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TREASURY DEPARTMENT
Treasury Department
Janaary 4, 1926,
Estimated Amount of jjjhblly 1?asc-J&empt Securities
Out standing«
Hovember 30, 1925.
Issued
. hy
States, counties,
cities, etc.
Territories and
insular possessions
United States Government
Gross
Amount
Amount held in
Treasury or in
sinking funds.
jj&spunt held out{side of Treasury
(and sinking funds
I
;
$13,344,000,000
$2,001,000.000(1) $11,343,000,000
j
.......
.
143,000,000
124,000,000
19,000,000(2) f
1 *
671,000,000 (3) | 1,505,000,000
2,176 ,000,000
|
federal land h a n k s , interraediate credit hanks,
and joint-stock land hanks
Total November 30, 1925
1,603,000,000
:»ir V -, \
$17,266,000,000
82,000.000^4) 1 1,521,000,000
$2,773,000,000
•
«
..... '"".. . ... *
¡$14,493,000,000
1
Comparât ive totals:
Oct.
Dec.
Dec.,
Dec.
Dec.
Dec.
30,
31*
31,
31,
31,
31,
1925
1924
1923
1922
1918
1912
$2,768,000,000
$17,221,000,000
3.716.000. 000
16,268 POO ,000
2.571.000. 000
14.936.000. 000
2.331.000. 000
13.652.000. 000
1.799.000.
000
9.506.000. 000
1.468.000.
000
5.554.000. 000
$14,453,000,000
13.552.000. 000
12.365.000. 000
11.321.000. 000
7.707.000. 000
4.086.000. 000
(1) Total amount ,of state and local sinking funds.:
'
(2) Total'amount, of silking funds and amount held in trust' hy the Treasurer of
the United States.
.
-*
.- (3) Amount held in trust hy the Treasurer of the United States. '
(4 ) includes amount held in trust hy the Treasurer of the United States and
also the amount owned h y the United States Government.
TREASURY DEPARTMENT
February 2, 1926.
ESTIMATED AMOUNT OP WHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING DECEMBER 31, 1925.
Gross amount
!Issued by
States, counties,
cities, etc.
$13,462,000,000
[Territories and
“insular possessions
Amount held in
Treasury or in
sinking; funds
$ 2,019,000,000^
„( 3 )
143,000,000
'^United States Govern1ment
2,176,000,000
Federal, land banks,
¡; intermediate credit
i|banks, and joint-stock
1 land banks
1,611,000,000
3 1 ,000,000
671,000,000 ^
(4)
82,000,000' '
Amount held out
side of Treasury
and sinking; funds.
$11,443,000,000
122,000,000
1,505,000,000
1,529,000,000
i Total Dec. 31, 1925
17,392,000,000
2,793,000,000
14,599,000,000
Comparative totals:
' Nov..30, 1925
Dec. 31, 1924
Dec. 31, 1923
Dec. 31, 1922
| Dec. 31, 1918
f Dec. 31, 1912
$17,266,000,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$2,773,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$14,493,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds.
(2) Total amount of sinking funds and amount held in trust "by the Treasurer of
the United States.
(3 ) Amount held in trust by the Treasurer of the United States.
(4) Includes amount held In trust by the Treasurer of the United States and also
the amount owned by the United States Government.
«
TREASURY DEP A R T M M T
March 1, 1926.
ESTIMATED AMOUNT OE WHOLLY TAX-SKIMPT SECURITIES
OUTSTANDING JANUARY 31, 1926.
i
1
Amount held in
Treasury or in
sinking funds
Gross amount
Issued hy
_|
— ........ ----- --- -—j—
States, counties,
cities, etc,
!>13,507,000,000
United States Government
Federal land hanks,
intermediate credit
hanks, and joint-stock
land hanks
$11,481,000,000
$ 2,026,000,000 (1)
x
148,000,000
21,000,000 (2)
127,000,000
2,168,000,000
670,000,000 (3)
1,498,000,000
l
■..3 ^
•
I
;
1,649,000,000
$17,472,000,000
Comparative totals;
Dec. 31, 1925
Dec. 3 1 \ 1924
Dec. 31, 1923
Dec. 31, 1922
Dec, 31, 1918
Dec. 31, 1912
$17,392,000 ,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
1,567,000,0040
82,000,000 (4)
r
r~
Total Jan. 31, 1926
(3)
(4)
Amount held out
side of Treasury
and sinking funds.
I
Territories and
insular possessions
(1)
(2)
;
j
!
$ 2,799,000,000
$14,673,000,000
[
$ 2,793,000,000
2,716,000,000
2,571,000,000'
2,331,000,000
1,799,000,000
1,468,000,000
$14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
Total amount of state and local sinking funds.
Total amount of silking funds and amount held in trust hy the Treasurer of
the United States,
Amount held in trust Ty the Treasurer of the United States.
Includes amount held in trust hy the Treasurer of the United States and also
the amount owned hy the United States Government..
Treasury Department
March 29, 1926,
Estimated amount of Wholly Tax-Exempt Securities
Outstanding,
February 28, 1926,
1 ......
Gross
Amount
_L
....
Issued
by
States, counties,
cities, etc.
• •
Territories and
insular possessions
j$13,630,000,000
!*
L
j
|
148,000,000
United States
Government
! 2,168,000,000
! Amount held in
|
!, Treasury or in
sinking funds
I Amount held out«
| side of Treasury
:
and sinking funds
j----------------------------------------------------- ^ --------------------- — —■
1 $ 2,044,000,000 (1) | $ 11,586,000,000
1
.. ~ '" ' — . —~-I
j
|
21,000,000 (3)
127,000,000
i
Federal land banks,
intermediate credit
banks, and jointstock land banks
559,000,000 (3)
!
!
i
j 1,666,000,000
Total February 28, 192S j$17,612,000,000
1,499,000,000
j
1
1
82,000,000 (4)
1,584,000,000
| $ 2,816,000i000
$ 14,796,000,000
$ 2,799,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,458,000,000
$ 14,673,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
Comparative totals:
January
December
December
December
December
December
'December
31,
31,
31,
31,
31,
31,
31,
1926
1925
1924
1923
1922
1918
1912
$17,472,000,000
17,392,000,000
16,268,000,000
14,935,000,000
13,552,000,000
9,506,000,000
5,554,000,000
(1) Total amount, of state and local sinking funds,.
(2) Total amount of sinking funds and amount held in trust by the Treasurer of
the United States,
'
(3) Amount held in trust by the Treasurer of the United States*,
(4) Includes amount held in trust by the Treasurer of the United States and
also the amount owned by the United States Government#
TkSÂ.$tIRY D E P A RTAIT
April 17, 1926.
Letter from Secretary Mellon to the President of the Senate in response
Senate Resolution 199, concerning Alien Property:
April 16, 1926.
Dear Mr. President:
In response to Senate Resolution 199, the following report is
m ade:
In the course of the preparation of the Settlement of War Claims
Act of 1Q26 which deals with the settlement and payment of American claims
against Germany, the Treasury has at no time dealt, directly or indirectly,
with representatives of the German Government.
JFo representatives of the
Treasury Department have carried on negotiations in Germary.
In the last sessions of the former Congress and in the present
Congress numerous hills have been introduced for the disposition of the
property held by the Alien Property Custodian.
'Some of the bills covered
only particular classes of persons interested in the alien property.
Some
of the bills returned all of the property and would create a flood of
claims against the United States which might become a serious drain on the
Treasury.
There was no legislation introduced to cover the subject as a
whole and finally.
Litigation is pending against the United States for
compensation for ships of German citizens taken during the war and is
still undisposed of.
The Mixed Claims Commission, set up between Germany
and the United States to determine American claims against Germany,, is
approaching the completion of its work.
There is, however, no provision
for the payment of awards of the Mixed Claims Commission which adequately
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2
-
compensates the private American claimants.
The advice of the Treasury
had oeen sought hy Frederick C. Hicks, the former Alien Property Custodian,
in reorganizing his office, and from its study of the situation the Treasury
"believed that it was uneconomical, "both from the standpoint of the owner
and of the United States, to continue indefinitely the operation of the
trusts hy the Alien Property Custodian.
Questions of policy in the manage
ment of the businesses and of the disposition of securities are continually
arising which are too complicated and responsible to be left to a public
trustee.
These and other related matters had come to the direct attention
of the Treasury,
here then were a Series of questions of importance demanding
action and toward the entire solution of which there had been no plan sug
gested.
I believe that a sound national policy is against the confiscation
of the property of private citizens to pay the debts of their government.
Yet this German property was pledged as security for the claims of our
nationals against Germany.
To release the security without providing for
the payment of American private claims would be in effect to avoid con
fiscation of German private rights by the confiscation of American private
rights.
To hold the German property until the American claims were paid
out of the annuity provided under the Dawes Plan meant holding the property
indefinitely and therefore substantially c >afiscation of the German
property and at the sane time, since this annuity represents our share of
all Germany can p a y , such inadequate payment of the American claims as
to render them valueless.
If it is right that we should reaffirm the
American policy that private property shall not be taken for public use
without just compensation, then there seemed to me to be no practical solu
tion of the entire problem except that suggested by the Treasury.
The
Treasury,, therefore, in the interest of all concerned undertook the prepara
tion of a plan for the consideration of the Congress.
- 3 Th3 Treasury was advised by Mr, Chandler P. Anderson, the American
Commissioner oh the Mixed Claims Commission, that Dr. Wilhelm Kiesselbach,
the German Commissioner on the Mixed Claims Commission, and Dr. Karl
von Lewinski, the German agent on such Commission, as individuals, repre
sented a group of the private German owners whose property was held by the
Alien Property Custodian,
The Treasury also learned that most of the
American claimants before the Mixed Claims Commission had united in the
American War Claimants Association.
The Treasury consulted with represen
tatives from these groups and with others mho appeared interested in the
questions involved and proposed a tentative plan, which differed from that
carried in the proposed ‘’Settlement of War Claims Act of 1926” only in re
spect to the manner of financing the payments.
In the tentative plan it
was proposed that the United States should assign the payments to be re
ceived by it under the Dawes Plan to a trustee against the issue of bonds
payable either in marks or dollars and guaranto.ed by the United States.
These bonds were to bo used for the payments required of the United States.
Since bonds instead of the cash in the hands of the Alien Property Custodian
belonging to Germans worn to be returned and bonds were also to be used in
payment for German ships and American claims it was deemed advisable that
the consent
of those who were to receive the bonds should be had in order
to avoid any charge that just compensation was not paid.
of the American claimants consented.
The representatives
On November 23, 1925, I wrote to Dr.
Kiesselbach a letter (copy of which is attached) setting out in substance
the tentative plan.
He took the letter to Germany and obtained there the'
consent of the German owners of the ships and of the property in the hands
of the Alien Property Custodian.
Dr. Kiesselbach did not represent the
German Government, but the private German owners of ships and property.
The tentative plan provided for bonds bearing 5$ interest.
This
rate of interest was necessary in order that bonds, payable in marks in
Germany, should be worth par in the German market, where interest rates
are very much higher than here.
This is to us a high rate of interest, and
since the United States was guarantor of the bonds and the sole beneficiary
of the Dawes payments after the bonds should be paid, upon further consider
ation I came to the conclusion that it was preferable for the Treasury to
use its own obligation payable in dollars, which could be marketed on as
low as a 3§f3 basis.
In preparing the proposed "Settlement of W ar Claims
Act of 1926", therefore, the provision for financing the project by the
%
issuance of bonds against the payments to be received from Germany,
guaranteed by the United States, was eliminated, and the plan simplified
by meeting all payments in cash, just as any other expenditures authorized
by Congress, and leaving to the Treasury the finding of the money under its
general powers.
In. preparing the plan the Treasury has been in consultation with
Hr. Bonynge, the American Agent before the Mixed Claims Commission, with
the Alien Property Custodian, with representatives from the Departments of
State, Justice, War, and llavy, with representatives of the American
claimants, and with Dr. Kiesselbach and Dr. von Lewinski, representing the
private Ce m a n owners of ships and property.
The purpose of these consulta
tions was to obtain the views of all interested parties in the preparation
of a plan to meet the many technical difficulties involved and to cover
the entire field.
The consideration which induced me to prepare the plan was to
suggest to Congress comprehensive legislation to settle, promptly and
permanently, questions left over from the war with Germany, to remove
- 5 ~
possible sources of friction botwoon the two nations and to reaffirm our
high standard of national policy, just alike to the citizens of a fornor
enemy and to our own citizens who had been injured in the war.
Very truly yours,
A.
ïï. KSLL01I
Secretary of the Treasury,
Hon. Charles G. pawo's,
The President of the Senate.
Letter from Congressman Oliver to Secretary
Mellon regarding plan for settlement of Alien Property claims#
My dear Mr. Secretary:
Permit me in response to your statement regarding the
policy outlined in the Mills hill, to offer a plan as a sub
stitute.
I
am particularly shocked to learn that claimants for
damages for the sinking of the «»Lusitania» will be compelled
to wait for eighty years for complete settlement.‘ I hope
that some just and equitable program can be worked out under
established principles of international law for a definite
and early closing of the entire subject of American claims
and German Alien property.
Therefore, I submit the outline of my suggestion:
1.
Subordinate Army of Occupation claims
and Government claims to American
Nationals.
2.
Pay to American Nationals:
a.
b.
3.
$12,000,000 now received
from Dawes annuities on
account of Army of Occupa
tion claim*.
$11,000,000 now received
from Dawes annuities on
account of American Nation
als» claims.
Give preference to all claims of Lusitania
victims and all other claims for- personal
injury and loss of life, and use the
$30,000,000 of earnings made by the
Treasury out of money in the Alien Prop
erty Custodian*s charge and which cannot
be allocated, and any other moneys re
ceived by the United States under the
Dawes Plan first as a fund for such cash
payments. Pay these immediately.
This plan would settle the payment of
all claims of American Nationals in
eight years.
r -* yf'
-
4.
2
-
Establish a commission of three men
of recognized "business experience to
evaluate the following properties
seized from German Nationals and
used by the United States:
a.
b.
c.
Ships
Wireless plant
Patents and inventions
Limit the total valuation to $100,000,000
as you have suggested.
5.
Pay this money with reasonable interest
out of current taxes in five years.
6.
Restore all property now in the hands
of the Alien Property Custodian to
the rightful owners.
7.
After the claims of American Nationals
are fully paid, apply entire sums received
in the future under the Dawes Plan to
the settlement of our claim for the Army
of Occupation*
Faithfully,
(Signed)
Hon. Andrew W. Mellon,
Secretary of the Treasury,
Washington, D. C.
Frank Oliver.
-y
April 23, 1926.
My dear Congre s sman:
I
have your letter of April 21st, suggesting a substitute for the plan
proposed by the Treasury for the -disposition of the German property and the
payment of the American mixed claims.
There is but one substantial difference between us.
I proposed that
the United States use the money now in hand in the unallocated interest fund
and with the Transfer Agent in Germany and advance the balance necessary to
pay the private American claims in cash.
You intend to use the same money
now in hand, but instead of the United States advancing the balance, you
propose to pay the American claimants out of the proceeds of the Dawes
annuities as they are received from Germany, both on account of the mixed
claims and on account of the Army costs, until the private American claims
are paid.
Under each plan the United States
takes
all of the annuities after
the claims are paid.
Under each plan the German property would be returned, under my plan
simultaneously with the payment of the American claims, and under yours
prior to such payment.
The effect of your plan, therefore, is to deprive
a large proportion of the American claims of the security of the German
property to which they are entitled under the Berlin Treaty and to sub
stitute nothing in place of the security.
In other words, in order to
do prompt Justice to German citizens we would be depriving American
citizens of their rights.
If we use the estimate of $190,000,000 as the amount of the private
American claims, deduct from this $30,000,000 as representing the unal
located interest fund, and $8,200,000 of marks now in Germany with the
Transfer Agent, there would have to be paid $151,800,000.
If the United
Statos should, advance the money, it can borrow at 3j$f and tho Dawes
annuities, if paid in full, would reimburse tho United States with interest
m
a little less than eight years, at a total cost of $179,700,000.
The
awards of the mixed claims carry 5$ interest, and taking the same principal
amount of American private claims to be paid and again applying all of tho
Dawes annuities, it would take 8| years to pay the claims at a total cost
of $191,600,000,
Under both plans the United States is the sole beneficiary
of all the Dawes annuities whon the American private claims are paid.
As
suming full payment of the Dawes annuities, the Treasury would save
$11,900,000 by advancing the money in the first instance, and there could
be no objection to the immediate return of the German property.
I am, as I have publicly stated, quite open-minded on this problem.
If some way can be found to give the American citizens ado.quate substitute
for the security of the German property to which they are legally entitled,
and if at tho some time the plan will not be ultimately more expensive to
the Treasury, I should be glad to give it ny support.
Very truly yours,
A, W. MELLON'
Secretary of the Treasury,
Hon. Frank Oliver,
House of Representatives.
Treasury Department
April 29, 1926.
Estimated Amount of Wholly Tax-Exempt Securities
Outstanding.
March 31, 1926.
Issued
hy
Gross
Amount
States, counties,
cities, etc.
territories and
insular possessions
United States
Government
Federal land hanks, in
termediate credit hanks,
and joint-stock land hanks
Total March 31, 1926
Amount held in
Treasury or in
sinking funds.
TAmount held outj side of Treasury
and sinking fund.'
$13,721,000,000
$2,058,000,000 (1)
$11,663,000,000
151,000,000
2 2 ,000,000 ( 2 )
129,000,000
2,168 ,000,000
670,000,000 (3)
1,498,000,000
1,679,000,000
72,000,000 (4)
1,607,000., 000
$17,719,000,000
$2,822,000,000
$14,897,000,000
Comparative totals
February
December
¡December
''December
December
December
December
28,
31,
31,
31,
31,
31,
31,
192.6
1925
1924
1923
1922
1918
1912
$17,512,000,000 $2,816,000,000
17 ,392,000,000
2.793.000. 000
16,268,000,000
2.716.000. 000
14.936.000. 000 2.571.000. 000
13.652.000. 000 2.331.000. 000
9.506.000. 000 1.799.000. 000
5.554.000. 000 1.468.000. 000
$14,796,000,000
14.599.000. 000
13.552.000. 000
12.365.000. 000
11.321.000. 000
7.707.000. 000
4.086.000. 000
(l) Total amount of state and local sinking funds.
B f Total amount of sinking funds and amount hold in trust hy th3 Treasurer of
the United States.
(3) Amount held in trust by the Treasurer of the United States.
r ' Includes amount held in trust by the Treasurer of the United States and
also the amount owned by the United States Government.
TH3 THmSITtY
DIPAHTIQTJT
An outline of tho duties of the Secretary
of tho Treasury, and the various offices
and "bureaus in the Treasury Department.
Prepared hy the Section of Statistics,
Office of the Secretary, Treasury Department,
April, 1925.
1
TH5
The following
Treasury Department
TREASURY
DEPARTMENT
is an outline of the various offices and bureaus of the
and the divisions of the Secretary’s Office, together with
the duties of each:
The Secretary of the Treasury.
The Undersecretary of the Treasury*
The Finances
Commissioner of Accounts and Deposits
(a) Division of Bookkeeping and Warrants
(b) Division of Deposits
Foreign Loans
Advances and Loans to Railroads under the Transportation Act, 1920.
Federal Farm Loan Bureau
Section of Statistics
Government Actuary
Assistant Secretary in Charge of Fiscal Offices:
Treasurer of the United States
'
*
Comptroller of the Currency
Commissioner of the Public Debt
(a) Division of Loans and Currency
(b) Register of the Treasury
(c) Division of Public Debt Accounts and Audit
(d) Division of Paper Custody
Bureau of Engraving and Printing
Mint Bureau
Secret Service Division
Disbursing Clerk
Section of Surety Bonds of the Division of Appointments
A s sistant Secretary in Charge of Internal Revenue and Miscellaneous:
Chief Clerk
---------------------(a) Division of Mail and Files
Bureau of Supply
(a) General Supply Committee
Division of Appointments
Division of Printing
Bureau of Internal Revenue
Bureau of the Public Health Service
Supervising Architect’s Office
Assistant Secretary; in Charge of Customs, Coast Guard, and Prohibition:
Customs Service
Coast Guard
Prohibition Unit
(a) Rareotic Division
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2
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Brief History;
The
forerunners of the Treasury Department as it now exists were a
Superintendent of Finance, created during the Hovolutionary War, and a
subsequent Board of the Treasury,
Rohext Morris was the first and only Superintendent of Finance, serving
from 1781 to 1784.
Upon his resignation a Board of the Treasury consisting
of throe members was appointed.
This Board handled the finances of the
government until Alexander Hamilton assumed the newly created office of
Secretary of the Treasury in 1789,
From the beginning to the present
(April, 1926) there have been forty-seven different secretaries, the last
of whom entered office on March 4, 1921.
The Secretary;
The Secretary of the Treasury is charged by law with the management
of the national finances.
He prepares plans for the improvement of the
revenue and for the support of the public credit; superintends the collection
of the revenue, grants warrants for all moneys drawn from the Treasury in
pursuance of appropriations made by law, and for the payment of moneys into
the Treasury; and submits a report annually to Congress on the condition
of the public finances and the results of activities under his supervision.
He controls the construction and maintenance of public buildings; the coin
age and printing of money; the administration of the Coast Guard and the
Public Health branches of the public service, and furnishes generally such
information as may be required by either branch of Congress on all matters
pertaining to the foregoing.
He is ex officio chairman of the Federal
Reserve Board, created by act approved December 23, 1913, known as the
Federal Reserve Act; ex officio chairman of the Federal Farm Loan Board,
created by act approved July 17, 1915 , known as the Federal Farm Loan Act;
chairman of the World War Foroign Debt Commission; honorary chairman of
the United States section of the Inter-American High Commission; chairman
Hock Creek and Potomac Parkway Commission; member hoard of trustee, Postal
Savings System; member board of trustees, Smithsonian Institution; member
Federal narcotics Control Board; chairman board of directors, War Finance
Corporation.
The Undersecretary:
The office of Undersecretary of the Treasury was created in the Defi
ciency Appropriation Act of June 16, 1921.
To the Undersecretary and the
Assistant Secretary in Charge of Fiscal Offices, who acts under the inter
mediate supervision of the Undersecretary, are assigned the general super
vision of all matters relating to the fiscal bureaus, offices, and divisions,
as follows:
Foreign loans, Advances and Loans to Railroads under the Trans
portation Act, 1920; Commissioner of Accounts and Deposits; Division of Book
keeping and Warrants; Division of Deposits; Treasurer of the United States;
Comptroller of the Currency; Federal Farm Loan Bureau; Section of Statistics;
Government Actuary; Public Debt Service; Bureau of Engraving and Printing;
Mint Bureau; Secret Service Division; Disbursing Clerk, Surety Bonds Section.
The Lndersecretary also is charged with the supervision of the finances,
and is authorized to act, for and by direction of the Secretary, in any
branch of the department, and represents the Secretary in dealings with the
Federal Reserve Board, the War Finance Corporation, and the Farm Loan Board.
Assistant Secretaries of the Treasury:
To the Assistant Secretary in Charge of Fiscal Offices, acting under the
intermediate supervision of the Undersecretary, is assigned supervision of
matters relating to the fiscal bureaus, offices, and divisions as indicated
under the duties of the Undersecretary.
To the Assistant Secretary in Charge of Internal Revenue and Miscellaneous
is assigned the general supervision of all matters pertaining to the following
"bureaus and divisions:
Chief Clerk; Division of Hail
and Files; Bureau of
Supply; General Supply Committee; Division of Appointments; Bhreau of the
Public Health Service; Division of Printing; Bureau of Internal Revenue;
Supervising Architect»s Office,
To the Assistant Secretary in Charge of Customs, Coast Guard, and Prohibition is assigned the general supervision of those
respective services
- 5 THF UNDERSECRETARY 07 THS TREASURY;
Commissioner of Accounts and De-positsi
The Office of Commissioner of Accounts and Deposits was created in
January, 1920, on account of the large increase in the accounting transac
tions of the Treasury in connection with receipts and expenditures and the
deposit of public funds throughout the country.
The commissioner, under
the Fiscal Assistant Secretary, was given administrative supervision over
the Division of Bookkeeping and Warrants and its relations to the office
of the Treasurer of the United States,
He was later given supervisory
direction over the Division of Deposits which was created on May 19, 1920,
as a part of this reorganization.
The commissioner likewise was given
control of all accounts of investments of the Government and was made re
sponsible for the proper custody of all investments and securities held
by the Treasurer of the United States and the Federal reserve banks for
which the Secretary is responsible other than those related to the publicdebt operations.
Division of Bookkeeping and Warrants:
This Division, established in
1894, is by law the official bookkeeping organization of the Government
so far as appropriation accounts and covering of public moneys into the
Treasury are concerned.
The accounts and records of disbursements in this
Division are on a basis of warrants issued and necessarily differ materially
from the actual cash expenditures as shown in the daily Treasury statement
prepared in the office of the Treasurer of the United States.
'Reconcilia
tions between these accounts, both as to receipts and expenditures are
made in order to exhibit properly the receipts and expenditures of the
Government,
Among the many functions of this Division the following are
the most important; — It makes analysis of all Acts of Congress carrying
- 6 Commissioner of Accounts and Tto-noa-tt«« (Continued)
appropriations and opens up the necessary appropriation accounts on its
ledgers; it issues all warrants for placing disbursing funds to the credit
of disbursing officers and for the payment by the Treasury of claims
settled by the General Accounting Office; it issues all warrants covering
into the Treasury the revenues and receipts of the Government from the
various authorized sources, and all repayments to the Treasury of the un
expended balances of appropriations; and handles the work involved in the
Secretary’s Special Deposit Accounts including those of the Alien Property
Custodian kept with the Treasurer of the United States.
It compiles for
submission through the Bureau of the Budget the regular estimates of appro
priations and the supplementary and deficiency estimates for the service
of the Treasury.
It compiles for transmission to Congress an annual com
bined statement of the receipts, disbursements, and unexpended balances
under each appropriation account.
In addition to the above this division compiles and publishes the annual
digest of appropriations made by Congress and makes miscellaneous statistical
reports as requested by Congress or by the Secretary of the Treasury and
carries on the correspondence and miscellaneous work incident to its activi
ties.
It has also been assigned the duties formerly under the Division of
Public x.iOneys, so far as they related to the covering of revenue and repay
ments into the Treasury, the issuance of duplicate checks and warrants
and the certification of outstanding liabilities for payment.
Division of Deposits; - This Division is charged with the administration
of matters pertaining to designation of Government depositaries and the de
posit of Government funds in the Pederal reserve banks, national banks,
special depositaries under the Liberty loan acts, foreign depositaries, Ped
eral land banks, and the Philippine Treasury,
This Division supervises
- 7 Commissioner of Accounts and Denosits! (Continued)
all depositaries and obtains proper security for all Government Deposits*
It issues directions to all public officers as to the deposit of public
moneys collected by then and is charged generally with the administration
of all matters pertaining to the foregoing.
The Federal Farm Loan Bureau!
The Farm Loan Board through the Farm Loan Bureau administers the Farm
Loan Act of July 17, 1916, and that part of the Agricultural Credits Act of
March 4, 192o, providing for the establishment and operation of Federal
Intermediate Credit Banks.
The Federal. Farm Loan Act was passed in order to provide the American
farmer with long-term credit at a low rate of interest.
Prior to the
passage of this Act the capital requirements of American agriculture could
not be met through the ordinary channels of commercial banking or through
the Federal Reserve System.
The Intermediate Credits Act of March 4, 1923,
* was designed to furnish to agriculture a short-term credit but of a longer
maturity than could ordinarily be provided by commercial banks but not so
long as that provided by the Federal Farm Loan Act,
The Federal Farm Loan Act provides for twelve Federal Land Banks and
such number of Joint Stock Land Banks and national Farm Loan Associations
as the Farm Loan Board may approve.
The oversight and regulation of all
these organizations are in the hands of the Farm Loan Board.
It is neces
sary that Federal Land Banks and Joint Stock Land Bahks have the approval
of the Farm Loan Board before any bonds can be issued and sold.
Likewise,
a Federal Intermediate Credit Bank must secure the Board1s approval before
it can issue debentures provided for under the Agricultural Credits Act,
- 8 -
■Pfo.8 Federal Farm Loan Bureau? (Continued)
This Board has such incidental powers as are necessary to fulfill
its duties and to carry out the purposes of the let creating the insti
tution for which it is responsible.
The Section of Statistics!
This Section makes statistical studies on receipts, expenditures, the
public debt, and other questions of public finance that arise in connection
with the Treasury administration.
It estimates future tax receipts on the
basis of a statistical analysis of tax receipts and business conditions.
It
prepares correspondence and reports for the Secretary and Undersecretary
dealing with financial subjects.
Under the direction of the Undersecretary
it assembles, edits, and prepares articles for the annual report of the
Secretary of the Treasury.
During the sessions of Congress, the progress
of legislation in which the Treasury may be interested is summarized daily
and distributed to the various divisions and bureaus of the Treasury De
partment.
The Library of the Office of the Secretary is a part of the
Section of Statistics.
The Actuary;
-This oificer makes estimates relative to population, revenues, and
finances for the Treasury Department, for Congress, and various comnittees
of Congress and members of Congress.
He assists in the preparation of
revenue and tariff acts by giving details to the Ways and Means Committee
and the Finance Committee.
He issues a monthly circular showing the
market prices and investment value of United States securities daily.
He is sometimes detailed to other Departments and Commissions to assist
on actuarial work, such, for instance, as the negotiation of trade treaties
with foreign countries through the Department of State, and to the Joint
- 9 ~
The Actuary: (Continued)
High Commission in dealing with Canada.
He is a member of the. Boar4 pf
Actuaries in connection with the Bureau of Pensions.
-
10
-
ASSISTA1TT SECRETARY III CHARGE OF FISCAL OPFICFS;
Treasurer of the United States
:
The Treasurer of the United States is charged with the receipt and
disbursement of all puolic moneys that may be deposited in the U. S.
Treasury and in all other depositaries authorized by the Secretary of
the Treasury to receive deposits of Government funds for credit in the
account of the Treasurer of the United States; is trustee for bonds held
to secure national bank note circulation and public deposits in national
banks and bonds held to secure postal savings in banks; is custodian of
miscellaneous securities and trust funds and is fiscal agent for the issue
and redemption of United States paper currency, for payment of principal
and interest on the public debt1 and for payment of principal and interest
on bonds of the Porto M e a n and Philippine Governments, of which the Secre
tary of the Treasury is the transfer agent; and is Treasurer of the Board
of Trustees of the Postal Savings System.
Okie Treasurer is agent for the
redemption of national bank notes, Federal Reserve notes and Federal re
serve bank notes and makes exchanges and redemptions of the paper money and
the gold, silver and minor coin of the United States.
Funds advanced to
disoursing officers for the use of Government departments and establish
ments under the appropriation of Congress are credited in the accounts of
such disbursing officers on the books of the Treasurer and disbursements
therefrom are made by checks drawn on the Treasurer.
There are in the office of the Treasurer seven divisions; The Chief Clerk, ‘Cashier, Division of Securities, Redemption Division,
Division /of General Accounts, Accounting Division, and national Bank
Redemption Agency.
Chief Clerk: - The Chief Clerk has supervision of all employees and
conducts all correspondence relative to personnel, and answers all
XI Treasurer of the United States: (Continued)
miscellaneous letters not properly chargeable to the other divisions*
He
is responsible for the distribution of all mail, telegrams, etc., for the
office, and has direct supervision of the preparation of pay rolls and
payment of salaries.
He prepares all requisitions for supplies and pre
pares all estimates of appropriations for the Treasurer's office.
He
supervises the operation of the confidential code and system of testwords between the Treasurer’s Office and the Federal reserve banks and
conducts all transactions under the Retirement Act of May 22, 1920.
He
is charged with the responsibility of enforcing those regulations of the
Department relating to the Treasurer’s Office.
Ha prepares all special
reports for the Budget and the Secretary of the Treasury,
He compiles
reports of the different divisions as to classification and efficiency
ratings and is a member of the Board of Review to pass upon such ratings*
He is responsiole for the safe handling of the valuable mail received
and sent.
Cashier: - The Cashier receives public deposits made in Washington
and pays over the counter Treasury checks, interest checks, coupons and
disbursing officers’ checks when presented.
He receives from the Bureau
of Engraving and Printing United States paper currency andtstores it in
the reserve vaults until it is required for issue to replace mutilated
currency destroyed.
He issues all United States paper currency and makes
shipment of it in denominations required by the Federal reserve banks and
the public.
He makes collection through Federal reserve banks and national
bank depositaries of all checks deposited in payment of G-overnment obli
gations.
12
-
Treasurer of .theJJnited States: (Continued)
m x islon of SecTyltlesi - This Division has custody of all bonds held
to secure circulation of national bank currency, for deposits of public
moneys, for postal savings deposits and miscellaneous accounts for the Sec
retary of the Treasury; collects the semi-annual tax on national bank cir
culation and examines and proves all public debt items charged as redemptions
and taken up in the Treasurer’s account current affecting all public debt
redemptions in both principal and interest, and prepares requisition for
reimbursement therefor; issues Treasurer’s checks in redemption of Treasury
savings certificates and other obligations of the United States; verifies
and arranges by loans all checks paid on account of interest on the public
debt, making search for stoppage of payment; issues interest chocks on
registered bonds of the Philippine Islands and Porto Rico, and renders the
account current of the Treasurer for those disbursements; makes investments
and holds securities for the District of Columbia Teachers* Retirement Fund;
receives and verifies all securities purchased for retirement by the Secre
tary of the Treasury and acts as disbursing agent for the Secretary’s ac
count of investments for the Civil Service Retirement Fund, Foreign Service
Retirement Fond, and Adjusted Service Compensation Fund; and has custody of
and maintains an accurate account of all foreign obligations to the United
States*
Redemption Division; - This Division receives and verifies unfit
United States paper currency forwarded to the Treasurer for redemption
and directs payment therefor; cancels and cuts in two lengthwise this
uni it currency and delivers same to the Division of Loans and Currency
for recount and destruction; receives and makes test counts of the upper
halves of unfit United States paper currency forwarded by Federal reserve
banks and their branches; adjusts differences found by the Division of
13 Trsasurer of the United Statna. (Continuad)
Loans and Currency in its c o l l a t e count of corresponding loner halves;
receives from hanks in Washington, currency for telegraphic credit with the
Federal aeservo Bank of Richmond; keeps the necessary hooks covering all
transactions, functioning credits or directing issue of checks in payment
of remittances received.
It estahlishas the standard of fitness of notes
for circulation and checks shipment of half notes received from Federal
reserve hanks and hranchos and reports in this particular matter to the
Tr„asuror of the United States, and to the Commissioner of the Public Debt,
The Redemption Division is charged with the responsibility of detecting all
counterfeit, short notes, pieced notes and raised notes found in currency
presented for redemption.
Division of General Accounts; - This Division prepares and issues,
for the Secretary of the Treasury, the daily Treasury statement of the
United States, the monthly preliminary statement of the public debt, and
tho monthly preliminary statement of classified expenditures of the
Government,
It publishes the monthly statement of the outstanding paper
currency of the Government and maintains the accounts from which it com
piles the figures for such statements.
It issues Treasurer*s checks as
authorized by settlement warrants in payment of claims settled ty the
Comptroller General, and certificates of deposit placing funds to the
credit of disbursing officers as authorized hy accountable warrants;
maintains registers as to such warrants and checks issued, paid and out
standing; makes reclamation of payment of checks returned hy the 'Comp
troller General for which credit is disallowed in the Treasurers account
collects interest on daily balances with Government depositaries and
renders report of same to the Comptroller General; authorizes and directs
14 Treasurer of the United St at art* (Continued)
transfers of currency and coin between Treasury offices and Federal reserve
banks and branch banks; restores depleted balances in general 'national bank
depositaries to the limits authorized by the Secretary of the Treasury; and
handles applications for coins received from banking institutions, individ
uals and others.
It also maintains general Treasury ledger accounts of all
of the accounts of the trust fund, the reserve fund, the gold settlement
fund, and the general fund; the record accounts of the classified assets
and liabilities of the Government; the individual and controlling reserve,
issue and redemption accounts of the paper currency of the Government, by
classes and denominations; the individual ledger and individual transit
accounts of Treasury offices, Federal reserve banks and branch banks, foreigr
depositaries, and national bank depositaries; Federal reserve bank and
branch bank telegraphic report accounts; fiscal agent accounts of deposits
in special depositaries; and individual accounts, by banks and classes, of
payments for and redemption of Public Debt securities; and the accounts of
the covered and uncovered revenue and repayment receipts of the Government.
It renders the bullion fund accounts of United States mints and assay
offices; the Treasurer4s quarterly account of receipts and expenditures
by warrants; and the account of the Government4s paper currency issued,
redeemed and in reserve.
A c counting Division: - This Division receives daily from tho Federal
reserve banks and their branches and from the general national bank
depositaries transcripts of the account of the Treasurer of the United
States with such banks, accompanied by certificates of deposit representing
the crecdts in the Treasurer’s account and by checks representing the
charges in the Treasurer’s account.
It proves and classifies the deposits
- 15 Treasurer of the United States: (Continued)
and checks for posting to the general ledger accounts and for use in the
Daily Statement of the United States Treasury.
It maintains individual
accounts with disbursing officers, examines and proves checks presented
for payment, and renders monthly statements of such accounts to the dis
bursing officers and to the General Accounting Office.
It causes investi
gations to be made of claims of nonreceipt of checks, reclaims payment from
indorsers when checks are fraudulently negotiated, and transmits to the
payees the funds thus recovered.
It forwards to payees bonds of indemnity
required to obtain duplicates of disbursing officers* checks, interest check
and Treasurer *s checks and it receives and files bonds of indemnity given
to obtain duplicate Treasurer*s checks and interest checks.
files of authorities required for the indorsement of checks.
It maintains
The Accounting
Division also records stoppages of payment, returns to the presenting banks
cnecks which cannot be paid, and conducts correspondence relating to dis
bursing officers* checks and accounts.
National Bank „Redemption Agency; - The Agency receives shipments of
national bank notes, Federal reserve notes and Federal reserve bank notes
sent to tne Treasurer for redemption by Federal reserve banks and other
insitutions.
It directs payment for such remittances either by Treasury
checks, by credits with Federal reserve banks or by transfers between re
demption funds.
It makes three assortments of national bank notes in order
to assemble the notes according to the banks of issue, using as a basis of
assortment the charter numbers on the notes.
Federal reserve notes and
Federal reserve bank notes received from other than Federal reserve banks
are assorted to banks of issue by the Agency,
Federal reserve notes assorted
and cut in half before shipment by Federal reserve banks are verified by
the Agency as to count and assortment.
Federal reserve notes assorted and
IS ggga.surer 0f the Uni tod States! (Continued)
cut in half before shipment by Federal reserve banks are verified by the
Agency as to count and assortment.
® 13 A 0utiey delivers all notes unfit for use or subject to retirement
to the Comptroller of the Currency and returns to the banks of issue any
notes that are fit for further circulation.
It keeps accounts of the re
demption funds of the national find Federal reserve banks, crediting the
respective banks with deposits made and debiting then with notes redeemed
or refunds made.
It keeps account of all expenses incurred by the Govern
ment in the redemption and transporation of national and Federal reserve
currency and assesses such expenses upon the banks in proportion to.the
amount of thoir notes redeemed.
The Agency is responsible for the integrity of the cash in its posses-
M
sion, the detection of counterfeits, raised and pieced notes presented for
redemption, and with protection of the Government against fraud in the re
demption of burned and mutilated currency.
Comptroller of the Currency;
The Comptroller of the Currency is the chief officer of the Bureau
of the Comptroller of the Currency established under the act of June 3,
18S4, mnoTin as the xTational Bank Act.
In the beginning emphasis mas
placed primarily upon those functions of the Bureau concerned with the
issue and regulation of the national bank notes, secured by United
States bonds.
In the course of tine this phase of the work of the Bureau
has decreased in relative importance and the primary functions of the
Comptroller of the Currency now are those relating to the organization of
new national banks, the general supervision over the national banks in
operation and the administration through receivers of national banks which
have failed*
- 17 Comptroller of the Currency: (Continued)
Under the direction of the Comptroller, the national hank examiners
make regular examinations of the affairs of all national hanks.
A report
of each of these examinations is made in writing by the examiner to the
Comptroller.
These examinations show the condition of the hank with
reference to its solvency and whether or not it has violated any of the
provisions of the National Bank Act.
In the case of such violations of
law, suit may he brought in the name of the Comptroller against any such
hank for the forfeiture of its charter.
If it appears
to the Comptroller that any national hank is in an in
solvent condition,
it is his duty to appoint a receiver therefor for the
purpose of winding
up the affairs of the hank.
The reports of condition of all national hanks aré required to he
made to the Comptroller hy the hanks not less than three times a year
upon a date fixed hy the Comptroller.
The Comptroller of the Currency is an ex officio member of the FederalReserve Board and sits regularly with the Board.
He also hy virtue of the
provisions of the Federal Reserve Act executes and issues the charters for
the Federal i&serve hanks, and his Bureau issues to the Federal Reserve hanks
the Federal reserve circulating notes.
The Comptroller of the Currency is required hy law to report annually
directly to Congress and to recommend to Congress amendments to the national
banking laws.
The Commissioner of the Public Debt:
The Commissioner of the Public Debt has supervision over all transac
tions in the public debt and the paper currency issues of the United States,
and the miscellaneous work incident thereto.
The Public Debt Service
18
-
^ . . O o nmlssioner of the Public Debts (Continued)
includes the Division of Loans and Currency, the Office of the Register of
the Treasury, the Division of Accounts and Audit, and the Division of
Paper Custody.
^
giv.lsion of Loans and Currency is the issuing branch of the Public
Debt Service.
It receives, examines and has custody of all public debt
securities printed by the Bureau of Engraving and Printing.
It is charged
■¿rith the original issue of public debt securities, and thereafter conducts
transactions therein, including exchanges, transfers, conversions and re
placements, the maintenance of accounts with the holders of registered bonds,
and the preparation of checks for the payment of interest thereon.
This
division also handles the public debt issues of the Philippine Government,
the Government of Porto Rico, and the District of Columbia; and audits all
currency notes of United States paper currency issues received for re
demption.
Tîl°
°C..the Register of the Treasury is the retirement branch of
the Public Debt Service.
It is charged with the receipt, examination and
custody of all public debt securities retired for any account, including
paid securities and securities canceled against reissue or otherwise.
Paid
securities, including interest coupons, are forwarded by the Treasurer
direct to the Register, and the Register’s certificate of audit is accepted
by the Comptroller General as verification of payment by the Treasurer.
The
Register’s certificate is also accepted by the Secretary as evidencing
credit to bo given fiscal agents in the matter of returned securities, and
the same procedure exists with respect to canceled securities delivered by
the Division of Loans and Currency and by the Postal Service to the
Register for credit.
19 Thg. Commissioner of the Public Debt.: (Continued)
Tile E l i s i o n of Accounts and Audit maintains accounts of, and ex
ercises control over, all transactions in the.public debt from the time
securities are printed until they are retired.
It maintains the general
accounts of the public debt with the Division of Loans and Currency with
respect to issues; with the Register of the Treasury as to retirements;
vith the fiscal agents for all transactions conducted by then; with the
Postal Service in connection with Treasury (war) savings securities; and
with the Treasurer of the United States.
Through administrative audits
conducted from time to time, this division verifies the accuracy of public
debt transactions.
This division also maintains controlling accounts over
all distinctive and non-distinctive security paper used by the Bureau of
Engraving and Printing and the work in process, and conducts administrative
audits thereof.
1116 — v-ision of,,Paper Custody receives from various contractors the
distinctive paper used in printing the public debt obligations and the
paper currency of the United States, internal revenue stamps and other
securities.
It issues such paper to the Bureau of Engraving and Printing,
and requires that Bureau to account for every sheet issued, either through
delivery of perfect work to the several Treasury offices or through the
return of imperfect or mutilated stock to the Division of Paper Custody,
The manufacture of the distinctive paper used in the printing of public
debt obligations and paper currency issues is supervised by a representa
tive of this division detailed to the paper mills of the contractor for
that purpose.
Si
The function of the United States Government Savings System is the
furthering of sales of Treasury savings certificates, and the encouragement
of thrift and saving and the investment of savings in Government securities.
M S I S T A N T SECHIDTAgY__lf CHARGE OF FISCAL OFFICES!(Continued)
Bureau of Engraving and Printing;:
O M s Bureau designs, engraves, and prints for the Government all
United States Bonds, certificates of indebtedness, Treasury notes, United
States currency, national bank currency, Federal reserve notes, Federal
farm loan and joint stock land bank bonds; revenue, customs, and postage
stamps; disbursing officers*, pension, retirement, and interest checks;
liquor permits, drafts, warrants, transportation requests; certificates,
commiosions, and licenses for various purposes; and many other classes of
enslaved work for governmental use.
It also designs, engraves, and prints
bonds, currency, revenue, and postage stamps as authorized by the Bureau of
Insular Affairs for the insular possessions of the Government.
Mint Bureau;
The Director of the Mint has general supervision of all the mints and
assay offices of the United States.
He prescribes the rules, to be approved
by the Secretary of the Treasury, for the transaction of business at the mint
and assay offices, receives daily reports of their operations, directs the
coinage to be executed, reviews the accounts, authorizes all expenditures,
superintends the annual settlements of the several institutions, and makes
special examinations of them when deemed necessary.
All appointments, re
movals, and transfers in the mints and assay offices are subject to his ap
proval.
Tests of the weight and fineness of coins struck at the mints are
made in the assay laboratory under his charge.
He publishes quarterly an
estimate of the value of the standard coins of foreign countries for custom
house and other public purposes.
An annual report is prepared by the
Direc
tor, giving the operations of the mint service for the fiscal year, printed
-
21
-
Hint Bureau: (Continued)
in the Finance Report of the Secretary of the Treasury, and giving statistics
of the production of the precious metals in the United States and the world
for the calendar year.
Secret Service Division!
This division is charged with the suppression of counterfeiting, the
protection of the President of the United States and his family and the
person elected to be President, and investigations of violations of the
Farm Loan Act, the War Finance Act, and such other matters relating to the
Treasury Department and the several branches of the public service under
its control as are directed by the Secretary of the Treasury.
Disbursing Clerk!
The work of this office is concerned with paying by check or cash those
obligations of the Treasury which have been certified by the proper division
as due.
The payments for salaries, expenses and supplies cover disbursements
for all oureaus and divisions of the Treasury Department in the District of
Columbia (except the Bureau of Engraving and Printing) and a large proportion
of the salaries and expenses outside of the District of Columbia under the
Public Health Service, the Supervising Architects Office, the Bureau of In
ternal Revenue, the Federal Farm Loan Board, the Comptroller of the Currency,
/
the Coast Guard, the Secret Service, the Customs Division, and the Public
Debt Service.
Upon the approval of the Commissioner of Internal Revenue
checks drawn on account of claims for refund of internal revenue taxes il
legally collected are mailed directly by the Disbursing Clerk.
In addition to making disbursements, an important function of the office
is receiving and accounting for moneys due the United States on account of
rents for buildings and real estate owned by the Government, as well as of
22
-
Dis bur sing Clerk; (Continued)
public property under the various bureaus and offices.
Section of Surety Bonds of the Division of Appointments:
The Division of Appointments has administrative control over fifty
surety companies authorized to transact'business with the Government; fixes
the qualifying power of each company; supervises the audit of the financial,
statements of the companies quarterly; notifies the companies of the settle
ment of fiscal officers’ accounts under Fidelity bonds, and has custody of
all bonds running to the Government except those for Post Office employees
and certain Internal Revenue bonds.
23 -
M SI ST M T .SECRETARY, J H CHARGE OF IT O R U A L R 37M O S HID MIsm.T.ATranrre*
Chief Clerk;
The Chief Clerk and Superintendent is the chief executive officer
of the Secretary, and, under the direction of the Secretary, the Under
secretary, and Assistant Secretaries, is charged with the enforcement of
departmental regulations general in their nature; is by law superintendent
of the Treasury Building, and in addition superintends the Register's
Liberty Loan, Butler, Auditors', and Treasury Annex Buildings, and all
other Treasury buildings in the District of Columbia except the Bureau of
Engraving and Printing; has direct charge of motor trucks belonging to
the department; the direction of engineers, machinists, watchmen, fire
men, laborers, and other employees connected with the maintenance and
p otection of the Treasury Building and annexes; the expenditures of
appropriations for contingent expenses; the administrative control of
appropriations made for Government exhibits at various expositions; handles
offers in compromise cases; the custody of the records and files of the
Secretary's office; the custody of all sites for proposed public buildings
m
Washington; custody of the official seal of the Treasury Department;
tho handling of requests for certified copies of official papers; as de
partment representative handles all matters relating to psrsonnel classi
fication and efficiency ratings; and has charge of all business of tho
Secretary *s office unassigned.
Under the Chief Clerk is operated the Medical Relief Service which
*as organized and is supervised by the Treasury Physician.
In-the various
"buildings occupied by Treasury personnel there are ten relief rooms oporated
by graduate registered nurses.
These rooms are established for the relief
and protection of employees who become ill or are injured while on duty.
Chief Clerk: (Continued)
So far as practicable, this service is limited to first aid treatments,
however, this service is open to all employees in a building whether on the
Treasury roll or not.
The main Relief Room, which is also the Physician^
Ofiice, is in charge of the Head itfurse, and is located in the Treasury
Building*
An average of 66,500 employees are treated annually in the Treasury
Relief Room?,about 25/& of whom are men.
Bureau of Supply:
This Bureau has charge of all of the functions in connection with the
purchase of equipment and supplies formerly carried on by offices, divisions,
services, and oureaus of the Treasury Department in Washington and in the
field, except those of the Mint Bureau, Coast Guard, and Bureau of Engraving
and Printing.
The bureau further has control over the storage and distribu
tion of stocks of stationery, etc., belonging to the department.
Accounting
for the funds allotted to the bureau for the purchase of supplies, together
with the approval of vouchers for payments, is also a function of this bureau.
The bureau exercises supervision over the activities of the General Supply
Committee.
General Supply Committee;
The General Supply Committee was created by the act of June 17, 1910,
and is composed of one representative from each of the executive departments,
designated by the head thereof.
The Superintendent of Supplies, who is an
official of the Treasury Department is ex officio secretary of the committee,
and he conducts its correspondence, supervises the preparation of its con
tracts, and performs such other duties as the Secretary of the Treasury may
- 25 General Supply Committee : (Continued)
direct*
It is the duty of the committee to prepare annually a schedule of
miscellaneous supplies in common use hy or suitable to the ordinary needs of
two or more executive departments or government establishments in Washington;
to standardize such supplies; and to solicit bids therefor, tabulate pro
posals received, and recommend awards.
By the Executive order of December 3, 1918, and Treasury Department
Regulations dated December 10, 1918, the General Supply Committee has
charge of the transfer and sale of surplus office material, supplies,
and equipment in the hands of the executive departments and other estab
lishments of the Government in the District of Columbia,
The Executive order of August 2?, 1919, carrying into effect the
provisions of the act of July 11, 1919, designates the General Supply
Committee as the central agency to maintain records of surplus Government
material, supplies, and equipment throughout the United States.
Division of Appointments ;
This Division has supervision over all matters relating to the appoint
ments and other changes in the personnel of the Departmental and Field
Services of the Treasury Department; the preparation of nominations and com
missions of Presidential officers and of all bonds of Treasury officials,
where required; prepares and approves the payrolls of the Treasury Depart
ment in Washington, and prepares reports relative to the personnel required
by law or requested by Congress.
Gas supervision over the work connected
with the retirement and retention of employees under the retirement law and
certifies to the Pension Office all amounts refunded under this law to em
ployees leaving the service.
It also supervises the preparation of corres
pondence with members of Congress and others relative to appointments and
other personnel matters and conducts correspondence with the United States
-
26
-
Division of Appointments: (Continued)
Civil Service Commission and other Departments relative to personnel matters
and changes in the service.
Division of Printing:
Ihis Division orders from the Government Printing Office, and super
vises the production of and accounting for, all printing and binding for
the Treasury Department, and its outside services and on requisition sup
plies suqh printed material to all Treasury activities, wherever located.
It orders from the Bureau of Engraving and Printing and supervises the
production of all plate printing and engraving not having a money facevalue, including disbursing officers' checks for the entire Government
establishment.
Places Department advertising, designating
the newspaper
or periodical, issuing written authority for publication, and settling the
accounts therefor.
Administers the Treasury appropriation for postage.
Bureau of Internal Revenue:
The Commissioner of Internal Revenue under the direction of the Secre
tary of the Treasury, has general superintendence of the assessment and *
collection of all internal revenue taxes; the enforcement of internal
revenue laws; the enforcement of the National Prohibition Act and the
Harrison Narcotic Act; the selection, compensation and assignment to duty
of all internal revenue officers and employees, and the preparation and
distribution of instructions, regulations, forms, blanks, stationery,
stamps, etc.
For the purpose of efficient and effective administration, the duties
of the Bureau are assigned to various units as follows:
27 Bureau of Internal Revenue: (Continued)
BUREAU
The Internal Revenue Bureau in Washington is made up as follows:
Prohibition Unit
Miscellaneous Tax Unit
Accounts and Collections Unit
Income Tax Unit
Solicitor’s Unit
Commissioner and Miscellaneous Unit
The Prohibition Unit is charged with the enforcement of the Federal
Prohibition Act and the Harrison Narcotic Act.
Miscellaneous Tax Unit is charged with the responsibility of ad
ministering the estate tax, the gift tax and the capital-stock tax laws;
interpretation and administration of Title V and VII of the Revenue Act
of 1924 and similar provisions of the Revenue Acts of 1917, 1918, and
1921, also completing cases under these prior acts involving repealed
sections imposing other sales taxes, tax on telegraph and telephone
messages, and tax on transportation charges; the administration of laws
and regulations relating to taxes on tobacco, snuff, cigars and cigarettes,
cigarette papers and tubes, oleomargarine, adulterated and renovated butter,
mixed flour, filled cheese, phosphorous matches, playing 'cards, documentary
stamps, sales of products for future delivery, tax upon the use of boats
and special taxes upon businesses and occupations.
- 28 Bureau of Intornai Rayonne : (Continued)
The Accounts and Collections Unit is charged with the administration
of matters having to do with the organization and management of internal
revenue collectors* offices, including their field forces; with the admin
istrative audit of the disbursing accounts of all collectors, revenue
agents in charge of divisions, federal prohibition administrators, and
other special disbursing agents in the internal revenue bureau and service
office procedure and accounting methods in collectors* offices; the admin
istrative audit of all revenue accounts submitted by collectors, and the
issue of stamps to collectors of internal revenue.
^
Income Tax Unit is the agency of the Bureau of Internal Revenue
for administering the income and profits tax laws.
Its duties are to pre
pare regulations for the administration of laws relating to taxes on in
come and profits; to conduct correspondence relating to the subject matter
of income and profits taxes; to receive from collectors of internal revenue
returns (except individual returns showing gross income not in excess of
$35,000) covering taxes on income and profits; to audit and verify returns
(except individual returns showing gross income not in excess of $25,000);
to see that all original and additional assessments of income and profits
taxes are made; to review and dispose of claims for refund, abatement and
credit of income and profits taxes; to compile statistics relating to in
come and profits taxes, and to control and operate the field forces of
revenue agents and inspectors assigned to the duty of auditing income and
profits tax returns (except individual returns showing gross income not
in excess of $25,000).
Solicitor *s Unit is the legal branch of the Bureau and acts as the
legal advisor to the Commissioner and to the administrative units of the
29
Bureau of Internal Revenue; (Continued)
Bureau; represents the Bureau in cages Before the United States Board of
Tax Appeals and in cooperation with the Department of Justice represents
the Government in all Federal courts.
The various functions of this office
are separated into five divisions as follows:
Civil Litigation Division
Penal Division
Interpretative Division Ho. I
Interpretative Division Ho, II
Review Division
Appeals Division
The Commissioner & Miscellaneous Unit comprises the immediate office
of the Commissioner and his Assistant, the Intelligence Unit, Appointment
Division, Communication Division, and Division of Supplies and Equipment,
and makes all details of personnel to offices outside of the Bureau.
FIELD
There are throe main divisions of the field service as follows:
Collection Service - Made up of 65 collection districts, each under
a collector of internal revenue appointed By the President, with the ad
vice and consent of the Senate,
This field service is under the immediate
direction of the Deputy Commissioner in charge of the Accountsand Collec
tions Unit.
Field Audit Service - Made up of 34 field divisions, each under a
revenue agent in charge.
These 34 divisions are assembled into eight super
visory districts, each under a supervising internal revenue agent who is
also the agent in charge of the division where his headquarters are located.
These eight supervising agents answer directly to the Deputy Commissioner of
the Income Tax Unit.
- 30 Bureau of Internal Rovenue; (Continued)
Prohibition Service - Made up of 24 districts, each under a federal
prohibition administrator.
This field service is under the direction of
the Assistant Secretary of the Treasury in charge of prohibition enforcement.
In addition to the above three main divisions of the field service,
there are the following traveling forces operating from Washington;
Service - Under the immediate direction of the Chief,
Intelligence Unit, who answers to the Commissioner.
gorce_of Supervisors of Accounts and Collections - Operating under
the immediate direction of the Deputy Commissioner in charge of the
Accounts and Collections Unit.
H PJC0
Miscellaneous and Sales Tax Agents - Operating under the
immediate direction of the last named official,
Force of Narcotics A gents and Inspectors - Operating under the Head
of the Narcotics Division, Prohibition Unit, who answers direct to the
Federal Prohibition Commissioner, who in turn answers to the Assistant
Secretary of the Treasury in charge of narcotic enforcement.
Z.
9.rco of. Prohibition Investigators - Operating under a Chief Prohi
bition Investigator who answers direct to the Assistant Secretary of the
Treasury in charge of prohibition enforcement.
Bureau of the Public Health Service;
The Bureau of the Public Health Service at Washington comprises seven
divisions, and the chief clerk1s office, the operations of which are co
ordinated and are under the immediate supervision of the Surgeon General*
- 31 jfa.r.
ea'
11 Pi* the Public Health Service; (Continued)
1110 V i s i o n of Sciontific Research conducts the scientific investi
gations of the Service.
Intensive studios of diseases of nan, including
cancer, Clonorchiasis, diphtheria, encephalitis lothargica, goiter, influenza,
lepros,,, malaria, Malta fever, pellagra, pneumonia, poliomylitis, Rocky
Mountain spotted fever, scarlet fever, smallpox, trachoma, tuberculosis,
tularaemia, typhoid fever, typhus fever; of child, mental, and industrial
hygiene; of public health administration; of morbidity; of milk; and of
stream pollution and sewage are carried on from special headquarters in
the field in cooperation with State and local health authorities.
Tech
nical and purely laboratory studies are conducted at the Hygienic Laboratory
in Washington, at special field laboratories, and at the leprosy investiga
tion station in Hawaii, the latter being carried on in connection with the
medical treatment of lepers.
Information obtained from these investigations
is disseminated through publications, correspondence, lectures, and con
ferences with health authorities concerning the results of field studies
m
their jurisdictions.
Through this Division the
Department enforces
the Act of July 1, 1902, to regulate the sale inter-state traffic of
viruses, serums, toxins, and analogous products, including arshpenamino.
Through the Division of Foreign and Insular Quarantine and Tmmi^.a+4 „„
the Surgeon General administers the quarantine laws and regulations of the
United States and conducts the medical inspection of aliens.
Seventy-three
quarantine inspection stations are maintained in the United States and 27
stations in its insular possessions and dependencies.
Twenty-six of these
stations are equipped for the housing of persons detained in quarantine.
Forty-six medical officers of the Public Health Service are assigned to
American Consulates for the purpose of supervising the enforcement of the
quarantine regulations on the part of vessels about to depart for the
- 32 Bureau of the Public Health Service! (Continued)
United States,
The nodical inspection of aliens is conducted "by nodical
°^:^ cGrs
Public Health Service at 120 stations in the United States
and Canada and at 9 stations in Europe,
At 65 of the above named stations
both quarantine and immigration activities are carried on.
The Division
of Foreign Quarantine is also concerned with the observance of the Inter
national treaties relating to the public health.
^ v i s i on of Domestic Quarantine carries out measures to suppress
epidemics, such as plague and typhus fever, and measures to prevent the
spread of epidemic diseases in the Uhitod States,
The latter includes —
1.
Enforcement of the Interstate Quarantine Regulations of
the United States.
2;
Development of State departments of health, especially divisions
of cqmmunicable diseases and sanitary engineering.
3,
Control over water supplies used for drinking and culinary
purppses on railroads, vessels, and other interstate carriers,
4,
Sanitation of the National Parks in cooperation with the
National Park Service,
5,
Rural sanitation and measures against trachoma.
® ie Division of Sanitary Reports and Statistics collects and publishes
information regarding the prevalence and geographic distribution of diseases
dangerous to the public health in the United States and foreign countries.
Court decisions, laws, regulations, and ordinances pertaining to the public
health are compiled, digested, and published.
Its publications contain
articles on subjects relating to the public health.
The division issues
the Public Health Reports (weekly), and supplements to and reprints from
Bureau of the Public Health Service» (Continued)
the Public Health Reports.
The section on Public Health Education co
operates with State, local, and volunteer health agencies to extend health
educational service throughout the United States.
This involves the
preparation and distribution of bulletins, stereopticon slides, moving
pictures, exhibits, posters, placards, and charts on subjects relating to
public health.
Through the Division of Marine Hospitals and Relief, hospital and out
patient treatment is provided at 25 marine hospitals and 127 other relief
stations of the Service to seamen from documented -American vessels and ships
belonging to the Coast Guard, Lighthouse Service, Coast and Geodetic Survey,
Mississippi River Commission, and Bureau of fisheries, Lepers, immigrants
sick and detained at Ellis Island, lighthouse keepers, Coast Guard surfmen,
civil employees (seamen) on Ui'S. Army vessels, civil employees of the
Government injured while in the performance of their duties, and patients
of the U. S. Veterans1 Bureau, are also beneficiaries of the Service,
Physical examinations are made of Coast Guard personnel, masters, mates,
pilots, and engineers applying for licenses, civil service applicants and
employees, claimants of the U. S. Bureau of Pensions, food handlers employed
on vessels in interstate trade, able seamen seeking rating as such, and all
seamen when presented to determine fitness for duty at sea.
Instruction and
examination in first-aid are given to masters, mates, pilots, and engineers
aPplying for licenses.
radio.
Eedical advice to ships at sea is transmitted by
Certificates for the purchase and possession of narcotics and liquors
to fulfill medicinal needs aboard ship are issued.
Medical and dental
officers are assigned to duty at the Coast Guard Academy and medical officers
are furnished to all cruising cutters and important shore stations of the
Coast Guard.
34 Bureau of the Public Health Service; (Cont inued)
Under the supervision of the Surgeon General, the Division of Person—
Aecfgjutjs transacts all bureau matters relating to the appointment,
promotion, transfer, resignation, or other change in status of service
personnel; convenes boards for the examination or discipline of medical
officers! and maintains all personnel records,
through the Section of
Finance and Accounts of this division all appropriations for the service
are allotted, all vouchers covering expenditures examined* and all expend
itures recorded*
The Property Record Section maintains records, by stations
of all nun— expendable property belonging to the Service; prepares authori
zations for transfers of property between stations; and arranges for the
inspection and disposition of all property reported as worn out or un
serviceable.
The Division of Venereal Diseases was ere ated by Act of Congress in
July, 1918,
'»(1) to study and investigate the cause, treatment, and pre-
vention of venereal diseases; (2) to cooperate with State boards or departraents of health for the prevention and control of such diseases within
the States; and (3) to control and prevent the spread of these
diseases in
interstate traffic11.
The provision for cooperating with the State departments of health
provides concurrent opportunities for practi cal studies and investigations
of the social and clinical causes, treatment , and prevention of these
diseases.
The results of these studies are shown in the publications of
the division and in the progressive improvement of the control measure s.
During the past seven years this cooperative control resulted in the establishment of more than 900 locally supported clinic s for the examination
- 35 .P^ the Public Health Service: (Continue d)
and treatment of indigent patients; a very much larger "body of physicians
has been interested in actively cooperating with the health authorities;
educational pamphlets* motion picture films, steroopticon slides and poster
exhibits have been developed and &ade available through each of the State
bo.ards of health; schools and colleges have become interested in the teaching
of sex hygiene; standard laws and ordinances have been enacted, and throughout
the country there has arisen an indicative public attitude which is re
flected in the growing interest of life insurance companies, large industries,
labor organizations, civic organizations, juvenile courts and institutions.
Interstate quarantine regulations to prevent the spread of these diseases in
interstate trafiic have been promulgated by the Secretary of the Treasury,
A review of the field to be covered and the work that has been done
indicates an outstanding achievement in modern public health maintenance,
The General Inspection Service carries out all special inVofciigatipns
and makes inspections of all activities of the service.
The Chief Clerk has charge of the following; (1) Appointments, pro
motions, and discipline of the clerical personnel of the bureau,
records and leave of absence,
(2) Time
(3) Office quarters occupied by the bureau
in Washington, and equipment therein,
(4) Furnishing supplies of stationery
and blanks to the bureau and field stations.
(5) The official files of
the bureau and the receipt and dispatch of mail.
(6) The bureau library.
(7) Procuring of printing through the Government Printing Office, and
supervision of the appropriation therefor.
methods,
(8) Improvement of office
(9) Classification and efficiency ratings.
Supervising Architect:
Subject to the direction and approval of the Secretary of- the Treasury,
the ducies performed by the Supervising Architect embrace the following;
Supervising Architect* (Continued)
Securing cessions from States of jurisdiction over sitos and the payment for
tho same; preparation of drawings, estimates, specifications, etc., for,
and the superintendence of tho work of, constructing, rebuilding, extending,
or repairing public buildings; the care, maintenance, and repair of public
buildings, the direction of the operating force in public buildings, and the
supply of furniture, carpets, lighting fixtures, mechanical equipment, safes,
and miscellaneous supplies for use of custodians» and engineers» forces in
the care of public buildings.
37 ASSISTANT SECRETARY IN CHARGE OF CUSTOMS
CQA.ST GUARD. AND PROHIBITION:
Customs Service;
The principal function of the Customs Service is the collection of
import duties, incident to this the prevention of smuggling, the diffi
culties in which latter connection are greatly increased since the enact
ment of the prohibition amendment.
The Special Agency Service which operates
as a part of the Customs Service is an investigative service.
There is a
force of about 72 in the department at Washington and approximately 8,100
in the field.
Import duties aro either spocifio or ad valorem or doth.
Tho ad valorem
duties are assessed principally upon tho foreign market value or tho export
value.
By far tho greater part of tho import dutios aro collected from
commercial shipments, the rest principally from m i l importations and
I
passengers* baggage.
The Customs Service also cooperates with other services in the Treasury
and other executive departments in the enforcement of the preventive, sani
tary and other laws under their administration relating principally to
articles brought to this country and in some cases to articles sent out of
the country.
Coast Guard:
The Coast Guard is one of the oldest organizations in the Government,
having been established originally in 1790 as a result of the seed for the
services of a coastal patrol for the enforcement of the customs laws and
an organized armed force for the protection of tho seacoast.
The Commandant of the Coast Guard is charged by law with the adminis
tration of the Coast Guard, under the direction of the Secretary of the
Treasury in time of peace and under the direction of tho Navy in time of war.
- 38 Coast Guard: (Continued)
Headquarters are located at present in the Darby Building, Fourteenth and E
Streets.
The Act of January 38, 1915, provided that the Coast Guard be
created in lieu of the then existing Revenue Cutter Service and the Life
Sa\ing Service, and to bo composed of those two organizations.
It also
provided that it shall constitute a part of the military forces of the
United States, and shall operate under the Treasury Department in time of
peace and operate as a part of the Navy, subject to the
orders of the
Secretary of the Havy, in time of war or when the President shall so direct,
In general, the duties of the Coast Guard may be classified as follows
Rendering assistance to vessels in distress and saving life and property;
destruction or removal of wrecks, derelicts, and other floating dangers to
navigation; extending medical aid to American vessels engaged in deeo-sea
fisheries; protection of the customs revenue; operating as a part of the
Havy in time of war or when the President shall direct; enforcement of law
and regulations governing'
anchorage of vessels in navigable waters; en
forcement of law relating to quarantine and neutrality; suppression of
mutinies on merchant vessels; enforcement of navigation and other laws
governing merchant vessels and motor boats; enforcement of law to provide
for safety of life on navigable waters during regattas and marine parados;
protection of game and the seal and other fisheries in Alaska, etc*; en
forcement of sponge fishing laws.
To assist the Commandant in conducting the business of his office there
are established at headquarters an inspector, having cognizance of matters
relating to the inspection of vessels, stations, boats, and all other
property,and the following;
Division of operations:
Having cognizance of matters relating to
the operations and personnel of the service.
39
Coast G-uard: (Continued)
Division of materials Having cognizance of matters relating to supplies,
outfits, equipment, accounts, and the files.
Office of construction and repair: Having cognizance of natters relating
to the construction of and repairs to the hulls of vessels and boats, stations, wharves and all other property.
Office of engineer in chiof: Having cogni zanco of matters relating to
tha construction of and repairs to the motive power of vessels and boats
and the machinery of all other property.
Under the direction of the Commandant statistics are prepared of casual
ties to vessels of the United States.
He is also required to acquaint him
self, as far as practicable, with all means employed in foreign countries
which nay seem to affect advantageously the interests of the Coast Guard, and
to cause to be properly investigated all plans, devices, and inventions for
the improvement of life-saving apparatus for use at the stations which may
appear to be meritorious and available.
Prohibition Uni t :
This Unit is charged with carrying out the provisions of the National
Prohibition Act and the act supplemental thereto (Willis-Campbell Act), the
internal revenue laws relating to intoxicating liquor, and the Harrison
Narcotic Act, as amended.
Its work involves securing evidence of violation
of those acts, investigating violations and alleged violations, including
conspiracy cases, and making reports thereof to the Department of Justice
with a view of bringing violators to trial; the issuance or withholding of
permits to use or sell intoxicating liquor, including industrial alcohol,
and narcotic drags; the assessment of taxes for illegal manufacture and sale,
and the handling of offers in compromise of civil liability incurred.
- 40 ASSISTANT SECRETARY IN CHARGE OF CUSTOMS, COAST GUARD, AND PROHIBITION UNIT:
(Continued)
Prohibition U n i t : (Continued)
Narcotic Division;
To the Narcotic Division, Office of Federal Prohibition Comissioner,
of the Bureau of Internal Revenue is assigned the enforcement of the act of
December 17, 1914, as amended, known as the Harrison Narcotic Law, the act
of January 17, 1914, regulating the manufacture of smoking opium, and re
lated statutes.
In developing cases of violation under the foregoing laws
charges are often also found to accrue under the Narcotic Drugs Import and
Export Act, the disposition of which in such cases is also accomplished
through the Narcotic Division.
The Head of the Narcotic Division is in direct charge of the narcotic
agents and inspectors which constitute the narcotic field force.
The
country, including Hawaii, is divided into fifteen divisions, each under the
supervision
of a narcotic agent in charge.
The activity of the force is
directed through these agents in charge who are directly responsible to the
Hoad of the Narcotic Division of the Bureau.
All reports, expense claims
and papers pertaining to salaries, appointments, transfers, resignations,
etc., follow those channels.
The work of this Division is otherwise divided between two sections.
The Legal Section receive^ and examines all reports of violations of the
internal revenue narcotic laws, directing the action to be taken in each
case by investigating officers, makes recommendations with respect to offers
in compromise of violations which are submitted by proponents, recommends the
action to be taken with respect to each application for parole filed by a
convict serving sentence for violation of the narcotic laws, fixes assessment
of taxes under the act of December 17, 1914, as amended, and specific penal-
Pf
- 41 Prohibition Unit; (Continued)
Narcotic Division: (Continued)
ties and recommends the action to be taken relative to all claims for abate
ment or refund of taxes or specific penalties collected under that act.
Model indictments are drawn, opinions prepared, and all other work of legal
character performed which would be of advantage in the prosecution of any
case under the narcotic laws.
