salt Lake City, Utah, anci the stations"!abolished were those at Muskegon, Mich, (which was made a port). Sparrows Point, Md. (which was consolidated with the port of Baltimore), and Ottawa, 295 RE'POIRT OF T H E SEORETARY OF T H E TRE-A^SnCPRY Canada. I n addition to these changes, the customs district of Laredo was created to include all of the former customs district of San Antonio, except the port of Corpus Christi, which was transferred to the Galveston customs district. Cost oj administration.—The total revenues collected by the Customs Service during the year, including collections for other departments and Puerto Rican collections other than duties, amounted to $383,279,575 as compared with $350,422,281 for 1939, or an increase of $32,857,294 during the year. The expenses increased by $343,510 to $21,127,673 in 1940, but, as a result of the increased collections, the cost to collect $100 was only $5.51 in 1940 as compared with $5.93 in 1939. Review of activities since 1933 Collections Customs coUections, after increasing in each successive year from a low of $251,301,000 in 1933 to a peak of $488,343,000 in 1937, declined to $321,410,000 in 1939, b u t took an upturn in 1940, reaching a total of $350,852,000. A detailed statement of collections for each of the past eight fiscal years, together with the amounts refunded, follows: Customs collections ^ and refunds, fiscal years 1933 to 1940 [On basis of accounts of Bureau of Customs. 1933 Type 1934 1936 In thousands of dollars] 1936 1937 1938 1939 1940 Collections: Duties: $151,002 $171,378 $192,105 $234, 568 $313, 531 $221, 790 $185,663 $190, 975 Consumption entries. 92,094 134,103 ^45,273 H3,379 162,007 124,791 124,613 151,029 Warehouse withdrawals 2,633 2,514 3,291 2,891 M a i l entries 2,669 3,088 3,298 2,098 1,009 683 752 Baggage entries 673 775 998 1,110 538 642 915 795 701 897 1,054 689 915 Informal e n t r i e s . - . 185 312 302 272 A p p r a i s e m e n t entries .. 215 231 144 208 Increased a n d a d d i t i o n a l 6,062 duties 3,137 3,164 3,035 4,690 4,188 3,858 3,888 125 120 150 Other duties 170 86 150 98 75 250, 502 313,095 344, 942 386, 941 487,366 356,889 319, 241 349,811 Total duties. Miscellaneous: F i n e s a n d forfeitures Liquidated damages. Sale of seizures . . . Sale of G o v e r n m e n t p r o p erty, unclaimed a n d abandoned m e r c h a n d i s e l... All other c u s t o m s r e c e i p t s . . . T o t a l miscellaneous .. 625 24 45 486 202 89 1,037 239 170 1,309 285 170 548 267 69 2,229 149 161 1,704 93 233 723 106 50 60 47 133 53 86 48 33 46 36 56 80 66 57 81 71 91 799 963 1,580 1,844 976 2,685 2,169 1,040 T o t a l c u s t o m s collections.. 251,301 314, 058 346, 522 388, 786 488, 343 359, 674 321,410 360,852 Refunds: Excessive d u t i e s . . Drawback payments 4,923 7,591 T o t a l refunds 12, 514 . 5,849 • 7,062 8,077 13, 727 13, 926 20, 790 4,669 5,718 10,023 . 10,774 5,220 11,841 4,123 11,342 4,954 14,042 15,342 17,062 15,465 18,996 15, 741 1 Excludes customs duties of Puerto Rico, which are deposited to the credit of the Government of Puerto Rico, but includes fines and other minor collections of Puerto Rico. Duties on consumption entries reached the largest proportion of the total duties collected (64 percent) in 1937 due, in part, to heavy importations of those agricultural commodities of which a shortage existed in this country as a result of the drought. A large portion of the duties on warehouse withdrawals were derived from sugar, alcoholic beverages, tobacco, and wool. Duties collected 296 OEIEPORT OF T H E SEORETARY OF THE, TREAuSURY on sugar were limited during most of the period by a quota and declined successively during each year from 1933 to 1939, the increase in 1940 being due chiefly to the temporary removal of the quota and to the return during a portion of 1940 to higher rates of duty. The revenue from duties on tobacco remained at quite a constant level, decreases in rates of duty under the terms of the Cuban and Turkish trade agreements being offset by sufficiently increased importations. Duties on imports of alcoholic beverages increased sharply in 1934 and 1935, the latter being the first full year in which any considerable amount of duties was collected on imported liquors and wines as a result of the repeal of the eighteenth amendment. The increased importations which resulted from reductions in the rates of duty on alcoholic beverages under the terms of the Canadian, Haitian, Cuban, and the United Kingdom trade agreements were sufficient to maintain collections after 1935 at quite a constant level. The variable element in duties on warehouse withdrawals during the past 8 years was largely the result of tbe fluctuation in imports of wool. All four of these commodities were subject to specific rates of duty and were, therefore, not influenced by price changes. The following table shows the duties collected on the individual items which were most important as customs sources of revenue: Duties collected on leading dutiable commodities, fiscal years 1933 to 1940 [In thousands of dollars. On basis of reports of collectors] Fiscal year Sugar $65,019 55,668 53,123 44, 321 39,187 36,880 36,085 66,108 1933 1934 1935. 1936. 1937. 1938 1939 1940. Agricultural products Distilled liquors and wines 0) 0) $74,121 81, 462 117,294 67, 079 56,009 53,063 Tobacco $262 24,023 40, 943 37, 990 44, 487 39,433 31, 814 36.859 Unmanufactured wool fli $21, 636 23, 437 25, 529 22, 859 25, 709 22, 634 $2,390 10,931 5,319 19, 762 35,118 8, 382 . 12,449 28, 501 Duties on other products $182,831 222, 482 149, 800 179, 969 225, 761 182,256 167,175 153, 646 Total duties $260, 502 313,094 344, 942 386, 941 487, 366 356,889 319, 241 349,811 1 Included in duties on other products. Volume oj business Entries oj merchandise.—The total number of entries of merchandise increased continuously from 1933 to 1938, but decreased during 1939 and 1940. The number of entries for each year from 1933 to 1940 is shown in the following table: Number of entries of merchandise, fiscal years 1933 to 1940 WareFree Dutiable house conconsumption sumption withdrawals entries entries Fiscal year 1933 1934 . 1936 1936 1937 1938 1939... 1940 _ __ 261,265 264,365 284,405 324,014 _ _ 394,838 342, 784 328, 963 284,120 142,155 158,948 164, 660 183,417 196, 474 176, 478 185, 065 181,868 199, 260 257, 506 323,473 379,124 382,383 382, 882 372, 938 360,039 Mail entries 618,429 447,462 475,445 627, 261 564, 646 584, 764 590,976 423,000 Baggage entries 367,009 393,977 418,403 480,048 595, 705 714, 586 710,005 535, 468 Informal entries All other 135,479 146, 451 188,136 206, 436 244, 283 234, 786 206,322 191,167 371,988 471, 726 538.528 612,654 698, 232 684, 896 673.529 705,838 Total 1,995, 575 2,140,414 2, 393,049 2, 712,964 3,075, 461 3,121,176 3,067, 798 2, 681, 500 REPORT OF T H E SEiCR-ETARY OF THE, TRE'AlSlURY 297 Vessel, airplane, and highway traffic.—The volume of traffic taken as a whole exhibited somewhat smaller variations during the past 8 years than appeared in the number of entries of merchandise. The following table shows the number of each type of vehicle and the number of passengers entering the United States by such vehicles for the fiscal years 1933 to 1940: Number of vehicles and persons entering United States from abroad, fiscal years 1933 to 1940 Fiscal year Automobiles and busses Documented vessels Undocumented vessels Ferries Passenger trains Aircraft Other vehicles Total 1 Vehicles and vessels1933 1934 1936 1936 1937 1938 1939 1940 '8,929,186 9,293, 535 9,992,312 11, 217, 252 11, 907,126 11, 643,237 11, 508,907 27,731 27, 308 28, 524 29, 601 32,660 31, 856 32,220 34, 331 (') (') (2) (2) (2) 25,805 25, 621 29, 946 195,925 188,402 189,918 191, 548 201,454 172, 575 132, 328 114,041 39,284 38, 420 35,836 34,086 34, 607 34, 230 33,427 33, 502 4,801 4,347 4,816 4,688 5,504 6,219 7,193 8,359 315, 545 308,363 323, 952 328, 752 408,710 353,464 337, 585 438, 964 18, 798 19, 624 27,001 27, 111 37,488 44,107 52, 786 78,542 1,863, 934 1, 502,368 1, 548,867 1,874,050 1, 800,286 1,732, 503 1, 524, 621 1,633,277 Persons entering b y 1933 1934 1936 1936 1937. 1938 1939 1940 25,097,067 795,380 24,052,731 764,190 25, 604,405 811, 547 27,209, 538 898,267 31, 322,255 1, Oil, 387 34,461,603 1,071,896 33, 519, 803 1,019, 313 32,256, 533 733, 338 (2) (2) (2) (2) (2) 93, 972 104,166 116, 628 2,852,397 2,809, 658 2, 627,032 2,685, 795 2, 914,288 2,934,550 2,209,600 2,042, 528 811, 301 905,021 936,538 991,351 1, 208,448 1,211,822 1, 080, 970 1, 094,023 40,822,539 39,679,462 41,730, 336 44,288,079 49, 238,348 52,887,018 50,089, 787 48, 652,327 1 Includes pedestrians, not shown separately. 2 Included with ferries or with other vehicles. Law enjorcement activities Decided changes took place during the period from 1933 to 1940 in the number and types of seizures made for the violations of customs laws. Until the repeal of the eighteenth amendment in December 1933, a large number of seizures of liquor were made each year. Attempts to smuggle liquor and alcohol continued during the first 2 years following repeal, but several important seizures of large quantities of distilled liquors and alcohol during 1935 and 1936, together with the extension of the territory into which alcoholic beverages could be legally imported resulted in the almost complete discontinuance of attempts to smuggle this commodity on a commercial scale. The repeal of the eighteenth amendment also exerted a pronounced effect on the number and value of vehicles and vessels seized for liquor violations. Partly as a result of the greater cooperation between the enforcement branches of the various bureaus of the Treasury, the number of seizures of narcotics increased for each year from 1933 to 1939, with the exception of 1935. The sharper increase during the latter years was due to the classification of seizures of marihuana as narcotic seizures after the Marihuana Tax Act became effective on October 1, 1937. The quantity of narcotics seized since 1933, however, varied considerably from year to year, and in 1940 was less than during any year since 1933. 298 'REPOOEIT OF T H E SEORETARY OF T H E TREASIURY The smuggling of watch movements gave customs officers considerable difficulty. Two circumtances, however, caused the almost complete discontinuance of this type of smuggling, the repeated seizures of large quantities of smuggled watch movements and the provision in the trade agreement with Switzerland for the symbol marking of legitimate shipments of watch movements. The following table shows the number and value of the various types of seizures during the last 8 years: Seizures for violations of the custoins laws, fiscal years 1933 to 1940 Seizure Merchandise: Number of seizures. 1933 4, 580 Value: Jewelry and watch parts.. $301, 918 Wearing apparel and Toilet articles and medicine Textiles Raw wool Furs • Edibles and whale oil— F u r n i t u r e , including china and rugs Guns and ammunition.. Hardware and sport goods..-. Cigars and cigarettes Books Prohibited articles Livestock Miscellaneous Total value of merchandise 1934 1935 6,378 1937 $52, 821 $129, 395 $154, 301 $338, 9591 $92, 800 $210,186 $284, 669 33, 4581 42, 0861 33, 4581 29, 9801 60, 327 12,017 7,942 1,711 24,186 7,381 6, 313 7, 0671 24,101 14,1471 27, 6871 13, 299 10, 230 8,159 \ 29,440 5, 4721 9,273 30, 297 16,013 15, 827 10, 024 25, 203 128, 045 50, 349 80,200 1,006 5, 607 3781 6,406 1,257 68, 813 401 21,241 838 10, 667 1,675 4, 044 13,6991 5,891 2,410 5,996 4,559 1,134 26, 275 4, 6151 1,865 6,884 7,988 24, 654 6,774 3,426 5,337 5,731 13,964 64,188 23, 218 2, 636 10,7271 5, 668 7,662 264,904 496, 315 213, 896 290, 758 431, 964 2, 8551 ^') , 6, 2551 Total value of liquors. 893, 7571 Boats: Liquor violations: Number 297 Value $654, 786 Narcotic violations: Number (3) Value (3) Other violations: Number Value $73, 040 Automobiles: Liquor violations: Number 945 Value $191,961 Narcotic violations: Number (3) Value (3) Other violations: Number 215 Value •_ $48, 235 1 Included in miscellaneous. * Not available. 8 Included in liquor violations. 345, 443 1,640.187 748 3,953 310 $110,129 106,149 8,054 16, 245. 9,343 9,023] 26, 541 31,680 85,147] 46,249 13, 649j 104,1391 56, 411 46, 400 211, 214 1,081 54,161 747 36, 0701 95,021 2,9391 257,419 4,304 2,080 4,968 6,211 6,441 9,118 74, 3081 47, 954 34,358 5,444 1, 991 8,628 6,234 369, 316 950,401 424, 646 1,129, 594 997, 706 640 148 788 194 4301 684 1,008 $82, 551 $46, 037 $495, 940 $20. 867 595 .1751 24,8431 757 638 141 3,773 3,114 5,627 111 3,803 466 787 4,024 157 647 2, 673 299 660 $227, 017 426, 236 $29, 692 $31, 605 4,055 6,252 $39,428 4,507 $22, 557 4,365 653, 253 37, 7.571 $1, 317 1 $10 23, 837 231 101,604 8601 7 $3, 315| 1 $100 37| $21, 691 622 $109, 836 303 $63,134 $22, 7281 (3) (3) 91 $27, 304 264 $54,964 67,156 3,347 2 .$410 59 45 $36, 6201 $94, 459 74, 699 2, 4301 3, 252 37 52 102 $287, 668 $121, 526 $174,966| (3) (3) 6,725 1940 1939 5,433 5,448 6,994 1938 5,878 3,057 Prohibited articles: Obscene, number 1,107 672 924 Lottery, number 17, 346 22, 883 9,313 Narcotics: Number 215| 239 256 Value _ -. $68, 284 $40, 8671 $65,664 Liquors: Number 21, 013 11, 721 5, 224 Quantity (gallons): Distilled liquors and wines— _. 182, 643 148,173 . 23,273 Malt 61, 641 9,8651 668 Alcohol 173. 810] 44, 924 138, 040 Value: Distilled liquors, beer, and wines $222, 214 (2) (2) Alcohol $893, 757 $345.443 1, 417, 973 1936 139 1 $200 1 $5001 21 25 $10, 251 $11, 776 57! $9, 705 93 $18, 031 $40, 2361 $42, 564 $76, 453 197 229 $79, 599 82 $25, 939 32] 363 3501 296 $74, 6951 $113, 624 $119,119 $103, 309 224 1,411 257 $83, 609 121 63 49 31 $69, 835 $7,8371 $8, 637 114 RE'POiRT OF T H E SEORETARY OF THE, TRE'ASIIPRY 299 Seizures for violations of the customs laws, fiscal years 1933 to 1940—Continued 1933 Seizure 1934 1935 1936 1937 1938 1939 1940 Airplanes: L i q u o r violations: Number 2 1 14 6 $32,135 Value $500 $5, 700 $2, 850 O t h e r violations: 2 Number 8 3 4 1 16 6 $2,400 $7, 300 $13,161 $6, 450 Value $1, 300 $256 $23, 900 Horses: L i q u o r violations: Number. . 2 23 26 1 30 6 3 4 $10 $793 Value $623 $61 . $68 $818 $95 $68 Other violations: 281 493 605 259 Number 386 341 233 0) $12, 415 $15, 455 $19, 477 $10, 648 $6. 959 Value $10, 057 0) $8, 490 Total value boats, $1,013,931 $515, 286 $407,101 $395, 622 $193, 919 $207, 658 $203. 661 $208,849 autos, etc Grand total: Numbers . 14. 641 44, 261 38, 841 10, 624 10, 535 11,447 20, 896 10, 388 Val u e $2,471,287 $1,115,492 $2,403,710 $1,690,968 $1,260,618 $716, 098 $1,873,130 $1. 254,334 * I n c l u d e d in livestock. 5 Excludes n u m b e r of b o a t s , a u t o m o b i l e s , airplanes, a n d horses, as t h e y were seized in connection w i t h narcotic seizures, etc. Fines, penalties, etc.—Penalties collected for customs violations varied considerably during the past 8 years. The large collections for liquor violations in 1936, 1938, and 1939 resulted from violations which originated prior to the repeal of the eighteenth amendment. Aside from these, collections for liquor violations decreased sharply with the repeal of the eighteenth amendment and have remained at a low level during the subsequent years. The largest sources of fines, penalties, and forfeitures were undeclared articles in the baggage of passengers arriving from abroad, fraud, undervaluation or false invoicing in connection with commercial importations, and irregularities in connection with bonded importations, each of which rem.ained rather constant. Collections in the form of fines, penalties, and forfeitures in 1940 were lower than for any other year except 1934. The following table presents a summary of the amounts collected during the fiscal years 1933 to 1940, inclusive, in fines, penalties, and forfeitures, and from the sale of seizures, classified according to the type of violation: Collections for violations of the customs laws, fiscal years 1933 to 1940 1933 Violations 1934 1936 1936 U n d e c l a r e d articles in baggage of passengers arriving from abroad . $159, 078 $34, 381 $42. 706 $49,446 Irregularities in b o n d e d import a t i o n s (liquidated d a m a g e s ) . . 23, 858 202, 268 239,124 285, 368 Fraudulent undervaluation and false invoicing.. 93,186 211, 994 334, 221 272,139 F a i l u r e of m a s t e r s of vessels t o m a k e complete manifest of 26, 271 20,237 imported merchandise 36,114 17,154 U n l a d i n g foreign m e r c h a n d i s e 11, 065 7,102 7,853 without customs supervision.. 