The correspondence is conducted chiefly with
narcotic agents in charge, collectors of internal revenue, and United States
attorneys*
The other section, known as the Beturns Section, audits all monthly
returns of purchases and sale of taxable narcotic drugs and preparations
required to be rendered by importers, manufacturers, and wholesale dealers.
The purpose of this audit is to prevent any diversion of opium or coca
leaves permitted to be imported for the purpose of manufacturing drugs and
medicines needed for medicinal preparations.
Sales whi$i appear to be ex
cessive are reported to field officers for investigation.
In this section
is compiled all statistics relating to imports, exports, and sales of
drugs, violations of the laws and seizures and confiscations of narcotic
drugs thereunder.
All statistical information required by the Federal
Narcotics Control Board to determine the quantities of crude opimum and
coca
leaves to be imported is furnished together with information neces
sary in connection with the issuance of export permits by that Board under
the provisions of the Narcotic Drugs Import and Export Act.
THE
MONETARY
*
*
SYSTEM
*
*
OF
*
THE
*
UNITED
*
*
STATES.
*
A brief statement by the
Treasury Department with reference
to the various kinds of money in
circulation in the United States.
Revised - April, 1926.
- 1 MONETARY ST5TFM OF THB UNITED STATES.
In 1786 the Congress of the Confederation adopted as the monetary
unit the dollar of 375.64 grains of pure silver.
Following the inaugu
ration of the present form of Government the Congress, "by the Act of
April 2, 1792, established the first monetary system of the United States,
Two units wore adopted:
the gold dollar, containing 24.75 grains of pure
gold, and the silver dollar, containing 371.25 grains of pure silver.
The ratio of gold to silver was 1 to 15.
Both gold and silver were legal
tender; the standard was double.
Various changes in the ratio were made from time to time until the
&ct of February 12, 1873, which provided that the unit of value of the
United States should be the gold dollar of the standard weight of 25.8
grains.
The act of February 28, 1878, directed the coinage of standard
silver dollars, and provided that they should be full legal tender, ex
cept where otherwise expressly stipulated in a contract.
The act of March 14, 1900, declares that the dollar, consisting of
25.8 grains of gold 0.900 fine,
,fshall be the standard unit of value”,
and makes it the duty of the. Secretary of the Treasury to maintain all
forms of money issued or coined by the United States at a parity of value
(i.e. equality of purchasing power) with this standard.
This act also
provides that nothing shall be construed to affect the legal tender
quality, as now provided by law, of the silver dollar or of any other
|
money coined or issued by the United States,
The Federal Reserve Act of
December 23, 1913, reaffirms the parity provisions of the above act and
the authority of the Secretary of the Treasury to borrow or buy gold in
order to maintain such parity.
- 2 -
The
money in circulation in the United States consists of gold, sil
ver, nickel and bronze coins and various kinds of paper currency includ
ing bank notes.
The coins are produced by the mints at Philadelphia,
r, and San Francisco, while all the paper money is produced by the
Bureau of Engraving and Printing at Washington.
Both the mints and the
ur-au of Engraving and Printing are under the Treasury Department.
Legal tender is a quality given a circulating medium by Congress and,
possessing this quality, it becomes lawful money.
Legal tender is money
which a debtor may legally require his creditor to receive in payment of
a debt, in the absence of any special agreement in the contract or obliga
tion itself.
y
Not all kinds of money possess full legal tender qualities,
11 kinds circulate freely at par and are convertible into standard
money.
Metallic Honey.
Gold coins:
United States.
The gold dollar is the standard unit of value in the
Cold coins are now minted in denominations of $2.50, $5,
$10, and $20, termed respectively quarter eagles, half eagles, eagles, and
double eagles.
The gold dollar weighs 35.8 grains
900 parts of pure gold to 100 parts of alloy.
in the proportion of
The coining value of a troy
ounce of pure gold is $20.67183 and the coining value of a troy ounce of
standard (0.900 fine) gold is $18.60465.
The weight of $1000 in United
States gold c o m is 53.75 troy ounces, equivalent to 3.685 pounds avoirdu
pois.
Gold coins, when not reduced in weight below the limit of tolerance
fixed by law, are full legal tender at their nominal or face value in payment
of all debts, public and private, and when below such standard weight and
limit of tolerance they are legal in proportion to their weight.
Being
- 3 standard money, gold coins arc not redeemable, but may be exchanged for
other forms of money, particularly gold certificates.
St.aAcLard silver dollars: The standard silver dollar contains 412.5
grains of silver 0.900 fine.
The coining value in standard silver dollars
of a troy ounce of pure silver is $1.2929, and the coining value of a
troy ounce of standard silver is $1.1636.
The weight of $1000 in stand
ard silver (0.900 fine) dollars is 859.375 troy ounces, equivalent to
58.928 pounds avoirdupois.
Standard silver dollars are legal tender at
their nominal or face value in payment of all debts, public and private,
without regard to the amount, except where otherwise expressly stipulated
in a contract.
Being standard money, standard silver dollars are not re
deemable, but may be exchanged for other forms of money, particularly
silver certificates.
Subsidiary silver coins:
The subsidiary silver coins issued are half
dollars, quarter dollars and dimes.
These coins are legal tender for
amounts not exceeding $10 in any one payment.
They nay be presented in sums
or multiples of $20 to the Treasurer of the United States for redemption or
exchange into lawful money.
They will also be received for redemption by
the Federal reserve banks and branches.
Minor coins;
Minor coins of nickel or bronze are issued in five cent
pieces and one cent pieces.
They are legal tender for amounts not exceed
ing twenty-five cents in any one payment.
They may be presented for re
demption or exchange under the same conditions as subsidiary silver coins.
The following table shows the denominations, fine metal and alloy con
tent, and weight of the coins of the United States as at present issued;
- 4 -
Kind and
Denomination
Fine gold
silver or cop
per contained
(grains)
Alloy
contained(l)
(grains)
Weight
(grains)
Gold:(2)
Double eagle ($20)
Eagle
($10)
Half «agie
($5)
Quarter 4agle($2.50)
Gold(3)
464.40
232.20
116.10
58.05
Silver:
Standard dollar
Half dollar
Quarter dollar
Dime
Silver(3)
371.250
173.610
86.805
34.722
Copper
41.250
19.290
9.645
3.858
412.50
192.00
96.45
38.58
Minor coins:
Five cents(4)
One cent (5)
Copper
57.87
45.60
Alloy
19.29
2.40 .
77.16
48.00
Copper
51.60
25.80
12.90
6.45
516.00
258.00
129.00
64.50
}J
,oy neither adds to nor detracts from the value of the coin.
1 ) The coinage of the gold dollar was discontinued by the act of
September
1890«
(3) Gold and silver coins contain 900 parts of pure gold or pure
silver and
•
100 parts of copper alloy,
$*} Seventy-five per cent copper, 25 per cent nickel.
Paper Money
There are seven kinds of paper currency in circulation in the United
States:
United States notes, gold certificates, silver certificates, Treasury
notes of 1890, Federal reserve notes, National hank notes, and Federal re
serve hank notes.
U nited States notes:
United States notes are often referred to as
"greenbacks" or "legal tenders".
These notes were originally issued under
authority of the acts of February 25 and July 11, 1862, and March 3, 1863.
The highest amount outstanding at any time was $449,338,902 on January 30,
1864.
This amount was gradually reduced until the act of May 31, 1878, which
required the notes to he reissued when redeemed.
outstanding has remained $346,581,016.
Since that time the amount
- 5 United States notes are protected "by a gold reserve of approximately
$154,000,000 held in the Treasury.
They are full legal tender £,or all
debts, public and private, except duties on imports and interest on the
public debt.
Since the resumption of specie payments on January 1, 1879,
however, these notes have been freely accepted in payment of customs dues
and interest, or any other public dues.
They are redeemable in gold coin
and will be received for redemption by the Treasurer of the United States
or any Federal reserve bank or branch.
in any denomination not less than $1.
United States notes may be issued
At the present time thegte notes are
issued in denominations of $1, $2, $5, $10, and $20, though notes of the
denominations of $50, $100, $500, and $1000 are outstanding and in circula
tion.
Gold certificates;
Gold certificates are issued against deposits of
gold coin with the Treasurer of the United States or with the Federal re
serve banks and branches, deposits of gold bullion or foreign gold coin
with the mints and assay offices, or against available gold in the general
fund of the Treasury.
Gold certificates may also be obtained in payment of
obligations of the United States payable in gold, in payment of checks issued
by the mints and assay offices of the United States for deposits of gold
bullion and foreign gold coin, in exchange for other forms of United
States paper currency, or in the ordinary course of Government payments when
paid out by the Treasurer
ojC
the Federal reserve banks.
These certificates,
payable to bearer on demand, are legal tender in payment of all debts and
dues, public and private, and will be received by the Treasurer of the
United States or by any Federal reserve bank for redemption in gold.
- 6 Gold certificates may "be issued in any denomination not less than $.10,
The following denominations are nor outstanding: $10, $20, $50, $100, $500,
$1,000, $5,000, and $10,000.
§llvg£_certificates:
Silver certificates are issued against deposits
of standard silver dollars or available silver dollars in the general fund
of the Treasury, and may he obtained in exchange for other forms of United
States paper currency or in the ordinary course of Government payments,
when available.
These certificates are redeemable only in standard silver
dollars and may be presented for redemption to the Treasurer of the United
States or to any Federal reserve bank or branch.
They are not legal tender
but are receivable in payment of all public duos and when so received may
be reissued.
They may be hold as lawful reserve by Federal reserve banks.
Silver certificates may be issued in the following denominations:
$2, $5, $10, $20, $50, and $100.
$1,
However, there are still outstanding some
certificates of $500 and $1000 denominations issued prior to 1900.
At the
present time new issues of silver certificates are restricted to the lower
denominations.
Treasury notes of 1890:
Treasury notes of 1890 were issued in payment
of silver bullion purchased under the act of July 14, 1890, the so-called
Sherman Act.
The act also provided for the coinage of the silver purchased
into standard silver dollars, and the Treasury notes were retired whenever
redeemed in silver dollars.
Under the act of March 14, 1900, these notes
have been canceled and retired whenever received, and only a small amount
remains in circulation ($1,367,304 on April 1, 1926).
Treasury notes of
1890 are legal tender for all debts, public and private, except where other
wise expressly stipulated in a contract.
They are redeemable in United
-
?
-
States gold coin or in standard silver dollars, at the option of the holder,
on presentation to the Treasurer of the United States or any Federal re
serve hank*
These notes were issued in denominations of $1, $2, $5, $10,
$20, $50, $100, and $1000.
F.Q.
4sral....resQrve notes:
The Federal Reserve Act, approved December 23,
1913, established the Federal Reserve System and provided for an elastic
currency in the form of Federal reserve notes.
Federal reserve notes are is
sued at the discretion of the Federal Reserve Board, through the Federal Re
serve Agents, ior the purpose of making advances to Federal reserve banks to
suppiy currency requirements.
Any Federal reserve bank requiring additional
notes makes application therefor to its Federal Reserve Agent, who is a
representative of the Federal Reserve Board.
Such application must be accom
panied by a tender of collateral in amount equal to the sum of the Federal
reserve notes applied for.
This collateral may consist of gold or gold cer
tificates, or paper which has been discounted or purchased in the open mar
ket by the Federal reserve banks and which meets certain other requirements
as set forth in the Federal Reserve Act*
Each Federal reserve bank is re
quired to maintain a reserve in gold of not less than 40 per cent against
its Federal reserve notes in actual circulation.
The gold redemption fund
maintained on deposit in the Treasury of the United States, which must be not
less than five per cent of the Federal reserve notes issued less the amount
of gold and gold certificates held by the Federal Reserve Agent as collater
al security, may be counted as a part of the required 40 per cent reserve,
Federal reserve notes are obligations of the United States and are re
ceivable on all accounts by all Federal reserve banks, National banks and
other member banks.
They are also receivable for all taxes, customs, and
- 8 other public dues.
They are redeemable in gold on demand at the Treasury
Department, in Washington, or in gold or lawful money at any Federal reserve
bank.
Federal reserve notes are issued in the following authorized denomina
tions: $5, $10, $20, $50, $100, $500, $1000, $5000 and $10,000.
Rational bank notes: Any National bank may issue National bank notes
upon the deposit of certain prescribed United States bonds bearing the cir
culation privilege in trust with the Treasurer of the United State«.
The
amount issued may not exceed the par value of the bonds so deposited, nor the
amount of the capital stock of the issuing bank actually paid in.
Each bank
is required to maintain upon deposit at all times with the Treasurer of the
United States lawful money equal to 5 per cent of its note circulation, the
fund to be held and used for redemption purposes.
National bank notes are
obligations of the issuing bank, they are not legal tender, but are receiv
able for all public duos, except duties on imports, and may be paid out by
the Government for all purposes except interest on the public debt and for
redemption of the National currency.
They are redeemable upon demand in law
ful money of the United States by the Treasurer of the United States and by
the issuing bank.
Payments in lawful money on account of redemption may
also be effected through the Federal reserve banks and branches.
National bank notes are authorized to be issued in denominations of $1,
$2, $5, $10, $20, $50, $100, $500, and $1000.
Only a comparatively small
amount of the $1, $2, $500, and $1,000 notes are outstanding, however, and at
the present time these notes are issued only in denominations of $5, $10,
$20, $50, and $100.
- 9 Federal reserve __bank notes?
Federal reserve bank notes are identical
in all their attributes with National bank notes, except that the amount
issued is not limited to the paid-in capital stock of the issuing Federal
reserve bank.
bank notes.
They may be issued in the same denominations as National
Only a small amount of these notes is now outstanding.
The
following denominations are at present in circulation: $1, $2, $5, $10, $20,
and $50,
How Money Gets Into Circulation,
There are many ways in which money gets into circulation.
The holder
of gold bullion or foreign gold coin, for example, may deposit the same at
a mint and receive therefor coin equal in value to the bullion deposited.
If the owner of gold coin or bullion prefers, he may exchange his gold for
gold certificates or other forms of currency.
Money may also get into cir
culation through the payment by the Government of its obligations in cash.
Exchanges of new money for old and of one kind for another are also going
on constantly; e.g,, silver certificates issued in exchange for silver dol-*
lars, or subsidiary silver and minor coins issued in exchange for other
forms of money.
National banks and Federal reserve banks put their notes
into circulation either by paying them out to depositors and bona fide
holders of bhecks in due course, or through the proceeds of loans granted
by these banks.
TREASURY DEPARTMENT
May 28, 1928.
%
ESTIMATED AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING
Anril 50. 1926
Issued by
States, counties,
cities, etc.
Territories and
insular possessiions
;United States
Government
|Federal land banks:
intermediate credit
banks and jointstock land banks
1Total April 30,
1926
Gross
Amount
$13,805,000,000
Amount held in
Treasury or in
sinking funds
Amount held out
side of Treasury
and sinking funds
$2,071,000,000 ^
$11,734,000,000
(2)
151,000,000
22,000,000
2f,168,000,000
670,000,000
1,692,000,000
70,000,000
129,000,000
(3)
1,498,000,000
(4)
1,522,000,000
t
$17,816,000,000
$2,833,000,000
$14,983,000,000
Comparative totals:
¡March 31, 1926
$17,719,000,000
December 31,1925
17,392,000,000
December 31,1924
16,268,000,000
!December 31,1923
14,936,000,000
¡December 31,1922
13,652,000,000
¡December 31,1918
9,506,000,000
¡December 31,1912
5,554,000,000
$2,822,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$14,897,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds.
(2) Total amount of sinking funds and amount held in trust
by the Treasurer of the United States.
(3) Amount held in trust by the Treasurer of the United States.
|4) Includes amount held in trust by the Treasurer of the
United States and also the amount owned by the
United States Government•
TEE. MONETARY
*
*
SYSTEM
*
*
OF
*
THE UNITED
*
*
*
STATES.
*
A brief statement by the
Treasury Department with reference
to the various hands of money in
circulation in the United States.
Revised - June, 1925.
f
- 1 HO!TSTAKY ST3TFM 0? THE UNITS! STATES.
In 1786 the Congress of the Confederation adopted as the monetary
unit the dollar of 375.64 grains of pure silver.
Following the inaugu
ration of the present form of Government the Congress, hy tho act of
April 2, 1792, established the first monetary system of the United States.
Two units were adopted:
the gold dollar, containing 24.75 grains of pure
gold, and the silver dollar, containing 371,25 grains of pure silver.
The ratio of gold to silver was 1 to 15,
Both gold and silver were legal
tender; tho standard was double.
Various changes in the ratio were made from time to time until the
a.ct of February 12, 1873, which provided that the unit of value of the
United States should be the gold dollar of the standard weight of 25.8 grains.
The ict of February 28, 1878* directed the coinage of* standard
silver dollars, and provided that they should be full legal tender, ex
cept where otherwise e-xpressly stipulated in a contract.
Hie act of March 14, 1900, declares that the dollar, consisting^of* .
25.8 grains of gold 0.900 fine,
’’shall be the standard .unit-of value11,
and makes it the duty of tho. Secretary of the Treasury to "maintain all
forms of money issued or coined by th^ Uhited States at a parity of value-— --"
(i.e, equality of purchasing power) with this standard.
This„act^als-d
provides that nothing shall be construed to affect "the ’legal -tender
quality, as now provided by law, of the silver dollar or of any other
monoy coined or issued b y the United States.
The 'Federal,,Reserve Act... of-' '
December 23, 1913, reaffirms the parity provisions o f the^abov'e-^acirlana
the authority of the Secretary of "the->Treasury to borrow or buy gold-in
or dor 10 mai rr-La-i r r-.riah pp.-rj-*y.
-
2
-
The money in circulation in the United States consists of gold, sil
ver, nickel and hronze coins and various kinds of paper currency includ
ing- hank notes.
The coins are produced by the mints at Philadelphia,
Denver, and San Francisco, while all the paper money is produced by the
Bureau of Engraving and Printing at Washington.
Both the mints and the
Bureau of Engraving and Printing are under the Treasury Department.
Legal tender is a quality given a circulating medium by Congress and,
possessing this quality, it becomes lawful money.
Legal^tender is money
Wi\ich a debtor may legally require his creditor to receive in payment of
‘
the absence of any special agreement in the contract or obliga
tion itself.
Hot all kinds of money possess full legal tender qualities,
yet all kinds circulate freely at par and are convertible into standard
money.
Metallic Money.
— ■ld coias:
United States.
gold dollar is the standard unit of value in the
Gold coins are now minted in denominations of $3.50, $5f
$10, and $20, termed respectively quarter eaglss, half eagles, eagles, ana
double eagles.
The gold dollar weighs 25.8 grains
900 parts of pure gold to 100 parts of alloy.
in the proportion of
The coining value of a troy
ounce of pure gold is $20.67183 and the coining value of a troy ounce of
standard (0.900 fine) gold is $18.50465.
The weight of $1000 in United
States gold coin is 53.75 troy ounces, equivalent to 3.685 pounds avoirdu
pois.
Cold coins, when not reduced in weight below the limit of tolerance
faxed by law, are full legal tender at their nominal or face value in payment
of all debts, public and private, and when below such standard weight and
limit of tolerance they are legal in proportion to their weight.
Being
standard money, gold coins are not redeemable, but may be exchanged for
other forms of money, particularly gold certificates.
Standard silver dollars:
grains of silver 0.900 fine.
The standard silver dollar contains 412.5
The coining value in standard silver dollars
of a troy ounce of pure silver is $1.2929, and the coining value of a
troy ounce of standard silver is $1.1635.
ard silver (0.900
The weight of $1000 in stand
fine) dollars is 859.375 troy ounces, equivalent to
*
58.928 pounds avoirdupois.
Standard silver dollars are legal tender at
tneir nominal or face value in payment of all debts, public and private,
without regard to the amount, except where otherwise expressly stipulated
in a contract.
Being standard money, standard silver dollars are not re
deemable, but may be exchanged for silver certificates.
Subsidiary silver coins:
The subsidiary silver coins issued are half
dollars, quarter dollars and dimes.
These coins are legal tender for
amounts not exceeding $10 in any one payment.
They may be presented in sums
or multiples of $20 to the Treasurer of the United States for redemption or
exchange into lawful money.
They will also be received for redemption by
the Federal reserve banks and branches.
Minor coins;
Minor coins of nickel or bronze are issued in five cent
pieces and one cent pieces.
They are legal tender for amounts not exceed
ing twenty-five cents in any one payment.
demption or exchange
They may be presented for re
under the same conditions as subsidiary silver coins.
The following table shows the denominations, fine metal and alloy con
tent, and weight of the coins of the United States as at present issued:
- 4 ~
Kind and
Denomination
Fine gçld
silver'or cop
per contained
(grains)
Alloy
contained(l)
(grains)
Gold:(2)
Double eagle
Eagle
($10)
Half eagle
($5)
Quarter oargle($2.50)
Gold(3)
464.40
232.20
116.10
58.05
Silver:
Standard dollar
Half dollar
Quarter dollar
Dime
Silver(3)
371.250
173.610
86.805
34.722
Copper
41.250
19.290
9,645
3.858
Minor coins:
Five cents(4)
One cent (5)
Copper
57.87
45.60
Alloy
19.29
2.40
Copper
51.60
25.80
12.90
6.45
Weight
(grains)
516.00
258.00
129.00
64.50
412.50
192.00
96.45
38.58
77.16
48.00
(1) The alloy neither adds to nor detracts from the value of the coin.
(2) The coinage of the gold dollar was discontinued by the act of September
26, 1890.
F
(3) Gold and silver coins contain 900 parts of pure gold or pure silver and
100 parts of copper alloy.
(4) Seventy-five per cent copper, 25 per cent nickel.
ii?.) Hinety-five per cent copper. 5 per cent tin and zinc.
______
Paper Money
There are seven kinds of paper currency in circulation in the United
States:
United States notes, gold certificates, silver certificates, Treasury
notes of 1890, Federal reserve notes, national bank notes, and Federal, re
serve bank notes.
„
States notes:
United States notes are often referred to as
"greenbacks” or "legal tenders".
These notes were originally issued under
autnority of the acts of February 25 and July 11, 1862, and March 3, 1863.
The highest amount outstanding at any time was $449,338,902 on January 30,
1864.
This amount was gradually reduced until the act of May 31, 1878, which
required the notes to be reissued when redeemed.
outstanding has remained $345,S31|016.
Since that time the amount
- 5 United States notes^ are protected by a gold reserve of approximately
$154,000,000 held in the Treasury.
They are full legal tender for all
deots, puclic and private, except duties on imports and interest on the
public debt.
Since the resumption of specie payments on January 1, 1879,
hO’.,ever, these notes have seen freely accepted in payment of customs dues
and interest, or any other public dues.
They are redeemable in gold coin
and vrill be received for redemption by the Treasurer of the United States
or any Federal reserve bank or branch.
in any denomination not less than $1.
United States notes may be issued
At the present time these notes are
f
issued in denominations of $1, $ 3 , $5, $10, and $20, though notes of the
denominations of ^¡oO, $100, $500, and $1000 are outstanding and in circula
tion,
G-olA certificates:
Gold certificates are issued against deposits of
not less than twenty dollars in gold coin with the Treasure^ of the United
States or with tne Federal reserve Dunks and branches, deposits of gold
bullion or foreign gold coin in sums not less than one thousand dollars with
the mints and assay offices, or against available gold in the general fund
of the Treasury.
Gold certificates may be obtained in payment of obligations
of the United States payable in gold, in payment of chpcks issued by the
mints and assay offices of the United States for deposits of gold bullion
and foreign gold coin, in exchange for other forms of United States paper
currency, or in the ordinary course of Government payments when paid out by
the Treasurer or the Federal reserve banks.
These certificates, payable to
bearer on demand, are legal tender in payment of all debts and dues, public
and private, and will be received by the Treasurer of the United States or
by any Federal reserve bank for redemption in gold.
- O
Gold certificates may be issued in any denomination not less than $10,
The following denominations are row outstanding:
$10, $20, $50, $100, $500,
$1,000, $5,000, and $10,000.
S.i.
l.'y.rr ...cort -ficatos:
Silver certificates are issued against deposits
of standard silver dollars or available silver dollars in the general fund
; of the Treasury, and may be obtained in exchange for other forms of United
otates paper currency or in the ordinary course of Government payments,
when available.
These certificates are redeemable only in standard silver
dollars and may be presented for redemption to the Treasurer of the United
States or to any Federal reserve bank or branch.
They are not legal tender
but are receivable in payment of all public, dues and when so received may be
reissued.
They may be held as lawful reserve by Federal reserve banks.
Silver* certificates may be issued in the following denominations:
$2, $5, $10, $20, $50, end $100.
$1,
However, there are still outstanding some
certificates of $o00 and $1000 denominations issued prior to 1900.
At the
present time new issues of silver certificates are restricted .to the lower
denominations.
Treasury notes of 1890:
Treasury notes of 1890 were issued in payment
of silver bullion purchased under the act of July 14, 1890, the so-called
Sherman Act.
The act also provided for the coinage of the silver purchased
into standard silver dollars, and the Treasury notes were retired whenever re
deemed in silver dollars.
As provided in the act of March 14, 1900, these not.e
are canceled and retired whenever received, and no more may be issued.
small amount remains in circulation$1,364,304 on May 1, 1926).
Only a
Treasury notes
of 1890 are legal tender for all debts, public and private, except where other
wise expressly stipulated in a contract.
They are redeemable in United
7
States gold coin or in standard silver dollars, at*the option of the holder,,
on presentation to the Treasurer*of the United States or any Federal re
serve bank.
These notes wore issued in denominations of $1, $2, $5, $10,
$20, $50, $100, and $1000.
Federal roserve notes:
The Federal Reserve Act, approved December 23,
1913, established the Federal Reserve System and provided for an elastic
currency in the form of Federal reserve notes.
Federal reserve notes are is
sued at the discretion of the Federal Reserve Board, through the Federal Re
serve Agents, for the purpose of making advances to Federal reserve banks to
supply currency requirements.
Any Federal reserve bank requiring additional
notes makes application therefor to its Federal Reserve Agent,"who is a :
representative of the Federal Reserve Board.
Such application must be. accom
panied by a tender of collateral in amount equal to the sum of the Federal
reserve notes applied for.
This collateral may consist of gold or gold cer
tificates, or paper which has been discounted or purchased in the open mar
ket by the Federal reserve banks and which meets certain other requirements
as set forth in the Federal Reserve Act.
Each Federal reserve bank is re
quired to maintain a reserve in gold of not less than 40 per cent against
its Federal reserve notes in actual circulation.
The gold redemption fund
maintained on deposit in the Treasury of the United States, which must be not
less than five per cent of the Federal reserve notes issued loss the amount
of gold and gold certificates held by the Federal Reserve Agent as collater
al security, may be-counted a«uar-parf of the-required 40.per- cent reserve.'
.Federal reserve notes are obligations of the United States and are re
ceivable on all accounts by all..Fader al~reserve banks, national banks arid
^JjagTTOooh^-bapks^-TThayuaf^al^-^acglyabla-^tr^ all-kaxas ,.._customs
and
~ 8 ~
other public dues.
They are redeemable in gold on demand at the Treasury
Department, in Washington, or in gold or lawful money at any Federal reserve
bank:.
Federal reserve notes are issued in the following authorized denomina
tions: $5, $10, $00, $50, $100, $500* $1000, $5000 and $10,000.
Rational bank notes: Any national bank may issue national bank notes
upon the deposit of certain prescribed United States bonds bearing the cir
culation privilege in trust with the Treasurer of the United State's:.
The
amount issued may not ;exceed the par value of the bonds so deposited, nor the
amount of the capital stock of the issuing bank actually paid in.
Each bank
is required to maintain upon deposit at all times with the Treasurer of the
United States lawful money equal to 5 per. cent of its note circulation, the
fund to be held and used for redemption purposes,
national bank notes are
obligations of the issuing bank, they are not legal tender, but are .receiv
able for all public dues, except duties on imports,-"-and may be paid out by
the Government for all purposes except interest on the public debt and for
redemption of the National currency.
They are redeemable' upon -demand in law
ful money of the United States by the Treasurer of the United States and by
the issuing bank.
Payments in lawful money on account of redenrptiorf may
also be effected through the Federal,.reserve banks ^and— branches.
National bank notes are authorized to be issued in denominations of $1,'
N
$2, $5, $10, $20, $50, $100, $500, and $1000..
Only a comparatively. small
amount of the $1, $2, $500, and„.$lr000 notes are out standing,- however , and at
the present time these notes are issued .only in-denominations?-.of $5, .$10,
$20, $50, and $100.
^
- 9 -
Federal reserve tank notes:
Federal reserve bank: notes are identical
in their legal attributes with national bank notes, except that the amount
issued is not limited to the paid-in capital stock of the issuing Federal
reserve bank.
Money has now been deposited to retire all Federal reserve
bank notes outstanding; consequently the maintenance of the 5$ redemption
fund against these notes is no longer necessary.
It is the Federal Reserve
Board1s policy to retire all of these notes as they are received for re
demption.
On the latest cate available (April 30, 1926) only $5,808,578 of
these notes rare outstanding.
tion;
The following denominations are in circula
$1, $2, $5, $10, $20, and $50.
How Honey Pets Into Circulation.
There are many ways in which money gets into circulation.
The holder
of gold bullion or foreign gold coin, for example, may deposit the same at
a mint and receive therefor coin equal in value to the bullion deposited.
If the owner of gold coin or bullion prefers, he may exchange his gold for
gold certificates or other forms of currency.
Money may also get into cir
culation through the payment by the Government of its obligations in cash.
Exchanges of new money for old and of one kind for another are also going
on constantly; e.g., silver certificates issued in exchange for silver dol
lars, or subsidiary silver and minor coins issued in exchange for other
forms of money.
National banks and Federal reserve banks put their notes
into circulation either by paying them out to depositors and bona fide
holders of checks in due course^., or through the proceeds x>f loans granted'
by these banks.
FOB IMMEDIATE RELEASE,
J u n e '14, IS36.v s
teLSmi DEE&BIMMT,
Letter of Secretary of the Treasury Mellon to Congressmen Haugen, Dickinson
jand Anthony in response to their request for his views on one"of the ' [Agricultural bills.
v-‘
•-
•
*
^
*
*.♦
>r-
'
*
A
•
; *
1926’. bhf
IMy dear Congressmen!
•
.
•
’ V **
'
'ref
'h
In accordance with your request .made on the occasion of, your recent., yi sit *■to the Treasury, I am submitting my views on H. .B* 7893, as amended and now
pending in the Senate, providing for the establishment of a Federal Earn. Board
to control and dispose of the surplus of certain "basic agricultural commodities"
The purpose intended to be accomplished by the bill is to raise the prices
of wheat, corn, cotton, and livestock above world prices.
A board known as the
Federal Farm Board, for which is appropriated $250,000,000, plus $300,000 for
immediate expenses, is to arrange with cooperative associations and other deal
ers to purchase, store or export the surplus of these commodities beyond the
demand for home consumption.
The taking of this surplus off the home market
is to raise the price in the homo market.
The surplus is to be sold abroad
3ven if tho foreign price is below cost*
The loss on the storage, or on the
sale of tho surplus abroad, is to be paid in the first instance out of the fund
appropriated from the Treasury •
It is proposed to reimburse the fund by a fee
I"eoral5zation fee") or tax on all of these commodities sold by the farmer*
I y *>
In-other words, it is hoped to raise prices on part of the crop by taking
i losdfron a smaller part of it; and tho method by which 'thirds tot bo done is
^
to divide the crop into two parts - the l-arger to bo sold to.American consumers
it high prices and the smaller part to be sold abroad-to foreign consumers at
cheaper prices or even below tho cost of production*
rno less incurred, in giv
ing this advantage to foreign consumers is to be covered.fby money' from 'the
treasury and from tho higher prices paiuLby American consumers-*.
^
It is, of course, apparent at once that the effect of the bill will be to
increase the cost of living to every consumer of the five basic agricultural
commodities in this country.
The ’’equalization fee”, while it purports to be
paid by the fanner, will be included in the increased price of the commodity'
and will, in the end, be borne not by the fanner but by the consumer.
The
net result will be that the American consumer will pay the increased domestic
price which of necessity must include the ’’equalization fee” or the loss in
curred in selling the surplus abroad.
We shall have the unusual spectacle
of the American consuming public paying a bonus to the producers of five
major agricultural commodities with a resulting dteyamaae in the purchasing
power of wages, and at the same time contributing a subsidy to the foreign
consumers, who under the proposed plan will secure American commodities at
prices below the American level,
European labor could purchase American
products at a lower price and could live more cheaply than American labor.
foreign industrial costs would be lowered and the foreign competitor assisted
in
in underselling American products abroad and/our home market,
I can see no
permanent relief for American agriculture through subsidizing foreign compe
tition; and that, in my opinion, is what the bill, if it becomes a law,
will do.
The so-called "equalization fee” is in reality a tax on every bushel
of wheat or corn or head of live stock or bale of cotton sold by the farmer
in this country; and the amount of the tax is to be fixed, levied and col
lected by the proposed farm Board,
The constitutionality of such a tax,
fixed not by the Congress but by a board, imposed in such a manner and for
such a purpose, is at least extremely doubtful and might render ineffectual
any legislation embracing such a feature.
But in any event there would seem t
- 3 "be insuperable difficulties in collecting such a ta.x.
The bill provides that
the Board nay require every person engaged in processing or in purchasing any
of the five basic conmodities "to file returns under oath and to report, in
respect of his processing or purchasing of such commodity, the amount of
equalization fees payable thereon and such other facts as nay be necessary for
the payment or collection of the equalization fees; to collect the equalization
fee from the producer and to account therefor; and to issue to the producer a
serial receipt for the commodity".
Every person who fails to account for such
'•equalization fee" shall be liable for such fee and to a penalty of one-half
the amount .of such fee.
It is necessary only to remember the multitude of transactions which take
place each year in the sale of cotton, corn, wheat, cattle and swine, to realize
how vast would be the machinery necessary for the auditing of such returns, the
collection from the farmer of such a tax and for its transmission to the
"equalization funds" in the hands of the Earn Board.
The intricacies of the
income tax and prohibition enforcement appear simple by comparison.
What would be the net result of all this effort?
In the end, the farmer
might receive, if the plan workod successfully, a small increase in the price
of his commodities.
But in order to accomplish this result, the bill sets up
a cumbersome machinery, involving not only the fixing of prices by the Farm
Board, but a control on their part over the agricultural industry and a power
in levying taxes never before given to any board or agency of the Government
in this country.
The bill imposes upon the Farm Board the responsibility for determining
jiwhat is a "fair and reasonable price" for the five basic commodities and their
•food products.
It is provided that, in contracting with cooperatives or cor-
- 4 -
porations or other dealers in these commodities, no payment of losses shall he
made by the Board unless the purchase is made at a price which, in the opinion
of the Board, is not in excess of a fair and reasonable price; and no sale shall
be made in respect of which a loss would be sustained unless such sale is author
ized by the Board.
Furthermore, it is provided that advances by the Board shall
be payable on demand whenever the Board finds ’‘that the market price in the
principal markets of the United States for the basic agricultural commodity, or
its food products, in respect of which the advance is made, is in excess of a
fair and reasonable price”.
Under these provisions it would be necessary for
the Board to enter into or approve a vast number of contracts, necessitating
the employment of an enormous bureaucratic staff of government lawyers, auditors
and inspectors.
From a practical standpoint, I am unable to see how any Board,
no matter how able or efficient, could possible arrive at a proper determin£w
tion of a ’’fair and reasonable price” and the many other complex questions
assigned to them.
This is particularly true in view of the variety in quality
and standards of products which must be dealt with under the terms of this
bill.
The purchasers and processors of farm commodities are to be reimbursed
for any ’’losses, costs and charges” sustained in removing the surplus from
the market and maintaining in this country a price in excess of world markets.
This is in effect a guarantee by the Federal government against loss from
storage at home or sale abroad.
As our past average exports alone of the
five basic agricultural commodities has been about $1,500,000,000 per annum,
it is possible to get some idea of the extent of financial liability which
the Farm Board or the Government will incur under the guaranty provisions of
this bill
- 5-
In the end it seems to me that the "bill will defeat the
very purpose which it seeks to accomplish«,
The chief obstacle to
farm prosperity is avowedly the disposal of the surplus.
The payment
of a subsidy or the levying of an "equalization fee” or the artificial
increase in any other way of the price of farm commodities, will
inevitably result both in stimulating further production on the part
of the farmer and in decreasing consumption on the part of the buying
public, thus bringing about a still greater surplus of products.
Furthermore, if a subsidy of this kind is given to five agricultural
commodities, the Government could not logically refuse to give the
same treatment to the textile, boot and shoe, coal and other industries
which are finding some difficulty in disposing of their surplus products.
In general a surplus is taken care of by a decrease in
production or by an increase in consumption.
The natural result of
the proposed bill will be to increase production through higher prices
for the particular commodities dealt with in the bill, and for the
same reason to decrease demand.
That is, the bill proposes to correct
an economic condition by ignoring two of the most powerful economic
laws, which in the long run must control.
It seems to me that we can
advance further in aid to the farmer if we try to work with and not
against the teachings of experience.
A way out of the difficulties lies in the elimination of waste
between the producer and the consumer, so that the farmer
may receive a higher net price and yet the ultimate consumer
may not have to pay more.
This purpose can he approached
through more orderly marketing and cooperation.
The second
way is to increase the demand for our surplus and thus raise
the price, not to our consumers alone hut to the world.
Farming differs from most industries in that the output
largely fixes the price, whereas in manufacturing the price
largely controls output.
For this reason, it would seem desir
able to find some method not only of adjusting production, hut
of distributing and marketing products in the most efficient
manner possible.
Perhaps cooperative marketing to the extent
that it can be developed, may help to solve the f a m b r !s diffi
culties.
There are, of course, many inherent weaknesses in
cooperative marketing, particularly when great and widely spread
industries, such as cotton, wheat, corn and livestock, must be
organized.
But it is along this line, in working out the best
methods of distributing and marketing, that the Government can
be of most help to the farmer.
- 7 Some of the measures which have "been introduced for this pur
pose and are now pending in Congress attempt to place upon the Government
too much financial responsibility for organizing, capitalizing and
assisting business operations of doubtful merit.
If public funds are
to be employed, the same care should be exercised as would be taken
by the average business man in using his own capital.
They should
not be thrown away as a bonus or subsidy to promote enterprises which
could never succeed on their economic merits.
I believe there is a large field for the improvement of our
farm conditions in the improvement of world conditions.
An increased
demand abroad betters prices here without throwing the entire burden,
.as the bill proposes to do, on our own people and in favor of the
foreigner,
v7ar increased production in America but the after effects
have left many of the countries of Europe with currencies of rapidly
diminishing external purchasing power.
customer.
Europe is indeed our best
It is in the real interest of the American farmer that the
American Debt Commission has negotiated settlements with the debtor
nations clearly within their ability to pay.
This is but one step in
the restoration of monetary stability but it does represent a great
constructivo work and one which the Administration has now practically
concluded.
America’s further aid cannot be governmental but depends
upon the intelligence and courage of our bankers and investors in giving
assistance to those countries willing to help themselves with a sound
program of stabilization.
I feel confident, that within another year
many of the nations whose buying from us is not paralyzed by a demoral
ized currency will have recognized and. adopted plans for permanent
2>
o
restoration of stable money.
ith this reform the p u chasi rg; powei
Europe should increase and with it the demand for, and
our
surplus.
In conclusion, I do not believe tho principles contained in iht). bill
now under consideration are sound or that the plan proposed mould pirove either
workable or beneficial to agricnltur o.
The unfortunate condition iix which
many American farmers find thornselve s today mill be aggravated, not improved,
by unsound legislation*
Tfo cannot sueco ssf ully oppo se fun&anental economic
lams.
Sincerely yours
’liT rT T A TT
».'iiU—¡.uO O
Secretary ox the froa su:
Eon. Gilbert IT. Haugen,
Hon. l . j . m .chanson,
Eon. Daniel iv9 An "ieCion^y ^ t*«
House of E-3pr 3sent at iva s
gSASDRT DEPARTMENT
FOR RELEASE, MORNING PAPERS,
Saturday, June 19, 1926*
Speech of
Hon* A. W* Mellon
Secretary of the Treasury
at the unveiling of
The Robert Morris Memorial
in Philadelphia
on June IS, 1926 *
Tho Financial Policy of Robert Morris.
Few men are indisponsable, but in American history there have been at least
ihree whose work was essential in giving the nation the form in which it exists
joday.
Washington founded the nation.
Hamilton gave us our Federal Union
bd prevented our growth as a collection of petty sovereignties.
And Robert .
helped .to
jorris, by his patriotism and financial genius, not only/;make possible the mili
ary success of Washington but laid the foundation for H a m ilton^ later work and,
ith Washington and Hamilton, was instrumental in taking the steps which led to
he Constitutional Convention and the formation at last of a strong Rational
overrmcnt.
1;
So accustomed are we to the smooth functioning of that Government today, that
3 are apt to underestimate the difficulties of the men who carried through the
avolutionary War.
We are prone to forget that our present Governmental
istitutions had not then come into existence and that Morris, as Financier of
le Revolution, was forced to solve his problems without the aid of a sound
irrency or a tax system that was effective in producirg revenue,,, or even an
lequate Government organisation or a strong central authority.
The people of the thirteen States were patriotic and loyal in their support
I the War, and the army fought with a courage and patriotism that have never
p n excelled.
But Congress possessed no power to levy or collect taxes, and
told make only recommendations and appeals to the States for contributions,
■on today, with all the prestige of a firmly established and efficient Rational
vernment and with the strong sense of nationality which has grown up with it,
I most assuredly could not securo the funds needed by the Treasury if we
pended upon voluntary contributions from the State Governments.
At first the Continental Congress attempted to raise funds by issuing vast
antitites of paper money in the belief that it would be given value by mere
~
itriotic sentiment.
2
~
Mo m i s constantly remonstrated with Congress against the
pactice of issuing such currency without silver hack of it.
But Congress
kssed laws, providing severe penalties for those who refused to accept the
»per money at face value and continued the practice of trying to raise funds
I this way.
From 1775 to 1779, the note© which Congress issued steadily depreciated
1 value as there was no reasonable prospect for their redemption.
At the
Mi of the latter year the paper currency had become practically worthless and
ngress was obliged to stipulate that taxes could be paid in corn, flour, meat
j other supplies needed for the army.
But the storage and transportation
[ such a cumbersome medium of exchange increased the difficulties of carrying
[ the war.
Meanwhile Washington desperately needed funds to move his army
IVirginia, where he planned to strike his next blow against Cornwallis with
K expectation of brealcing the backbone of British resistance.
Such was the situation when Congress turned to Robert Morris as the one
P- ^hose financial skill and standing in the business world qualified him
Ibring order out of financial chaos.
Morris was a partner in the great
pnercial house of Willing and Morris in Philadelphia, and was perhaps the
ading merchant of the country.
He had signed the Declaration of Independence
L taken an active part in the prosecution and particularly in the financial
|rations of the war.
Congress abolished the Treasury Board which had managed the finances and on
ruary 20, 1781, elected Morris to the newly-created office of Superintendent
¡Finance.
In writing to him at this time, Hamilton said:
MIt is by
roducing order into our finances, by restoring public credit, not by winning
ties, that we are finally to gain our object. n
!te to a Congressman:
General Washington himself
"I have great expectations from the appointment of
- 3 -
gSr. Morris, "bat they are not unreasonable ones, for I do not suppose that Tby any
magic art he can do more than recover us by degrees from the labyrinth into which
bur finances are plunged,0
Morris accepted the appointment with extreme reluctance, knowing that he
frould be expected to make bricks without straw.
peption of his office and its possibilities.
Bat he had also a clear conHe determined to be not merely
Superintendent of Finance of a loose alliance of independent States, but
^Financier of the United States0,
He early perceived the importance of
achieving a union of the States, because he knew that in no other way could
adequate revenues be raised.
Furthermore he realized, as did Hamilton,
'hat financial reform could play an important part in bringing about such a
inion, as indeed it did several years later.
It is :interesting to note the outlines of Morris* financial policy,
hey were, first, to institute retrenchment and substitute bu#£&ass methods
n Government for the loose and wasteful administration by boards and committees;
econd, to give adequate financial support to General Washington in his
ilitary operations; third, to provide a constant and permanent revenue by
stablishing a tax system under which Congress could levy duties on imports;
nd fourth, to found a bank through which the Government funds could be
tilized for the establishment of public credit.
He relied upon securing loans from abroad, and particularly from France,
3 the only means of obtaining funds until money could, be realized from
3-xes.
Hie usual method pursued by Congress was to draw bills of exchange
i Franklin at Paris and on its other representatives abroad, who managed by
le utmost exertions to borrow from governments or private individuals the
inds needed to meet these drafts when they were presented for payment.
A _
It was from this source that Morris obtained the funds for organizing
the Bank of North America, which opened for business in Philadelphia early in
17S2,
Meanwhile, Cornwallis had surrendered;
hut it was deemed inexpe
dient to dish and the American Army until the intent ions of England could he
known.
The States had refused their consent to the imposition af import
duties hy Congress, and practically no funds were available from taxes with
which to pay the army before it was disbanded.
Congress again turned to
Morris in its dilemma.
It requested him to
devise some method to meet the situation, and suggested that further funds
he borrowed from Prance.
He refused to borrow more money abroad unless an
adequate system ox taxation and debt funding were adopted for the repayment
of the loans;
and, as no measure could be agreed upon in Congress, he re
signed his office as a means of impressing the gravity of the situation
upon Congress and the country.
He was induced to continue in office for
some tin*! longer and to carry through an issue of notes to provide the pay—
4
ments due to the army.
These notes were distributed to the soldiers, who
were then disbanded and Morris set about the difficult task of raising funds
to meet the notes when due.
After the utmost exertion he succeeded in
retiring most of the notes and on November 1, 17$+, resigned from the office
of Superintendent of Pinance, having served nis country well through the
most difficult years of its history.
Morris1 public service did not end here.
He soon saw that the union
of the States, which had been achieved at such cost during the war, was
about to be destroyed in the inevitable clash of conflicting State interecbS'»
This was particularly true as regarded the police and tax regulations
I
%
the waterways common to two or more States.
There wa» a^ collapse of
credit and currency, so that at last conditions point eci to the calling of
a convention which should form 11a more perfect union . .
- 5 -
In the autumn of 1786, representatives of the various States met at
.Annapolis to discuss questions of customs duties, navigation and currency;.
B a d out of this meeting grew the Constitutional Convention, which convened
in Philadelphia in May of the next year.
Morris was one of the delegates
from Pennsylvania and Hamilton came from Hew York.
It was agreed, before
the Convention met, that Washington was to be its presiding officer
As
Franklin, who was to nominate him, was ill, this pleasant duty fell to
Robert Morris.
Washington was unanimously elected, and was escorted to
the President’s chair by Morris and John Rutledge.
From this Convention emerged the Constitution of the United States —
khat great charter of our liberties and one of the greatest documents of
ill time.
The way was cleared for the election of Washington as President
|f the United States and the enactment of those constructive measures
luring his administration, which gave life to the Constitution and firmly
Established the Federal Government along the lines on which it operates today.
In these matters, as in the critical days of the war, Washington
-lways had the strong and loyal support of Robert Morris.
In any estimate
f his achievements, Morris must be ranked as one of the nation’s builders,
lid, in erecting this memorial to him, we are giving a belated but grateful
ecognition of the debt which we owe to one of the country’s really great
fen.
June 30, 1926.
Dear Mr. Chairman:
I have the request of your Committee of June 24, 1926, for my
comments on S. 4506, "to provide for the refund to taxpayers of the
surplus in the Treasury and to provide for the reduction of admission,
automobile, and other taxes in the event of an anticipated surplus dur
ing the fiscal year 1927".
The purpose of this bill, as stated in its title, is to distribute
"the surplus in the Treasury" by way of a refund to income taxpayers.
It apparently contemplates the existence in the Treasury of a cash fund
in excess of the requirements for the current operations of the Govern
ment,
This view is a misconception of Treasury "surplus".
The surplus
of any fiscal year is the excess of governmental receipts over govern
mental expenditures chargeable against such receipts.
If there was no
national debt the surplus would pile up in cash and a fund would exist
to distribute.
dollars.
The United States, however, owes to-day over 19j billion
Duriig the present fiscal year there have been debt maturities
in September, December, March and June.
On each of these quarterly
maturity dates, the Treasury taking into consideration (1) the amount of
cash in the general fund (2) the government receipts which may be expected
in the succeeding quarter, (3) the amount of cash necessary to pay maturing
obligations, and (4) the probable expenses of the government through the
next quarterly period, borrows only enough new money to meet the maturing
obligations and to pay the expenses of government for three months.
If
receipts are exceeding expenditures, less of new securities are sold than
the amount of old securities maturing and paid off.
matically to apply the surplus to debt reduction.
The effect is auto
For example, on the
15th of June of this year, the Treasury had some 333 million dollars of
certificates maturing, but with the cash then in the general fund plus
the expected income taxes and other receipts for June and the succeeding
two months, the Treasury found that it co-old retire these certificates
and pay the government expenses to the next borrowing date in September
without a new flotation of securities, and therefore no new securities
were sold in June to replace the 333 million dollars paid off.
By the close of this fiscal year on June 30th, the entire surplus
will have gone into debt reduction and we will have in the general fund
about 216 million dollars, which is substantially the same as we had in
the general fund a year ago.
This 215 million, with the receipts for
the next two months, is only sufficient to pay regular government ex
penditures into September.
If the proposed bill were passed and refunds
made, the refunds would not come from surplus, since such surplus does
not exist in cash, but the Treasury would be obligated to go into the
market and borrow new money to pay the refunds.
Section 2 of the bill provides that the Joint Congress si onal Commit
tee shall investigate and determine "the amount of surplus that will be
available on. June 30, 1927,« and »shall recommend to the Ways and Means
Committee of the House an immediate consideration of legislation reducing
or repealing » ’certain taxes to the extent that the anticipated surplus
will warrant.
The surplus to be examined is that for the fiscal year
3 -
1927.
The taxes to be reduced are not only taxes to "be collected in
1927 but presumably taxes to be collected in 1928 and subsequent years.
In other words, it is proposed to make a permanent annual reduction in
revenue based on an excess of receipts over expenditures in one fiscal
year.
If there should be an estimated surplus of $100,000,000 in 1927
but none in 1928 or subsequent years, the Committee is required
rec
ommend a reduction in taxes of $100}000,000, which would leave 1927
accounts balanced but would mean a deficit in 1928 and every year there
after.
It would be fatal to an orderly handling of government revenue
to base any permanent reduction on
one year*s figures.
Before again
reducing' taxes, Congress should consider revenues and expenditures n o t .
for one year but for several years.
There are non-recurring items of government receipts wnich have
increased our revenues in the past and will be less material in the
future.
Upon termination of government control, large loans were made
to the railroads.
This investment is being repaid.
Last year we re
ceived 144 million dollars of revenue on this account.
This year it
was 37 million, and since most of the strong roads have paid we may
expect less in the future.
; of liquidation.
The War Finance Corporation is in process
Last year it paid the Treasury some 43 million dollars
in excess of expenditures.
This year 20 million.
In order to assist
the Farm Loan Banks the Treasury invested 195 million in Farm Loan bonds.
! This year 28 million of bonds were repurchased from the Treasury, and
[ early in the next fiscal year the Farm Loan Board expects to pay off
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another 43 million, leaving but 17 million to* be realized on during the
remainder of the fiscal year 1927 and thereafter.
Back taxes, that is,
taxes collected upon an audit of returns for past years, have brought in
over 300 million of revenue, but as the Internal Revenue Bureau becomes
current this item will be most materially reduced.
Through these
non-recurring receipts a surplus might be shown in 1927 which would not
occur again.
If we take into account what may be considered the recurring govern
ment receipts from taxation, even then it cannot be safely assumed that
because 1927 shows a surplus 1928 v/ill show the same surplus.
taxes peculiarly reflect general conditions.
Income
If the country is
prosperous, the taxpayers make money and the government revenue there
from is large.
If a decline in the high level of business in this
country should take place, government receipts from income tax must
fall off.
Customs also are affected by changes in trade conditions.
So much for the receipt side of the government accounts.
in expenditures, of course, affects the surplus.
Any change
Expenditures, there
fore, must also be considered not only for the year 1927 but for sub
sequent years.
I am of the opinion that the proposed bill does not represent a
sound approach to our taxation problems and I am therefore opposed to if*
Very truly yours,
(Signed)
A, W, MSLLOU
Secretary of the Treasury.
Hon. Reed Snoot,
Chairman,
Committee on Binanco,
United States Senate.
"
Treasury Department.
June 30, 1926.
ESTIMATED AMOUNT OE WHOLLY TAX-EXEMPT SECURITIES OUTSTANDING MAY 31, 1925.
Issued hy
states, counties,
:cities, etc.
?erritories and
(insular possessions
Gross Amount
13,914,000,000
Amount held
in Treasury or in
sinking fluids
2,087,000,000'1 '
Amount held
tautside of Treasury
and sinking funds.
11,827,000,000
151,000,000
22,000,000^^
129,000,000
fnited States Govern
ment
2,168,000,000
669,000,000^
1,499,000,000
’ederal land hanks,
intermediate credit
hanks, and joint-stock
land hanks
1,701,000,000
67,000,000^
1,634,000,000
otal May 31, 1926
omparat ive totals:
April 30, 1926
December 31, 1925
December 31, 1924
December 31, 1923
December 31, 1922
December 31, 1918
December 31, 1912
17,934,000,000
2,845,000,000
15,089,000,000
$17,816,000,000
17,392,000,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$2,833,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$14,983,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
L) Total amount of state and local sinking funds.
2) Total amount of sinking funds and amount held in trust "by the Treasurer of the
United States.
5) Amount held in trust "by the Treasurer of the United States.
Includes amount held in trust hy the Treasurer of the United States and also
the amount owned "by the United States Government.
Dear Mr, Witherow:
I have your letter of Juno 16th in connection with faro relief
and the tariff.
The subject is one which night he discussed at
great length, hut I think the essential elenents are these:
Our tariff policy has been mainly responsible for the develop
ment of manufacturing in America.
Our tariff policy and our im
migration policy have brought to labor the highest real wages in
history.
The development of manufacturing has been accompanied by
improved methods and quantity production, and we have been able to
make and distribute at a relatively low price considering the high
cost of labor.
In many lines we more than mofet foreign competition
with its low labor costs.
In turn, high wages have created a great
consuming population which has been the principal factor in our
reaching quantity production and thus low costs,
A study of the
industries in this country shows a very small margin of profit per
unit and large profits in the aggregate possible only through large
turnovers.
So much for the reasons which, I think, account for the
present exceedingly prosperous condition generally of the country.
Coming now to the effect of these conditions on the farmer,
^ believe it is true that (a) practically all of the farmer’s pur
chases of materials are on the free list:
binder twine, and gasoline;
for example, fertilizer,
(b) as to the manufactured articles he
buys, the farmer shares with the rest of the country in their rela^tively low price hy reason of the efficiency of our industry and
labor :
for example, agricultural implements, tractors, and tele
phones; (c) the enormous consuming power of the American people
and the high standard of living give him a large market for a great
many of his products:
for example, meat, hutter, fruits, and vege
tables; (d) for what the farmer himself produces he has all of the
tariff protection he can ask.
üThere the farmer may complain that the tariff is responsible for
his present condition is in the cost of labor.
I believe, however,
that the farmer benefits more indirectly by the increased purchasing
power of the country through high wages than he loses directly through
having to pay these wages to his employees.
Those who argue that the
tariff must be eliminated in order to restore the farmer to what they
say is his relative position in the country are in the final analysis
not trying to raise the farmer to the standard of prosperity of other
classes, but seek in reality to reach their desired equality by de
stroying the prosperity of these others so that all will occupy the
lower level.
It may be urged that the McNary-Haugon bill in what it seeks to
accomplish for the farmer does not differ from what the tariff has
done for industry and labor.
distinctions:
The McNary-Haugen plan is quite unworkable from an
administrative standpoint.
istration.
There are, however, these very practical
The tariff is extremely simple of admin
The McNary-Haugen plan contemplated a contribution from
- 3 -
the Treasury of $250*000,000.
The tariff "brought into the Treasury
in the fiscal year just closed $580*000,000 of revenue*
You may think
this letter distinction unfair and that the taxpayers ore a duty to
the farmers, "but you cannot avoid the fact that none of the plans yet
presented for farm relief is workable.
I do not "believe that any permanent good can come to the farmer,
6r to anyone else, through legislation which w o n ’t work or which is
economically unsound.
I do not mean to "be simply destructive.
I
have wished to find some way for a readjustment to meat the farmer’s
complaints.
I don’t think this way lies in legislation.
A great
part of the fanner’s difficulties arose from the purchase of land at
prices which showed a return during the inflation of the war period,
"but yield no adequate return at prices to-day.
Certainly 90$ of the
"banking difficulties in the West are directly and solely attributable
to loans on lands at inflated prices.
There may be a similar difficulty
with banks in Florida, hut if it does occur, we will not call it a farm
question or blame it on the tariff.
The deflation in farm lands will
have to be worked out just as industry worked out its deflation- in
1920 and 1921.
With the prices of farm lands back to a reasonable
basis and with the banks in the f a m i n g communities again liquid, I
think a great part of the complaint we now hear will disappear.
Much can be done in improved marketing methods which will eliminate
the present enormous waste between the producer and the ultimate consumer^
I agree with you that the time is perhaps not yet ripe for country
wide cooperative organizations and that legislation along that line
might result in failure, hut through education and the smaller co
operatives headway can he made.
1 think, too; it would he well if there were more appreciation
of the "benefits which the farmer would receive from a stabilization
of Europe*
One cannot do much if one1s hest customer is insolvent,
and countries with unstable currencies will not he purchasers of the
surplus which we have to sell«
This restoration of sound conditions
abroad requires Americans help, and a broader understanding in this
country of its real importance to us would hasten its realization.
I have been much interested in your letters.
They show an in
telligent consideration of the questions discussed which differentiat
them sharply from a great part of the mail which comes to a public
official.
You have thought over these questions.
I should like you
to tell me what is the fundamental difficulty with agriculture and
in what practical way this difficulty can be removed.
Yours sincerely,
(SlffiOD)
A. T7. MSLL02J
Secretary of the Treasury.
James M. Tiitherow, Esq.,
Court Commissioner, Clay County,
Moorhead, Minnesota.
July 15, 1926
Dear Mr. Wit he row:
I hope you will pardon ny delay in answering your letter of June
16th, in which you comment on the recent primary elections in Pennsylvania.
*
I deprecate, as do you, the excessive use of money in a campaign, but I
should like to have you see the situation with which we were confronted
at the last primary so that you may judge whether in all the circumstances
there is occasion for criticism.
My home is in Pennsylvania and my interest in this election was
more in the State than in the national ticket*
Senator Pepper had made
a fine record in Washington which entitled him to a renomination*
He
is a man of sterling character and we supported him to the best of our
powers, but his defeat for nomination does not seriously affect the Admininstrati on in Washington.
policy of economy.
In the national government we have now a sound
On the other hand, extravagance and waste in State
and local governments are the most disturbing features which today threaten
America
and menace industry and agriculture alike.
We need in Pennsylvania
a sound State government and an efficient and economic administration*
We
cannot afford loose spending and the inevitable increase of local taxation*
What State can?
The leaders of the regular Republican organization in Pennsylvania
proposed for nomination a State ticket which in the opinion of many of us
did not represent the best men which we believed Pennsylvania should have,
and we wished, therefore, to put another State ticket into the field which
could be relied upon for an economic administration.
The work before us
was to obtain the nomination of this ticket at the primaries against a
~ 2 -
smooth-working machine, organized throughout the State, and with candidates
running on a wet platform, towards which the voters in our large cities were
most friendly.
Pennsylvania has a population of over nine million*
It has about
the combined populations of the States in your Northwest of Minnesota, North
and South ;. Dakota, Kansas, Idaho, Wyoming, Montana, Nebraska and Colorado,*
It had a total registered vote in 1925 of 3,245,000, of which Republicans
constituted something more than two-thirds, or 2,238,000*
Our first problem
v/as to develop a new organization in each county throughout the State*
We felt; as do most mon who are seeking a change in existing political control,
that we must increase the registration.
Many decent citizens regard reg
istration and voting as a bore, and this apathy must be overcame by persistent
and personal appeal.
Through our efforts and those of other Republican
factions we increased tho registration by 450,000 Republican votes, or more
than Coolidge* s vote in Minnesota in the last election.*
As tho campaign
progressed, one of tho three factions ran full page newspaper advertisements,
md, of course, the others had to meet this competition.
Publicity, of
¡rhich the greater part was newspaper advertising, represented $1,298,000
>f the total expenditures of $2,800,000 reported by tho Senate Investigating
ommittee*
At the primaries themselves watchers had to bo employed to see
hat Republican ballots were given.to Republican voters only.
As you know,
t is a common practice in .a sharply contested primary for tho othor political
arty to participate in tho fight, and this had to bo guarded against, and
hose watchors, for this purpose, are specifically authorized by State law*
The whole situation was unusual from a political standpoint*
It
s not oft on, in Pennsylvania at loast, that a ticket in opposition to a
largo olomont of tho leading, old-timo political machine, strongly
intronchod in tho citios, has boon ablo to fight its way successfully
through tho primarios.
Paced with this situation at tho boginning of
tho campaign, wo had to docido botwoon tho altornativo of accopting in
advanco tho dofoat of our ticket and of our idoa for Stato government, or
of ontoring onorgotically and effectivoly into tho campaign, supporting our
candidates and protecting the voting*
If our form of government requires
that tho direct primary continuo as an olomont of democracy, than wo must
oithcr leave any political machino onco intronchod in a Stato pcim^iontly
in power, or those who wish to change must bo permitted to expend funds
legitimate in charactor and roason&blo in amount considering tho number of
possible votors.
As to tho expenditures themselves, I have naturally been informed
only as to tho ticket wo wore supporting, and I fool confident that the ex
penditures were entirely legitimate and not excessive*
As a matter of
fact, the total expenditures of the Popper-Fisher campaign were #1,800,000
which, represents less than 50^ for each registered voter in the State in a
three-cornered fight and with extensive newspaper advertising*
*
While the
amount might bo thought large, it is, as you soe, only large in the aggregate
and not as compared with the size of the State and the complexity of the
problems of tho campaign#
• Tho contributions to the Pepper-Fisher campaign
same from no one class in tho State, but wore vory generally distributed
throughout the State, and a large part were made locally in the counties*
Vory truly yours,
(Signed)
A* W* MELLON
Secretary of tho Treasury*
*
famos M. Withorow, Esq*,
ittomqy at Law,
toorhead, Minnesota«
TREASURY DEPARTMENT
August 10, 1926.
ESTIMATED AMOUNT OP WHOLLY TAX- EXEMPT SECURITIES
OUTSTANDING
June 30, 1926.
\Issued by
Gross
.Amount
Amount held outside of Treasury
and sinking funds
Amount held, in
Treasury or in
sinking funds
(1 )
[¡States, counties,
cities, etc.
Territories and
‘insular possesisions
¡United States
I Government
¡Federal land banks,
intermediate credit
banks, and jointstock land banks
Total June 30,
1926
Comparative totals:
May 31, 1926
Dec. 31, 1925
Dec. 31, 1924
Dec. 31, 1923
Dec. 31, 1922
Dec. 31, 1918
¡Dec. 31, 1912
$14,028,000,000
$2,104,000,000
152,000,000
22,000,000
2,168,000,000
670,000,000
(
(3)
(4)
1,712,000,000
65,000,000 ' '
$11,924,000,000
130,000,000
1,498,000,000
1,647,000,000
$18,060,000,000
$2,661,000,000
$15,199,000,000
$17,934,000,000
17,392,000,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$2,845,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$15,089,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds.
(2) Total amount of sinking funds and amount held in trust
by the Treasurer of the United States.
I3 ) Amount held in trust by the Treasurer of the United States,
Includes amount held by the Treasurer of the United States
and also the amount owned by the United States Government.
p)
TREASURY DEPARTMENT
September 3, 1926.
ESTIMATED AMOUNT QE WHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING
July 31, 1926.
Issued by
States, counties,
cities, etc.
Territories and
insular posses
sions
United States
Government
Federal land banks
I intermediate credit
| banks and joint! stock land banks
Total July 31, 1926
1 Comparative totals:
June
30, 1926
December 31, 1925
De œmber 31, 1924
December 31, 1923
December 31, 1922
December 31, 1918
December 31, 1912
Gross Amount
Amount held
in Treasury or in
•sinking funds
Amount held
outside of Treasury
and sinking funds
$14,062,000,000
$2,109,000,000
$11,953,000,000
153,000,000
23,000,000
130 ,000,000
2,164,000,000
670,000,000 ^
1,494,000,000
1,738,000,000
64,000,000
1,674,000,000
$18,117,000,000
$2,866,000,000
$15,251,000,000
$18,060,000,000
17,392,000,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$2,861,000,000
2,793,000,000
2,716,000,000
2,571 ,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$15,199,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds.
(2) Total amount of sinking funds and amount held in trust by the
Treasurer of the United States.
(3) Amount held in trust by the Treasurer of the United States.
(4) Includes amount held by the Treasurer of the United States and
also the amount owned by the United States Government.
TREASURY DEPARTMENT
October 21, 1925.
ESTIMATED AMOUNT Q? UHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING
August 31 >• 1926.
Issued hy
;ates, counties,
jities. etc.
¡territories and
insular possess
ions
IUnited States
j;Government
federal land hanks^
itemed i a t e credit
¡.nks^and joint;ock land hanks
Total August
imparative to tals :
31, 1926
July
[December 31, 1925
1December 31, 1924
SDecember 31, 1923
|December 31, 1922
December 31, 1918
December 31, 1912
Gross Amount
$14,101,000,000
153,000,000
Amount held
in Treasury or in
sinking funds
$2,115,000,000
Amount held
outside of Treasury
and sinking funds
$11,986,000,000
130,000,000
23,000,000 ^
2,164,000,000
670,000,000
1,494,000,000
1,754,000,000
13,000,000
1,741,000,000
$18,172,000,000
$2,821,000,000
$15,351,000,000
$18,117,000,000
17,392,000,000
16,258,000,000
14,936,000,000
13,652,000,000
9,505,000,000
5,554,000,000
$2,866,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$15,251,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds,,
(2) Total amount of sinking funds and amount held in trust by the
Treasurer of the United States.
(3) .Amount held in trust by the Treasurer of the United States.
(4) ’Includes amount held hy the Treasurer of the United States and
also the amount owned hy the United States Government.
POE HE LEASE, MOHHING- PAPERS,
Monday, October 25, 1926.
5ASTJ2Y B E P M T M E U T
Secretary of the Treasury Mellon today made the following statement on
he tariff question:
There has recently appeared in the press of the world a “Plea for
the Removal of Restrictions Upon European Trade”, signed by many bankers
of the European countries and some of the bankers of this country, stat
ing that tariff barriers, special licenses, and prohibitions imposed in
Europe since the war interfere with international trade and prevent it flow
ing in natural channels and should be removed.
The fact which gave rise to
this situation is the break-up of the old political units and the rearrange
ment of the Continent along ethnical and not commercial lines.
Eor example,
the Austro-Hungarian Empire was a commercial, manufacturing and agricultural
whole.
To-day Austria with its plants, banking facilities and railroads,
is cut off from both its markets and its sources of raw material.
a brain without a body.
We have
It is Just as if we should make Hew York City
with the southern portion of Hew York State and the. States of Connecticut
and Rhode Island a separate country.
The city would be too large for the
territory which it could reach and the rest of the United States would be
deprived of that intensive manufacturing and financial center.
The situation in Europe since the war is different from the situation
in America.
The two would only become comparable if we shoulo. consider each
of the 4$ States a separate nation, each having its _q w h tariff > .Its,own
railroads, its own currency, and its own language.
Under such conditions
tlie industrial power of the United States must and would end.
What the plea
of the bankers seeks to accomplish in its final analysis is not a change in
the world but to bring about in Europe a condition similar to that in the
United States.
It is not criticism of us but emulation.
Nevertheless our public thought and some oi our press argudd that
because artificial harriers hinder readjustment in Europe we must change our
tariff policy; but one cannot toko a policy, which is essential to the re
lief of Europe under conditions arising out of the war, and say that this
policy is proper for the United States* unless it can ho established that
conditions are the some.
Conditions are not the satae.
The purpose of the
policy in Europe is to provide a territory large enough to contain raw
materials, manufactures and a market go that industry may function where
coal and iron and laborers are convenient and food may he produced where
conditions for its production are favorable*
the United States,
No such limitation exists in
We do not have to put a steel plant in Kansas or grow
wheat around Gary, Indiana*
We have one transportation system; we speak
one language, and we have one kind of money among 120 million people in an
area the sise of most of Europe outside of Eussia,
But there is a still greater distinction between Europe and the United
States.
It is true there are different nationalities and different languages
on the Continent, but, generally speaking, the standard of living among the
principal nations abroad is about on the same level, just as the standard of
living of the people of the United States isf about the same, whether resident
of Texas, or Minnesota,'Massachusetts, or California,
But the standard of
living of Europeans is quite different from the standard of living of the
United States,
Unless we are willing to bring our standard in America *down
to the level of that of Europe, we. cannot consider a change in our tariff
however desirable such a change may seem to Europe,
Our tariff policy has been mainly responsible for the development of
manufacturing in America,
Our tariff policy has brought to labor the
highest real wages in history.
The development ef manufacturing
has-been accompanied by improved methods and quantity production,
-
3 *
and we have “been able to mate and distribute at a relatively low prioe con^
sidering the high cost of labor,
.In many lines we more than meet foreign
conpetition with its low labor costs.
In turn, high wages have created a
great consuming population which has been the principal factor in our reach
ing quantity production and thus low costs,
A study of the industries in
this country shows a very snail margin of profit per unit and large profits
in the aggregate possible only through large turnovers.
These reasons, I
think, account for the present exceedingly prosperous condition generally
of our country.
Again,as I have said, the statement appears to be directed to European
and not American conditions.
Still, the appearance of the statement has been
the occasion for an attack on American policies upon the assumption that our
tariff is harmful to the restoration of world prosperity.
I should like,
therefore, to state ay views on American tariff policy.
tfhen the present tariff measure was in process of enactment, it was
freely predicted that its passage would seriously restrict foreign trade,
particularly import trade.
Some extremists contended that the proposed rates
were prohibitive and would result in a virtual embargo on commerce.
The
tariff lav? has now been in operation for four years and its influence on com
merce is no longer a guess.
With disregard of the facts, statements are still
being made that foreign countries at the present time are unable to .sell in
the American market.
This is not a fact.
During the fiscal year which ended
June 30, 1926, merchandise with a total value of nearly
was imported into the United States.
billion dollars
With due consideration to unit values,
this represents a larger volumo of imports by a very considerable margin than
has ever been brought to the United States in any preceding twelve-month
period.
The trend of trade during the past few years convincingly confirms the
contention that the volume of imports is controlled by the purchasing power
of the nation, rather than the rate of inport duties assessed*
A n un-
paralleled combination- of high wages and industrial activity has r&ised the
purchasing power of the people of the United States to new high levels,
which has "brought about increased consumption of commodities of practically
every description.
A study of the consunption of the note common commodities
in the United States in comparison with the total world production shows what
America means to the rest of the world.
During the calendar year 1925 the world production of coal amounted to
1.500.000. 000 tons.
The United States* consumption of coal amounted to
556.000.
In other words, with slightly over six per cent of the
000 tons.
world*s population, the United.States has consumed 37 per cent of the total
world*s coal production.
In pig iron the percentage of world production
consumed in the United States was 48, in copper 46, in rubber 75, in coffee
51, in petroleum 75, in tin 52, in raw silk,77, and in nitrate 48*
British
India exported during the fiscal year ending March 31, 1925, 42,000,000
pounds of shellac.
States.
Of this total, 21,000,000 pounds entered the United
Shellac is an almost exclusive product of British India, and 50
per cent of the total exports found their way to the United States.
That the six or seven per cent of the world’s population who live in
continental United States should supply a market for such large proportions
of the world’s total production of principal commodities is a consideration
of greatest importance to the world’s commerce, industry and the employment
of labor,
Ho economic survey of world conditions can reach correct con-»
elusions unless this major factor —
States *—
the high purchasing power of the United
is taken into account and its effect intelligently understood.
Whether the economic policies of the United States, our industrial
activity and prosperous conditions a r e •of benefit to foreign countries can
best be determined ty analyzing the possible effect on other nations of a
reduction of the per capita consumption of commodities in the United States
- 5 to the world average.
If, for ©xassple, the consumption of rubber in the
United States should be reduced to the world average, it would mean that there
would be no market for more than 50 per cent of the world’s present production.
It would mean bankruptcy to certain dependencies whose livelihood is predicated
almost exclusively on the rubber industry,
A reduction in the consumption of
coffee in the United States to the world level would wipe out the market for
some 40 per cent the world, now produces, and would cause great financial.
losses to Brazil,
A reduction in the consumption of sugar in the United States
to the world level would bring financial ruin to Cuba, and likewise a reduction
..\ T'
in the consumption of wool would adversely affect Australis*, As the United
States’ consumption is 77 per cent of the world’s production of raw silk, a
reduction in the consumption of raw silk to the world’s per capita average
would destroy the market for 70 per cent of the silk produced,
A reduction
in the consumption of nitrate in the United States would injure Chile, and
a reduction in the United States in the use of shellac would cause financial
reverses in British India,
American money going to Japan for the purchase of r
silk, to Brazil for the purchase of coffee, to Cuba for the purchase of sugar,
to Chile for the purchase of nitrate, and to British India for the purchase of
shellac, enables these countries to increase their purchases from European
countries, as well as the United States,
An individual out of employment, generally speaking, is without purchasing power and is a detriment, rather than an asset, to his community.
Like
wise, a nation out of employment is a detriment to the rest of the worlds ---Conversely, a man well employed reflects prosperity and is a benefit to his
community; and a nation well employed reflects prosperity on other countries.
Pre-eminently the United States is prosperous .and by furnishing a market for
such amazing proportions of what the world produces is reflecting prosperity
on other nations,
A fair survey of facts cannot lead to a conclusion other
than that the economic policies of the United States, and their resulting
••
6
-*
industrial activity and prosperity, have played a leading role in aiding tfi*
world to recover from losses and damage wrought by the war*
The tariff law of October 3', 1913, materially reducing import duties,
did not become effective as to all its schedules until January 1, 1914, and
early in August the outbreak of the world war caused a disruption of commerce*,
Therefore, the Act of 1913, uninterrupted by war conditions, was in operation
for a period of but seven months.
A comparison of imports during the sevexi
months ending July 31, 1314, with the seven months ending July 31, 1926, is
as fair a comparison as can be made of the effect of the two laws.
While
imports in general have materially increased during the lapse of twelve years,
the kinds of imports, rather than the quantities are of most interest in. a
study of foreign trade.
In .1914 there was much unemployment, and, compared with this year, the
purchasing power of the nation was materially reduced.
The value of imports
of crude materials for use in manufacturing during the seven-month period in
.1914 was less than $400,000,000, while during the corresponding months of this
year the value of this group of imports was $1,120,000,000.
In 1914, this
group was 34$ of the total, and'although the total imports have more than
doubled, this year the inports of this group constitute 42$ of the total invportations.
The use of large quantities of crude materials is the necessary
result of industrial activity and indicates healthy industrial conditions»
In 1914, partly manufactured articles for further use in manufacturing
amounted in value to $180,000,000, or 15$ of the total, while this year this
group of imports were valued at $480,813,000, or 18$ of the total.
crease was an incidental also to increased industrial activity.
This inf-
Manufactured
foodstuffs in 1914 made up lf$ of the total imports, while this year the per
centage is 9; and of other finished manufactures the percentage in 1914 was
22, and 18 this year.
Finished manufactures, generally speaking, are com
petitive products, and the relatively large imports of 1914 without question
- 7 served to aggravate the unemployment situation then existing.
In the light of experience the contention cannot he sustained that re
duced uuties on competitive products would increase the aggregate quantities
of all whings consumed in the United States,
On the other hand the evidence
is moot convincing that the converse would obtain*
pbe
Assuming that temporarily
importation of competitive products would increase with reduced duties
and that the consumption of such commodities in this country would not in
crease hut would decline, it would mean hut one thing and that is that
American labor would he deprived of making these commodities to the extent
of the increase in the imports plus the decrease in consumption,
The de
crease in consumption and the increase in imports would all he at the expense
of American industry — it would he at the expense of the purchasing power of
this nation and eventually would reduce this country's purchases of foreign
products whether competitive or non-competitive, dutiable or free.
Under the present law, generally speaking, competitive articles are
dutiable and non-competitive articles free of duty.
While imports are
steadily increasing, the increases are in the duty-free or non-competitive
products.
For instance, dutiable imports in 1926 were about one and one half
billion, about the same as in 1924, hut free imports increased in the three
years from two billion to nearly three billion dollars.
Under our present
American policy, foreign countries are able to sell the United States in
creasing quantities of the class of things the. United States does not produce.
As a whole, these increased imports are of a kind that supply the needs of
¡this nation's industries and not the kind that injure such industries by dis
placing what they produce,
Ho doubt to those who have been misled into the
belief that at present foreign countries cannot sell to the United States, the
statement that during the fiscal year 1926 no less than 65.2$ of the total
imports were free of duty is a distinct surprise and the fact that in 1926
imports free of duty exceeded the total of imports both dutiable and free
- 8 -
i
of the year 193-4 by more than 60 per cent is a revelation*
K'
It is apparent that reduced tariff rates would materially change the
kinds of imports and the -percentages of the various great groups to the
totals, hut it is anything hut apparent that the totals would he increased,
and there is much to indicate that the totals would decline*
It is fallacy
to assume that reduced inport duties will enable this country to increase its
purchases abroad, for the measuring stick is the nation*s purchasing power and
not the amount of duty assessed.
With business activity and high wages the
United States will continue to he of great economic benefit to other nations;
hut any economic policy, that will occasion unemployment in the United States
and reduce its purchasing power., will diminish this country*s consumption
of commodities and cause large surpluses of the world*s principal products
and result in serious financial losses to them.
A cut in the tariff would
materially reduce rather than increase our purchases abroad; it would not •
enable foreign countries to sell more in the American markets hut would pre-
.
-
: :
vent them from selling as much; it would not help certain foreign nations to
recover from the losses occasioned by the war, hut would retard such recovery.
Consider again what our tariff policy has meant to American labor.
I
know personally of one manufacturing company which has plants in France, in
Brazil and in the United States.
The wages paid labor to-day at these three
plants reduced to American currency are as follows:
unskilled labor gets in
France 7-J- cents an hour, in Brazil 12^ cents, in this country 40 cents.
Skilled labor 10^-, 21, and 65 cents, respectively.
In other words, a laborer
in this industry gets six times piore per hous* in America than he does in
France for the same kind of work.
Can it be to the interest of the United
States that equality be established by the removal of the protection of the
tariff?
As an example I might cite the case of the Aluminum Company of America,
The raw product of aluminum is bauxite, deposits of which occur in the United
9
States in British Guiana, and in many other countries of the world*
Th*v
principal cost of the manufacture of aluminum is electric power and labor.
The cheapest power in the world is hydro-electric; the cheapest labor is
foreign.
The Aluminum Company has many power properties in the United States,
but others in foreign countries, and the largest power of all is now being de
veloped in Canada;
Prom its plants in the United States the American market
is supplied; from its plants abroad the foreign market is supplied.
If the
. present tariff on aluminum is maintained, developments for the expansion of
domestic business will be made in the United States.
If the tariff be re—
vQ^elopmonts
moved, these
'will occur in foreign countries and part of the
American market be supplied from abroad.
The effect of removing the tariff
on .aluminum would not in the least be to hurt the Aluminum Company but to de» prive the United States of the benefit of enlarged manufactory here.
Less
capital will be invested here and less labor employed.
The sane condition holds true of a great many other large manufacturing,
industries in the United States.
l of
If the tariff is taken off, a larger share
manufacturing will be done abroad where the costs are less.
I
The United States is the largest customer in the world to-day.
I were not prosperous and able to buy, Europe also would suffer.
I
If we
It is incon-
ceivable to me that American labor will ever consent to the abolition of pro-
I tection which would bring the American standard of living down to the level
I of that in Europe, or that the American farmer could survive if the enormous
; consuming power of the people in this country was curtailed and his market
f at home destroyed.
FOR RELEASE A F T E M O Q N PAPERS
Tuesday, October 26, 1926.
Address of
Hon. Garrard B. Winston,
The Undersecretary of the Treasury ,
At the Twenty-first Annual Meeting of the
Institute of American Meat Packers,
Chicago, Illinois, Oct. 26, 1926,
As much perhaps as any other industry in the United States the members
of the Institute of American Meat packers arc interested in the prosperity of
the world and the extension of its markets.
Here in America we have a territory
great in extent, an unequaled transportation system for the prompt and cheap
distribution of products, a population of 120 million with a high standard of
living and great individual purchasing power, no artificial barriers, one cur
rency and one language.
This market furnishes a consumptive power for your
products which permits you to do business on a narrow margin of profit for
each transaction.
You prosper with the prosperity of America, but you are de
pendent for the full enjoyment of this prosperity upon the world outside.
Last year there was exported from the United States $236,000,000 of meat
and lard, and an additional $100,000,000 of hides, leathers and animal oils, a
total of a third of a billion dollars.
It has never been possible to compile
complete figures showing all of the exports in which the packing-house industry
participates directly and indirectly, but it is believed that it constitutes
at least one-fifth of our total exports.
It is, then, the disposition of this
surplus which const!tues the real problem in which you as a whole are interested
and it is not the packers alone who are affected by the surplus, but also all
producers of livestock throughout the country.
If this export can be in
creased, the demand for livestock will be greater and so will the prices which
can be paid to the farmer.
So it has always seemed to me that the great
agricultural regions of the United States have a very real stake in the restor
ation of the world to sound conditions.
The manifesto of the foreign bankers which received so much publicity last
week applies to European trade barriers in the new states on the continent and
!not to the United States.
\terday,
Secretary Mellon discussed this in a statement yes-
so I shall not go into it here and I cannot, of course, touch on all
of the other factors which today work for improvement, hut I might sketch brief*ly some changes in economic conditions abroad since the war and in which we in
;America have had a share.
Uncertainty is the greatest handicap which any business can have.
It puts
a direct burden in dollars and cents on every transaction in trade, and its
psychological effect is even more harmful.
I mention first the currency un
certainty which arose principally from the inability of many countries after
the war to bring their finances back to a sound basis.
Modern trade has gone beyond the stage of barter, the exchange of goods
for goods, and must use a medium of exchange - currency,
Ho interference with
■ trade occurs even if this currency is of different kinds, provided it is tied
to
something itself fixed.
To do international business easily there should be
known within narrow limits just how many francs make a dollar, or how many
be
¡marks make a pound, not today alone, but when the goods are to/paid for.
It is
like tying a skiff to a stake or anchoring it to the bottom; you know where to
find it in the morning.
The war over, these skiffs have been let loose and
have drifted and continue to drift under the influence of varying currents in
all directions.
It is necessary to get them anchored again so we may know
definitely where they are with reference to the landing.
So tying these vagrant
currencies back to gold, the standard of the past, is one of the major steps
of restoration.
This is currency stabilization.
You might well ask what interest it is of the American farmer raising hogs
In
Iowa that Europe have a stable currency.
:lose,
There is a connection, and it is
IThen currency is being inflated, these effects on trade seem to follow;
Phe purchasing power of the currency outside of the country declines more
rapidly than its purchasing power at home; the internal value is greater than
3
| the external value, and it pays to "buy at homo and not abroad.
For example, it
i night take 50 francs to acquire $1,50 of American money to buy a bushel'of wheat
[ in New .York, but 40 francs night buy a bushel of wheat in France.
The tendency
i of the country, then, is to decrease its imports and increase its exports.
Wages do not increase contemporaneously with the decrease in the value of the
J currency, so the purchasing power of the nation as a whole drops off.
[ people can buy less, and the standard of living must fall.
The
Manufacturers are
s loath to sell because they are not sure they can replace their raw materials
| with the money that they receive from the sale of their finished products.■
Every international transaction must bear directly an additional burden to in| sure against the exchange risk.
I hardly need to tell you who have an
appreciable time between manufacture'1 and sale in your own business, what it
Imeans to manufacture on a falling market.
Yet without stable currencies, this
; is what a large part of the world has been doing.
To stabilize is to take the
.unnecessary burdens off international trade.
Adjustments of instability of currency are primarily in the hands alone of
Ithe country involved.
in order.
It must balance its budget and otherwise put its finances
But America has been and can be most helpful in assisting the
progress of stabilization and the removal of uncertainty.
[several matters in which we have taken our part:
Let me mention
The Dawes Plan is known to
all of you, and Americans share in its presentation and present management.
In
its e-asence it removed from Germany an obligation uncertain in amount and sub
stituted therefor a definite payment for a period of years by Germany within
its capacity and in its own currency.
on Germany, but on the creditors,
The transfer of these payments rests not
Germany, therefore, knowing in advance what
it has to do, has reestablished the mark on a gold basis, and its progress is
most encouraging,
part of 1923.
Germany began to have again stable currency in the latter
In that year its imports from the United States amounted to
- 4 -
| $316,000,000.
With, a sound financial system, it increased its imports to
[ $440,000,000 in 1924, and to $470,000,000 last year.
This is proe'f of the
1 stake we all have in Europe.
After the war the United States held the demand obligations in large amounts
| of many nations in Europe,
These notes of hand could not be paid according to
their terms, and it became necessary for America to make adjustments so that
definite settlements could be had.
The World War Foreign Debt Commission was
established by Congress and undertook the negotiation of funding agreements.
These are now practically completed.
The policy pursued was to treat each
debtor nation on the basis of its particular capacity to pay the debt.
The first element was time.
We should, of course, have preferred to have
the matter out of the way within a generation, but to insist upon a period, brief
as nations ,go, would have been beyond the capacity of any.
This very extension
of time has been criticized as not an indulgence but a hardship to the ddbtor
nation.
Ho one likes to pay a creditor over a 62-year period.
But if the whole
debt cannot be paid on demand, what course is open except to extend the period
of repayment?
This is what we have done in„our first settlement, that with
England, and similar extensions have been granted to all other nations.
The second problem was the amount to be paid in the earlier years.
It is
these years that are the most difficult, because post-war readjustments are
still incomplete, and it is just here that America has been most lenient,
I
know of no debtor nation which will not admit that the payments provided for
these earlier years are' well within its capacity.
Finally, for the later years, it is true that no one can insure the future,
|ut given norma.l conditions, I believe a true balance has been held between the
luty of the Debt Commission to the American taxpayer and fairness towards t&ose
lations to which we extended aid during and after the war.
We have not
jancellea the debt, but we have not insisted upon the impossible.
Since these
-
5 -
settlements, England *s excepted, have hut recently been completed, the American
debt has been no burden to Europe in the eight years since the Armistice, and.
it cannot become too heavy a load in the next few years.
pends upon the progress of the world6
Thereafter, much de
With peace and the development of trade
internally and externally, these settlements are quite workable.
The principal
fact, however, is that settlements have been made and a fair trial can be had,
not on theory, but in practice.
their budgets.
The nations know what should be provided in
Uncertainty is eliminated.
England was the first to settle its debt and the first of the great nations
to tie its currency to gold.
For a time after the war America was practically
the only great country with a stable currency, and became the recipient of a
large part of the world*s supply of monetary gold.
It was a dangerous situation.
A respectable body of opinion in England urged the abandonment of gold as a
standard and the substitution of managed currency, but England, wise in finance,
recognized that the continuation of its essential position in international,
trade required a return to the recognized medium of exchange, and boldly re
established the pound upon a gold basis at its old value.
decision.
This was a momentous,
It meant that the old standard for financial transactions was to con
tinue and that America was not to be left holding the world*s supply of a metal
for which the world was seeking a substitute.
The Treasuries of the two countries
supported this action, hut great credit is due to the courage and initiative of
two private individuals, Montagu Norman, head of the Bank of England, and
Benjamin Strong, head of the Federal Be serve Bank of New York,
Without the sup
port of the Federal Reserve Banks, I do not believe that stabilization would
have occurred at that time, but participation of the American bankers was also
host necessary.
As you know, the Federal Reserve Banks extended a credit to the
Bank of England of $100,000,000, and the British Treasury arranged for credits
vith private American bankers for an additional $300,000,000.
Although England
- 6 has now been on a gold "basis for a year and a half and has gone through a
general strike, it has yet to call on a single dollar of these credits.
Other countries of Europe are approaching stabilization.
When plans are
Iannounced, we should expect this significant differentiations
:return to a gold basis America alone was able to give aid.
in England*s
The next program,
however, should have the participation not only of the Federal Reserve Banks
here and of private American Bankers, but of other banks of issue and of other
private bankers in countries now with stable currencies.
.So one by one the
sticks are being bound together into an unbreakable whole.
You have seen the work of the Federal Reserve Banks which is vital to the
1stabilization plans of England and of other countries.
But these banks deal
|only with like banka of issue and are only a part of any program.
Private
'American bankers have mobilized the savings of the American people and nave,
through the tens of thousands seeking investment, given to foreign governments
the means to establish and maintain sound fiscal policies.
A loan for stabili
zation is one of the most productive of all borrowings, because it starts the
country as a whole moving and lets it go forward.
plemented.
But this, too, must be sup
Private loans in large aggregate amount have been floated m
the
last few years in the United States to reestablish industry abroad and to de
velop the resources, of other countries.
In its broad aspect, we are not just
building up competition for ourselves, but we are increasing the consuming
capacity of our customers.
So long as these loans are productive, that is, earn
'their own interest and principal, they too are an essential and proper step in
increasing international trade.
We see, then, that the Administration in its policy of war debt settlement,
the Federal Reserve Banks with the banks of issue in other countries, and the
American bankers and the American investors are doing their part in removing
uncertainties left over from the war and are putting the world again in a
position to buy and sell freely.
America is said to be prosperous.
, must share in that prosperity.
We are prosperous, "but the world too
Just as America, in the final analysis, is de-
[ pendent upon a world able to Txuy, so the world is dependent upon a prosperous
I America to whom it can sell.
If the consuming power of the United States should
. be cut down, not only would we suffer here in America, but all other nations
would feel the loss.
We buy from one country, and in turn it may buy machinery
j from England and wines from France.
Our purchases abroad mean that the selling
I.country is provided with funds to buy the products not of America alone, but of
( ©very nation.
What America needs, and what the world needs, is not disturbed
I conditions, but sound conditions both at home and abroadj not bad times* but
Igood times.
This is only common sense,
Ho business man wants all other
businesses in the hands of a reoeiver.
True progress lies in increasing international trade as a whole.
This
Imeans raising the standard of living not only of the peoples in Europe, but of
5all peoples throughout the world.
It does not mean destroying the policies
funder which our own prosperity has been built up.
The high wage scale and
great consuming capacity of the American worker is of vital importance not only
N/O this country, but to foreign producers.
But it is also important that the
[consumption of other peoples be increased.
If we can raise the demand for
goods and the means to satisfy that demand, trade must grow.
So far, the
first field has been the restoration of Europe so that with ordered finances the
Countries racked by the war may again walk alone and do their proper share in
|he buying and selling of commodities.
We have learned here in America that
Increased wages mean higher buying power, greater consumption, and more man-»
ifactures, so an increase in the standard of living elsewhere means larger clelands, more capacity for their fulfillment and more trado. for all.
We see constantly encouraging new steps.
Headed by a Princeton professor,
an American booy of .experts has ¿lust reported on.the fiscal affairs of Poland
and its chief' is off again to some South American country needing advice.
A
Hoyal Indian Commission, before whom American witnesses appeared, has just
recommended a plan for stable currency in India with the least possible dis
turbance to the value of silver.
The world, seems intent "upon economic improvement.
Here is an instance.
There has been an interesting feature suggested in connection with the workings
■of the Dawes Plan which nay materially help the backward sections of the globe.
■The most difficult part of the Dawes Plan is transferring payments made to the
Transfer Agent in marks by Germany to the reparation creditors in their own
currency or its eequivalent.
transfers are made.
To date there are two principal ways in which
Pirst, in cash, which necessarily has quite narrow limits,
sand, second, by delivery in kind, that is, by the delivery of German goods to
creditor nations in return for payment to the German seller of marks out of the
account which the creditor has with the Transfer Agent.
This latter method has
taken care of the bulk of the transfers for these first two years of the Plan,
but it is open to the objection that the German goods received compete with
goods manufactured by the citizens of the creditor end injure the internal
trade of that country.
A limit may thus be reached as to the amount of goods
a country can economically afford to accept,
Por example, every one thousand
tons of coal that Belgium receives as a delivery in kind for reparations due
from Germany means just a thousand tons less coal sold from its own mines.
There is now suggested a third method, what has been called “Assisted
Schemes".
It sounds formidable, but it is really not hard to understand.
In*
stead of making deliveries of merchandise in kind to be sold in the creditor*,
country in competition with goods made there, it is proposed to make such
deliveries in capital improvements either in the creditor country or in its
colonies.
Belgian: needs a railroad in. the Congo,
and hut for the scheme no railroad would he built.
It cannot afford the capital
Germany furnishes the rails,
bridges and equipment and is paid in marks out of Belgian reparation credits.
Local labor does the work, and this employment increases the local purchasing
power.
With the equity of the goods received from Germany most of the cost to
Belgium can be covered by borrowing.
We have, then,a new country opened up by
a capital improvement which would not have been made at all or anyway not in
this decade had Belgium had to rely on its own resources.
Belgian industries
cannot complain, because this will be new business which they never could have
’had alone,
Bocks on the Moroccan coast, a hydro-electric plant on the Khone,
"Assisted Schemes" open up ways for the development of natural resources which
may well increase the markets of the world.
What has been going on in the world since the war has appeared of such size
that it may seem to some of us that the problems are insoluble.
We are told that
the Dawes Plan can never work, yet in practice, and not in theory, we have
actually found under competent management it somehow does work.
:it w o n ’t work next year or the year after.
We are told that
I prefer to wait and see what can be
done through the patience and intelligence of the present Agent General.
told that great international payments can never be bade.
We are
They have been made
in the past, and they nay be going on now without our appreciating it.
A
weight may be too heavy for some child to move, but when he
ean
carry it with ease.
grows up he
Suppose twenty years ago you were told the debt of
the City
of Chicago would increase from 66 million to 176 million in two decades, the deot
of New York City from a half to one and a quarter billions,
the debt of
the rail
roads from seven to fourteen billions, you would have said that no such debts
could be borne and that such a thing was impossible.
Yet is not the financial
strength of these cities and of our railroads much greater to-day than twenty
years ago?
-
10
-
So it has "been.and trill he with nations basicly sound.
If the wealth of
a country doubles, the real weight.of its obligations is. halved.
Hie burdens
which to-day some say are too great to be carried, may,.with the increase of
trade.and the increase of national wealth, become ' relatively unimportant.
I
am not unmindful of the great difficulties of those nations which fought
throughout the whole war and have suffered as we have not.
But time, is not.
merely a healer of wounds; it is also a solvent of difficulties.
move the uncertainties and see what can be done.
Let us re- .
We should expect improvement,
not.fixation, in the world; and I, for one, have faith to believe that we shall
meet and solve the problems of the future as we have solved those of the past.
THE PUBLIC HEBT OF THE UNITED STATES
An Address Delivered
By
Honorable Charles S. Dewey, Assistant
Secretary of the Treasury,
before the
Philadelphia Association of Credit Men,
Philadelphia, Pa,,
at
the Bellevue-Stratford Hotel,
Philadelphia, pa.,
on Tuesday evening,
October 26, 1926.
EOR RELEASE, MORNING* PAPERS,
Wednesday, October 27, 192S.
treasury department
In opening the address which I shall have the pleasure of delivering to
Iyour association this evening, there is one point that I should like to stress,
as upon it will hang all of my arguments; to wit, the Government of the United
>States is a great business conducted under the laws enacted by Congress.
We,
Iits officials, trust that with due allowance for the legal restraint placed upon
|our operations and for the vast army of men and women employed, the results of
four efforts demonstrate that efficient methods and good business judgment command
Ithe same respect with us as in general commerce and industry.
As you are well aware, the task of financing all of the operations of Govern[ment devolves upon the Treasury Department*
It is our duty to keep the books and
ito see that there is always sufficient cash on hand to meet all authorized
I
;demands,
A few weeks prior to the 15th of each March, June, September and De-
cenber, we endeavor to determine what our tax receipts will be and what bills we
Ishall have to meet, the latter consisting of maturing security issues and ordinary
iexpenses.
The difference between the two we make up by the sale of a new issue
|of securities, usually of short term, to take the place of the securities
featuring*
As an indication of the close margin upon which we operate, our
|average cash working balance is about thirty— five millions of dollars, or about
of the three billion five b u r r e d million annual expenditure.
With money
costing us 4)a we cannot afford to have much of it lying idle.
As an example of the increase in Federal expenditures, — for the year 1913
[government expenses amounted to $724,000,000;
[were $3,585,000,000.
for the fiscal year 1926, they
If these two items of expenses are compared and analyzed
jtwo- striking points will be noted.
In 1913 the public debt of the United States
amounted to $1,193,000,000 and the annual interest thereon, which is included
-
L
2
-
the 1913 expense item, amounted to only $22,900,000.
The public doht of the
United Statos on Juno 30, 1923, amounted to $19,643,000,000, and the service on
phe debt during the fiscal year was $1,149,000,000.
Of this latter amount,
£832,000,000 went for interest and $317,000,000 for amortization of the debt
ander the sinking fund provisions.
If we exclude the service on the debt, and
pake into consideration the increased cost of living and the greater cost of
government as a result of expenditures arising out of the war, we find that the
budget for the year 1926 compares very favorably with the ordinary expenditures
j?or 1913.
We see then, that so far as economy in government can he achieved, President
Soolidge hast' succeeded in his policy of eliminating all unnecessary expenoes,
For further reductions in expenditures we must turn to the retirement of the
public debt and the eventual elimination of the vast carrying charges which now
form so large a part of our annual budget.
What is the prospect for doing this?
In the seven years elapsing since the close of the fiscal year 1919 the
jublic debt has been reduced by nearly $6,000,000,000.
Of this amount,
fl,000,000,000 represents a reduction in the cash balance of the Treasury; over
12,000,000,000 represents a surplus of receipts over expenditures; and the reiainder can be accounted for by payments from back taxes, by sinking fund paylents and repayments received from the foreign debtor nations.
But for the
'uture, we must count largely on the sinking fund and on foreign repayments
lor the reduction of the debt.
There seems to be some confusion in the public mind as regards the exact
per&tion of the sinking fund.
jqual to
2^o
A fund is appropriated each year in an amount
of the aggregate amount ®f bonds and notes issued under the
arious Liberty Loan Acts and outstanding July 1, 1920, less the par amount
f any obligations of foreign governments held by the United States on that
*7
—O—
I L t o . In jthor words, on July 1, 1930, the s r & m t of Liloorty Bonds and Victory
L t o , outstanding was $ 1 9 ,5 8 1 ,000 ,000 .
If t;o deduct fron this sun the par
janour.t of obligations of foroifitt governments purchased under the several '
¡Liberty Loan Acts and held on July 1, 1920, amounting to $9,445,000,000, it^
Bill leave $10,136,000,000 Which represents the larger part, hut not all, of
nonoys spent by our government in the prosecution of the war. The primary
credit which will represent the sinking fund is 3I # of this amount or the
[sun of $253,000,000.
To this primary credit there is added, each year tuc
¡terest which, during the fiscal year for which the appropriation is made,
[would have been payable on the bonds and notes purchased and redeemed or paid
lout of the sinking fund each year or previous years. Wo have, therefore, a
sinking fund which is gradually increased each year by the amount oi
terest that would have boon paid on the securities which we have retired,; and
lit was contemplate! that under these sinking f'ond retirements our donest
iwould "bo retired "by 1344*
I
It was also expoctll.tiohen the sinking fund was established, that the
¡foreign loans of some $10,000,000,000 would be repaid in full; and Congress
_. .
should ro to the retirement of the public ae"bt.
Idirccted that foreign repayments shouia O o
. rs-P tvp
In this way, with receipts on account of t..e
fund and from foreign
I repayments, it was anticipated at the time the sinking fund was established
¡that the entire debt, both domestic and foreign, would be repaid by 1944, or
, m
.on
fund began to operate.
¡within 24 years from the tine that t-e sixuiag ,
■
.
I ..
f courso will not be repaid ¡within the period originally
I The foreign deut, ci coarse,
I estimated.
The sinking fund, however, is not restricted to the domestic debt,
[ a n d will continue to operate until the entire debt is paid. Furthermore,
...
r.
■ a p p r o p r ia tio n s f^ r t^ie s i i ^ i - o
■u
"Ktr i a n d by established
fund have become, ootn oj i*-*« uvw
-
„ , n
- +•>./*
Car not balance until tne
»policy, part of our annual budget; ana t-a
., n
~
j«,v other procedure, of course,
I Sin3,ins fund requirements are proviaed for. Any
*
f-niic1
Various propositions have been ad¡ PDuld make a farce of tne sinking
VtAi
"
,
...
+' defect the operation of the sinking fund or to
*
Vim e a d in an attempt citncr to k i o m
...
*£-T M .olT t^c p > n of debt retirement originally adopted,
alter complete 13. w e p —.--- ox u.
I
- 4 na.(ip recenoj.,>
tfetf&ntlv that dt would "be advisable.
Thero have hpon some suggestions maae
.
• .to continue the discharge of our public debt by applying to it merely the cumu
lative sinking fund payments and using for the reduction of taxes such repayments
as are received from foreign nations on account of their indebtedness to the
United States.
There are many reasons, both legal and moral, why such a course
should not be followed.-
3ut first I would like to consider this idea*on purely
; common sense grounds and compare this type of financing, ih its application to a
: commercial business.
For sake of an example* let us suppose that some company
is in a period of great prosperity and is having extraordinary earnings,, but at
(■ the same time is indebted to the bank and has some long-time funded indebtedness
' which is callable.
At a meeting of its directors the question is argued as to
■ whether it would be advisable on the one hand to increase dividends or to leave
them at the present rate, which is admittedly quite satisfactory, and to. apply
| the surplus earnings to the payment of the bank indebtedness, the calling of a
certain percentage of the funded indebtedness, and the setting up of a reserve
| against the lean years which may follow the years of plenty.
Uould you gentlemen consider the management of this concern an able one and
the compary in sound hands if it was decided to cut a large melon out of the
I present profits and leave the future to take care of itself?
What would you,
who are accustomed to gauge credits, think of a company which, in a period of
I liberal earnings and great prosperity, did not pay off its bank loans and reI dues its maturing indebtedness?
I know, of course, what your answer to these
questions would be,
.
The Government of the United States is in exactly the same position today
I as the industrial company I have -described.
The people of the United States are
J its .stockholders and at the same time are its customers.
The Government U'.co»-
I modity is protection and service, and they arc ^aid for in taxes.
In war times
I the protection and service are greatest and their cost is more, also the govern
I m ent makes for. its customers, the citizens, many capital investments in the
— 5 -
form of ships and other munitions of war.
These, of course, can not all he paid
for out of current taxes and must he partly met out of loans.
Such loans must
ultimately he repaid hy the stockholders or the citizens in the form of taxes,
which they give in recompense for the protection they have received.
It is obvious, therefore, that an internal debt is really a continuous
circle and can he paid only hy the citizens who owe the debt to the citizens
who own it.
But there is this distinction to he noted; not all the citizens
who pay taxes own Liberty Bonds, hence, it is an advantage to the government to
discharge the debt as rapidly as possible, so that the bondholders will no
longer he supported hy the payment of interest and principal collected as taxes
from the nation at large.
Furthermore, the longer the debt remains unpaid, the more it will cost, as
interest will enter as an additional charge.
Tables prepared last year showed
that-, as regards the domestic debt, interest to be paid thereon by 1944 will
amount to $4,042,000,000, which with the principal of $8,712,700,000, will make
a total payment of $12,754,700,000 during a period of 18-| years.
Suppose for
the sake of argument we follow the suggestions of some of our advisors and
spread the retirment of our debt over a period of 52 years, which is the length
of time granted for the repayment of the foreign indebtedness of our recent
allies to the United States.
In that event, instead of only paying
$4,042,000,000 in interest, we would pay a total of $16,126,500,000, which added
to the principal would make a total of $24,839,200,000 that would be paid out
by the taxpayers over this longer period.
It is very clear, therefore, that no
real saving would accrue to the American people by extending the time of the
debt payment and, moreover, it would be entirely contrary to our traditional
policy, which has always been to retire our public debt at the earliest date
[possible compatible with not placing too great a burden on the taxpayers.
— O —
The history of our country shows that, in retiring the debt which grew
out of the Revolutionary War, our forefathers undertook a problem of far greater
magnitude in proportion to the wealth of the country at that time than we are
faced with today in this era of great wealth and prosperity.
Yet our forbears
carried through to a successful conclusion the retirement of that debt which,
as Hamilton •said, was contracted as ’’the price of liberty1’.
The policy of debt
payment thus established so early in our history has become traditional with us.
One fortunate result was that at the time of our entry into the World War,
while we were in no way prepared from a military point of view, we were far
better prepared than any other nation so far as our finances were concerned.
It was our good fortune, as events proved, that we had at least financial
preparedness.
If one looks back over our history, the fact is clearly proven
that in each generation a great emergency has come to our country, which has
made demands not only on our man power but on our wealth.
So any attempt to
unload the indebtedness of this generation on to the next generation will prove
extremely unwisely, for there is little doubt that the next generation will
have its own emergencies and financial burdens to meet.
said: ’’The time to pay one’s debts is when one can”.
As Secretary Mellon
The opportunity to do
this is with us at the present time and no one can foretell what the future
imay have in store.
There remains the question of reducing the debt out of surplus,
Reduction
iof the debt out of surplus is not accomplished, as is usually supposed, by the
purchase and retirement of the debt only at the end of the fiscal year but at
Ivarious times throughout the year, usually on quarterly tax payment dates.
At
the end of each quarterly period it is necessary to determine the government’s
¡fiscal needs for the succeeding quarter; and new sucurities are then issued in
an amount sufficient to cover the difference between maturing issues and the
«mount received from taxes.
A surplus of receipts over expenditures for any
three monthly period results ms rely in a smaller borrowing for the ensuing
| quarter and does not accumulate cash in the Treasury.
So long, therefore, as there is an existing public debt, the surplus for
jany given year is not carried over in cash but goes to the reduction of thedebt,
For this reason it is impossible to add last year{s surplus to whatever
surplus we may have at the end of the present fiscal year and use the whole
amount, as ha's been proposed, for reducing taxes.
It must also be remembered that a surplus may accrue in one year due to
Iunusual prosperity or to some particular circumstance, whereas a reduction in
taxes effects a loss in revenue for every succeeding year; and on this account
we crust be careful that taxes are not cut below the revenue requirements of the
government.
We
should certainly go very slow in making further tax reduction until full
experience may be had under the 1926 tax law when operating under normal busines
conditions,
I would not wish to go so far as to say that the present business
Iconditions are abnormal,
extremely prosperous.
But I think it is safe to say that at least they are
At the outset of this present fiscal year it was esti—
(mated that the Treasury would hay© an annual surplus of about $185,000,000,
I
I On the assumption that this amount will be exceeded, an agitation has arisen
Iin some quarters for further tax reduction in the coming session of Congress.
This, I believe, would be ill advised for the reason that if the make-up
|of this surplus is analyzed it will be found to contain a number of large items
;of non-recurring revenue,
Buring the present fiscal year there has been a
strenuous drive on the part of the Bureau of Internal Revenue to clear up a
number of its bac&: tax cases and, as a result of this effort, it is expected
that the surplus will contain an item of $100,000,000 net collected on this
account which, of course, once collected would not be available in another
year.
Of course, there are other back taxes yet to be collected but as the
_ a _
•.ases under consideration fall in those years of reduced surtax rates, the
»counts collected will he reduced until finally the refunds on account of
uaxes illegally collected and collection on account of hack
■Balance.
taxes will about
In this year's surplus there is also an item of $60,000,000 due to
the repurchase by the banks of the Federal Farm Loan System of bonds purchased
from then iron a fund appropriated by Congress to assist the banks during the
period when the tax-exenpt feature of the Farm Loan Bonds was being considered
by the Supreme Court,
Those two items alone, which anount to about $160,000,000,
are non-recurring and should not be counted on to form a part of the surplus of
L
year after the present fiscal year is ended.
1 an sure you will agree that
L surplus margin of $100,000,000 should be regarded as a ninimum requirement
¡in an operation of the magnitude of that carried on by the Sovernnent of the
¡United States amounting to receipts and expenditures of three and a-half
¡■billion dollars a year.
It is well to stop here and consider what would be the effect of even
ja slight recession of business on tax receipts and ultimately on the Sovernnent•s
¡surplus.
The chief sources of our revenue are corporation income taxes, in-
|dividual income taxes, customs and duties on tobacco.
A decline in business
'activity during the calendar year 1927 would not show in the Sovernnent's
revenues from individual and corporation income taxes until the latter part of
[the fiscal year 1928.
The effect on miscellaneous taxes and on revenues from
■customs duties would be more immediate; and, while it is difficult to fore
with accuracy just what the total drop in revenues would be, it has been esti
mated that a decline of even 10$ in manufacturing activity would show a drop of
not less than 6165,000,000 in the revenue derived from the four sources of taxation enumerated above*
I
lie can see then how quickly and seriously a slowing-up of prosperity
[would affect our revenues and would wipe out our surplus.
If the tax rates
- 9 -
on corporations and personal incomes should he cut too far, and particularly,
if too large a percentage of the smaller and more dependable brackets are en
tirely eliminated from the tax roll, we would be faced with a serious situation
in order to make up the deficit resulting from a business depression.
Under such circumstances, an increase in rates would give a further
impetus to declining prosperity; and the business of the conn try would be sub
jected to the uncertainty and burden of increasing taxes at a time when such
burden would weigh most heavily,
Business has been complaining for years of
the unsettling effect of constant jockeying with tax rates.
to adjust one!s business to a downward trend in taxes.
It is easy enough
But we must be careful,
in our enthusiasm for lower taxes, that we do not reduce them so far that some
day we must raise them again with all the confusion and readjustment of business
that such a procedure would entail,
I think sometimes it would be well if we took stock, not only of the extent
of our prosperity, but of the underlying causes for it and the possible dangers
which may threaten its continuance.
Uever before in the history of this country,
and one might safely say in the history of the world, has there been such uni
versal prosperity or such a high standard of living as exists today in the
United States.
Competition may be extremely keen, out that is healthful.
There
imay be one or two industries that have not followed the general trend and are
iunder going a readjustment, but that is usual and denotes a transformation in
their general line more than anything else.
Our great domestic market, with its
varied wants and vast buying power, is growing in extent each year; and, as
^business men, you know that this market is the real explanation of our prosperity,
That market has been built up as a result of the high wages and high, standard
|of living which obtain in this country.
Anything which threatens to lower wages
and break down the standard of living also threatens our home market; and
phis reason I feol very strongly the necessity for maintaining our present
a or
10
tariff behind whose protection that home market and our consequent prosperity
have "been built up.
Along with our present protective tariff, we,must maintain
a sound tax system, wider which we shall continue to pay our public debt and to
keep the government’s credit unimpaired*
-
I f
x
These are principles which have guided the present Administration at
Washington.
They are sound and I am sure will appeal to you as business men.
As I mentioned to you in my opening paragraph the government is a business, and
in trying to apply business methods to government and to give the country an
efficient administration, I know we can count upon your support,
We must
solve the problems that confront us in such a way that it will not only increase
prosperity now but will lay the foundations for a prosperity that will be last
ing.
TREASURY DEPARTMENT
October 29, 1925.
ESTIMATED AM OUNT OP WHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING
September 30, 1926.
Issued by
States, counties,
[cities, etc.
territories and
[insular posses*[sions
United States
IIGovernment
[federal land banks,
¡[intermediate credit
|[banks, and joint¡stock land banks
Gross Amount
$14,208,000,000
Amount held
in Treasury or in
sinking funds
$2,131,000,000 W
Amount held
outside of Treasury
and sinking funds
$12,077,000,000
153,000,000
23,000,000
130,000,000
2,164,000,000
670,000,000
1,494,000,000
1,757,000,000
13,000,000 w
1,744,000,000
, ,
.
------ -
1 Total Sept.30,1926
$ 18,282,000,000
$2,837,000,000
$15,445,000,000
comparative totals:
| August
31, 1926'
1 December 31, 1925
? December 31, 1924
| December 31, 1923
1 December 31, 1922
I December 31, 1918
1 December 31, 1912
$ 18,172,000,000 • $2,821,000,000
2,793,000,000
17,392,000,000
2,716,000,000
16,268,000,000
2,571,000,000
14,936,000,000
2,331,000,000
13,652,000,000
1,799,000,000
9,506,000,000
1,468,000,000
5,554,000,000
$15,351,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds,
(2) Total amount of sinking funds and amount held in trust by the
Treasurer of the United States,
(3) Amount held in trust by the Treasurer of the United States.
(4) Includes amount held by the Treasurer of the United States and
also the amount owned by the United Stages Government«.
POE SELEASS, MORNING- PAYEES,
Saturday, October 30, 1926.
HEASITaY DEPARTMENT
Address by
HON, LINCOLN C. ANDREWS,
Assistant Secretary of the Treasury,
Before
AMERICAN ACADEMY OP
POLITICAL
&
SOCIAL SCIENCE,
Philadelphia, Pa.
October 29, 1925,
"PROHIBITION ENFORCEMENT AS A PHASE OE FEDERAL
VERSUS STATE JURISDICTION IN AMSRIG&N LIES".
Looking into our Federal Constitution, adopted to make our Government
"a more perfect union1*, we find three pertinent facts of immediate interest
to rqy subject:
First, that Congress was given the power "to regulate commerce
with foreign nations and among the several states"; second, that the police
power - the power to legislate for the promotion of the safety, health, morals
and general welfare of the people - was reserved to the several states; and
third, that property rights were safeguarded by the "due process" provision,
The exercise of these two sovereign powers, and the appeal to this constitu
tional safeguard, had an early and continuing influence on the fortunes of
the liquor question - marking the various historical steps, legislative and'
.judicial, in the evolution of National Prohibition,
Congress had laid imposts on liquors imported from a foreign country,
and in 1827 the United States Supremo Court decided that the state could not
; interfere with such liquors until they had lost their "foreign commerce"
I character.
Thus the commerce power of the Federal Government first appeared
as a serious check on the exercise of the police power by the states.
In 1847 the question arose as to liquors in interstate commerce, and the
I Supreme Court held that in a matter of general interest a state could legis? late in regard to interstate commerce until Congress stepped in to exercise
■its power in the same field.
Thus the courts, in 1827, checked state control
|‘0f international liquor, and in 1847 allowed state control great power in inter
j state liquor,
I -
In 1887 the see-saw started back again, when the Supreme Court laid down
I the doctrine that while a state might, under its policB power, prohibit the
imanufacture and sale of intoxicants within its borders, nevertheless intoxi—
l;eating liquor was a legitimate subject of interstate commerce, and that the
i state could not interfere with such commerce by prohibitive legislation; nor
- 2 ince sale is an essential part of commerce, could it prohibit its sale in the
Original package»
Q
.
Close on this decision, in 1890, the Supreme Court renounced the previous
Loctrine that the states could legislate where Congress had failed to act.
So we
ind the state denied the power to prohibit the introduction of liquor from other
tates, and to prevent its sale in the package in which introduced.
Under these
Lecisions, both foreign and interstate liquor marched joyfully where it would,
Immune from state police power while in original packages, and the most stringent
state regulations were powerless to thwart it.
In addition to these disabilities, the "due process" clause of the Constitu
tion was proving a serious check on the State’s power to regulate intra state
Liquors.
The view prevailed that, although a state could prohibit, under its
Dolice power, that which adversely affected the public health, morals, safety or
general welfare, the mere possession of liquors did not fall in this class, and
consequently the police power could not be invoked to prohibit possession.
Of course these constitutional barriers later fell one by one as the cohorts
if prohibition advanced, until the Supreme Court in 1918 held it constitutional
for a state, under its police power, to make the possession of whiskey for per
sonal use a criminal offense.
Later it went so far as to say that the fact
hat such a statute destroyed property rights lawfully acquired in the liquor be
fore the law became effective, did not constitute a violation of the constituional mandate against taking property without due process of law.
But this
ame later, and it may S e said in general that in 1890 the states could constiutionally prohibit only the manufacture and sale of intoxicating liquors.
.It
s interesting to note that during these years the Federal Government took no
teps looking to direct Federal control of ^iquors through the exercise of its
nterstate commerce power, as it* did in the ¿natters of oleomargarine, w i^e
lavery,' Louisiana Lottery, etc.
Thus we find the states, because of Federal inhibitions, unable to cope
- 3 effectively with liquor, either domestic or imported; and we find Congress
unwilling to deal with it independently from the states.
But we also find an
insistent and ever-growing sentiment throughout the country against the traffic
in intoxicating liquors.
Consequently the Federal legislative development was
along the lines of Federal cooperation in assistance of the states that wished
to be dry.
Owing to the immunity afforded the original packages of liquor brought
into the dry states
from
outside, these states found themselves overrun \.ith .
"original package shops", and had to seek Federal aid in order to combat them.
Congress felt that its sovereign commerce power should not remain a means of
defeating the dry policy of a state, and passed the Wilson Act in 1890, which
removed from imported liquors their character of "interstate" or "foreign"
goods, upon their "arrival" within the state.
This was intended to allow the
state to prevent the sale of the imported "original packages".
But the Supreme
Court largely destroyed the value of this act, by construing arrival to mean
;"commercial" arrival - delivery to the consignee, not physical arrival within
| the borders.
Delivery to the package shops for sale could be prevented, but
| delivery to a consignee for use could not.
The shops were thus cleaned up,
jbut any citizen could still receive all the liquor he chose to order.
The
;State remained powerless to repress importation for personal consumption, and
'was deluged by liquors thus obtained.
Congress spent twenty odd years suggesting remedies for the shortcomings
(of the Wilson Act.
There seemed to be constitutional objections to all of
(them, and nothing was done until 1913.
Meanwhile the states in desperation
strengthened their laws as they could, and began to limit the amount of liquor
:that a man could possess.
In 1913 Congress passed the Webb-Kenyon Act, which removed the protection
L
the commerce clause from any liquor intended to he received, sold or used in
violation of the laws of the state to which it was sent; and subjected such
- 4 liquors entirely to the control of the offended state.
Both the Wilson Act
: and the Webo-Kenyon Act were attacked in the courts as unconstitutional, as
1 attempts to delegate to the states a control of interstate commerce.
President
I Taft, in his veto message, expressed doubt as to the constitutionality of the
I Webb-Kenyon Act.
The Supreme Court sustained both acts.
It declared that
B Congress was dealing with a commodity, the transportation of which it might,
■•prohibit entirely, and which the states on the other hand were powerless to
■prevent Deing brought within their borders.
Instead of prohibiting the liquor
■traffic entirely, Congress chose to take from it the protection of the commerce
I clause; and to leave it to be dealt with wholly by the communities whose
■problem it was.
Thus in 1913 we find the Federal Government, judicial and
I legislative, positively in cooperation v/ith the states — stepping out of the
■ way and allowing the states to control both domestic and interstate liquors
I within their ,own borders,
Ffom 1913 to *18 events moved fast.
In the- end Congress abandoned its
■policy of assisting the states, and turned to that direct Federal control
■which it had theretofore eschewed.
The desire for nation-wide prohibition had
ip*own from an idealistic sigh to a positive demand.
In 1913 the Anti-Saloon
■league launched its organised campaign for national prohibition.
Between the
rerears of 1914 and 1918, 23 states sounded out the sentiment of their people by
ithe referendum.
At the time prohibition became effective 33 states were dry.
Eft. resolution calling for a prohibition amendment to the Constitution was inproduced into both Houses in 1913 and failed to pass in 1914.
Similar re§o-
flutions were introduced in 1915, but were not brought to a vote in either House.
But before this same Congress Senator Jones propounded his view that the
states needed still Further Federal assistance.
Believing that the states
pere still powerless to combat "solicitations of orders for liquors" coming
¡through the U. S. Mails, he proposed an amendment to a postoffice measure
- 5 penalizing the mailing of solicitations into a state which had prohibited them.
He was still working on the theory of Congressional cooperation with the states.
In discussing the Jones Amendment, Senator Heed pointed out the incon
sistency of fixing penalties for the mailing of solicitations into a state
which forbade solicitations, while tolerating the shipping of the liquor itself
into a state which forbade liquor.
So the Senate in 1917 passed the Jones
Amendment, and at the same time passed Senator Heed*s Amendment - the Heed.
Bone-Dry Law - making it a Federal offense "to order, purchase or cause in
toxicating liquor to be transported into any state that prohibited the manu
facture and sale thereof".
Thus we see a complete about face on the part of
Congress; and we see in Senator Heed of Missouri the father of the first National
prohibition liquor law.
It is also interesting to note that this law was
passed by a Congress which had chosen not to bring to a vote a proposition for
National Prohibition.
The Heed Law made the dry state bone-dry whether the state liked it or
not.
In fact it was suggested in debate on the Heed Law that it was proposed
in order so to vex a dry state with its dry law that other states would hesi
tate to go dry.
It did in fact make one state dryer than it intended to be.
West Virginia prohibited the manufacture and sale of liquor, but permitted a
parched citizen to bring into the state a quart of liquor every 30 days for
his personal use.
One fellow was caught while doing this, and tried in the
Federal court under the Heed Law.
The Supreme Court held in 1919 that he was
guilty of a Federal offense, that the Heed Law was constitutional, and that any
oasis in a state law that conflicted with it was invalid.
suddenly bone-dry by Federal command.
West Virginia was
The only way she could allow her citizens
to bring in their quart was to repeal her prohibition against the manufacture
and sale of liquor - and it has been hinted that the liquor interests liked the
Heed Law for just this reason.
«?
ft i$
The 64th Congress had declined Rational Prohibition r.nd
passed the Reed Amondment.
Prohibition resolution.
The 65th Congress passed the Rational
It was adopted by the Senate on August
1, 1917, without the provision for a concurrent power of enforce
ment in both the Congress and the states.
Congress alone was
*
given the power to enforce tho proposed rmendmont by appropriate
legislation*
Propping all consideration of state police power,
tho Senate went to the extreme of absoluteJP^er^^responsibility
and control through tho exercise of a thus
acquired Federal
police power, to be exercised throughout the states and communities
of the land.
This easily accepted conception of employing fc
highly centralized governmental police- power, and this seeming
disregard for our long cherished doctrine of states rights, would
apnear to be marked evidence of a wartime state of mind on the
part of the Senate, when acting upon this resolution.
The debate on the resolution is interesting.
The
opponents of tho resolution wore against taking from the states
their control of their local affairs and giving it to Congress.
They felt that Federal cooperation had made it possible for any
state to be as dry as it wanted to be,, and that the minority of
the states should not be forced to go dry because of tho social
views of the majority.
The proponents of the resolution maintained
that Federal cooperation had proved ineffective in aiding the dry
states to become dry.
Wet neighbors were too damaging an influence,
even with full state and Federal cooperation.
They maintained that
since a dry state could not -establish complete prohibition as a
state, it had a light to urge Rational Prohibition; not primarily
\
to stuff its. viows down tho threat of a wot state, but for its arm
protection.
They pointed out tfeet while it might bo a questionable
policy for 36 states to impose their social standard upon
1-2
states,
it was truo that otherwise the 36 states could not protect themselves
against the
12
states.
The House amended tho resolution to read as the .Amendment
now does - Congress and the several states being given concurrent
power to enforce the Amendment by appropriate legislation.
It was
stated by members of the judiciary committee instrumental in inserting
this concurrent phrase - notably Mr* Webb and Mr. Volstead - that this
phrase had been put in to mate© it plain that there was reserved to the
states their power to enforce their prohibition laws; and that the
granting of a like power to Congress should not have the effect of
granting all such power exclusively to Congress.
There was surprising
ly little debate in the House as to the meaning of "concurrent” in
the resolution.
Both Houses soemed more interested in the giving of
a new power to Congress than in the reserving of its old power to the
states.
They argued the question chiefly on principle, and did not
pay much attention to tho problem of how Federal and state control of
liquors would work out in practice under tho concurrent clause.
Reading the record, it is my opinion that Congress as a
whole had little conception of tho practical difficulties of the en
forcement of the Amendment.
Tho concurrent clause was inserted more
as a concession to the psychology of the states than with the purpose
of requiring the states to function in those fields of enforcement
where the state police power rather than the Federal mandate would
be not only more effective, but more consonant with our foim of
government
8
Tho
lingo.ago
of suction
2
of tho 18th Amendment 1st "Tho
Congress and tho several states shall have concurrent power to
enforce this article hy appropriate legislation."
mean?
VJhc.%
does it
The Supreme Court says that it does not moan "joint" power.
The view that concurrent moans that the power to enact appropriate
enforcing legislation is in each - the state and the Federal - hut
that the legislation of Congress as the supreme law of
the land
supercedes any inconsistent state legislation has received some
support- from the courts.
Support has also been given the view
that the power is equally in each - the state and the Federal
neither having any overriding force as to the other because each
is effective in its own jurisdiction, and. the validity of each
is to be tested only by the touchstone of appropriateness to the
enforcement of the 13th Amendment.
On one point, however, courts
are uniform with one or two exceptions - the 18th Amendment is not
the source of the state’s power to legislate with regard to in
toxicating liquors, but the source of such power is still its
police perpr, which inheres in it as a sovereignty.
The 18th
Amendment reserved to the state its police power over this question
it did not give it such power.
The effect of the 18th Amendment was to reserve to the
states this police powor in its entirety, with the one limitation
that the states were put under a legal disability to permit what
tho 18th /mendment prohibited.
It even enlarges tho states power ,
beyond the limits of its other police powers, since on other ques
tions state laws are subject to constitutional inhibitions as
regards "due process", interstate commerce, etc.
In addition, the
18th /menctaont by its terms gave to tho states an authority con
current ’dth Congress over the importation and exportation of
- 9 intoxicating liquors; and over liquors in intorstato commerce,
by tho rule of constitutional construction whieh renders paramount
an amondmont subsequent in timo to a prior constitutional provision
■which conflicts with it.
The stato gained much, and lost only the
privilege and power to permit the manufacture, sale and transportation
of intoxicating beverages.
Congress acquired the police power, the
several states retained theirs.
The former policy of assisting the
states by removing constitutional barriers to the operation of their
police powers, was superseded by a plan for active cooperation in
which each party has equal responsibility and power.
This was a
novel soherne in our government, ready to meet tho test of experience.
Let us see how the Congressional plan worked, and is working.
/II the States except Maryland fell in line, and where necessary
enacted appropriate legislation.
splendid action.
The stage was auspiciously sot for
But an unexpected psychology resulted in the with
drawal of most of tho old skilled actors of this great drama, and
left the stage largely to amateurs and a few monologists.
We find
cooperation on the statute books, but not carried oufy into the life
of the community*
/ very curious picture.
Here mo-JBBfe 47 of our
48 states with state prohibition laws and the machinery to make them
sting.
We^iBBW mho Federal Government with a prohibition law.
How
tho Federal Government is a new actor on this stage - a new prima
donna.
The states are old troupers in enforcing all police power
regulations, including this one, and they know the twists and turns.
They get a hand from their audience - a helping as well as an applaud
ing hand.
the folks.
They are tho local stock company - so to speak - known to
The new prima donna has not appeared on this sta$b before,
having been only a supernumerary.
When the curtain goes up, the
company stays in the dressing rooms, make-up on, roles perfected, and
expects the now prima donna tc play all roles, including that of the
villain.
A very curious reaction, this attitudo of the people, after they
got National Prohibition.
The groat forces of social roform that bad worked so successfully
for temperance along educational lines, instead of grasping this opportunity
for a steady forceful advance to overwhelming success, apparently felt that
their battle wis already won, and ceasod their organized efforts.
The
forces that had boon so efficiently organized and lod to accomplish these
ends through political activities, now centered their energies upon the
enforcement of the National Law through Federal agencies.
Stale, county
and municipal law officers tended to overlook their own civic responsi
bilities under their community laws, and to pass the responsibility for
Prohibition Law enforcement to the Federal Law and its agents.
The citizens
of the country generally, thoughtlessly, and thus inconsistently with their
inherent conceptions of the functions of Government, tacitly and perhaps
unconsciously relieved their own civic officers from their responsibilities,
and looked tc the National Law in Federal hands for the enforcement of
Prohibition.
Everybody looked to Washington, and placod the responsibility
for law enforcement upon the Federal Government - and unfortunately for tho
law’s success, the Federal Government was accepting this responsibility.
When I took office last year I found tho Prohibition Unit
.organized and functioning on this basis.
Highly centralized in control and
responsibility, its field forces organized without due regard to their
essential correlation ruth the field forces-of the Department of Justice,
prohibition agents throughout the United States were being called upon
everywhere to exercise the Federal police power in local polico affairs.
And these agents wore accepting the responsbility and arresting these petty
law violators.
In many jurisdictions this resulted in overwhelm!ng the
offices of the District Attorneys and clogging the Federal judicial
11
-
machinery with thousands of petty polico cases, not infrequently'to the
disgust of the Federal Bench and the discouragement of the District
attorney*
More important oven than this moral effect was the consequent
demoralizat-ion of all the business of the Court.
Already crowded, with
business resulting from the ever increasing number of federal laws to be
enforced, that promptness and certainty of trial and punishment so essential
to successful low enforcement become an impossibility, and this was being
reflected in a. growing disrespect for law on the part of all law violators.
Perhaps the most interesting phase of this development, and the
most potent in its unfortunate effect-upon the success of the national Pro
hibition Law, was the fact that while the citizens generally accepted the
idea that the Federal Government should be responsible for the enforcement
of tho law, many of them nevertheless inherently resented this exercise
of police power on the part of the Federal agents within their own commun
ities as affecting their own individual privileges. This can be explained,
as thoughtlessness.
Or perhaps it was the working of guilty consciences
for neglecting their own responsibilities as citizens of self-governing com
munities rho must necessarily make and enforce their own regulations for
community welfare.
Bo it, however, thoughtlessness, guilty conscience, or
outraged conception of democratic government, the reaction was personal
resentment, manifested far too often by law abiding citizens, both men <..nd
women, in wilful violations of the Prohibition Law.
And. this mnnifostation,
peculiar as it may seom, evidenced itself oven in previously dry states, as
well as in those that had novor previously accepted State prohibition.
The demand for beverage liquor was insistent and apparently quite
indifferent to cost.
Money and brains wore quickly forthcoming to organize
an illicit traffic in liquor to supply this demand wherever it prevailed,
and, keeping stop with mod.orn economics, this supply thon created further
demand to keep it moving, and thus a new form of liquor business grew and throve.
¡Definitely an outlaw business, its success was necessarily conditioned to a great
'¡extent upon the bribery of officials charged with keeping law and order - so
Wherever its activities reached, it left a slimy trail of crime and corruption
¡in its wake.
In the large cities the criminal classes turned from their precarious liveli
hood of safe cracking, loft -robberies, etc,, to this much more lucrative and far
less dangerous profession of bootlegging.
Innumerable citizens, under the present
prevailing urge for easy money, turned from lawful pursuits to engage in this
lucrative business.
It is even reported that farmers in certain localities are
bow measuring their corn crops in gallons, rather than in bushels.
Meantime the
Criminal's traditional fear of offending the Federal authorities was rapidly turned
by experience in the slowness and uncertainty of punishment, to a contempt for
this same Federal authority.
It is this condition that we have been and are now
frying to correct in our effort to "Restore Respect for Federal Law'*.
Faced with this problem of law enforcement, and with these conditions, we had
to answer the-se questions:
ifith?"
"What have we got to do?"
"How shall we do it?"
"What have we got to do it
In determining upon our policy, organization, and
procedure, two fundamental considerations were goverdi&h>;. First, a realization of
bhe fact that any law to be effective must be in reality an expression of a
standard of living generally accepted by the members of the community affected,
irhich means that this standard is already observed by the great majority of the
immunity, and written into a law only that it may be enforced upon the
recalcitrant few by the police and court officers of the community.
Applying this
’
.onsideration to our problem, it required that the agencies of social reform be
.nduced to take -up again the task of education, so that the numbers who observe
ihe Prohibition laws may be materially increased, and the numbers who must be
irosecuted as violators may be materially decreased.
Expressed differently, this
¡onsideration meant that the Prohibition laws must be popularized - both the laws
nd their administration must meet with more popular approval.
- 13 The second consideration was that the responsibility for the enforcement of
the Prohibition laws must be shared by Federal and local authorities.
And this
responsibility must be shared on clearly defined lines, so that each may have a
definite objective, upon which it may concentrate its energies with a fair hope
of 'Success.
Looking back into the years of struggle toward the accomplishment
of Prohibition; realizing how until the Reed Amendment in 1917 the whole conduct
of Rational Government, both legislative and judicial, had been to show a marked
| sympathy with the efforts of the states to regulate the use of liquor, and to
| cooperate with them in a helpful way; and looking at the present anomalous and
I directly contrary situation in which the states now lay almost supine while the
I whole nation looked to the Federal Government for the success of Prohibition;
! and realizing the inherent wrongness and unquestionable thoughtlessness of this
[ latter attitude, it seemed the only and the natural solution that the Federal
I Government should undertake as its share to suppress the commercialized traffic
I in liquor, and thus prevent its introduction into the various communities of
I the country in commercial quantities, and that the states and communities
I should undertake as their share to suppress local violations, with Federal
I assistance where necessary.
This policy was adopted and approved by the Ad-
)
I ministration.
The Federal forces are more and more concentrating their
I efforts upon this main objective, as the civic consciousness of the communities
I is again aroused to their responsibilities for self-government and Federal
I agents thus relieved from demands upon them for the exercise of local police
! power.
Th me this division of responsibility seems so natural and so absolutely
I essential as not to require argument.
It is in keeping with the growing
appreciation on the part of thoughtful citizens that modern tendencies toward
highly centralized authority and responsibility in Washington may lead to
I dangerous extremes.
Consider for a moment the alternative — the Federal
14 Government accepting the fall responsibility for enforcing the National Law in
1 all the communities of the land.
No one knows how many policemen would he
| necessary, and how many Federal police courts would he required; hut the numbers
certainly would he tremendous, and the political and social effects of their
[ daily contact with the intimate affairs of the citizens of the communities
[ might easily he most disastrous to democratic institutions*
In fact such a
superimposed Federal police power is to my mind absolutely unthinkable in
| America, and had enough in Russia.
Such a solution is predicated upon so false
| a conception of our Government as to offend the very fundamentals of our in—
I stitutions, and I believe it could never he accepted by a thoughtful public,
I When his consciousness is stirred, the ¿\merican citizen is still proud of his
I claim to the rights of self-government.
This was happily illustrated last
I winter in the nation-wide protest against the Executive Order permitting the
I appointment of county police officers as Federal agents.
It was considered an
| invasion of the citizens* sacred right to manage his own affairs through his
I own civil officials.
It appears that this sense of civic responsibility and
I pride in its employment still exists, and has only to be aroused, when the
I communities of the land will again accept their
■
responsibilities
for law en-
i forcement and see that they are faithfully carried out.
We have therefore steadily gone ahead in the execution of this policy.
I The organized foroes for reform have again taken up their burden, and are on
I campaign throughout the country in an effort to arouse the states and communiI ties to a realization of the part they have to play, and the necessity of their
I playing
it vigorously and promptly.
Meantime the Federal agencies have been reorganized on a plan of decentralI ization, the Federal Judicial District having been used as the unit in order
I that an intimate and active teamwork nay be established throughout all the
I field forces of. the Department of Justice and of the Treasury Department.
Our
15 representatives have "been instructed to share with the District Attorneys the
making of such cases against law violators as can he promptly and effectively
prosecuted with the greatest effect for the common cause of law enforcement.
The main objective of our energies is clearly defined to he the commercialized
liquor traffic in all its manifestations.
Our field forces are organized and
our regulations made with the definite object of wiping out this traffic.
The
instructions to our field forces are to concentrate their efforts along
specified lines looking to this end.
Much energy, however, is dissipated by
the continuing necessity of doing more or less local police work, -until the
1communities relieve us of this task.
And I forsee that there will always be
|the need of rendering more or less assistance to state, county and municipal
Iofficers where local conditions are so unsatisfactory as to demand it.
It has taken time to effect the necessary organization and lay the neces
sary legal groundwork for the accomplishment of this Federal function, but real
progress is now being made.
In practical language, we have undertaken the
]elimination of the sources of supply for the organized liquor traffic, and the
;prosecution of the men who have organized and are conducting this traffic.
¡These souroes of supply are:
Smuggling, the diversion of industrial alcohol,
¡the illegal manufacture of real beer in old-time breweries, the diversion of
|medicinal spirits, the diversion of sacramental wines, and illicit manufacture
\in
wild— cat distilleries and breweries.
Thanks to our executive agreement with the British Government, and to the
|negotiation of treaties with our immediate neighbors, marked progress has
ialready been made, against smuggling, and we are now confidently looking forward
to the day when the snuggling of liquor in quantity will be completely done away.
Thanks to the special appropriation of funds by Congress in June of this
[year, we have been able to organize special forces which are engaged in cleaning
up the industrial alcohol field, steadily eliminating, one by one, the permittees
~
16
~
who have engaged in illegitimately diverting alcohol to beverage uses.
Great
progress has been made already, and it is but a matter of time when all these
; permits will have been revoked, and this source of supply of alcohol eliminated.
Similarly for the supply of real beer, the same appropriation made possible
; the organization of a special force for this work, and with the aid of addition: al legislation requiring permits for manufacture of cereal beverages, we believe
; that this source of supply will be gone next season.
While tfauch has been done by regulation to reduce the diversion of medicinal
[ spirits, the existing law which authorizes the owners of spirits to sell in an
I open competitive market to wholesale and retail druggists, and to other
I permittees, has proven an insurmountable obstacle to complete control, and
.
I Congress will be asked at this session to pass remedial legislation which will
| make the control of medicinal spirits absolute..
■
Great difficulty was found in the issuance of sacramental wine, particularI ly to the Jewish Faith, where lack of church organisation and discipline made
I control almost impossible.
This wais a prolific source of supply.
But a solu-
[■ tion was finally arrived at, and the amounts of wine now issued for sacramental
purposes are reduced to such an extent that diversion to illicit traffic has
I become negligible*
There remains as a source of supply illicit manufacture in wild-cat dis| tilleries and breweries.
As the other sources have been more and more con-
|trolled, the liquor traffic has turned more and more to this final source.
Illicit distilling, whose product is known as l,moonshinen , has always been
practiced in a small way; ,but this practice has developed under the prohibition
I
.Law, and become more or less nation-wide.
When used as a source of supply in
| quantities sufficient to justify an organized traffic, this must remain the
IObjective of the Federal forces, and will require special organization and
I close attention for its elimination.
But where quantities are small, and
17 for local use and distribution only, these violators must be definitely the
objective of local law enforcement agencies.
We are approaching here the phase
of law violation where the individual citizen manufactures intoxicating beverages
within his home for his own use.
object of Federal control.
It is clear that this should never be the
Under our present conception of the functioning of
democratic government, this is clearly for the communities themselves as a
matter affecting most intimately their community standards of living and ideals
of social government and welfare.
I must call your attention to one other phase of the Government's function
under the national Prohibition Act.
Tie have to administer this law through our
permit system wherever it touches business and professions which use alcohol
or spirits in their legitimate undertakings.
Alcohol plays a vital part in many
important industries, and. it is Government's function to encourage legitimate
industry.
We have literally thousands of permittees more or less*dependent upon
the functioning of our federal officers for the success of their business.
Going
back to the first of our two fundamental considerations determining policy and
procedure, and regarding the consideration that the law must have popular approval
in order that it may be successful, it is a definite part of our policy that we
i shall administer the law in a liberal, prompt and courteous manner, thus
I commending it to popular approval.
Determined efforts are being made to bring
| our personnel to a high standard of character and personal conduct in office.
■ All are enjoined to a scrupulous observance of law m
\ conduct.
S law.
both personal and of 1
They are to be an object lesson in law observance and in respect for
Wherever our functions touch legitimate business, our officers are
joined by promptness of action and fairness of judgment to make legitimate
j business feel that Government is working with then for their success.
temining questions of general policy at headquarters, we are trying to impress
I the general public with the fairness and liberality of our judipents, to the end
that existing resentments may be softened, and a better appreciation may be had
of the law and its social and economic effects.
18
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To sien up, the Federal Administration is assuming that the peoples of
those, United States intend to carry on faithfully under their present form
of government, and will willingly re assume their duties and responsibilities
as citizens under self-government; and the Administration is therefore actively
working toward the day when the Federal prohibition Unit will be a dignified
efficient
/organization, engaged in the Administration of the permissive features of the
law to the satisfaction of the business public concerned, and in the execution
of the enforcement features of the law by such close surveillance of the
possible sources of supply and avenues of traffic as will prevent the movement
of liquor in commercial quantities into any local jurisdiction; and engaged
through cooperation in helping State, county, and municipal authorities, to
make possible the success of their own expressed determination to live as
social communities free from the presence of that traffic in liquor which they
have denounced as a crime in their social existence.
part.
The people can do theirs.
October 89, 1926.
We can and will do our
federal cooperation to prevent praud
An Address Delivered
"by
Honorable Charles S, Dewey, Assistant
Secretary of the Treasury
a t 'the
Eirst Annual Convention
of the
Associated Stock Exchanges
at
St. Louis, Missouri,
■ on
Monday evening,
November 8, 1926,
TREASURY DEPARTMENT
FOR RELEASE, MORNING- PAPERS,
Tuesday, November S, 1926. '
Two outstanding characteristies of the American people are their
superaounaance of curiosity and their venturesome spirit.
These two qualities
have had no small part in the great development that has taken place in our
country during its short history; but on the other hand, they have influenced
thousands of our citizens to venture haphazardly into undertakings which ulti
mately resulted in financial loss and misfortune.
I no not believe that the American people are more greedy than is
humanity in general, out it is their curiosity and spirit of adventure, when
exercised in a land of great opportunity, which cause the inexperienced and
unwise to attempt, Dy rash speculation, to attain the same proportionate
wealth that has been gained by others through the medium of hard work and
careful investment of savings.
.It would be easy for us to shrug our shoulders and quote some such
platitude as "a fool and his money are soon parted”, were it true that the
unfortunate victims of fraudulent investment schemes are in fact fools.
I however, is not true.
This,
The persons preyed upon usually are wage-earners and
the small salaried men who make their investment out of savings amassed through
j
; years of sacrifice and set aside to provide for a time when their earning
capacity shall have been diminished.
Furthermore, these people are the very
oackoone of oui* nation, and it is upon their purchasing power that the indusi tries of this country in great measure rely.
It follows that if they are
> defrauded of their savings, their purchasing power will be reduced, with an
| unfavorable reaction directly upon our entire economy.
During the war a great effort was made to educate the citizens of
; the United States to invest in Government securities.
Banks, investment
houses, and stock exchanges loyally gave their support to make the Liberty Loan
campaigns a success.
A community had to be very small indeed not to have its
Liberty Loan campaign committee; and everyone, man, woman, and child, was urged
to purchase Liberty bonds, and at the same'time they were educated, as I have
said, into the merits of a sound security as a good investment for their surplus
Ifends.
With the termination of the war the country went back to its ordinary
I business pursuits and all of these new investors were left without guidance.
m
‘
It was as if they had been taught to walk and had been led out by some careful
j. chaperon into the congested traffic of a large city and there left to get home
I as hest they might.
In our public debt statement there is an item 'featured interest
| obligations outstanding" amounting at a minimum to about $35,000,000.
This
[ represents interest due government security holders who are slow in presenting
I their matured coupons for payment.
But there is also a substantial percentage
that will not be paid until the security itself matures or is sold.
This was
[ evidenced at the maturity of the Victory notes when many were presented with
\ all
coupons attached.
It seems incredible that such ignorance exists, but
f there are more than a few stories around the Treasury Department of Liberty
I bond holders who wished to be advised as to when and how to pay the interest
| on their bonds.
These people were educated sufficiently to buy Government
f bonds, but their education stopped with the war, and as a result they are
frequently swindled out of their holdings.