4,776 Irregularities in m a i l i m p o r t a 14, 387 14, 807 tions 19, 963 15, 594 Smuggling (including conspir8,164 31, 769 acy) 13, 089 10, 068 Liquor 23, 314 876, 610 137. 795 72,411 2,253 Narcotics 746 9,521 2,011 F a i l u r e to r e p o r t a r r i v a l in 4,334 9,126 5,713 7,117 U n i t e d States 8,314 5,691 218, 824 49, 607 Miscellaneous.... N e t proceeds from sale of goods seized a n d forfeited for all 101, 895 104, 043 361, 565 170, 329 violations Total 648, 389 688,044 1,276,103 1, 764, 766 269677—41- -21 1937 1938 1940 $162, 426 $158, 350 $299, 575 $311, 630 267, 430 149, 319 93,120 105. 872 250, 974 481, 384 262,280 237, 631 14, 744 17, 531 13,138 13, 492 11, 060 14. 350 16, 528 26, 774 14, 876 16, 482 10, 638 2, 801 36, 731 27,116 27, 247 1, 491, 722 16,109 12,306 39, 550 987, 773 61, 776 44, 415 15, 743 50, 385 6,574 3,490 7,848 5,353 5,209 14, 579 8,193 5,576 68. 587 160, 538 .233, 297 49, 856 883, 953 2, 539,160 2, 030,875 878, 387 300 'REPOiRT OF T H E SEC!RETARY OF T H E TREAS'URY Tariff administration Trade agreements.—The negotiation by the State Department of trade agreements with 21 other nations resulted in a considerable increase in the volume of work performed by customs officers, both in the Bureau and in the field. Representatives of the Bureau actively participated in an advisory capacity throughout the negotiation of each trade agreement concluded. Changes in rates of duty and in classification under the provisions of the various trade agreements necessitated the careful consideration of each item involved by technically qualified officers. Antidumping.—During the past eight years, 14 findings of dumping were issued under the provisions of the Antidumping Act covering various types of commodities imported from several countries, 4 of these findings being issued during 1933, 5 during 1934, and 5 during 1940. During the same period 23 of the existing findings of dumping were revoked, 17 of these on May 31, 1938, as the result of a study conducted by the Bureau of Customs which indicated that these findings, many of which were issued within a few years after the inception of the Antidumping Act, 1921, were no longer effective. In addition to the revocations just mentioned, 7 findings of dumping originally issued in 1931 were revoked on June 13, 1940, with respect to merchandise, covered thereby, entered for consumption or withdrawn from warehouse for consumption on and after May 11, 1934. Of the 61 findings of dumping issued since the statute was promulgated, only 17 findings remained in effect on June 30, 1940, and 7 of these were effective only with respect to merchandise entered for consumption or withdrawn from warehouse for consumption prior to May 11, 1934. Most of the cases which arose under the provisions of the Antidumping Act were disposed of without definitive action, either as the result of investigations showing that no domestic industry was being injured by reason of the importation of the foreign merchandise in question or as the result of decisions of customs appraising officers that such merchandise was not being imported at so-called dumping prices. These cases arose either through the filing of complaints by interested domestic manufacturers or producers or through the receipt from customs appraising officers of reports indicating the existence of so-called dumping prices. Countervailing duty.—During the past 8 years, 59 declarations imposing countervailing duties and decisions amending, modifying or otherwise affecting such declarations were issued under the authority of section 303 of the Tariff Act of 1930, which provides for the imposition of countervailing duties equal to the amounts of bounties or grants paid or bestowed upon the manufacture or production or export to the United States of foreign merchandise which is dutiable under the Tariff' Act. During the same period 37 existing bounty declarations were revoked. One declaration of bounty, issued on June 4, 1936, covered a small group of German commodities; this was subsequently amended and modified to apply to some of the products included within its terms only if contracts were entered into before July 25, 1936, and to the remaining products only if covered by contracts entered into before August 2, 1936. Another declaration, issued on March 18, 1939, REPORT OF T H E SEORETARY OF T H E TREiASlURY 301 imposed countervailing duties on and after April 23, 1939, on all dutiable imports from Germany of merchandise which had been acquired through barter transactions; this decision was later amended to embrace merchandise exported from those areas of Europe which came under the control of Germany. Several thousand cases arose under the provisions, of the order issued on March 18, 1939, and amendments and extensions thereof, and a large number of these cases were handled by the various collectors of customs under authority given by the Secretary of the Treasury, without reference to the Commissioner of Customs. Trade-marks.—Prior to 1936, trade-marks which could not be recorded under the provisions of section 526 of the Tariff Act of 1930 were not denied entry even though the foreign merchandise bore a trademark identical with or similar to a trade-mark owned in the United States and registered under the Trade-Mark Acts of February 20, 1905, and March 19, 1920. In 1936 a radical change was made through an amendment of the trade-mark regulations. The amended regulations accorded substantially the same protection to owners of trade-marks registered under the Trade-Mark Acts of 1905 and 1920 as had been given owners of those trade-marks falling within the scope of section 526 of the Tariff Act. Since 1936 all imported merchandise bearing names or marks which are identical with United States registered and recorded trade-marks (except merchandise produced or sponsored by the owners of the registered United States trade-marks appearing thereon) and imported merchandise bearing names or marks which counterfeit, or are confusingly similar to protected trade-marks, has been denied entry unless imported by or for the account of, or with the written consent of, the trade-mark owners. Anti-Smuggling Act.—Among the provisions of this act, which was approved on August 5, 1935, the following have proved particularly beneficial in the enforcement of the customs laws. The amendment of section 584 of the Tariff Act of 1930 provided a penalty of $50 per ounce for unmanifested heroin, morphine, and cocaine, whereas previously the penalty was equal merely to the value of this merchandise. The higher penalty has resulted in the master of a steamship exercising greater diligence in preventing the illicit importation of narcotic drugs. The amendment of section 3062 of the Revised Statutes permitted the Government to seize automobiles which had been used in connection with the transportation of smuggled merchandise. Prior to the amendment it was necessary for the Government to seize the vehicle at the time it actually contained the smuggled merchandise before forfeiture could be obtained. The amendment of section 619 of the Tariff Act of 1930 permitted the payment of awards of compensation to informers, who gave information which led to recovery, of violations of the customs statutes as well as the navigation statutes, and also permitted the payment of awards of compensation of one-quarter of the net value of merchandise seized and destroyed. These provisions have enabled the Customs Service to obtain a great deal of information from informers who in the past were aware of the fact that they would obtain no benefits from such information. Customs Administrative Act oj 1938.—This act became effective July 25, 1938, and has resulted in the improvement of customs admin 302 'JIEPORT OF T H E SEORETARY OF T H E TREASURY istrative problems. Among its provisions was that modifying the provisions of the Tariff Act oif 1930 regarding the marking of imported merchandise to show the country of origin. Previously, any goods not properly marked were subject to an additional duty of 10 percent unless exported, and had to be marked before leaving customs custody. The amendment discontinued the hnposition of additional duty if tlie merchandise was subsequently marked under customs supervision prior to the liquidation of the entry and also permitted the marking to be accomplished after the articles had been released from continuous customs custody. Changes in organization and procedure Several important changes were effected during the past 8 years in customs organization and procedure. The Customs School of Instruction was established on July 5, 1935, as an aid to a more thorough knowledge of all branches of the Customs Service. The entire course, consisting of 41 subjects, was made available to all officers and employees of the Customs Service and to the personnel of those departments and branches of other services who cooperate with the Customs Service in the discharge of their duties. The Division of Laboratories, established on April 1, 1936, consolidated under a single head the supervision of all the chemists and analysts in the 9 customs laboratories. The number of samples received and analyzed by the laboratories has increased each succeeding year and, by means of the interchange of information and the standardizing of improved m.ethods of analysis, considerable improvements have been effected in the procedure employed. Laboratory manuals and sampling guides have been prepared and disseminated, and conferences held for the discussion of laboratory problems. Customs border patrolmen, numbering about 500, were transferred on September 1, 1936, from the jurisdiction of the several collectors of customs to the Customs Agency Service. These patrolmen, most of whom are deployed at strategic seaport and border stations, are engaged in the prevention or detection of smuggling activities. The assembling of all patrolm.en under a single authority permitted greater mobility in the personnel of the force and resulted in a marked improvement in its efficiency. The Appraisement Unit, was established on September 1, 1937, in order to promote efficiency and uniformity in the appraisement and classification of imported merchandise. At its inception, 15 of the more important appraising officers were transferred to the new unit, and additional appraising officers were subsequently severed from the administrative control of the collectors of customs and placed under the new unit. In addition, the Customs Information Exchange, which disseminates information of general interest both to appraising officers and to other customs officials, was transferred from the Customs Agency Service to the Appraisement Unit. Cost oj administration In addition to collections under the customs revenue laws, customs officers collect a substantial amount of revenue for other departments. A statement for each of the past 8 years of the total collections by 303 B.E'POiE.T OF T H E SECIEE.TAB.T OF T H E TREASIUKY customs officers, total expenses of the Customs Service, and of the cost to collect $100 is listed below: Customs collections and expenditures, fiscal years 1933 to 1940 Customs receipts i Fiscal year 1933 1934 1935 1936 1937. 1938 19391940 . $251, 300, 560 314, 058, 464 346, 522, 111 388,784, 948 488, 342, 746 359, 573, 654 321, 409, 995 350, 851, 561 Collections for other departments, b u r e a u s , etc. $2, 765, 948 9, 456, 491 17. 932, 339 23,023,542 35, 928, 725 32, 521, 810 29, 012, 286 32, 428, 014 Total collections Cost to collect $100 Expenditures $254, 066, 508 323, 514, 955 364,454,450 411,808,490 524, 271, 471 392, 095, 464 350, 422, 281 383, 279, 575 $19,135,901 17, 636, 495 19. 516, 708 20, 311, 751 20, 515, 558 20, 610, 568 20,784,163 21,127,673 $7.53 5.46 5.36 4.93 3.91 5. 26 5.93 5.61 1 Excludes duties for Puerto Rico but includes other Puerto Rican collections. BUREAU OF ENGRAVING AND P R I N T I N G Activities during the fiscal year 1940 The deliveries of currency, securities, stamps, and. miscellaneous printings by the Bureau during the year amounted to 446,846,250 sheets, an increase of 3,199,163 sheets over the previous year. A comparative statement of deliveries of finished work in the fiscal years 1939 and 1940 follows: Deliveries of finished work, fiscal years 1939 and 1940 Sheets Face value. 1940 Class 1940 Currency: United States notes Silver certificates Federal Reserve notes . specimens 5, 547,000 95,113,000 10. 366, 050 88, 983, 990 3, 761,160,000 Total. Bonds, notes, bills, certificates, etc: Bonds: Pre-war Treasury United States savings Consolidated Federal farm loan for the Federal land banks Farm loan 1 _. Federal Farm Mortgage Corporation Home Owners' Loan Corporation Insular: Philippine Puerto Rican _^ Notes: Treasury Commodity Credit Corporation Federal National Mortgage Association Reconstruction Finance Corporation United States Housing Authority Treasury bills _ Certificates: Cuban silver. — Philippine treasury.. Debentures: Consolidated collateral trust for the Federal intermediate credit banks Federal home loan banks consolidated Federal Housing Administration, mutual mortgage insurance fund. 4,025,000 $193, 260, 000 75, 975,000 1, 666,620,000 8, 983, 950 1, 901, 280, 000 40 2,085 665, 948 4,077, 000 1,340 1, 002,400 530,163 4, 350, 626, 000 5, 514, 000 1, 750, 725,000 31, 000 16, 700 6,500 1, 443,055 13, 700 25,996 3, 5.50 62,155 41,880,000 21, 797,000 60,000, 000 230, 850,000 9,000 1,075 2,841 637, 500 1,091, 500 159, 625 159,195 65,000 4, 895,000,000 992,000,000 48, 000 801,000,000 56,150 120,000 34, 500 19. 570 '20," 482' 7,0.58,172, 000 578,333 17, 000 200 5, 000 2,195,600 14, 962, 000 16, 000 260, 000, 000 304 IREPORT OF THJE. SEiORETARY OF T H E TREAS'URY Deliveries of finished work, fiscal years 1939 and 1 9 4 0 ^ C o n t m n e d Class Bonds, notes, bills, certificates, etc.—Continued Interim certificates Interim transfer certificates for postal savings bonds Specimens: Bonds Notes Debenture.s Interim certificates ... Total Sheets 37, 675 2,000 Face value, 1940 1,000 571 12 135 44 32 6 8,660^680 $20,479,643,400 7, 287, 756 Sheets Stamps: Customs.. Internal revenue: United States ..... District of Columbia Federal migratory- bird hunting.. Philippine Puerto Rican Virgin Islands Specimens, United States Postage: United States . United States postage surcharged "Canal Zone" Canal Zone 1 Philippine Specimens, United States Postal savings Specimens '. . Total. Miscellaneous: Checks Warrants Commissions . Certificates Drafts Transportation requests Nontransferable food order and nontransferable surplus food order stamps Nontransferable cotton order and nontransferable surplus cotton order stamps Other miscellaneous Specimens... Blank paper Total. Grand total.. Number of stamps, etc., 1940 250, 000 141, 594, 373 131, 750 37, 764 217, 460 1, 031, 685 20 3,182,960 147, 226,135 13,280,660,070 142, 686 28, 637, 200 55, 226 1, 244,096 650 18 4, 638, 900 75, 076, 660 65,000 1,481 67, 456 747, 276 195 5,649 164,912,027 16, 576, 284, 287 12, 200 1, 220, 000 10, 040,890 164, 851 85, 580, 508 1, 024, 592 6,211 95 1, 962, 830 19, 628 400 4 291, 316, 715 314, 938, 806 30, 067, 257, 297 147, 233, 097 29, 313, 261 51,100 132, 386 3, 878, 493 7, 088 293, 254 27, 501, 995 44,104 193,869 4, 202, 281 6,500 327, 299 137, 509, 975 205, Oil 108, 419 17, 222,107 13, 000 1, 636, 495 38, 229 1, 635, 721 1 259, 388, 592 299, 248 3,105 .402 17, 090 319, 932 11, 508 2,475 3, 418, 000 6,460, 087 57, 640 34, 016, 566 34, 262, 774 426, 019, 226 443, 647, 087 446, 846.. 250 ' Excludes .395,000 fillers. Dies were engraved for new issues of postage stamps as follows: jssug Denomination Commemorative, series 1939: (cents) Three-hundredth Anniversary of the Introduction of Printing in Colonial America 3 Fiftieth Anniversary of the Statehood for North and South Dakota, Montana, and Washington. 3 Commemorative, series 1940: Fiftieth Anniversary of the Pan American Union 3 Eightieth Anniversary ofthe Pony Express 3 Fiftieth Anniversary of Wyoming Statehood . 3 Fiftieth Anniversary of Idaho Statehood . 3 Four-hundredth Anniversary of the Coronado Expedition , 3 Famous Americans series, 7 groups of 5 denominations each . 1, 2,3,5,10 Authors: Irving, Cooper, Emerson, Alcott, Clemens. Poets: Longfellow, Whittier, Lowell, Whitman, Riley. Educators: Mann, Hopkins, Eliot, Willard, Washington. Scientists: Audubon, Long, Burbank, Reed, Adams. Composers: Foster, Sousa, Herbert, MacDowell, Nevin. Artists: Stuart, Whistler, Saint-Gaudens, French, Remington. Inventors: Whitney, Morse, McCormick, Howe, Bell. REPORT or THE SEORETARY OF THE. TREASURY 305 Plates were prepared for a number of new issues of securities and miscellaneous jobs, the principal items being Commodity Credit Corporation notes, series D and E ; Reconstruction Finance Corporation notes, series S; Home Owners' Loan Corporation bonds, series N ; strip stamps for export distilled spirits bottled in bond; reimported American distilled spirits stamps; cotton order and surplus cotton order stamps; and Puerto Rican cigar and cigarette stamps. New designs and models were made for Tennessee Valley Authority bonds of four denominations; postal savings stamps; documentary, stock transfer, and silver tax stamps, in denominations from 1 cent to $1,000; and various Puerto Rican bonds and revenue stamps. Printing orders for revenue stamps for 1940 were abnormally heavy, due to some extent to recent legislation increasing the Federal taxes on cigarettes, tobacco, and other products. Also several large tobacco manufacturers reduced the contents of their packages, and stamps of new denominations were required. During the year, representatives of this bureau gave demonstrations of the printing of postage stamps at four exhibitions, two of which were held in Washington, D. C , October 10 to 12, 1939, and May 2 to 4, 1940; one at the New York World's Fair, May 11 to 23, 1940; and one at the Golden Gate International Exposition in San Francisco, Calif., May 25, 1940, to continue until the close of the exposition. At the beginning of the fiscal year there were 5,802 employees on the pay roll, while at the end of the year the number of employees was 5,649, or a decrease of 153 persons, including 68 who were holding indefinite appointments. This decrease was occasioned by the reduction in the printing requirements, particularly with respect to United States currency and Federal Reserve notes. There was expended during the year for salaries and expenses $12,142,741.25, a decrease of 10.91 percent under the previous year. The following statement shows the appropriations, reimbursements, and expenditures for the fiscal years 1939 and 1940, respectively: Appropriations, reimbursements, and expenditxires, fiscal years 1939 and 1940 1940 Appropriations: Salaries and expenses $9, 200,000.00 $8,450,000.00 1,000,000.00 Deficiency Reimbursements to appropriation from other bureaus for 3, 475, 520.83 3, 718,888.91 work completed ' ' Total Expenditures, salaries and expenses 2 Unexpended balance Increase or decrease (—) -$750,000.00 -1,000,000.00 243, 368. 08 13, 675, 520. 83 12,168, 888. 91 -1,506,631.92 13, 628, 942. 37 12,142, 741. 25 -1,486,201.12 46, 578. 46 -20,430.80 1 An additional amount of $69.75, received from employees for lost identification cards, locker keys, package-booth checks, and badges, was deposited to the credit of the Treasurer of the United States as miscellaneous receipts. 2 Includes $11,300 transferred to Bureau of Standards for research work, $40,000 transferred to salaries and expenses, guard force. Treasury Department, for service rendered in connection with the protection of cur-. rency, bonds, stamps, and other papers of value, in each of the fiscal years 1939 and 1940, and $388,529.46 and $374,718.79 transferred to retirement fund in the fiscal years 1939 and 1940, respectively. 306 'REPORT OF THE. SEORETARY OF T H E TREASURY Review of activities since 1933 The following statement shows the deliveries of finished work by the Bureau for the fiscal years 1933 to 1940: Deliveries of finished work, fiscal years 1933 to 1940 [Expressed in single subjects] Fiscal year 1933 1934 1935 1936 1937 . 1938. 1939 1940 957, 999, 426 653, 528, 652 659, 692, 308 930, 376,800 960,190,200 1, 086, 379, 200 1, 332. 312, 600 1, 067, 807, 880 . Total .- .. Fiscal year 1933 . . 1934 1935 1936 1937 1 1938 1939 1940 Currency ._ - - - Total 7, 648. 287, 066 Postage a n d postal savings s t a m p s B o n d s , notes, a n d certificates , 10, 625, 580 11,628.656 29, 584, 512. 58, 960, 794 18, 322,176 18.589,383 13, 975, 546 17, 738, 392 179,425,039 Checks, w a r r a n t s , etc. Internal revenue and customs s t a m p s 8,374, 390. 793 9, 562. 435. 380 10,675,415,410 11, 208, 847,190 12, 601. 944, 730 12, 218, 374, 982 12, 791, 225, 362 13, 392,162,171 90, 824, 796,018 Total 12, 507, 917, 806 11, 855,830, 740 13, 924, 561, 459 14,011,892,997 15, 332, 942, 626 15, 217, 573, 068 15, 286, 239, 831 16, 675, 095,126 72, 767,041 144, 753, 745 105, 553,853 186, 356, 656 173, 278, 939 138. 549. 767 171, 762. Oil 426, 414, 226 21, 923, 700, 646 22, 228,177,173 25. 394,807, 542 26, 396, 434, 437 29, 086, 678, 671 28, 679, 466, 400 29, 595, 515. 350 31, 579. 217. 795 114, 812, 053. 653 1, 419,436. 238 214, 883, 998. 014 On March 9, 1933, the date of the enactment of legislation to provide relief in the banking emergency, this Bureau was directed to proceed with the production of 15,524,000 sheets of new Federal Reserve Bank notes. As there was not sufficient time to engrave new dies and make plates for the printing of this new currency, the national bank currency stock already in production was used. A stock of notes for each Federal Reserve Bank was prepared by overprinting the name of the bank, the bank symbol letters, and the facsimile signatures of two of its officers. Rush orders were also received for over 5,000,000 sheets of the standard Federal Reserve notes. Additional storage vaults had to be provided and numerous changes had to be made in operating methods to expedite the handling and processing of the work. The first shipment of the new notes was delivered at the Federal Reserve Bank of New York on March 11, 1933. From that date to June 30, 1933, deliveries of currency to all Federal Reserve Banks amounted to $2,547,480,000 in Federal Reserve notes and $319,340,000 in Federal Reserve Bank notes. The urgent demand subsided in a short time, and deliveries of Federal Reserve Bank notes were soon discontinued. In 1934 designs were prepared and approved for a new issue of Federal Reserve notes. These notes, designated as series 1934, differed from the previous issue in that the gold redemption clause was eliminated. Deliveries of the new notes, in denominations from $5 to $1,000, were made during the succeeding year. RE'PORT OF T H E SEiORETARY OF T H E TRIEASIURY 307 A new issue of silver certificates, in denominations of $1, $5, $10, $20, and $100, was authorized in 1934. These certificates differed from those previously issued in that a change was made in the certification as to the security back of these notes and in the text appearing on the face, the seal which formerly appeared to the left of the portrait was placed on the right side, and a large numeral designating the denomination was printed where the seal was formerly located. In the latter part of 1935 a new design for the $1 silver certificate was adopted. Production of these certificates, designated as series 1935, was begun in the following year. The design of the back of this certificate presents the obverse and reverse of the Great Seal of the United States. The face shows only minor changes, but its production embodies a new process whereby the signatures of certifying officers and the number and seal are overprinted oil the certificates in one operation. Formerly, the signatures were engraved in the faceplate, thereby necessitating the making of new plates and causing considerable delay in the production of the certificates whenever there was a change in certifying officers. To conform to the established color scheme providing for the printing of signatures in black and the seal and serial number in blue, it was necessary to convert the numbering and sealing presses from single color to bi-color machines. This task was accomplished gradually, and at the present time all $1 silver certificates are completed in this manner. The first forei,gn currency ever produced in this Bureau wais printed during 1935 for the Republic of Cuba. This order, printed under authority of the State Department, amounted to approximately 500,000 sheets. The paper, manufactured by the same contractor who furnishes paper to the United States Government, dift'ers from the paper for United States currency in that it contains red silk fibers only, whereas the paper for United States currency contains red and blue silk fibers. The Cuban certificates involve SLTL additional printing operation—a plate printed tint on the face. Further orders for Cuban currency were printed from time to time, as were numerous orders for currency for the Philippine Islands. The financing operations of the Treasury Department and of many of the newly created Federal agencies and other activities ocJcasioned by the passage of legislation by the Congress required the preparation of various types of bonds and other forms of securities. The most outstanding issues included Treasury bonds and notes, United States savings bonds, registered adjusted service bonds. Home Owners' Loan Corporation bonds, and Federal Farm Mortgage Corporation bonds. Practically all,of these security issues were rush jobs and, in most instances, it was necessary to make new designs and models and prepare engraved dies and plates before actual printing could be begun. Printing orders were received during 1934 for 6,000,000 Home Owners' Loan Corporation bonds and 4,000,000 Federal Farm Mortgage Corporation bonds. In order to meet the delivery schedules submitted by the issuing offices, at certain periods of the year 75 percent of the presses were used for printing these bonds. A new type of security, the United States savings bonds, was ordered by the Department in 1935 in denominations of $25, $50, $100, $500, and $1,000. A great amount of original engraving was necessary in connection with the manufacture of the dies and plates for these bonds. 308 REPOIRT OF THE, SECRETARY OF T H E TREASOTRY but deliveries commenced within a month after the initial order was received. Provision was made on the face of the bond for the insertion of the name and address of the purchaser and the date of sale. A perforated original stub was attached to each bond and a duplicate stub was affixed for record purposes. There have been four issues of these bonds, and the total number delivered to June 30, 1940, aggregated over 20,000,000 bonds. In 1933, following the passage of legislation modifying the Prohibition Act, large orders were received requiring the engraving and printing of special tax stamps for breweries and dealers. Twentyone varieties of stamps for fermented liquor and wine were prepared. The repeal of the eighteenth amendment to the Constitution revived the issue of a number of liquor stamps which had been discontinued during the prohibition period. In some cases it was found expedient to change the size of the stamps, which made it impossible to use the old rolls and dies still held in storage. In 1934 a rush order was received for 16,000,000 sheets of distilled spirits bottle strip stamps for the collection districts. These stamps were plate printed in sheets of 50 subjects, ranging in denominations from K pint to 1 gallon. The following year, as a protection against illegal use, a serial number was overprinted on each stamp. To accommodate this additional printing the size of the stamp was enlarged and arranged in sheets of 42 subjects. Later, a less than K-pint denomination was printed without numbers. The printing requirements for bottle strip stamps continued to increase each year until the quantity ordered for the fiscal year 1940 was 1,326,144,000 stamps. In addition to the liquor stamps printed for the United States Government, a special issue was ordered by the District of Columbia for local tax purposes. One of the largest emergency jobs undertaken by this Bureau was the Civil Works Administration checks. The printing of these checks was started in the latter part of November 1933, and deliveries were rushed to all disbursing officers in the country for use during the first week in December. Delivery requirements continued at the rate of approximately 4,000,000 checks a week until the spring of 1934, when a gradual decline in orders took place. After May 1, 1934, no further shipments were made. In 1935, orders were received for the printing of checks for the Emergency Relief Administration. Although the quantity required per week was approximately one-half of the number required for the Civil Works Administration during the preceding year, the job was more complicated due to the fact that emergency relief checks were drawn on the Treasurer of the United States, through the Federal Reserve Banks in the respective districts, and it was, therefore, necessary to make plates and prepare a stock of checks for each of the 12 Federal Reserve districts. The quantity ordered increased each year until in 1940 the total requirements aggregated 60,000,000 checks. During the years 1933 to 1940, 145 new designs and models for various denominations of United States postage stamps were prepared and approved. A great number of these were commemorative issues, while others were new series of regular postage stamps superseding certain previous designs. Among the large issues of stamps REPOET OF THE. SECEETARY OF T H E TRIEAS'URY 309 were the National Park series of 1934, the Army and Navy series of 1937, and the Famous Americans stamps of 1940. Deliveries of stamps to meet the requirements of the Post Office Department have increased steadily each year. The quantity of postage stamps printed and delivered in 1940 amounted to approximately 17,000,000,000 stamps. The initial schedule for food order stamps (orange) and surplus food order stamps (blue) was received in 1939. During that year orders were received for over 6(),000,000 stamps, or nearly 2,000,000 books, and required that the stamps be gummed, perforated, and assembled in 13 different series of books, according to the quantity or combination of stamps per book. These stamps were first printed from 96-subject plates on flatbed power presses. Later on, 200SLibject plates were made for power presses and finally, with the avalanche of orders, 200-subject curved plates were prepared for use on rotary presses. Orders for these stamps increased in 1940, when the food stamp program spread to a greater number of cities. Deliveries for that fiscal year aggregated 259,783,592 stamps, comprising 8,313,403 books. In the latter part of January 1940, the first order was received for the production of cotton order stamps (green) and surplus cotton order stamps (brown). These stamps were required to be gummed, perforated, and assembled in 9 different combinations of books. Production was begun as soon as engraved plates could be prepared and the amount delivered to June 30, 1940, was 3,418,000 stamps, or 134,002 books. The stamps were printed on rotary presses, 200 subjects on each plate. Numerous developments and improvements were accomplished in connection with the processing methods and in the design and construction of machinery and equipment employed in the production of currency securities, etc. The most important items include the following: The designing and installation of photo electric cell equipment on rotary postage stamp perforators; the redesigning and rebuilding of currency wetting machines, and the development of a new method for the wetting of currency paper; the designing and construction of new machines for sizing currency, providing for automatic temperature control of the sizing solution and of the drying units; the installation of new presses for platering securities, and the relocation of the platering activities within the sizing room; the conversion of numbering, sealing, and separating presses from single color to two-color machines, to permit the printing of signatures of certifying officers; the installation of sound and vibration absorption material to isolate the machines from their foundations; the designing of new semiautomatic banding machines for welding the steel tapes encircling the packages of currency; the designing and installation of a research laboratory for testing materials used in the manufacture of the various classes of work; the installation of improved lighting and ventilating facilities in all work rooms; and the construction of a new power substation. The new annex building, authorized by Congress on August 12, 1935, was ready for occupancy in the early part of 1938. The annex contains 840,967 square feet of floor space, of which approximately two-thirds is occupied by Bureau activities and the remainder by other divisions of the Treasury Department. 