During the post-war days the Treasury was advised of their plight.
| We have in the Treasury a large" file of letters received from widows, school.
i teachers, and other individual purchasers bf our government securities.
I of these letters tell the same story.
All
The writers had been subscribers to
| Government bonds; they had been approached by some plausible gentleman who had
f expressed both a keen interest in their welfare and a f®ar that since the war -
was over and their patriotic obligations fulfilled, they were not obtaining as
large a return upon their investment as they should and that by exchanging
their Government security for a "sound" investment in some distant gold mine,
they would 3 tand an excellent opportunity of reaping large profits«
Some of
the circulars left with prospective purchasers were so bald in their statements
as to make them actually amusing were it not for the fact that the matter is of
such a serious nature.
As a typical sample I wish to quote from one which
offered an unequalled opportunity to 'become rich.
It reads as follows:
"We propose to make some real money in a fair and square
way by getting the cooperation of a sufficient number of
live wires to produce oil.
We have the land all paid for.
And everyone knows that if oil is struck at all it is big
money.
If we strike a gusher we all share in a fortune.
If it is more than one gusher we are millionaires over
night.
A host of men are rich to-day because they bought
on the same basis that we now offer stock in this company."
I regret to say that the little lady who received this circular is to-day a
sadder but much wiser woman 0 and that she is still waiting for the first oil
to he struck.
Some interesting data was developed at the hearings during 1919 be
fore the Committee on the Judiciary of the House of Representatives on-a pro«*
posed Federal Blue-Sky law.
It was developed that during the oil hoom in
Oklahoma an investigation of the stock-selling oil companies of that state
was made by the "Oklahoma Hews", and it was revealed that of all the oil pro
duced in Oklahoma during 1917., the stock-promoting companies owned less than
two tenths'of one per cent.
In other words^ for ©very $555 of these companies’
capitalization only $1 worth of oil was produced.
I do not contend that fraudulent stock selling schemes were not common
prior to the war.
But the very loyal and unrelenting efforts of yoi£ gentlemer..
and of the members of the banking fraternity to aid the Government in the sale
of its vast issues of Liberty bonds, has created an appetite for the security
form of investment among our people, which appetite did not exist in any such
measure prior to the Liberty Loan campaigns.
Lecause of this appetite, these
new investors furnish all the more easy prey for the fraudulent stock promoter;
and this would seem to he an additional reason why the State and Federal
Governments should give to these investors adequate legal protection,
The most usual forms employed have been the Fraud Act which permits
any type of security to be sold but empowers the Attorney General or other
authority to prosecute promoters who seem to be perpetrating a fraud upon the
public.
The other fora of law is the Flue Sky Act.
In 1911 the State of
Kansas, exasperated by the operations of fraudulent promoters, enacted Flue Sky
legislation.
The term “Flue Sky” seems to have originally referred to
fraudulent real estate operations where salesmen were accused of selling corner
lots in the blue sky.
The original act of the State of Kansas, however,
covered not only real estate transactions but the sale of securities, and was
the type of legislation which gave authority to a Commissioner to prohibit the
sale of any security in the state until he had satisfied himself as to its
character and soundness.
The Blue Sky law of Kansas was so widely advertised that it very
shortly had the effect of making this state an undersirable field for fraudu
lent operations, and as a result many fraudulent salesmen sought new fields
in other states for their undertakings.
The action of the State of Kansas
was adopted by other states until at the present time Flue Sly legislation in
some form has been enacted by all save five or six of the states of the Union,
I
The Kansas law has been used to a great extent by most of the States
as the basis for this type of legislation.
As experience was gained a number
of additions and changes were made to the original Act, chief among which may
be mentioned the licensing in some states of all persons engaged in the sale
of securities.
In other states the license was not imposed upon the brokers
- 5 -
tut upon the securities themselves.
Licensing of securities, however, has
teen seventy questioned, inasmuch as such license has frequently teen improperly
used hy salesmen claiming that it represented some form of endorsement and
approval on the part of the state,
before passing from the blue Shy law, it might he well to discuss
for a moment some of its advantages and disadvantages.
The chief disadvantage
urged against it is that it interferes with the freedom of legitimate business
and that the time needed to furnish, the State Commissioner with all the infor
mation he may require, delays the offering so much that a market for a certain
security may he missed and a great additional burden of expense be placed upon
the issuing company or underwriter.
The proponents of blue Sky legislation,
however, claim that most legislation is subject to the same objection in one
form or another, and that their activities in the end save the general public
much money and prevent the wastage of a great amount of capital.
In other
words, it becomes a question of the greatest good to the greatest number.
The
objection is also raised that it is an invasion of private business by the’
state and that the state is under no obligation to exercise any control over vke
sale of securities.
The answer to this appears to be that the enactment of
legislation of this character falls in the same category as the Pure Pood L aws'
and similar regulatory measures, and it is as much the., duty of the state to
protect its citizens against fraudulent stocks as it is to protect them against
tubercular milk or other impure food’products.
In 1921, the right of the state to interfere by legislation in the
sale of securities was the subject of a report of a special commission appointed
by the Governor of Massachusetts, which report reads as follows;
"Since the.State authorizes the, issuance of fictitious or
watered stock, it must follow that it is the duty of the
State, to prevent the sale of such securities until■the State
itself determines that they are not. fraudulent.
The State
creates the securities and places them in the hands of fraud
ulent promoters, who in turn distribute them to the public.
- 6 -
Any additional legislation to chock the sale of fraudulent
securities is nothing more or less than an effort by the
State to limit the use by fraudulent promoters of the false
tokens which the State itself creates."
In several of the states, fraud acts have been enacted to safeguard
the public against the operations of fraudulent promoters.
In each of these
states the acts provide that if it shall appear to the Attorney General that
any persons are employing a device to defraud, and he believes it to be in
the public interest that an investigation be made, he may require such persons
to file With him a statement as to all the facts, and in some instances the
Attorney General may issue an order requiring a guilty party to desist from
his fraudulent practices.
While this type of law does not interfere With legitimate business, as
it is claimed Dlue Sky legislation has.the effect of doing, certain opponents
maintain that a fraud act is inadequate to accomplish substantial results for
the reason that complaints are seldom made to the Attorney General concerning
any security until it has been sold and the purchaser has grown suspicions of
his holdings.
In most instances it is then too late to protect the public,
because the sale has generally been completed and it usually follows that the
promoters or salesmen have either left the State or ceased to offer the
security in question.
It is a case of locking the stable after the horse has
been stolen.
District Attorneys frequently complain that they have great diffi
culty in indicting and convicting people of promoting sales of fraudulent stock
because they usually hide behind the agents who have made the false represen
tations, the agents themselves often being irresponsible people working for
commissions and willing to make all sorts of representations to prospective
buyers.
It is true that the agents are frequently an itinerant lot with a
habit of leaving their field of operation after a successful campaign, the
7
net result 'being that it is very difficult to pin anything on the parties
promoting the proposition.
The Fedei'al Government is deeply interested in the development of
legislation which trill protect the investing public against fraudulent promo
tions and which, to the greatest degree possible, trill stop the wastage of
capital directly resulting from these improper practices.
It is said that
the amount of capital lost in this way reaches the huge sum of $500,000,000 a
year,
Federal Blue. Sky legislation has been pending in the House of Representa
tives for several years.
| Commerce
Last winter the Committee on Interstate and Foreign
reported to the House a bill (H.R, 52), known as the Denison Blue Sky
Bill, which undertakes to prohibit the use of the United States mails or any
. -
agency of interestate or foreign commerce for the transmission of securities
for sale to any persons in any other state in which it is at that time unlawful
to sell or solicit subscriptions for such securities.
It also seeks to prevent
the use of the mails or any agency of interstate or foreign commerce for the
transmission of letters or circulars offering for sale or advertising such
securities in such states, and provides penalties for any violation of the proI visions of the act.
The Bill exempts from its operation several important
classes of securities and business transactions and provides for the. exemption
|> of certain bonds and notes secured by mortgages on agricultural lands and
I :other real estate,
m
'
%
This bill was submitted to the Treasury Department for.an expression'.
t
i\
•.
v»
■■
'
•
■'
*
.
'V ? '* *
; of opinion, and I will quote from a letter written by Secretary Mellon to
I Hon, James S. Parker, Chairman of Committee on Interstate and Foreign Commerce
l of
the House of Representatives, expressing his criticism:
MThe present bill exempts from its operation several important
classes of securities and business transactions involving the
or disposition of securities; and it also provides exemption
of certain bonds and notes, secured by mortgages on agricul
tural lands and other real estate.
g
Notwithstanding the exemptions proposed, I am of the
opinion that the hill would unreasonably restrict transactions
in securities and that the objections stated in my former letter
to the hill then under consideration would apply with equal
force to the present hill.
The hill, as drawn, would involve
innumerable difficulties of interpretation and administration.
It v/ould, in effect, subject all transactions (conducted
through the agencies of interstate commerce) in stocks and
other securities to the laws of the various states and territories,
and place upon the Federal Government almost insuperable diffi
culties in enforcing these diverse laws, many of which create
purely technical offenses.
Their enforcement would not only
cause frequent embarrassment to legitimate transactions, but
would result in hardship and injustice, if a uniform penalty
is imposed without regard to the gravity of the offense pro
hibited by any particular state law.
The number and variety of exemptions that must be made,
in order not to place too great a burden on legitimate trans
actions, illustrate the difficulty of regulating issues of
securities by rigid requirements which apply to all cases alike.
In addition to the difficulties of administering such a law,
the numerous exemptions are necessarily so complicated that to
master their application would impose a heavy task upon all
those who deal in securities.
The proposed law has the further
disadvantage both of tacitly approving all dealings in securities
in the exempt list, regardless of how undesirable such dealings
may be, and also of unduly restricting many legitimate financial
operations, which may fall outside the exempt classification.
Furthermore, such a law, imposing upon the Federal Government
the duty of enforcing state laws, might not only establish an
undesirable x>r^cedent but would subject the National Government
to very great expense in organizing and maintaining the machinery
necessary for the enforcement of the many laws on this subject
passed by the states.”
Secretary Mellon 1 s letter must he construed as an opx)Osition only to
the character of the proposed legislation and not to the purposes which the
bill seeks to accomplish.
The Treasury is heartily in favor of the latter.
Suggestions have "been made to the Treasury advocating a licensing
system under which the Federal Government would have supervisory authority
over the issuance of all securities, a control somewhat similar to that vested
in the Interstate Commerce Commission over railroad issues.
The Treasury is
also opposed to this plan, believing that should any orancli of the federal
government be empowered to grant licenses for the issuance of securities, such
licensing might be construed by the public to mean governmental -sanction and
approval.
Moreover, delay would “be inevitable if acmini strati on by the
Federal Government were to he effective, and this would he harmful to the
operations of legitimate business.
The tendency should he to simplify,
rather than complicate and increase, the government control to which business
is subjected.
The Secretary of the Treasury believes that there is an urgent need
for a Federal statute which will repress the flow of fraudulent and worthless
securities ^through both the mails and the channels of interstate and foreign
commerce, but which at the same time will not place an undue burden upon
legitimate business.
The state laws are quite diverse in character, ranging
from "Flue Sky" laws to "Fraud Acts", and. have proved somewhat inadequate,
and certainly not as comprehensive as would be a Federal statute.
In con
sidering the nature of such a statute it has been suggested that legislation
might take the form of a law under which securities
which appear to be
fraudulent could be brought to the attention of the Department of Justice
through proceedings in the nature of an information.
The Attorney General
could then be authorized to investigate such securities and, if he found
evidences of fraud, to issue a summary order forbidding their further sale,
under heavy penalties.
Such a law would be similar to the Martin Act, which
has recently been held constitutional by the Supreme Court of the State of
Uew York,
A law of this kind, if
from perfect, of course, and would
it were enacted, by Congress, would be far
be subject to the same criticism
that has
teen directed at many laws "now on the statute boqks of some of the States.
might not always prevent the issue
of fraudulent securities; but at
would place with the United States
Department ofJustice a powerful weapon
I
least it
which might be developed into great usefulness through the cooperation of
agencies and organizations, such as your own.
It would provide a central
authority to which reports could be sent from any State upon evidence of fraud
10
-
appearing in the proposed issue of a new security.
Its presence on the
Statute Books would have the same effect upon fraudulent stock promoters as
does the presence of a policeman upon the ordinary criminal.
The usefulness
of such a lav:, as I said, would depend largely on your cooperation.
In any
event, a law of this kind would not tie up "business or "bring about the diffi
culties of enforcement which would be inherent in an act such as, for instance
the proposed Denison Blue Sky Lav/.
In reviewing the effects of the so-called Blue Sky legislation and
fraud acts, it is very obvious that they have done a great good in repressing
the flow of fraudulent securities.
But no law, by itself, can completely
protect the unwary and uninformed investor.
All fraudulent schemes seek
to operate in the dark, and as soon as the full light of investigation and
a demand for information is turned upon them, they generally run to cover or
cease to exist.
ITo other class of business, perhaps, is aa interested
in
maintaining the operations in the security field upon a high plane, as are
the investment banker and the governors of our stock exchanges, and no class
of business is in a better position to be forewarned and informed of fraudu~>
lent promotions.
The investment bankers, through their national association,
have been doing constructive work not only to educate people, but to improve
the character of tho laws passed by the various states, and it is understood
that considerable progress is being made toward a better understanding as to
the problems confronting respectively the investment banker and the State
Commissioners.
The Better Business Bureau has carried on a most comprehensive»
nation-wide campaign to educate the small investors away from the spurious
and toward the sound and in€ome~producing security.
The slogan of this
campaign of education is "Before You Invest - Investigate".
But one must
place himself in the position of the ordinary uninformed investor who has
teen approached by the usual type of smooth tongued salesman of spurious
stock,
Eor example, let us take a school teacher in some small town of a
class of people whom, I understand, are largely preyed upon.
This person
will undoubtedly turn to the financial adviser of his locality, probably a
country banker.
The banker will be only too glad to be of assistance to his
friend, the school teacher, providing the banker himself is in a position
really to advise.
He cannot be expected to make '-a very comprehensive study
of the situation; but, on the other hand, unless he does this or is in a po
sition to obtain information through some agency that has made a thorough
check-up, his suggestions can possess little merit.
He turns, first of all,
to the stocks listed on the various exchanges of the country, and particularly
the exchange nearest to him.
He assumes, as do mary of the State 31ue Sky
Commissioners, that the stock exchanges have made a careful investigation of
every security listed, and that at least no spurious promotions, so far as
careful investigation will show, are on the lists sponsored by the exchanges.
It is here that great responsibility attaches to your organization, as indeed
is recognized under your constitution,
I understand that the preamble to fchp
constitution of the Associated Stock Exchanges reads as follows:
,
nIn order to promote the general' welfare and influence
of stock exchanges; to broaden the scope of their activities;
standardize the method of handling securities; to co-ordinate
efforts in the protection of the public ¿against loss by crime
and through wilful and irresponsible dealers in securities,
•• and to surround trading by its members with greater safeguards,
we submit the following Constitution: ”
In carrying out the principles of the preamble to your Constitution,
I believe that a uniform requirement for the listing of securities and a con
stant flow between stock exchanges of information relating to fraudulent and
improperly designated securities seeking listing, would be of the greatest
assistance in forwarding the campaigns being waged by the states of the Union
-
12
-
and "by* business in general against fraudulent securities.
To educate our public
will necessarily be a slow process; but, in the final analysis, education is .
the soundest foundation upon which to 'build.
The rapidity with which the de
sired results can.be attained, however, will depend in great measure upon the
availability of information and a constant drive by legitimate 'business to
expose and frustrate the efforts of fraudulent enterprises.
Mm}
FOR RELEASE MORNINS PAPERS
Friday, December 3, 1926.
TREASURY DEPARTMENT
Speech
of
Honorable G-. B. Winston,
Undersecretary of the Treasury,
at the
Annual Dinner
of the
American Acceptance Council,
New York City, Dec, 2, 1926.
Groat wars must bo fought upon credit-.
The immediate taxing capacity
of the Government is not equal to the w&r demands and the Government must
resort to the past savings of the people by borrowing and it must also re
sort, in some degree, to inflation.
When this country found that, to
preserve its existence, it was obliged to spend three dollars for every
dollar it could raise in taxes and when its expenses became as high as a
billion dollars every two weeks, our security flotations were controlled
not by an ideal, but by the practical necessity of getting money.
It was
not what securities the Treasury wished to float but what it could float.
We have found at the close of every great war period, and the last was no
exception in spite of the remarkably fine handling of our finances, a
debt structure which was overweighted on the side of the floating debt,
and with bond issues which appeared inconvenient.
The first problem
which the Treasury had to face after the last war was a reconstruction of
this war-built structure to one suitable for comfortable, permanent
quarters.
A beginning had been mide in the restoration of our finances to peace
time conditions during the previous Administration.
balanced.
Our budget had been
But I think it is fair to say that the reconstruction of the
debt structure w:s undertaken and has been carried through by Mr. Mellon
as Secret'ry of the Treasury.
in March, 1921.
The present Administration c^me into office
On February 28 the national debt was over 24 billion dol-.
lars, and of this Tj billion dollars matured within about two years.
I
shall not give you the details of Treasury operations since March, 1921,
but in less than six years since that date we can sea results.
The
■
national debt has been reduced over 4|- billion dollars, and the floating
debt, exclusive of the Third Liberty Loan, which now has a maturity of "just
-
2
-
short of two years, is about $1,750,000,000.
You are not interested so
much in hearing of those difficulties in reconstruction which have been
met and passed, as in knowing what kind of a structure we now have in
which for the future we are to live.
In describing this structure I shall
discuss certain features: - the floating debt, the Third Liberty Loan
maturity, refunding opportunities, the bonus, and debt retirement possi
bilities.
Income taxes represent about 60 per cent of Government tax receipts,
and while a small part of these come in throughout the year, the groat
bulk are paid on the quarterly tax payment dates of March, June, Septem
ber, and December.
The Federal Reserve Bnnks are the fiscal agents of
the Treasury, and its checking accounts generally are kept with them.
Treasury balances in the Federal Reserve Banks represent money withdrawn,
from the market.
Unless a proper system is «.chntained our cash balances
with the Federal Reserve. Banks would rise to n poak on the quarterly
dates, then drop to a minimum just before the next quarterly date, - a
variation of, say, $300,000,000 between the high and the low points.
So
once every three months great sums of money would be taken from the com
mercial b-'nks by the taxpayer, out of reach of the money m^r^et, «nd paid
into the Federal Reserve Banks to the Treasury's account* thereby in
fluencing interest r^tes 0 enorally.
The only remedy for such a situation
would oe Later to redistribute these deposits among the commercial b»ius
upon some arbitrary b«mi* which would inevitably subject the Treasury to
political pressure from time to time in favor of particular banks *
or particular territories.
It is desirable to handle Treasury operations
without periodic embarrassment to current business and to accomplish this
purpose we need to have some automatic means of returning this money to the
commercial banks*
If on any tax payment period the Treasury has a maturing
-3obligation to moot about equal in amount to the taxes it is to receive,
the tax checks drawn upon the commercial banks come into the Federal
Reserve Banks to the Treasury’s account and there is paid in the same
period by the Treasury to the commercial banks a like amount in payment
of interest and maturing Government securities.
and do not affect the money market.
The transactions wash
Since there is no immediate change
likely in the system of collection of internal revenue, the Treasury should
have maturities of principal and interest on every quarterly tax payment
date about equal to the expected tax payment.
The present floating debt,
therefore, of $1,750,000,000 represents about the amount which should be
continually maintained so as to carry on the tax collections without dis
turbance to business.
We want no further reduction in the floating debt.
The Third Liberty Loan represents somewhat of a problem.
Of all of
the Government war bonds it is the only one -which has a fixed maturity
date without prior call date, so it is difficult to anticipate its pay
ment.
By purchases for the sinking fund and out of surplus moneys and by
exchanges for long-time bonds'the original issue of $4,175,000,000 has
been reduced to $2,300,000,000 to-day; and by its maturity on September
15, 1928,' -we should have this figure down to $2,000,000,000.
Meeting a
maturity of this size on a single date is a major operation.
We have,
however, kept free from maturities the five years succeeding that date,
should they be needed, and barring disastrous financial conditions, the
Treasury should be able to solve the problem without embarrassment.
This
is particularly true since the operation does not mean the finding of new
money, but simply the refunding of a maturing obligation.
The Treasury
would be returning $ 2 ,000 ,000,000 to the public and borrowing the some
amount.
Passing by the Third Libertys, the remainder of the war debt is in
4, gv-pg
1956.
Sho s i r H o s t m a t u r i t y d a te i s in 1938, and the l a t e s t i n
A l l C f the war i s s u e s have c a l l d a t e s v a r y i n g from 5 tc 15 y e a r s
p r i , r tc m atu rity.
Commencing w i t h the Second L i b e r t y s i n November o f
next y e a r , w i t h in s i x y e a r s t h e r e a r e o ve r #1 1 , 0 0 0 , 0 0 0 ,0 0 0 o f - l i b e r t y #
su b ject t , c a l l .
|jj
I f f i n a n c i n g sh o u ld become d i f f i c u l t i n th e f u t u r e ,
m a t u r i t i e s a r t spread ,,ut o ve r a lo n g p e r io d and, on the o th e r hand, i f
f i n a n c i a l c . n t i t i o n s co n tin u e e a s y , the T re a s u ry has th e s e two advan
ta g e s by reaso n o f the c a l l p r i v i l e g e .
With the e x c e p t io n o f about
#1,400,000,000 o f 5rJ/t tax-exem pt F i r s t L i b e r t y s , the L i b e r t y s becoming
s u b j e c t to c a l l c a r r y
in tere st.
I f the i n t e r e s t r a t e s a t which f l o -
^
* tr.tion s can bo male a.re low, the T r e a s u r y , i n such amounts as a r e Conv e n i e n t , can c a l l a t p a r and refu n d a t lo w er I n t e r e s t .
Secondly, s u r p lu s ,
th a t i s , an e x c e s s o f Oovernment revenue over Government e x p e n d itu r e s , has
been an embarrassment to t h i s c o u n try when, as i n the 3 0 's , we had no debt,
and when, a.s i n trie S O 's / w o had a debt but i t was not c a l l a b l e .
So lo n g
as th e T rea su ry owes money 'which i t can E ay o f f a t p a r s u r p lu s can be no
embarrassment.
With the T h ird L i b e r t y s out o f the way, tne o t h e r L i b e r t y s
can be han d led to a d va n ta g e under alm ost any c o n d itio n s which may a r i s e .
I t has been our h i s t o r i c p o l i c y to r e t i r e our n a t i o n a l debt prom ptly
so th a t we may be read y f o r the n e x t emergency.
We must h a v e , t h e r e f o r e ,
a debt s t r u c t u r e which p e rm its t h i s p o l i c y to c o n tin u e .
the c o n s i d e r a t i o n o f when the debt may be r e t i r e d .
en ters.
T h is i s
the S o l d i e r s '
T his b r in g s us to
In t h i s a n o th e r f a c t o r
Bonus, o r , a s i t i s l e g a l l y c a l l e d , the
A d ju s te d S e r v i c e Compensation A c t . ' T h i s , i n e f f e c t ,
i s cn in s u ra n c e p la n
• w ith the In s u ra n c e p a y a b le a t th e end o f 20 y e a r s o r upon th e p r i o r death
o f the in s u r e d .
There w i l l ,
o f c o u r s e , be a - c e r t a i n number o f deaths
b e fo r e the e x p i r a t i o n o f th e twenty y e a r s but i t i s now e s tim a te d t h a t the
governm ent's l i a b i l i t y a t m a t u r i t y sh ould be #3,100,000,000.
Congress has
-5-
s e t up a p la n to ta k e c a r e o f t h i s f u t u r e l i a b i l i t y .
Each y e a r th e r e i s
appropriated, a premium c a l c u l a t e d to pay the c u rre n t death c la im s and, i f
i n v e s t e d a t i n t e r e s t o f 4 p e r cent p e r annum, to meet the m a tu r ity v a lu e
o f the p o l i c i e s a t the end o f the term.
o p e r a t in g n o rm a lly ,
Were we an in su ra n c e company
the p la n would be s u b j e c t to no o b j e c t i o n ; but, in two
f e a t u r e s i t i s not normal.
With a go in g in su ra n c e company the m a t u r i t i e s
o f i t s p o l i c i e s by death o r o th e r w is e a r e stru n g over a lo n g s e r i e s o f
y e a r s and i t s
l i a b i l i t i e s can be met c u r r e n t l y out o f i t s r e c e i p t s .
On
the o th e r hand, the p r i n c i p a l l i a b i l i t y on tho s o l d i e r s ’ bonus comes
p r a c t i c a l l y in a. s i n g l e y e a r .
in s u ra n c e .
This i s one d i s t i n c t i o n from s t r a i g h t
A g a in , th e r e i s no b e t t e r investm ent than Government bonds
and under tho A c t our power o f investm ent o f the premiums i s l i m i t e d .
The T re a s u ry has had to i n v e s t in i t s own s e c u r i t i e s to moot i t s own
lia b ilitie s .
a vo id e d .
T h is i s a d e f e c t i n h e r e n t in any p la n and cannot' w e l l be
Even though our r i g h t o f investm ent wore e n la rg e d , we c o u ld not
i n v e s t in commercial s e c u r i t i e s a l l m aturing in the y e a r our l i a b i l i t y
a c cru e d , nor could v/o throw such a b lo c k o f commercial s e c u r i t i e s on the
market a t one time to r e a l i z e cash.
As a p r a c t i c a l m a tte r , then, 20 y e a r s
hence the T r e a s u r y w i l l be h o ld in g some $3,000,000,000 of i t s own s e c u r i
t i e s and w i l l have a cash l i a b i l i t y to meet o f a l i k e amount.
This ? / i ll
n e c e s s i t a t e r i s i n g the money by a s a l e o f new s e c u r i t i e s on the market.
In o th e r words, we must c o n s id e r the bonus l i a b i l i t y as a debt m a t u r it y
v h ic h w i l l have to be refu n d ed about tw en ty y e a r s from now.
During the p r e s e n t A d m in is t r a t io n we h: ve refund ed o ld o b l i g a t i o n s
in to T re a s u ry 4 | ’ s , 4 ' s , and 3§’ s to the e x te n t o f some $2,300,000,000,
the e a r l i e s t c a l l d a te o f which i s 1944, about tho time when the bonus
re fu n d in g must come.
R oughly, then, over $5,000,000,000 of Government
o b l i g a t i o n s cannot be p a id u n t i l a f t e r 1944.
T h is b r in g s us to a c o n s id -
-6eration of the whole debt structure, not from the standpoint of v/hen we
have to pay but from the standpoint of when we may want to pay»
Obviously v;e should not wish to postpone the opportunity of retir
ing debt beyond the period v/ithin which, under ordinary circumstances,
its retirement might be .accomplished.
We do not wish again to go through
the earlier experiences of having an unusable surplus*
Let us consider,
then, whether the present Treasury bonds represent a reasonable amount
of tho deut which should be callable after 1944, bearing in mind that
other issues of the debt, while callable earlier, need not be paid until
later.
The debt is to-day $19,400,000,000.
Of this perhaps a little over
$300,000,000 might be considered perpetual or very long-term, the greater
part of which is represented by our green-backs of Civil War days.
We
have then about $19,000,000,000 which can be paid off in the next thirty
years.
There are three principal factors which are now material in the
program of debt reduction.
These are the sinking fund and the application
of foreign repayments, which should not vary greatly and can be estimated
fairly accurately, and the surplus which is, of course, exceedingly
variable.
It might be safe to assume in a business as great as the
eovernment’s with an income and outgo of 7 or 8 billion dollars a year,
that $ 100 ,000,000, or 1-|% of the gross turnover, represents a surplus which
on the average future sound finance will require.
Taking these factors
into account, I think we should expect to retire about 12 of tho 19 billions
by 1944, leaving about 7 billions to bo taken care of after that year.
We
already have payable or callable after that date the $ 3 ,100 ,000,000 of
bonus obligations and the $2,300,000,000 of Treasury bonds.
If it should
be inexpedient to refund the $1,400,000,000 of First Liberty 3j’s, the
peiiod would bo filled.
So if there is no fundamental change in Government
7finane g , there need not "bo any material increase in onr securities call
able after 1944.
Looking at our debt structure as a whole, therefore, I think it is
safe to make these points.
A continuation of our floating debt at about
its present amount is desirable.
She Third Liberty Loan maturity pre
sents a large financial operation but not a dangerous one.
The remaining
11 billions of Libertys have convenient call and maturity dates and the
Treasury should be able to take advantage of conditions as they may arise.
The soldiers’ bonus has introduced a factor which may be disturbing at
its maturity but which cannot be avoided.
The existing refunding into
Treasury bonds has served to complete the structure.
The ability of America to get back to sound finance immediately
after the war, the intelligence and energy of its people, our prosperity,
the increased revenues of the Government permitting a reduction of the
tax burden, all have contributed to this achievement.
The materials fur
nished are strong but the strength of a structure depends not so much
upon its materials ns upon its design, a.nd so it has seemed to me that
we owe to the architect of that structure, Secretary Mellon, the credit
for making America to-day the strongest financial power in the world.
TREASURY DEPARTMENT
December 4, 1926.
ESTIMATED AMOUNT 0? W H OLLY TAX-EXEMPT SECURITIES
OUTSTANDING
October 31, 1926,
Issued by
Gross Amount
:
States, counties,
cities, etc,
Territories and
insular possessions
: $ 14,278,000,000
*
:
:
156,000,000
United States
Government
Federal land banks,
intermediate credit
banks, and jointstock land banks
:
;
Total Oct, 31, 1926
Comparative totals;
September 30, 1926
December
31, 1925
December
31, 1924
December
31, 1923
December
31, 1922
December
31, 1918
December
31, 1912
(1)
(2)
(3)
(4)
Amount held
in Treasury or in
sinking funds
$ 2,142,000,000
a)
Amount held
outside of Treasury
and sinking funds
$ 12,136,000,000
23,000,000 (2 )
133,000,000
569,000,000 (3)
1.495,000.000
(4)
1,760,000,000
i
2,164.000.000
f
s
:
:
1,770,000,000
1 0 ,000,000
18,368,000,000
$ 2,844,000,000
$ 15,524,000,000
$ 18,282,000,000
17,392,000,000
16,268,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$ 2,837,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$ 15,445,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,085,000,000
\$
•
Total amount of state and local sinking funds,,
Total amount of sinking funds and amount held in trust by the
Treasurer of the United States.
Amount held in trust by the Treasurer of the United States,
Includes amount held by the Treasurer of the United States and
also the amount owned by the United States Government.
TREASURY CERTIFICATES OF INDEBTEDNESS AMD TREASURY
NOTES OUTSTANDING DECEMBER, lëf?* 1926,
*7*
SERIES
INTEREST
RATE .
DATED AND SEARING
INTEREST FROM
DUE
Tax Certificates
TJ-1927
'T .Ì .C Ì
September 15, 1926
TS-1927
Z%?0
December
June
15, 1927
15, 1926
September 15, 1927
May
15, 1923
March
15, 1927
January
15, 1923
December
15, 1927
Treasury Notes
B-1927
A-19 27
4%i
,
Medicinal Spirits B i l l .
At the time the lgth Amendment, Became effective in 1920 the stock of
i whiskey in 310 Bonded warehouses scattered over the United States was 60,000,000
I gallons.
About four years ago, under authority of law, the Commissioner of
I Internal Revenue concentrated the existing stocks of whiskey into 37 concentration
I warehouses.
The stock of whiskey now in Bonded warehouses in the United States
I is about lUj 000,000 gallons, and the consumption for medicinal purposes is aBout
j 2,000,000 gallons a year.
If left in the wood 4,000,000 ’gallons would Bo
■.lost By evaporation, which would leave But a few years* supply on hand.
Since
I whiskey requires 5 years» ageing after manufacture Before it is fit for medicinal
I purposes it is apparent that manufacture of spirits for medicinal purposes must
I Begin soon.
Concentration of the existing stock into one ownership, the elimination
I of 31 out of the 37 Bonded warehouses, and the manufacture of medicinal spirits
I in But two distilleries under one ownership as contemplated By the Bill will
I greatly simplify the supervision of the sale and manufacture of medicinal spirits
I and assist in the enforcement of the Volstead Act.
In order to accomplish these
■results, Representative Green, Chairman of the Ways and Means Committee, has
I introduced a Bill creating a Federal corporation to take over By purchase or
Jcondemnation the entire existing stock of medicinal spirits, and to Be the sole
Imanufacturer and seller of medicinal liquors, subject to supervision and regula
t i o n By the Treasury.
After the preliminary organization and a repayment of
¡its Borrowed capital the corporation will Be entirely in private ownership.
IThe Government will not Be in Business.
Under the plan of the proposed Bill the capital requirements of the
[company are figured at Between 110 and 120 million dollars.
It is proposed to
jobtain this capital By the sale to the public of a maximum of $35*000,000 of gold
I
[notes of the corporation with authority on.the part of the Treasury to invest
- 2
in these notes should it "become necessary.
necessity will not arise.
It is expected, however, that this
The balance of the capital requirements will come
ffrom the marketing of 7 P®r cent cumulative preferred stock of the corporation
l|hd common stock of the corporation without par value in units of one share of
preferred and one share of common.
In purchasing from the present owners the
existing stock of medicinal liquors at a fair price the corporation may pay 50
per cent in cash and 50 per cent in stock at its marker value, hut not less than
P 00 for each 111111 * or the corporation may sell the units on the market at the
test price obtainable and pay a larger proportion of the purchase price of the
jigpirits in cash.
Working capital and the money to buy the necessary warehouses
J will be obtained from the sale of 100,000 units of stock.
After the payment
! 0f the s °ld notes and the retirement of the preferred stock the common stock
I may receive a maximum of not to exceed $10 per share per annum in dividends and
■ p y further profits of the corporation mist be used to reduce the price to the
¡public of the medicinal liquors.
Until the corporation shall have issued 400,000 units of stock the
directors of the corporation shall be nominated by the Secretary of the Treasury,
» e r e a f t e r a majority of the directors shall be nominated by him and the remainder
■ e c t e d by the stockholders until the gold notes of the corporation have been
ipaid off, and thereafter the stockholders shall control the corporation. ' The
iBlrernment
retains the right to regulate the manufacture and sale of the medicinal
.■irits, exactly as heretofore exercised, and with the additional rights to see that
lie price charged to the public is fair and that the books of the corporation are
loperly kept, and the faithful performance by the corporation is insured through
powers of mandamus vested in the Government,
The corporation must also comply
jHjth the prohibition laws of the various States and will not be permitted to
■nufacture or sell in any State in violation of the State law.
ipfoufactured shall be of standard strength, quality and purity.
The spirits
3
I t i s e stim a te d th a t the p la n of a s i n g l e F e d e r a l c o r p o r a t io n w i l l save
[the Government a m i l l i o n d o l l a r s a y e a r i n th e c o s t of a d m in is t r a t i o n and super
v i s i o n and w i l l co n se rve in f i v e y e a r s $4,500,000 of t a x e s ,
to become due th e
government, which o th e rw ise might he l o s t through the e v a p o r a tio n o f the s p i r i t s .
The corporation may sell distilled spirits for medicinal and non
beverage uses only to persons legally entitled thereto, and must comply with
¡all laws of the United States and the regulations promulgated thereunder.
The
'corporation shall not manufacture, sell, or otherwise dispose of medicinal liquors,
I
Except as a permittee under the national Prohibition Act, or Acts supplementary
thereto or amendatory thereof, and under regulations promulgated thereunder.
Slfhen the corporation is prepared to do business with the public permits to sell
¡medicinal spirits will be restricted to the corporation.
»
''ÿ f
Reply J
of Senator Reed Snoot in the United States Senate on Wednesday,
■December 22, 1926, to statement issued on December 20, 1926, "by members of the
Faculty of Political Science at Columbia University, regarding the war debt
1 settlements.
The publicity efforts of the Professors of Economics at Columbia In connection
Iwith the settlement of the war debts contains assumptions which should have
corrections.
1.
It is assumed by the Columbia professors that capacity to pay, as em-.
Iployed by the Debt Commission, meant the highest amount .which could be collected
I from the debtor nation by complete exhaustion of the debtor!s resources.
As
la matter of fact, capacity to pay in the conception of the Commission represented
’
tjhe ability of the debtor nation to pay, taking into consideration all its
external and internal obligations and the continued full development of its
national life.
Prance’s debt agreements with America and England represent
only .half of what it expects to. receive from Germany.
•
Italy has set up a fund
into which are paid German reparations and out of which can be paid the British
and American debts.
The pre—Armistice Belgium payments are fixed at less than
ijjlie-receipts from Germany on this same account.
The debt settlements,
particularly in the earlier years, do not interfere with the economic life of
»
the continental nations.
England.
It is claimed too heavy a burden was imposed upon
The settlement of the American debt was a material factor in the
stabilization of the British currency.
It is significant that by bringing
sterling exchange to parity England in paying its adverse international trade
balance saves each year much more than the annuity on tne American debt.
It
has also been stated that England has lost more through the coal strike than
the entire American debt.
These examples simply illustrate tne relative
financial importance of the settlements, but for seme reason every attack on
the Debt Commission finds it necessary to exaggerate the actual financial
burden imposed on the debtors.
2 -
2*
It is assumed that the Debt Commission was hound by limitations set
I hy Congress,
The Debt Commission was
? Congress, to make settlements on a ^
given
the pov/er, without returning to .
per cent, 25-year basis.
Ho settlements
; wore made on that basis, but in each case the Commission negotiated an agreeI ment which it. and the representatives of the debtor thought fair, and that
I particular agreement was approved by Congress,
| in the statute a restriction on negotiations.
3*
In no case were the limitations
There was the utmost flexibility
It is assumed that generosity did not enter into the negotiations
sof the Commission,
It certainly was very lenient to Italy and it cannot be
I
I condemned as harsh to France when there Is imposed no greater Durden on that
I
I nation than the collection of the post-Armistice indebtedness at 5 per cent
I interest.
The figures show that in the treatment of our half dosen or so
relief debtors England imposed a much heavier relative burden than did America
I;yin settling for loans made by England at the same time to the same debtors
I arid for the same purposes.
settlement.
French papers admit the Franco-British settlement,
Ho test of generosity is set up by the Columbia professors
I but i t i s just- assumed Am erica
U.
was ungenerous.
,
The Columbia prof e s s ors-complain because all debtors are not treated
[ on an equality.
They speak of a settlement of SO per cent present value with
I Great Britain and 2o por cent present value with Italy.
Do they propose to
I correct this want of equality by raising the Italian settlement to that of
the British, which, of course, would impose a burden impossible of performance
by Italy, or do they propose that the British be reduced to 5° P e** cent and
the Italian raised to pO per cent, which would make an easy settlement for
I
Great Britain and still an impossible settlement jfor Italy, or do they pro
pose that the British settlement shall be brought down to the Italian 2o per
~ 3 ~
I proposition, then why cannot Italy say its 26 per cent should he reduced to
I zero because we are collecting nothing from another debtor, as,.for instanae,
I Armenia?
The whole proposition is an absurdity.
■means complete cancellation.
If it means anything it
It seems disingenious to state the professors
■are against cancellation and still urge a method of settlement of the question
¡which inevitably means cancellation.
5.
As their suggestion is understood, it is proposed that the United
B States go into a joint conference to fix the amount of these debts upon the
I standard of ’’equality” and ’’generosity” .
They do not state at whose expense
|
I generosity is to take place*
Of course not of Columbia University, which enjoys
I the privilege of exemption from taxation and therefore would feel not all any
I cancellation of debts.
The whole proposition of the Columbia professors
I amounts to a proposed conference between ourselves, a minority of one, and our
Jjdobtors, all the rest of the proposed conferees.
I nuch, if any, of their debts they wish to pay.
The debtors are to fix how
The standards cf ’’equality”
land "gener®sity" will be applied by the debtors.
*
6.
m
Like so many good intentioned people,
I
the Columbia professors, instead
t
Jpf accomplishing the benefits which they seek to confer, are actually doing
■■ p pin
^ose
they say they would help.
What Europe needs is certainty,
p h e French can without question pay the earlier years of the debt settlement
¡and, with a return of economic stability, the later years surely also can be
met.
What they need is some certainty in their fiscal affairs, which they
|pan only obtain If they make definite the obligations which they have to meet.
;Rhe pronouncement of the Columbia professors is, as was to be expected, now
.peing used to strengthen the opposition in Prance to a ratification of the
.liellon-Berenger agreement and therefore has become an active factor in the
[maintenance of this very uncertainty from which all Europe is trying desperately
IgST '>
%
-
to rid itself.
k
-
The Columbia professors permit their idealism to seek publicity-
just at this time to the embarrassment of Poincare in the difficult work which
treasury
departmem1
J anuary 10, 1927.
ESTIMATED AMOUNT OF T7H0LLY TAX-EXEMPT SECURITIES
OUTSTANDING
November 30, 1926.
ssued hy
s, counties,
3s , etc.
Tories and
ar posses-
(1)
(2)
(3)
(4)
Gross Amount
Amount held
in Treasury or in
sinking funds
$14,318,000,000
$ 2,148,000,000 (1)
Amount held
outside of Treasury
and sinking funds
$ 12,170,000,000
j
156*000,000
23,000,000 (2)
133,000,000
States
nt
land hanks,
¿iate credit
nd jointid hanks
2,164,000,000
670,000,000 (3)
1,494,000,000
1,784,000,000
10,000,000 (4)
1,774,000,000
, 30, 1926
$18,422,000,000
'$ 2,851,000,000
$ 15,571,000,000
totals:
■1, 1926
1, 1925
1, 1924
1, 1923
a , 1922
a , i9i8
a , 1912
$18,368,000,000
17,392,000,000
* 16,258,000,000
14,936,000,000
13,652,000,000
9,506,000,000
5,554,000,000
$ 2,844,000,000
2,793,000,000
2,715,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$ 15,524,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
Totai amount of state and local sinking funds.
Total amount of sinking funds and amount held in trust "by the
Treasurer of the United States;
Amount held in trust hy the Treasurer of the United States.
Includes amount held hy the Treasurer of the United States and
also the amount owned hy the United States Government.
February
11,1927
My dear Mr. Chindblom;
I have your letter of February 9th, requesting my
views on the administrative features of H. R. 15474, more par
ticularly with reference to the cost of administration of the
provisions of the bill.
In compliance with your request I
have asked the Bureau of Internal Revenue to prepare a memo
randum as to the administrative costs of collecting the equali
zation fee which, in many respects as to administration, is
similar to our excise taxes.
I enclose herewith a copy of the
estimate prepared by the Bureau of Internal Revenue,
Sincerely yours,
A. W. MELLON
Secretary of the Treasury,
Hon. Carl R. Chindblom
Committee on Ways and Means,
House of Representatives,
Washington, L. C.
1 enclosure
Fe bruary 11, 1927.
MEMCKAîTDüM on the cost of administration of H* 3, 15474:
You have asked for comment as to the administrative features involved in
complying with the provisions of HE 15474, a hill proposed nto establish a
Federal Farm Board to aid in the orderly marketing and in the control and
disposition of the surplus of agricultural commodities”. You also asked for
an estimate of the cost of administration.
The two major factors involved in the administration of the proposed
legislation are:
A.
3.
Administrative organization and expense thereof.
Collection of equalization fee,
AnniTISTRATIVS QRGAUIZATIQN AFT) EXPENSE THEBEOF.
•The following statement indicates the organization and the estimated
annual cost of maintenance thereof:
*
FBBEHAL FABM 30ASID
Personnel:
Board members, salaries $10,000 each.*...,....*.... a *......$120,000
1 Seeretary (average salary Grade ^CAF-12) ..... *.........
5,800
1 Chief Clerk (average salary Grade CAF-11)......... .
4,400
Experts, 5 at average salary of $5800, (one for each
basic commodity)........ .......... ............ a ..... * 29,000
12 Secretaries to members, $2100 each......................
25,200
5,800
1 Chief Statistician.......... .............................
1 Assistant Statistician.......... ....................... .
4,400
5 Grade 10 employees, $3600 each, average....... ....... .
18,000
10 Stenographers, CAF-2, average salary $1500........ ......
15,000
10 Typists, average $1320 each, Grade- I..,,................. 13,200
5 * File Clerks, average $1500, Grade I
I
.
.
7,500
10 Clerks, average $1680, Grade III................... .
15,800
5 Clerks, average $1500 each, Grade II.... .
7,500
5 Messengers at $1140 each.....'..... ........... ...... ......
5 ?700
100 Field Investigators, at $2100 average salary,
to be assigned to auditing and investigating
accounts covering equalization fees................
210,000
-
P.
gravel and Subsistence:
7,200
Board members, $500 per member........ ..................... $
Experts, 5 at $1000 each...... ................ .............
5,000
Secretaries, 12 at $600 each................................
7,200
Field Investigators, average $1800 each................. .
180,000
Miscellaneous Expenses:
Rent, 20,000 square feet, at $2.00 per square foot.........
Mechanical equipment.
..... ......... ..................
Furniture....................................................
Stationery and periodicals.
.............................
40,000
3,S00
11,800
3,000
Total.......... .'... $745,100
NCtH KATINS COMMITTEE
Salaries, 60 members at $20 a day for 5 days......... ...... $
5,000
Travel and subsistence (average subsistence $10 per day for
11 days, transportation average $100 per .member)..... . 12,500
Total...............$ 13,600
ADVISORY COUNCIL
Salaries, 35 members, $20 per day for 20 days per year..... $ 14,000
Secretary to each of 5 Councils, $15.11 a day, for 25 daysl.
2,013
Travel and Subsistence (25 days at $7 a day for each of tne
$5 members). Transportation $100 a man for 2 trips
each year)........................ .................. .
9,625
■
Total...... ...,....$ 25,538
GRAND TOTAL................................ $790,338
■
COLLECTION OF EQUALIZATION FSB
The first important factor to be considered in this connection is the
I method to insure the filing of correct returns and the collection from various
designated agencies of the equalization fee for each unit of oasid commodity
;I on which such fee is levied.
iHp
j
The bill provides that the equalization fee may be collected under such
regulations as the Board may prescribe during operations in a basic agricul
tural commodity and that the fee shall be paid upon any of the following: the
transportation, processing, or sale of such unit.
It also provides that no
more than one equalization fee shall be collected in respect to any unit. The
Board shall determine in the case of any class of transactions in the commodity
whether the equalization fee shall be upon transportation, processing or sale.
The Board may require any person engaged in the transportation, processing, or
acquisition by sale of a bas:i$ commodity^
(1) To file returns under oath and to report, 'in respect of his trans
portation, processing,, or acquisition of such commodity, the amount of equal
ization fees pay a ole thereon and such other facts as may he necessary for
their payment or collection,
(2) To collect the equalization fee as directed hy the Board, and to
account therefor.
(3) In the case of cotton, to issue to the producer a serial receipt
for the commodity v;hich shall he evidence of the participating interest of the
producer in the equalization fund for the commodity.
The Board may in such
case prepare and issue such receipts and prescribe the terms and conditions
thereof. The Secretary of the Treasury, upon the request of the Board, shall
have such receipts prepared at the Bureau of Engraving and Printing.
Biscussing the general terms of the hill it is understood that its purpose
is to provide methods to dispose of the surplus of any one of the five basic
agricultural commodities and that the method of disposing of such surplus will
he either hy sale to foreign .markets at the best price possible, or by with
holding such surplus pending more advantageous conditions.
The loss incurred
as a result of such action will be apportioned and assessed upon each unit
of the particular commodity as the commodity moves in commerce. As set forth
above, the Board may require either the person engaged in the transportation
thereof, the processing, or acquisition hy sale to file the return and pay the
assessment.
Regardless of which of the three mediums of collection is adopted, a
force of investigating agents must be organized for the purpose of ascertain
ing whether the designated collection medium has filed correct returns and
paid the full amount of the fee.
The investigating body might be compared
with the present force of revenue agents employed under the supervision of
the Internal Revenue Bureau.
The impossibility ofcollecting every cent of
the equalization fee is apparent.
In addition to the fact that the equali
zation fee is a sum authorized by law which must be collected for the rehabil
itation of the revolving fund it can be seen that the collecting agency that
does not make proper report is in effect withholding Government funds. The
collection of the equalization fee will be difficult.
So much will depend
upon the honesty and alertness of the collection agency that it can be seen
that many units of the proper commodity as it passes through commerce will
fail to pay the equalization fee provided by law. An unscrupulous processor
or purchaser or carrier will find that ability to evade the return of the
equalization fee to the Board will result in his profit.
It must be realized
that the ingenuity of the Government representatives must be vigorously
applied to adequately meet in so far as possible the requirements of the pro
posed legislation.
It has been pointed out above that a corps of investigators will of
necessity be employed to protect the interests of the Government.
It will
only be by the most intensive training, experience and study on the part of
these men that this important duty can he efficiently performed. They should
be specialists in their particular line of endeavor.
#
- 4 -
llie collection of the equalization fee from any one of the three mediums
provided has so many disadvantages that it is not possible to say which would
he the least difficult.
Of course, the Board would determine which of the
tThree mediums would he selected at any ¡given time or for any given commodity.
In the case of collection from the carrier there are 1614 steam and
electric railways, two express companies, and 1730 steamship lines doing an
interstate and intrastate business.
It would he difficult to estimate or to
ascertain the number of motor freight companies or freight vehicles making
short hauls.
The possibility of shipping a commodity by unregistered vehicles
and the resultant difficulty in collecting a fee is apparent.
The impossibility of definitely ascertaining the various sources of acqui
sition by sale prompts the suggestion that the medium of collection at this
source must be dismissed as impracticable unless we are to depend entirely upon
the honesty and integrity of the acquirer in the collection of the fee.
Prom the latest figures available, it is estimated that there are in the
tfnited States the following number of processors who operate in the basic com
modities involved;
Cotton ginners
Packers
Millers
—
—
—
5151
1252
3829
There is also to be taken into consideration the number of factories
throughout the United States engaged in the business of canning corn.
If
collection is to be made by the processor the above number would be involved.
As a further evidence of the magnitude of the task,'- attention is called to the
fact that in 1925 the wheat crop of the United States was estimated by the De
partment of Agriculture at 676,429,000 bushels, the corn crop at 2,916,961,000
bushels, the rice crop at 33,309,000 bushels, the cotton crop at 16,103,679
bales, and it was also estimated that a total of 55,568,000 head of swine,
weighing 12,391,664,000 lbs. was produced in 1925.
If all these commodities
were under operation of the Federal Farm Board at the same time, collection
would be required from an aggregate of 16,034,466,579 units.
This is true
regardless of which medium of collection is adopted.'
Provision must also be made for the proper and most available place where
the returns may be filed and where there may be turned over to the G-overnment
the amount collected. Unless it should be determined to fix this place of
filing returns and-making payment at some collection agency of the G-overnment
already established, collectors of equalization fees must be created in each
of the twelve Federal Land Banks during the periods of operation, adequate
accounting methods must be created to provide for crediting the amount paid,
and proper means instituted to see that the payments made are promptly de
posited to the credit of the revolving fund.
It is reasonable to assume that
regardless of the desires of the framers of the proposed legislation it will
not be possible to return to the revolving fund the entire amount withdrawn
therefrom for the reason that experience in collecting taxes has established
the fact that taxes are never collected one hundred per cent.
- 5 The estimate does not take into consideration the actual filing of the
returns of the collection of the fees. Itfor does this memorandum cover those
features of the M i l covering contracts to he made with processors, cooperative
associations or other persons guaranteeing them against losses.
To carry out
these provisions and to protect the integrity of the stabilisation fund the
Board will necessarily have to employ a large force of accountants and
technical experts*
In addition our experience in the collection of internal
revenue taxes has indicated that it is necessary to maintain a large legal
staff to deal with the many complicated questions that necessarily arise in
the collection of large sums of money and in the auditing of vast business
enterprises.
The time available has been too short to furnish even an estimate as to
these administrative costs.
TREASURY DEPARTMENT
February 15,1927.
ESTIMATED AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES
OUTSTANDING
December 31, 1926.
Gross Amount
Amount held
in Treasury or in
sinking funds
$14,477,000,000
$ 2,172,000,000 (1)
$ 12,305,000,000
156,000,000
23,000,000 (2)
133,000,000
inited States
xovernment
federal land banks,
intermediate credit
[banks, and joint
s
'stock land banks
2,164,000,000
670,000,000 (3)
1,494,000,000
1,791,000,000
9,000,000 (4)
1,782,000,000
¡Total Dec. 31, 1926
$18,588,000,000
$ 2,874,000,000
$ 15,714,000,000
Comparative totals:
[November 30, 1923
¡December 31, 1925
De cembe r 31, 1924
¡December 31, 1923
[December 31, 1922
[December 31, 1918
[December 31, 1912
$13,422,000,000
17,392,000,000
16,268,000,000
14,936,000,00013,652,000,000
9,506,000,000
5,554,000,000
$ 2,851,000,000
2,793,000,000
2,716,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$ 15,571,000,000
14,599,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
Issued by
states, counties,
[cities, etc.
[erritories and
[insular posses
sions
Amount held
outside of Treasury
and sinking funds
1--------- ------------i(l)
1(2)
(3)
(4)
Total amount of state and local sinking funds.
Total amount of sinking funds and amount held in trust by the
Treasurer of the United States.
Amount held in trust by the Treasurer of the United States.
Includes amount held by the Treasurer of the United States and
also the amount owned by the United States Government.
MESSAGE
OF THE
PRESIDENT OF THE
UNITED STATES
TO TH E SENATE
RETURNING WITHOUT APPROVAL SENATE B IL L 4808
ENTITLED “AN ACT TO ESTABLISH A FEDERAL FARM
BOARD TO AID IN THE ORDERLY MARKETING
AND IN THE CONTROL AND DISPOSITION
OF THE SURPLUS OF AGRICULTURAL
CO M M O DITIES”
FEBRUARY 25, 1927
U N IT E D ST A T E S
G O V E R N M E N T P R I N T I N G O F F IC E
W A S H IN G T O N
1927
He condition
Itai, and still i
tint the prices c
general price 1<
every proper st
fliceinonrecc
» to that enc
Wy support
Hedifficulty w
lid farmers i s
ratkr than prc
Itisaxiomat
foundations tl
ledfanning!
asthesafegua
tkrowsthisas
theagricultun
5(1yearsarev
diversifiedag
fanning.
Themeasur
|whathasl
fcbilluphc
cotton,corn,1
aretobegive
tiedforye
indudeavar
hesafe,and
drive.
Thebillb:
P®toraise
ofotherfar®
pelnieasu
llPidairy
tables,oak
MESSAGE
To the Senate:
The conditions which Senate bill 4808 is designed to remedy have
been, and still are, unsatisfactory in many cases. No one can deny
that the prices of many farm products have been out of line with the
general price level for several years. No one could fail to want
every proper step taken to assure to agriculture a just and secure
place in our economic scheme. Reasonable and constructive legisla
tion to that end would be thoroughly justified and would have the
hearty support of all who have the interests of the Nation at heart.
The difficulty with this particular measure if that it is not framed to
aid farmers as a whole, and it is, furthermore, calculated to injure
rather than promote the general public welfare.
I t is axiomatic that progress is made through building on the good
foundations that already exist. For many years—indeed, from
before the day of modern agricultural science—balanced and diver
sified farming has been regarded by thoughtful farmers and scientists
as the safeguard of our agriculture. The bill under consideration
throws this aside as of no consequence. I t says ip effect that all
the agricultural scientists and all the thinking farmers of the last
50 years are wrong, that what we ought to dQ is not to encourage
diversified agriculture but instead put a premium on one-crop
farming.
The measure discriminates definitely against products which make
up what has been universally considered a program of safe farming.
The bill upholds as ideals of American farming the men who grow
cotton, corn, rice, swine, tobacco, or wheat, an<f nothing else. These
are to be given special favors at the expense of the farmer who has
toiled for years to build up a constructive farming enterprise to
include a variety of crops and livestock that shall, so far as possible,
be safe, and keep the soil, the farmer’s chief asset, fertile and pro
ductive.
The bill singles out a few products, chiefly sectional, and pro
poses to raise the prices of those regardless of the fact that thousands
of other farmers would be directly penalized. If tliis is a true farmrelief measure, why dqes it leave out the producers of beef cattle,
sheep, dairy products, poultry products, potatoes, hay, fruit, vege
tables, oats, barley, rye, flax and the other important agricultural
(1)
lines? So far as the farmers as a whole are concerned, this measure
is not for them. I t is for certain groups of farmers m certain
sections of the country. Can it be thought that such legislation
could have the sanction of the rank and file of the Nation s farmers
This measure provides specifically for the payment by the Federal
board of all losses, costs, and charges of packers, millers, cotton
spinners, or other processors who are operating under contract wi |
the board. I t contemplates that the packers may be commissioned
by the Government to buy hogs enough to create a near scarcity m
this country, slaughter the hogs, sell the pork products abroadut a
loss, and have their losses, costs, and charges made good out of the
pockets of farm taxpayers. The millers would be similarly commis
sioned to operate in wheat or corn and have their losses, costs, and
charges paid by farm taxpayers.
$ .
I t is roughly estimated that in this country there are 4,000 millers,
over 1,000 meat-packing plants, and about 1,000 actual spinners.
No one can say definitely after reading this bill whether each of
these concerns would be entitled to receive a contract with the
Government. Certainly no independent concern could continue m
business without one. Each of the agencies holding a contrapt-rthe efficient and inefficient alike—would be reimbursed for all their
losses, costs, and charges.
It seems almost incredible that the producers of hogs, corn, wheat,
rice, tobacco, and cotton should be offered a scheme of legislative
relief in which the only persons who are guaranteed a profit are the
exporters, packers, millers, cotton spinners, and other processors.
Clearly this legislation involves governmental fixing of prices. I t
gives the proposed Federal board almost unlimited authority to fix
prices on the designated commodities. This is price fixing, further
more, on some of the Nation’s basic foods and materials. Nothing is
more certain than that such price fixing would upset the normal
exchange relationship^ existing in the open market and that it would
finally have to be extended to cover a multitude of other goods and
services. Government price fixing, once started, has alike no justice
and no end. I t is an economic folly from which this country has
every right to be spared.
This legislation proposes, in effect, that Congress shall delegate
to a Federal Farm Board, nominated by farmers, the power to fix
and collect a tax, called an equalization fee, on certain products
produced by those farmers. That certainly contemplates a remark
able delegation of the taxing power. The purpose of that tax, it
may be repeated, is to pay the losses incurred in the disposition of
the surplus products in order to raise the price on that portion of
the products consumed by our own people.
3
This sO-called equalization fee is not a tax for purposes of revenue
in the accepted sense. It is a tax for the special benefit of particular
groups. As a direct tax on certain of the vital necessaries of life
it represents the most vicious form of taxation. Its real effect is an
‘employment of the coercive powers of Government to the end that
certain special groups of farmers and processors may profit tem
porarily at the expense of other farmers and of the community at
large.
The chief objection to the bill is that it would not benefit the
farmer. Whatever may be the temporary influence of arbitrary inter
ference, no one can deny that in the long run prices will be governed
by the law of supply and demand. To expect to increase prices and
then to maintain them on a higher level by means of a plan which
must of necessity increase production while decreasing consumption,
is to fly in the face of an economic law as well established as any law
of nature. Experience shows that high prices in any given year
mean greater acreage the next year. This does not necessarily mean
a larger crop the following year, because adverse weather conditions
may produce a smaller crop on a larger acreage, but in the long run
a constantly increasing acreage must of necessity mean a larger
average crop.
Under the stimulus of high prices, the cotton acreage increased by
17,000,000 acres in the last five years. Under the proposed plan, as
prices are driven up irresistibly by the artificial demand created by
the purchases of the board, the millions of farmers, each acting in
dependently, with no assurance that self-restraint on his part in the
common interest will be accompanied by a like restraint on the part
of millions of otfyer individuals scattered over this immense country,
will do just what anyone else would do under the circumstances, plant
and grow all they can in order to take full advantage of a situation
which they fear is only temporary. This was, of course, recognized
by the authors of the measure; and they proposed originally to offset
this tendency by means of the equalization fee to be paid by each
producer. But in the present bill the equalization fee is to be paid
by only part of the producers.
On the other hand, higher prices will make a decreased consump
tion. From 1917 to 1925 the per capita consumption of pork in
creased from 55 pounds to 86.3 pounds, but in the following year,
when the price of pork rose by $3.60 a hundred and the price of
beef rose only 40 cents a hundred, the per capita consumption of
pork fell off almost 9 pounds. It is not inconceivable that the con
sumers would rebel at an arbitrarily high price and deliberately
reduce their consumption of that particular product, especially as
uncontrolled substitutes would always be available. The truth is
that there is no such thing as effective partial control. To have
effective control, we would have to have control of not only one
food product but of all substitutes.
.
Increased production on the one hand, coupled with decreased do
mestic consumption on the other, would mean an increased exportable
surplus to be dumped on thè world market, This m turn would
mean a constantly deceasing world price until thè point was reached
where the world price was sufficiently low so that, even though
increased by our tariff duties, commodities would flow into this coun
try in large quantities.
A board of 12 men are granted almost unlimited control of the
agricultural industry and can not only fix the price which the pro
ducers of five commodities shall receive for their goods, but can
also fix the price which thè consumers of the Country shall pay foi
these commodities. The bòàrd is expected to obtain highet* prices
for the American farmer by removing the surplus from the home
market and dumping it abroad at a below-cost pricè. To do this, the
board is given the authority by implication to fix the domestic price
level, eiiher by means of contracts which it may makè with processors
or cooperatives, or by providing for the purchase of the commodities
in sùch quantities as will bring the prices up to the point which the
board may fix.
Except as it may be restrained by fear of foreign importations, the
farm board, composed df representatives of producers, is given the
power to fix the prides of these necessities of life at any point it sëes
fit. The law fixes no standards, imposes no restrictions, and requires
no regulation of afty kind. There could be no appeal from the
arbitrary decision of these men, who Would be under constant pres
sure from their constitüeiits to push prices as high as possible. To
expect moderation under these circumstances is to disregard expe
rience and credit human nature with qualities it does not possess. It
is not so long since the Government was spending vast sums and
through the Department of Justice exerting every effort to break up
combinations that were raising the cost of living to a point conceived
to be excessive. This bill, if it accomplishes its purpose, Will raise
the price of the specified agricultural commodities to the highest
possible point and in doing so the board will operate without any
restraints imposed by the antitrust laws. The granting of any such
arbitrary power to a Government board is to run counter to our
traditions, the philosophy of our. Government, the spirit of our
institutions, and all principles of equity.
The administrative difficulties involved are sufficient to wreck
the plan. No matter how simple an economic conception may be,
its application on a large scale in the modern world is attended by
infinite complexities and difficulties. The principle underlying this
bill, whether fallacious or not, is simple and easy to state; but no
5
one has outlined in definite and detailed terms how the principle is
to be carried out in practice. How can the board be expected to
carry oiit after the enactrdent of the law what can not even be de
scribed prior to its passage? In the meanwhile, existing channels
and methods of distribiltion and marketing must be seriously
dislocated.
This is even more apparent when we take into consideration the
problem of administering the collection of the equalization fee. The
bureau states that the fee Vvill have to be collected either from the
processors or the transportation companies, and dismisses as imprac
ticable collections at the point of sale. In the case of transportation
companies it points out the enormous difficulties of collecting the fee
in view of the possibility of shipping commodities by unregistered
vehicles. In so far as processors, are concerned, it estimates the
number at 6,632, without considering the number of factories engaged
in the business of canning corn or manufacturing food products other
than millers. Some conception of the magnitude of the task may be
had when we consider that if the wheat, the corn, and the cotton
crops had been under operation in the year 1925, collection would
have been required from an aggregate of 16,034,466,679 units. The
bureau states that it will be impossible to collect the equalization fee
in lull.
The bill will not succeed in providing a practical method of con
trolling the agricultural surplus, which lies at the heart of the whole
problem. In the matter of controlling output, the farmer is at a
disadvantage as compared with the manufacturer. The latter is
better able to gauge his market, and in the face of falling prices
can reduce production., The farmer, on the other hand, must operate
over a longer period of time in producing his crops and is subject to
weather conditions and disturbances in world markets which can
never be known in advance. In trying to find a solution for this
fundamental problem of the surplus, the present bill offers no con
structive suggestion. It seeks merely to increase the prices paid by
the consumer, with the inevitable result of stimulating production
on the part of the farmer and decreasing consumption on the part of
the public. It ignores the fact that production is curbed only by
decreased, not increased, prices. In the end the equalization fee and
the entire machinery provided by the bill under consideration will
merely aggravate conditions which are the cause of the farmer’s
present distress.
We must be careful in trying to help the farmer not to jeopardize
the whole agricultural industry by subjecting it to the tyranny of
bureaucratic regulation and control. That is what the present bill
will do. But, aside from all this, no man can foresee what the effect
on our economic life will be of disrupting the long-established and
6
delicately adjusted channels of commerce. That it will be far-reach
ing is undeniable, nor is it beyond the range of possibility that the
present bill, if enacted into law, will threaten the very basis of our
national prosperity, through dislocation, the slowing up of industry,
and the disruption of the farmer’s home market, which absorbs 90
per cent of his products.
With the limited number of farm cooperatives with whom con
tracts may be made for surplus disposal and the fact that farm coop
eratives are not likely to be engaged in meat packing, flour milling,
or cotton spinning, it appears certain that the largest part of these
contracts must be made between the board and the processors and
other agencies. It means that the whole contract in swine, for
instance, must be carried out with the meat packers; that a large
part of wheat operations must be carried out with flour millers, wheat
exporters, and others. I t means that any establishment which has
such a contract can charge what it likes to our American consumers
because it can place the loss from any product unsalable at home on
the farmer or the Government by dumping it abroad. In actual
working this is a complete guaranty of the profits of these concerns
without restraint or limitation on profiteering against American con
sumers, of which the farmer himself is a very large element. I t is
not a guaranty to the farmer. The implications of this were pointed
out in significant remarks in the minority report of the House Com
mittee on Agriculture, which merits fuller attention than it has been
given.
“ The silence of the majority report on this phase of the
subject, in view of its wide circulation in the farming communi
ties of the country, can be only because the proponents of the bill
are unwilling that the farmers of the Nation shall learn that it
is proposed that the equalization fee principle shall be utilized
to assure to the packers what they have not been able to gain for
themselves—a certain profit from every year’s operation.
“ The proponents of the bill at the hearings conceded that it
could not operate as to animals except under a contract with the
packers. I t incidentally follows that no packer without a con
tract could operate with the board. The bill nowhere protects
the independent packer. It does provide that there shall be no
j
discrimination between cooperative associations. I t contains no
like provisions as to processors.”
The bill would impose the burden of its support to a large degree
upon farmers who would not benefit by it. The products embraced
in the plan are only about one-third of the total American farm
production. The farmers who grow these commodities are them
selves large consumers of them, and every farmer consumes some
7
of them. There are several million farmers who do not produce
any of the designated products, or very little of them, and they
must pay the premiums upon the products designated in the bill.
In some commodities such as corn aiid mill feed the farmers are
practically the sole consumers. I t is proposed to increase the price
of corn and mill feed to American farmers, and therefore the costs
to the dairy and cattle feeding industries whose products are omitted
from the bill. Beyond this, it means that by dumping of American
feeds abroad at lower prices than those charged under this plan to
the American swine, cattle, and dairy farmer, we should be directly
subsidizing foreign production of pork, dairy, beef, and other animal
products in competition with our own farmers in the markets of
the world. We shall send cheap cotton abroad and sell high cotton
at home.
The effect of this plan will be continuously to stimulate American
production and to pile up increasing surpluses beyond the world
demand. We are already overproducing. I t has been claimed that
the plan would only be used in the emergency of occasional surplus
which unduly depresses the price. No such limitations are placed in
the bill. But on the other hand the definition of surplus is the
“ surplus over domestic requirements” and as we have had such a
surplus in most of the commodities covered in the bill for 50 years
and will have for years to come it means continuous action. It is
said that by the automatic increase of the equalization fee to meet
the increasing losses on enlarged dumping of increasing surplus
that there would be restraint on production. This can prove effective
only after so great an increase in production as will greatly enlarge
our exports on all the commodities except cotton. With such in
creased surpluses dumped from the United States on to foreign
markets the world prices will be broken down and with them Amer
ican prices upon which the premium is based will likewise be lowered
to the point of complete disaster to American, farmers. I t is
impossible to see how this bill can work.
Several of our foreign markets have agriculture of their own to
protect and they have laws in force which may be applied to dump
ing and we may expect reprisals from them against dumping agri
cultural products which will even more diminish our foreign markets.
The bill is essentially a price-fixing bill, because in practical
working the board must arrive in some way at the premium price
which will be demanded from the American consumer, and it must
fix these prices in the contracts at which it will authorize purchases
by flour millers, packers, other manufacturers, and such coopera
tives as may be used, for the board must formulate a basis upon
which the board will pay losses on the export of their surplus.
35003—27----- 2
8
The present volume of exports of the commodities designated in
the bill is one and one-half billion dollars per annum. A multitude
of contracts involving scores •of different grades and qualities and
varieties of products with thousands of individuals, both for raw
and manufactured materials, must be entered into practically costplus contracts. The monetary volume of these contracts will be
further expanded beyond even this sum because in hogs, for instance,
the exports are in the main lard and bacon, while other parts of the
animal are consumed at home, and thus contracting must apparently
need cover all hogs, not the export surplus alone. Therefore the
bill means an enormous building up of Government bureaucracy to
let and inspect these billions of dollars of contracts with all their
infinite variety of terms covering different goods and their different
grades and qualities. In turn, all of the contracts of resales by these
institutions must be examined and checked to determine the losses
made.
Parallel with it another bureaucracy must be built up to collect
and distribute the equalization fee. I t all calls for an aggregation
of bureaucracy dominating the fortunes of American farmers, in
truding into their affairs and offering infinite opportunities to fraud
and incapacity. I t does not replace any middle men or manufac
turers, it means that thousands of officials are set to watch them and
the farmers to see that they do not evade the requirements. One of
our difficulties to-day is the great spread between the farmer and
the consumer. All these increased processors profits and this cost of
bureaucracy must simply add to this spread without bringing to the
farmer any return on such items. In fact, as he is a large consumer
he also pays this.
While the Government is not directly buying or selling these com
modities, it must under this bill let contracts for others to do so and
name therein the'terms upon which they shall buy and sell. No
matter how disguised, this in plain terms is Government buying and
selling of commodities through agents.
I t is proposed that the administration of this plan shall be in the
control of a board whose members are nominated to the President
by agricultural organizations for his transmission to the Senate for
confirmation. That appears to be an unconstitutional limitation on
the authority of the President, but, far more important than this,
I do not believe that upon serious consideration the farmers of
America would tolerate the precedent of a body of men chosen solely
by one industry who, acting in the name of the Government, shall
arrange for contracts which determine prices, secure the buying and
selling of commodities, the levying of taxes on that industry, and
pay losses on foreign dumping of any surplus. There is no reason
why other industries—copper, coal, lumber, textiles, and others in
9
every occasional difficulty should not receive the same treatment by
the Government. Such action would establish bureaucracy on such
a scale as to dominate not only the economic life but the moral,
social, and political future of our people.
0 The amount of the equalization fees, the method of collection and
disposition of these great sums of money are to be determined by
the board without any effective check or review from the Executive
or Congress—a delegation of powers under which our form of Gov
ernment can not continue.
No time limit is placed upon the contracts which the board may
make. Such contracts might easily be for a term of years and in
some commodities, as, for example, cotton at the present time, must
necessarily be for a considerable period since the surplus can not
be disposed of in a single year. During the continuance of any
such contract, the equalization fee must continue to be levied unless
the whole burden of a continuing operation is to be borne by the
producers of the first crop. Consequently the suggestion often made
that the scheme should be tried, and if it fails be repealed, loses
all force. This suggestion is faulty in another respect, namely, that
failure would be demonstrated only by the accumulation of a huge
surplus in storage. The discontinuance of operations, while a vast
supply remained in storage, would result in a prolonged depression
of price through the surplus being fed into the markets or through
fear of its sale.