310 :REP0RT OF T H E SECRETARY O F T H E TREASnjRY To facilitate the travel of employees and the transportation of materials, tunnels connect the main building with the annex and the annex with a receiving platform adjoining the railroad yards. The passage in 1934 of the 40-hour week law for mechanics reduced the working hours of 769 employees of this Bureau from 44 to 40 hours a week. The remainder of the employees, 3,289, were not affected by the act. This presented a confusing situation with one group of employees engaged on a basis of 40 hours a week, while another group employed upon the same job was required to work 44 hours a week. This condition, however, was remedied on July 1, 1936, by legislation which placed all employees on the basis of a 40-hour week. Eft'ective May 1, 1937, the mechanics and their helpers, employees not under the Classiflcation Act, were granted a 15 percent increase in compensation for night work to conform with the practice established in another Government organization. The gradual diminishing of the plate printing force because of retirements made it advisable to appoint a limited number of young men to learn the art of plate printing. During the latter part of 1938, 32 apprentices were appointed, the flrst group since. 1918. Three additional apprentices were taken on in the flscal year 1939, making a total of 35 serving in this capacity. At the beginning of the flscal year 1933, when the printing program was small in volume, the problem of overemployment confronted the Bureau, as was the case during the previous 5 years. A system of furlough was then in effect, and continued until March 1, 1935. Beginning in the last quarter of the flscal year 1935, the work steadily increased and kept the entire force operating on a full time basis. In this period the personnel was increased from 4,139 employees in 1935 to 5,649 at the close of the flscal year 1940. COMMITTEE ON ENROLLMENT AND DISBARMENT The Committee on Enrollment and Disbarment is an administrative and judicial body. I t has charge of the enrollment of attorneys and agents for practice before the Treasury Department and conducts hearings in disbarment proceedings. An attorney, not a member of the committee, represents the Government before the committee. All complaints are flled with the attorney for the Government, who institutes proceedings in disbarment or suspension if the charges warrant such action. The committee also issues licenses to customhouse brokers and makes flndings of fact and recommendations to the Secretary in proceedings for the revocation or suspension of such licenses. REPORT OF THE. SEORETARY OF THE TREASURY 311 The following statement summarizes the work of the committee for the year 1940: Attorneys and agents: i Applications for enrollment approved Applications for enrollment disapproved Applications withdrawn on advice of committee Formal hearings on applications Number 2,638 • 28 127 2 :.. *... Complaints against enrolled persons: Pending July 1. 1939 Filed during the year . Disposed of: Disbarred Stricken from the rolls in the course of disbarment proceedings Suspension Reprimands D ismissed 40 26 10 4 1 2 8 Pending June 30, 1940 . .... Charges made, names stricken from the rolls .. Cases of minor infractions of the regulations in which enrollees were given an opportunity to show cause why proceedings should not be instituted Customhouse brokers: Applications for licenses approved Applications withdrawn....: Licenses canceled.. Reprimands .... 66 25 41 8 15 44 6 17 2 Since the organization in 1921 of the Committee on Enrollment and Disbarment, 56,885 applications for enrollment have been approved and 740 disapproved. Two hundred and twelve practitioners have been disbarred from further practice before the Treasury Department, 134 have been suspended from practice for various periods, and 174 have been reprimanded, FEDERAL ALCOHOL ADMINISTRATION Activities during the fiscal year 1940 The Federal Alcohol Administration was abolished effective June 30, 1940, in accordance with the terms of Reorganization Plan No. I l l , and its functions were transferred to the Bureau of Internal Revenue to be administered by the Alcohol Tax Unit. • The Administration was charged with administering the provisions of the Federal Alcohol Administration Act. Its activities involved the prevention of certain unfair trade practices on the part of alcoholic beverage producers, importers, and wholesalers, such as exclusive retail outlets, so-called tied-house relationships, commercial bribery, cdnsignment sales, false and misleading labeling and advertising, bulk disposition of distilled spirits, and interlocking directorates in the distilhng and rectifying fields. The Federal Alcohol Administration Act requires that all producers (other than brewers), importers, and wholesale distributors of alcoholic beverages secure permits, issued by the Administration, which are conditioned upon compliance with the provisions of the act, the twenty-first amendment and its enabling statutes, and all other Federal alcoholic beverage laws. Applications for permits on the part of persons entering businesses specified in the act, applications for label approval or exemption to cover new labels or changes in existing labels, and proposals involving amendments to the regulations were received in substantial number and, after consideration, appropriate action was taken. 312 REPORT OF THiE SEORETARY OF THE. TREASTJRY Permit Division The number of basic permits outstanding increased from 15,290 to 15,539 during the year, 1,916 permits having been granted and 1,667 having been terminated. I n addition to the activities involved in connection with issuance and termination, 1,197 basic permits were amended during the year, involving principally changes in corporate and trade names and changes in location of plants of businesses covered by basic permits. The activities of the Permit Division for the year are summarized in the following statement: Permit activities, fiscal year 1940 Applications for p e r m i t s : P e n d i n g J u l y 1, 1939 Received T o t a l t o b e disposed of Withdrawn I n c o m p l e t e , closed Denials after hearing . Denials i n default of r e q u e s t for hearing- _. P e r m i t s issued after hearing P e r m i t s issued u n d e r regular procedure T o t a l disposed of P e n d i n g J u n e 30, 1940 Permits: I n effect J u l y 1, 1939 Issued Canceled Automatically terminated Revoked I n effect J u n e 30, 1940 Warehousing Wholeand salers bottling 1 Rectifiers Importers Wine producers a n d blenders 9 63. 6 62 20 153 16 144 1 5 168 1,605 220 2,032 72 68 173 160 6 1,773 2,252 4 5 0 6 3 0 8 0 0 16 2 0 1 0 0 91 26 6 126 36 6 0 0 0 0 0 1 2 0 6 6 3 8 4 Distillers 0 Total 65 51 147 129 4 1,526 1,912 64 60 156 149 5 1,658 2,092 8 8 17 11 1 115 160 416 55 52 28 3 2 388 352 51 41 18 2 342 1,032 148 127 51 8 994 1,346 129 118 47 32 1,278 49 4 9 0 0 44 12, 096 1,529 611 511 9 12,493 16, 290 1,916 958 655 64 15, 539 1 Warehousing and bottling perrnits issued to proprietors of bonded warehouses only. Such permits are held also by all distillers and rectifiers. 2 Of the 388 distillers' basic permits, 88 merely authorize the operation under lease of existing distilleries, and the remaining 300 permits cover actual authorized distilling plants. Label Examination Division The Federal Alcohol Administration Act provides that no bottler or importer shall bottle or remove from customs custody for beverage consumption distilled spirits, wine, or malt beverages, unless the bottler or importer, upon application to the Administrator, has obtained and has in his possession a certificate of label approval, or a certificate of exemption which may be issued upon a satisfactory showing that the distilled spirits, wine, and malt beverages are not to be introduced in interstate and foreign commerce. As compared with the preceding year, there was a slight decrease in the number of both domestic and imported label applications filed. However, the label work in general continued heavy and a total of 82,812 applications were acted upon. This figure does not include many thousands of labels submitted in unfinished form for informal comment in advance of actual printing and filing for final approval. 313 REPORT OF THE SEORETARY OF THE TREASURY The following table shows the activities of the Label Examination Division for the year: Label activities, fiscal year 1940 Distilled spirits Wine Malt beverages Total Domestic Certificates of approval issued _ Applications for certificates of approval disapproved Certificates of exemption issued Total 34,466 2,594 4,832 26, 758 3,944 67 41, 882 29, 769 0) 803 73 61,017 6.611 4,899 876 72, 527 64 8, 652 431 1, 302 Imported Certificates of approval issued Certificates of limited approval issued 2 Applications disapproved. . . Total Grand total- . 2,072 103 421 6,416 328 874 7 2,596 7,618 71 10, 286 44,478 37, 387 947 82, 812 1 The regulations do not provide for the issuance of certificates of exemption from label approval for malt 2 The certificates of limited approval were issued for labels of distilled spirits and wine entered into customs custody prior to the effective dates of the regulations. These certificates were issued for labels not in exact conformity with the regulations, but only if such labels contained all the mandatory information required and did not include any information considered false or misleading. . Statistics and Reports Division Monthly reports of operations were required from distillers, rectifiers, and importers, and from proprietors of internal revenue and customs bonded warehouses holding warehousing and bottling basic permits. The Statistics and Reports Division supervised the proper filing of these reports and compiled the information contained therein, which was disseminated from time to time in the form of releases to members of the industry and others. Enjorcement Division During the year the Enforcement Division conducted 2,486 investigations, of which 615 were made at the request of the Permit Division and involved inquiries into the personnel of permit applicants ; 26 were undertaken in connection with cases involving possible annulment of permits which the Administration had reason to believe might have been issued on the basis of erroneous statements in applications, representing a substantial increase in this line of activity over the previous year; and 1,845 were investigations of alleged violations of the restrictive provisions of the act. In connection with the enforcement of the advertising regulations, the Division reviewed 72,502 advertisements appearing in 24,219 publications, representing a slight increase over similar activities for the preceding year, and took appropriate action on 4,755 which involved various types of irregularities. There were 1,077 calls made by advertising field men on members of the industry for the purpose of reviewing local advertising media, and 3,970 advertisements were reviewed during these calls. In addition, 1,084 conferences were held 314 REPOIRT OF T H E SEORETARY OF T H E TREASURY with industry members, attorneys, or advertising agents for the purpose of reviewing and commenting on proposed advertising copy, and 3,288 proposed advertisements or advertising campaigns were reviewed at these conferences. Legal Division The Legal Division acted as legal adviser to the Administrator in all matters pertaining to the Administration's activities, in the holding of industry hearings, in the drafting of regulations under the Federal Alcohol Administration Act, and in rendering interpretations thereof and of the statute. The Division prosecuted on behalf of the Administration all-charges against permittees involving violations of the conditions of their permits and assisted in the defense of cases involving litigation brought against the Administration or in its behalf. I t prepared or reviewed all correspondence of a legal nature and prepared all rulings and orders of the Administrator. The Legal Division conducted all proceedings against permittees in matters relating to applications for basic permits and to violations of the act or regulations. The Administration's hearing officers held hearings from time to time throughout the country and made findings of fact and recommendations to the Administrator on the cases under consideration. When exceptions to these findings of fact were filed, such exceptions were argued and presented to the Administrator on behalf of the Administration. The proceedings before the Legal Division during the fiscal year are summarized as follows: Proceedings on applications for permits: Number Notices of contemplated denial of basic permit applications.... , 21 Orders denying applications for basic permits L.. 13 Orders granting applications for basic permits i 3 Orders dismissing proceedings on applications i 10 Proceedings pending 8 Proceedings for suspension of permits: Orders instituting suspension proceedings. _ 21 Orders suspending permit or dismissing proceedings i 18 Proceedings pending • 9 Proceedings for revocation of permits: Orders instituting revocation proceedings 61 Orders dismissing proceedings on cancelation of permit or revoking permit i 77 Proceedings pending . 6 Proceedings for annulment of permits: Orders instituting annulment proceedings .' 7 Orders dismissing proceedings on cancelation of permit or annulling permit i 4 Proceedings pending 4 Proceeding to show cause: Order to show cause why permit should not be adjudicated as having terminated as a matter of law.. 1 Offers in compromise: Offers received 854 Offers approved by the Attorney General 2 742 Offers pending approval ofthe Attorney General. . 112 Cases before Federal courts: Cases in United States District Courts ^ 1 Cases in United States Courts of Appeal 4 Cases in United States Supreme Court (petition for certiorari) ... 1 Cases referred to the Attorney General for prosecution . 7 Cases pending . ...6 Interlocking directorates: Applications received and acted upon.. 49 1 Includes orders in a number of proceedings closed during the fiscal year but instituted prior thereto. 