While the bill authorizes an appropriation of $250,000,000, it fails
to restrict the contracts of the board within that sum and nowhere
denies the liability of the United States for additional sums of
money. If the board had begun operating in the 1925 cotton crop
when prices were around 20 cents a pound and had then attempted
to hold up the price on the 1926 crop at a level which induced the
picking of the whole crop, the whole $250,000,000 would have been
spent and great commitments beyond that figure have been entered
into. The allocation of $100,000,000 to cotton in last year’s bill,
plus the suggested fee of $5 a bale, would have been completely
exhausted long before the 1926 crop came into the market. And,
if the equalization fee should prove unconstitutional or otherwise
uncollectible, the Treasury would have been committed by Contracts
to a liability to the extent of the whole revolving fund.
Apart from the necessity of contracting with the packers, the bill
confers upon the board unlimited power as to the nature, extent,
and duration of contracts with other processors. It does not even
enjoin an absence of “ unreasonable ” discrimination between them,
although it does prohibit “ unreasonable ” discrimination between
cooperatives. The board would therefore possess an absolute power
of life and death over many legitimate business organizations, since
10
none could compete against a processor enjoying a contract with the
board protecting it against loss. The board could go unlimitedly into
processing for its own account, if it so desired. No such unrestricted
powers have ever been conferred upon any board.
The insurance proposal amounts to a straight Government agree-*
ment to pay to the cooperative associations any loss which they may
incur in withholding commodities from the market no matter how
high the price may go in the meantime. For example, a wheat coop
erative may, in a year of shortage, take wheat from a member on a
day when it is selling at $2.50 a bushel. Under this bill it may decide
to hold it for $3 but be insured that if the market breaks the Govern
ment will pay it the difference between $2.50 and the price at which
the cooperative actually disposes of the wheat. Nothing more de
structive of all orderly processes of trade could be imagined, and
nothing more unfair to the nonmember of the cooperative, since his
equalization fee would be used to pay the losses.
Let us see how the. bill is to be put into operation. This act pro
vides that before operations as to any one of these commodities shall
begin it shall be necessary to obtain an expression from the producers
of the commodity through a State convention of such producers.
This applies in any State where not so many as 50 per cent of the
producers of the particular commodity are members of cooperative
associations or other organizations. The best estimate that can be
made is that this would apply to every State in the Union. I quote
from the Record with reference to this provision to show that
this construction was given to it. The Congressional Record of
February 11, page 3602, reads as follows: '
“ Mr. M cK ellar. Immediately following that amendment I
offer another amendment on behalf of the senior Senator from
North Carolina (Mr. Simmons), * * *.
“ The V ice P resident . The amendment will be stated.
“ The C h ie f C lerk . On page 8, line 16, after the word
i commodity,’ insert the following proviso:
“ Provided, That in any State where not as many as 50 per
cent of the producers of the commodity are members of such
cooperative associations or other organizations, an expression
from the producers of the commodity shall be obtained through
a State convention of such producers, to be called by the head of
the department of agriculture of such State, under rules and
regulations prescribed by him.
“ Mr. R eed of Missouri. Mr, President, will the rules permit an
inquiry of the Senator from Tennessee at this point ? Does the
last amendment read fix it so that if less than a majority are
in favor of the scheme it may be adopted? Is ,it plalmed to
11
call a State convention, a minority of which may be able to
accomplish the result desired?
“ Mr. M cK ellar. N o.
“ Mr. R eed of Missouri. Then what does it mean?
“ Mr. M cK ellar. It means exactly what it says, that such a
convention shall pass on it before it is put into operation..
Page 3605 :
“ Mr. M cK ellar. I offer an amendment on behalf of the
senior Senator from North Carolina (Mr. Simmons).
“ The V ice P resident . The clerk will state the amendment.
[Amendment repeated.]
“ Mr. R eed of Missouri. Mr. President, I do not desire to delay
the Senate, but I ask for a record vote on these important amend
ments. I call for the yeas and nays.
“ The yeas and nays were ordered, and the Chief Clerk pro
ceeded to call the roll.”
$
*
*
*
*
*
*
“ So Mr. McKellar’s amendment was agreed to.”
You will note that this is a State convention of the producers
and that the proponent of the amendment said that a minority could
not accomplish the result. Usually when there is a convention it is
composed of delegates selected by producers. * This provision is
for a convention of the producers themselves, and before operation
as to any commodity can be put into effect there must be such con
vention called and held in every State where the majority of the
producers of the particular commodity are not members of coopera
tive associations or organizations. The extent of this provision is
not limited as to the amount of the commodity produced in any
State. For instance, some swine is produced in almost every State;
some wheat is produced in the majority of all States; some corn is
produced in the majority of all States, and, regardless of the amount
produced, each such State would have to hold a State convention of
all the producers.
I f all the producers attended the convention the expense which
must be borne by them individually would be a tremendous addition
to the operating cost, and if the majority of them did not attend
the convention the deliberations would not represent the voice of the
producers. If such relief as that contemplated by the general plan
of this bill were desirable, it would be extremely unwise to hamper
it with this most cumbersome and awkward provision, the com
pliance with which is made mandatory as a condition precedent to»
the operation of the law. It is impossible to see how such conven
tions of producers could ever be held. The bill does not say
“ delegates,” it says “ producers,” the farmers themselves, and if a
12
majority of them must meet in State convention it is entirely
unworkable.
Corn is a crop that varies between 2,500,000,000 and 3,000,000,000
bushels per year, and the normal export is very small. The reason
then for operating this bill on, corn would not grow out of the export
able surplus, but according to the definition in section 6(c) (2) would
grow out of a surplus above the requirements for orderly marketing.
The marketing of corn would include marketing to a purchaser to
feed to cattle and hogs, so that a situation might arise where there
would be a surplus above the requirements for orderly marketing.
The act then could be put into operation as to corn under all the
different kinds of agreements. But the vast expense of financing the
operations of these agencies in the corn market would be charged not
against the entire commodity but against that part of the commodity
which is used for milling or processing or that is transported by a
common carrier. This, according to statistics, amounts only to some
15 to 20 per cent of the corn produced.
That the equalization fee is not laid on the entire commodity is not
apparent from a casual reading of the act. But a close study shows
that section 10 provides that there shall be paid “ an equalization
fee upon one of the following: The transportation, processing, or
sale of such unit.” There is no other way to collect the fee. If that
stood alone, then all the corn would be subject to the fee unless
it were used by the raiser, but section 15 (1) says:
“ In the case of * * * corn, the term £processing5means mill
ing for market of * * * corn or the first processing in any
manner for market * * * of corn not so milled, and the term
‘ sale I means the sale or other disposition in the United States
of * * * corn for milling or other processing for market, for
resale, or for delivery by a common carrier * *
So, unless the corn is processed or sold for milling or other process
ing for market or is transported by common carrier, it is not subject
to the equalization fee. But the great bulk of it which is neither
processed nor transported by common carrier is free from the
equalization fee.
The only figures in the debates with reference to corn are some
estimates based solely upon exportable surplus, which really form
no basis for the present proposed plan based on desire for orderly
marketing and not for controlling the small exportable surplus.
While it is difficult to estimate the burden of this equalization fee,
which must be borne for the entire crop by this small proportion, the
simplest calculation will show that the amount per bushel necessarily
would be tremendous so that the market of corn for milling and other
processing and for transportation would be entirely dislocated. The
13
provisions of the present measure with reference to an equalization
fee on corn must not be confused with the other measures which have
been proposed for the reason that former measures put the burden
upon the entire crop, but this measure in undertaking to place the
duty of collecting payments on the processor has reached this
disastrous result. I t is no answer to say that the corn producers
would induce their advisory council and the members of the board
from their land-bank districts to exclude corn from the operation of
this bill because the people who do not pay an equalization fee and
on whom the burden does not fall are 80 or 85 per cent of the pro
ducers of the corn.
I t may be contended that since there is to be an equalization fee on
swine that the feeders would be taxed, but the swine and corn are
separate units and have a separate stabilization fund and under
the law the fees on swine can not be turned in to the stabilization
fund for corn.
In figuring the percentage of the corn crop upon which the fee
would fall, while it is possible that the fee might fall on corn carried
by a common carrier, it is doubtful whether any board would lay a
tax on transportation where the corn was being transported to be sold
to feeders. If they did, of course, the result would be that to avoid
the fee in most cases the seller would not transport by a common
carrier. .
‘
. ,
•
It is not enough to say that the right to put the equalization fee on
swine would adjust the inequalities between those bearing the burden
and those not bearing the burden, first, because the board might com
mence operating as to corn and not desire to operate or be permitted
to operate as to swine. However, much of the corn would be fed to
cattle and livestock other than swine, and there is no right to
bring the products of livestock other than swine under the provisions
of the law. With a requirement for a fee on part of the corn crop
and no fee on the balance, the free movement and dealing in that
commodity would be hampered to an almost unbearable extent. It
would take a horde of inspectors to assure the payment of the fee on
the particular corn required to bear it. A feeder of cattle who bad
the necessary machinery to grind or crush his corn bought from other
farmers for feeding purposes would be able to market his cattle free
from the cost of the equalization fee, while another feeder who pur
chased such ground feed would be compelled to market his cattle
with the added cost of the equalization fee on the corn. This, of
course, would be true as to swine; moreover, the feeder who had been
compelled to purchase the ground feed would pay the fee on that,
and when he sells his swine he pays an additional fee on that transac
tion. He pays twice.
14
I t is provided in the law “ the board shall determine in the case
of any class of transactions in the commodity whether the equaliza
tion fee shall be paid upon transportation, processing, or sale.”
While this language is not very clear, a plan is set out by Representa
tive Haugen, one of the coauthors of the bill, in the following
language (Congressional Record, February 10, p. 3528) :
“ For wheat on hand at the beginning of the operation period
the board would undoubtedly have to collect on the processing.
In the case of transaction during the operating period the board
would pick either the sale or the transportation.”
The act itself provides in section 10 (b) the board may, by reg
ulation, require any person engaged in the transportation, proc
essing, or acquisition by sale of a basic agricultural commodity r
v (ij * * * (2) to collect an equalization fee as directed by
the board and to account therefor?’ Thus the common carrier if
on transportation, or the processor if on processing, or those who
secure by sale, if on sale, collect the fee which must fall on the
producer. Transportation under the act means the acceptance of a
commodity by a common carrier for delivery (section 15 (5)).
Regardless of just how it is collected it is the intent that it shall fall
upon the producer. The farmer pays it when his. product moves.
Thus the Senate report, page 23, says:
“ The fees are imposed at the point of transportation, proc
essing, or sale, as the. board may determine. Their amount
will, of course, be reflected in the price to the producer. * * *
The committee bill, however, requires agricultural producers
to meet their own losses with their own moneys.” * * *
On page 25 it adds:
“ Neither of the above effects of the fee constitutes price fixing.
The producer or other person may sell for such price as he
chooses. The buyer may pay such price as he wills. There is no
limitation upon the price to be fixed by the contracting parties
save that the equalization fee, just as a broker’s fee, will be
taken into account in arriving at the price to be paid.”
I t is important to bear in mind that the equalization fee can only
be levied upon a unit of the basic agricultural commodity. This
means the actual commodity itself as defined in section 6, to wit,
cotton, wheat, corn, rice, tobacco, and swine. The reference in
subdivision (h) of section 6 to food products of the commodity
specifically limits the application thereof to sections (d), (e), and
(f) of section 6, which do not in any way relate to the equalization
fee. All of the sections dealing with the equalization fee and all
of the references to it clearly limit its application to the basic
agricultural commodity itself, and they can not lay a ‘fee upon flour
or other products of wheat, meal, or other products of corn, meats,
or other products of swine.
While there may be some conceivable way of reaching an import
of any of these agricultural commodities as such there is no possible
way of reaching any of the products of these commodities after
they are processed. The result would be to throw all of our proc
essors and millers who would have to buy the commodity with the
cost of the equalization fee added into competition with imports
from Canada or other countries who sent in any product of any of
the basic agricultural commodities. Of course, the millers or other
processors who happen to get desirable contracts from the board
\ might be able to recoup that loss to a certain extent, but the milling
: capacity of the small mills and large mills is great enough to take
| care of twice the amount of milling and other processing to be done;
and the mills which were not fortunate enough to get such contracts
would be ruined.
I t is a fundamental principle in writing a tariff law that when a
duty is placed upon a raw product that a compensatory duty must be
placed on the manufactured or processed product in which the raw
product is used. Here is a fee placed upon the raw product without
an opportunity to place a like fee upon the processed product which
might be imported. Raw products dumped abroad can there be
processed and reshipped here to the disaster and destruction of this
whole bill.
In fixing the amount of the equalization fee the board must necesj sarily estimate the crop, because it is their duty to estimate the
probable “ advances, losses, costs, and charges to be paid ” and to
determine the amount for each unit. Of course, they are compelled
to estimate the crop in order to estimate the number of units. One
of the coauthors of the bill suggests that if the law had been in
operation from 1925 the equalization fee on wheat should yield
$131,750,000. I mention this to show the large sums involved. If
either the estimate of the crop or the size of the fund needed should
be inaccurate, so that there is collected many millions more than
| needed, there is no way to return it to the producer. Suppose there
| should be estimated an exportable surplus of 200,000,000 bushels of
wheat and there is a surplus of but 100,000,000, the fund would be
almost twice as large as it should be, and if the amount involved
should be anything like that stated by Representative Haugen the
board would have fifty-five or sixty millions more than needed of the
farmers’ money. There is no way to return it. Now, in the case of
cotton there is provision that any excess that is accumulated for the
stabilization fund shall be paid back to the producer. This is con-
16
tained in section 10, subdivision (3), and section 11, subdivision (e),
as follows:
“ 10 (3) In the case of cotton, to issue to the producer a serial
receipt for the commodity which shall be evidence of the partici
pating interest of the producer in the equalization fund for the
commodity. The board may in such case prepare and issue such
receipts and prescribe the terms and conditions thereof. The
Secretary of the Treasury, upon the request of the board, shall
have such receipts prepared at the Bureau of Engraving and
Printing,”
*
*
*
*
*
*
*
“ 11 (e) When the amount in the equalization fund for cot
ton is, in the opinion of the board, in excess of the amount ade
quate to carry out the requirements of this act in respect of such
commodity, and the collection of further equalization fees
thereon is likely to maintain an excess, the board may retire in
their serial order as many as practicable of the outstanding re
ceipts evidencing a participating interest in such fund. Such
retirement shall be had by the payment to the holders of such
receipts of their distributive share of such excess as determined
by the board. The amount of the distributive share payable in
respect of any such receipt shall be an amount bearing the same
ratio to the face value of such receipt as the value of the assets
of the board in or attributable to the fund bear to the aggregate
face value of the outstanding receipts evidencing a participating
interest in such fund, as determined by the board.”
But there is no place in the law which provides for a return to the
producer of other products where the assessment of the fee levies an
amount in excess of that necessary for the stabilization fund. There
is quite a large variance from year to year of the amount of produc
tion of these different basic agricultural commodities, and it is mani
festly unfair to provide that as to cotton the producer shall share
in any excess collected, while as to corn, wheat, swine, rice, and
tobacco no such provision exists. In all the similar bills heretofore
considered by Congress it has been thought necessary to provide for
the return to all producers of any amount they should pay in excess
of that required, and it is illogical and indefensible to deem it neces
sary to still make that provision for the cotton producer and deprive
the other producers of that benefit. This appears to be the rankest
kind of discrimination in favor of one crop and against all the other
crops in the bill.
Another difficulty will be in making proper estimates of the
amount of products and the amount of the equalization fee.
17
I t is improbable that this board could do any better in this respect
than has been done by the Department of Agriculture. In spring
wheat the estimates of the department have been 78,000,000 bushels
too small and 90,000,000 bushels too large; in winter wheat, 126,000,000 bushels too small and 140,000,000 bushels too large; in corn,
430,000,000 bushels too small and 657,000,000 bushels too large. In
cotton the range has been 2,983,000 bales too small for 1926 and
3,286,000 bales too large for 1918. These are all recent estimates and
show conclusively the impossibility of arriving at accurate conclu
sions. No rebates are allowed except on cotton. Any year therefore
that a large corn or wheat crop is estimated which turns out to be
too high too much money would be collected, and as it is not return
able it would result in so much loss to the farmer. If the crop were
underestimated, the fee might not furnish a large enough sum to sus
tain the market on that particular commodity.
The main policy of this bill is an entire reversal of what has been
heretofore thought to be sound. Instead of undertaking to secure
a method of orderly marketing which will dispose of products at
a profit, it proposes to dispose of them at a loss. It runs counter
to the principle of conservation, whieh would require us to produce
only what can be done at a profit, not to waste our soil and resources
producing what is to be sold at a loss to us for the benefit of the
foreign consumer. It runs counter to the well-considered principle
that a healthy economic condition is best maintained through a free
play of competition by undertaking to permit a legalized restraint
of trade in these commodities and establish a species of monopoly
under Government protection, supported by the unlimited power
of the farm board to levy fees and enter into contracts. For many
generations such practices have been denounced by law as repugnant
to the public welfare. It can not be that they would now be found
to be beneficial to agriculture.
This measure is so long and involved that it is impossible to dis
cuss it without going into many tiresome details. Many other reasons
exist why it ought not to be approved, but it is impossible to state
them all without writing a book. The most decisive one is that
it is not constitutional. This feature is discussed in an opinion of
the Attorney General, herewith attached and made a part hereof,
so that I shall not consider the details of that phase of my objec
tions. Of course it includes some good features. Some of its pro
visions, intended to aid and strengthen cooperative marketing, have
been borrowed from proposals that do represent the general trend
of constructive thought on the agricultural problem. In this measure,
however, these provisions are all completely subordinated to the
main objective, which is to have the Government dispose of export
able surpluses at a loss and make some farmer taxpayers foot the
18
bill. This is not a measure to help cooperative marketing. Its effect,,
on the contrary, is to eliminate the very conditions of advantage that
now induce farmers to join together to regulate and improve their
own business.
^
.
That there is a real and vital agricultural problem is keenly
appreciated by all informed men. The evidence is all too convincingthat agriculture has not been receiving its fair share of the national
income since the war. Farmers and business men directly dependent
upon agriculture have suffered and in many cases still suffer from
conditions beyond their control. They are entitled to and will have
every consideration at the hands of the Government.
Surely, a real farm relief measure must be just and impartial and
open the5way to aid for all farmers. Surely, it must not contem
plate, as this measure inescapably does, that farmers in some regions
should be penalized for the benefit of those in other regions. Surely,
it must be aimed to promote the welfare of the community at large.
There is no thoughtful man who does not fully appreciate how vital
a prosperous agriculture is to this Nation. I t must be helped and
strengthened. To saddle it with unjust, unworkable schemes of
governmental control is to invite disaster worse than any that has
yet befallen our farmers.
I t has been represented that this bill has been unanimously
approved by our farmers. Several of our largest farm organiza
tions have refused to support it, and important minorities in the
members and leadership among the most important organization who
are recorded as giving it indorsement have protested to me against it.
I t is not to be thought that the farmers of the United States want
our agricultural policy founded upon legislation as is proposed in
this measure. The final judgment of American farmers always has
been and will be on the constructive rather than the destructive side.
What the farmers want, and what the American people as a whole
will approve, is legislation which will not substitute governmental
bureaucracy for individual and cooperative initiative, but will facili
tate the constructive efforts of the farmers themselves in their own
self-governed organizations.
Although these arguments and others have been advanced in
Congress and outside, I find little attempt has been made to answer
them. The pressure for this bill arises primarily from the natural
and proper sympathy with the farm distress from the after-war
inflation speculation and collapse. Many sincere and thoughtful
people have expended a great deal of time and energy in working
out this measure and are entirely honest and honorable in their
advocacy of it. It is a great regret to me that I am unable to come
to the conclusion that the bill would help agriculture, be of benefit
to the country, and be in accord with the Constitution.
19
Other plans have been proposed in Congress for advancement m
this recovery, which plspis offer promise of sound assistance to the
farmers without these unconstitutionalities, invasions of Executive
.authority, this contracting with packers and flour millers and other
manufacturers, this overproduction with its inflation and inevitable
•crash, without this indirect price fixing, buying and selling, this
-creation of huge bureaucracies. They are, on the contrary, devoted
-entirely to the principle of building up farmer-controlled marketing
concerns to handle their problems, including occasional surplus pro
duction, and applicable to all agriculture and not to a minor fraction.
I have frequently urged such legislation. I wish again to renew
my recommendation that some such plan be adopted.
I am therefore obliged to return Senate bill 4808, entitled “ An
.act to establish a Federal farm board to aid in the orderly market
ing and in the control and disposition of the surplus of agricultural
•commodities,” without my approval.
C alvin C oolidge.
T h e W h ite H ouse ,
February 25, 1927.
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OPINION OF ATTORNEY GENERAL
S ir : In response to your request for an opinion as to whether
the act entitled “An act to establish a Federal Farm Board to aid
in the orderly marketing and in the control and disposition of the
surplus of agricultural commodities,” called the “ Surplus control
act,” if approved, would contravene the provisions of the Constitu
tion of the United States, I submit herewith my conclusions.
Without going into a minute analysis of the provisions of the act,
it is necessary, in order to bring out the constitutional questions
presented, to state in a general way its purpose, effect, and operation,
as disclosed by the terms of the ¿ict itself and the reports of congres
sional committees dealing with it.
The act provides for a Federal Farm Board of 12 members, to
take charge of the control and disposition of surplus, over domestic
requirements, of certain agricultural commodities. In section S, the
act prescribes the qualifications and terms of office of the members
of this board; but it is further provided in section 2 that the appoint
ment of the members of the board by the President shall be made
from lists of eligibles submitted by nominating committees for each
of the Federal land bank districts. One member is to be selected
by the President from a list of three so submitted by the nominating
committee of each district. Of the members of each nominating
committee, four are to be chosen by farm organizations and coopera
tive associations at conventions, two are to be selected by the agri
cultural departments of the States in the district, and one is to be
appointed by the Secretary of Agriculture.
The provisions of the act come into operation with respect to the
control of surplus agricultural commodities, and the board is to
commence operations only when such action is recommended by
an advisory council, who are appointed by the board from lists sub
mitted by State agricultural departments and by cooperative market
ing associations and farm organizations, and, when that recommenda
tion is concurred in, by a substantial number of cooperative associa
tions and other organizations representing producers of the com
modity to be" dealt with. When the machinery of the act is thus
set in motion, control and disposition of the surplus are to be effected
by contracts made by the board with cooperative associations or
their creature corporations, or* if the board is of the opinion that
such associations or organizations are not capable of carrying out
( 21 )
such agreements, then by contracts with other agencies. The con
tracts so made shall provide that the contracting agencies shall pur
chase, remove, hoard, and withhold from the market, or otherwise
dispose of, the surplus of the commodities. The primary object of
these operations is to stabilize 5 that is, to fix and then maintain the
prices at which the commodities may be bought and sold in the
market.
At the disposition of the board is placed a stabilization fund for
each commodity, to be created by the imposition of what is called an
equalization fee on certain sales, transportation, or processing of the
commodity in question. A revolving fund is provided from public
funds, from which advances may be made to the stabilization fund,
and which advances, it is contemplated, would be repaid if the
stabilization fund is sufficient therefor.
The act contemplates that contracts made by the board shall
provide that losses and expenses incurred by the selected agencies
in their operations in dealing in a commodity shall be made good
to the agencies out of the stabilization fund, and that profits re
sulting from the operations in the commodity shall be paid into the
stabilization fund.
The purpose and effect of the statute is to fix the prices at which
certain agricultural commodities may be bought and sold in the
domestic market and to prevent the depression of prices of such
commodities in the United States to the level of prices in the world
markets which results from the existence of a surplus in excess of
domestic requirements. This is the purpose declared in the reports
of congressional committees, and it is derived from the plain terms
of the act itself. The control, purchase, hoarding, withholding,
sale, or other disposition of the surplus commodities are only means
to an end, which is, first, to determine upon a price for the com
modity to be established in the domestic markets and then to main
tain that price. All operations by or under the direction of the
board would be aimless unless the board first establishes its objec
tive, viz, the price which it believes should prevail in the domestic
markets. Having made the decision as to price, the board would
then conduct its operations to bring the market price to the level
so determined upon and there maintain it. This is to be done by
acquisition of sufficient of the commodity and withdrawal of it from
the ordinary channels of trade to establish a partial corner.
When that result is brought about by manipulating a market
through its control of the surplus, and the purchase or sale of the
commodity controlled, the price determined upon would be main
tained. The contracts to be made by the board of agencies would
undoubtedly give the board full control over such matters. In
other words, in legal effect, by necessary implication this act directs
the board so established to determine what the market price shall
be for the purchase and sale in domestic markets of the agricultural
commodity dealt with, and then, having made that determination,
to make it effective and operative by using the financial resources
at the board’s disposal. The legal effect of the act, aside from the
delegation of legislative authority hereafter mentioned, is the same
as if Congress itself had named the price and then established
agencies to conduct operations in the commodity to carry out its
determination.
This analysis of the act does not impute to Congress a motive or
purpose not disclosed on the face of the statute. On the contrary,
both from the committee reports and the terms of the act, it is obvious
that the statute was intended to so operate, and that unless it does so
operate it will fail of its purpose.
1. One provision of the act which is plainly in violation of the
Constitution is that which limits the President in his appointments
of members of the board to select in each district one man from a
list of three submitted by a nominating committee.
Among the executive powers conferred and duties imposed upon
the President by the Constitution is the one that the President shall
nominate and by and with the advice of the Senate appoint all
officers. This provision of the Constitution not only confers upon
the President a power, but imposes upon him a duty to exercise his
judgment in the selection of appointments of higher officers. I t
contemplates that his appointments shall be made by and with the
advice and consent of the Senate, and not by and with the advice
and consent of any other person or official. I t is one thing to pre
scribe qualifications for appointment to an office and an entirely
different thing to provide that some agency other than the President
shall participate in the executive act of selection of the individual
appointee.
To provide that certain committees or individuals who are not even
officers of the United States shall designate a limited list from which
the President is required to select the appointees is not in any proper
sense prescribing qualifications, but is authorizing these outside
agencies to participate with the President in the executive act of
appointment. There are a few instances in our legislative history
where acts have been passed and approved which placed some such
restrictions on the presidential power of appointment, but the ques
tion here considered does not seem to have been made an issue, and,
taken as a whole, these instances do not constitute a practical con
struction of the Constitution of any considerable weight or which
24
should be accepted as controlling the plain provisions of that
instrument.
. ...
. f.
*
The principles announced by the Supreme Court in the case ot
Lois P. Myers, administratrix* v. I'he United States, decided October
¿5, 1926, although stated in relation to removal instead of appoint
ment, leave no room to doubt that this provision of the act is uncon
stitutional and void.
' .
2
There is also the question whether in this act is found any uncon
stitutional delegation of legislative authority, I t has been generally
understood that there is no delegation of legislative authority where
a controlling rule is fixed by the legislative body, and the power
delegated is a power to apply that rule to some specific facts or to
determine facts on which the legislative action depends.
From practical necessity, resulting from the complicated activi
ties of the Federal Government, the courts have applied this rule in
the most liberal way in sustaining acts of Congress against the ob
jection that legislative authority has been delegated, but the ru e
still remains and is to be applied in a plain case.
Wichita, etc,, Co. v. Public Util. Comm,, 260 U. S. 48; Field
Clark 143 U S. 649: United States v. Grimaud, 220^U. o.
. 506j^UnionUridge Co. v. U m te d S ta ^ , 204 U. S 364; Butter
field v. Stranahan, 192 U. S. 470; Mahler v. Eby, 264 U. S. 32.
If this act is to be considered as a regulation oC interstate com
merce, then Congress has delegated to private associations and cor
porations the power to determine whether the regulation shall be
put into effect, ot, at least, has required their concurrence to its being
placed in operation.
, . ,
If as pointed out above, the primary duty of the board is to
determine the price at which certain agricultural commodities shall
be bought and sold in the domestic markets, then to the board has
beeh given the legislative power to determine that price in its entire
discretion, without any rule or formula to guide its judgment pre
scribed by Congress, slich as a provision that the price determined
on as the objective of operations shall be based on cost of produc
tion, or reasonableness, or anything of that kind. The power of the
board to determine the price is absolute and the discretion unlimite .
With respect to what is called the equalization fee, there is a pro
vision that in fixing its amount the board shall have due regard for
its estimate of probable losses in conducting operations. Accepting
this provision as a requirement that the board shall base the decision
on its estimate, it may be observed that the estimate is not a finding
as to existing facts, but a prediction of future prices to prevail m
the markets where the surplus is to be disposed of. But assuming
that some legislative rule has been stated to guide the board in fixing
25
the amount of the fee, there is left to the board the absolute discre
tion, unregulated b^ any rule or principle, to say whether the fee
shall be imposed on the sale, the manufacture, or the transportation.
Notwithstanding the length tq which the courts have gone in sus
taining legislation against the claim that it involves the delegation
of legislative authority, I am unable to believe that in an act which
provides, in substance, that, through governmental agencies, prices
of certain farm products shall be determined upon, established, and
maintained, Congress may lawfully delegate to Federal officers,
acting concurrently with private agencies, the unlimited discretion
to decide whether the price-fixing operation shall be commenced;
may lawfully delegate the complete discretion without any pre
scribed rule to determine what the price shall be; or may lawfully
delegate the power to determine on whom shall be directly placed
the burden of collecting the charge to provide the fund to conduct
operation^.
3. I come now to consider what, in my opinion, is a broader and
more fundamental constitutional objection to this act.
The Federal Government is a government of limited powers. It
has only such powers as have been expressly given to it by the
Constitution or are implied as incidental to the powers as expressed.
The only provision of the Constitution relied on to supply the
power for this legislation is the one which gives Congress power
to regulate commerce with foreign nations and among the several
States. A painstaking search has not disclosed to me anything in
our constitutional history or in the decisions of the Supreme Court
of the United States to justify the belief that the power of the
Federal Government to regulate commerce includes the power to
establish and maintain or take steps to establish and maintain the
price at which merchandise may be bought and sold in interstate
commerce, with the necessary consequence of fixing the price at
which the commodity in question shall be bought and sold in every
place in the land, whether in or out of interstate commerce.
I t is suggested that the tariff acts and the laws regulating immigra
tion and other legislation have an effect on domestic prices of mer
chandise and labor. In such legislation the effect on prices is the
incidental result of the exercise of admitted powers. Here, the fix
ing, establishment, and maintenance of prices of merchandise is not
the incidental result of the exercise of an admitted power, but the
question is whether there is a direct power to fix and maintain prices
of articles in interstate commerce, and whether that constitutes a
regulation of commerce within the meaning of the commerce clause.
In general, legislation under the comrtierce power has been directed
at carrying out the primary purpose of the commerce clause, which
2b*
was to prevent undue discriminations against or burdens or restraints
on interstate commerce, and most of the decisions of the Supremo
Court under the commerce clause deal with such legislation. In this
act are found expressions taken from such decisions, respecting the
prevention of discrimination against or burdens or restraints upon
or suppression of commerce, but the things intended to be brought
about by this act are the very things that Congress and the courts
have heretofore declared to be burdens and restraints on commerce.
This act, instead of preventing, creates burdens and restraints on
commerce, as those terms have heretofore been understood.
Since heretofore Congress has never enacted legislation based on
the assumed existence of a power to fix prices of merchandise sold
in interstate commerce, no case identical with this may be found.
In Wilson ffc New, 243 U. S. 332, decided in 1917, the Supreme
Court had under consideration the validity of the so-called Adamson
law, which was an act of Congress to fix the wages of employees of
railroads operated as instrumentalities of interstate commerce. The
power of Congress in that case to interfere with freedom of contract
respecting the price at which labor should be performed was sus
tained, but only on the ground that the railroads were essential
instrumentalities of interstate commerce and that it was essential
to their continued operation in a period of national emergency and
to prevent the complete cessation and obstruction of interstate com
merce that a dispute between the carriers and their employees respect
ing wages should be settled by legislation.
Later, in Wolff Company v. Industrial Court, 262 U. S. 544, it
was .said:
“ I t is not too much to say that the ruling in Wilson v. New
went to the border line, although it concerned an interstate com
merce carrier in the presence of a nation-wide emergency and
the possibility of great disaster.”
(See Adkins v. Children’s Hospital, 261 U. S. 525.)
If, notwithstanding the admitted power of Congress to regulate
common carriers who have devoted their property to the public use
as instrumentalities of interstate commerce, a decision sustaining the
legislative fixing of wages of railway employees went to the verge,
it is obvious that legislation under the supposed authority of the com
merce clause, the direct and primary purpose of which is to establish
the prices at which farm products should be bought and sold through-t
out the land, could not be sustained.
The act does not, of course, interfere with freedom of contract
respecting the purchase and sale of commodities by prohibiting peo
ple from buying and selling at more or less than the established
market price if it can be supposed that they‘would do so, but as
\
27
a practical matter it would prescribe more effectively the price to
be paid than would an act which, fixing the price, attempted to
make it effective by imposing penalties for not regulating it rather
than by bringing into play inexorable economic laws.
An elaborate discussion of the various decisions of the Supreme
Court of the United States dealing with the power to regulate inter
state commerce and with the due process clause would unduly extend
this opinion, but the following decisions may be referred to, from
which to derive the applicable principles:
McCulloch v. Maryland, 4 Wheat. 316.
Hammer v. Dagenhart, 247 U. S. 251.
Stafford v. Wallace, 258 U. S. 495.
Hill v. Wallace, 259 U. S. 44.
Chicago B’d. of Trade v. Olsen, 262 U. S. 1.
4. There are some further, features of the act which require
consideration.
It is said that the so-called equalization fee is not a tax but in
the nature of a charge for services rendered. With respect to
cotton the act Contemplates that whatever remains in the stabili
zation fund for that commodity at the end of operations may be
returned to the producers. This lends support to the claim that the
equalization fee for cotton is not a tax because its proceeds never
enter the Public Treasury. With respect to all other commodities,
the act contains no provision for ever returning to the producers
anything remaining unexpended at the termination of operations.
This gives foundation for the claim that the proceeds of the equali
zation fee are public funds.
The law contemplates that the collection of the equalization fee
shall cease when the operation ceases. If it is found when opera
tions end that the equalization fee fixed has been too low to produce
enough to meet the losses, the losses will be borne out of public funds
raised by taxation, constituting the revolving fund, by loans from
it to the deficient stabilization fund, which must remain unpaid.
But it is not important to decide whether this charge is a tax or is
not. I f it be not a tax, then its imposition and collection would
violate the provision of the Federal Constitution prohibiting the
taking of property without due process of law. Treating the equali
zation fee as not a tax, it is obvious that what is attempted by this
act is to enable certain agencies under Government direction and
supervision to engage in the business of buying, selling, hoarding,
and otherwise disposing of agricultural products for the purpose of
restraining commerce, of interfering with its free course, and of
imposing upon commerce what have heretofore been considered
burdens, restrictions, and restraints.
2.8
The theory of the act is that giving producers permission to or
ganize combinations in restraint of trade is ineffective^ to enable them
to combine and fix prices, because all pro filers who do not con
tribute to the enterprise realize a gain without bearing any o
e
expense ; and the purpose of the act is to force all producers, directly
or indirectly, to make a contribution, not in the nature of a tax,
toward the losses and expense suffered in operations for the common
benefit. Compelling some citizens to participate m business opera
tions by requiring them to contribute to the loss ^
is, in my opinion, in violation of the provisions of the fifth amend
ment and a taking of property without due process of law.
Parkersburg v. Brown, 106 IT. S. 487.
On the other hand, if it be a tax, then its proceeds constitute
public funds in the Treasury, with the result that the Public Treas
ury would bear the losses and expenses and take the profits, it any,
of the business of buying, storing, and selling of agricultural com
modity, with the result that the United States would be engaging
on its own account in buying and selling, an activity which is hard y
to be supported as a regulation of interstate commence.
Because the equalization fee is not called a tax, does not purport
to be imposed as a tax, is not exacted on any provided basis of
equality, is not to be paid into the Treasury of the United States, is
to be imposed and collected or not at the will and favor of interested
cooperative associations, corporations, individuals, and an adminis
trative board without congressional chart or compass directing 9»
to the time when it shall be imposed, the time it shall remain in effect,
the amount of it or upon whom it shall be levied, I think it can not
be sustained under the taxing power of the Constitution.
The decision in Dayton-Goose Creek R. B. Co. v. United States,
263 U. S. 456, relied upon to support the validity of the provision
for the equalization fee is inapplicable. The court there considered
what is known as the recapture of earnings provision in the trans
portation act of 1920, and sustained a law providing for the recap-,
ture by the United States of a part of the net return of carriers
engaged in interstate commerce in excess of a reasonable rate or
return. The court there proceeded on the theory that because Con
gress had power to limit the charges for service by carriers engaged
in interstate commerce to a reasonable figure, it could withhold or
recapture the amount received by them in excess of the reasonable
rate. To make that case and this one parallel, it would be necessary
to assume that Congress has the same power to limit the price for
the sale of merchandise to a reasonable figure and recapture the
amount realized by the vendor in excess, an assumption which is
plainly unfounded.
I have considered these questions with realization of the grave
responsibility involved in passing on the validity of acts of Congress
and with appreciation of the ,rule that the courts will indulge in
every presumption to support the .validity of legislation and that no
act of Congress will be declared invalid unless plainly so, but never
theless I feel constrained to advise you that the act in question, if
approved, would, in its most essential provisions, violate the Con
stitution of the United States, in that it takes from the President
the constitutional Executive power and duty of making appoint
ments to fill the offices created by it and by legislation confers that
power upon others; in that Congress delegates its constitutional
power of legislation to private cooperative associations and corpora
tions, and individuals acting collectively, and the bhard created by
the statute ; in that it contravenes the provisions of the Constitution
against the taking of property without due process of law.
Kespectfully,
J no . G. S argent ,
Attorney General.
The P resident ,
The White House.
o
- 1 ESTIMATED M O U N T OF WHOLLY TAX-EXEMPT SECURITIES
from December 1912 to 1926
I.
Municipals and insular possessions
(000,000 omitted)
_______________________________________ ___________________________ ¡ H i
]
1 End
of
JMonth
States, Counties, Cities, etc.
: Total out- : Held in : Net out: standing
: sinking : standing
î i s sue s (1) : f u n d s , ; issues
¡1912 ; Dec.
$
3957
$
615
$
3342
r Territories i Insular Possessions
:.
: Total out- : Held in î Net out: standing : sinking : standing
:
issues
i
issues
; funds
$
36
$
1
$
34
1913 ( Jan.
Feb.
■ Mar.
Apr.
May
June
July
! Aug.
Sept.
: Oct.
Nov.
Dec.
3984
4036
4067
4079
4206
4244
4267
4280
4287
4287
4346
4514
620
626
631
637
642
648
553
659
664
670
675
681
3364
3410
3436
3442
3564
3596
3614
3621
3623
3617
3671
3833
35
35
36
36
36
36
36
36
36
36
36
35
1
1
1
1
1
1
1
1
1
1
1
1
1914 Jan.
\ Feb.
Mar.
1 Apr.
May
1 June
; July
Aug.
Sept.
Oct.
Nov.
; Dec.
4602
4588
4660
4715
4714
4719
4712
4701
4787
4752
4729
4751
586
692
697
703
708
714
719
725
730
736
742
747
3916
3896
3963
4012
4006
4005
3993
3976
4057
4016
3987
4004
35
35
36
36
36
36
36
36
36
36
36
37
1
1
1
1
1
1
1
1
1
1
1
1
34'
34
35
35
35
35
35
35
35
35
35
36
¡1915 Jan.
I Feb.
1 Mar,
' Apr.
!
■ May
1 June
; July
1 Aug.
Sept.
| Oct.
I Nov.
| Dec.
4765
4804
4872
4880
4920
5017
5005
5008
5046
5063
5103
5121
751
755
‘759
763
768
772
776
780
784
788
792
797
4014
4049
4113
4117
4152
4245
4229
4228
4262
4275
4311
4324
37
37
39
39
39
39
39
39
38
38
38
39
1
1
1
1
1
1
1
1
1
1
1
1
36
36
38
38
38
38
38
38
37
37
37
38
(l)
*
Includes the floating debt.
♦
*
34
34
. 35
35
35
35
35
35
35
35
35
34
— 2 *»
•
1 End
of
1 Month
1916 Jan.
Peh.
Mar ,
Apr.
May
June
July
Aug.
Sept.
Oct.
Hov.
Dec.
1917 Jan.
Peh.
r Mar.
; Apr.
I May
June
July
Aug.
Sept.
, Oct.
1; HOV.
I Dec.
1918 Jan.
. Peh.
I Mar.
s Apr.
May
June
July
; Aug.
Sept.
Oct,
Hov.
Dec.
(1)
*
•
States, Counties, Cit ies, etc.
: Total out- ï Held in : He t out: standing : sinking : standing
: issues (1) : funds
: issues
$
5180
5234
5294
5379
5397
5425
5431
5462
5475
5522
5534
5558
5614
5640
5691
5757
5784
5820
5873
5918
5939
5951
5947
5977
5982
6026
6063
6059
6110
6135 *
6171
6185
6207
3187
6235
6257
$
1 Territories, Insular Possessions
$
39
39
38
33
38
38
38
38
38
38
38
44
802
807
812
817
822
828
833
338
843
848
853
858
4378
4427
4482
4562
4575
4597
4598
4624
4632
4674
4681
4700
367
876
885
894
904
913
922
931
940
949
958
968
4747
4764
4805
4863
4880
4907
4951
4987
.4999
5002
4989
5009
44
44
44
44
44
44
44
44
44
AA
44
45
1
1
1
1
1
-1
1
1
1
1
1
1
975
982
989
996
1003
1010
1017
1025
1032
1039
1046
1054
5007
5044
5074
5073
5107
5125
5154
5160
5175
5148
5189
5203
45
45
45
45
45
45
45
45
45
45
45
46
1
1
1
1
1
1
1
1
1
1
1
1
Includes the floating debt.
î
:
:
: Total out- : Held in
: standing î sinking
:
issues
: funds
$
$
1
1
1
1
1
1
1
1
1
1
1
1
t
Het outstanding
issues
38
38
37
37
37
37
37
37
37
37
37
43
43
43
43
43
43
43
43
43
43
43
43
44
44
44
44
44
44
44
44
44
44
44
44
45
- 3 -
States, Counties, Cities, etc.
End
of
Month
1919 Jan.
Feb.
Mar.
Apr.
May.
June
July
Aug.
Sept.
Oct.
Total out- : Held in : Net outstanding
: sinking : standing
issues (1) : funds
: issues
Total out- : Held in
standing : sinking
issues
: funds
:
:
:
Net outstanding
issues
%
$ 1063
1073
1082
1092
1101
1111
1120
1130
1139
1149
1158
1167
1920 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
6934
6965
7101
7157
7153
7177
7146
7191
7245
7344
7389
7440
1177
1187
1197
1206
1215
1224
1234
1243
1253
1252
1272
1282
5757
5773
5904
5951
5938
5953
5912
5948
5992
6082
6117
6158
48
48
47
47
47
48
43
48
50
50
50
57
1
1
1
1
1
1
1
1
1
1
1
1
47
47
46
46
46
47
47
47
49
49
49
56
1921 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
7468
7517
7615
7754
7828
7909
7954
8032
8117
8205
8304
8509
1292
1302
1312
1321
1331
1341
1351
1360
1370
1380
1390
1399
6176
6215
6303
6433
6497
6568
6603
6572
6747
6825
6914
7110
57
57
57
57
57
60
60
60
71
71
71
76
1
1
1
1
1
4
4
4
4
4
4
4
56
56
56
56
56
56
56
56
67
67
*67
72
•
<
£2?
o
6271
6312
6368
6428
6429
6504
6518
6551
6621
6693
6723
5815
Dec.
rnmmmmmmmmmmmmmmmmmir m
Territories, Insular Possessions
(1)
$
Includes the floating debt.
$
5208
5239
5286
5336
5328
5393
5398
5421
5482
5544
5555
5648
$
46
46
46
46
46
46
46
46
48
48
48
48
$
1
1
1
1
1
1
1
1
1
1
1
1
$
45
45
45
45
45
45
45
45
47
47
47
47
End
of
Month
1922 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec,
1923 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
N ov.
Dec.
1924 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
a)
Territories , Insular Possessions
States, Counties, Cities, etc.
Total out : Held in i Net outstanding : sinking : standing
issues (1) : funds
: issues
$
8522
3558
8681
8743
8805
8387
8920
8951
9059
9134
9131
9233
$ 1409
1419
1429
1438
1448
1458
1458
1477
1487
1497
1507
1516
9295
9354
9425
9508
9578
9727
9735
9812
9851
9874
9950
10101
1525
1536
1545
1557
1557
1577
1587
1598
1608
1618
1528
1339
10148
10249 •
10375
10511
10542
10853
10947
11050
11241
11355
114*3 •
11512
1551
1655
1580
1697
1714
1752
1762
1779
1797
1808
1819
1832
Includes the floating debt.
$
Total out- : Held in
standing : sinking
funds
issues
ï
:
:
:
$
He t outstanding
i s sue s
72
72
77
77
77
79
79
79
98
98
98
115
76
75
81
81
81
83
83
83
1C 2
102
102
119
4
4
4
4
4
4
4
777<?
7828
7879
7951
8011
8150
8178
8214.
8243
8256
8322
8432
119
119
119
119
119
119
119
119
120
120
120
125
4
4
4
4
4
5
5
5
■. 5
6
7
115
115
115
- 115
115
114
114
114
114
114
114
118
8497
8584
8596
8814
8928
9111
9185
9231
9444
9558
125
125
126
126
126
'131
131
131
131
131
131
131
7
7
8
8
8
9
9
9
11
11
11
12
118
118
118
118
118
122
122
122
120
120
120
119
7113
7149
7352
7305
7357
7429
7452
7484
7572
7537
7574
7717
96M
9680
$
4
4
4
4
4
o
-r—
—■
-- _ -- ^
-
-
--- ECT------- *3----. . ----------- ---- —-- ~ ' - ----- -- --------- ---- -
’ ’
"
5 -
States, C ounties, Cities, etc.
End
of
Month
Total out- : Held in : Net out: sinking ; standing
standing
issues (1) : funds : issues
1925 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
$ 11560
11603
11712
11790
11919
12058
12090
12129
12228
12297
12319
12557
$ 1845
1856
1873
1884
1913
1933
1947
1959
1976
1984
1993
2017
1926 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
12581
12657
12810
12873
12955
13054
13075
13095
13190
13227
13225
13354
2023
2044
2061
2072
2092
2111
2117
2126
2144
2154
2133
2183
(1)
Includes the floating debt
$
9715
9747
9839
9906
10006
10125
10143
10170
10252
10313
10326
10540
10558
10613
10749
10801
10863
10943
10958
10969
11046
11073
11062
11171
]
Territories , Insular Possessions
: Total out- : Held in
: standing
: sinking
:
issues
: funds
$
131
131
134
134
134
135
135
135
141
141
141
144
144
144
151
151
151
154
154
154
154
156
156
156
$
12
12
12
12
12
12
12
12
13
13
13
15
15
15
15
15
15
17
17
17
14
14
1:4
14
:
:
:
$
Net out—
standing
issues
119
119
122
122
122
123
123
123
128
128
128
129
129
129
136
136
136
137
137
137
140
142
142
142
- c ESTIMATED AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES
from December 1912 to 1926
II.
U. S, Government and Federal farm loan system.
(000,000 omitted)
End
of
Month
..............
| 1912 Dec.
U. S. Government
outstanding issues
(Total outstanding issues and net
outstanding issues are identical
since securities purchased for
the sinking fund are cancelled.
. $
965
1913 Jan.
I Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
966
966
966
966
966
966
967
967
967
967
957
967
1914 Jan.
[ Feb.
Mar,
[ Apr.
' May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
968
968
968
968
968
968
969
969
969
969
969
969
1915 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
970
970
970
970
970
970
971
971
971
971
971
971
;
:
Federal farm loan
:
: Total out- : Ov?ned by
: standing :
U. S.
:
issues
:Government
$
$
system
: Net out:standing
: issues
$
- 7 -
End
of
Month
1915 ~
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
U. S. Government
outstanding issues
(Total outstanding issues and net
outstanding issues are identical
since securities purchased for
the sinking fund are cancelled.
$
Federal farm loan system
: Ne t outTotal out- : Owned by
:standing
standing :
U.S.
issues
:Government : issues
972
972
972
972
972
972
972
972
972
972
972
972
$
$
■
1917 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oc t •
p
Nov.
Dec.
973
973
1023
1023
1024
2440
2503
2397
1950
2951
2951
2961
36
38
9
9
27
29
1918 Jan.
Feb,
Mar.
| ' Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2961
2961
2961
2953
2952
2955
2951
2887
2887
2882
2307
2307
44
55
73
94
103
112
121
131
140
157
165
170
13
23
40
55
70
31
32
33
39
33
45
51
61
70
87
95
100
■
$$
70
70
70
70
70
70
,
- s -
Eiid
of
Month
1919 Jan,
Feb.
Mar,
Apr.
May
June
July
Aug.
Sept.
Oct.
N©v.
Dec.
U. S. Government
outstanding issues
(Total outstanding issues and net
outstanding issues are identical
since securities purchased for
the sinking fund are cancelled.
d»
2297
2297
2297
2293
2293
2293
2293
2293
2293
2293
2293
2293
1920 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
1921 Jan.
Feb.
■ Mar.
Apr.
• May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
Federal farm loan system
Total outstanding
issues
$
180
194
218
235
246
291
340
344
345
352
350
371
374
376
376
382
375
400
408
411
412
412
417
417
419
418
418
419
455
459
459
461
465
513
534
545
: Net outOwned by
:standing
U.S.
Government : issues
$
81
89
103
118
128
146
146
146
146
146
146 '
146
146
146
146
146
146
174
180
182
183
184
189
189
189
189
190
190
190
190
190
190
190
190
190
190
$
99
105
115
117
118
145
194
198
199
206
214
225
228
230
230
236
229
226
228
229
229
228
228
228
230
229
228
229
265
269
269
271
275
323
344
355
- 9 -
End
of
ionth
1922 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct*
Nov.
Dec.
1923 Jan.
Feh.
Mar*
Apr.
May
June
July
Aug.
Sept. *
Oct.
Nov.
Dec*
1924 Jan.
Feh*
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov,
Dec.
U. S. Government
outstanding issues
(Total outstanding issues and net
outstanding issues are identical
since .securities purchased for
the sinking fund are cancelled.
$
2294
2294
2294
2294
2294
2294
229*±
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294,
2394
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2294
2394
2294
2294
2294
federal farm loan system
Total out- : Owned hy
: Net out
standing :
U.S.
¿standing
issues
:Gov ernment : issues
$
549
629
643 •
656
736
759
755
776
793
852
897
885
969
991
1010
1057
1086
1104
1143
1154
1162
1211
1247
1255
1303
1330
1335
1346
1358
1367
1418
1424
1434
1455
1464
1474
$
189
189
189
189
158
145
143
141
141
117
117
117
104
105
105
117
117
117
116
122
123
124
124
124
124
124
125
126
126
127
128
128
128
128
128
128
$
,
350
440
454
467
578
614
623
635
652
735
780
759
865
886
905
940
969
987
1027
1032
1039
1087
1123
1132
1179
1206
1210
1220
1232
1240
1290
1296
1306
1327
1336
1346
10
End
of
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1926 -»
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
-
:
U. S. Government
:
outstanding issues
:(Total outstanding issues and net
: outstanding issues are identical
: since securities purchased for
: ; the sinlying fund are cancelled^ .
$
3293
2173
2175
2175
2175
2175
2176
2176 '
2176
2178
2176
2158
2168
2168
2168
2168
2168
2164
2164
2164
2154
2154
2164
2164
Federal farm loan system
Total out- i Owned hy : Net out
standing t
U*S.
:standing
f
1 gcaiftg u
__
iGovarnmeut.
JLs SHJ&S-.
1512
1526
1539
1544
1551
1578
1583
1592
1602
1623
1626
1635
1573
1689
1703
1717
1725
1735
1762
1778
1781
1794
1808
1816
$
128
126
125
122
120
115
109
105
104
105
104
104
97
94
92
88
86
85
37
34
31
30
30
30
$
*
1384
1400
1414
1422
1431
1463
1474
1487
1498
1518
1522
1531
1576
1595
1611
1629
1639
1650
1725
1744
1750
1764
1778
1786:
-11 ESTIMATES M O U N T OF WHOLLY TAX-EXEMPT SECURITIES
from December 1912 to 1926
III.
Total amount estimated
Includes "bonds of States, cities, counties, etc., insular possessions,
U. S. Government, and Federal farm loan system.
(000,000 omitted)
t a 1
T o t a l
End
of
Month
:Held in
:
!
T otal : sinking
:Net o u t-:
out- ; funds or
: standing:
standingjoined hy
: issu e s :
tissu es :U .S .G o v e rn -:
:
1912 Sec.
1913 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Sec.
1914 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Sec.
$ 4957
4985
5037
5069
5081
5208
5246
5270
5283
5290
5290
5349
5516
5605
5591
5654
5719
5718
5723
5717
5706
5792
5757
5734
5757
ment
616
End
of
Month
:
: Held in
:
Total
: sinking
:Net cut
out: funds or :standing
standing: owned "by : issues
issues :U.S.Govern— :
i .. .ment ..■
- --
$ 4341
4364
4410
4437
4443
4565
4597
4616
4623
4625
4619
4673
4834
4918
4898
4966
5015
5009
5008
4997
4980
5061
5020
4991
5009
1915 $ 5772
Jan.
5811
Feh.
5881
Mar.
5889
Apr.
5929
May
6026
June
6015
July
6018
Aug.
6055
Sept.
6072
Oct.
6112
Nov.
6131
Sec,
1916 Jan.
Feh.
Mar.
Apr.
May
June
July
Aug.
Sept,
Oct.
Nov.
Sec.
6191
6245
6304
6389
6407
6435
6441
6472
6485
6532
6544
6574
5020
5055
5121
5125
5160
5253
5238
5237
5270
5283
5319
5333
803
808
813
818
823
829
834
839
844
849
854
859
5388
5437
5491
5571
5584
5606
5607
5633
5641
5683
5690
5715
12
Month
1917 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1918 Jan.
Feb.
Mar,
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1919 Jan,
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept*
Oct.
Nov.
Dec.
:Held in
Net out-:
:sinking
Total
standing:
:funds or
outissues :
standing :owned "by
issues :TJ.S. G-overn4
:
ment
i
$ 6631
6657
6758
6824
6852
8304
8430
8859
7933
8946
8978
9021
9032
9087
9142
9151
9210
9247
9288
9248
9279
9271
8752
8780
3794
8849
8929
9002
9014
9134
9197
9234
9307
9386
9424
9527
$
868
877
885
895
9C5
914
923
932
941
950
958
978
989
1006
1030
1052
1074
1078
1088
1096
1103
1110
1117
1125
1145
1163
1185
1211
XtZQ
1258
1257
1277
1286
1.296
1305
1314
T o t a l
♦
♦
T o t a l
End
of
-
$ 5763
5780
5872
5929
5947
7390
7497
7927
6992
7996
8010
8043
8043
8081
3112
8109
8136
8159
8200
8152
3175
8161
7635
7655
7649
7686
7743
7791
7784
7876
7930
7957
8021
8090
8119
8213
End
of
Month
1920 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1931 Jan.
Feb.
Mar.
Apr.
. May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1922 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
: Nov.
: Dec.
: Held in
:Net out: sinking
Total
: funds or :standing
outstanding : owned hy : issues
issues :U. S.Govern- *
•
:
ment
$ 9650
9683
9818
9880
9369
9.919
9895
9944
10001
10100'
10150
10208
10238
10286
10384
10524
10634
10722
10767
10847
10347
11083
11203
11424
11441
11567
11699
11774
11916
12023
12063
12114
12248
12382
12474
12532
$
1324
1334
1344
1353
1362
1399
1415
1426
1437
1447
1462
1472
1482
1492
1503
1512
1522
1535
1545
1554
1564
1574
1584
1593
1502
1612
1522
1531
1510
1607
1615
1522
1532
1518
1628
1637
$ 8325
8349
8474
8527
8507
8520
8481
8518
8554
8653
8588
8736
8756
8794
8881
9012
9112
9187
9222
9293
9383
9509
3519
9831
V 9839
9955
10077
10143
10306
10416
10448
10492
10616
10764
10845
10895
r
- 13 -
T o t a l
— -- *
-- *— 1 'n'---'
T o t a l
Eud
of
Month
1923 Jan.
I Fell,
y Mar.
Apr.
5 ■May
June
July
Aug.,
Sept.
Oct.
I- Nov.
Dec.
1924 Jan.
Feb.
Mar.
Apr.
May
June
[ . July
Aug.
Oct.
Nov.
Dec.
Held in
Net out
sinking
Total
standing
funds or
out
issues
standing owned "by
issues U. S.Govern
ment
•Held in
:
Total
:sinking
¡Net outout¡funds or
¡standing
standing (owned hy
¡ issues
i ssue s :U. S. Govern-:
¡
meat
¡
$ 12678 $
12768
18843
12973
13077
13244
13321
13379
13427
13499
13611
13776
13870
13998
14131
14.277
14420
14355
14790
14909
15100
15246
15372
15411
1534
1645
1555
1578
1638
1699
1708
1725
1737
1748
1758
1770
1782
1796
1813
1831
1848
1888
1899
1916
1936
1947
1958
1972
$11044
11123
11193
11300
11389
11545
11513
11654
11690
11751
11353
12006
12088
12202 ■*
12318
12446
12572
12767
12891
12993
13164
13299
13414
13439
1925 Jan,
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
$ 15496
13436
16560
15543
15779
15946
15664
16032
16147
16237
16262
13504
1926 J an.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept,
Oct.
Nov.
Dec.
16566
16653
16832
15909
16999
17307
17155
17191
17289
17341
17353
17490
$
1985
1934
a';io
2018
2045
2060
2068
2076
2093
2102
2110
2136
$ 13511
13442
13550
13625
13734
13886
13916
13256
14054
14135
14152
14368
2135
3153
2168
2175
2193
2213
2171
2177
2189
2198
2207
2227
14431
14505
14554
14734
14806
14894
14984
15014
15100
15143
15146
35263
U. S. SECURITIES PARTIALLY TAX-EXEMPT
1917 Jan.
$
PeL.
Mar.
26o
Apr.
668
Kay
273
June
0
July
550
Aug.
2075
Sept.
2582
Oct.
4692
Nov.
4155
Dec.
1920 $ 23130
Jan.
22868
Feb..
22161
Mar*
22413
Apr.
22442
May
21767
June
21591
July
21797
Aug.
21559
Sept.
21531
Oct.
21645
Nov.
21451
Dec.
20657
21922
21562
22284
23376
22941
23253
24056
23646
23677
23584
23302
Dec.
1922 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept
Oct.
Nov.
Dec.
21452
21526
21447
21466
21416
21443
21241
21386
21381
20905
21070
20894
20858
20945
20610
20661
20606
20417
20423
20502
20270
20532
20415
20189
1923 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
. Nov.
Dec.
1924 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
•
>
o
£5
1919 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
5235
6363
7203
8159
9627
9031
10228 *
11469
12746
15453
16844
18514
1921 Jan.
Feb.
Mar.
Apr.
May.
June
July
Aug.
Sept.
Oct.
•
i>
o
1918 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
bs*.
t
1
. . .....................- ...... tn,
L i:.m
,K n .' ~ ; '
i
,
-
.
V
. ■
X
J^
! r T '« "
(000,000 omitted)
Dec.
1925 Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept
Oct.
Nov.
Dec.
20065
20074
20096
20033
19892
19714
19665
19608
19540
19507
19485
19349
19280
19227
19063
19060
13993
13583
18697
18687
18689
18684
18657
18418
18496
18482
18433
18430
18428
18036
18023
17990
17957
17965
17953
17815
1926 $ 17851
Jan.
17847
Feb.
17646
Mar.
17639
Apr.
17635
May
17220
June
17194
July
17117
Aug.
17048
Sept.
17002
Oct.
16973
Nov.
16659
Dec.
ESTIMATED AMOTJHT OE WHOLLY TAX-EXEMPT SECURITIES, January 31,1937
(000,000 omitted)
i
_________ Total Outstanding Issues
---------------- —
Federal Farm
I of 1
States,
| Territories, j United States
Loan
System
Insular
j Government
kontfcj
bounties,
!
Cities,etc. ---Possessions
— s------- —— )
—— *
1926 !
Jan, j
le t.
1
by. 1
Dec., |
1927
KST !
[ Endj
[ °f
Monti
¡1925
jJan.
Oct.
fHov.
1Dec.
11927
Jan.
[ End!
of j
jMonth!
I Oct.
! Hoy.
If Dec.
lj 1927
I Jan. !
HOTE:
$ 1 673
$ 16 566
2 164
2.'164
2 164
1 794
1 808
1 816
17 341
17 353
17 490
156
‘
2 164
1 846
17 575
$ 144
13 227
13 225
13 354
1
United S ta tes Govejrnment
Total
Federal Farm
S ta te s ,
j T e r r ito r ie s , j U nited Sta tes j
Loan System
Government
In sular
Counties, I
Possessions
i
fH t.iftS-etC« 1-----p
$ 2 023
$
|
j
2 199
$
$ -----
15
l
j
14
14
14
2 154
2 163
2 183
;
I
!
14
Het IKL\>Sua-nai Ufu X
U nited States!
T e r r ito r ie s ,
Government
|
In sular
S ta te s ,
Counties,
P-i
| 1926
j Jan.
$ 2 168
156
156
156
|
|
!
|
j
$ 12 581
13 409
Total
--1
2 135
30
30
30
2 198
2 207
2 227
30
2 243
____________ — — _____
Federal Farm
Loan System
Total
$ 1 576
$ 14 431
2 164
2 164
2 164
1 764
1 778
1 786
15 143
15 146
15 263
2 164
1 816
15 332
$ 129
$ 2 168
11 073
11 062
11 171
142
142
142
11 210
142
t o » « ? / . « “™
j
»
to 1925, inclusive, are available on request.
March lô, 1927,
$
■
$ 10 558
« £ ? ! £ £
97
S i
TREASURY CERTIFICATES X)f INDEBTEDNESS AND TREASURY
NOTES OUTSTANDING MARCH 16, 1927.
SERIES
INTEREST
RATE
DATED AND BEARING
INTEREST FROM
DUE
Tax Certificates
ó2 /o.
September 15, 1926
June
TS-1927
rz,l<sl
ó
4 /°
December 15, 192'3
September 15, 1927
TS2-1927
CO
rH
CO
15, 1927
TJ-1927
March
15, 1927
September 15, 1927
TM-1928
Zìi
March
15, 1927
March
15, 1928
January
15, 1923
December
15, 1927
March
15, 1927
March
15, 1932
Treasury Notes
A-19 27
A-1930-32
•xlLdi
(Redeemable on and
after March 15,
TREASURY DSPARTMFKT
Office of the Secretary.
March 18 , 1927.
The Commissioner of Customs
and other Customs Officials:
1
The Act of Congress, approved March 3, 1927, entitled
'•An Act to create a Bureau of Customs and a Bureau of
Prohibition in the Department of the Treasury“, among
other things establishes a Bureau of Customs in the
Treasury Department and provides for the appointment of
a Commissioner of Customs as the head thereof.
2
The Act furthermore vests the Secretary of the Treasury
with authority to confer or impose upon the Commissioner
of Customs or any of the officers of the Bureau of Cus
toms any of the rights, privileges, powers or duties in
respect of the importation or entry of merchandise into
or the exportation of merchandise from the United States
vested in or imposed upon the Secretary of the Treasury
by the Tariff Act of 1922 or any other law.
3
I, therefore, in pursuance of the authority thus con
ferred, prescribe the following duties and functions
to be exercised by the Commissioner of Customs and
other personnel of the Bureau of Customs, effective
at the opening of business on Friday, the first day of
April, 1927:
4
All the rights, privileges, powers or duties, in
respect of the importation or entry of merchandise
into, or exportation of merchandise from the United
States, vested in or imposed upon the Secretary of the
Treasury by the Tariff Act of 1922, or any other law,
are hereby conferred or imposed upon the Commissioner
of Customs, The acts, findings and decisions of said
Commissioner with respect to said matters, shall be
final so far as the Treasury Department is concerned
unless modified or disapproved by the Secretary of
the Treasury, Provided: That the determination of
countervailing duties under Section 303 of the Tariff
Act of 1922, and findings of dumping under the anti
dumping Act of 1921, and all amendments to the Customs
Regulations shall not be effective unless approved by
the Secretary of the Treasury.
The Commissioner o f Customs sh a ll supervise the per
sonnel o f the Bureau o f Customs, in clu d in g the Customs
f i e l d service and the Sp ecial Agency f i e l d se r v ic e .
The Commissioner and the A ss ista n t Commissioner are
hereby authorized to approve expenditures from the
several appropriations fo r the Customs S erv ice , in clud
ing the iss u in g of tr a v e l orders*
The A ssista n t Commissioner of Customs sh a ll a s s is t the
Commissioner of Customs in the management and co n tro l of
the "Bureau of Customs in clu d in g the Customs f i e l d service
and the Sp ecial Agency F ie ld S e rv ice , and sh a ll act as the
Commissioner of Customs during the absence or d is a b ilit y
of the Commissioner, or in the event there i s no Commis
sio n er. The A ss ista n t Commissioner sh a ll perform such
other du ties as the Commissioner may p re scrib e.
One Deputy Commissioner of Customs, under the super
v is io n o f the Commissioner and the A ss ista n t Commissioner
o f Customs s h a ll have charge of the le g a l d iv isio n s of the
Bureau and sh a ll perform such other d u ties as the Commis
sioner sh a ll p re scrib e; and sh a ll act as A ss ista n t Commis
sioner in the absence o f that o f f i c e r , and in the absence
of the Commissioner and A ssista n t Commissioner sh a ll act
as Commissioner.
The other Deputy Commissioner o f Customs, under the super
v is io n of the Commissioner and A ssista n t Commissioner, sh a ll
have charge of the S p e cial Agency Service and the conduct
of in v e s tig a tio n s by such se rv ic e . He i s hereby empowered
to authorize tr a v e l and subsistence o f the personnel under
h is d ir e c tio n . He sh a ll perform such other duties as the
Commissioner s h a ll p re scrib e .
There is hereby created in the Bureau of Customs the
o ffic e of A ss ista n t Deputy Commissioner in Charge o f the
Sp ecial Agency Service who sh a ll a s s i s t the Deputy Commis
sioner in Charge o f such S e rv ice , and sh a ll perform the
du ties prescribed by such Deputy Commissioner; and sh a ll
act as such Deputy Commissioner during the absence o f
that o f f i c e r .
The C h ie f C le rk , C h ie fs of d iv is io n s in the Bureau, the
attorn eys and other personne.1 sh a ll perform such du ties
as the Commissioner may p re scrib e.
- 3 -
12
.The S p e cia l Agency Service i s hereby placed in the Bu
reau o f Customs, and the record s, property (in clu d in g
o ff ic e equipment), and personnel o f the D ir e c t o r s o f f i c e ,
S p e cial Agency S e rv ice , are hereby tran sferred to the Bu
reau o f Customs; and the personnel now assigned to that
o ffic e from the D iv isio n of Customs and the f i e l d service
are hereby assigned to the Bureau o f Customs.
13
A l l previous reg u latio n s and in str u c tio n s c o n flic t in g
herewith are hereby superseded.
A. W. MELLON
Secretary o f the Treasury.
(T• B» 3999)
Bureau o f P ro h ib itio n
treasury department
O f fic e o f the Secretary
Washington, D# C#
March 18* 1927•
;T0 COMMISSIONER OP PROHIBITION, •
f COMMISSIONER OP INTERNAL RETENUE,
PROHIBITION OFFICIALS, AND OTHER : .
OFFICIALS AND EMPLOYEES OF THE TREASURY
DEPARTMENT CONCERNED:
pursuant to the provisions of the Act of'Congress approved March 3 1927
«{Public No# 751), and in the exercise of authority conferred upon me y
Ilaw, there is promulgated hereinafter, for the information and guidance of all
(concerned, the following to wit:
!• Effective April 1, 1927, there is hereby created in the Department of
¡the •Treasury a bureau to be known as the Bureau of prohibition.
2.
An o f f i c i a l to be known as the Commissioner o f P ro h ib itio n s h a ll
Ithe head o f the Bureau o f P r o h ib itio n .
at
3. The Bureau of Prohibition shall also have one assistant commissioner,
I
two deputy commissioners, one c h ie f c le r k , and such attorneys and ot er o icers
and employees as may be necessary*
Appointments under th is subdivision s h a ll
be subject to the provision s o f the c i v i l se rvice law s, and the s a la r ie s sh a ll
be fixed in accordance w ith the C la s s ific a t io n Act o f 1923.
personnel
H
The Commissioner of Prohibition shall, under the supervision of the Secre
[tary of the Treasury, have control of the officers, agents, inspectors, cler s,
[and other emoloyees now attached to the Prohibition Unit in the Bureau of Internal
Revenue, and of the prohibition agents and other field officers, of whatever
[grade, now employed in said service, subject to reappointment by him, with tue
[approval of the Secretary of the Treasury, such reappointments to be in, accordance
with the requirements as to civil service qualifications provided by the Act#
The Commissioner of Internal Revenue shall transfer to the Commissioner of
¡Prohibition all deputy collectors, gaugers, storekeepers, storekeeper-gaugers,
auditors., accountants, clerks, chemists and other employees now occupied in. the
[performance of work in the administration and enforcement of the Prohibition Laws
and amendments thereto, Revised Statutes relating to intoxicating liquors,' and
|the Harrison Narcotic Act, whether such employees be now located in the Bureau
of Internal Revenue at Washington, B»C„, in the offices of Collectors of Internal
-Revenue, or elsewhere.
An amount equivalent to the salaries and expenses of the employees so trans
ferred to the Bureau of Prohibition shall also be transferred from the appropria
tion » Collecting the Internal Revenue” , to be placed under the con'troLfhf the
(over)
T#D, 3999
- 2 -
Commissioner of Prohibition.
This sum will be decreased by such amounts as
may be necessary to continue the functions transferred tô the Commissioner of
Internal Revenue, heretofore performed in the Prohibition Unit, Bureau of Inter#
nal Revenue#
The Commissioner of Internal Revenue shall also, on the date named, turn
over to the said Commissioner of Prohibition all the unused balances in the
appropriations for the. enforcement of prohibition and narcotic laws for the fis
cal years 1925, 1926, 1927 and the entire appropriation for the fiscal year 1928;
provided, however, that such amounts as may be necessary to complete the investi
gation and prosecution of cases involving violations of the Rational Prohibition
Act now being conducted by the Intelligence Unit of the Bureau of Internal Reven
ue shall continue to be available for that purpose, under the supervision of the
Commissioner of Infernal Revenue, until said cases are completed*
The amount of £15,000 shall be transferred from the appropriation 11Collect
ing the Internal Revenue’1 for the fiscal year 1927, and an additional amount of
$25,000 from the appropriation ” Collecting the Internal Revenue” for the fiscal
year 1928, for the purpose of paying informers’ fees in administering the Harri
son Barcotic Act#
In the event Congress makes provision for the payment of
such fees, ary unexpended balance shall be returned to the Commissioner of In
ternal Revenue#
All obligations incurred by the Prohibition Unit prior to April 1, 1927,
shall be transferred to and settled by the Commissioner of Prohibition.
DISTILLED SPIRITS. ALCOHOL, W I R E S , AND OTHER LIQUORS.
y reader
LgjdififiM
i&ereof in
p i probib
jfiefanetii
M reveniK
liitionlaws
itliComiss
{liabilities
||lwherein
Ilicasesof
Ijs provisio
«ties pr
pi through
pr inthe
piMtion, i
fiit'bycorr
pissisproi
jp theConn
Jieissioner
settlement.
II
The Commissioner of Prohibition shall have custody and supervision of all
stocks of distilled spirits, alcohol, wines, and other liquors, and of all dis
tilleries, industrial alcohol plants, bonded warehouses, denaturing plants,
wineries, bonded wine storerooms, breweries, dealcoholizing plants, and all other
places at which such spirits or liquors are produced or stored and which have
heretofore been under the custody and supervision of the Commissioner of Inter
nal Revenue#
The Commissioner of Prohibition shall at all times have supervi
sion over the production, storage, safeguarding, disposition and accounting for
all such spirits and liquors#
The Commissioner of Internal Revenue shall turn
over to the said Commissioner of Prohibition the control and custody of all such
places where said distilled spirits, alcohol, wines, and other liquors are pro
duced or stored, as well as all books, records, files, forms, blanks and other
articles pertaining thereto.
Records and reports pertaining to Rarcotic Regis
trants shall be retained in the offices of the Collectors of Internal Revenue.
theaj
|pj, Title
jfea court
;| favorabi
jiljo the
I W m the
.^assessaeco:
ijvenue;
promis
1 aznenàr
^MANUFACTURE, WITHDRAWAL ARP DISTRIBUTION
OP IUTOXICATIUG L M J O R S ARP CERE AT, BEVERAGES.
|*«ïi
The Commissioner of Prohibition shall have the power to grant permits for
* *» the
the manufacture, sale, purchase, transportation, use, rectification, importa
tion, exportatiçn, prescription and other privileges provided by law in relation
S o n
to intoxicating liquors and cereal beverages.
The Commissioner of Prohibition
shall have the power to issue citations, hold hearings, and render final judgment
in all cases where there are grounds for action against such permits, and the
1
Qlt>bureau
^ ^ a te named, ^ I
1 dances ^ 1
° ^ c laws f o r | I
r th e fisc al yeaj [
0 c °n p le te tteig ll
e N atio n al ¡ ¿ g I
ffe a a o f Internal] I
t i e s u p e rv is e I
ip le te d *
ap p ro p riatio n "¡1
i a d d itio n a l aaj
svenne« fo r the:! I
¿ m in is te r ing
f o r th e p a j i J
.e Commissioner of]
.o r to A pril 1, |
if P ro hibition ,
judgment rendered therein by the said Commissioner of Prohibition shall be final
unless modified or disapproved by the Secretary of the Treasury, save as to re
view thereof in a court of equity, as provided by Section 5, Title II of the
National prohibition Act,
TAXES, TAX PENALTIES, C Q i m O M I S E S ,
AND SUITS FOR THE RECOVERY 01 TAX LIABILITIESThe function of assessing, collecting, abating, refunding and compromising
internal revenue taxes, that is, taxes arising under the internal revenue and
prohibition laws when there is no violation of the prohibition laws, shall devolve
upon the Commissioner of Internal "Revenue, and all negotiations in compromise of
such liabilities shall be made with the Collector of Internal Revenue for the
district wherein the liability arose.
In cases of taxes and tax penalties which arise from violations of the
various provisions of the prohibition law, wherein increased tax rates are imposed
and penalties provided, whether such settlement is to be effected by a compromise
tendered through the Collector of Internal Revenue, or by an action brought
therefor in the courts, the proceedings shall be conducted by the Commissioner
of Prohibition, until an agreement by compromise is reached; or, upon failure of
agreement by compromise, a court action for the recovery of such taxes and
penalties is prosecuted to a judgment*
When an agreement by compromise is
reached, the Commissioner of Prohibition shall make report and recommendation to
the Commissioner of Internal Revenue as to the amount agreed upon in the compro- •
mise settlement. The Commissioner of Internal Revenue shall effect-such compro
mise, with the approval of the Secretary of the Treasury, under the provisions of
Section 35, Title II of the Rational Prohibition Act.
upervisi®
■s, and o i l
When a court action involving such taxes and tax penalties results in a
d u rin g plants,'!
judgment favorable to the Government, all moneys arising therefrom shall be
ila n ts ,
covered into the Treasury through the Collector of Internal Revenue for the dis
»d and whidii trict wherein the liability arose*.
¡lissioner of
tim es have
NARCOTIC 3HTJGS V :
and accoitii!
Revenue shall
All assessments of taxes under the Harrison Narcotic Act or its amendments
custody o il pall be made, collected, abated, refunded, or compromised by the Commissioner of
e r liquors I Internal' Revenue*
, blanks ando
g to larcotis'
All compromise proceedings for criminal liability under the Harrison Narcotic
■ in te rn a l ^ Act and its amendments shall he conducted by the Commissioner of Prohibition.
h
When an agreement by compromise is reached, the Commissioner of Prohibition
shall make appropriate report and recommendation to the Commissioner of Internal
Revenue as to the amount agreed upon in the compromise settlement* The Commis
sioner of Internal Revenue shall effect such compromise, with the approval of
p e Secretary of the Treasury, under the provisions of Section 3229V r *S,
(over)
INTERNAL REVENUE STAMPS
The Commissioner of Internal Revenue will issue to the various Collectors
of Internal Revenue all internal revenue stamps of every class pertaining to
spirits, wines, malt liquors and narcotics, including narcotic order forms, and
the Collectors of Internal Revenue will account to the Commissioner of Infernal
Revenue for the same«
The authority to redeem stamps shall rest with the
Commissioner of Internal Revenue.
INVESTIGATIONS
The Commissioner of Prohibition shall cause inquiries and investigations
to be made by the appropriate officers under his jurisdiction with a view to
requiring returns to be made to the appropriate Collectors of Internal Revenue
of all occupational and commodity taxes and penalties accruing on distilled
spirits, alcohol, wine and other intoxicating liquors and narcotics as imposed
or may hereafter be "imposed by law. Upon receipt of such returns it shall be^
the duty of the Collector of Internal Revenue in whose district such cases arisvl
to collect the internal revenue taxes and penalties and to cover the proceeds
|
into the Treasury as provided by law*
‘ -
SEIZURE AND SALE
-
I
The seizure and sale of property as provided by law in connection with
violations of the above mentioned Acts, with the exception of seizures made ty
Collectors under authority of warrant for distraint, shall be a function of the
Commissioner of Prohibition.
CHEMICAL ANALYSES
The Commissioner of Prohibition shall perform such necessary analysés in
connection with miscellaneous taxes relating to adulterated and renovated butter,j
oleomargarine, billed cheese, mixed flour, and phosphorus matches, as may be.
required by the Commissioner of Internal Revenue*
n
DISPOSITION OF RECORDS
.
-
'r;'|
The Commissioner of Internal Revenue shall retain all assessment lists,
claims, offers in compromise, documents and records pertaining to assessed
taxes.
There shall be transferred to the Commissioner of Prohibition all documents
and records relating to appropriations and personnel and any other records,
equipnient, space, property, etc., now in the possession of the Commissioner of
Internal. Revenue, that relate to the functions of the Commissioner of Prohibi
tion.
■.
A. w. MELLON,
Secretary of the Treasury.
11
ESTIMATED AKOOHT Of WHOLLY TAX-EXEMPT SECURITIES, Pebruary 38, 1937,
Vari°usil
ass Pertains,
«ic orderfg|
‘issioner1 1
restwithft
(000,000 omitted)
Total Outstanding Issues
of !
■ Month I!
|X926 i
§Eeb. !
S ta te s,
C o u n tie s ,
j
C itie s ,e tc . j
^ investigati
fco v. 1
withavies
I Dec. i
of Internaljj
1 1^27 1
nng on distili
I Jan.
j
ìarcoticsas1
i
fee b. i
■etums itsha
irictsuch
1 End
: of
1 Month
1 connectionvii1 1926
of seizuresmjJlFeb.
be a function §
B ov.
I Dec.
1927
I Jan.
¡jE e b .
A
cessar/
iandrenovated
¡catches, as
End j
of !
Month !
156
156
13 409
13 429
156
156
$
$
2 044
$
3 158
2 164
2 164
j
1 689
$ 16 658
1 808
1 816
17 353
17 490
1 846
1 851
17 575
17 600
1
2 134
2 164
2 163
2 183
14
14
2 199
2 209
14
14
States,
Counties,
p
s
.
f
t
f.C.-
.
$ 129
Uov.
11 062
11 171
142
142
11 210
11 220
142
142
$
94
—
j
Uet Cjutstanding issues
Territories, ! United States j
Government
Insular
Possessions
$ 10 613
1927
$
$ -------
15
Eeb.
Jan.
the CbnBission«
;Eeb.
issioner of
$
1
1926
Dec.
!
Held in SinVins- Fund or Owned by U n ite d S ta te s G-overnment
T o ta l
F e d e ra l Farm
T e r r i t o r i e s , ! U n ited S ta te s
S ta te s,
Loan System
Government
I n s u la r
C o u n tie s,
P
o
s
s
e
s
s
io
n
s
C itie s ,e tc .
n
Kibition alldocs
cy other records,
T o ta l
F e d e ra l Farm
Loan System
j U n ited S ta te s
Government
144
13 225
13 354
fi-i"h
assessmentlisi
aing to assess«
$
$ 12 657
m
T e r r ito r ie s ,
I n s u la r
P o s s e s s io n s
2 153
30
30
2 207
2 227
30
29
2 243
2 252
Total
Federal Farm
Loan System
j
$ 1 595
$ 14 505
2 164
2 164
1 778
1 786
15 146
15 263
2 164
2 164
1 816
1 822
15 332
15 348
$ 3 168
1
\
heîreasory'
1T0TE: Beginning *ith the issue for Jaimary 31, 1927, al
1913
revised basis. Monthly estimates on the revised basis for the period 1913
to 1926, inclusive, are available on request.
I
Prepared by Section of Statistics, Office of the Secretary, Treasury
Department, March 29, 1927.
THE WORK 0? THE TREASURY DEPARTMENT
An A ddress D e liv e r e d
"by
Honorable C h a rle s S. Dewey, A s s is t a n t
S e c r e ta r y o f the T reasury»
b e fo r e the
Women’ s R e p u b lica n Club o f k a s s a c n u s e tt
at
the B o sto n C it y C lu b,
B o sto n , M a s sa c h u s e tts ,
on Thursday a fte rn o o n ,
April 28, 1927,
FOR RELEASE, EVENING- PAPERS,
Thursday, April 28, .1927.
treasury department
The first thing that impresses the average business man newly appointed
to fill an executive position in the Government is the elaborate system of
checks and balances that surrounds every operation.
It is proper and right
that they should be there, for business done on such a huge scale would noo
be possible without them, except with an ever present danger of losses that
might run into large amounts.
In addition to the elaborate bookkeeping and accounting methods, numerous
statutes and regulations serve to guide each transaction into general channels
which experience has proved to be safe.
So when a scornful remark is made of
Government red tape, the scorner is perhaps not aware that he is criticising
the safeguards devised by a long list of Government officials, who have dis
covered that a somewhat slower and steadier progress is the surest way.
The organization of the several Departments of the Government is aoout
the same, and in discussing this organization I shall take my own Department
of the Treasury as an example.
It is subdivided first into bureau^, a^.d
these bureaus into divisions and sections.
The Secretary of the Treasury is
in charge of the whole, and is aided by an Undersecretary and three Assistant
Secretaries.
These officers might be compared to the Chairman of a Board of
Directors, the President and the Senior Vice Presidents of any large corporatio
As a cabinet officer the Secretary establishes the policy of the Depart-*
ment, and his four assistants put it into effect, each being charged with the
responsibility of several of the bureaus whose operations are of a similar
character.
The bureaus are each in charge of a director or commissioner, who are
usually Presidential appeintees holding office for a specified term or finriag
-
2
-
good b eh a vio u r*
The d iv is io n s and s e c t io n s o f the "bureaus a re in charge o f c h ie fs .
These
men are the permanent Government C i v i l S e r v ic e em p lo yees, and may I d ig r e s s
fo r a moment to p a y a t r i b u t e to the C i v i l S e rv ic e employee, p a r t i c u l a r l y the
s o - c a lle d "key men" or c h i e f s o f bureaus and d i v i s i o n s .
w heels o f Government in m otion .
These men keep the
They are f a m i lia r w ith e v e r y co g i n th e
g re a t m achine, and w ith o u t t h e i r c o n sta n t and l o y a l support no c h i e f e n g in e e r ,
no m a tter, how g r e a t , co u ld keep the m achinery o f Government w orking sm oothly.
The o r g a n iz a t io n , th a t I have b r i e f l y o u t lin e d , i s p a r t i c u l a r l y Am erican
in form .
In most o f the e x e c u tiv e departm ents o f f o r e ig n governm ents the
u n d e r s e c r e t a r ie s , who compare w ith th e a s s i s t a n t s e c r e t a r i e s o f our e x e c u tiv e
d epartm en ts, a re perm anent, and do n o t change w ith the a d m in is tr a tio n a s i s
custom ary w ith u s .
Our th e o ry b e in g th a t in a new co u n try in which th e re
i s c o n sta n t developm ent, th e b r in g in g in o f new men w ith fr e s h v ie w p o in ts
keep s the a d m in is tr a tio n o f the d epartm ents up to d a te and s e r v e s to s tim u la te
the perm anent C i v i l S e r v ic e em ployees who m ight o th e rw ise become s t a l e a t
t h e ir jo b s th ro u gh too lo n g and to o c lo s e a s s o c i a t io n .
The T re a su ry D epartm ent, m easured by i t s c i v i l i a n p e r s o n n e l, i s
l a r g e s t e x e c u t iv e d epartm en t.
I t s o p e ra tio n s a re e x tre m e ly v a r i e d , fo r i t
not o n ly p e rfo rm s a l l th e m ajor f i n a n c i a l and f i s c a l d u tie s o f th e Government,
b u t, to su g g e s t a few o f i t s o th e r f a t l M , i t m an u factu res the m e t a lli c and
paper c u rre n c y and p o s ta g e and i n t e r n a l revenue stam ps, s u p e r v is e s the cons t r u c t i o n and ca re o f p u b lic b u i ld in g s , and i s ch arged w ith th e p u b lic h e a lt h ,
P r o h i b it i o n , Coast Guard, and Customs.
In a d d it io n , the S e c r e ta r y o f tne
T rea su ry i s Chairman e x - o f f i c i o o f the F e d e ra l R eserve Board and the F e d e ra l
:
Farm Loan B oard .
I t w ould be im p o s s ib le , w it h in the scope o f t h i s a d d re s s ,
to d e s c r ib e a l l o f th e s e a c t i v i t i e s , so I s h a ll choose two o f them, namely
the F e d e r a l Farm Loan System and the a d m in is tr a tio n o f the p u o lic debt
U uitecl S t a t e s
- 3 The F e d e ra l Farm Loan A ct was p a ss e d in 1916 and has been amended a t
v a rio u s t i n e s sin c e th a t d a te .
The p u rp o ses o f t h i s a c t a re to p ro v id e c a p i t a l
fo r a g r i c u l t u r a l developm ent, to c r e a te a sta n d a rd form o f in vestm en t based
upon farm m o rtg a g e s, and to e q u a liz e the r a t e s o f i n t e r e s t upon farm lo a n s .
The system a s i t e x i s t s to d ay c o n s i s t s o f th re e u n i t s , the F e d e ra l la n d
b arks, th e j o i n t s to c k la n d ban ks, and the in te rm e d ia te c r e d i t b a n k s.
The
o p e ra tio n s o f the system a re s u p e rv is e d by the Farm Loan B oard, c o n s is t in g o f
seven members, o f w hich the S e c r e ta r y o f the T re a su ry i s a member and chairman
e x -o ffic io .
T h is bo ard i s lo c a t e d in W ashington and i t s d u tie s are to super
v ise the o p e r a tio n s o f the banks and to see th a t the F e d e ra l Farm Loan A ct i s
p ro p e rly a d m in is te r e d .
The F e d e ra l la n d banks and the j o i n t s to c k la n d banks
tra n s a c t th e same c h a r a c te r o f b u s in e s s , nam ely, th e y lo a n money to th o se en
gaged in a g r i c u l t u r e ,
se cu re d by f i r s t m ortgages on a g r i c u l t u r a l la n d .
there i s c o n s id e r a b le d if f e r e n c e i n t h e i r o r g a n iz a tio n .
However,
There a re o n ly 12
F ed eral la n d b a n k s, the c o u n try b e in g d iv id e d g e o g r a p h ic a lly in to th a t number
of d i s t r i c t s , w ith one F e d e ra l la n d bank f o r each d i s t r i c t .
O r i g i n a lly , the
Government s u p p lie d the g r e a t e r p o r t io n o f the c a p i t a l f o r F e d e ra l la n d b an cs.
At the p r e s e n t tim e , h ow ever, the c a p i t a l s to c k i s l a r g e l y owned by the R a tio n a l
farm lo a n a s s o c i a t i o n s and b o rro w e rs.
T h is change o f ownership i s due to the
requirem ent o f th e A c t th a t e v e r y borrow er from a F e d e ra l la n d bank must ta k e
5 per cen t o f th e amount o f h i s lo a n in the s to c k o f the F e d e ra l la n d bank,
and a s a r e s u l t , th e G o vern m en ts s to c k has been alm o st e n t i r e l y r e t i r e d .
The j o i n t s to c k la n d banks are p r i v a t e l y owned o r g a n iz a tio n s .
Any group
of te n men d e s i r i n g to form a j o i n t s to c k la n d bank w ith a c a p i t a l o f not l e s s
than $250,000, may make a p p l ic a t io n to the F e d e ra l Farm Loan B oard f o r a
c h a rte r and, i f g r a n te d , may in c o r p o r a te a bank and p ro ce ed to do b u s in e s s
w ith in th e r e s t r i c t i o n s o f the F e d e ra l Farm Loan A c t.
There a re no r e s t r i c
tio n s a s to the number o f j o i n t s to c k la n d banks w hich may be g ra n te d a c h a r te r ,
- 4 and a t the p r e s e n t tim e t!here are about 55 o f them in a c t i v e o p e r a tio n
throughout the U n ite d S t a t e s .
Of course» th e c a p i t a l o f the F e d e ra l Land banks and j o i n t s to c k la n d
banks would not be s u f f i c i e n t to p ro v id e funds f o r a l l o f t h e i r lo a n r e q u ir e
ments,
' The F e d e ra l Farm Loan A ct p r o v id e s th a t a F e d e ra l la n d bank may s e l l
tax-exem pt bonds to the e x te n t o f tw enty tim es i t s c a p i t a l and s u ip lu s , and a
jo i n t s to c k la n d bank to the e x te n t o f f i f t e e n tim es i t s c a p i t a l and s u rp lu s .
The p ro c e e d s o f th e s e s a le s a re a p p lie d in making lo a n s on la n d to p e rso n s
engaged or ab o u t to engage in the b u s in e s s o f a g r i c u l t u r e .
s e lv e s must be se c u re d
The bonds them
by f i r s t m o rtgages on r e a l e s t a t e a t 50 p e r cen t o f
the r e a l e s t a t e ’ s sound a p p ra is e d v a lu e .
These m ortgages a re th en h y p o th e c a te d
w ith a R e g i s t r a r , who i s a F e d e ra l o f f i c e r and who s e e s to i t th a t the oond
is s u e s a re f u l l y se c u re d by f i r s t m ortgages and th a t the a m o r tiz a tio n paym ents
o f b o th p r i n c i p a l and i n t e r e s t on th e se m ortgages a re p rom ptly made.
The Farm Loan A ct p r o v id e s th a t any farm er who borrow s from one o f th e
banks o f th e system must a n n u a lly , b e s id e s p a y in g the i n t e r e s t on h i s lo a n ,
make a c e r t a i n payment tow ard the a m o r tiz a tio n o f the p r i n c i p a l ,
w i l l g r a d u a lly be r e t i r e d w ith in a s p e c i f i e d number o f y e a r s .
so tn a t i t
As a r e s u l t ,
the lo n g e r a m ortgage runs the b e t t e r the s e c u r i t y , a s h i s t o r y shows th a t la n d
v a lu e s g e n e r a ll y in c r e a s e i n the U n ite d S t a t e s , and under the Farm Loan System,
the amount o f the in d e b te d n e ss i s g r a d u a lly d e cre a se d by a m o r tiz a tio n paym ents.
The farm er h im s e lf i s b e n e fit e d through not h a v in g c o n s ta n tly to renew h i s
m ortgage, owing to i t s b e in g g ra n te d f o r p e r io d s up to f o r t y y e a r s in the f i r s t
in s ta n c e , and b ecau se he p a ys a low r a te o f in t e r e s t on h i s lo a n and i s f r e e from
com m issions th a t a re ch arged in o rd in a ry com m ercial p r a c t ic e when a lo a n i s
made or renew ed.
I
From i t s in c e p t io n the i&rm Loan System has o f f e r e d an ad m irable s e r v ic e
to the fa r m e r s , a s i s b e s t e v id e n c e d b y i t s v e r y r a p id grow th.
S t a r t in g in
the l a t t e r p a r t o f 1 9 1 6 , the system has o u ts ta n d in g to d ay o ver $1 , 7 0 0 , 0 0 0 ,0 0 0
- 4 and at the present time there are about 55 of them in active operation
throughout the United States.
Of coixrse, the capital of the Federal Land hanks and joint stock land
banks would not he sufficient to provide funds for all of their loan require
ments*
The Federal Farm Loan Act provides that a Federal land bark may sell
tax-exempt bonds to the extent of twenty times its capital and surplus, and a
joint stock land bank to the extent of fifteen times its capital and surplus.
The proceeds of these sales are applied in making loans on land to persons
engaged or about to engage in the business of agriculture.
selves must be secured
The bonds them
by first mortgages on real estate at 50 per cent of
the real estate’s sound appraised value.
These mortgages are then hypotnecated
with a Registrar, who is a Federal officer and who sees to it that the bond
issues are fully secured by first mortgages and that the amortization payments
of both principal and interest on these mortgages are promptly made.
The Farm Loan Act provides that any farmer who borrows from one of the
banks ox the system must annually, besides paying the interest on his loan,
make a certain payment toward the amortization of the principal, so that it
will gradually be retired within a specified number of years.
As a result,
the longer a mortgage runs the better the security, as history shows thav land
values generally increase in the United States, and under the Farm Loan System,
the amount of the indebtedness is gradually decreased by amortization payments.
The farmer himself is benefited through not having constantly to renew his
mortgage, owing to its being granted for periods up to forty years in the first
instance, and because he pays a low rate of interest on his loan and is free from,
commissions that are charged in ordinary commercial practice when a loan is
made or renewed.
From its inception the Farm Loan System has offered an admirable service
to the farmers, as is best evidenced by its very rapid growth.
Starting in
the latter part of 1915, the system has outstanding today over $1 ,700 ,000,000
- 5 in loans.
As in any other system which has had such a rapid growth, certain defects
appeared which could not have been foreseen by the drafters of the original act.
As fast as these defects are disclosed they are being ironed out by the Farm
Loan Board, and I thoroughly believe that today the bonds of the Farm Loan
System offer a very satisfactory form of investment.
In 1923 the Federal Farm Loan Act was amended to provide additional credit
facilities for agricultural and live stock industries pf the United States, and
Congress appropriated $60,000,000 as capital stock for 12 intermediate credit
banks to be organized in the same districts with the 12 Federal land banks* the
officers of the land banks to serve as officers of the newly created inter
mediate credit banks.
Under .the Federal reserve system, member banks are permitted to make loans
for agricultural purposes with a maturity of not greater than nine months.
While this provision of the Federal Reserve Act was of great benefit to
agriculture, the nine months, in many instances, did not provide sufficient
time to market a crop or to develop a herd of cattle, and to cover this inter
mediate period between the short-term commercial loans and the long-time loans
granted by the land banks, the intermediate credit banks were formed.
These
banks may make loans with a maturity of not less than six months nor more than
three years, by discounting or purchasing from certain corporations incorporated
either under State or Federal law, notes or drafts or other obligations which
are secured by staple warehouse agricultural products or live stock.
To make
these loans the intermediate credit banks are permitted to issue debentures
with a maturity of not more than five years which are secured by the credit
instruments obtained in making advances to the agricultural industry, as pro
vided by the Act,
These debentures, like the bonds of the land banks, are
tax-exempt, and because they are usually of a short maturity they have become
- b
a vei”r ‘popular form of investment with hanks and corporations.
When fully developed, the Intends ddate Credit hanks should he of great
assistance to agriculture in the orderly marketing of its products.
It is
not intended that they should in any way displace the ordinary channels of
credit, namely the commercial hanks, hut when any unusual conditions arise, or
an unmanageable surplus develops, the intermediate credit hanks can offer a
reserve of credit at a low rate of interest which should have a stabilizing
effect on farm prices.
Thiq will briefly outline to you the organization of the Farm Loan System.
It has long since ceased to he merely on experiment in this country and is now
an important unit of our hanking structure*
In most of the European countries
land banks have of course been in existence for decades.
With us in our newer
and rapidly growing country, experience has, as I have said, shown certain de
fects in the original basic act, but by close Government supervision these de
fects will be constantly eradicated and the Farm Loan System will continue to
grow
and
grant an increasing service to agriculture, and its bonds will pro
vide a sound form of investment for the public.
When one thinks of the Treasury Department one usually thinks of taxes
and our Liberty bond issues.
So, having described the Farm Loan System, I
will briefly describe to you, from an administrative viewpoint, how the Trea^sury handles the public debt.
Generally speaking, Treasury borrowings since the beginning of the War,
and up to the present time, have been made in the first instance through the
sale of short-time paper in the form of Treasury certificates of indebtedness,
with maturities not exceeding one year.
These certificate issues offered to the public have been
of two classes,
(1) in anticipation of loans, and (2) in anticipation of tax receipts.
The needs of the Treasury to meet tb© expenditures occasioned by the war
- 7 were so great that enormous borrowings were necessary.
It was, of course,
obvious that the maturities must "be spread over a considerable period of time
and so during the war and post-armistice periods five great war loans were is
sued, four in the form of bonds, and one in the form of Victory notes.
In
order to float a loan of the size of one of the Liberties, considerable prepara
tion was necessary.
In all probability the market could not have stood an
initial issue of several billions of dollars.
At the same time the Treasury
needs were urgent, and so in anticipation of a long-term loan temporary borrow
ings were resorted to as required and Treasury certificates of indebtedness were
issued in anticipation of a later loan.
The first issue of certificates in
anticipation of the First Liberty Loan was made on April 25, 1917.
Other is
sues followed at frequent intervals up to the time of the issue of the First
Loan.
The same procedure was followed with respect to each of the other
Liberty Loans.
Maturities, generally, were arranged to coincide with the
dates of installment payments on the Liberty issues.
It is apparent that an
issue of certificates placed the Treasury in immediate funds, and that the
later Liberty issue, in effect, became a refunding operation.
Loan certifi
cates in aggregate amount $17,018,187,000 were issued in anticipation of Liberty
issues aggregating $21,432,294,700.
Similar procedure was followed of issuing certificates of indebtedness in
anticipation of tax receipts.
These payments were first made toward the close
of the Treasury fiscal year, and it was not until February, 1919, when the
Revenue Act of 1918 became effective, that the principle of quarterly tax pay
ments was established.
The same result was brought about as in the case of
certificates in anticipation of loans, - the Treasury was placed in immediate
funds and maturing certificates offset tax payments.
The fixing of quarterly
tax payment dates by the Revenue Act of 1918 indicated the fixing of certificate
maturities for the same dates, and this practice has consistently been followed
3
ever since.
’As you are aware the structure of our &e"bt now consists of three classes
of securities - "bonds with a maturity of over five years, notes with a maturity
of from one to five years, and certificates of indebtedness with a maturity of
not more than one year.
It is with these latter two classes we will deal as
the bonds present a different problem.
As I have said, the Government collects its principal taxes every tnree
months on March, June, September, and December 15th.
It is the custom for the
Treasury to calculate its operations for this period, and in order, not to upset
the money market has spread its short-term indebtedness so that it falls duo
in more or less even amounts upon these dates.
In arranging its financing,
' the Treasury officials estimate the amount needed for expenditure of all kinds
during the ensuing three month period, add to this the amount of notes or
certificates maturing and compare the sum with the estimated receipts from
taxes and all other sources.
necessary to borrow.
The. difference will be the amount it will he
This difference is generally less than the amount
maturing and as a result of this refunding for a lesser amount the public debt
is reduced out of surplus, which is the excess of receipts over expenditure*,.
The question then arises as to what form the borrowing shall take, the
length of maturity and the rate of interest.
As you know, the certificates
have a maturity of not more than one year, and the notes from one to five.
We then examine our list of maturities and discover that, for example, we
have a vacant maturity date eighteen months hence.
This maturity
filled or we will have a large receipt of cash from taxes and no securities
to pay off,, thus temporarily piling up funds in the government *s strong boxes
. ,
and upsetting the money market.
c a c h e d this decision it is obvious
Having
0.1.
io -h-hA -nroner class of security to offer,
that an eighteen months note is the proper
.
9
The natter of rate of interest is a little more difficult.
If the new
note, for instance, is to mature on June 15, we will first consider the yield
of our securities maturing three months before and three months after that
date, the mean, should he about right for the new offering.
Consideration is
given to a number of other factors which will affect the rate and must be taken
into account, which are of too b»oad a nature to consider here.
This, however,
describes briefly our general method, but we occasionally fool the students of
Government financing by doing something which the public does not expect but
for which we have some very sound reason.
To return to the example we are considering, let us assume that we have
decided to issue an eighteen month note with a given rate of interest, this to
'refund securities maturing December 15th.
What are the administrative steps
to be taken?
The Federal Reserve Banks act as the fiscal agents of the Government, al
though of course, it is perfectly possible to purchase or exchange Government
securities through the Treasurer of the United States, but such transactions
represent a mere fraction of one per cent of the whole.
Therefore, it is
necessary to notify our fiscal agents first that we contemplate offering new
securities, and secondly, what they are to be.
This latter information, how
ever, is not given until the last moment.
Upon receipt of the final advice, each Federal Reserve Bank simultaneously
notifies the hanks in its district, requesting them to forward their subscrip
tions.
Upon the same date the Treasury releases a statement to the press de
scribing all of the details of the issue.
given the broadest publicity.
In this way the whole transaction is
As a natter of fact, so accustomed has the
public become to the quarterly financing of the Treasury Department, that the
financial columns of many leading newspapers frequently hazard guesses as to
what form it will take
wm
-10Immediately after the announcement subscriptions commence pouring into the.
Federal Reserve Banks from banks in their district who have received them from
their customers and are subscribing ior their own account,
These subscriptions
are d iv id e d into two classes, exchange subscriptions, that is the offering of
the m atu rin g security in exchange for the new, or the offer to purchase the new
security for cash.
It might be well to mention here that in order not to encumber this de. scription with a great many details, I have pui-posely omitted mention of many
items that we must carefully consider.
I
change subscriptions we will allot.
Among these is the percentage of ex-.
Acceptance of exchange subscriptions re
duce in like amount the cash required to pay maturing issues so that the larger
l
the percentage of this class of subscriptions accepted, the more funds received
from taxes and other sources will be available for expenses in this period«
In other words, the entire, matter is largely governed by the cash position of
the Treasury at the time.
•Each day the Federal Reserve Banks notify the Treasury hy wire of the total
subscriptions received, classifying them into the two groups mentioned,
further classifying the cash subscriptions hy principal amounts,
Th
say, how many individual subscriptions are received of $1000, $10,000, $50,000,
etc.
This information is necessary in order that the Treasury may make fair
allotments.
So popular have the short term Government securities become as an
investment hy harks and corporations, that for the P ast several years every issue has been heavily over-subscribed..
It la therefore the duty of the Treasury
«
•
_• 4-o'Ki'tr
to see that what it is offering is..equitably allott
to each class of siib-*
scriber«
t
The period for receiving subscriptions generally lasts for three to four
days, depending somewhat upon the size of the offering and the condition of the
money market.
Then the Treasury sees from the daily reports from the Federal
11
-
Reserve Banks that its requirements have been fully met, it sends out a notice
terminating the offering as of a certain hour and date.
have made their final report, allotment is made.
When all of the hanks
This is based, as I have
said, upon as nearly an equitable division among all classes of subscribers as
possible.
It is entirely contrary to Treasury policy to permit any class or
district to receive preference in the matter of allotment.
About three days prior to the date of the offering the Federal Reserve
Banks are notified as to how to accept subscriptions.
For the sake of an
example, those subscribing for a thousand dollar note will receive their allot
ment in full.
Those subscribing an amount up to ten thousand dollars but over
one thousand dollars will receive eighty per cent of their subscriptions and so
on.
The total allotment representing the sum the Treasury requires.
Payment
must be made on the date of the issue.
Let us now consider this matter of payment.
In the days prior to the
Federal Reserve System, all Government receipts either from taxes or otherwise,
were paid into the sub— treasuries and became impounded in a relatively few
centers.
This led to the constant upsetting of the money market due to the
withdrawal of funds from business to meet which the Secretary of the Treasury
had to redeposit the money in those sections in which he thought it would 4o
the most good.
This method was crude and unreliable and constantly led to
embarrassment.
Under the present methods, tax receipts are largely used to pay off
maturing Government obligations and hence the receipts are to a great extent
paid back immediately into commercial channels, thus avoiding disturbance to
the money and investment markets.
The funds which the Treasury is to retain
for Government expenses during the next three months, and which are derived
from the sale of its securities, are largely paid for by credit in the following
manner:
12
-
Any incorporated "bank or trust company desiring to participate in deposits
of public money arising from the sale of "bonds, Treasury notes, or certificates
of indebtedness, may make application to the Federal Reserve Bank of its dis
trict to "become a 'Special depositary'* with a "War Loan” account, and qualify
"by depositing authorized securities.
Payments for sub script ions to public debt offerings are made in the form of
exchanges of maturing issues or in cash, or in case the bank making the sub
scription is a special depositary having a "War Loan" account, by a credit to
that account in favor of the Federal Reserve Bank of its district as fiscal
agent of the United States, which account, as has already been mentioned, is
secured by the pledging of authorized securities with the Federal Reserve Bank
of the district.
Too great emphasis cannot be placed on the importance of the special de
positary system.
Since the new issues of securities are offered on tax payment
dates, if the subscribing banks were required to make payment therefor in cash,
such payment^ together with the heavy withdrawals by depositors for the purpose
of meeting quarterly installment of taxes, would create a serious financial
disturbance unless prompt redeposit of the funds was made in the same localities
from which drawn.
Under the existing system, whereby the subwcribi&g bank is
permitted to make payment for the securities by credit in its "War Loan" account,
the full amount of the subscription is for the time being retained by the bank.
Withdrawals ,are subsequently made as the Government has need for funds, but such
withdrawals are gradual, covering a period of several months following the de
posit, with the result that there is complete avoidance of the shock which would
be inevitable if these subscriptions, in the first instance, were required to
be paid in cash on the date on which the securities were issued,
I have endeavored to briefly describe to you some of the administrative
operations of the Treasury Department,
You will agree with me, perhaps, that
13 they are based. upon businesslike procedure and sound and simple principles.
As
I said in the forepart of my address, it is quite customary for individuals not
familiar with. the Government1s operations to offhandedly condemn them as being
full of ’’red tape", and quite occasionally we receive a letter from some irate
taxpayer inquiring why his communication has not been immediately answered.
He
possibly little realizes that his communication may be one of a thousand similar
ones received from other sections of the country.
Like any other business we
have our peak loads and if we endeavored to keep a corps of employees on hand at
all times to handle peak loads the business of Government would be extremely ex
pensive.
I admit that when I came to the Treasury nearly three years ago I had
somewhat the same general opinion as the average citizen and expected to find a
rather cumbersome and old fashioned manner of doing business.
I was almost
immediately disabused of this'idea, for it is the policy of the Government to
keep abreast of all new ideas of management which can be fitted to its peculiar
necessities.
Soundness and simplicity are the guiding principles of Government
business.
Many people misinterpret the President's program of economy and take the
word "economy" in its purely literal sense as meaning frugality.
I am very
sure, however, that the President means far more than this and that he
recognizes the word "economy" to mean not only frugality hut efficiency in ad
ministration.
In a growing country such as ours it is only normal that there
should he an Increase in the demands upon the Government for the expenditure of
funds for important development and other necessary Federal activities.
Under
the President's policy these demands have not caused an increase in the budget,
but have been financed to a great extent out of savings made possible by greater
efficiency in Government administration, which is the highest and the most commeniable type of economy.
1Q
fir*
\
FSTILtATED AKCTOT OF WHOLLY TAX-EXEMPT SECURITIES,
March 31, 1927.
(OOO»000 omitted)
End
of
Month
1926
Mar.
Dec.
1927
Jan.
Feb.
Mar.
End
of
Month
States,
Counties,
Cities, etc.i
$ 12 657
Total Outstanding Issues
Federal Farm
Territories,
United States
Loan System
Insular
Government
Possessions
$
$
144
End
of
Month
1926
Mar.
Dec.
1927
Jan.
Feb.
Mar.
b it.
$
1 689
$ 16 658
13 354
156
2 164
1 816
17 490
13 409
13 429
13 587
156
156
156
2 164
2 164
2 164
1 846
1 851
1 859
17 575
17 600
17 766
States,
j Territories, j United States
Counties,
|
Insular
j Government
Cities, etc,
1926
Mar,
Dec.
1927
Jan.
Feb.
Mar.
2 168
Total
$
Federal Farm
Loan System
$
-
2 153
2 227
2 243
2 252
2 264
2 199
2 209
2 221
States,
Counties,
Cities, etc,
Net Outstanding Issues
United States
Government
Territories,
Insular
Possessions
Federal Farm
Loan System
Total
2 168
$ 14 505
11 171
2 164
15 263
11 210
11 220
11 366
2 164
2 164
2 164
i <
$+> 10 613
$
1 816
1 822
1 830
15 332
15 348
15 502
Beginning with the issue for January 31, 192?, all estimates are m a * on
a revised basis. Monthly estimates on the revised basis for the period
1913 to 1926, inclusive, are availaole on request.
Prepared by Section of Statistics, Office of the Secretary, Treasury
Department, April 2$, 1927.
TREASURY DEPARTMENT
WASHINGTON
bERAL f a r m
loan bu r e a u
Kay l'd, I92T
„ r-n-» rp
TnA17
w-i-r-w *~r**iT\
r m ATifl. &V hIR
^TA*TSI
SiTT UiJ aaw
-v^uxi *iAaj*■*JAV» 2 ^U tu«*
00!!.!IS SX OxTEH
m-ittee from Mississippi, consisting of E. *♦
of
A committee iro- =
■# »«miiuston Company; J. S. uovo, 01
J ack so n , P r e s id e n t ox t h e ^ . 5 .
Jackson, Superintendent of
*
| g t R t o o f M is s is s i p p i ; and J >
of the Delta Rational Bant,
Representative 5. G. ^ T n i t a
to d i s L s s agricultural rehahxlxta-
1. Barhour, of Tazoo City._
together
of that State.
The committee presented
f / ^ c f formation
assistance to farmers inJ*® “
mho mrJlageSent of the c o r p o r a tio n
with $1 ,000,000 a-otnorxzed capxltal.•
aireotors, all of * » are
Will he in the Tu M m of a
«
State,
prominent business men ana hankers o
The committee o*.
^Orteans.0' ^ W
ideated
x
i
r
f
t
«
r
i
d
Irtermediate
Credit
Same
intermediate
Credit
Board and ins.«»*«?
m Q W r „ Qf advances by p
«
that it would approve the
corporation up to a total of
Batik to the Mississippi Eehabilit
1$l\000,000 paid in capital, .or
S 000,000, if necessary, on » * ■ “ ?*forests of the flooded area,
the rehahilitation of tne agriculture
*361,000 already had
^en the committee left «ississly f
R i0tal of $500,000 will be
heon subscribed and it is ef eCf
obtained from l o c a l i n t e x
extended through local
•i. j
o'P'ffictive ^oric
to
t
e
w
assistance will he
it
n t . .
In t h i s way
accomplished promp 1,•
-1 T
tr-ith tne oariy
18 e^ c ! e stated “
that planting of cotton ^ " s u p p l y °? seed available
v a rfe ty , fo r
w
h
i c h
through the tied Cross, ■
,
th e re i s « ^ J * ®
* *
to he ma.de..
^ t tement r:as borne out by expe
The committoe f e l t tu a
*
w ith f lo o d s in 1 9 ^ 2 and 1S97*
to out the plan into .
...
•_ r
*fiturning to t.ississ should
*a
^ <wtrrci+'sv,’
vi*BS make it
The committee
xs
reta
circumotanc
,
truest possible daw. «**«•
of the
State
s“n%sS iis - ssr --^ - - r “
am0unt of $1 ,000,000 authorized
, pr.s2ntcd figures
The Superintendent of Banks
| honks in the flooded
showing that the
occurred, ¿as strb«and that t e r
a r e a , a t tne ^ - u
row in gs were n e g l i g i ^
•
Hemarks of Undersecretary of the Treasury Mills, in opening
the Twenty-Fifth Annual Conference of State and Territorial
Health Officers with the United States Public Health Service
in Washington, Friday, May 20, 1927.
I an very glad indeed of this opportunity to say a word of greeting to
you, the Delegates to the Twenty-Fifth Annual Conference of State and Terri
torial Health Authorities with the Public Health Service.
After a quarter of
a century we are able to appraise the value of such conferences and to recog
nize the wisdom of Congress in providing for them with' a view to promoting
the interests of public health in the United States.
Through these confer
ences State and Federal Health officials are enabled to exchange ideas, to
give each other the benefit of their individual experiences; to discuss im
portant national and State problems, and to reach understandings as to their
respective spheres of jurisdiction.
They have resulted in a better under
standing of our health problems, of the differing needs of the States, and
of the many difficulties which are encountered.
A cove all they have served
to establish mutual confidence and respect, and have been the means of es
tablishing cordial cooperation in a field which.cannot be sharply divided
by State, county and municipal lines.
At a time when there is an urmistakeable tendency to obtain a uniform
| solution of our problems by constant extension of the powers of the Federal
i Government and the consequent diminution of the authority and responsioility
; of State and local officials, it is very encouraging to find the public health
[ officials of the country following this effective means of obtaining the de
sired results without finding it necessary to extend «he legal authority of
-
2
-
the Federal Government or weaken our Federal system.
Isn*t this the proper
method to secure uniformity? That is, by frank conference; the exchange of
ideas, and whole-hearted cooperation, rather than by over-riding State lines
and impairing the local initiative and responsibility, which I believe are so
essen tial to the maintenance of our institutions.
We regret that the State Health Officers of Louisiana, Mississippi and
Arkansas are unable to attend this year, because of the
emergencies
which exist
in their States due to flood conditions, and we deplore even
more
cause of their unavoidable absence.
Health Service is
The United State
cooperating with these officials by the detail of a
enced officers.
public
number
the tragic
of its most experi
It has also been instrumental, in its position as the liaison
agency between the Hed Cross and the official health agencies, in securing
trained and experienced personnel from the States unaffected by the flood*
It
is encouraging to note that owing to the prompt and effective organization of
public health work in the flooded areas, epidemics have been averted and the
general health is reported good.
I desire to call your particular attention to the fact that the full-time
county health departments, in the development of which the United States Public
Health Service and the various State health officials have devoted so much atten
tion, have proven effective during this period of great emergency.
It is to be
hoped that this demonstration of the practical value of this system in time of
need as well as under normal circumstances will serve further to promote the
extension of county health work*
It is presumptuous for a layman to venture to advise in this t e c h n ic a l •
\ field, but I cannot refrain from emphasizing the vital importance of the work
| in which you gentlemen are engaged*
Thanks to your efficiency our country
- 3 -
1
/
knows no epidemics of the major pestilential diseases at the present time.
Prompt and effective means of combatting them are at hand and it is not too much
to hope that we shall never again have to face such scourges-, of cholera, yellow
fever, smallpox and plague, as have existed in this country in the past.
The
recent extensive epidemic of typhoid fever at Montreal, however, is a fitting
illustration of the everlasting necessity for vigilance on the part of Govern
mental authorities.
In conclusion, let me wish you a most successful conference, a pleasant
stay in Washington, and continued achievement in that field of public service
which has already been marked with so many milestones of definite progres-e.
TREASURY DEPARTMENT
FOR RELEASE, SUNDAY PAPERS,
May 22, 1927.
May 18 , 1927.
The
The
The
The
Office of Foreign Control
Commandant of the Coast Guard
Commissioner of Customs
Commissioner of prohibition,
The Department desires to take full advantage of the last two
years* experience in stopping the smuggling of liquor, of the increased
facilities of the Coast Guard now equipped with suitable ships for
their peculiar functions, of the treaties and arrangements made with
foreign countries, and of the information and increased ability developed
in the personnel of all services out of their experiences, - to
consolidate all these elements into a plan to stop, once for ail, the
smuggling of liquor into the United States in commercial quantities.
The Department is determined to undertake this vigorously, and at the
same time to add to the efficiency of its efforts to stop the smuggling
of narcotics.
To make this determination effective, a continuing committee is
established, to be known as the Committee on the Smuggling of Liquor
and Narcotics, consisting of the Assistant Secretary of the Treasury
supervising Coast Guard, Customs and Prohibition; the Chief, Office of
Foreign Control; the Chief Intelligence Officer of the Coast Guard;
The Assistant Commissioner of Customs; the Deputy Commissioner of
Customs in charge of the Special Agency Service; the Assistant^Commissioner
of Prohibition; the Deputy Commissioner of prohibition (Narcotics); and
the Chief prohibition Investigator.
This Committee is charged with
devising and operating a detailed plan for such cooperative work on the
part of the Office of Foreign Control, the Coast Guard, the Customs and
the prohibition services, as will assign to each its definite detailed
function and responsibilities, the methods by which information will be
collected, interchanged and disseminated for prompt use, the methoGs^by
which information and evidence will be used, and any other detailed in
structions to the units concerned, ALL FOR THE PURPOSE^OF PREVENTING^THE
SMUGGLING OF LIQUOR AND NARCOTICS INTO THE UNITED STATES AND OF APPREHEND lZ AND PUNISHING THOSE PARTIES WITHIN OUR JURISDICTION WHO ARE ENGAGED IN
THIS BUSINESS.
This General Instruction is issued in order that each Chief of
Bureau may understand the part each of the Bureaus has to perform m
this plan, and at the same time be prepared to give the necessary
instructions to his subordinates to carry out their respective par s,
The plan contemplate^ the elimination of overlapping efforts, the fix
ing of clearly defined responsibilities and close^teamwork m certain
phases, a continuous and intimate interchange of ^information, an in
a word, makes of the intelligence and investigating forces of all the
-
2
-
services practically one machine for the accomplishment of a common
purpose.
The preparation of the detailed instructions to put this into
effect demands collaboration in their preparation, and a clear under
standing, on the part of each element, of the functions of the other
elements in order that the machine may operate smoothly. This initial
General Instruction, therefore, includes in general terms a description
of the function of each of the five units concerned.
Office of Foreign Control. - This Office has been created to
take advantage of the opportunities made possible by the treaties and
administrative arrangements made with foreigh nations, and to take
advantage of the splendid cooperation afforded by the State Department
in dealing with these nations and our foreign consuls, for the purpose of
putting out of business those ships engaged in smuggling where evidence
exists that they are violating existing laws.
Its effective work results
primarily in preventing the shipments of liquor leaving the foreign ports.
A secondary function is to obtain information of value to the Coast Guard
in intercepting the shipments before they reach our shores; and in
obtaining evidence.of law violations for use both in foreign ports, and
in making domestic conspiracy cases.
This Office gains information and
secures evidence and uses both through diplomatic and other proper
channels so that we may more and more embarrass, handicap and render
unprofitable the business of liquor smuggling from abroad. All its
effective work is based upon the prompt use of accurate information about
the activities of the smugglers.
Therefore, every member of all services
must appreciate the value of any detailed information regarding the personnel
and materiel engaged in smuggling operations, and thus be interested in
forwarding it promptly as directed, whenever and wherever obtained.
It is not advisable to describe just how the Office of Foreign Control
works.
It is enough to know that it is prepared to use information of
illegal practices to prevent the sailing of ships engaged in smuggling,
and the intercepting of cargoes intended to be smuggled. Like the Coast
Guard, its primary function is preventative; yet both services^supply
vital information and evidence for use by Customs and Prohibition in
making those conspiracy cases against those engaged in the organized
smuggling traffic designed to put them out of business and into jail.
Coast Guard. - The Coast Guard is charged with preventing the
arrival in port of ships engaged in smuggling liquor, or the landing
of liquor outside the Customs lines.
The control of the Coast Guard
personnel and materiel for this purpose is in the hands of the Com
mandant of the Coast Guard, who disposes them to^best meet the chang-^
ing conditions as they arise. His present organization is as fo ows.
The Coast Guard consists of approximately 33 cruisers, 25 destroy
ers, 33 - 125-ft,, and 10 - 100-ft. off-shore patrol vessels, 200 - 7h-it.
patrol vessels; 125 picket boats; 34 harbor vessels and miscellaneous
craft, and 277 Coast Guard (life saving) stations with life boats at
each. This equipment is manned by'approximately 11,000 officers and men.
The force is mobile and can be handled with rapidity through an
elaborate communication system, the Service having under its con ro
many radio stations and several hundred miles of telephone and e e
graph lines along the coast. For purposes of command, the en ire
strength is divided as follows:
- 3 The E a s te rn D iv is io n , from New London, Conn., northw ard; New York
D iv is io n from New London, C on n ., to Delaware Bay; N o rfo lk D iv is io n from
Delaware Bay to Savannah, G eo rg ia ; F lo r id a E ast C oast p a t r o l Force from
Savannah, G a ., to Key L a rg o , F lo r id a ; G u lf D iv is io n from Key L arg o ,
F lo r id a , to P o in t I s a b e l , T exas.
On the p a c i f i c f r o n t , the Southern
D iv is io n from Cape B la n c o , Oregon, southward; the N orth ern D iv is io n
from Cape B la n c o , Oregon, northw ard, in c lu d in g A la s k a . The^Lakes
D iv is io n , a l l o f the Great Lakes* e x c e p tin g O n ta rio , which i s under the
New York D iv is io n .
D iv is io n Commanders and t h e i r s t a t io n s a re lo c a t e d
a t; B o sto n , M a ss.; New Y o rk , N. Y . ; N o r fo lk , V i r g i n i a ; F o rt L a u d e rd a le ,
F lo rid a ; M o b ile , A l a . ; San F r a n c is c o , C a l i f . ; S e a t t l e , W ash.; and S a u lt
Ste. M a rie , M ich.
D iv is io n s in c lu d e S e c tio n b a s e s lo c a t e d a s f o llo w s ;
Base
ii
it
it
ii
1 — A t l a n t i c C it y , N. J.
2 — S ta p le to n , S ta te n I s la n d , N. Y.
3
N a n tu ck et, M ass,
4 — New London, Conn,
5 — E a st B o sto n , Mass.
ii
6 — F o rt L a u d e rd a le , F la .
it
7 — G lo u c e s te r , Mass,
it
8 — N o r fo lk , Va.
o
9 — Cape May, N. J.
ti i o — P o rt Townsend, Wash.
» 1 1 — San F r a n c is c o , C a l i f ,
it 1 2 — A n c o r te s , Wash,
it 13 — P o rt A n g e le s , Wash,
it 1 4 — B lo c k I s la n d , R. I .
11 15 — B i l o x i , M iss.
ii
1 6 — R o cklan d , Me.
it 1 7 — San P e d ro , C a l i f .
h 18 — Wood’ s H ole, Mass.
* 19 — Key W est, F la .
To each D iv is io n , in acco rd a n ce w ith i t s n eed s, a fo r c e o f
o f f i c e r s and men i s ^ - s i g n e d , and t h i s fo r c e o p e ra te d fTO“ the v a r io u s
bases w it h in th e D iv is io n , and under the d i r e c t o r d e .s o f
Commander.
In a d d it io n to the ab o ve, the fo llo w in g f o r c e s a re in b e in g :
The d e s tr o y e r fo r c e w ith h e a d q u a rte rs on the F la g s h ip ASGDS, now
at Hew Do“
Conn.; the o f f - s h o r e p a t r o l f - c e whose v e s s e l s o p e ra te
on the A t l a n t i c and G ulf C o a sts ; and the B e rin g Sea p a t r o l f o r e
f l a g a t TJnalaska.
The 277 C oast Guard ( l i f e sa v in g ) s t a t io n s a re o rg a n iz e d in
t r i c t s w ith D i s t r i c t Commanders in c h a rg e , and co o p era e i
,
independent o f the f o r c e s a f l o a t .
The d i s t r i c t s a re d e s c r ib e d as
f o llo w s :
1 s t D i s t r i c t in c lu d e s the c o a s t o f M aine, Hew Hampshire, and Massa
c h u s e tts to Plum I s la n d , w ith h e a d q u a rte rs a t Portsm outh , h . E.
I
3nd D i s t r i c t , th e c o a s t o f M a ssa c h u se tts from Plum Is la n d to W ood's
H ole, w ith h e a d q u a rte rs a t P ro v in ceto w n , M ass.
- 4 3rd District, the coast of Massachusetts from Wood*s Hole west, the
coast of Bhode Island, Fishers Island and Nantucket and Marthas Vineyard
Island, with headquarters at Wakefield, B. I.
4th District, the coast of Long Island, $f. Y. , with headquarters at
Bay Shore, N. Y.
5th District, coast of New Jersey, with headquarters at Asbury Park,
N. J.
6th District, the coast "between Delaware and Chesapeake Days, with
headquarters at Lewes, Delaware.
7th District, Chesapeake Day to Key West, with headquarters at
Elizabeth City, N. C.
8th District, the coast of the Gulf of Mexico, with headquarters
at Galveston, Texas.
9th District, the Coast of Lakes Erie, Ontario, and the eastern
part of Lake Huron, with headquarters at Buffalo, N. Y.
10th District, Western part of Lake Huron, and the east side of
"Lake Michigan, with headquarters at Grand Haven, Mich.
11th District, Lake Superi ór and the west side of Lake Michigan,
with headquarters at Green Day, Wis.
12th District, the coast of California and the southern part of the
coast of Oregon, with headquarters at San Francisco, Calif.
13th District, Alaska, Washington and the northern part of the coast
of Oregon, with headquarters at Portland, Oregon.
Guard
The Coast/is^. hy law, a part of the military forces of the United
States and its organization, administration and methods of operation are in
strict conformity with that status.
The Coast Guard Intelligence Office is charged with securing and dis
seminating military information for the Coast Guard, and also with maintain
ing liaison as regards this intelligence with all other departments of t e
Government concerned, and with the other bureaus and offices of the Treasury
Department.
It collects, sifts, classifies, files and keeps ready or i m
médiate use, and uses as directed hy the Commandant, the latest obtainable
intelligence concerning all movements of liquor ships and personne engage
in smuggling at home and abroad. Many of these duties parallel, but do not
duplicate, those performed by the Office of Foreign Control. Here again e
tailed information is of great importance and, most important of ail, is
e
establishment of such lines of communication as will result in live inform
tion reaching its destination in time to be effective.
The Coast Guard reports to Washington by telegraph immediately an
portant seizure is made, and turns each seizure over to the o ec o
Customs, together with all possible evidence which it can d?Ie^ P,n^
^
ports thereafter to headquarters all pertinent information it has obtained
in the case.
- 5 By in te rc h a n g e o f in fo rm a tio n w ith o th e r s e r v i c e s , the I n t e lli g e n c e
Office w i l l keep in to u ch w ith o p e r a tio n s on our own c o a s t , keep the Coast
Guard inform ed on p e r t in e n t m a tte r s , keep the o th e r s e r v i c e s inform ed on
captures and o th e r p e r t in e n t m a tte r s , and he p re p a re d to fu r n is h any a v a i l
able in fo rm a tio n to o th e r s e r v i c e s c o n c e rn in g p e r t in e n t m a tte rs th a t may
be in i t s f i l e .
Bureau o f Customs. - E very fo o t o f la n d or w a te r border' o f the U n ite d
States b e lo n g s to the j u r i s d i c t i o n o f some one C o lle c t o r o f Customs, whose
r e s p o n s ib ilit y i t i s to p re v e n t sm uggling t h e r e a t .
As re g a rd s the i l l e g a l
entry o f liq u o r and n a r c o t ic s in to the U n ited S t a t e s , the Customs S e rv ic e
is charged w ith the enforcem ent o f the T a r i f f , n a v ig a t io n and o th e r law s
applicable to th e s i t u a t i o n .
As p r o v id e d by S e c tio n 605 o f the T a r i f f A ct o f 1922, a l l v e s s e l s ,
v e h ic le s, m erchand ise ( li q u o r s or n a r c o t ic s ) and baggage s e iz e d under the
provisions o f th e Customs la w s , or law s r e l a t i n g to the n a v ig a t io n ,
r e g is te r in g , e n r o l l i n g , l i c e n s i n g , e n tr y or c le a ra n c e o f v e s s e l s , u n le s s
otherwise p r o v id e d by la w , s h a l l fo r th w ith be d e liv e r e d to and rem ain
in the cu sto d y o f the C o lle c t o r f o r the d i s t r i c t in w hich th e s e iz u r e was
made to a w a it d is p o s i t i o n a c c o r d in g to law .
W ithin th e B ureau o f Customs th e S p e c ia l A gency S e r v ic e i s ch a rg ed
with those p a r t i c u l a r i n t e l l i g e n c e and i n v e s t i g a t i n g d u tie s in the
prevention o f sm uggling w hich p e r t a in to the o p e r a tio n o f t h i s p la n .
There are n in e o f th e s e S p e c ia l Agency D i s t r i c t s in the U n ite d S ta te s
and one in Canada, in e ach o f w hich one or more S p e c ia l A g en ts w i l l be
designated whose d u ty i t w i l l be to ta k e charge o f a l l im portant liq u o r
smuggling c a se q w it h in t h e i r d i s t r i c t . A l l Customs o f f i c e r s w i l l be
in stru cted to r e p o r t th rou gh the C o lle c t o r to the d e s ig n a te d Agent in
their r e s p e c t iv e d i s t r i c t s a l l p e r t in e n t f a c t s re g a r d in g im portant liq u o r
seizures made by them, and a l l e v id e n c e or in fo rm a tio n coming in to t h e i r
possession r e g a r d in g th e o p e r a tio n o f in d iv id u a ls , v e s s e l s , a i r p la n e s
or v e h ic le s w hich m ight be a p a r t o f a m ajor liq u o r sm uggling o p e r a tio n .
These d e s ig n a te d S p e c ia l A gents a re ch a rg ed , each in h i s own d i s t r i c t ,
with the duty o f m aking a l l liq u o r sm uggling c a s e s f o r p r e s e n t a t io n to the
proper U n ite d S ta te s A tto r n e y .
Due to the p a u c it y o f p e rso n n e l and o
f a c i l i t i e s , and b ecau se many c a s e s w i l l ra m ify f a r in to th e i n t e r i o r , i t
w ill o fte n be a d v is a b le th a t i n d iv id u a l c a s e s o f liq u o r smuggling^be made
by the P r o h ib it io n i n v e s t i g a t i n g s e r v i c e , r a th e r than by the S pecial^ g e n ts
of Customs. I t i s v i t a l l y im p o rta n t, t h e r e f o r e , th a t th ese two s e r v ic e s
maintain in tim a te r e l a t i o n s o f c o o p e ra tio n and c o lla b o r a t io n .
In each
in d ivid ual c a s e , h ow ever, the s o le r e s p o n s i b i l i t y f o r the developm ent and
p resen tation o f the p a r t i c u l a r ca se must r e s t in the one or the o th e r .
Because th e s e Custom c a s e s a re p r im a r ily the r e s p o n s i b i l i t y o f the ^Pe c l
Agency S e r v ic e , i t i s d ir e c t e d th a t the S p e c ia l A gent concerned
c a rg e
with the r e s p o n s i b i l i t y o f d e term in in g , In each c a d e , w hether he w i l l con
duct i t h im s e lf o r tu rn i t o ver to the P r o h ib it io n S e r v ic e .
In each c a se o f s e iz u r e , the Coast Guard h a v in g n o t i f i e d the C o lle c t o r
or the S p e c ia l A gent con cern ed w ith a l l p o s s ib le e x p e d it io n , n® Pec:L
Agent w i l l , i f p o s s i b l e , secu re a r e p r e s e n t a t iv e o f the U n ite d S ta te s
Attorney and o f th e P r o h ib it io n L ia is o n Agent to accompany him or^to j o i n
him at the e a r l i e s t p r a c t i c a b le moment in th e r e c e p t io n o f tne s e iz u re
■
from the Coast Guard, and in making the p r e lim in a r y i n v e s t i g a t i o n and
search f o r a l l p o s s ib le e v id e n c e . As soon t h e r e a f t e r a s c ircu m sta n ces
and the developm ents o f the ca se adm it o f a d e te rm in a tio n , the S p e c ia l
| Agent w i l l d e cid e w hether he or the L ia is o n Agent w i l l conduct the
case, ana a c t a c c o r d in g ly .
In e i t h e r even t each s e r v ic e w i l l re n d er the
i other e v e ry p o s s ib le a s s is t a n c e in the p r o s e c u tio n o f the c a s e .
I t may
occur th a t in the l a t e r developm ents o f a case assumed by the ^ S p ecia l
Agency S e r v ic e , i t w i l l have re a c h e d such t e r r i t o r i a l p ro p o rtio n s^ th a t
f| greater e f f i c i e n c y w i l l r e s u l t from tu r n in g i t o ver to the p r o h ib it io n
Liaison A g en t.
In such c a s e s , r e p o r t w ith recomm endations w i l l he made
to the r e s p e c t iv e I n t e lli g e n c e C h ie fs in W ashington, who w i l l d ecid e
how the case w i l l be c o n tin u ed .
m
■
A l l in fo rm a tio n c o l l e c t e d by the d e s ig n a te d S p e c ia l A gen ts in the
f i e l d w i l l he p ro m p tly fo rw ard ed to th e C h ie f o f the S p e c ia l ^Agency
Service in W ashington, who w i l l m a in ta in a f i l e o f a l l t h i s in fo rm a tio n
and e v id e n ce c o n s t a n t ly a v a il a b l e to th o se S p e c ia l A gen ts who may thus
obtain a d d it io n a l e v id e n c e when m aking c o n s p ira c y c a s e s , and a v a l .a o le
to the I n t e lli g e n c e C h ie fs o f th e o th e r s e r v i c e s concerned.
In the m a tte r o f n a r c o t ic sm u gglin g, i t i s v i t a l l y im portant th a t
a ll in fo rm a tio n o f any n a r c o t ic sm uggling a c t i v i t i e s , e it h e r as‘J g
sonne 1 or m eth o d s,o r p r a c t i c e s , he im m ediately tr a n s m itte d o
c o tic Agent in Charge in the d i s t r i c t concerned , f f c n and e v e .y Easterns
o f f ic e r w i l l » th erefo re im m ed iately communicate to .he d e s ig n a te d ^ e c i
Agent o f h i s d i s t r i c t any such in fo rm a tio n w hich he may o b ta in ,
.he
Sp ecial A gent w i l l im m ed iately communicate t h i s f o r m a t i o n to
c o tic Agent in Charge in h i s d i s t r i c t .
The N a r c o tic Agent w i l l a rt on^
th is in fo rm a tio n i f i t he p r a c t i c a b l e , and w i l l .o rw a rd to h
Washington such o f t h i s in fo rm a tio n a s th e C h ie f d i r e c t s .
. S p e c ia l Agency S e r v ic e t e s a , l i v e le a d , or
dence i n d i c a t i n g an atte m p te d sm uggling o p e r a tio n ,
n o tify the t e r c o t i c A g e n t 'in ch arge so th a t the ^ t e ^ t e s L
so
c o lla b o r a te w ith Customs in making th e c a se
As in liq u o r « « e s ,
in n a r c o t i c s , the S p e c ia l Agent o f Customs i s ch a rg ed a t n U
re sp o n
s i b i l i t y o f L t i n g th e se n a r c o t ic
case the S p e c ia l Agent m a t d ecid e b e t t e r he w i l l . h i m s e l f “
r to
.s
Zfm
in v e s t ig a t io n s and make th e
the IT arcotic Agent in Cnarge.
^ne
W r ^ t e h e r m a t ïa k e the s o le r e S u e c ia l Agent o f
s p o n s ih ilit y
' " p e v e r ‘ one m^ies the c a s e , the o th e r
Customs manies - in s d e c i s i o n ,
<
,
a s s i s t a n c e , and su p p ly se rv ic e must c o l l a b o r a t e , r W in g ^ e n ; p o s s ib le a s is ta n c e
?'e a l _
t i
ing all possible evidence and information.
.here »
tto
ousy or rivalry between
socialist,
very nature of the case „ha. the Ï
i % r,anner of information which
this difficult work, and have access W W W W ^ forces
It is hoped
K .- « *
“
a‘
fc
S
’r
fu s m . « . w . «
c o lla b o r a
«w —
* •» *—
ing up th e o rg a n iz e d sm uggling r i n g s .
B r o h ib it io n . - The_Bureau o f P w h m i ^ n ^ i ^ c h a T ^ d ^ t h ^ t h e ^ e ^
ment o f b o th the ? ^ t o h l t i o n and
•
r / r t o Ï Ï t e t S
S r te
^
^ h h n a tio n
^
i n th e enforcem ent
o f the co m m ercia lised t r a f f i c
- 7 in i n t o x ic a t in g 'b e v e ra g e s. As re g a rd s the p a r t i c u l a r s u b je c t o f liq u o r
smuggling, 'the P r o h ib it io n U n it ’ s fu n c tio n l i e s behind th e Customs l i n e s ,
and w i l l be e x e r c is e d p r im a r ily in o b ta in in g e v id e n ce o f those p h ases o f
smuggling o p e r a tio n s con cern ed w ith the t r a n s p o r t a t io n and d is t r ib u t io n
of smuggled l i q u o r , and the i l l e g a l a c t i v i t i e s o f th o se engaged in t h i s
business. The o f f i c e r s o f t h i s s e r v ic e should a l l be a l e r t to secu re
inform ation and e v id e n c e o f th e se v a r io u s a c t i v i t i e s ; to use the inform ation to e f f e c t th e e lim in a t io n o f the t r a f f i c , and to use the evid en ce
F T p ro se cu te and p u n ish th o se co n d u ctin g i t and r e s p o n s ib le f o r i t .
22
T e r r i t o r i a l U n ite d S ta te s i s d iv id e d in to
F e d e ra l P r o h ib itio n d is
t r i c t s , in each o f w hich an A d m in is tra to r h as h i s h e a d q u a rte rs and i s h e ld
resp o n sib le f o r the enforcem ent o f the law w ith in h i s d i s t r i c t . . Many
law v i o l a t i o n s , h ow ever, a re but p a r t o f a w id e ly o p e r a tin g o r g a n iz a tio n
engaged in the liq u o r t r a f f i c , w ith o u t r e g a r d to d i s t r i c t l i n e s . Prim ar
ily to h an d le th e se i n t e r d i s t r i c t c a s e s most e f f e c t i v e l y , th e re i s e s ta b
lish ed a m obile fo r c e o f i n v e s t i g a t o r s under the C h ie f p r o h ib it io n In v e s
tig a to r , whose W ashington o f f i c e i s known a s the F i e l d D iv is io n o f the
Bureau o f P r o h ib it io n .
The fu n c tio n s o f the F i e l d D iv is io n o f the Bureau
of P r o h ib it io n a re to p erfo rm th o se d u t ie s o f i n v e s t i g a t i o n and o f compila^*
tion o f in fo rm a tio n not s p e c i f i c a l l y a s s ig n e d to o th e r d iv is io n s or se c
tions o f the B u r e a u .•
As in d ic a t e d , i t s fu n c tio n s sh o u ld b ro a d ly be s e g re g a te d in two
clase s *
The f i r s t i s the g a th e r in g , c l a s s i f y i n g , c o r r e l a t i n g , f i l i n g and
d issem in atin g o f in fo rm a tio n n o t s t r i c t l y l o c a l in c h a r a c te r , c o v e r in g
v io la tio n s o f th e n a t i o n a l P r o h ib it io n A ct and th e r e l a t e d s t a t u t e s .
The second i s to i n v e s t i g a t e f u l l y a l l o f th o se v i o l a t i o n s o f the
Rational p r o h i b i t io n A c t, and r e l a t e d s t a t u t e s , not s p e c i f i c a l l y en
trusted to th e s e v e r a l A d m in is tra to rs and to the Customs f o r c e , but to
De p rep a red n o n e - t h e - le s s to supplem ent the f o r c e s o f the A d m in is tra to rs
and the Customs S e r v ic e when c a l l e d upon through s u it a b le ch a n n els so to do
In o rd e r th a t th e r e may be no o v e rla p p in g i n the e x e r c is e o f ^the
functions o u t lin e d a b o ve , i t has been deemed p ro p e r to e s t a b l i s h in eac
A d m in istra tive D i s t r i c t a r e p r e s e n t a t iv e o f th e F i e l d D iv is io n ( C h r e f l r i v e s t ig a t o r ! s O f f i c e ) , to be d e s ig n a te d L ia is o n A g e n t, wnose d u tie s s h a ll be
(a) To determ ine (w ith the c o o p e r a tio n o f th e r e s p e c t iv e A dm inistra^
tors)*, what in fo rm a tio n d e v e lo p e d th rou gh l o c a l enforcem ent i s s u it a b l
and pro p er f o r th e c e n t r a l i z e d f i l e s o f the F i e ld D iv is io n .
(b) To ta k e o v e r , from the A d m in is tr a to r , such i n v p s t i g a t i o i i j - a s
may be p rim a f a c i e i n t e r d i s t r i c t v i o l a t i o n s , or le a d in g o m e
in q u iry.
(c ) To ta k e o ver from th e d e s ig n a te d S p e c ia l A gent o f Customs the
in v e s tig a tio n and p r o s e c u tio n o f such c a s e s a s he may urn o v e r.
Too much s t r e s s cannot he l a i d upon the f a c t th a t the r e p r e s M t o - ^
v ite s o f the C h ie f I n v e s t i g a t o r 's O f f i c e in th e f i e l d , i . ‘0 ’ ^ s t r a t o r s
wi^ 1 •‘w inetion o n ly upon agreem ent w ith e i t h e r t
Ji. r* . ,,
or th e " p r o p e r ly d e s ig n a te d Customs o f f i c i a l s , i t b e in g e s s e n t i a l m t e
8
interest of "both .economy (as regards over-lapping), and of harmony that
a distinct line of demarcation be set up for the guidance of the Chief
Investigator *s force.
In order to maintain, at their maximum value, the information files
referred to earlier in this statement, information received from the Of
fice of Foreign Control and from the Intelligence Service of the Coast
Guard, should be embodied therein to be used wherever pertinent in mak
ing cases, or in supplying information and evidence to Administrators.
This gives the central file the maximum value to both Liaison Agents
and Administrators in the field, and again illustrates the urgent neces
sity that all field officers send to their respective headquarters de
tailed information as to law violators and violations which may later
"be of great velue in making cases.
For the prevention of smuggling on the land borders, additional
patrolmen paid from Prohibition funds are selected, appointed, and
directed in all their work by Collectors of Customs, and are in effect
Customs employees and subject to their regulations.
In addition, the
Special Agency Service of Customs, in special cases, may be augmented
by the temporary assignment to duty with them of designated members of
the Field Division, Bureau of Prohibition, who, when so functioning, will
he under the direction of Customs officers who will be fully responsible
for their activities while so assigned.
For the enforcement of the narcotic laws, the United States is
divided into 15 divisions, and the designated Narcotic Agent in Charge
directs the work of the field agents in each of these divisions. While
their normal work is quite distinct from that of the Prohibition enforce
ment agencies, their activities often bring them accurate information of
Prohibition Law violations and liquor smuggling activities. These nar
cotic agents can thus be of tremendous value to our general plan, and
the Deputy Commissioner of Prohibition in Cnarge of Narcotics will in
struct all his men to promptly transmit information or evidence of major
violations, through their Narcotic Agent in Charge, to the Prohibition
Liaison Agent; and likewise the Commissioner of Prohibition will“trans
mit instructions to all Prohibition enforcement officers to transmit,
through their Liaison Agent, to the Narcotic Agent in Charge, any valu
able information or evidence bearing on narcotic law violations. Here
again two services can be mutually helpful, and it should be the aim of
the higher officers of both services to bring about such a spirit^of
cooperation and good fellowship in a common cause as will result in
both services being benefitted, each through the assistance of the other.
Summary. - I wish a copy of this general instruction given to each
individual member of each organization in order that he may ]S>ersonally
understand tfhat the success of our purpose to stop smuggling rests largely
in the hands of the individual members of each organization - thus each
man may be led to play his part in the plan intelligently and ^energeti
cally, The one big thing in which everyone should be keenly interested
is getting accurate and detailed information promptly into the hands of
those who are to use it, and ultimately into the central office in Was
ington, where it can be studied, classified, and made available to the
agencies charged with making the conspiracy cases or conveying in orma—
tion essential to the operation of the different parts of the p an.