2 Does not include 257 offers approved by the Attorney General during the fiscal year but submitted prior thereto. During the year three public hearings were held for the consideration of proposed amendments to the Administration's labeling and advertising regulations. In view of the fact that the consideration of wine and brandy problems is of primary interest to producers in California, it was necessary to hold sessions of two of these hearings REPORT OF THE. SEIORETARY OF T H E TREASURY 315 both in San Francisco and in Washington. The Legal Division assisted in the conduct of these hearings, in addition to studying the proposals considered thereat, drafting the notices of hearing, analyzing and summarizing the testimony, and preparing proposed changes in the regulations. Review of activities since September 24, 1935 The Federal Alcohol Administration was created as a division of the Treasury Department under the Federal Alcohol Administration Act, approved August 29, 1935. This act abolished the Federal Alcohol Control Administration, which had been established by Executive order under the provisions of title I of the National Industrial Recovery Act, and transferred all papers, records, and property to the Administrator of the Federal Alcohol Administration, effective on the date the Administrator first appointed took office. The Administrator took office on September 24, 1935. The broad purpose for which the Federal Alcohol Administration Act was passed was the regulation of the conduct of the legitimate liquor industry in such manner that the abuses traditionally associated with the liquor traffic might be minimized and the interests of the consuming public adequately protected. On June 26, 1936, the President approved the Liquor Tax Administration Act, title V of which made the Federal Alcohol Administration an independent. agency, abolished the ofl5.ce of Administrator, and provided that the Administration should be composed of three members to be appointed by the President by and with the advice and consent of the Senate, these provisions to be effective when a majority of the members took office. This requirement was not complied with prior to the transfer of the Administration to the Bureau of Internal Revcenue. Between September 24, 1935, and the end of the calendar year 1936, the work of the Federal Alcohol Administration was chiefly of a preparatory nature. During this period permits required by the statute were issued, effective November 23, 1935, to the various classes of industry members, except the alcoholic beverage wholesalers, for whom the effective date of the permits was extended from March 1, 1936, to July 1, 1936, in accordance with the public resolution approved February 29, 1936. In addition, all labels used by bottlers of distilled spirits, wine, and malt beverages were required to be submitted for examination and approval by the Administration, or exemption from approval in the case of labels intended solely for intrastate use. The act of August 29, 1935, provided that a certificate of label approval should be required covering each label used after March 1, 1936. This date was later extended to August 15, 1936, for distilled spirits, and to December 15, 1936, for wine and malt beverages. The last of this work was completed by December 15, 1936. During this time the Administration was also working on the drafting of regulations required to give effect to the statute. Seven sets of regulations, the most important of which were those governing the labeling and advertising of distilled spirits, wines, and malt beverages 269677—41 -22 316 REPORT OF T H E SEORETARY OF T H E TREASURY in accordance with the standards established in section 5, subsections (e) and (f), of the act, were promulgated and made effective. Only one set of regulations, that required to give effect to section 5 (b) (6) governing the extension of credit to retailers, was not issued until later, November 9, 1938. At the beginning of the calendar year 1937 attention was given primarily to the administration of the restrictive provisions of the act. While the inspection of labels and the issuance of certificates of approval and exemption and the issuance and amendment of basic permits continued on a substantial scale, the Administration's attention was devoted largely to the enforcement of the trade practice provisions of the act, the control of labeling and advertising, the protection of dry and monopoly States in accordance with the purposes of the second clause of the twenty-first amendment, the examination of interlocking directorates in the distilling and rectifying fields, the annulment of permits fraudulently obtained, and various other activities required by the statute. While the Administration was handicapped by the lack of an adequate staff of field investigators, substantial progress was made. A number of the cases resulting from the Administration's enforcement activities were taken to court and the constitutionality of the statute received judicial confirmation. In the case of the Atlanta Beer Distributing Co., Inc., the Supreme Court refused to review the decision of the lower court, upholding the Administrator in. the exercise of his discretion in refusing a permit to an applicant who had not been convicted within the statutory period, but who had a record indicating that he might not conduct operations in conformity with the law. The Supreme Court of the United States also refused to review the decision of the Circuit Court of Appeals in the Arrow Distilleries case, upholding the constitutionality of the Federal Alcohol Administration Act in requiring a permit system applicable to all interstate^producers and shippers of alcoholic beverages. In the case of William Jameson and Co., Inc., against the Secretary of the Treasury and the Administrator of the Federal Alcohol Administration, the Supreme Court of the United States upheld the right of the Federal Government to regulate the importation of alcoholic beverages into the United States since the twenty-first amendment. The following statistics reflect the activities of the Administration for the fiscal years 1936 through 1940: REPORT OF T H E SEORETARY OF T H E TREASIURY 317 Permit activities of the Federal Alcohol Administration, fiscal years 1936 to 1940 1936 19371 19381 1939 1940 Applications for p e r m i t s : P e n d i n g at beginning of y e a r . . Received 13,421 (*) 409 3,310 418 2,691 208 2,223 220 2,032 T o t a l to b e disposed of 13,421 3,719 3,109 2,431 2,252 163 2 . 33 12 12, 802 308 8 22 47 61 2,855 209 44 4 9 2 2,633 114 45 4 10 6 2,032 126 36 6 8 4 1,912 13, 012 3,301 2,901 2,211 2,092 409 418 208 220 160 12, 726 195 12, 531 2,916 1,180 14,267 2,635 1,681 12 15,209 2,038 1,504 382 71 15, 290 1,916 958 655 54 12, 531 14, 267 15, 209 15, 290 15, 539 402 376 88 97 435 404 987 ' 1,073 1,332 1,457 45 48 9,268 10, 786 354 87 379 1,059 1,521 50 11, 759 321 95 352 1,032 1,346 •49 12,095 300 88 342 994 1,278 44 12,493 14, 267 15, 209 15, 290 15, 539 . Withdrawn I n c o m p l e t e , closed Denials after hearing Denials in default of request for hearing P e r m i t s issued after hearing P e r m i t s issued u n d e r regular p r o c e d u r e . . . T o t a l disposed of 1 P e n d i n g at e n d of y e a r Permits: I n effect at beginning of year Issued Canceled _. . Automatically terminated. Revoked .. I n effect at e n d of year Distillers: Plants Lessees Rectifiers Importers W i n e producers a n d blenders W a r e h o u s i n g a n d bottling 2 Wholesalers... • . Total 12, 531 (*) (*) (*) *No record. 1 Does not include 1,000 applications received in 1937 for amendment of permits, and 1,208 amendments made for permits in 1938. 2 Warehousing and bottling permits issued to proprietors of bonded warehouses only. Such permits are held also by distillers and rectifiers. Label activities of the Federal Alcohol Administration, fiscal years 1936 to 1940 1936 1 Certificates of a p p r o v a l issued: Domestic: Distilledspirits Wine M a l t beverages •. Total. 11,065 Imported-. Distilledspirits Wine M a l t beverages. (*) (*) (*) Total Grand total. Applications d i s a p p r o v e d Certificates of exemption issued 2. . . . Certificates of limited a p p r o v a l issued 3 (*) (*) (*) . . 1937 1938 1939 70, 632 47, 038 1,701 45, 559 45, 544 1,020 43, 824 26, 324 796 34,456 25, 758 803 119,371 92,123 70,944 61,017 9,056 9,660 178 3,052 9,449 134 3,336 8,848 210 2,072 6,416 64 1940 1,465 18, 894 12, 635 12, 394 8, 552 12, 530 15, 307 138,265 52,108 18, 677 8,096 104, 758 11,106 9,159 575 83,338 10, 200 5,749 685 69, 569 7,913 4,899 431 (*) 1,268 *No record. 1 There were filed 39,470 applications for approval of labels for domestically bottled distilled spirits, 4,981 applications for approval of labels for distilled spirits imported in bottles, and 1,898 applications for exemption from label approvals for distilled spirits. No action was taken on 16,543 applications for certificates of label approval received for wine, inasmuch as the effective date of the provisions respecting labels for wine was extended to December 15,1936. 2 Regulations do not provide for issuance of certificates of exemption for malt beverages. 3 Issued only for labels of distilled spirits and wine entered into customs custody prior to the effective dates of the regulations. The labels so exempted, however, contained all the mandatory information required and did not include any information considered false or misleading. 318 REPORT OF T H : E S E C R - E T \ A R Y OF T H E TREASIURY Enforcement activities of the Federal Alcohol Administration, fiscal years 1936 to 1940 1937 1936 Investigations: Permit applicants Alleged violations 774 179 ' Total Advertising: • Advertisements reviewed Proposed advertising copy reviewed Radio advertising reviewed Field investigations on advertising irregul^irities Action taken on violations or irregularities Offers in compromise secured and referred to Legal Division 1,040 2,459 551 2,507 706 1,985 3,499 3,058 2,691 2,460 200, 000 158, 824 77,862 3,068 (*) (*) 79, 760 953 (*) (*) (*) (*) 1939 (*) (*) 114 2,260 1,508 74 2,937 1,080 178 2 (*) (*) 5,811 997 (*) 1,400 (*) 1,214 854 *No record. 1 There were 6,987 proposed advertisements reviewed in Washington and 1,889 in the field, resulting in the revisidn of 1,353 advertisements which did not comply with the regulations. Legal activities of the Federal Alcohol Administration, fiscal years 1937 to 1940 1937 1 Proceedings on applications for permits: Notice of contemplated denial of permit Orders denying permit Orders granting permit . Orders dismissing proceedings on applications Proceedings pending Proceedings on suspension of permits: Orders instituting suspension proceedings Orders suspending permit or dismissing proceedings.. Proceedings pending . Proceedings on revocation of permits: Orders instituting revocation proceedings Orders dismissing proceedings on cancelation or revocation of permit Proceedings pending Proceedings on annulment of permits: Orders instituting annulment proceedings Orders dismissing proceedings on cancelation of permit Proceedings pending Orders to show cause: Why permit should not be terminated as a matter of l a w . . Why certificate of labels approved should not be canceled. Offers in compromise: Received Approved ^by Attorney General Pending approval by Attorney General . Cases pending before Federal Courts: In United States District Courts In United States Supreme Court Referred to Attorney General for prosecution : In Circuit Court of Appeals In United States Court of Appeals Pending . Cases on interlocking directorates received and acted upon 1940 1939 1938 58 69 67 28 4 34 10 10 13 9 30 18 10 6 6 2.1 13 3 10 96 34 88 15 31 44 5 21 18 9 (*)68 (*) (*) (*) 3 3 (*) (*) (*) 1,080 878 202 3 (*)5 1 (*) (*) (*) 122 104 86 36 122 17 77 6 3 (*)3 2 3 1 7 4 4 (*) (*) 1 1 297 997 739 173 4 1 7 3 2 5 (*) (*)7 (*) (*)6 20 42 1, 508 1, 211 (*) 854 742 112° 1 2 1 7 (*) 4 6 49 *No record. 1 No record prior to 1937. 2 Petition for certiorari. FOREIGN FUNDS CONTROL The Foreign Funds Control was established in the Office of the Secretary to administer the functions prescribed in Executive Order No. 8389, of April 10, 1940, as amended. Applications to engage in any of the transactions designated in the Executive order are executed under oath before an officer authorized to administer oaths and are filed in duplicate with the Federal Reserve Bank of the district or the REPOaRT OF THE SEORETARY OF THE. TREASfURY 319 Governor or High Commissioner of the Territory or possession of the United States in which the applicant resides or has his principal place of business or principal office or agency. If the applicant has no legal residence or principal place of business or principal office or agency in a Federal Reserve district or a Territory or possession of the United States, applications may be filed with the Federal Reserve Bank of New York. Such applications are forwarded to the Treasury Department by the Federal Reserve Bank or other agency with which they are filed, and the applicant receives tlirough the same channel the license as granted, or is informed of the denial thereof. Pursuant to Executive Order No. 8389, as amended, general rulings and genera] licenses (of which general licenses several have been subsequently revoked) were issued by the Secretary of the Treasury. Between April 11 and June 30, 1940, the Control acted upon 16,088 applications, approving 15,152, denying 719, and taking other action on 217. A discussion of foreign funds control will be found on page 161. BUREAU OF INTERNAL REVENUEi Activities during the fiscal year 1940 General Internal revenue collections.—During the fiscal year 1940 internal revenue collections totaled $5,340 millions, an increase over collections for the fiscal year 1939 of $159 millions. The total amount collected included back income taxes of $253 millions, which is approximately $2 millions more than hack income tax collections for 1939. The increase in total collections is attributable chiefiy to increases in miscellaneous internal revenue collections and employment taxes. Miscellaneous internal revenue collections amounted to $2,377 millions, which is an increase of $121 millions over collections for 1939. The largest increases were as follows: Capital stock tax, $6 millions; liquor taxes, $36 millions; tobacco taxes, $28 millions; and manufacturers' excise taxes, $50 millions. There was a decrease of floor stocks tax on liquor of $5 millions; a decrease in tax from the sale of documentary stamps of $2 millions, and relatively small decreases on other miscellaneous taxes. Employment tax collections totaled $834 millions, an increase of $93 millions over the preceding year. Total collections under the. Federal Insurance Contributions Act (formerly title V I I I of the Social Security Act) were $605 millions; collections under the Federal Unemployment Tax Act (formerly title I X of the Social Security Act), $106 millions, and collections of carriers taxes, $122 millions. Total collections of internal revenue during the fiscal years 1939 and 1940 are shown in the following summary, classified according to the administrative organization responsible for the tax. A detailed statement of collections appears in table 11, page 662 of this report. 1 More detailed information concerning the activities of the Bureau of Internal Revenue will be found in the annual report of the Commissioner of Internal Revenue. 320 •REPORT OF T H E SECRETARY OF T H E TREAS'URY Summary of internal revenue collections, fiscal years 1939 and 1940 [On basis ol r e p o r t s of collections, see p . 584] 1939 Administrative Unit 1940 Increase or decrease (—) Income Tax Unit ^ $2,185,115, 599. 09 $2,129, 609, 307. 07 - $ 5 5 , 506, 292. 02 Alcohol T a x U n i t . .. ... 624, 253,156.11 36,453, 455. 43 587,799,700.68 84, 839,120. 34 Miscellaneous T a x U n i t J. . 1, 668, 229, 7S7. 75 1, 753. 068,908. 09 A c c o u n t s a n d Collections U n i t ( e m p l o y m e n t tax 93, 092,110. 45 activities). 740,428, 865. 06 833, 520, 975. 51 T o t a l collections 5,181, 573, 952. 58 5, 340, 452, 346. 78 158, 878, 394. 20 1 I n c l u d e s collections from t h e repealed tax on d i v i d e n d s a n d t h e tax on u n j u s t e n r i c h m e n t . Rejunds, drawbacks, and stamp redemptions.—During the year refunds of tax collections, together with interest, were made from the following appropriations: R e f u n d i n g i n t e r n a l r e v e n u e collections, 1939 a n d prior years R e f u n d i n g i n t e r n a l r e v e n u e collections, 1940 a n d prior y e a r s R e f u n d s a n d p a y m e n t s of processing a n d related taxes,* 1939 a n d 1940... T o t a l , interest included $133, 674.07 65, 093,064.16 11,503,970.56 .' .. 76,730,708.79 The following is a summary of the refunds, showing the number of schedules and claims, the amount of refunds and repayments allowed, and the total amount refunded, including interest, on each, class of tax during the fiscal year 1940, with a comparison of the totals for the fiscal year 1939: Number of schedules and claims, amount of refunds and repayments, and total refunds, repayments, and interest, by class of tax, fiscal year 1940, and totals for 1939 Number Number of of schedules claims Class of tax B i t u m i n o u s coal C a p i t a l stock Carriers Distilled spirits Distilled s p i r i t s s t a m p s r e d e e m e d . : Dist'Oled spirits d r a w b a c k s (244 certificates). Estate GiftIncome ! Miscellaneous ; Miscellaneous stamps redeemed...' Narcotics Narcotic stamps redeemed Sales Silver s t a m p s r e d e e m e d ..; Federa:i I n s u r a n c e C o n t r i b u t i o n s A c t . . Federal U n e m p l o y m e n t Tax Act Sugar Tobacco.. Tobacco stamps redeemed Tobacco drawbacks T o t a l income a n d revenue. Agricultural adjustment miscellaneous .J T o t a l refunds, repayments, a n d interest 1,070 346 6,667 56 60 26 29 110 2 1,587 1,976 71 7 24 103 2,131 131 5,902 2,112 640 1,582 4^1 132, 532 • 462 1,984 127 57 1,105 2 5,665 14, 972 1, 537 9 1,985 168. 42 336, 420.15 746. 88 9, 640, 092.80 53, 634.88 177. 189.48 4,611, 167. 33 2,957, 361. 63 36,866, 443.92 524, 765. 77 196, 695.73 205. 31 218. 43 1,968, 721.19 55.00 493, 647. 64 1,853, 150. 20 1,683, 115.97 546.91 1, 832, 670. 38 3, 823.77 $6, 567. 92 381,857. 55 10, 216.61 641, 275. 23 54, 232. 68 177.189.48 5, 491,476.11 3, 498, 569. 60 46, 022,031.85 585, 298. 30 •215,588.17 205.31 218.43 2,165, 637.45 55.00 546, 219. 77 1,909, 393. 72 1, 683, 636.96 573.94 1,832.670. 38 . 3,823.77 12, 527 3,177 173, 476 49, 027 54, 215, 841. 79 10, 085, 660. 54 65, 226, 738. 23 11, 503, 970. 56 15, 704 222, 503 64, 301, 502. 33 1 76, 730, 708. 79 9,877 5,427 180, 518 84,773 33,114, 948.10 11, 760, 220. 81 39, 078, 264. 45 12, 293, 817. 96 15, 304 265, 291 44,875,168.91 t 51, 372, 082. 41 15 76 100 187 110 internal i G r a n d t o t a l , fiscal y e a r 1940 Fiscal year 1939: ' I n c o m e a n d miscellaneous i n t e r n a l r e v e n u e . . Agricultural adjustment . G r a n d total, fiscal year 1939:. A m o u n t of refunds a n d repayments 1 E x c l u d e s refunds from t h e t r u s t fund set u p for P h i l i p p i n e coconut oil tax collections, $91,359.66 covering 700 claims for 1939 a n d $175,292.66 covering 451 claims for 1940. N O T E . — T h e figures in this t a b l e will n o t agree w i t h those given in later sections of t h i s r e p o r t for t h e reason t h a t t h e a m o u n t s s h o w n in t h e later sections relate t o claims disposed of b y t h e u n i t s , w h e r e a s t h i s t a b l e shows t h e a c t u a l p a y m e n t s m a d e . 321 REPORT OF T H E SEORETARY. OF T H E TREASIURY If the tax refunds made during the fiscal year 1940 on account of erroneous or illegal collections of internal revenue and agricultural adjustment taxes and payments for export drawbacks and redemption of stamps, amoimting to $76,906,001, were deducted from the gross collections of $5,340,452,346, the net collection for the fiscal year 1940 would be $5,263,546,345. The gross collections, however, are used for comparative purposes in these reports. Additional assessments.—The additional assessments resulting from office audits and field investigations made during the fiscal years 1939 and 1940 were as follows: Additional assessments, fiscal years 1939 and 1940, by class of tax 1939 Class of tax Income ' Miscellaneous i n t e r n a l r e v e n u e : Estate - . Gift . C a p i t a l stock . Sales Liquors Miscellaneous . . Tobacco Coal Silver Sugar . . - - . . . . . . . j T o t a l miscellaneous internal r e v e n u e E m p l o y m e n t taxes G r a n d total .. ... . 1940 $279, 487, 977. 51 $291,198, 664. 00 59, 014, 649. 49 5, 247, 767. 42 1, 302, 784. 84 8, 479, 047. 99 3, 519, 941.10 19,183, 519. 80 344, 588.19 312, 564. 31 18, 947. 86 4, 935. 83 52, 350, 045. 30 6, 354, 319. 72 1, 732, 327.10 4, 561, 0S2. 62 3, 854, 693. 05 7, 943, 709. 74 122, 703. 57 424, 504. 29 26, 925. 90 197, 251. 35 97, 428, 746. 83 77, 567, 562. 64 26,902,431.93 25,143, 458. 86 403, 819,156. 27 393, 909, 685. 50 J Includes assessments of $28,929,903.37 for 1939 and $28,727,135.00 for 1940 made under the jeopardy provisions of section 279 of the Revenue Act of 1926 and section 273 ot subsequent revenue acts. Cost oj administration.—For the fiscal year 1940, $59,877,500 was appropriated for salaries and expenses in connection with the assessment and collection of internal revenue taxes and the administration of the internal revenue laws. The expenditures and obligations against this appropriation were $59,675,518, leaving an unexpended balance of $201,982. The expenditures do not include amounts expended for refunding taxes illegally or erroneously collected and for redeeming stamps. The cost of collecting a total of $5,340,452,347 during the year was $1.12 per $100, compared with $1.13 for 1939. The amount of $4,250,000 was appropriated for the fiscal year 1940 for salaries and administrative expenses in connection with making refunds authorized by titles IV and V I I of the Revenue Act of 1936. The amount expended and obligated from this fund amounted to $3,635,549, leaving an unexpended balance of $614,451. Income Tax Unit General junctions.—The Income Tax Unit is charged with the administration of the internal revenue laws with reference to taxes on income, excess profits of corporations, excess profits on Army, Navy, and National Defense Act contracts, unjust enrichment tax, and refunds of certain processing taxes. The administration includes interpretative instructions and rulings regarding the provisions of the revenue laws relating to such taxes and the verification and adjustment of the returns through audits and field investigations for the purpose of 322 'REPORT OF T H E SEORETARY OF T H E TREASURY securing the correct determination of tax liabilities as required by law.^ Number oj returns jiled.—The number of all types of income tax returns filed during the fiscal year 1940 on which tax was assessed was 4,324,275, compared with 3,439,041 returns filed in 1939,^ an increase of 885,234, or nearly 26 percent. In addition, 4,664,137 taxpayers filed returns during the fiscal year 1940, showing no income subject to tax, compared with 4,132,642 such returns for the preceding fiscal year. The total number of income tax returns filed by individuals was 7,840,079, which is larger than the number filed in any previous fiscal year in which substantially similar filing requirements existed. Included for the first time were returns of many employees of State and local governments who, under the Public Salary Act of 1939, filed Federal income returns in 1940. Examination oj income tax returns by the Washington offux.—As oi June 30, 1940, substantially all the returns filed within the fiscal year by taxpayers had been transmitted to the Washington office of the Income Tax Unit, and all except 747,198 of these returns were accepted as filed. The returns not accepted as filed are transmitted to the field offices of the Income Tax Unit for further consideration, and, in the main, this represents the work load of the field offices for the fiscal year 1941. Prior to shipment of these returns to the field offices various information-at-the-source forms and other documents bearing upon the audit, of these returns are attached for use in the investigation work of these offices: There were filed during the fiscal year approximately 21,350,000 information-at-the-source forms showing income payments. Investigations and adjustments oj returns by the jield offices.—The number of income tax returns, including partnership and fiduciary returns, investigated during the year was 424,072, as compared with 490,673 for the previous year.^ The decrease in the number of investigations resulted in part from the reassignment of some of the examining personnel to other duties, particularly to the conduct of conferences with taxpayers for the purpose of reducing the pending balance of old cases transferred from the Bureau to field offices in the previous fiscal.year. The resulting reduction in disputed tax adjustments pending and the increase in assessments of deficiency taxes are discussed below. Inventory oj returns in the jield offices.—The number of open income tax returns on hand in the field offices as of June 30, 1940, was 406,616 compared with 455,256 for June 30, 1939, a net reduction during the year of 48,640, or over 10 percent. Of the total number pending June 30, 1940, only 55,429 represented prior years' work (1937 and prior tax years), a reduction of over 15 percent from the corresponding number pending at the end of the previous fiscal year. The ratio of prior year's work to,current year's work declined from 17 percent on June 30, 1939, to 16 percent on June 30, 1940. Unagreed adjustments pending.—The number of returns involving unassessed back taxes was materially reduced during the year, continuing the progress made in the preceding year. The number of 1 Returns on Form 1040-A, individual income tax returns for net incomes of not more than $5,000 derived chiefly from salaries, wages, dividends, interest, and annuities, and Form 1040-C, individual income tax returns of departing aliens, are audited by collectors of internal revenue and not by the Income Tax Unit. 5 Includes in each fiscal year the delinquent returns filed during that year relating to prior years. 3 These figures include all returns for which the examiner's report has been submitted. REPORT OF THE iSiEiORETARY OF T H E TTllEuASURY 323 examined income tax returns involving adjustments not agreed to by the taxpayers and pending action by the Bureau and its field offices on June 30,1940, was 31,507,* compared with 45,033* adjusted returns pending without taxpayers' agreement on June 30, 1939, a decrease of 13,526. • Revenue results oj audit and investigations.—The total additional assessments made during the fiscal year was $284,442,733. Excluding jeopardy and duplicate items, the amount was $242,856,510, which was the largest for any fiscal year since 1929. Stage at which additional tax was assessed.—During the year further progress was made in settling cases of proposed additional tax liabilit}^ by agreements with taxpayers, without issuing formaL notices of deficiency which are otherwise required by law as a basis for assessment, and from which taxpayers may appeal to the Board of Tax Appeals. Of the total number of 213,339 returns on which regular additional assessments (including duplicate-regular) were made, 199,044, or over 93 percent were by agreement with the taxpayers without the necessity of a statutory notice. Of the total regular additional tax (including duplicate-regular) assessed aggregating $211,475,370, the amount assessed by agreement was $165,810,823, or over 78 percent. The stages at which the additional assessments were made in the fiscal years 1939 and 1940 follow: Number and amount of additional income tax assessments made during the fiscal years 1939 and 1940, by stages at which assessment was made Returns Stage at which additional assessment Number was made Percent of total Additional tax Percent of total Amount Interest Penalty Total Fiscal year 1940 On agreements executed prior to mailing of 90-day letter 199,044 Default or agreement after issuance of 90-day letter 10,522 I n appealed cases after trial on t h e m e r i t s a n d decision b y t h e Board of T a x A p p e a l s , or u p o n stipulation before t h e B o a r d of cases settled b y Technical Staff a n d / o r Chief Counsel Total! J e o p a r d y provisions of t h e Code Grand total $165,810,823 12, 714, 788 32,949, 759 213,339 1,568 2 n , 475, 370 19, 676,342| 214,907 231,151,712 $25, 386, 376 $1, 259,158 $192,456, 357 2, 500, 731 821,881 16,037,400 13,314,964 900,490 47,165, 213 100 41,202,071 2,981,529 255,658,970 4,307,076 4,800,345 28,783, 763 45,509,147 7,781,874 284,442,733 1 I n c l u d i n g duplicate assessments involving 542 r e t u r n s , $11,132,9 ) of additional tax, $1,570,829 of interest, a n d $98,632 of penalties. *Includes 5,273 income tax r e t u r n s , on which s t a t u t o r y notices h a d n o t been issued, which were p e n d i n g before t h e field oflQces of t h e Technical Staff as of J u n e 30, 1940, a n d 4,950 such r e t u r n s as of J u n e 30. 1939. 324 OREPODRT OF T H E SEiORETARY OF T H E TREASURY Number and amount of additional income tax assessments made during the fiscal years 1939 and 1940, by stages at which assessment was made—Continued Additional tax Returns stage at which additional assessment PerNum- cent was made ber of. total Percent of total Amount Interest Penalty Total Fiscal year 1939 On agreements executed prior to mailing of 90-day letter _ 226, 216 Default or agreement after issuance of 90-day letter 10,840 In appealed cases after trial on the merits and decision by the Board of Tax Appeals, or upon stipulation before the Board of cases settled by Technical Staff a n d / o r Chief Counsel 4,115 241,171 Total 2 1,904 Jeopardy provisions of the Code Grand total 243.075 73 $20,443,922 94 $144,506,648 4 17,767,854 9 2 35,381, 557 100 197,656,059 20, 301,347 217,957,406 $643,655 $165, 594, 225 3,738,315 1,063,206 22,569,375 368,692 51, 679,549 18 15,929,300 100 40, 111, 537 2,075,553 239,843,149 5,059, 731 3, 568,826 28,929,904 45,171, 268 5, 644,379 268,773,053 2 Including duplicate assessments involving 854 returns, $2,377,633 of additional tax, $1,009,318 of interest, and $191,960 of penalties. Refunds, abatements, and credits.—The number of income tax cases which involved refunds or credits of tax or interest to taxpayers or abatement of tax, audited and closed by the Income Tax Unit during 1940 was 81,711, compared with 76,834 during 1939, an increase of 4,877, or over 6 percent. Of the total of 81,711 overassessments for 1940, 38,771 were made to taxpayers without the necessity for filing claims. This compares with 41,930 in the previous year. Of the overassessments settled by the Income Tax Unit in 1940, 71,648 represented refunds or credits of tax or interest involving $55,810,102, compared with 58,442 involving $38,020,839 in 1939. The amount involved in overassessments of all types for 1940 represented by refunds, credits, interest, and abatements for income tax cases audited in the collectors' offices as well as by the Income Tax Unit was $185,936,641, compared with $90,601,200 the previous year. The following table shows the number of certificates of overassessment issued and claims disposed of during the fiscal years 1939 and 1940 by the Income Tax Unit. Number of certificates of overassessment issued and claims disposed of, fiscal years 1939 and 1940 1939 Allowances: Certificates of overassessment issued when no claims had been filed Claim allowed in full or in part . . Total allowances .. . Status of claims: Pending at beginning of year Filed during year (new claims) Total to be disposed of Total disposed of . ._ - - Allowed in full or in part Rejected Pending at end of year . . . . . . . 1940 41,930 34,904 38,771 42,940 76,834 81,711 32,415 51,925 40,140 53,080 84,340 93, 220 34,904 9,296 42,940 16, 775 44,200 59,715 40,140 33, 505 REPORT OF T H E SEiCRETARY OF T H E TRIEASURY 325 There were also allowed 30,950 collectors' claims, of which 14,364 recommended abatements or credits and 16,586 recommended refunds. These claims were largely multiple item claims or claims for refund to numbers of taxpayers, and involved 27,648 items for abatement or credit and 72,777 items for refund. The following table shows the amount involved in tax overassessments settled during the years 1939 and 1940 resulting from audit of income tax returns, including cases settled by the collectors' offices as well as the Income Tax Unit. Amounts of overassessment by method of settlement, and interest allowed on all income tax cases closed, fiscal years 1939 and 1940 1939 Overassessments settled b y Abatement: Regular .. ... Duplicate Credit Refund.. . . _ ... Total Interest . .. . ... _ - - 1 - ._ -. - - - Grand total. . . 1940 $33,909,690 16,663,843 12, 347, 755 22, 772,014 $98, 764, 513 29, 627, 955 11,711,124 36, 824,426 85,693, 302 4, 907,898 176, 828,018 9,108,623 90, 601,200 185, 936, 641 The amount involved in claims filed during 1940 was $156,272,676 compared with $117,408,145 the preceding year. Of the claims disposed of during the year, the amount rejected totaled $143,847,884, compared with $85,236,575 the preceding year. Miscellaneous Tax Unit The work of the Miscellaneous Tax Unit relates to the administration of all internal revenue taxes except the income and excess-profits taxes, the taxes applicable to alcoholic beverages, and those relating to employment. Detailed statements concerning the particular taxes administered in the several divisions of the Miscellaneous Tax Unit are set forth below under the appropriate caption. The collections of miscellaneous taxes for the fiscal year 1940 amounted to $1,753,068,908, an increase of $84,839,120 as compared with collections for the preceding year. Estate Tax Division.—Collections of estate tax during 1940 amounted to $330,886,049, which is a decrease of $1,393,564 as compared with the collections for the preceding year. Collections of gift tax amounted to $29,185,118, representing an increase of $749,521 over the collections for the preceding year. The assessment and collection of additional taxes amounting to $14,410,452 proposed in 321 estate tax and gift tax cases were deferred pending the adjudication of appeals filed with the United States Board of Tax Appeals. There were 18,908 estate tax returns and 14,435 gift tax returns filed during the year. As a result of Bureau and field investigations and audits deficiencies in tax amounting to $47,874,115 were assessed in estate tax cases and $5,693,999 in gift tax cases. 