- 9F o re ig n C o n tro l w i l l thus "be b e t t e r and b e t t e r a b le to su p p ly in ■‘f orm ation and e v id e n c e o f i l l e g a l p r a c t i c e s which w i l l r e s u l t in p u t t in g
more and more sh ip s and shipm ents out o f b u s in e s s . The Coast Guard b e in g
b e tte r a d v is e d o f the v a r io u s movements and a c t i v i t i e s o f the sm u gglers,
and b e in g b e t t e r equipped w ith s u it a b le s h ip s , w i l l make i t more and more
d i f f i c u l t f o r the- s h ip s w hich have c le a r e d the f o r e i g n p o r t s to be a b le
to d e liv e r t h e i r c a r g o e s , e it h e r in our p o r t s or to c o a s tw ise and o th e r
sim ilar sh ip p in g w hich may in tro d u c e i t in to our p o r t s .
Customs o f f i
cers, b e in g b e t t e r inform ed a s to the p e rso n n e l engaged in sm uggling, as
to t h e ir m ethods of p ro ced u re and what e f f o r t s th e y are m aking, and where
making them, w i l l be b e t t e r a b le t o in t e r c e p t these^ sh ipm en ts e i t h e r by
water, r a i l , a ir p la n e or motor tr u c k s ; and the S p e c ia l A gents o f Customs
r e c e iv in g the r e s u l t s o f a l l th e se s e iz u r e s , and h a v in g a v a il a b l e more
and more d e t a i l e d e v id e n c e o f the a c t i v i t i e s o f the sm u gglers, w i l l be
able, more p ro m p tly and a c c u r a t e ly , to p rep a re w ell-m ade and h oleproof^
cases a g a in s t the sm ugglers f o r p r e s e n t a t io n to th e c o u r ts , re c ru itin g m
the c o n f is c a t io n o f the sm u gg lers' i l l i c i t l y u se d p r o p e r t y , and in the
punishment o f the p e rso n s in v o lv e d in th e se c o n s p ir a c ie s to v i o l a t e our
laws. L ik e w is e , in the case o f the L ia is o n A g e n ts in the P r o h ib it io n dm in istra to rs» o f f i c e s , who w i l l u n d o u b ted ly h an d le a g r e a t many o f th ese
sm ug-ling c a s e s tu rn e d over by the S p e c ia l A g e n ts o f Customs, the coi>sta n tly in c r e a s in g fund o f d e t a i le d in fo rm a tio n and evid e n ce made
able th ro u gh the c e n t r a l o f f i c e in W ashington w i l l more and more en able
these c a s e s to be made r a p i d l y and a c c u r a t e ly , and more co m p reh en sively
in b r in g in g more n e a r ly a l l o f the p e rso n s in v o lv e d in to the net o f th e
con sp iracy c a s e .
L ik e w is e , in n a r c o t ic c o n t r o l, w ith a l l t h i s co o p era
tiv e e f f o r t and added in fo rm a tio n , and p a r t i c u l a r l y w ith the a s s is t a n c e
which may th u s w e ll be re n d ere d through the O f f ic e o f ^Foreign^ C o n tr o l,
i t sh ould be p o s s i b le to make v e r y m a te r ia l p r o g r e s s in sto p p in g the
smuggling o f n a r c o t i c s , w hich i s to d ay p r a c t i c a l l y the s o le source fo r
the i l l i c i t b u s in e s s co n d u cted i n n a r c o t ic s . And w ith a l l t h i s add©d
in fo rm atio n N a r c o tic A g e n ts in Charge sh ou ld f i n d i t p o s s i e o
mans’- s u c c e s s f u l c o n s p ir a c y c a s e s a g a in s t the o rg a n iz e d opera o r s 1
n a rc o tic sm u gglin g.
jSQ
W ith t h i s p i c t u r e b e fo re them, I b e lie v e the members o f
^
o rg a n iz a tio n s w i l l f i n d th em selves s u f f i c i e n t l y i n t e r e s t e d to ta k e t i
to ^ report to t h e i r p ro p e r C h ie fs a l l th o se d e t a i le d f a c t s
smuggling a c t i v i t i e s w hich may p ro ve o f g r e a t v a lu e ^to our o .
names and d e s c r ip t io n s so a c c u r a t e ly a s to make t h e i r re p o r ts *
for in fo rm a tio n and f o r e v id e n c e .
I t i s r e c o g n iz e d th a t th e C oast Guard and Customs
th is
lim ite d fu n d s f o r t h i s I n t e l l i g e n c e w ork, and i t i s tru e J . 1® * / p r o h i b i t i o n
work has i t s d i r e c t h e a r in g on th e u ltim a te enforcem en
c le r ic a l
and n a r c o t ic la w s ; i t i s th e r e fo r e d ir e c t e d t h a t *
^ h ?a s s is ta n c e s h a l l he fu r n is h e d hy d e t a i l or assign m en t f r o m t h e P r o h i
t i t i o n S e r v ic e in o rd e r th a t th e s e h e a d q u a rte rs f i l e s may he m a in ta in e d
at the maximum o f e f f i c i e n c y .
I t i s n o t deemed p r a c t ic a b le to g iv e d e t a i le d in s t r u c t io n s
^
d iff e r e n t s e r v ic e 's in t h i s G eneral I n s t r u c t io n .
. ^ e a c ^ Bureau hut in
tio n s , each to h i s own s e r v i c e , w i l l be p re p a re d m e
»
10
collaboration with the other Bureaus to asure avoiding any overlappings
and to assure efficiency and accuracy in the working of the plan. And,
in order that the members of each organization may understand not only
their own duties, hut how their duties fit in to the general plan, and
__ __ | o f the o th e r o r g a n is a tio n s a re d o in g , c o p ie s o f the
what th e member:
d e ta ile d i n s t r u c t i o n s in each B ureau w i l l he lu r n is h e d to the o th e r
Bureaus f o r d is s e m in a tio n throughout t h e i r o r g a n iz a tio n s .
L. C. AEDA3WS
Assistant S e c r e ta r y ,
POE RELEASE WHEN DELIVERED AT 1 :00 P.M.,
priday, May 27, 1927.
PRICE CONTROL AND THE EEDERAL RESERVE SYSTEM.
Speech delivered by Undersecretary of the Treasury Mills
before the Rond Club of New York,
Eriday, May 27th, 1927.
I am very glad indeed to have an opportunity to address The
Bond Club, for I understand that the Treasury is under a debt of gratitude
to the members of this organization for the devoted and patriotic work
which they performed during the great Liberty Loan Campaigns, as well as
for the cooperative attitude that has been theirs ever Sh.nce.
Some three weeks ago I read an article by Professor Allyn Young*
in which he said, "The Federal Reserve System appears to he safe for awhile
from the attacks of its enemies.
its friends".
It has more to fear from the solicitude of
Professor Young was referring specifically to legislation in
tended to instruct the Federal Heserve Banks to keep stable some arbitrary
index of price variations, and his statement which I have quoted seemed to
me to be a singularly happy way of describing the existing situation.
After
all, it is extremely dangerous to the popularity and permanence of any insti
tution or system to have even its friends attribute to it powers which it
doesn't possess, and so lay it open to the charge either of abusing them or
of failing to attain possible results.
Yet this is precisely what is being done to-day by a group of econ
omists who have apparently succeeded in persuading themselves— and are- now
seeking to persuade others— that commodity prices may be controlled through
2
-
-
the operations of the Federal Reserve Banks.
A hill was introduced in
the Sixty-Finth Congress to amend the Federal Reserve Act hy providing
that one of the duties of the Federal Reserve System shall he to promote
a stable price level for commodities in general.
It reads in part as
follows:
"All of the powers of the Federal Reserve System shall
he used for promoting stability in the price level."
Lengthy hearings were held hy the Banking and Currency Committee, which
were, on the whole * valuable and enlightening, principally because of the
extremely clear and illuminating testimony of Governor Strong, of the
Few York Federal Reserve Bank.
Ho student of the workings of the Federal
Reserve System should fail to read his testimony.
The Committee did not report the hill, and Congress adjourned.
Fow the propagandists are busy.
This propaganda, like most propaganda,
contains the usual special appeal to classes or groups dissatisfied, for
one reason or other, with existing conditions.
Thus, for instance, I
have seen an article in which agricultural prices are sought to be direct
ly related to the open market operations of the Federal Reserve System.
You see the implication, of course.
Prices can be raised by
the Federal Reserve Banks, and after they have been raised they can be
maintained at a given level.
Page Senator HcFary and Congressman Haugen.
They can relax their efforts to devise methods for taking care of the
surplus agricultural production.
All they will have to do in the future
is just to get the Federal Reserve Board on the long distance phone.
- 3 -
Of course, the thoughtful and intelligent gentlemen who advance
the theory that prices can "be controlled by credit operations are talking
of the general price level.
Rone of them would seriously contend that
individual prices can be so controlled.
But if their theory is to achieve
popularity, it will be because different groups of the public will apply
it to the particular prices in which they are interested.
a grave danger lies.
There is where
Few people are interested in the general price level.
Everyone is interested in the level of some particular price.
Thus, the
farmer would like to see high prices for agricultural commodities and a
low level for the articles he has to buy.
and a reduced cost of living.
The wage-earner wants high wages
The manufacturer desires low-priced raw
materials and high priced finished products; and so on down the line.
Can
you imagine what will hapnen to the Federal Reserve System once the idea is
accepted that the officers of the System control a lever with which they-can
move particular prices up or down at will?
Fortunately, no such power exists.
It’s not only inconceivable
. but undesirable that it should exist in our Country, where we pride our
selves not only on our political but on our economic freedom.
Prices, can
to some extent be controlled by the arbitrary actions of Government or
governmental agencies under conditions such as existed during the World War.
In normal times, to entrust such power to any group of men, however wise
and patriotic, would be intolerable and wholly inconsistent with the spirit
of our institutions.
What was the genesis of this movement?
You will remember that
when the post-war deflation came, with its attendant distress and suffering,
diligent efforts were made to find a scapegoat.
It is so much more satisfao
♦
- 4 -
to ry to "be a b le to blame some in d iv id u a l or group r a th e r than t o j f e e l on©«
s e l f a t th e mercy o f f o r c e s beyond our c o n t r o l; o r perh ap s even to be com
p e lle d to f e e l th a t a l l have to sh are th e r e s p o n s i b i l i t y .
So th e F e d e ra l
Reserve System was s in g le d o u t, and i t s d is c o u n t p o l i c y s e v e r e ly a tta c k e d
fo r h avin g c o n tr ib u te d u n n e c e s s a r ily to th e ra p id d e f l a t i o n .
You w i l l r e
member th a t a g r ic u lt u r e was p a r t i c u l a r l y d is t r e s s e d , and th a t a S p e c ia l
Commission o f C ongress was a p p o in ted to i n v e s t i g a t e c o n d itio n s and to
make a r e p o r t .
fa ir .
The work o f th a t Commission was e x h a u s tiv e , thorough and
I happened to be a member, and o n ly in one re srje c t d id I d is a g r e e
w ith the c o n c lu s io n s o f th e m a jo r it y .
The M in o rity R eport w hich I p r e
sented i s v e r y p e r t in e n t to th e p re se n t d is c u s s io n , and I s h a l l ta k e th e
l i b e r t y , t h e r e f o r e , o f sum m arizing i t b r i e f l y :
" I can not a g ree w ith th e statem ent th a t l a t e in the Ye a r
1920 *a change in the p o l i c y o f th e F e d e ra l R eserve System w ith
r e fe r e n c e to d is c o u n t r a t e s would have accom p lish ed a r e v e r s a l
in w art o f th e p s y c h o lo g ic a l and economic f a c t o r s w hich a t t h i s
tim e were moving in th e d ir e c t i o n o f lo w er p r i c e s .
Such a
s u g g e s tio n i s out o f harmony w ith th e b a la n c e o f th e r e p o r t an
in c o n s is t e n t w ith th e f a c t s brought out b y our i n v e s t i g a t i o n .
* * * * * * *
"W hile i t can n o t he c o n c lu s iv e ly p ro ved th a t c r e d i t s tr in g e n c y
was not an i n i t i a l c o n t r ib u t in g f a c t o r to p r i c e d e f l a t i o n , th e re i s
no e v id e n ce to show th a t i t w as.
*
" ( a ) The p r i c e p e a k
in Mai' 1920, w h ile lo a n s
f e d e r a l H eserve Banks d id
and c u rre n c y is s u e s u n t i l
*
*
*
*
*
*
o f th e a ll-c o m m o d itie s in d ex was reach ed
o f a l l r e p o r tin g hanks m d d is c o u n ts o i
not re a ch t h e i r maximum u n t i l O cto ber,
J an u ary, 19 2 1.
"In so f a r a s a number o f a g r i c u l t u r a l com m odities a re con
c e rn e d , p r i c e s reach ed t h e i r p ea k a s e a r l j as - ,
1
r e la tic n th e re was in p r a c t i c a l l y e v e r y one o f th e s e c a s e s a
we ak
sh ip betw een th e p e a k o f th e e x p o rt tra d e and th e pr_ ce p eak.
* * * * * * *
" I f a c a r e f u l stu d y be made o f c h a p te r 5 o f P a r t I o f t h i s
r e n o r tt numerous in s ta n c e s w i l l be found in w hich a r e la t io n s h i p
ion
can "be shown betw een th e p e a k o f p ro d u c tio n and consnmpt
and^
the peak o f p r i c e s . But no such r e la t io n s h i p can he e s t a b lis h e d
between in c r e a s e d d is c o u n t r a t e s and th e drop in tne p r i c e o i any
s in g le commodity.
n (b ) A g r i c u l t u r a l p r i c e s broke more s h a rp ly than any o th e r ,
and y e t from May, 1920, to May, 19 2 1, th e li q u i d a t i o n o f lo a n s^ in
a g r i c u lt u r a l c o u n tie s was r e l a t i v e l y much l e s s than m i n d u s t r i a l
c o u n tie s .
it ( q ) I n t e r e s t ch a rg e s as an elem ent o f expense in the c o s t
o f p ro d u c tio n and m a rk e tin g most n o t be e x a g g e ra te d .
They a re u su a l l y a. sm a ll p e rc e n ta g e o f the t o t a l o u tla y •
* * * * * *
»1 may add in c o n c lu s io n th a t I th in k i t d e s ir a b le to p re se n t
th is m in o r ity o p in io n , b ecau se o f the vie w a p p a r e n tly
^ a con
s id e r a b le number o f p e o p le th a t the in c r e a s e m the d i e c o u a t * * * * * *
the F e d e ra l R eserve Banks was one o f th e p rim ary
°£
P
break i n p r i c e s w hich o c c u rre d d u rin g the second h a l 0
9
which so d is a s t r o u s l y a f f e c t e d th e a g r i c u l t u r a l com m unities. Such a
o n c luusiuu
s io n th a t the F e d e ra l R eserve Board
view i•n e v .i t.a b l y -.le a dAs to
to th
tn ec cconc^
,
and banks c o n s t i t u t e an agen cy by means o f w hich p r i c e , W
r a is e d
or lo w ere d . T h is o p in io n i s so c o n tr a ry to economic
^
nT,in to n
purposes o f the F e d e ra l R eserve System th a t any e x p r e s s io n 0
P
which seems to su p p o rt i t . even i n d i r e c t l y , should n o t be p e rm itte d
to p ass u n c h a lle n g e d .
'"■**'*
I r e c o g n iz e th a t t h i s sounds somewhat d ogm atic, h u t I wanted to
ake my d is s e n t as em phatic a s p o s s i b le , and i b e lie v e d th en , a „ I
ow, th a t th e s e c o n c lu s io n s a re sound.
In any, e v e n t, th e c i t a t i o n d ie d o u t, and i t was n o t u n re a so n a b le
;o suppose th a t we had h e a rd th e l a s t f o r some tim e o f th e F e d e ra l E eserv e
System's c o n t r o l o ve r p r i c e s , u n t i l the open m arket o p e r a tio n s o f the S y s
tem a ttr a c te d a t t e n t io n , and renewed v i s i o n s o f p r i c e c o n tr o l made th e i
appearance.
In the l a t t e r p a r t o f 19 2 1, and th e e a r l y p a r t o f 1922, d is c o u n ts
having been l a r g e l y l i q u id a t e d , th e in d iv id u a l r e s e r v e hanks sought to i n -
-
6
-
crease their earning assets by the purchase of bills and government secu
rities.
Uncoordinated buying resulted in some confusion, of which the
Treasury Department complained.
Accordingly, a committee of four was ap
pointed in 19 2 2 , to supervise and coordinate the purchases of bills and
of government securities of the individual reserve banks.
In 1923»
Open Market Committee, so-called, was reorganized by the Board, and the
plan definitely adopted of effecting purchases of government securities
and bankers acceptances made for the System through the Open Market
Committee under the supervision of the Federal Reserve Board.
Open market operations, consist principally of the purchase and
sale of government securities.
3ef°re su-dh a body as this, I assume that
a detailed discussion of the operation is superfluous, but I desire to
call your attention to two false assumptions that have been given credit
in some quarters.
The first is, that the purchase of government securi
ties by the Federal Reserve Banks results in an increase in the volume
of currency; the second, that they ordinarily increase the amount of Federal
Reserve credit in use. ' The testimony of Governor Strong before the Banking
and (Currency Committee, which I quote, disposes completely of these assump
tions:
’’This statement sppears to be based upon a misunderstanding
of the operation which takes place when securities are purchased by
the Reserve Banks.
m a t actually occurs is that when a Reserve
Bank buys securities it pays for them with a check drawn on the
Reserve Bank, and not with Federal Reserve notes or gold.^ Thp
seller of the securities who receives the check deposits it in his
bank. His bank in turn deposits the check at the Federal Reserve
Bank, and by that means increases by so much its deposit with the
Reserve Bank.
The bank may then utilize this balance, as any other
balance, to pay off any indebtedness to the Reserve Bank for other
purposes, possibly including the withdrawal of currency for its normal
- 7 current needs. But in practice the balances which member banks have
obtained at the Reserve Banks in this particular way have been used
almost wholly in paying off indebtedness to the Reserve Banks.
The
operation of buying securities does not itself involve in any of its
steps the use of currency or the need for more currency and does not,
therefore, increase the amount of currency in circulation."
As to the second point, that open market purchase of securities
increases the amount of Federal credit in use, Governor Strong had this to
say:
>
"It should be pointed out again, as has been done many times in
the past, that purchases of securities by the reserve banks do not'
as a rule increase the total amount of Federal reserve credit in use
but rather enable member banks to liquidate indebtedness at the reserve
banks.
The effect of Federal Reserve Bank purchases in the open market
is ordinarily simply to decrease the amount of borrowing by member banks,
to make lighter the load which member banks are carrying in the form of
loams at the reserve banks."
The correctness of this statement is borne out by the following
figures, which describe the open market operations of the Federal Reserve
Banks during the period which has aroused the most discussion. The periods
covered by the figures are all of those in the years 1922 to 1924-, in which
any substantial change was made in the security holdings of the Reserve
Banks.
Between January, 1922, and May, 1922, the holdings of Government*
securities increased $^-00,000,000.
1^30,000,000.
All other earning assets decreased
In other words, there was a net change of only $30,000,000,
and that was a decrease.
Between June, 1922, and December, 1922, holdings
of Government securities decreased by $330*000,000, and all other earning
assets increased by exactly $330,000,000; thus one offset the other.
From
March, 1923 , to July, 1923 , Government security holdings decreased $260,000,000, while other earning assets increased $160,000,000.
That is in the pe
riod of the year when there is always liquidation of assets.
- 8 - ■
From December, 1923, to September, 1924, Government security
holdings increased by $510,000,000, while discounts fell by $750,000,000,
or a reduction in earning assets of approximately $240,000,000, largely
accounted for by an import of $ 200 ,000,000 of gold.
Sat if these operations do not directly affect the volume of
currency, or, as suggested, increase the volume of credit in use, how do
they affect the credit situation?
Let me again quote Governor Strong:
"The effect of open market operations is to increase or decrease
the extent to which the member banks must of their own initiative
call on the Deserve Bauk for credit. When member banks owe the Re
serve Bghk nothing, they extend credit more freely than when they are
largely in debt.
The influence of the Deserve Banks upon the volume
of credit is thus felt not directly but indirectly through the member
banks. The .Deserve Banks do not !p u s h r credit into use.”
Moreover, the sale of Government securities lays a foundation for an ad
vance in the discount rate, while the purchase of securities tends to ease
the money market and to permit more readily the reduction of the dis
count rate.
As Governor Strong has pointed out, it is better to let credit
filter out through these purchases, have discounts decrease, the rates in
the market come down gradually,, and then reduce the Federal Deserve Banks*
discount rates along with the existing rates in the market.
This much is true, then.
Holding the reserves of many banks, and
the gold reserve of the Country, and being the source of additional credit
for business purposes, and the means of retiring that credit, the Federal
Reserve System, by changes in the rate of discount and preliminary purchas
es or sales of securities, has the power to influence to some extent at
times the total volume of credit and its cost.
But it should "be noted that it has little or no control over
the directions credit will take, for that lies wholly in the hands of
the individual private "banks.
To me it seems that it is a long, long jump from a limited
control over the quantity and costs of credit to absolute control of
commodity prices.
Even a financial Captain Lindbergh would, I think,
fail to make such a hop.
Again, to quote Governor Strong, ’’The only
f
definite price advance which can be attributed to cheap money is in the
security market11.
And I might add that even cheap money cannot push
stocks up indefinitely.
Credit is unquestionably one of the factors that influences
prices, but to assume that it is the all-controlling factor is to make an
assumption unwarranted by existing data, and which neglects the all-power
ful influences of countless other forces, not the least of which is the
psychological factor arising from a state of'mind of millions of people,
both at home and abroad.
In this general connection it is not amiss to
point out that for two years there has been very little change in the
Federal Reserve System’s holdings of securities, and that this period has
witnessed a steady expansion of bank credit, yet commodity prices have de
clined about ten per cent, while industrial and railroad stock prices have
risen about thirty-five per cent.
controlling.
Evidently, forces other than credit were
As was pointed out in the May number of the Federal Reserve
Bulletin:
’’It would appear, therefore, that the causes of the general
price recession in recent years lie in industrial and trade con« ;
ditions rather than in financial developments.”
-
10
-
In reading the writings of certain of our modern economists,
analyzing the past and attempting to forecast the future, I am reminded of
the philosophical discussions which I once studied relating to the existence
of free will.
It was easy enough, after the event, to demonstrate that,
given heredity, education, environment and certain definite conditions, a
certain individual was hound to react in a certain way; that is, looking
back.
But, looking forward, ah, that was something very different.
So, in
the case of these economic discussions, I am willing to accept, though with
some reservation, many of the analyses that are made as to past events, hut
I am yet to he satisfied that any of these gentlemen have laid their hands
on the magic formula which will enable them to forecast the future with suf
ficient certainty to justify our accepting the sweeping changes they advo
cate.
As professor Young said in discussing these very same open market
operations: «
nm one really knows very much about the deeper reaching as
distinguished from the merely sufface effects of open market opera
tions and changes of discount rates. Nobody knows just how much or
how little the operations of the Federal Reserve Banks have con
tributed to the general stability of industry in recent years. No
body knows what the surest symptoms are of an approaching expansion
or recession of business activity. No one is in a position to say
with any assurance just what the specific criteria are which should
guide the policies of the Federal R e serve System.
uIn fact, we can be certain that reliance upon any simple rule
or set of rules would be dangerous. Economic situations are never
twice alike.
They are compounded of different elements— foreign and
domestic, agricultural and industrial 9 monetary and non-mo net ary,
psychological and physical— and these various elements are combined
in constantly shifting proportions..
11 Scientific * analysis, unaided, can never carry the inquirer
to the heart of an economic situation,,,r
This is sound doctrine.
But we are on safe ground when we state
that the affairs of the Federal Reserve System have been conducted with
11
wisdom and judgment, that the actions talien by it«* officers ana the
policy they have pursued have had a distinctly steadying influence
on the money market, and resulted in controlling sudden and sweeping
changes in the credit situation that, "because of their auddenness and
violence, have a serious and disorganizing effect on business «tabtitty
and prosperity.
Within its own particular field, the Federal Reserve
System has more than justified all of the expectations of its "builders.
Under these circumstances, i s n ’t it the part of wisdom to refrain from
any drastic changes or to look for new triumphs in more distant fields;
but rather to permit those in charge, who had justified our confidence,
to meet new situations as they arise, to exercise with the judgment that
has hitherto characterized their decisions such powers as they already
possess, and to lay a permanent and safe foundation for the future "by
gradually "building an unshakable tradition of sound banking?
POP RELEASE VCfSmM PAPERS,
Thursday, June 2, 1927.
LuSASUPY DEPARTMENT
Secretary Mellon announced Wednesday evening, June 1st, that on the
basis of reports received from the Federal Reserve Banks the cash offering
of $200,000,000 of 3 3/8 per cent Treasury Bonds of 1943-47 has "been largely
oversubscribed.
The figures indicate aggregate subscriptions of about
double the amount of the cash offering.
Under these circumstances cash
subscriptions for this issue would have been closed at the close of
business on June 1st were it not for the fact that it was reported that in
some districts a number of banks were under the erroneous impression that
there would be a further offering made next week of short-term Treasury
certificates in connection with the usual quarterly finanCing»as has here
tofore been customary.
There will be no further offering.
The announce
ment made by the Treasury on May 31st constitutes its complete program for
June financing.
In view of the misunderstanding, however, cash sub
scriptions for the issue of 3 3/3 per cent Treasury bonds of 1943-47 will
remain open until the close of business on Thursday, June 2nd.
It should be distinctly understood that this statement refers to cash
subscriptions only.
The privilege of exchanging Second Liberty Loa.^ ^
4 per cent bonds and Second Liberty Loan Converted 4rj per cenu bonds for
the new 3 3/8 per cent Treasury bonds will remain open until on or about
June 15 th
^fuAu- y } I
ESTIMATED M O U N T OF WHOLLY TAX-EXEMPT SECURITIES, April 30, 1927.
(000,000 omitted)
End
of
1bnth
!
States,
Counties,
1j Cities, etc.
Total Outstanding Issues
Territories,
Federal Farm
United States
Insular
Government
Loan System
Possessions
11926
Apr.
j
! $ 12 873
$ 151
Dec.
1927
let.
I¡far.
nr.
13 354
13 556
13 638
*13 686
\® End
f of
Konth
!11926
■ Apr.
1 Dec,
;1927
Pet.
|Mar.
i nrj|
\1926
|¡'Apr,
|lee,
j11927
11Pet,
:lar.
11Apr.
168
$ 1 717
$ 16 909
156
2 164
1 816
17 490
156
156
157
2 164
2 164
2 164
1 851
1 859
1 820
17 727
17 817
17 827
Held in Sinking Fund or Owned by United States Government
States,
Territories,
Total
United States
Federal Farm
Counties,
Insular
Government
Loan System
Cities, etc. Possessions
$
2 072
$
15
2 183
14
2 209
14
14
14
2 221
*2 235
l w
j) of
j[Month
$2
Total
| ^States,
| Counties,
Cities, etc.
[
S
$
HjÉ
—
-----------
Net Outstanding Issues
Territories,
United States
Insular
Government
Possessions
88
$
2 175
30
2 227
29
29
27
2 252
2 264
2 276
Federal Farm
Loan System
Total
$ 10 801
| 136
$ 2 168
$ 1 629
$ 14 734
11 171
142
2 164
1 786
15 263
11 347
11 417
*11 451
142
142
143
2 164
2 164
2 164
1 822
15 475
15 553
15 551
1 830
1 793
* Preliminary
1NOTE: Beginning with the issue for January 31, 1927, all estimates are made on
a revised basis. Monthly estimates on the revised basis for the period
1913 to 1926, inclusive, are available on request.
Prepared by Section of Statistics, Office of the Secretary, Treasury
Department, June 2, 1927.
*5
m
Afi t
r
c■
?TJN
\TrXP
1 r
V* j acTTnY
X W
J-J-P
jX A
l r
Xf
if
X
cj
FOR RELEASE, MOR1OTG- PAPERS,
Saturday, June 4, 1927»
Secretary Mellon today announced that the total cash subscriptions
received for the issue of 3-3/8 per cent Treasury bonds of 1943-47
aggregate over $610,000,000.
The subscription books for the cash
offering, which was for $ 200 ,000 ,000 , or thereabouts, closed at the close
of business on June 2nd.
Allotments on the cash subscriptions will
be made within a few days, at which time full details as to the basis
of allotment and the aggregate subscriptions and allotments for the
respective Federal Reserve Bank districts will be announced.
The Secretary pointed out that the above announcement relates
only to the cash subscriptions.
The privilege of exchanging Second
Liberty Loan 4 per cent bonds or Second Liberty Loan Converted 4^ per cent
bonds at par for the new 3— 3/8 per cent Treasury oonds of 1943—47 will
continue to be available until June 15th or such later date as the
Treasury may decide for the closing of the books upon the exchange
offering.
Release, for oa.pers Monday,
June 6 , 1927»
TREASURY DEPARTMENT!?
Office of the Comptroller of the Currency.
The Comptroller of the Currency today announced the appointment hy
Secretary Mellon of Mr. E. C. Await, as Deputy Comptroller of the.
Currency, to fill the vacancy created hy the resignation of Eirst Deputy
Comptroller, Charles W. Collins.
The new appointment will he effective
July 1, 1927.
Mr. Await, who is a native of Maryland, is a lawyer, and for the
past six years has heen special advisor to the Secretary of the Treasury
in legal, financial and legislative matters.
Mr. Await received his
early Treasury training under S. Parker Gilbert, formerly Undersecretary
of the Treasury and now Agent General of Reparations, and has served with
the latter’s successors, Undersecretary Garrard B. Winston and Under
secretary Ogden L. Hills.
His* training, experience and intimate knowledge
of Treasury and hanking operations make him especially fitted for the of
fice to which he has heen appointed.
/
FOR. PLEASE, MORNING- PAPERS,
Wednesday, June 8 , 1927.
fPLStm DEPARTMENT
Speech delivered by Undersecretary of the Treasury Mills at the
annual banquet of the lew York State Bankers’ Association held
at the Hotel Mayflower Tuesday evening, June 7; 1927,
SOME PROBLEMS IN TREASURY FINANCING-.
It is a very great honor indeed to he invited to address this representative
gathering of business men and, in addition, from a more personal standpoint,
a great pleasure for me to be with yoti and to have the opportunity to say a
word of greeting to my friends and neighbors of the Empire State,
I assume, however, that you have invited me not in my capacity as a fellow
Hew Yorker but as the Undersecretary of the Treasury to talk to you about
some of our financial and. fiscal problems.
The outstanding fact to be noted
in considering them is the magnitude of the operations conducted by the
Treasury Department.
We ,become so used in this country to doing things in
a tig way, and on the whole these operations have Deen so smoothly conducted,
1»
that in spite of their size they have been almost taken for granted.
Yet in
any other period or country they would arouse the most widespread interest..
Consider what happened last March for instance..
As a result of the various
operations of the Treasury Department the total volume of transactions at the
Hew York Federal Reserve Bank on the single day of March 15th reached the
stupendous total of two billion dollars.
for the figures speak for themselves.
The adjective is hardly necessary,
The net result of these transactions
was to reduce the public debt by about 185 million and the annual interest
charges by about 25 million.
-
2
-
This was hut the first step in what is probably the largest financial
[ transaction undertaken hy this or any other Government in, time of peace.
It
ias the initial move in a program looking to the conversion or retirement of
over three billion dollars of Second Liberty Loan 4 per cent and 4J- per cent
bonds, callable on November 15th, next, and which have since been called*
The Second Liberty Loan which was issued in November, 1917, was the
second large loan floated by the Government during the war.
You will all
remember - for doubtless many of you participated - how a nationwide campaign
was conducted to sell these bonds, how Liberty Loan committees were formed m
.every community throughout the land, and how, spurred on by a great national
crisis, every patriotic impulse was appealed to in order to place these bonds
iin every home in the land.
of this issue.
IOctober 1, 1917.
Let me give you a brief summary of the history
The Second Liberty Loan was offered for subscription on
Subscriptions amounting to $4,617,532,300 were received
from 9,400,000 subscribers.
A total of $3,807,865,000 was allotted.
The
tonds issued were dated November 15, 1917, bore interest at 4 per cent, were
payable in 25 years, but were subject to redemption on and after ten years
from the date of issue.
They carried a conversion privilege which migit be
exercised in the contingency of the first subsequent issue of bonds carry* g
a higher rate. . This contingency arose when the Third Liberty Loan was issued
,.
r*•
¿.7 ryr\n an.'? q ^o of the 4 TDer cent bonds were
on May 9, 1918, and thereafter $3,707,955,sou oi uie •* p *
converted into 4qr per cent oonds.
Stated in terms of pieces, 14,338,073 bonds were originally delivered,
19,801,102 bonds have since been delivered on conversion, exchange, e
against the cancellation of a like amount of other bonds.
34,739,175 bonds have been delivered to owners.
Altogether
These bonds wou d
'gh
222 tons, and if spread out would cover almost exactly one square mile of
- 3 the earth’s surface.
Daring this period 31,114,759 bonds have been cancelled
on all accounts,, leaving now 'outstanding 3,624,416 bonds.
Since 1917 in
terest aggregating $1,327,600,885 accrued and became payable on this loan
to May 15, 1927, involving the issue and payment of some 7,750,000 interest
checks and the payment of more than 130,000,000 interest coupons.
On March
1927, the Secretary of the Treasury announced an offering of
|| per cent Treasury notes, maturing in five years, but callable on six
months’ notice on and after March 15, 1930.
These notes were offered only
to holders of Second Liberty Loan 4^ per cent bonds, to be exchanged at par
for their Libertys, interest on the bonds surrendered to be paid to May 15,
1927.
The offering was well received and exchanges fully came up to our
expectations.
No less than $1,360,456,450 of Second Liberty bonds were ex
changed for the new 3J- per cent notes.
Of the original issue of this loan,
tends amounting to $790,461,800 have been redeemed from time to time on
various accounts, and., as just stated, $1,360,456,450 have been refunded
into Treasury notes.
There remains outstanding a balance of $1,656,946,750.
On May 9, last, Secretary Mellon called for pajunent on November 15,
1927, the tenth anniversary of the issue, all outstanding Second Liberty Loan
bonds. ' This means that interest on these bonds will cease on November 15,
next; and that holders are definitely confronted with the decision of what
they ought to do.
They may of course hold their bonds until maturity and
receive cash for them —
which incidentally involves the problem of how to
invest the proceeds — , or in view of the announcement made a week: ago by
the Treasury they may on or before June 15 exchange their Second Libertys
for new long-term United States bonds.
On May 31 the Secretary announced an offering of 20-year bonds callable
at the end of 16 years, bearing 3-3/8 per cent interest and to be exchanged
at par for each, bond for bond, for Second Liberty Loan 4 per cent and 4^
4
per cent "bonds, accrued interest on Seconds up to June 15 to "be paid in cash.
$200,000,000 of the new issue were offered for cash subscriptions at a
premium of one-half of 1 per cent.
This cash offering was largely over-*
subscribed, subscriptions aggregating over $610,000,000, though only approxi
mately $200,000,000 of subscriptions were invited.
The yield of the new bond to the cash subscriber is approxim&tfed^S.SS
per cent; to the holder of a Second Liberty bond who makes the exohange at
par about 3.37 per cent, though the latter of course sacrifices the premium
which the Second Liberty bonds now command but which will gradually disappear
during the course of the next five months.
The closing market prices of
Second 4 ^ ’s during the last two weeks in May was on an average of 100 10/32
or $1,003.13jg- per thousand dollar bond.
On exchange a holder receives a
bond which has been largely oversubscribed at a premium of $5.00 per bond,
showing an apparent gain of $1.87-| per thousand dollar bond.
I am going into these details not with a view to advising holders as
to what course they should pursue, but because I know that before you came
here and after you return to your homes you are going to be asked by your
many customers what to do, and it occurred to me that it would be of interest
to analyze the proposal from the standpoint of the bondholder.
I recognize
of course that the decision must be largely governed by the circumstances in
each particular case, by the character of the investment desired and by your
own judgment as to the long-time trend of interest rates.
Such a discussion is all the more valuable because I am satisfied that
a great majority of the Se-cond Liberty Loan bonds still outstanding are m
the hands of investors, using that term in the narrowest sense, and that many,
many of them are held by persons of moderate means having but limited knowledge
of security values or investment possibilities.
I base that conclusion upon
the widespread distribution of the original issue and upon the facts dis
closed by the results of our March exchange offering.
The Treasury
department feels itself to be under a real obligation to these holders to
acquaint them with all the facts because of the conditions under which the
original subscriptions were made, a feeling which I have no doubt you gentlemen
share.
Of some $59,000,000 of $50 coupon bonds only $1,739,000 were exchanged
for
per cent notes in March; of approximately $116,000,000 of $100 bonds
only $4,167,000; of approximately $141,000,000 of $500 bonds only about
$11,000,000; of $605,000,000 of $1,000 bonds only about $115,000,000, while
of $1,365,000,000 of $10,000 bonds no less than $1,026,000,000 were exchanged.
The figures relating to the registered bonds are if anything more conclusive*
It is not unreasonable to conclude from these figures that the banks,
insurance companies and other big holders of Government securities were the
ones to whom the March exchange offering appealed and that the individual
investor whose holdings of (Governments are of moderate amount and who generally
favors a long-term bond rather than a security of comparatively short maturity
either took no particular notice of the Treasury offering or else decided to
hold on to a bond that did not mature until 1942 and which might conceivably not
he c a lle d p r io r to th at date.
II
As to those who failed to learn of the Treasury program, we have made
every effort to reach them, both on the occasion of the notice of the call of
the Seconds and, more recently, when the announcement was made of the new
issue of the 1943-47 bonds.
And I trust that you gentlemen will cooperate
in the future as you have in the past with a view to bringing this information
to the attention of every holder of a Second Liberty bond.
As to those in v e s to r s who are lo a th to part w ith a se c u r ity o f p o s s ib ly
long m aturity fo r one o f com paratively short l i f e , th e ir Seconds are now
d e fin ite ly c a lle d and are f iv e months* paper.
Moreover, the Treasury, m
reaching the d e c isio n to o ffe r a 20-year bond in exchange, took in to considera
tion th e ir apparent p referen ce fo r a long-tim e s e c u r ity .
I do not say that
o
this was the only consideration.
I do say that it was an important one.
Hay I now, speaking from a limited experience, say a word or two about
the racner simple principles which govern Treasury refunding and retirement
operations?
There is no reason why they should he shrouded in mystery, and
yet in reading discussions and prophecies as to our financial transactions,
present and future, I frequently notice a tendency to surround a necessarily
technical problem with an excessive amount of - shall I say - professional
atmosphere.
The general program is two-fold in character.
It contemplates, in the
first place, a steady reduction of debt by retirement, and, secondly, a re
duction of the burden by refunding as rapidly as possible securities bearing
high rates of interest with those bearing a lower rate.
To date the Treasury
has been singularly successful in both operations.
We
have to start with a definite amount of outstanding obligations ex
tending over a period of twenty years or more, with varying maturities, some
of which the Treasury controls by means of call provisions.
We know, then,
certain fixed dates on which certain obligations have to be met; and there
are, in addition, a number of open dates which may be filled either by making
use of the call provision of a particular issue or by the issue of a new
maturity through a refunding operation.
It is these open dates that give
the Treasury a very considerable measure of freedom as to the maturities of
Government obligations.
But there are limitations.
For instance, we must be careful in prepar
ing our schedule to see that enough securities either mature or are callable
every year to enable us to effect the retirements from the sinking fund re
quired by law.
Sinking fund retirements must be effected at an average cost not in
excess of par, and the great majority of retirements from this source from
- S'| now on must "be made at par.
This means that unless there are adequate
maturities in each year, the Treasury Department might find itself unable to
make any retirements from the sinking fund, for United States Government securi
ties have a tendency to
mount to a premium.
Thus our present Treasury 1947-52
tonds are now selling at 113.28, our Treasury 1944-54 bonds at 108.29, and our
Treasury 1945-56 bonds at 105.30.
It is not unreasonable to suppose that
history will repeat itself and that in the future as in the past United States
Government bonds will command a premium.-
Therefore, even if Congress should
change the sinking fund provisions - which I am not suggesting Congress either
should or would do - so as to enable the Treasury Department to retire bonds
at above par, it would prove to be an expensive proposition.
This was done
in the case of our Civil War bonds, which the Government, in pursuance of a
policy of debt retirement
129.
purchased in the open market at a price as high as
As IToyes says in his "Forty Years of American Finance" —
"A very .extraordinary chapter in American finance now
opened.
During 1888, the Government four per cents ranged
on the open market from 123 to 129; yet at these high
prices the Treasury bought, within seven months, upwards of
$50,000,000. * * * During 1888 and the two ensufr%i years,
$45,000,000 was actually paid out in premiums * * *. "
W@ know, in the second place, though not quite as accurately, what funds
will be available for debt retirement from the sinking fund and foreign re
payments, and we must estimate as best we can what sums may be expected by
way of surplus, for it is obvious that this last item is susceptible to
- 7 very great variations.
With this information on hand, we are enabled to prepare what may he
called a timetable of payments which, in so far as the aggregate amount to
be retired over a given number of years is concerned, is probably fairly
accurate.
But should it prove otherwise no difficulty need be experienced,
since it would always be possible if necessary in the later years to extend
the life of the debt by refunding maturing obligations.
Within the limits thus staked out, the Treasury, as stated above, retains
considerable liberty of action, having as it has the option of filling the
earlier open dates with short-term maturities or the later ones with securities
of a longer life.
In reaching a decision on this question from time to time
and &s occasion arises, the Treasury must be governed, both as to rates and
maturities, by current conditions, and these conditions vary rapidly.
They
do not permit a detailed program to be mapped out in advance but only a general
one, embodying a number of alternative propositions, the most appropriate one of
which to be selected when the time for action has come.
The problem of refunding the Second LiDerty Loan bonds illustrates as
well as anything could the nature of the problem.
It is obvious that with
its long-term Government bonds selling on a oasis to yield less than 3-g- per
cent and its short-term maturities on a basis to yield 3-J- per cent and less,
the Treasury Department could not permit over three billion of
per cent
bonds to remain outstanding once the time arrived when, under the law, thoy
could be retired by call.
Every consideration of sound financial management
demanded that they should be refunded at as early a date as possible,
was the situation in the early part of this year.
The question to be answered
was what form or forms the refunding operation should take.
During the first week in March, Treasury short-term certificates and
notes were selling on a basis to yield approximately 3.12 per cent, whereas
long-term Treasury bonds were selling on about a 3.45 per cent basis.
-A-t
8 -
that time it was not unreasonable ho conclude that conditions favored a- note
issue of limited maturity rather than an offering of long-tprm "bonds.
Accord
ingly the Treasury offered a 3-5— year 3-g- per cent note in exchange for Second
Libertys, with certain concessions as to interest, intended to compensate for
the premium which the Libertys then commanded.
ing.
The response was most gratify
No less than 44 per cent of the amount outstanding was exchanged.
Two months later the situation was reversed.
United States Government
securities maturing within a year were selling, on a basis to yield from 3.25
per cent to 3.45 per cent, while, on the other hand, the three long-term
Treasury issues were selling on a basis to yield approximately 3.30 per cent.
It seemed probable that the conversion of about $1,350,000,000 of Seconds into
5-year notes and the subsequent calling of $1,700,000,000 of those remaining
outstanding had resulted in an over-supply of short-term issues, accentuated
by the early maturity of the Third Liberty bonds.
In addition, as I have
already mentioned, bre believed that our appeal should be directed to the many.
thousands of small holders who had not been attracted by our note offering and
who rather obviously seemed to prefer a long-term bond to one with an early
maturity with the consequent necessity of early reinvestment.
So much then for the conditions which determine the character and
maturity of an issue.
The question of interest rates is one requiring a
greater degree of judgment, but here again current rates for different
maturities offer a fairly reliable guide, always taking into consideration
what the long-time trend is likely to be and never forgetting that the volume
of United States Government securities is constantly and rapid!y diminisning,
9
and that not many more years will elapse before this most convenient and safe
] form of investment which we have become so thoroughly accustomed to during the
I last decade will be available only in limited amounts, and that their scarcity
value is a consideration which cannot be neglected.
This program of steady debt retirement is in accordance with the historic
Ipolicy of the National Government,
It has been steadfastly adherred to by the
Administrations of Presidents Harding and Coolidge, and helped by the large
surpluses which have come from the prosperity of the country and the business!like administration of our National Government has resulted in reducing our
JIgross National debt from $25,484,000,000 on June 30, 1919, to $18,873,000,000
[on May 31, 1927, or a reduction of $5,611,000,000.
Last year the Treasury Le-
[ partment retired $873,000,000 of debt, and in the fiscal year which ends on
June 30th debt retirement will aggregate over one billion dollars.
This means,
fto Toe sure, fewer Government securities for the investor, but it spells an
| enormous saving in interest charges and consequent relief to the taxpayer.
How
great the relief is strikingly illustrated by the fact that interest payments
next year will be less by $53,000,000 than they are during the current fiscal
jyear, due entirely to debt reduction and refunding operations.
So, when you
read the surplus figures for this present fiscal year, do not be regretful
that Congress might have given you the benefit of greater tax reduction, but
[ rather realize that this entire surplus having been applied to the reduction of
the National debt the reduced interest charges will represent a permanent annual
saving’which will inure to your benefit in reduced taxes with just as much
I certainty as would the more direct method of tax reduction.
I tr u s t I have not w earied you w ith t h is somewhat long and te c h n ic a l d is
c u s s io n ,
i Loan
but the su b ject « f what the in v e sto r i s to do w ith h is Second L iberty
bonds i s a p e r tin e n t and to him an important q u estion a t th is tim e, w hile
the magnitude of the op eration s conducted by the Treasury Department m erit the
10
-
attention of the many thoughtful citizens who are ever interested in the sound
and efficient administration of their Government and look with pride upon its
accomplishments in the financial as well as in other fields.
ESTIMATED AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES, May 31, 1927.
(000,000 omitted)
[End
1
bnth
J
tee
Hay
Dec.
192?
lar.
hApr.
[Hay
find
m
lionth
lay
Dec.
11927
iMar.
Apr.
¡Hay
[End
[¡of
IS#
IP
11926
lay
[Dec.
[1927
liar.
Apr.
Hay
i
Total Outstanding Issues
Federal Farm
States,
■ ! Territories, | United States
Loan System
Government
Counties,
Insular
Cities, etc.
Possessions
$ 12 955
$ 151
$ 2 168
$ 1 725
13 354
156
2 164
1 816
13 638
13 734
*13 886
156
157
157
2 164
2 164
2 164
1 859
1 820
1 831
i
Total
$ 16 999
17
•
17
17
18
490
817
875
038
Held in Sinking Fund or Owned by United States Government
Total
Federal Farm
United States
States,
Territories,
Loan System
Government
Counties,
Insular
Cities, etc.
Possessions
$
2 092
$
15
$ -----
$
86
$
2 193
2 183
14
—
—
30
2 227
2 221
2 235
*2 267
14
14
14
---------
29
27
26
2 264
2 276
2 307
States,
Counties,
Cities, etc.
Net Outstanding Issues
United States
Federal Farm
Territories,
Loan System
i Government
Insular
Possessions
Total
$ 10 863
$ 136
$ 2 168
$ 1 639
$ 14 806
11 171
142
2 164
1 786
15 263
11 417
11 499
*11 619
142
143
143
2 164
2 164
2 164
1 830
1 793
1 805
15 553
15 599
15 731
* Preliminary
TOE: Beginning with the issue for January 31, 1927, all estimates are made on a
revised basis. Monthly estimates on the revised basis for the period 1913
to 1926, inclusive, are available on request.
Prepared by Section of Financial and Economic Research, Office of the
Secretary, Treasury Department, June 29, 1927.
o¡ W ñ
¡U-'
ESTIMATED AM OUST OF WHOLLY TAX-EXEMPT SECURITIES, June 30, 1927.
(000,000 omitted)
End i
of j
Month
1926
June
Dec.
1927
Apr.
May
June
End
of
Month
1926
June
Dec.
1927
Apr.
May
June
End
of
Month
1926
June
Dec.
1927
Apr.
May
June
States,
Counties,
Cities, etc.
Total
'
$ 13 054
$ 154
$ 2 164
$ 1 735
$ 17 107
13 354
156
2 154
1 816
17 490
13 734
13 88S
* 13 992
157
157
160
2 154
2 164
2 164
1 820
1 831
1 810
17 875
18 038
* 18 126
Held in Sinking Fund or Owned by United States Government
Federal Farm
States,
Territories, United States
Loan System
Government
Counties,
Insular
Cities, etc.
Possessions
17
<j» _____
2 183
14
2 235
2 267
* 2 289
14
14
14
$
2 111
States,
Counties,
Cities, etc.
$
Total
85
$ 2 213
— ___
30
2 227
--------
27
26
26
2 276
2 307
* 2 329
$
Net Outstanding Issues
Federal Farm
United States
Territories,
Loan System
Government
Insular
Possessions
Total
$ 10 943
$ 137
$ 2 164
$ 1 650
$ 14 894
11 171
142
2 164
1 786
15 263
11 499
11 619
* 11 703
143
143
146
2 164
2 164
2 164
1 793
1 805
1 784
15 599
15 731
* 15 797
*
NOTE:
Total Outstanding Issues
Federal Farm
United States
Territories,
Loan System
Government
Insular
Possessions
Preliminary
Beginning with the issue for January 31, 1927, all estimates are made
on a revised hasis. Monthly estimates on the revised hasis for the
period 1913 to 1926, inclusive, are available on request.
Prepared by Section of Financial and Economic Research, Office of the
Secretary, Treasury Department, July 27, 1927.
6-^
A ,hd
' Z>
q W )
KEVISSiJ ESTIMATES OF AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES
.from January 1926 to July 1927
This statement supersedes (1) all monthly statements for 1927 and (2)
in the summary statement, '‘Estimated Amount of Wholly Tax-Exempt Securities
from December 1912 to 1926'% the 1926 figures for "States, Comities, Cities,
etc." (p. 5), and the 1926 total figures (p. 13).
( 000,000 omitted )
States, Counties, Cities, etc.
End
of
Month
Total out- Held in sink- Net out
standing
ing funds or standing
issues
owned by U.S. issues
Government
Total out- Held in Net out
standing
sinking standing
i s sue s
funds
i ssue s
1926
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept,
Oct.
Nov.
Dec.
$16
16
16
IS
17
17
17
17
17
17
17
17
531
553
828
915
005
119
146
187
297
355
373
512
$2129
2152
2167
2176
2194
2215
2169
2175
2190
2201
2210
2231
$14
14
14
14
14
14
14
15
15
15
15
15
402
501
651
739
811
904
977
Oil
107
154
163
281
$12
12
12
12
12
13
13
13
13
13
13
13
546
652
806
879
961
066
066
0S1
198
241
245
375
1927
Jan.
Feb,
Mar.
Apr.
May
June
July
17
17
17
17
18
18
*18
615
751
842
900
063
155
172
2247
2255
2268
2280
2311
2334
*2343
15
15
15
15
15
15
*15
368
495
574
520
752
821
829
13
13
13
13
13
14
*14
449
580
663
759
Sll
021
031
* Preliminary
$2017
2043
2060
2073
2093
2113
2115
2125
2145
2157
2156
2137
2203
2213
2225
2239
.2271 *
2294
*2302
$10
10
10
10
10
10
10
10
11
11
11
11
529
609
746
806
858
953
951
965
053
084
079
189
11
11
11
11
11
11
*11
246
367
438
520
540
727
729
1
REVISED ESTIMATES OF AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES
from January 1926 to July 1927 - Continued
( 000 ,000 omitted)
-Territorio s, Insular
»Total : Held iñ
i sinking
Ehd outíof {stand- : funds
:
ifionth:ing
{issues :
1926
jijan. $144
144
lab*
151
lar.
w*
151
Apr.
151
jlíay
'June 154
July 154
154
1pg.
!Sept. 154
156
156
W,
iDec, 156
m
!1927
|¡Jan,
jFeb.
1liar.
■tor.
«ay
i1June
July
$15
15
15
15
15
17
17
17
14
14
v 14
14
{Federal
possessions :U.S.Government
Net
{outstanding issues, {Total
outstanding iffotal outstanding :outissues
{issues and net out :stand
standing issues are i n g
:i s sue s
{identical.)
$129
129
136
136
136
137
137
137
140
142
142
142
$2168
2168
2168
2168
2168
2154
2164
2154
2164
2154
2154
2164
$1673
1589
1703
1717
1725
1735
1762
1778
1781
1794
1808
1816
Farm Loan System
{Owned by:Net
¡U. S. Gov- :outiernment :stand:
;ing
:
¡issues
$97
94
92
88
86
85
37
34
31
30
30
30
$1576
1595
1611
1629
1639
1650
1725
1744
1750
1754
1778
1786
*
156
156
156
157
157
150
160
14
14
14
14
14
14
15
142
142
142
143
143
146
145
2154
2154
2154
2164
2154
2154
2135
1846
1851
1859
1820
1831
1810
1816
30
29
29
27
26
26
25
1816
1822
1830
1793
1805
1784
1790
Note: The above revision for States, Counties, Cities, etc., has been made on the
basis of corrected data in the State and City Compendium section of the Com
mercial and Financial Chronicle, June 25, 1927, which include issues re
ported too late for monthly publication, and an estimate of the amount of
maturities during the year.
Prepared by the Section of Financial and Economic Research, Office of the Secretary
Treasury Department, August 30, 1927.
j L r- 3 ô J I 9 ^ 7
ESTIMATED AMOUNT OF VÍHOILY TAX-EXEMPT SECURITIES, August 31, 1927.
(000,000 ornitted)
I End
of
; Month
Total
States,
Counties,
Cities, etc.
Total Outstanding Issues
Territories,
United States
Government
Insular
Possessions
Federal Farm
Loan System
1926
Ijug-
$ 17 187
$ 13 091
$ 154
$ 2 164
$ 1 778
! 1927
H June
July
Aug.
18 155
18 187
*18 216
14 021
14 046
*14 071
160
160
160
2 164
2 165
2 165
1 810
1 816
1 820
I
7 End
[ **
1Month
■1926
Aug.
Total
$
1927
iJune
July
jAug.
2 176
Held in Sinking Fund or Owned by United States Government
Federal Farm
United States
States,
Territories,
Loan System
Government
Insular
Counties,
Cities, etc. Possessions
*
$
2 334
2 344
*2 353
i
End
u of
2 125
2 294
2 ‘303
*2 312
$
17
$ -----
14
15
15
---------
Ret Outstanding Issues
United States
Territories,
States,
Insular
government
Counties,
Cities, etc. Possessions
$
34
26
263
26
Federal Farm
Loan System
■Month
Total
1926
[Aug.
$ 1 5 ¿Oil
$ 10 966
$ 137
$ 2 164
$ 1 744
1927
1!June
¡July
j:Aug.
15 821
15 843
*15 863
11 727
11 743
*11 759
146
145
145
2 164
2 165
2 165
1 784
1 790
1 794
* PreliminaryPrepared. "by Section of Financial and Economic Research, Office of the
Secretary, Treasury Department, September 30, 1927.
«1-
i#~H*
THS THE4SW DEPA2THSHT
The Treasury Deuartment was established hy the Act of Congress of September
2, 1739»
During the Revolutionary War, the finances were managed by a Super
intendent of Finance, and subsequently by a Board of the Treasury, until Alexander
Hamilton assumed the newly created office of Secretary of the Treasury in 1739.
Since Hamilton’s day, there have been forty-six Secretaries of the Treasury.
It has never been found necessary, however, to change either the general plan
jjihich Hamilton devised for operating the Treasury or the fundamental policy which
he outlined in his first Report to Congress.
That Report, which is known as the
Report on the Public Credit, is one of the great documents in the history of the
Government and has been aptly characterized as the foundation stone on which the
whole structure of the Federal Government has been built.
At the beginning of Hamilton’s term of office, the entire personnel of the
Treasury numbered only about 100.
At the present time there are 61,5S7 employees
of the Department, of whom 14,501 are on duty in Washington and 47,026 in the
field service throughout the country.
At the head of the organization are;
The
Secretary of the Treasury; the Undersecretary; and three Assistant Secretaries.
The Treasury Department is the central agency through which the Federal
h Government conducts its financial affairs.
Generally speaking, it receives and
|has the custody of all funds paid to the Government and disburses all moneys in
:payment of obligations of the Government.
One of the primary duties, therefore,
| of the Treasury Department is to sea that the Government always has on hand suf
ficient funds to meet its obligations including public debt maturities and to do
j| so in such a way as to effect a minimum disturbance to money ana business con
ditions.
If taxes and receipts flowed uniformly throughout the year, and ex-
| penditures ran an even course month,by month, there would be no real financing
|
_
o
-
problem, "but this is true neither of receipts nor of expenditures i
Tax receipts
rise to a sharp peak four times a year, while heavy debt maturities and interest
payments are not spread out, but come due on single days, the former at irregular
intervals.
Speaking in general terms, then, in so far as current financing is
concerned, our problem and our aim are to synchronize peak tax payments with the
Maturing of heavy obligations, and, in the intervals., to have in bank no more
funds than are needed to meet current expenditures.
Ever since the War, Treasury financing has centered around the public debt.
Aether in the form of short-term obligations or long-term bonds it is the allinrportant factor.
I shall deal later with the mechanism of operations affecting
public debt, but before doing so, I want to deal briefly with the policy which
the Government has pursued in respect of our War Debt.
The first thing to bo noted is that the service of such a debt is enormously
expensive.
From
April 6, 1917, to June 30, 1927, the Government expended for
interest $8,322,000,000.
One of the most direct methods, therefore, of reducing
the cost for the Federal Government is to reduce the sums paid annually in in
terest charges.
There is this further advantage in this reduction
it is not
|0ne of a temporary character, hut constitutes a permanent annual saving.
There are two methods of bringing about the desired result:
First, hy deht
retirement; secondly, by refunding outstanding securities bearing a high rate of
interest into securities hearing a lower rate.
ment has availed itself of "both methods.
Since 1921, the Treasury Depart
On June 30, 1921, the interest-hearing
deht was $23,738,000,000; on June 30, 1927, it was $18,252,000,000, or a decrease
of $5,436,000,000.
For the most part, this debt retirement was affected by
means of the sinking fund, foreign repayments, and such miscellaneous items as
franchise tax receipts especially assigned to debt retirement, but approximately
two billion dollars is to be assigned to surplus of receipts over expenditures,
which has continued year after year in .spite of three sweeping tax reduction
- 3 measures*
Due to this decrease in the debt, the average annual interest payments
have teen cut 'by not less than 0200,000,000.
Turning, now, to the second method of reducing the "burden of interest charges
j?e find that the average rate of interest paid on the United States G-overnment
debt was 4.29 per cent, in 1921, whereas on June 30, 1927, the average rate of
interest was 3.96.
The difference between 3.96 and 4.29 per cent, on approxi
mately 18^ "billion dollars of debt amounts to about $60,000,000 a year.
Thus,
we see that during the course of the last six years, by debt retirement and by
lowering of the interest rate, interest charges have been reduced approximately
(¡250,000,000 a year.
This, as I have already stated, constitutes a permanent
annual saving which, over a ten-year period, amounts to $2,600,000,000,. or almost
the equivalent of one year’s internal revenue receipts, including the income tax..
The program then of the G-overnment in relation to the Uar debt is twofold in
j character:
It contemplates, in the first place, a steady reduction of debt by
retirement; and, secondly, a reduction of the burden by refunding as rapidly as
possible securities bearing high rates of interest into those bearing a lower
rate..
As wo have seen, to date the Treasury has been singularly successful in
11 both, operations.
Let me now say a word or two about the mechanism of the quarter-day opera
tions and the machinery which enables the Treasury Department to keep Government
cash balances at a minimum and to carry on its financial operations without
major disturbances in the money market.
Here our short-term public debt per
forms a very important function.
The Federal Deserve Banks are the fiscal agents of the Treasury, and its
payments are generally made through them*.
Treasury balances in the Federal
Reserve Banks represent money withdrawn from the market^
In view of the very
heavy income tax: payments made on. the 15th of March, June, September and December.
unless some offset is devised and maintained, cash balances with the Federal
Reserve Banks would rise to a peak on the quarterly dates
| laininum just before the next quarterly date*
and would drop to a
So, once every three months, great
suns of money running as high as $400* 000¿000 would he talcen from the commercial
bai^s by the taxpayer ^ and paid into the Federal lieserve Banks, to the Treasury1s
accounts, thereby talcing that amount of money out of the money market, with all
of the consequences to interest rates that must follow.
It would be possible,
of course, to meet this situation by redistributing these deposits among:' the conUcrcial banks upon some arbitrary basis, but this would inevitably subject the
Treasury to all manner of pressure in favor of particular banks or particular
i
districts*
If, however, on each quarter-day, the certificates nature in an amount
] approximately equal to tax payments, it is obvious that the two transactions
wash.
The tax chocks drawn upon the commercial banks are deposited with the
'Federal He serve Banks to the Treasury's account, but, at the sane time, there is
paid to the commercial banks a like amount in payment of interest and maturing
■ securities*
This, however, is only part of the picture.
Wc have not taken into consid-
| eration the Government ’s financial needs between quarter-days, and if the entire
11 receipts from income taxes are absorbed by maturing certificates, the Government
| night well find itself short of funds*
Quarter-day financing, therefore, in-
1wolves a careful estimate of the amount needed for expenditures of all kinds dur]Iing the ensuing three months’ period.
This must bo added to the amount necessary
jjto meet maturing certificates, and this sun, less receipts, represents the amount
i of hew certificates that will have to be issued on the quarter-day.
Stated a
little differently, tax and other receipts, a3 a rule, are not sufficient to meet
j|maturing certificates as well as to finance the governmental needs over the next
three months’ period.
It is necessary, therefore, to issue new certificates
fihich in turn will nature on a future tax date, when the process will be repeated.
But, you will say, if tax-payments and maturing certificates balance, so as
- 5 l to involve no withdrawal of funds from the money market, then the sale of addi
I
tional certificates must result in the withdrawal of funds.
i
[ of course, if the new certificates were sold for cash.
i The banks pay for them by means of a deposit credit.
This would he so.
They are not, however*
Any responsible incorporate
tank, or Trust Company, upon putting up securities with the Federal Reserve Banks,
is permitted to pay for government securities by the creation on its books of a
credit in favor of the Treasury.
Suppose, for instance, on September 15th next,
National Panic A subscribes for a million dollars of certificates for itself and
its customers.
On that day
I tine it credits the Treasury
changes hands.
the certificates are delivered to it, and at the same
with a million dollars on its books.
Fo money
The bank acquires a million dollars of additional deposits, which
it can reasonably expect will remain with it for an average of sixty days, and on
| which it pays 2 per cent, interest.
From time to time, as the Gi-overnment needs
1 cash, a call is made upon the various banks with which the Treasury has deposit
j
l credit.
0
These banks pay the money to the Federal Reserve Banks to the account
! of the Treasury, and as the money is immediately paid out in the form of govern
ment expenditures, the transaction occasions no withdrawal of funds from the
llMarket.
This plan accomplishes three purposes:
First, it makes government de-
Iposits depend not upon the discretion of the Secretary of the Treasury, but upon
j the amount of securities any bank sees fit to subscribe for.
Second, it en
courages the banks to buy government bonds for the sake of the deposit of
securities, thus giving the Government a first-class primary market, while, at
the same time, the banks furnish the machinery through which a secondary distri
bution can be made to individual investors.
This means that, without expenses,
the Treasury Department has at its command a nation-wide sales organization.
P And, third, it permits large fiscal operations to be conducted without involving
jl large transfers or withdrawals of funds on a single date, with all of the conse
quent disturbance to money conditions and interest rates.
I
o To give you some conception- of the raghitiide of the operations involved, the
total volume of transactions at the Bow York Federal Reserve lank on the single
of March 15th reached the stupendous total of two billion dollars.
The Public Debt Service operates under the general supervision of the Comnissioncr of the Public Debt and includes the Division of Loans and Currency* the
Office of the Register of the Treasury, the Division of Accounts and Audit, and
the Division of Paper Custody.
The receipts of the Government cone chiefly from internal revenue collections
and custous duties.
The Bureau of Internal Revenue, under the supervision of
the Coinedssioner of Internal Revenue, administers and enforces the internal
revenue laws and collects all internal revenue taxes.
For administrative pur
poses the duties of the Bureau are assigned to six divisions or units.
There are
sixty-four collection districts under the supervision of Collectors of Internal
f Revenue, and thirty-five field divisions (consisting of revenue agents and in
spectors whose duties axe to verify the returns filed with the accounts and
records of the taxpayers) under the immediate supervision of Internal Revenue
Agents in Charge.
Por the fiscal year 1927 the total ordinary receipts of the Government
amounted to ¿4,129,000,000.
The aggregate of tax receipts, that is, customs,
income taxes and miscellaneous internal revenue, was 33*475.,000,000.
While so-
called miscellaneous receipts, which include such items as foreign repayments, .
the proceeds from the sale of capital assets, and a vast number of miscellaneous
resources, such as Panama Canal tolls and mineral, oil and gas land fees, yielded
9554,000,000. • The income tax is the most important and productive of our taxes.
Income tax receipts aggregated ¿2,225,000,000, of which •¿1,308,000,000 was paid
by corporations, and about ¿912,000,000 by approximately 2,500,000 individuals.
There were something over 4,000,000 individual returns, all of which nad to be
audited bv the Bureau of Internal Revenue.
You will be interested to know that
7
L. Sept crib or 1 s t , o f a l l th e r e tu r n s f i l e d d u rin g the p re se n t calen d ar- y e a r , 70
per cent had been a u d ite d and s e t t le d f o r -¿cod.
"¿bile the income t a x i s our most im portant F e d e ra l ta x under txie revenue A ct
of 132-» i t i s p a id by a c o m p a ra tiv e ly few people*
For th e c a le n d a r y e a r 1925,
that i s , incomes re p o rte d in th e c a le n d a r y e a r 1926, 9,560 ta x p a y e rs re tu rn e d
¡about 49 n cr cen t o f th e t o t a l ta x ; 327,000 ta x p a y e rs re tu rn ed ¿¿7 0 1 , 0 0 0 ,0 0 0 out
pf e t o t a l o f $734,000,000; in o th e r w ords, o f th o se making ta x r e t u r n s ,
13,843,000 re tu rn ed a p p ro x im a tely 033,000,000 o f ta x ; w h ile 337,000 in d iv id u a ls
^turned $701,000,000 o f t a x .
A cco rd in g to th e se r e tu r n s , l e s s than 3/lO th s
[ of 1 per cent o f our p o p u la tio n re tu rn e d 95^r p e r cen t o f our t o t a l income ta x e s ;
|about 1 .9 p e r cen t re tu rn e d 4^- p e r c e n t, and the rem aining 97.8 p e r cen t o f the
copulation re tu rn ed no ta x w h a tev er.
The prim ary fu n c tio n o f tlie Customs S e rv ic e i s to c o l l e c t th e im port dutiiMI .
and customs.
In 1927 custom s d u t ie s y ie ld e d 605 m illio n o f incom e.
3y f a r th e
greater p a rt o f import d u tie s i s c o l l e c t e d from com m ercial shipm ents, and a com
paratively .s n a il p o r tio n from th e exam ination o f p a s s e n g e r s ’ baggage and baggage
brought over th e roads*by a u to m o b ilis ts .
Under the t a r i f f law ad valo rem d u t ie s
are assessed on fo r e ig n v a lu e s and th e d e te rm in a tio n o f th e se v a lu e s
that in fo rm atio n be secured a t the so u rc e .
foreign c o u n tr ie s .
snuggling.
r e q u ir e s
T h is n e c e s s i t a t e s i n v e s t i g a t i o n in
Another fu n c tio n o f th e Customs S e r v ic e i s t o p re v e n t
At sea t h i s work i s perform ed by the Coast Guard, bu t alo n g our lan d
borders the Customs S e r v ic e must m a in ta in ¿ v e r v i g i l a n t p a t r o l s .
The Coast (Guard i s one o f th e o ld e s t o r g a n iz a tio n s in th e (Government., h a vin g
been e s ta b lis h e d o r i g i n a l l y in 1790 as a r e s u lt o f the need f o r th e s e r v ic e s o f
a coastal p a t r o l f o r th e enforcem ent o f th e customs law s and an o rg a n iz e d armed
force fo r th e p r o t e c t io n o f the s e a c o a s t.
The d u tie s o f th e Coast Guard in c lu d e
rendering a s s is t a n c e to v e s s e ls in d i s t r e s s and s a v in g l i f e
and p r o p e r ty , de
struction or rem oval o f w reck s, d e r e l i c t s and o th e r f l o a t i n g d angers to n a v ig a
tion; extending, m ed ical a id to American, v e s s e ls engaged in deep se a f i s h e r i e s ;
|protection of the customs revenue and preventing foreign smugglers evading the
I national
prohibition law; the conduct of the international ice patrol in the Forth
I A tlantic Ocean; t>atrol of the Forth Pacific Ocean, Bering Sea and southeastern ,
Alaska for the protection of the seal herds under international convention and the
[enforcement of United States laws; operating as part of the Favy in tine of v;ar;
and many other duties.
Disbursements of Government funds can he made only on the authorization of
Congress.
When such payment is authorized, a warrant is drawn, signed by the
[ Secretary of the Treasury and countersigned by the Comptroller General of the
ilunited States,
Upon this authority payments are made to public creditors.
The
] Division of Bookkeeping and Y/arrants of the Secretary’s Office, under the general
supervision of the Commissioner of Accounts and Deposits, keeps complete records
! of all appropriation accounts as well as of public moneys covered into the
f Treasury,
The Treasurer of the United States is charged with the receipt and disburseIIBent of all public moneys that may be deposited in the United States Treasury and
I in all other depositaries authorized by the Secretary of the Treasury to receive
lldeposits of Government funds for credit in the account of the Treasurer of the
United States,
He has also many other fiscal duties.
On July 1, 1921, the work previously performed by the Secretary of the
ITreasury of submitting to Congress annually estimates of probable revenues and
|; disbursements of the Government was placed in the hands of the President.
To aid
him in the performance of this duty a Bureau of the Budget was created by act ap
proved June 10, 1921.
This Bureau is under the immediate direction of the Presi
dent, to whom it submits its report.
Under rules prescribed by him this Bureau
prepares the annual budget and such supplemental or deficiency estimates as he nay
I
idesire to submit to Congress,
Another important function of the Treasury is to supply the money which is
the circulating medium of the country.
It maintains mints at Philadelphia,
gan Francisco and Denver f o r the co in a g e o f money, ana the Bureau o f E ngraving
and P rin tin g a t W ashington f o r th e p ro d u c tio n o f n o te s , "bonds and s e c u r i t i e s .
fw Bureau
o f E n gravin g and P r in t in g i s the Government’ s fa c t o r y f o r p ro a u cin g
its paper money, "bonds, stam ps, ch ecks and d r a f t s .
tegun in 1033 w ith a p e rso n n e l o f o n ly s i x .
The work o f t n i s Bureau was
At th e end o f the f i s c a l y e a r 1926
|kere wore over f i v e thousand p e rso n s employed; d u rin g th a t y e a r a p p ro xim a tely
432,307,103 d i f f e r e n t p ie c e s o f work were d e liv e r e d .
The C o m p troller o f th e Currency i s charged under th e law w ith th e o rg a n iz a
tion and s u p e rv is io n o f a l l s o lv e n t n a tio n a l "banks and th e a d m in is tr a tio n through
|| receiver o f th o se which have "become in s o lv e n t .
In c a r r y in g out th e s e d u tie s
there i s m aintained a fo r c e o f n a tio n a l "bank exam iners who v i s i t each banx
periodically to a s c e r t a i n i t s e x a c t f i n a n c i a l s t a t u s .
The is s u e o f n a tio n a l
and Federal r e s e rv e "bank n o te s a re under the c o n tr o l o f t h i s o f f i c e r .