326 REPORT OF THE. SEiOKETARY OF T H : E TREASIURY The following table presents a summary of the estate tax and gift tax cases received and audited in the Bureau: Number of estate tax and gift tax returns received and audited, fiscal years 1939 and 1940 Estate tax Gift t a x R e t u r n s in B u r e a u On h a n d a t beginning of year Received.- . . T o t a l t o be disposed of Disposed of . . . . ' On h a n d a t e n d of year 1939 1940 1939 . 1940 12, 878 18, 265 14,173 18, 908 5,094 13, 614 4,814 14. 435 31,143 16, 970 33,081 20,174 18, 708 13, 894 19, 249 > 13, 657 14,173 12, 907 4,814 5, 592 . I Does not include any cases in which field investigations were made. There were filed with the Bureau 801 reports reflecting the field settlement of gift tax cases; post-audit reviews were made in 804 cases, and on June 30, 1940,-there remained 26 cases on hand awaiting the Bureau post-audit review. Refunds of $8,997,204, including interest, were made in 2,003 estate tax and gift tax cases. This amount includes $3,612,654 refunded as a result of court decisions. The following table sets forth a summary of the action taken in connection with estate tax and gift tax claims received and disposed of during the year: Estate tax and gift tax claims received and disposed of, fiscal year 1940 Gift tax claims E s t a t e t a x claims Refund Claims Number Claims filed: On h a n d J u l y 1,1939 . Received Reopened T o t a l to b e disposed Of-.- Amount Refund Abatement Number Amount Number Araount Abatement Num- Amount ber 435 $6, 718,066.46 793 11, 516, 535. 55 49 1,064, 795.12 6 320 $2,456. 38 4,018,176. 34 177 $13, 712, 713. 40 393 3, 649,078.91 34 190,725.11 68 $57,521.55 1,277 19,299, 397.13 326 4,020, 632. 72 604 17, 552, 517.42 68 57, 521. 55 . 565 275 2, 597,980. 63 4, 632,863. 79 294 4 3,976,938. 54 1, 541. 47 219 2, 698,000. 60 20.8 11, 010, 562. 41 63 18, 622.49 T o t a l disposed of.. 840 7, 230,844. 42 298 3,978, 480. 01 427 13. 708, 563. 01 63 18, 622. 49 Allowed_ . Rejected On h a n d J u n e 30, 1940 N o claims filed, overassessments allowed Interest allowed 4.37 12,068, 552. 71 28 42,152.71 177 3, 843,954.41 5 38, 899. 06 1,017 2, 015, 380. 08 880, 308. 78 346 3,879,125. 51 202 264, 325.96 541, 207.97 44 112, 783.16 T o t a l allowed, including interest. . 1,582 5,493, 669.4|9 640 7,856,064.05 421 3, 503, 534. 53 107 131,405. 65 NOTE.—Tax of $98,723 was abated as uncollectible in 17 estate tax cases in addition to the figures shown above. Tobacco Division.—Collections of tobacco taxes for 1940 amounted to $608,518,444, the largest annual collections from this source since these taxes were first imposed, and an increase of $28,359,238 over the collections for the preceding year. Of the total, $533,042,544 was collected on small cigarettes. 327 REPORT OF T H E .SECRETARY OF T H E TREAStTRY A detailed comparison of the tobacco taxes collected during the fiscal years 1939 and 1940 is shown in table 11, page 662 of this report. Sales Tax Division.—Collections of taxes administered by the Sales Tax Division amounted to $583,595,403, an increase of $48,855,804 as compared with collections for the preceding year. The increase in collections is reflected principally in the manufacturers' excise taxes, the taxes on electrical energy, telegraph, telephone, cable, and radio communications and facilities, and admissions. A summary of the collections of the taxes administered by the Sales Tax Division for the years 1939 and 1940 follows. A more detailed comparison of the collections is shown in table 11, page 662. Summary of taxes collected by the Sales Tax Division, fiscal years 1939 and 1940 Source of taxes Stamps . . - - - - M a n u f a c t u r e r s ' excise (title I V , R e v e n u e A c t of 1932, as a m e n d e d , a n d s u b t i t l e C , c h a p t e r 29, I n t e r n a l R e v e n u e Code, as a m e n d e d ) Electricalenergy . . . Pistols a n d revolvers T o t a l m a n u f a c t u r e r s ' excise Miscellaneous Repealed . Total Increase or decrease ( - ) 1939 1940 1 $41,082,839. 42 $38,681, 345. 32 356, 965,318. 61 39,859.173. 55 66, 511. 36 404, 298, 499. 35 42, 338, 501. 94 89, 508. 54 47,333,180. 74 2, 479, 328. 39 22,997.18 -$2,401,494.10 396,891,003. 52 446, 726, 509. 83 49,835, 506. 31 2 96,669,461.63 96, 294. 55 97,685, 225. 57 502, 322.11 1,015, 763. 94 406,027. 56 534, 739, 599.12 583, 595, 402.83 48, 855,803. 71 > Includes $261,772.52 tax on silver bullion, sales and transfers. 2 Includes $3,317,259.01 tax on bituminous coal. The claims for refund and abatement of the taxes and for the redemption of stamps, received and disposed of in the Sales Tax Division during the years 1939 and 1940, are shown in the following table. Claims for refund and abatement of taxes and for redemption of stamps received and disposed of, fiscal years 1939 and 1940 1939 Claims O n h a n d a t beginning of y e a r . Received or reopened Number 1,781 10, 574 Number 1 2,664 9,821 12, 355 12, 485 . - 8,357 1,467 8 466 1,996 9,824 10, 462 . 2,531 . . _ ._ T o t a l to b e disposed of Allowed Rejected T o t a l disposed of O n h a n d a t e n d of year Allowed _ __. 1940 -. Amount $5, 228, 940. 35 2,023 Amount $8,164, 587. 56 1 Includes 133 claims which were transferred from Bituminous Coal and Silver Tax Division to Sales Tax Division on July 1, 1939. During the current year 8,643 field reports and 439,292 sales tax returns were examined in the Bureau. Assessments totaling $1,109,316,701, representing 990,074 items, were approved on the 2,503 miscellaneous assessment lists, which included original and additional assessments of all miscellaneous taxes. 328 KEPORT OF THE. SECRETARY OF T:HE TREASURY The Sales Tax Division completes assessments, schedules claims and overassessments, and passes on offers in compromise not only for this Division but also for the Estate Tax, Tobacco, and Capital Stock Tax Divisions, as well as for the Processing Tax Division with respect to the tax on manufactured sugar. The number and amount of offers in compromise submitted in settlement of liabilities incurred in connection with the various miscellaneous taxes and the number and amount disposed of during the year are shown in the following table: O f ers in compromise received and disposed of by the Sales Tax Division, fiscal years 1939 and 1940 1939 1940 Offers in compromise Number O n liand beginning of y e a r . Received d u r i n g year Number Amount Amount 580 6,610 $3,447, 324. 50 924, 779.82 553 6,206 $463,036. 24 994, 286. 59 7,190 4, 372,104. 32 6,759 1, 457,322.83 6,334 262 41 390,072. 74 3,496,508. 72 22,486. 62 5,971 234 36 744,904. 53 89,397.31 12,158.17 T o t a l disposed of 6,637 3,909,068.08 6, 241 846, 460.01 On h a n d a t e n d of year 553 463, 036. 24 518 610,862.82 T o t a l to be disposed of Accepted Rejected... Withdrawn... Capital Stock Tax Division.—Collections from the capital stock tax during the year amounted to $132,738,537, an increase of $5,535,528 as compared with collections for the preceding year. A total of 530,584 returns were filed by domestic and foreign corporations during the year. As a result of the review and audit of capital stock tax returns during the year, 16,457 assessments were made, involving tax in the amount of $1,732,327. The claims for refund and abatement of capital stock taxes, penalties, and interest, received and adjusted in the Capital Stock Tax Division, are shown in the following table: Claims for refund and abatement received and disposed of by the Capital Stock Tax Division, fiscal years 1939 and 1940 1939 Claims 1940 O n h a n d a t beginning of year Received a n d reopened Number 1,532 40, 249 T o t a l to b e disposed of 41, 781 22,943 5,049 36,028 4,129 17, 573 41,077 21, 702 Allowed Rejected.- -.. . - T o t a l disposed of On h a n d at e n d of year . Allowed . . . .. -. . -_ _- . . Number 704 22, 239 704 1,241 Amount $690, 335.96 Amount $604, 737.93 Processing Tax Division.—The Processing Tax Division is concerned with the administration of the tax imposed on manufactured sugar under Chapter 32 of the Internal Revenue Code, and the adjustment 329 REPORT OF T H E SEiCRETARY OF T H E TREASURY of the several types of claims arising as the result of the invalidation of the Agricultural Adjustment Act and the repeal of related legislation. There were 1,927 returns filed during the year by manufacturers subject to the tax on manufactured sugar, and the total collections of tax from this source amounted to $68,145,358, an increase of $2,731,300 over collections for the prior year. The following tables show the claims received and disposed of during the year: Claims for refund of processing and related taxes received and disposed of by the Processing Tax Division, fiscal year 1940 R e v e n u e Act of 1936 Sections 601 a n d .602 Claims Number Amount Cotton Ginning, Tobacco, and Potato Acts Title V I I Number Amount Number Amount Total Number Araount 104 $2, 927, 961. 46 2,708 $14, 924, 283. 73 8,023 $323,024. 24 10,835 $18,175, 269. 43 O n h a n d J u l y 1,19391,029 2, 216, 763.13 10, 678 185, 383, 354.87 34, 287 1, 427, 683. 42 45, 994 189, 027, 801; 42 Received 3. 067, 586. 24 1,419 1, 573, 788. 72 1,856 23, 928. 79 3, 935 4, 665, 303. 75 660 Reopened T o t a l to be disposed of 2,552 6, 718, 513. 31 15, 242 203, 375, 224. 84 42, 970 1, 774, 636. 45 60, 764 211, 868, 374. 60 1,267 2, 264, 647. 20 9,035 2, 838, 529. 94 34, 652 Allowed 943 2, 850, 582. 87 3,165 19, 540, 742.18 7,307 Rejected Transferred to I n 723 171,479,840.89 come T a x U n i t _. T o t a l disposed of 865, 670. 61 44, 954 881, 488.82 11,415 723 2,210 5,115,230.07 12, 923 193, 859,113. 01 41, 959 1, 747,159. 43 On hand J u n e 30,1940- 342 1, 603, 283. 24 2,319 9, 516, 111. 83 1,011 57,092 27, 477.02 3,672 5, 968,847. 75 23, 272,813. 87 171,479,840.89 200,721,502.51 11,146, 872. 09 Sugar tax claims received and disposed of by the Processing Tax Division, fiscal year 1940 Overpayment a n d livestock feed Export Abatement Total Claims Number O n h a n d July 1,1939... 96 Received 1,614 Reopened. 1 7 Amount Number Amount Number Amount Number Amount $67,773.40 2,048, 262. 77 249.43 3 38 $37.48 150, 268. 59 1 22 4 $280.07 83,367.71 31,413.55 100 1,674 11 $68,090.95 2, 281,899. 07 31, 662.98 1,717 2,116, 285. 60 41 150,306.07 27 115,061.33 1,785 2, 381,653.00 1,621 54 2,080,087.79 25, 531.17 22 14 14, 392. 57 129,431.59 22 5 112, 692. 29 2,369. 04 1,665 73 2, 207,172.65 157,331.80 T o t a l disposed of. 1,675 2,105,618.96 36 143,824.16 . 27 115,061.33 1,738 2,364,504.45 10, 666. 64 5 6,481.91 47 17,148.55 T o t a l to b e disposed of.. Allowed Rejected On h a n d J u n e 30, 1940.. 42 Alcohol Tax Unit Collections from the liquor taxes amounted to $624,253,156 in 1940, an increase of $36,453,455 over the previous year. Collections during 1940 were 29.2 percent greater than 1919, the peak pre 330 REPaRT OF T'K^E SECRETARY OF T H E TREASnQRY prohibition year for liquor collections, and were 5 percent greater than 1937, the year wliich heretofore had marked the peak of collections since prohibition. Details of these collections will be found in the table on page 662. On June 30, 1940, the following producers and distributors of alcohol and alcoholic beverages and users of tax-free alcohol were under the supervision of the Alcohol Tax Unit: Distilleries: Alcohol .. Brandy . Another Bonded warehouses: Alcohol Internal revenue... Wineries Bonded wine storerooms ...,, Breweries.: . Rectifying plants Wholesale liquor dealers Wholesale malt liquor dealers Denaturing plants -. Bonded dealers in specially denatured alcohol . Bonded manufacturers using specially denatured alcohol Hospitals, laboratories, and educational institutions using tax-free alcohol. - Number 38 127 124 61 283 . . . . ,1,036 98 580 250 5,531 10,597 37 52 4,193 6,482 During the year a number of regulations were revised and several new regulations issued. No general revision of regulations of this Unit had been made since the repeal of the eighteenth amendment. Enjorcement Division.—The activities of the Enforcement Division include the investigation, detection, and prevention of willful and fraudulent violations of the internal revenue laws relating to distilled spirits, wines, and fermented malt liquors. During the year, 10,663 stills were seized, having an aggregate mash capacity ^ of 1,653,775 gallons, and in connection therewith 6,480,240 gallons of mash were seized and destroyed. Investigators also seized 264,594 gallons of spirits and 4,523 automobiles and trucks. The total appraised value of the property seized amounted to $2,042,851. A total of 25,638 persons was arrested for Federal liquor law violations. Compared with the previous fiscal year, still seizures decreased 11.6 percent, mash seizures decreased 19.8 percent, and arrests decreased 11.1 percent. These decreases applied generally throughout the country and are in contrast to the increases reported in the previous year. Many arrests and seizures were made in combating the introduction of tax-paid liquors into the dry States of Kansas and Oldahoma in violation of the Liquor Enforcement Act of 1936. The Unit's participation followed the passage of enabling legislation by these States. Field Inspection Division.—This Division plans, coordinates, and supervises the permissive functions in the field offices of the fifteen field districts. Technically trained field inspectors, directed by this Division, make frequent examinations of the field offices to determine whether the law, regulations, established policy, and procedure are being followed properly; recommend methods for greater efficiency and economy in the conduct of the work; determine the adequacy and efficiency of the personnel and suitability of space and equipment; make recommendations relative to the judicious expenditure of public funds; and confer with District Supervisors on problems of organization, nianagement, and service. 1 Represents the cubic capacity of still pots and cookers! Column stills which operate without a still not or cooker are not reflected in this total. The size of iflicit stills is reflected more properly by the mash facilities. The cubic measurement of the mash fermenters of all the illicit stills seized during the fiscal year was 9,252,833 gallons. REPORT OF T B : E SECRETARY OF THE. TRIEASU.RY 331 The Division maintains general supervision over the activities of inspectors and storekeeper-gangers in the field districts and provides for the general instruction of these groups. A total of 64,197 inspections of plants and permittees was made during the year by general inspectors in the supervisory districts. All inspections of retail dealers were conducted by junior inspectors, due to the fact that the W. P. A. inspection projects were discontinued prior to the beginning of the fiscal year. The following comparative statement shows the, results accomplished by junior inspectors during the fiscal years 1939 and 1940: 1939 N u m b e r of inspections m a d e N u m b e r of dealers violating N u m b e r of violations found P e r c e n t of dealers found v i o l a t i n g . A m o u n t s collected •. 204, 362 21, 750 23, 776 10. 64% ;6, 577. 81 1940 284, 081 28, 057 31, 618 9. 88% $542,453. 40 The Division is also responsible for the final determination of applications for original establishment and subsequent changes of industrial alcohol plants, alcohol bonded warehouses, and denaturing plants; distilleries; fruit distilleries; distillery denaturing bonded warehouses; internal revenue bonded warehouses and rectifying plants. Final review of qualifying documents submitted in. connection with original establishment and subsequent changes of bonded wineries, bonded wine storerooms, bonded field warehouses, and breweries is handled by the Division. During 1940 there were 18,970 such examinations, including those covering 117 new plants and 218 plants discontinued. Laboratory Division.—The Laboratory Division comprises a central laboratory in Washington, D . C , and 15 branch laboratories located throughout the country which perform the chemical work for the Bureau of Internal Revenue and the Bureau of Narcotics. During the year the Division also rendered material aid to the Secret Service, Procurement Division, and the Post Office Department. There were 80,006 samples examined in the branch laboratories compared with 77,879 for the previous year. The Washington laboratory examined 8,893 samples compared with 7,030 during the preceding year. The marihuana investigation, started in 1937, has been continued. Resin extracted from the marihuana plant has been separated into fractions having different physical properties. From those fractions found to be physiologically active, several of their chemical constituents have been isolated and identified. Research was conducted on problems pertaining to distilled spirits, fermented beverages, narcotic drugs, and the development of fingerprints. Fourteen reports were made, of which eleven were published in technical journals. Audit Division.—This Division is responsible for the tax accounting, assessment, claim, and compromise work of the Alcohol Tax Unit. I t administers the provisions of internal revenue laws and regulations pertaining to the manufacture, storage, tax payment, exportation, sale, and use of alcohol, denatured alcohol, distilled spirits, wines, and malt liquors. 269677—41 23 332 REPORT OF THE. SECRETARY OF THE TREASURY During the year, 18,886 reports of violations of the internal revenue laws pertaining to alcoholic liquors were received from the field offices, reviewed, and audited, and tax liabilities disclosed thereby were assessed, including ad valorem penalties. There were certified to the Commissioner for assessment 13,808 items totaling $3,854,693, listed in the Bureau, and 155,793 items aggregating $92,691,905, listed by collectors. At the beginning of the fiscal year there were on hand 580 offers aggregating $40,487.21. During the year 11,010 offers amounting to $344,765.42 were received, of which 226 were forwarded to the Department of Justice and 319 were returned to the field offices. Of the 11,045 offers to be disposed of by the Division, 9,461 oft'ers aggregating $239,806.54 were accepted, and 1,001 offers totaling $37,310.39 were rejected, leaving 583 oft'ers on hand at the end of the year. Procedure Division.—This Division plans and develops procedure for the headquarters and field offices of the Alcohol Tax Unit; assists in drafting regulations. Treasury decisions, mimeographs, and circulars; and reviews the revision of all forms prescribed by the Alcohol Tax Unit. I t is charged with the administration of regulations relating to traffic in containers of distilled spirits and the supervision of the Statistical Section. During the year special statistical studies were made on matters relating to proposed legislation and inquiries from officials and the public. Alcohol Tax Division oj the Office oj the General Counsel.—This Division handles the legal work arising in connection with the administration and enforcement of the internal revenue liquor laws. During the year there were prepared 6,818 memoranda, 413 briefs, 5,242 opinions, 27 parole cases, 247 libels, and 48 indictments. Review work included 7,450 case reports, 73 claims of over $5,000 each, and 10,684 compromise cases. In addition, 6 revocation cases were handled, and 912 petitions for remission or mitigation of forfeiture were examined and finally passed upon. Accounts and Collections Unit The Accounts and Collections Unit is the central administrative organization for the 64 internal revenue collection districts and makes the administrative audit of all expenditures for the Internal Revenue Service. The Unit also administers the taxes imposed under Chapter 9 of the Internal Revenue Code, Subchapter A relating to employment by others than carriers, Subchapter B relating to employment by carriers, and Subchapter C covering the tax on employers of eight or more. Since enactment of the Social Security Act Amendments of 1939 (Public No. 379, approved August 10, 1939), Subchapter A of Chapter 9 of the Code has been known as the Federal Insurance Contributions Act, and Subchapter C as the Federal Unemployment Tax Act. Prior to enactment of the Internal Revenue Code, the provisions of Subchapters A, C, and B of chapter 9 were contained in titles VIII and I X of the Social Security Act and in the Carriers Taxing Act of 1937, respectively, and the taxes imposed thereunder are now generally designated as ^^employment taxes." . REPORT OF T H E SaSiCRETARY OF T H E TRIEASURY . 333 There were 19,199,932 tax returns filed in collectors' offices during the fiscal year, an increase of 1,491,075 over the previous year. Of the total returns filed, 8,988,412 were income tax returns, an increase of 1,416,729 during the year.^ During the fiscal year 34,774 income tax,^ 4,700 miscellaneous tax, and 77,472 employment tax returns were investigated by field deputy collectors. In the verification of income tax returns 10,505,875 information returns showing income at a source were compared with the income reported on returns filed. At the close of business June 30, 1940, there were outstanding in the 64 collection districts 3,212 income tax returns, and 5,315,926 information returns were on hand. Deputy collectors of internal revenue served 379,228 warrants for distraint, which resulted in the collection of $52,220,175. An average of 2,718 .deputy collecfiors made 1,622,104 revenue-producing investigations, including the serving of warrants for distraintj compared with 1,889,579 investigations made by an average of 2,704 deputy collectors in the preceding year. The total amourit collected and reported for assessment by deputy collectors was $84,566,072 compared with $97,826,243 in the previous year. The average number of investigations made per deputy and the average amount of tax collected and reported for assessment were 597 and $31,113, respectively, compared with 699 and $36,178, respectively, in 1939. There were 212,701 warrants for distraint in custody in the collectors' field forces on June 30, 1940, compared with 205,980 on hand June 30, 1939. A total of 13,351,512,052 revenue stamps, valued at $1,188,107,282, was issued to collectors of internal revenue and the Postmaster General during the year, compared with 12,594,476,279 stamps, valued at $1,144,003,042, issued during 1939. Revenue stamps returned by collectors of internal revenue and by the Postmaster General, and credited to their accounts, amounted to $31,206,229. There were 390 applications allowed for restamping packages from wliich the original stamps had been lost, mutilated, or destroyed, compared with 431 apphcations in the preceding year. The Disbursement Accounting Division administratively examined and recorded 1,553 monthly accounts, or 127,646 vouchers, of collectors of internal revenue, internal revenue agents in charge, district supervisors, etc. I n addition, 8,351 expense vouchers of employees and 14,015 vouchers covering passenger and freight transportation and miscellaneous expenses were audited and passed for payment. Taxes under the Federal Insurance Contributions Act.—Collections of taxes imposed under the Federal Insurance Contributions Act amounted to $605,350,175 for the year, compared with $529,835,533 for 1939, an increase of $75,514,642. These amounts include both the employees' tax and the employers' tax, each of which was imposed at the rate of 1 percent of taxable wages paid. There were 7,868,402 quarterly returns ffied during the fiscal year, compared with 7,520,711 filed in the preceding year. The complete and final audit of returns is conducted in the ofiices of collectors of internal revenue. 1 See p. 322 for an analysis of the increase. 2 See p. 322 for information on returns investigated by the Income Tax Unit. 334 TIEPORT OF T H E SEORETARY OF T H E TREASURY The following table sets forth information relative to claims disposed of under the Federal Insurance Contributions Act and title V I I I of the Social Security Act: Claims under the Federal Insurance Contributions Act and title V I I I of the Social Security Act received and disposed of, fiscal year 1940 Claims: Number Pending at beginning of year 5,180 Filed during year (new claims) 15,307 Received from other sources 342 Total to be disposed of.... '. Allowed in full or in part Rejected Canceled-- 20,829 ._.. Total disposed bf 14,391 3,597 197 -. . Pending at end of j^ear Certificates of allowance issued when no claims were Overassessments settled by— Abatement Credit Refund Total Interest Grand total 2,644 5,321 Amount $810,583.44 70,554.57 467,614.03 filed . . . . 1,348,752.04 49,556.04 1,398,308.08 .' . 18,185 . The amount involved in claims filed during the year was $1,364,682.99. Included in the allowed claims shown above were 6,206 collectors' claims for abatement, of which 160 were multiple-item claims involving 3,953 items. There were also allowed 372 collectors' claims recommending refunds of $7,963.14 plus interest of $298.05. The amount involved in the claims rejected during the year totaled $295,138.17. , The following table shows the status of the offers in compromise submitted in settlement of tax liabilities incurred under title VIII of the Social Security Act and the Federal Insurance Contributions Act: Offers in compromise under title V I I I of the Social Security Act and the Federal I n s u r a n c e Contributions Act received and disposed of, fiscal year 1940 Offers in compromise P e n d i n g a t beginning of year Received duririg year T o t a l to b e disposed of Accepted Rejected T o t a l disposed of. P e n d i n g a t e n d of year . _ N u m b e r of offers Amount offered T a x liability involved 51 267 $4,876 39,626 $14,458 118,465 318 44,502 132,923 121 68 9,931 7,744 27,010 34,449 189 17, 675 61,459 129 26,827 71,464 Tax under the Federal Unemployment Tax Act.—The tax under the Federal Unemployment Tax Act is imposed on employers of eight or more. The rate is 3 percent on taxable wages paid during 1939 with respect to employment. Collections amounted to $106,123,156, compared with $101,166,704 for the fiscal year 1939, an increase of $4,956,452. There were 367,670 returns filed during the fiscal year, compared with 367,235 filed during the preceding fiscal year. The return REPORT OF T H E S0iORETA.RY OF T H E TRTiiASURY 335 for each calendar year is due on January 31, following the close of the year, unless ^n extension of time for filing is granted. The number of returns under the Federal Unemployment Tax Act received and disposed of by the Accounts and Collections Unit are as follows: Number of Federal unemployment tax returns {annual) received and disposed of, fiscal year 1940, by tax years On h a n d J u l y 1, 1939 T a x year 1936 1937 . . 1938 1939 . ... . .. . Total... Received during year Reopened during year Total Disposed of d u r i n g year On h a n d J u n e 30, 1940 2,984 39,378 308,789- 5,424 15, 241 20, 248 326, 757 9,999 19,479 19,512 18, 407 74,098 348, 549 326, 757 16, 846 61,829 323,906 1, 561 12, 269 24, 643 326,757 351,151 367, 670 48,990 767,811 402, 581 365, 230 The Unit forwarded 249 returns to the field for investigation during the fiscal year. Independent of these cases, the field force submitted reports on unemployment tax liability made in connection with income tax investigations. The status of these reports in the Unit is shown in the following table: Revenue agents' reports received and disposed of, fiscal year 1940, by tax year On h a n d J u l y 1, 1939 T a x year 1936 1937 1938 . Total . _- . Received during year Total Disposed of d u r i n g year On h a n d J u n e 30, 1940 304 1,101 2,272 4,141 4,382 2,576 5,242 4,382 2,506 4,845 3,542 70 397 840 1,405 10,795 12, 200 10,893 1,307 Of the 10,893 revenue agents' reports disposed of, 1,904 showed no change in tax liability, 7,777 showed deficiencies in tax amounting to $1,158,859.36, and 1,212 showed overassessments of $216,204.90. The following table sets forth information relative to claims adjusted and certificates of overassessment or of allowance issued under the Federal Unemployment Tax Act and title I X of the Soci^,l Security Act: Claims under the Federal Unemployment Tax Act and title I X of the Social Security Act received and disposed of, fiscal year 1940 Claims: Pending at beginning of year Filed during year (new claims) Received from other sources Total to be disposed of . Allowed in full or in part Rejected Canceled.. ^ Total disposed of Pending at end of year Certificates of overassessment and certificates of allowance issued when no claims were Overassessments settled by— Abatement Credit Refund . Total Interest... Grand total .--.. _ Number 8,439 22,984 53 31, 476 18,074 4,534 250 22,85"8 8,618 filed 7,829 Amount $2,338,112.84 65,235.65 1,833, 301.74 4,236.650.23 .. 54,178.86 „ - 4,290,829.09 336 REPOiRT OF T H E SECRETARY OF T H E TREASURY The amount involved in claims filed during the year was $4,891,260.46. Included in the allowed claims shown above were 3,051 collectors' claims for abatement, of which 38 were multiple-item claims involving 613 items. There were also allowed 4,665 collectors' claims recommending refunds of $65,866.79 plus interest of $1,715.59. The amount involved in the claims rejected during the year totaled $527,414.21. ^ The following table shows the status of the offers in compromise submitted in settlement of tax liabilities incurred under title I X of the Social Security Act and the Federal Unemployment Tax Act: Offers in compromise under title I X of the Social Security Act and the Federal Unemployment Tax Act received and disposed of, fiscal year 1940 N u m b e r of offers Offers in compromise P e n d i n g at beginning of year Received d u r i n g year i T o t a l to be disposed of Accepted __ Rejected... . . ... T o t a l disposed of . . . .. . . . . . . . . . . . P e n d i n g at end of year Amount offered T a x liability involved 81 222 $8, 226 28,895 $46,454 191,992 303 . 37,121 238, 446 74 127 6,364 14, 249 36, 731 96, 232 201 20, 613 132,963 102 16, 508 105,483 Carriers taxes {Chapter 9, Subchapter B, Internal Revenue Code).— Collections of employers' tax and employees' tax under Chapter 9, Subchapter B, of the Internal Revenue Code aggregated $122,037,661, compared with $109,419,458 for the previous year, an increase of $12,618,203. Each tax was imposed at the rate of 2% percent of the taxable compensation earned during 1939 and at the rate of 3 percent earned during 1940. Collections of employee representatives' tax, which was imposed at the rate of 5^ percent of the taxable compensation earned during 1939, and' at the rate of 6 percent earned during 1940, amounted to $9,982, compared with $7,169 for the previous year, an increase of $2,813. There were 31,915 quarterly returns filed by employers and 1,698 by employee representatives, an increase of 1,294 and 291, respectively, over the previous year. The complete and final audit of these returns is conducted in the offices of collectors of internal revenue. The following table sets forth information relative to claims disposed of under Chapter 9, S u b c h a p t e r s , Internal Revenue Code, and the Carriers Taxing Act of 1937: Claims under Chapter 9, Subchapter B, Internal Revenue Code, and the Carriers Taxing Act of 1937 received and disposed of, fiscal year 1940 Claims: Pending at beginning of year Filed during year (new claims) Received from other sources Total to be disposed of Allowed in full or in part Rejected Canceled Number 92 273 9 . . 1 257 56 17 . Total disposed of Pending at end of year . Certificates of allowance issued when no claims were 374 330 filed 44 21 REPORT OF THE SEiCRETARY OF THE TRIEASURY 337 Claims under Chapter 9, Subchapter B, Internal Revenue Code, and the Carriers Taxing Act of 1937 received and disposed of, fiscal year 1940—Continued Overassessments settled by— Abatement Credit Refund Total Interest Grand total 1 Amount $104,737.36 115,095.14 8,794.11 '. :.. 228,626.61 405.57 229,032.18 The amount involved in claims filed during the year was $168,245.00. Included in the allowed claims shown above were 50 collectors' claims for abatement. There were also allowed 4 collectors' claims recommending refunds of $940.27 plus interest of $63.72. The amount involved in the claims rejected during the year totaled $56,279.07. Technical Staffi Under the present decentralized procedure for hand