Ti^e
Comptroller o f the C urrency i s an e x - o f f i c i o member o f the F e d e ra l r e s e r v e B oard.
The F e d e ra l Farm Loan Board a d m in is te rs the Farm Loan Act o f J u ly 1 7 , 19 1o ,
and that p a rt o f the A g r i c u lt u r a l C r e d it s Act o f March 4, 1923, w hich p ro v id e s
for the e sta b lish m en t and o p e ra tio n o f F e d e ra l in te rm e d ia te c r e d i t b a n k s.
The
federal Farm Loan A ct p ro v id e d f o r th e o r g a n iz a tio n o f F e d e ra l Land Banks and
Joint Stock Land Banks in o rd er to a s s i s t farm ers in s e c u rin g lo n g tim e or c a p i t a l
loans fo r the purpose o f p u rc h a sin g farm s or making permanent im provem ents.
intermediate c r e d it banks were d e sig n ed to fu r n is h to th o se
who are
Tne
enga0ed in
livestock and a g r i c u lt u r a l p u r s u it s c r e d i t s o f in te rm e d ia te d u ra tio n not su p p lie d
V/ eith er the F e d e ra l R eserve System banks or the F e d e ra l Land Banks and J o in t
Stock Land Banks.
The Bureau o f P u b lic H ealth S e r v ic e makes s tu d ie s o f d is e a s e s , ¿^y^iene,
rural s a n ita tio n , h e a lt h a d m in is tr a tio n , w ater s u p p lie s and sewage.
The i n f o r -
nation obtain ed i s g iv e n p u b l i c i t y by co rresp o n d en ce, le c t u r e s , p u b lic a t io n s c-.nd
conferences.
The Bureau i s charged w ith th e enforcem ent Oi. n a tio n a l Quarantine
10 *
stations in th e U n ited S t a t e s , the P h ilip p in e I s la n d s , H aw aii, and P o rto h ic o .
It g ives p r o fe s s io n a l c a re to s i c k and d is a b le d seamen in marine h o s p it a l s and
I re lie f s t a t io n s .
The S u p e rv isin g A r c h i t e c t ’ s O f f i c e was c r e a te d "by C ongress to en a b le the
Secretary of the Treasury to carry out le g is la t io n p roviding for c o n stru ctio n ,
[ enlargement, rem odeling and r e n a ir o f a l l p u b lic b u ild in g s and t h e i r m echanical
equipment under the c o n tr o l o f th e T rea su ry Departm ent.
In c o n n e ctio n w ith t h i s
work, the o f f i c e p re p a re s th e n e c e s s a ry d raw in gs, e s tim a te s and s p e c i f i c a t i o n s
[ and su p erv ises th e perform ance o f th e work.
The S e c re t S e r v ic e D iv is io n i s charged w ith th e su p p ressio n o f c o u n te rfe itin g ,,
lith e p r o te c tio n o f th e p r e s id e n t o f the U n ited S ta te s and h i s fa m ily and the p e rso n
I elected to be P r e s id e n t, and th e in v e s t i g a t i o n o f v i o l a t i o n s o f th e Farm Loan
the War Finance A c t,
Act,/and such o th e r m a tte rs r e l a t i n g to th e T rea su ry Department a s a re d ir e c t e d
fcy the S e c r e ta r y .
The T reasu ry Department i s a ls o charged w ith th e duty o f the enforcem ent o f
the P r o h ib itio n and F are o t i c Laws.
T h is d u ty i s perform ed by a Com m issioner,
who is a t the head o f th e B ureau, a c t in g under the g e n e ra l s u p e r v is io n o f an As
sistant S e c r e ta r y o f th e
Treasury, b u t, under the lav; and r e g u la t io n s adopted •
•last y e a r , w ith a v e r y g r e a t d egree o f independent a u t h o r it y .
The D iv is io n o f Appointm ents h a s , among i t s o th e r d u t ie s , a d m in is tr a tiv e
control o ver f i f t y
s u r e ty companies a u th o riz e d to t r a n s a c t b u s in e s s w ith the
Government; f i x e s th e q u a li f y i n g power o f each company; s u p e r v is e s th e a u d it o f
the fin a n c ia l sta te m e n ts o f the companies q u a r te r ly ; n o t i f i e s the companies o f
the settlem en t o f f i s c a l o f f i c e r s 1 a c co u n ts under F i d e l i t y "'Pnds, and h as cu sto d y
of a ll bonds running to th e Government excep t th o se f o r p o st o f f i c e em ployees and
certain in t e r n a l revenue bonds.
The General Supply Committee was c r e a te d by th e a c t o f June 1 7 , 19 10 , and i s
composed o f one r e p r e s e n ta tiv e from e ach o f the e x e c u tiv e d ep artm en ts.
I t i s the
tuty o f the Committee to *orep a re a n n u a lly a sch ed u le o f m is c e lla n e o u s s u p p lie s in
11
-
coci'-on use by or s u i t a b le to th e o rd in a ry needs o f two or more e x e c u tiv e d e p a rt
ments or government e sta b lish m e n ts in W ashington; to sta n d a rd iz e such s u p p lie s ;
and to s o l i c i t b id s , ta b u la te p ro p o s a ls r e c e iv e d , and recommend aw ards.
This com pletes our b r i e f glim p se o f tho T rea su ry D epartm ent.
I t could o n ly
bs a glim pse, f o r we would need d a y s, in s te a d o f h o u rs, were we to attem pt to
grasp the d e t a i l s o f t h i s huge o r g a n iz a tio n w ith i t s m an ifo ld a c t i v i t i e s .
Here
is a department th a t c o l l e c t s the ta x e s f o r a n a tio n o f 114,000,000 p e o p le over
avast expanse o f t e r r i t o r y ; th a t makes annual d isb u rsem en ts a g g r e g a tin g over
three and a h a l f b i l l i o n d o l l a r s ; th a t s u p p lie s our c u rren cy and sh a res the re
sponsibility f o r the sound fu n c tio n in g o f our banking and r u r a l c r e d i t system s;
that m aintains a navy o f i t s own, two p o li c e and one la r g e p a t r o l fo r c e r e s p o n s i
ble fc r the p r o t e c t io n o f our b o rd e rs a g a in s t sm uggling and the enforcem ent o f
one of the most c o n t r o v e r s ia l la w s; th a t conducts im portant and i n t r i c a t e manu
facturing o p e ra tio n s ; h a s a la r g e a r c h i t e c t u r a l and b u ild in g s t a f f c a r r y in g on
¡building p r o je c t s o f m agnitude a l l o ve r th e co u n try , and th a t i s ch arged w ith the
public h e a lth fu n c tio n s o f the n a t io n a l Government•
Viewed from th e sta n d p o in t
|of t’nese many and v a r ie d fu n c tio n s , th e T rea su ry i s r a th e r more o f a Government
ban a Department.
In s u it e o f th e g r e a t d i v e r s i t y o f d u t ie s , i t fu n c tio n s w ith
xtraordirary e f f i c i e n c y b e cau se i t was c o n s tru c te d o r i g i n a l l y on sound l i n e s ,
[through the co u rse o f y e a r s has b u i l t up a sp le n d id t r a d i t i o n and e s p r i t de c o rp s,
a trad itio n and s p i r i t th a t a re c a r r ie d on and m ain tain ed w ith s in g u la r d e v o tio n
by a tra in ed body o f c i v i l se rv a n ts whose eq u al i t would be hard to match any—
pro*
A ddress by Hon, Ogden L . H i l l s , U n d e rse c re ta ry o f th e
T re a s u ry , b e fo r e th e Uoncn’ s U n iv e r s ity C lub, W ashington,
D. C ., O ctober 1 2 , 192 7.
a
ta 1
% î ! I 1* I
SSÏIHAÎTSB AMOUNT Of ‘WHOLLY TAX-ETCSiOPT SECURITIES OUTSTAMHUG SEPTEMBER 30, 1927.
( 0 0 0 ,0 0 0 o m itted )
T o ta l O u tstan d in g Iss u e s
U n ited S ta te s
T e r r ito r ie s ,
Government
I n s u la r
P o s s e s s io n s
End '
of
Month
T o ta l
1926
Sept.
$ 17 297
$ 13 198
$ 154
$ 2 164
$ 1 781
•
1927
July
Aug.
Sept*
18 187
18 264
*18 315
14 045
14 119
*14 169
160
160
160
2 165
2 165
2 165
1 816
1 820
1 821
End
of
I Month
: 1926
! Sept.
1927
: July
.Aug.
i Sept*
T o ta l
$
2 190
S ta te s,
C o u n tie s,
C i t i e s , etc.-
F e d e ra l Farm
Loan System
Held in Sinking Fund or Owned by U n ited S ta te s Government
F e d e ra l Farm
U n ited S ta te s
T e r r ito r ie s ,
S "fcclt 6 S |
Loan System
Government
I n s u la r
C o u n tie s,
P o s s e s s io n s
C itie s , e tc .
$
2 145
2 303
2 313
*2 328
2 344
2 354
*2 369
$
14
15
15
15
$ -------
_ — **
- ——
Net O u tstan d in g Is s u e s
U n ited S ta te s
T e r r ito r ie s ,
S ta te s,
Government
In s u la r
C o u n tie s,
C i t i e s , e t c . P o s s e s s io n s
$
31
26
26
26
End
of
Month
T o ta l
1926
Sept.
$ 15 107
$ 1 1 053
$ 140
$ 2 164
$ 1 750
1927
July
Aug.
Sept.
15 843
15 910
* 15 946
1 1 743
• 'l l 806
* 1 1 841
145
145
145
2 165
2 165
2 165
1 790
1 794
1 795
F e d e ra l Farm
Loan System
* p re lim in a r y
Prepared by S e c tio n o f f i n a n c i a l and Economic R esea rch , O f f ic e o f the
S e c r e ta r y , T rea su ry D epartm ent, O ctober 28, 1927*
"Mm
• fi
FUTURE RELEASE
OBSERVE DATE
STATEMENT 3Y SECRETARY MELLON BEFORE) THE WAYS ANE MEANS COMMITTEE,
To Tdg released upon appear unco of the Secretary
"before the Committee on Monday, October 31, 1927,
which will be about 2:00 o ’clock*
STATEMENT FOR WAYS AND MEANS COMMITTEE.
As an e s s e n t i a l p r e lim in a r y to any program o f ta x re d u c tio n , i t i s
necessary to e stim a te revenue and e x p e n d itu re s not o n ly f o r the p re se n t
[ tut a lso fo r th e n ext f i s c a l y e a r .
I t i s fu r th e r d e s ir a b le to a s c e r t a in
if p o s s ib le , by e lim in a tin g tem porary and unusual item s, what th e normal
| revenues o f th e government a re under e x is t in g ta x la w s, g iv e n a ve ra g e
business c o n d itio n s ■
F in a n c ia l p o li c y to be sound must not be based upon
the exp erien ce o f a s in g le y e a r .
We must not be unduly im pressed by the
revenue r e s u l t s o f a y e a r of unusual p r o s p e r it y or a y e a r o f la r g e r e c e i p t s
from tem porary sources*
In c o o p e ra tio n w ith the Budget Bureau,
the T reasury Department has p r e -
|j pared i t s e s tim a te s , but b e fo r e p r e s e n tin g them i t
seems d e s ir a b le to say a ,
word or two about p a s t e s tim a te s , and i n ord er to a v o id s im ila r e r r o r s in the
future to p o in t out the re a so n s fo r such m is c a lc u la t io n s a s have o ccu rre d in
the more, im m ediate p a s t .
I [
The l a s t e s tim a te s f o r th e f i s c a l y e a r 1 9 2 6 were made j u s t p r io r to th e
passage o f the Revenue A ct o f 1926.
As p u b lis h e d in the C o n g re ssio n a l Record,
they showed t o t a l in t e r n a l revenue c o l l e c t i o n s of $ 2 , 6 1 2 , 5 0 0 , 0 0 0 , w hereas
i actual c o l l e c t i o n s a g g re g a te d $ 2 , 8 3 5 *9 9 9 * 8 9 2 , or, in o th er w ords, i n t e r n a l
h revenue c o l l e c t i o n s were u n d erestim ated by $223,^99*892.
The r e tu rn from
I corporation ta x e s was* o v e re s tim a te d by $ 5 5 *0 0 0 , 0 0 0 , and th a t from m isc e lla n e o u s
internal revenue u n d e restim a te d b y a p p ro x im a tely $20,000,000.
But the two
! principal item s which c o n tr ib u te d to t h i s la r g e u n d erestim ate of revenue were
individual income ta x e s , the y i e l d o f which w as
e stim a ted a t $ 6 0 3 , 8 0 0 , 0 0 0 *
-
2
-
whereas c o l l e c t i o n s a g g re g a te d $ 7 ^ 5 »392,^-81, and "back t a x c o l l e c t i o n s
which were e stim a ted a t $120,000,000 "but which reach ed the f ig u r e o f
$295»9^2,0 5 6 .
The Revenue Act o f 1 9 2 6 e lim in a te d about 2,000,000 i n
d iv id u a l ta x p a y e rs; i t in c r e a s e d "by 50 p e r cent and 40 p e r cen t r e s p e c t
iv e ly the exem ptions f o r s in g le .and f o r m arried p e rso n s; i t c u t the
normal ta x r a t e s d r a s t i c a l l y and red u ced maximum s u r ta x r a t e s from Uo
per cen t to 20 p e r c e n t; i t doubled the l i m i t o f income to which the
earned income p r o v is io n a p p lie d .
I t was v e r y n a t u r a lly a n t ic ip a t e d
th at th e se changes would r e s u l t in a c o n s id e r a b le l o s s o f reven u e.
In
i t s re p o r t th e Ways and Means Committee e stim a ted a re d u c tio n o f $HS,000,000
in normal ta x , o ver $98,000,000 in r e tu r n s from the s u r ta x , and a fu r t h e r
lo s s in reven ue o f $U2,000,000 due to in c r e a s e d exem ptions.
As a m a tter
of f a c t , how ever, th e in d iv id u a l r e tu r n s f i l e d f o r th e c a le n d a r y e a r 1 9 2 5
showed a l a r g e r ta x r e tu r n than d id those fo r 1 9 2 H, th e t o t a l (n et incom e)
tax re tu rn e d in c r e a s in g from $70^,000,000 to $73^,000,000.
The T rea su ry
Department had a lw a y s contended th a t lo w er r a t e s would "be more p r o d u c tiv e
than the' v e r y h ig h r a t e s which p r e v a ile d , hut n e ith e r th e T reasu ry D ep art
ment nor the Congress had a n t ic ip a t e d such an immediate in c r e a s e , an
in c re a se w hich was, o f c o u rse , g r e a t l y a c c e le r a t e d "by th e r i s i n g t id e
of p r o s p e r i t y .
Had th e re d u c tio n s co n ta in e d in th e 1 9 2 6 A ct been
a p p lie d to the 1 9 2 U r e tu r n s ,
the ta x would have been o ver 30 p e r cent
le s s than th a t a c t u a l l y re tu rn e d f o r 192^4.
B ack ta x c o l l e c t i o n s exceeded the e s tim a te s b y a p p ro x im a tely
$116,000,000.
3
In O ctober, 192$, a f t e r the new met had been i n fo r c e fo r about
nine months, the S e c r e ta r y o f th e T rea su ry subm itted e s tim a te s f o r the
f i s c a l y e a r 19 2 7.
In th o se e s tim a te s th e r e tu rn from th e c o rp o ra tio n
income ta x was e stim a te d a t $ 1,120 ,0 0 0 ,0 0 0 .
A ctu a l c o l l e c t i o n s a g g re
gated about $ 1,125,0 0 0 ,0 0 0 , or an u n d e restim ate o f $5,000,000.
I n d i
v id u a l' income ta x r e tu r n s were e stim a te d a t $220,000,000, w hereas a c t u a l
c o lle c t io n s a g g re g a te d a p p ro x im a tely $7^3,000,000, or an o v e re s tim a te
of $57,000,000.
Back ta x e s were e stim a te d a t $250,000,000; $331*000,000
were a c t u a l l y c o lle c t e d , o r an u n d e restim a te o f $81,000,000.
M is c e l
laneous in t e r n a l revenue was e stim a te d a t $$1 9 ,000 ,000 , w hereas a c tu a l
c o lle c t io n s a g g re g a te d $646,000,000.
The t o t a l in t e r n a l revenue ta x e s
were e stim a te d a t $ 2 ,809 ,000,000, and a c t u a l l y $56 ,000,000 more than th e
estimo.te were c o l l e c t e d .
in back ta x c o l l e c t i o n s ,
But nad th e r e not been suen a la r g e in c r e a s e
th e e stim a te would a c t u a l l y have been some
$25,000,000 too h ig h .
Turning now to the q u e stio n o f s u r p lu s , we fin d th a t the su rp lu s
for 1 9 2 7 exceeded the estimo,t c by $252,000,000.
T h is i s a cco u n ted f o r
by an in c r e a s e of $102,000,000 in t o t a l r e c e i p t s and a d e cre a se o f
$150,000,000 in e x p e n d itu re s .
On th e r e c e i p t s s id e , th e in c r e a s e i s
accounted f o r by two item s — an in c r e a s e o f $81,000,000 in oack ta x
c o lle c t io n s , and an in c r e a s e of $57*000»000 in r e c e i p t s from the r a i l
roads on acco u n t o f the r e a l i z a t i o n o f c a p i t a l a s s e t s .
The in c r e a s e i n
these two item s more than o f f s e t an o v e re s tim a te o f c u rre n t reven u e.
I f th e item s g o in g to móke up th e su rp lu s be a n a ly z e d , i t w i l l be
found th a t 65 p e r cen t o f the su rp lu s o f $ 635 *000,000 i s due to r e c e i p t s
- H -
on account o f the d is p o s a l o f c a p it a l a s s e t s , "back income ta x c o l
le c tio n s i n e x c e s s o f in t e r n a l revenue re fu n d s, and o th e r item s o f a
fa s t d isa p p e a rin g o r n o n -re c u rrin g c h a r a c te r .
W ithout th e se s p e c ia l
and n o n -re c u rrin g ite m s , which a g g re g a te d $4 lH , 0 0 0 , 0 0 0 , the su rp lu s
would have "been $ 2 2 1 , 0 0 0 , 0 0 0 .
1926.
The
T h is i s lik e w i.se tr u e o f the f i s c a l y e a r
su rp lu s th a t y e a r was $377,000,000, b u t e x c lu s iv e o f net
back ta x c o l l e c t i o n s and r e c e i p t s from c a p i t a l a s s e t s o f a n o n -re c u rrin g
ch a ra cte r,
the su rp lu s o n ly amounted to $162,000,000.
In 1 9 2 6 "back
tax c o l l e c t i o n s , l e s s revenue re fu n d s, amounted to $1 1 3 , 0 0 0 , 0 0 0 , and
in 1 9 2 7 bo $2114 , 000,000; r e c e i p t s from r a il r o a d s e c u r i t i e s amounted in
19 2 6 to $3 6 , 0 0 0 , 0 0 0 , and in 1 9 2 7
to $8 9 , 0 0 0 , 0 0 0 ; r e c e i p t s from F e d e ra l
Farm Loan bonds and o th e r minor s e c u r i t i e s amounted to $3'4,000,000 i n
1926, and $63,000,000 in 1927; r e c e i p t s from the War F in an ce Corpora
tion a s s e t s amounted to $1 9 , 0 0 0 ,0 0 0 in 1 9 2 6 , and to $ 2 7 , 0 0 0 ,0 0 0 in 1 9 2 7 ;
r e c e ip ts from th e c a p i t a l s to c k ta x , w hich was re p e a le d in 1 9 2 6 , amounted
in the y e a r 1 9 2 7 to $8 , 0 0 0 , 0 0 0 ; r e c e i p t s from the s a le o f su rp lu s war
to
su p p lies amounted to $1 3 , 0 0 0 ,0 0 0 in 1 9 2 6 ^and/$8 , 0 0 0 ,0 0 0 in 1 9 2 7 ;
while th e su rp lu s was fu r t h e r in c r e a s e d to the e x te n t o f $ 5 , 0 0 0 ,0 0 0 r e
ceived from a judgment o f th e c o u rt r e l a t i n g to the ITaval o i l le a s e *
A ll t o ld , th e r e c e i p t s from th e se item s o f a n o n -re c u rrin g c h a r a c te r
amounted i n 1 9 2 6 to $ 2 1 5 , 0 0 0 , 0 0 0 , and in 1 9 2 7 to $^1 ^1-, 0 0 0 , 0 0 0 .
One o f the p r i n c ip a l item s th a t h as caused e r r o r s in p a s t e s tim a te s
is th a t o f b a ck t a x e s .
In the f i s c a l y e a r 1927, b ack ta x c o l l e c t i o n s
on incomes a lo n e were u n d erestim ated b y $8 1 , 0 0 0 , 0 0 0 , w hereas in t e r n a l
5
revenue re fu n d s were o v e re stim a te d b y $ 3 5 , 0 0 0 , 0 0 0 , th e s e two item s
accounting f o r an e r r o r in th e e s tim a te s a g g r e g a tin g $1 1 6 , 0 0 0 , 0 0 0 .
jhe T reasu ry Department h as made e v e ry e f f o r t to a s c e r t a i n p r o s p e c tiv e
ta c k - ta x c o l l e c t i o n s and p ro b a b le re fu n d s, b u t th e re seems to be no
te st which w i l l determ ine a c c u r a t e ly fu tu r e
y ie ld .
A c c o rd in g ly , i t
seems w is e r to s e g r e g a te b a c k - ta x c o l l e c t i o n s and i n t e r n a l revenue
refunds and p re se n t them in a se p a ra te p a r t o f th e e stim a te as item s
more or l e s s s p e c u la tiv e in c h a r a c te r .
A ft e r th e c lo s e o f the f i s c a l
year 1 9 2 9 , w ith the c lo s i n g o f a l l o f th e c a s e s a r i s i n g under th e e x c e s s
p r o f i t s and o th e r war ta x e s , i t i s re a s o n a b ly c e r t a in th a t th e re w i l l
be a f a l l i n g o f f in b a c k - ta x c o l l e c t i o n s .
In p r e s e n tin g the e s tim a te s o f p ro b a b le t o t a l re ve n u e, th e revenue
from tem porary so u rce s th a t must d is a p p e a r in th e co u rse o f th e ne&t
year or tw o i s lik e w is e p re s e n te d s e p a r a t e ly .
In t h i s co n n e ctio n i t
should be noted th a t w hereas $1 6 9 , 0 0 0 ,0 0 0 w i l l be r e c e iv e d on account
of p r i n c ip a l end i n t e r e s t o f lo a n s made under S e c tio n s 207 and 210 o f
the T ra n sp o rta tio n A ct in 1922, the reven u e from t h i s sou rce w i l l drop
to a p p ro xim a tely $2^ , 0 0 0 , 0 0 0 , o r a f a l l i n g o f f o f $1 ^ 5 , 0 0 0 , 0 0 0 , in th e
f i s c a l y e a r 1 9 2 9 » and a f t e r th a t l i t t l e
or no revenue i s a n t ic ip a t e d ,
under t h i s head, a s o n ly $^9 , 0 0 0 ,0 0 0 p r i n c ip a l amount o f r a ilr o a d
o b lig a tio n s w i l l be l e f t out o f the $230,000,000 h e ld on June 30, 1927*
This item and a d if f e r e n c e of $27,000,000 in e stim a ted net b a c k - ta x
c o lle c t io n s more than acco u n t f o r th e d if f e r e n c e o f $1 2 1 , 0 0 0 ,0 0 0 between
the e stim a te d su rp lu s fo r 1 9 2 2 and th a t fo r 1 9 2 9 *
* 6 -
I am su b m ittin g h e re w ith two t a b le s !
The f i r s t shows f o r the
f i s c a l y e a rs 1928 and 1929 e stim a te d c u rre n t or normal r e c e i p t s , ex
tra o rd in a ry or tem porary ite m s, t o t a l r e c e i p t s e x c lu s iv e o f tem porary
item s, e x p e n d itu re s as e stim a te d by the Budget Bureau, e stim a te d sur
plus e x c lu s iv e o f e x tr a o r d in a r y revenue item s, and e stim a te d a c tu a l
s u r p lu s .. The second t a b le shows the p r i n c ip a l r e c e ip t item s o f a
temporary c h a r a c te r f o r the f i s c a l y e a rs 1926, 1927, 1928, and 1929.
*9
- 7 -
ESTIMATED RECEIPTS AND
v EXPENDITURES Eiscal years 1928 and 1929.
1928
19^9
Current revenue:
C u s t o m s .........................
$
Internal revenue:
Income tax ................. ..
Miscellaneous internal revenue.
Miscellaneous receipts
Total receipts
............. .. .
$
602,000,000
1,885,000,000
638,000,000
1,885,000,000
640,000,000
482,000,000
468,000,000
$3,607,000,000
$3,595,000,000
$
$
........
Special receipts including total
"back income tax collections
. . ,
602,000,000
469,000,000
213,000„000
$4,076,000,000
$3,808,000,000
Expenditures exclusive of internal
revenue refunds
. . . ..........
83,470,000,000
$3,396,000,000
Internal revenue refunds • • • • • •
151,000,000
138,000,000
$3,621,000,000
$3,534,000,000
137', 000,000
199,000,000
Total expenditures
. . ........
Surplus of current revenue over
expenditures exclusive of
internal revenue refunds
. . . ,
Surplus of total receipts over
total expenditures
.............
$
455,000,000
$
274,000,000
I
-8 -
PRINCIPAL RECEIPT ITEMS OP
A NON-RECURRING TYPE INCREASING
THE SURPLUS IN THE FISCAL
YEARS 1926, 1927, 1928
AND 1929.
1926
1927
1928
1929
$295,000,000
$331,000,000
$280,000,000
$180,000,000
182,000,000
117,000,000
151,000,000
138,000,000
$113,000,000
$214,000,000
$129,000,000
$ 42,000,000
Railroad securities • •
36,000,000
89,000,000
169,000,000
24,000,000
Federal Earn Loan bonds
and other minor
securities ........
34,000,000
63,000,000
1,500,000
5,000,000
II
¡hack income tax
collections........
1 Less internal revenue
refunds............
Net:
War Finance Corporation
assets .............
|LCapital Stock tax . . .
]PSale, surplus war
supplies *........ ..
j|llavy oil judgment
1 Surplus
j Surplus exclusive of
above net receipts
19.000.
00027,000,000
8,000,000
13.000.
000 8,000,000
*5,000,000
5,500,000
13,000,000
4,000,000
$215,000,000
$414,000,000
$318,000,000
$ 75,000,000
$377,000,000
$635,000,000
$455,000,000
$274,000,000
162,000,000
221,000,000
137,000,000
199,000,000
♦Exclusive of amount paid in
Liberty bonds aggrc gating
$5,500,000 principal amount.
9
Estimated surplus, exclusive of extraordinary revenue items,
will amount to $137,000,000 in the fiscal year 1928, and $199,000,000
in the iiscal year 1929*
Estimated total surplus, including extra
ordinary ievenue items, Will amount to $455,000,000 in the fiscal year
1928, and $274,000,000 in the fiscal year 1929*
In estimating the amount by which we can safely reduce the tax
revenues in 1928 and 1929, the actual surplus figures are the important
ones.
Sut looking to the future, it is essential that Congress should
take into consideration the temporary character of some of our existing
resources*
The factor which definitely determines the extent to which we may
reduce taxes is the 1929 surplus.
Assuming that a tax revision "bill
becomes law prior to March 15th next, the reductions will only affect
the revenue for the last six months of 1928.
That is to say, tax
reductions will be only 50 per cent effective during the present
iiscal year.
1929*
They will, however, apply to the full twelve months in
Therefore, even leaving out of consideration the fact that.the
1928 surplus largely exceeds the prospective surplus for 1929, a.
reduction in revenue which would be fully justified if the present
year were considered alone would almost certainly produce a substantial
deficit in the fiscal year 1929.
It may be urged that the estimated surplus for 1929 is placed at
too low a figure in view of the actual large surplus in 1927 and the
size of the estimated surplus in 1928* . The answer is that those sur' pluses were in the main due to certain resources which cannot be avail-
10
-
able in 1929, since "by that time they will have been exhausted.
In so far p,s current revenue is concerned, it should be noted that
the Treasury estimates that substantially the same receipts will be
available in 1929 as in 1928, and as were actually collected in 1927,
There is no evidence available to justify the assumption that they
will be larger.
There are certain definite indications that they
may be smaller, but the Department hopes that these unfavorable
factors will be offset by the normal growth of the country,
Dor a number of years past the Treasury estimates have under
estimated the revenue which was later repfLized.
It is not true,
however, that this was the result of deliberate intention or policy.
Every effort to avoid a repetition of this result has been made in
the preparation of the estimates here presented.
It would be unwar
ranted and unwise to assume that in the present estimates there is
any concealed surplus.
In these figures the Treasury has not con
sciously nor as a matter of policy played safe.
If ta,x reductions
are made or appropriations voted on the assumption that the present
figures understate probable future receipts, responsibility for such
reductions or appropriations must be assumed by those who advocate
them.
The Treasury ho,s placed the probable receipts at the highest
figures compatible with the most dependable forecasts and facts
Whicli careful and disinterested investigation could secure.
As far as
expenditures are concerned, the estimates have been furnished by the
Bureau of the Budget,. It should be remembered that estimates do not
include any expenditures that may be incurred by reason of new legislation,
The Trep.sury believes that tax reduction should not in any event be in
excess of approximately $225,000,000.
11
I suggest the fallowing:
1.
A reduction of the rate of tax on corporate income from
13-^jo to 12$.
It is estimated that such a change will result in a loss
in revenue of approximately $135,000,000.
2.
Amending those provisions of the law that apply to the
tax on corporate income so as to permit corporations with net income
of $25,000 or less, and with not more than ten stockholders, to file
returns and pay the tax as partnerships at their option.
It is
estimated that such an amendment will result in a loss of from
$30,000,000 to $35,000,000 in revenue.
3.
A readjustment of the rates applicable to individual incomes
that fall in the so-called intermediate brackets according to the plan
outlined below and the table contained in the body of this report.
It
is estimated that such a change will result in a loss in revenue of
approximately $50,000,000.
4.
Repeal of the estate tax, resulting in a revenue reduction
of $7,000,000.
5.
Exemption from taxation of the income derived from
American bankers
acceptances held by foreign central banks of issue.
I shall now discuss these recommendations, in greater detail.
Corporation Income Tax.
Corporations last received relief from taxation-in the Revenue
Act of 1921, which repealed the excess profits tax, and even then the
income tax rate was increased.
Since that time while other
12
classes of taxpayers have "been "benefited either by the repeal of war
taxes or the sharp reduction of war-time rates, corporations have
continued to bear a heavy burden.
corporation tax rates downward.
The time has come to revise the
Business conducted under the cor
porate form is today overtaxed' as compared with individual business
enterprises and partnerships, a condition which spells particular
hardship to the small corporations with a limited net income and
to the stockholder of limited means, whether he be a stockholder in
a large or a small corporation.
Corporations are not only large
contributors to the Federal Treasury.
They pay their full share of
the cost of local and State governments.
In the calendar year 1924 all corporations reporting net income
reported a net income, before all taxes, of $8,890,821,499.
They
paid in taxes other than income tax $1,304,169,207, and in income
tax $881,549,546 at the then rate of 12-g par cent, making a total
of $2,185,718,753.
In other words, 24.58 per cent of their net
income was paid in taxes.
In the same year-these corporations paid
$3,994,990,754 in cash dividends, which was 44.93 per cent of their
net income.
For every dollar paid in dividends 54 cents were paid
in taxes.
If all corporations be included, that is to say, corporations
reporting a deficit as well as those reporting net income, the
percentage of net income paid in taxes is 36.28 per cent.
Including
both the Federal and State taxes the percentage of taxes to net
income paid in some of our principal industrial States ranges from
13 -
26.25 per cent in Michigan to 41.04 per cent in Connecticut, 47.72
per cent in Minnesota, and 49.78 per cent in Massachusetts.
Corporation taxes are paid either "by the consumers or "by the
stockholders.. No general rule can he laid down as to the incidence
of this tax.
It is estimated that there are not less than 3,000,000
individual owners of corporate stock in the United S t a t e s T h e r e
are prohahly more.
Through the corporation income tax these individuals
are taxed at the rate of 13^ per cent on their proportionate share
of the income of the corporation, and this irrespective of whether
their individual income is sufficiently great to subject them to the
individual income tax.
If we include the tax paid by individuals on
the dividends received from corporations, the rate of
! tax on net
corporate income is 15.27 per cent,, whereas had all the corporations
been taxed as partnerships the average rate of tax on their net
income would have been 9.10 per cent.
There are only 2,500,000 individuals who return taxable net
income, and the average rate of tax on their income has been reduced
to 4.20 per cent, as compared with 3*000,000 stockholders who are
virtually taxed on a part of their income at the rate of
I2rg per
cent.
There are less than 9,000 individual income taxpayers whose average
tax as returned equals or exceeds 13g per cent of their taxable income*
Thus we have a strange and inconsistent situation in which the
owners of our corporations, some 3,000,000 individuals, are taxed
indiretly at the rate of 13^ per cent on all, or part of their
income, whereas under the present individual income tax law this
14 -
rate of 13-g- per cent or more is paid "by less than 9,000 individuals,
and these with net incomes in excess of $110,000*
It is interesting to note that according to the 1925 returns,
of $5,189,000j000 distributed in cash dividends, $1,724,000,000 went
to sources other than individuals making income tax returns.
While,
of course, a large part of this was paid to other corporations, it is
certain that a very considerable sum was paid to individuals with
incomes insufficient to require an income tax return.
dividends distributed, $740,000,000
wot ?
Offthe
returned by persons with
net incomes of less than $10,000, and the average rate of tax on all
incomes not in excess of $10,000 was .26 of 1 per cent.
The Treasury Department made a study of a number of corporations
owned by a comparatively few people and with net incomes moderate in
amount.
It found that the chief stockholders in corporations having
net incomes of $55,000 or less, would, without exception, have paid
a smaller tax to the Federal Government had they done business as
partners rather than as a corporation, whereas in 86 per cent of the
cases where the net income of the corporation was $100,000 and less
a similar conclusion was true.
Out of 252,334 corporations reporting
net income for the calendar year 1925, no less than 232,346 had incomes
of less than $50,000 a year.
So that the latest figures available
show that 92 per cent of the corporations reporting net income paid
higher taxes in a given year than they would have had they been
partnerships.
would indicate.
The situation is not quite as bad as these figures
For whereas the number of corporations with incomes
15of less thaï £'50,000 i S high, the amount of income reported by them
is comparatively small.
One-third of the total corporation taxes is
paid by 196 corporations with net incomes in excess of £5,000,000; 53
per cent of the corporation income tax is paid by 1,113 corporations
with net incomes in excess of £1,000,000; over 70 per cent is paid by
4,469 corporations with net incomes of over £250,000.
the discrimination appears to weigh
3ut even so,
with more than usual severity on
the stockholder in the closely held corporation whose net income falls
in the smaller amounts.
It may be urged that the owner or owners of a closely held corpora
tion with a limited income are no worse off than the stockholder of
limited means in a very large corporation who is taxed 13-^- per cent on
his proportionate share of the net income of tine corporation, whereas
the tax which the latter might have to pay on that net income were it
derived from some other source might not exceed 1^ per cent.
«Thile this
is apparently true, it is probable that the latter class of stockholder
looks upon his stock purchases as strictly of an investment character.
In other words, ho buys this share of stock just as ho would a bond
on the basis of its actual income yield, and to that extent in making
the purchase he has completely discounted the corporation tax.
There
fore, as I sec the situation, while it is desirable to reduce the rate
on all corporations, some additional relief should be granted the stock
holders of the small, closely hold corporations, whose situation is sub
stantially the same as that of a partnership though they do business in
corporate form
16The Treasuiy Department recommends that the present corporation
rate of 13y per cent he reduced to 12 per cent.
This will cause a
loss of revenue of approximately $135,000,000.
In order to give further relief to the owners of the closely held
corporations with a small net income, the Treasury recommends that all
corporations with, net income of «¿25,000 or less and the number of whose
stockholders does not exceed ten, he allowed to file their income tax
returns as if they were a partnership and he
basis.
taxed on the partnership
It is estimated roughly that this will occasion a loss of reve
nue of from'$30,000,000 to $35,000,000.
Surtax Rates
The Revenue Act of 1926 reduced the rates of the normal tax from
2, 4 and 6 per cent to !§-, 3 and 5 per cent, and cut the maximum surtax
rat e from 40 per cent to 20 per cent.
Uhile there was a readjustment
of the intermediate surtax rates, the effect of the drastic cut in the
maximum surtax rates and the sharp reduction in normal rates was to
benefit the small taxpayers and the large taxpayers somewhat more than
those whose taxable income fall in the brackets running from $18,000 to
$70,000.
In view of the above, I recommend a revision of the rates
applicable to the so-called intermediate brackets.
Under the Revenue Act of 1926 incomes from $14,000 to 'ri>24,000 are
graded by steps of $2,000.
That is to say, the income tax rate in
creases 1 per cent for every additional ¿2,000 of income.
From
$24,000 to ¿64,000 the brackets arc graded by steps of ¿4,000.
17 3y tho simple expedient of adjusting the rate so that it will
rise uniformly, increasing 1 per cent for each additional 04,000 of
income on incomes from $10*000 to -¿70,000-, some reductions will “be
granted to all 3urtax-payers but more particularly to those whose
incomes fall in the intermediate brackets.
Thus, under the Act of
1926 a 10 per cent rate applies to incomes ranging from "¿36,000 to
$40,000, whereas under the proposed plan the 10 per cent rate will
apply to incomes ranging from $46,000 to $50,000; the 15 per cent
rate instead of being reached at $56,000, will be reached at $66,000;
the 18 per cent rate at $80,000, instead of $70,000;
and the 19 per
cent rate at $90,000 instead of $80,000.
There are attached hereto two tables, the one showing the sug
gested changes in surtax rates from those of the 1926 Act, and the
second showing the individual income tax upon certain specified
taxable net incomes under the Bevenue Act of 1924, the Revenue Act
of 1926 and under the suggested rates.
18 -
SUKTAX HATES
Suggested change in surtax rates fro.i those of the 1926 Eevenue Act
IS26 Eevenue Act
Incoile tax zones
Proposed plan
hates
Incone tax zones
o
o
o
o*
1—1
to 0 14,000
14,000 to
16,000
16,000 to
18,000
ii
3
•'-10,000 to
14,000 to
18,000 to
13,000 to
20,000 to
22,000 to
20,000
22,000
24,000
4
5
6
24,000 to
23,000 to
32,000 to
28,000
32,000
36,000
36,000 to
to
44,000 to
0
Hates
1x>
2
3
22,000 to
26,000 to
30,000 to
26,000 .
30,000 :
34,000
4
5
6
7
8
9
34,000 to
38,000 to
42,000 to
38,000
42,000
46,000
7
.8
9
40,000
44,000
48,00C
10
11
12
46,000 to
50,000 to
54,CGC to
50,000
54,000
58,000
10
11
12
48,000 to
52,000 to
55,000 to
52,000
56,000
60,000
13
14
15
58,000 to
62,000 to
65,000 to
62,000
66,000
70,000
13
14
15
60,000 to
64,000 to
70,000 to
54,000
70,000
80,000
‘ 16
17
13
70,000 to
75,OCG to
30,000 to
75,000
30,000
90,000
16
17
13
80,000 to
Over - -
100,000
100,000
19
20
90,000 to
Over - -
100,000
100,000
19
20
o
o
o
14,000
18,000
22,000
o
'
19 -
individual income tax upon certain specified taxable net incomes.
Harried person
jib two dependents, with no capital gains nor dividends, and with earned income of
[10,000
______
axable
Inet
income
j 10,000
[ 12,000
14,000
Hevcnue Act 1924
'Tormal
Surtax
tax
Total
tax
$
$
141
23o
355
£>/
o
20
40
:]’
[
Revenue Act 1926
141
255
395
Formal
tax
5
83.25
143.25
237.25
Surtax
?
o
20
40
Total
tax
Î
Suggested surtax rates
:
: ,Surtax
83.25: : f
133.25: :
277.25: :
Total
tax
0 £
20
40,
83.25
163.25
277.25
br£,ooo
! 18,000
20,000
475
595
715
so
140
220
555
735
935
337.25
437.25
537.25
80
140
220
417.25:, :
577.25:
757.25; :
SO
120
ISO
417.25
557.25
717,25
1 22,000
24,000
25,000
035
955
1,075
320
440
500
1,155
1,395
1,655
637.25
737.25
037.25
320
440
58 0
957.25; ;
1,177.25; ;
1,4-17.25;
240
320
400
877.25
1,057.25
1,237.25
1 23,000
' 30,000
32,000
1,195
1,315
1,435
740
920
1,120
1,935
2,235
2,555
937.25
1,037.25
1,137.25
720
030
1,040
1,657.25: ;
1,917.25: ;
2,177.25: :
500
500
720
1,437.25
1,637.25
1,857.25
35,000
!' 40,000
; 45,000
1,575
1,915
2,215
1,540
2,040
2,730
3,215
3,955
4,945
1,337.25
1,537.25
1,787.25
1,400
1,500
2,360
2,737.25: :'
980
3,337.25: : 1,280
4,147.25: : 1,710
2,317.25
2,817.25
3,497.25
! 50,000
• 55,000
60,000
2,515
2, ul5
3,115
3,540
4,470
5,480
6,055
7,205
G ,595
2,037.25
2,267.25
2,537.25
2,930
3,660
4,400
5,017.25: :
5,947.25: :
6,937.25: :
2,200
2,780
3,330
4,237.25
5,047.25
5,917.25
!
; 65,ooo
70,000
75,000
3,415
3,715
4,015
6,570
7,760
9,090
9,965
11,495
13,105
2,737.25
3,037.25
3,207.25
5,210
6,030
3,960
7,997.25: :
9,097.25: :
10,247.25: :
4,060
4,800
5,600
5,047.25
7,037.25
8,887.25
|
. 80,000
90,000
100,000
4,315
4,915
5,515
10,480
13,540
17,020
14,795
18,455
22,535
3,537.25
4,037.25
4,537.25
7,360
9,760
11,630
11,397.25: : 6,450: 9,907.25
13,797.25: : 0,250 12,287.25
16,197.25: : 10,150: 14,507.25
150,000
200,000
300,000
0,515
11,515
17,515
30,520 39,035
54,020 65,535
92,020 109,535
7,037.25
9,537.25
14,537.25
21,660
31166.0
51,660
20,597.25: : 20,150 : 27,187.25
41,197.25: : 30,150 : 39,687.25
55,197.25: :• 50,150: 64,687.25
500,000
1,000,000
29,515 170,020 199,535
59,515 370,020 429,535
24,537.25 91,360 116,197.25: : 90,150:114,687.25
49,537.25 :191,350 241,197.25: :190,150 :239,687.25
»
-
20-
Estato Tax
The Treasury Department renews its recommendation that the Federal
estate tax ho repealed.
By tradition, legal theory and revenue necessity,
this tax be long’s to the States.
They and not the Federal Government have
developed inheritance taxation in the United States.
It is true that
they have made many mi stakes, hut it is not apparent that the entrance
of the Federal Government into this field has had any beneficial effect.
The Federal Government has only made use of the estate or inheritance
tax four times in its history, and then during war emergencies.
soon as the emergency was past, the tax was repealed.
occasion to change this policy.
As
There is no
It is not based on opposition to the
inheritance or estate form of taxation, but on the theory that some
taxes inhere to the States and can more properly be levied by them than
by the Federal Government end that the estate tax is one of these.
It is beyond dispute that the States need this revenue and that the
Federal Government docs not.
Ever since the war, Federal revenue needs have steadily diminished
as the cost of Government was reduced.
It has been found possible to
repeal most of the war taxes and to cut rates drastically.
The con
trary is true of the States and of their political subdivisions.
cost of government continues to mount steadily.
Thc-ir
Taking the long point
of view, this position, in so far as the Federal Government is con
cerned, is likely to continue.
As the national debt is paid off, the
burden of Federal taxes should grow lighter.
Bat it is impossible to
foresee the point at which the upward movement of State and local ex-
21
penditures will be arrested.
-
Moreover, Federal taxes are fairly well
diversified and bear some relation to the taxpayer*s ability to pay.
State and local taxes rest on altogether too narrow
a
base.
Hie
Federal Government should, therefore, retire from the inheritance tax
field, and should definitely announce the policy not to resort to this
form of taxation save in emergencies.
The loss in revenue will be insignificant.
Owing to the SO per
cent credit on the taxes paid the States, it is estimated that in five
years the Federal estate tax will not produce more than $20,000,000.
Should it be repealed, the loss in revenue in the fiscal year 1929
will not exceed $7,000,000.
The Automobile Tax.
I realize that great pressure will be
brought to bear on the
Congress to repeal the excise tax on the sale of automobiles.
I cannot
agree to the advisability of such a reoeal.
The Federal appropriation for good roads in the fiscal year I 92 S runs
as high as $7 1 ,000 ,000 , and in the fiscal year 1929 will be $7 5 ,000 ,000.
These expenditures by the Federal Government are for the direct and immediate
benefit of automobile owners.
They should make some contribution in return.
There is anotner aspect of this situation deserving consideration
from the standpoint of justice and fairness.
railroad*s chief competitors.
The automobile is one of the
Our railroads are paying heavy taxes
22-
to the Unite*d States
highway purposes.
Government, a part of which is "being used for
The Revenue Act of 1926 materially reduced the tax
on automobiles designed for the transportation of passengers, and re
pealed the tax on trucks and accessories*
The latest available
figures for railroad corporations having taxable net income indicate
an increase in the income tax pe-id by them to the Federal Government
from $57,000,000 for the calendar yean I92U, to $9^,000,000 for the
calendar year 1925*
Is it quite fair to ask the railroads to contribute
to the construction and maintenance of the roads on y/hich their rivals
operate while exempting the latter from any contribution?
The automobile is a semi-luxury article of such widespread use
that it furnishes a broad base on which to apply a low tax.
being low, there is no appreciable hardship to the taxpayer;
being broad, the tax is a good revenue producer.
The rate
the bs.se
Unless we are to rely
almost exclusively on direct taxes paid by a few and are prepared to
see our Rational Government supported not by the entire body of our
citizens, but by a limited clans, this is the kind of tax which should
be retained.
The income tax has gradually become so restricted in its npplicartion, that it is a class ra-thor than a national tax.
For the calendar
year 1 9 2 5 , 9 >560 taxpayers returned about 1+9 per cent of the total tax
returned.
327,018
$73^>555»183-
Out
individuals returned $7 0 1 ,1+97»726 out of a total of
°'L1-r entire population of 114 millions, only
2 ,5 0 1,16 6 individuals returned taxable income, and of these, 2,174,14-3
returned only $3 3 ,000,000 of tax, the balance of $ 7 0 1 ,000,000 being re—
-23-*
turned "by 327>018 individuals.
According to these returns, loss than
3/10 ox 1 per cent of our population returned 95*5 P©r cent of our
total income tax;
about 1*9 per cent returned U . 5 per cent, and the
remaining 97«^
cent of the population returned no tax whatsoever.
Obviously, some other taxes should he retained.
Once the automobile tax is repealed, it cannot bo reinposed in
time of peace.
at this time.
This creates a situation which should squarely bo faced
Both the Treasury Department and the Congress desire
to reduce taxes to the greatest- possible extent consistent with the
prospective revenue needs of the Government.
The reduction will be
made under the reasonable assumption that business conditions will
continue to be fairly prosperous.
Should this assumption Drove to be
false and should there be a falling off in business, with a consequent
immediate reduction in the yield of the corporation and individual
income taxes, or should the,
day come when taxes as - revised at this
session of Congress arc inadequate to meet the cost of Government, it
is obvious that revenue needs will compel an increase in rates of the
taxes then existing.
It is equally obvious that under such circumstances
corporation income tax rates and income tax rates on individuals will
have to be increased to an extent where they will not only make good the
loss of revenue resulting from the reduction of income returned, but
will in addition be required to contribute the $ 66 ,000,000 more or
less that the present excise tax on automobile sales now yields.
In
other words, the narrowing of the tax base in days of prosperity
inevitably means that when the time for increased tax burdens arrives
24 -
those taxpayers who are unfortunate enough t6 remain on the rolls
are compelled to pay more than their just share.
Injustices in the
field of taxation are inevitably committed under the pressure of
necessity, and the time to preserve the integrity of a well-rounded,
well-balanhed
system is in days of prosperity when rates can be kept
at a minimum and no particular hardship is inflicted on any one class.
Under such circumstances, to yield to the temptation to dispense with
a tax v/hich some day may prove to be an essential part of the tax system,
is to be guilty of the most short-sighted economic error.
It should
never be forgotten that in taxation the ideal to be aimed at is a
broad base and low rates.
We have eliminated most of our excise taxes.
There remain for
revenue purposes the excise tax on tobacco and automobile sales, the
admissions tax and a few stamp taxes.
All of these should be retained
in the interest of a well-balanced tax system.
I have not seen it
suggested that the excise tax on tobacco should be reduced, but when
we consider the burden borne by the users of tobacco, an article which
is likewise of the semi-luxury type —
though many would classify it as
a necessity —
the 3 per cent automobile sales tax appears insignificant
in character.
Because this 3 per cent is levied upon the factory, or
wholesale price, which is much smaller than the retail price, the
automobile tax amounts to but
consumer.
2$
for every dollar paid by the ultimate
Contract this with the fact that for every dollar spent by
our citizens for the articles enumerated, there is a tax required of 2^
to 5# on cigars, 9# on theatre and other admissions, 20^ on playing
cards, from 4^ to
to
400
220
on chewing and smoking tobacco, and from
170
on cigarettes,
For the fiscal year 1927 the tobacco taxes yielded $376,170,¿05.04,
as compared with $66,437,881.32 from automobiles. The use of tobacco
in its various forms is widespread, and the Federal tax on tobacco no
doubt affects a greater number of our citizens than does any other class
of tax.
The man who smokes a nickel cigar now pays l/5 of one cent in
tax to the Government.
The man who smokes an
This is at a rate double that upon automobiles'.
80
cigar pays a tax .of 3/l0 of one cent to the
Government on every cigar that he smokes.
Out of every 15^ paid for a
package of twenty cigarettes, 6 cents, or 40 per cent of the total retail cost, is paid to the Government.
Chewing and smoking tobacco is
now taxed at the rate of 18 cents per pound.
1927 it accounted for $65,070,195.26,
During the fiscal year
That is, chewing and smoking
tobacco alone produced practically as much tax as all of the automobiles
sold that year in the United States.
Agknissions Tax.
The same reasoning applies with equal force to the tax on admis
sions.
It is difficult to imagine a more ideal tax than one on the
$40 ringside seats at the recent Tunney-Derapsey fight.
Surely no one
will contend that the men and women who were willing to pay $40 for a
seat for thirty minutes of boxing could not well afford to contribute
$3.64 to the United States Government.
particular fight was $242,065*71.
The revenue yield from that
The tax of
600
for a box-seat cost
ing $6.00 for a world series baseball game, and the tax of
800
for a
26 s’3 ,0 0 box seat at a representative theatre is not considered excessive.
The exemption of all admissions of 75 cents or less eliminates the tax on
the recreation and amusement of an overwhelming majority of our citizens.
Those who pay more than 75 cents can well afford to make a contribution
to the Government, and such an excise tax cannot be held to be burden
some or to impose a restriction on legitimate recreation.
Tables showing the exact amounts paid as tax, and the percentage of
the tax to the retail prices, for the various makes of automobiles, the
different kinds and brands of tobacco, and for selected samples of ad
missions, are submitted in an appendix.
Taxes on the Income Received from Bankers
Acceptances held by Foreign Banks of Issue.
Under the provisions of Section 230 of the Revenue Act of 1926
a tax of 13§ per cent is imposed upon the discount received by any
Sections 233 and
foreign corporation on American bankers acceptances.
217 of that Act, however, exempt
from taxation any interest on bank
deposits received by a foreign corporation not doing business within
the United States and not having an office therein.
•
Under the terms of
Section 236 interest upon obligations of the United States is not sub
ject to tax.^.
An increasing number of countries have adopted the gold exchange
standard.
This means that banks of issue in those countries must carry
large balances abroad, largely in the American market.
Unless appro-
27 -
priate
i
investments are available, however, these balances will be lost
to London or to some other gold standard country,
Generally speaking, the chief ways in which a foreign bank,
especially a foreign bank of issue, employs its surplus funds in this
market are;
1, on deposit; 2, in short-time government securities; and,
3, in bankers acceptances.
At the present time, the law exempts from
taxation income derived from, the first two, but taxes the third.
Foreign
banks of issue with surplus funds to invest,.must seek the most liquid
shoft-time investments available.
Many banks of issue are prohibited by
law from investing their funds for longer than three months.
Others
are prohibited from investing their funds in any government securities
which are not issued on a discount basis.
In such cases as these*
where funds cannot be invested in government securities for one reason
or another, a bank of issue must invest its funds either in bankers
bills, subject to the tax, or else place its funds on deposit at
materially lower rates of interest.
The serious effect of this is the resulting tendency to withdraw
funds from this market for investment either in London or elsewhere.
In other words, the present law places a serious handicap on the free
development"' of our dollar acceptance market.
In effect it tends to
keep foreign funds out of our market and to force American merchants to
finance their transactions abroad rather than through the dollar ac
ceptance.
One of the main purposes of the Federal Reserve Act was to authorize
and foster the development of the American acceptance market as an ef-
- 28 ~
fective and economical means of financing our foreign trade.
Congress
has done its part in aiding this development "by a series of amendments
to the Federal Reserve Act.
Undoubtedly, however, the present provision
of the Revenue Act, which imposes a tax on the discount earned from our
"bankers acceptances, is proving an obstacle to the full accomplishment
of this purpose.
I recommend, therefore, that the Revenue Act of 1926 be amended so
as to exempt from the income tax income derived from American bankers
acceptances held by foreign central banks of issue.
Technical Recommendations.
The Treasury Department would like at a later date to present to
the Committee certain suggested amendments to the income Tax Law of a
technical character.
palysis of taxes on automobiles, cigarettes, cigars, tobacco, prize fights, base■all and theatre tickets,
A TJ T 0 M O B I L E S
K B of
1 Car
¡lord
factory
Detail
Price
Type
Bunab out
Amount of
Factory
Wholesale
Tax at
3$
Price
25 c Discount
$ 360.00
$ 270.00
$
Sales Price
to
Purchaser
8 .10
$ 403.64
Percentage
of Tax to
Sales
Price
2 •
\o
11
Touring
380.00
285.00
8.55
424.12
2 .,
ii
Coupe
485.00
363.75
10.91
537.64
2.
! «
2D Sedan
495.00
371.25
11.13
547.88
2.
Ir
I 11
4D Sedan
545.00
408.75
12.26
599.08
2 ,
Star
Touring 4
550.00
412.50
12.37
640.00
2 .
Chevrolet
Coach
595.00
446. <jD
13.38
661.00
2.
liar
Coupe 4
Ô50.00
487.50
14.62
740.00
2.
1 ..
Coach 4
675.00
506.25
15.18
765.00
2.
1 11
Touring 6
. 725.00
543.75
16.31
810.00
2.
1 11
Sedan
4
765.00
573.75
17.21
857.00
2.
t
h
Coupe
6
795.00
596.25
17.88
890.00
2 .,
fi
r"
Coach
6
845.00
633.75
19.01
940.00
2 .
SP.Boadster
885.00
663.75
19.91
975.00
2.
Cabriolet
915.00
686.25
20.58
1015.00
2.
6
925.00
693.75
20 • 81
1020.00
2 .
975.00
731 . 25
21.93
1075.00
2 .
Touring
1005.00
753.75
22.61
1150.00
2 .
Coupe
1035.00
776.25
23.28
1200.-00
2.
Oakland
Sedan
1045.00
783.75
23-51
1132.00
2 .
Oldsmobile
Landau
1075,00
806.25
24.18
1155.00
2,
1 il
it
it
F"
«
! Chandler
it
Sedan
Coupe
- 30 A IT T O K O B I L
pfcc of
I Car
| Paige
Type
Coupe
Fact ory
Detail
Price
E S
Factory
Sales Price
Amount of
Wholesale
Tax at
•
to
3o
price
Purchaser
25 -j Discount
Percentage
of Tax
to Sales
Price
iioss.oo
$ 021.25
$ 24.63
$1170.00
2.
Touring
1135.00
851.25
25.53
1225.00
2.
Sedan
1145.OC
858.75
25.76
1342.00
2.
lioadster
1175.00
861.25
25.43
1328.00
2«
Eoadstcr
1195.00
895 2r’
26.80
1290.00
2.
'11
If, ii
Touring
1225.00
918.75
27.56
1320.00
2.
j giudeb-alkcr
Touring
1245.00
933.75
20.01
1395.00
2.
Coupe
1295.00
971.25
29.13
1450.00
2.
Touring
1325.00
S93.75
29.01
1450.00
2.
Sedan
1305.00
1038.75
31.15
1500.00
[bash
Chrysler
it
;[Buick
II
ii
BupmoMle
jj Hudson
Auburn
Touring
1445.00
1003.75
32.51
1635.00
2’
2.
fillys-Knight
Coupe
1495.00
.1121.25
33.63
1595.00
.2 .
Touring
1525.00
1143.75
34.31
1640.00
2.
brougham
1575.00
1181.25
35*43
1690.00
2.
Sedan
1595.00
1196.25
35.89
1770.00
*S?
om
Sedan
1635;00
1225.25
, 35.79
1845.00
2.
iioadstor
1685.00
1263.75
37.91
1790.00
2.
¡¡pries s
Coupe
1725.00
1293.75
38.81
2095.00
2.
lash
Coupe
1775.00
1331.25
n.¿
q
J•Q4.
1900.00
2. -
Gardner
Coupe
1845.00
1383.75
•O'l
2050.00
Bupmohile
Touring
1895.00
1421.25
42. S3
2 112.0 0
Irougham
1925.00
1443.75
43.31
2050.00
1Buick
jjy
[Hudson
1Chrysler
|elie
!leo
| Buick
u
X
ii
1
2.
.2 »'~'~
|
- 31 A U T 0 . H 0 1 I L E S
Factory
Actail
oi
par
T3Tc
|ipop
Speedster
¡jjllys-ICnight
Sales Price
to
Purchaser
Percentage
of Tax
to Soles
Price
■2 ,4
f1965.00
$1473.75
$ 44.21
$2160.00
Coupe
1935.00
1496.25
44.89
2115.00
p *
cj
Touring
2045.00
1533.75
46.01
2245.00
2.
Sedan
2095.00
1571.25
47.14
2175.00
2,
mobile
Sedan
2195.00
1646.25
49.39
2412.00
2.
¡ckard
Phaeton
2275.00
1705.25
51.19
2468.00
2.
ti
2385.00
1788.75-
53.63
2597.00
2.
ierce Arrow
iiUnab out
2495.00
1871.25
53.14
2715.00
2.
¡erless
Sedan
2595.00
1946.25
58.39
2675.00
2.
jiiysler
Phaeton
2645.00
1983.75
59.51
2850.00
2.
Victoria
2740.00
2055.00
61.65
2860.00
2.
Sedan
2790.00
2092.50
62.78
2911.00
2.
it
2840.00
2130.00
63.90
2962,00
2.
2910.00
2182.50
65.48
3034.00
2.
Limousine
2940.00
2205.00
66.15
3065•00
2.
Sedan
3025.00
2268.75
68.06
3250,00
2 .
pirn
|in d ie r
j! it
i
Price
Factory
Amount oi'
Wholesale
Tax at
Price
3 ,o
25'} jiscount
i[aniilin
H
f|"
|I
I
ii
II
Ierce A r r o w
n
ti
Coupe
3100.00
2325.00
63.75
3340.00
2 .
H
ii
it
3200.00
2400.00
72.00
3440.00
2 .
II
II
Sedan
3300.00
2475.00
74.25
3540.00
2 .
J II
II
it
3400.00
2550.00
75.50
3640.00
O •
O
Speedster
3485.00
2613.75
78.41
4000.00
2 .
T o u r in g
3555.00
2673.75
80.21
3850.00
2 .
!
¡non
n
32 -
A r T 0
|i'slie- of
I Car
T^pe
| |amon
Sedan
IjjStearns-Hnight
ii
ti
ii
it
Pactor/
Hetail
Price
!■: 0 1 I L D S
Pact 017/
Amount of
Vfholesale
Tax at
Price
¿ I
25-^ Discount
Sales Price
to
Purchaser
Percent
of Ta
to Sale
Price
$3640.00
82730.00
$ 81.90
$3990.00
3700.00
2770.00
83.10
3850.00
2.
3750.00
2812.50
84.37
3910.00
2.
2A-
f p u tz
Speedster
3885.00
2913.75
87.41
4325.00
2,
■ackard
Hunabout
3975.00
2981.25
89.44
4193.00
2.
¡¡pierce Arrow
Limousine
4045.00
3033.75
91.01
4300.00
2.
lla d illa c
Sedan
4095.00
3071.25
92.13
4343.00
2.
it
it
4195.00
3145.25
94.38
4445.00
2.
it
Imperial
4245.00
3133.75
95.51
4496.00
2.
| L a S a lle
Town Cab
4500.00
3375.00
101.25
4773.00
2.
ILoadster
4600.00
3450.00
103.50
4778.49
2.
Sedan
4800.00
3600.00
108.00
4983.17
2.
ii
5000.00
3750.00
112.50
5187.85
2.
Limousine
5200.00
3905.00
117.15
5392.53
2.
Town Cab
5500.00
4125.00
123.75
5777.00
2.
Sport
5900.00
4425.00
132.75
6250.00
2.
Touring
5000,00
4500.00
135.00
5350.00
2.
Sedan
7300.00
5475.00
164.25
7550.00
2.
Cab
7500.00
5525.00
138.75
7750.00
2.
Landau
8000.00
6000.00
180.00
8475.00
2.
j|
Lincoln
if?
• ii
T
11
"
"■
5ad.illac
¡Locomobile
1 it
ii
■ii
!Pierce Arrow
33 -
Sizc oi>
Package
Lucky Strike - 20
S
Sales Price
to Consumer
iùàpimt
of dnx
Percentage of
Tanc to Sales Price
to
1—1
•
I
Camel - 20
C I G A R 5 T T 3
•06
40.
.15
.06
40.
Chesterfield - 20
.15
•06
40.
Sweet Caporal - 20
.15
.06
40.
Piedmont - 20
.15
#06
40.
Old Cold - 20
.15
•06
40.
Barking Dog - 20
.15
.06
40.
Picayune - 20
.15
.06
40.
Mar To oro - 20
.20
.06
30.
Revelation - 20
.20
.06
30.
Herbert Tareyton - 20
.25
•06
24.
Dun Hill - 20
.25
•06
24.
Murad - 20
.30
.06
20.
Ramesis - 20
.35
.06
17.
Bote:
AiS
the t m on each package of twenty cigarettes is six
cents, the purchaser of the more expensive package pays
a smaller tax proportionally than the purchaser of the
cheaper varieties.
G U A R
S
Amount of
Perccatago
Sales Price
Tax on
of Tax to
_____________ Class .
_______nor Ci,aar______ Hach Ci.;,or_______ Soles Price
MAt
(Jarcia Grande
A
Bcllofair
in
o•
Mi favorite.
.002
4 .fo
.05
.002
4.
**
A
.05
.002
4.
31 Producto
c
.10
.005
5.
Diverso
c
,10
.005
5.
Cor ino.
c
.10
,.005
5.
Optino
c
.10
.005
5.
(Jarcio. Orondo
c
.10
..005
5.
Harvoster
c
.15
.005
3.1/3
Dunh.il!
c
.15
.005
3.1/3
Reno Costilla
c
,15
..005
3*1/3
Wehster
c
.15
.005
3.1/3
(Jarcia Grande
c
.15
.005
3.1/3
Henry IV
c
.15
.005
3.1/3
llverso
c
.15
. .005
3.1/3
11 Mi Hogar '
c
«15
1" .005
&.1/3
Perfecto Gn.rciá
D
.20
. .0105
5.1/4
Corina
D
.20
.0105
5,1/4
Rene Costilla
D
.20
.0105
5.1/4
El Producto
D
.20
.0105
5.1/4
Mi Favorita
D
,20
.0105
5.1/4
La Palina,
D
.20
.0105
5.1/4
La Corona.
3
.25
. .0135
5.4
Par togas
T
uH
•25
.0135
5,4
Romeo & Juliet
s
.50
.0135
4.5
Corena Corona
3
.60
.0135
2.1/4
ü
B
r
|t
II-
35 -
CHS) W I N G
T O B A C C O
Rate of Tax
18^ per pound.
Size of
Package
Scllin £
Price
1 l/2 oz.
.10
.016875
16.$
2 oz •
.15
.0225
15.
1 7/8 oz.
.20
.02109
10.5
7/8 oz.
.10
.0098
2 1/4 oz.
.20
.0253
12.
j|Climax
1 oz.
.10
.01125
11.
| Climax
1 1/2 oz.
.10
.016875
16.
2 os.
.10
.0225
22.
Name
ligor
Marit ana
iFip%r Hoidsick
Bravely
illDrummonds Natural Leaf
rBeachnut
S M 0 K I N G
Poreoutage
.to Sales
9.8
T O B A C C O
1 3/4 oz.
.10
.0196
19.6
2 oz •
.10
.0225
22.
jEdgeworth
3 1/2 oz.
. .35
.03938
11.
■M e l
to
i
—i
«
N
O
|Union Leader
Ant. of Tax on
each package
.10
.0196
19.6
llrmony
2 l/2 oz.
.25
.0281
'll.
4 oz.
1.00
.045
04.5
Osterloahs
3 oz.
.25
.03375
13.
lien© Fair
3 l/4 oz.
.50
.0365
A'
11« S. Marines
personal
7.3
36
P H I Z S
I I & 5 T S
Salos Price
of Ticket
.eluding Tax
$40.00
30.00
25.00
20.00
15.00
10.00
5.00
WORLD
Box Scats
Grand Stand
Grand Stand (
Bleachers
netm a r
R I B S
<$3•64
O ryry
&
• (O
0•CO
OQ
1.82
1.37
.91.
.46
9.1 i
9.1
9.12
9.1
9.13
9.1
9.2
3 ;I S S 3 A L L
6.60
5.50
3.30
1.10
T 5 5 A T R
Tax
Percenter
of Tax to
Jplll?ßlctMc»c>
.60
.50
.30
.10
9.09
9.09
9.09
9.09
9.09
9.03
9.03
9.09
S S
POLIfS
Boxes
Orchestra
Logo Seats
Balcony
Balcony
2.20
1. o5
1.65
1.10
.50
.20
.15
.15
.10
SHUBERT BELLSCO
Boxes
Orchestra
Mezzanine
Mezzanine
Balcony
Balcony
Balcony .
Gallery
3*30
2.75
2.20
1.65
1.65
1*10
.50
•50
.30
.25
.20
.15
' .15
.10
.I
9.09
9.09
9.09
9.03
9.03
9.09
-—
_
f
.
___
.
t
^
7
ESTIMATED AMOUNT OE WHOLLY TAX-EXEMPT SECHRITIES OTTTSTADDING- OCTOBER 31» 192?.
(000,000 omitted)
End
of
Month
,
Total
States,
Counties,
Cities, etc.
Total Outstanding Issues
Territories,
United States
Insular
Government
Possessions
Federal Farm
Loan System
1926
Oct.
$ 17 355
$ 13 241
$ 156
$ 2 164
$ 1 7Ç4
1927
Aug.
Sept.
Oct.
18 264
18 381
* 18 443
14 119
14 235
* 14 288
160
160
163
2 165
2 165
2 165
1 820
1 821
1 827
End
of
Month
Total
1926
Oct.
$
1927
Aug,
Sept.
Oct.
Held in Sinking Fund or Owned by United States Government
States,
Territories,
United States
Federal Farm
Counties
Insular
Government
Loan System
Cities, etc. Possessions
2 201
2 354
2 369
* 2 388
End
of
Month
Total
**
$
2 i57
*
2 313
2 328
2 345
$
14
15
15
17
A
_
__ _
-------
-------
Net Outstanding Issues
States,
Territorieá,
United States
Insular
Counties,
Government
Cities, etc. Possessions
$
30
26
26
26
Federal Farm
Loan System
1926
Oct.
$ 15 154
$ 11 084
$ 142
$ 2 164
$ 1 764
1927
Aug.
Sept.
Oct.
15 910
16' 012
* 16 055
11 806
11 907
* 11 943
145
145
146
2 165
2 165
2 165
1 794
1 795
1 801
* PreliminaryPrepared by Section of Financial and Economic Research, Office of the
Secretary, Treasury Department, December 8, 1927.
TREASURY DEPARTMENT
FOR RELEASE SUNDAY MORNING;
\ DECEMBER ,11, .1927.
SPEECH TO BE DELIVERED BY UNDERSECRETARY OF THE TREASURY MILLS
BEFORE THE BUFFALO CLUB, BUFFALO, 'PEW/YORK
1
011 SATURDAY, DECEMBER 1^, 1
\j
Mf
O O al »I ■
DAT £
.mmmm'J
... .... ....
I assume that when y&u invite an officer of the Treasury Department
to address you, you expect him to discuss the Treasury activities, or some
problem in which the Department is interested. Just at present,
the Congress
is considering a number of measuifes in which the Treasury Department has a
direct interest, two of which I shall deal with briefly to-night.
Doubtless, you are all familiar with the recommendations made by the
.Secretary of the Treasury in respect of tax reduction, and his insistence
that the reduction shall be kept within such limits as will insure-
a
balanced budget during the present and succeeding fiscal years.We are conas
cerned with a balanced budget not only/a fundamental principle underlying
any sound fiscal system, but also because with a huge war debt outstanding,
which must be retired over a period of years, it is essential that the
Treasury Department look ahead and provide for orderly and systematic
retirement.
•
Our debt operations are two-fold in character. Whenever conditions
are favorable, we refund high interest-bearing securities into securities
bearing a lower rate of interest.
At the same time, when securities mature,
or circumstances make it desirable and possible to call them prior to
maturity dates, the obligations are retired, and thus there is effected
a permanent reduction of the National Debt.
This cannot be done in a
haphazard way, but calls for foresight, planning and the setting up of a
schedule of maturity dates which will make available maturities to which
sinking fund appropriations and foreign repayments on account of principal
»
may be applied.
The Treasury Department has prepared such a schedule, and
its retirement and refunding policies are based on a definite plan extend
ing over a number of years.
Such a plan is not cased on tne assumption
that there will be available such surpluses as have existed during the
past few years, but it is certainly based on the assumption that theie will
not be a series of deficits, and that, while engaged in a program of
retiring our war debt, we will not at the same time be confronted with the
necessity of issuing securities in order to meet current expenditures which
should be paid from current revenue.
I am not going into a further argument as to the necessity of keeping
the budget of the Federal Government balanced, but, after all the good ad
vice which we have given to foreign nations, a situation in which we are
obliged to present arguments to our own Congress in favor of a balanced
budget is not without its humorous aspect.
A French friend of mine
said to me last week, "Now that you experience the necessity of making an
effort to keep your badget balanced by preventing taxes from being reduced
toormuch, you will appreci ate some of the difficulties which we experienced
when we were fighting to balance our budget by increasing an already too
heavy burden of existing taxes."
Aside from the above, the Treasury recommendations with reference
to tax reduction were based on the general principle that relief should be
. give&those groups of taxpayers Whose relative burdens seemed to oe somewhat
out of line, and on the second general principle that it is dangerous to re
strict the tax base too much, and to place too great reliance on t¥/o or three
sources of revenue, which of necessity are subject to wide fluctuation.
In
narticular, we stressed the desirability of retaining some of the indirect
taxes whose burden is comparatively insignificant because of the bread base
- 3 -
on which they rest, and which are good revenue producers and tend to
distribute the burden of Federal taxation a little more equally.
Turning, now, from the mu&h-debated subject of tax reduction
to one which, while of less general interest, is, nevertheless, very
important, and one which should be thoroughly understood by the people of
this Country, I want to discuss the situation which exists in respect of
the vast amount of property belonging to foreign citizens seized by our
Government during the course of the War.
Though the War ended nine years
ago, the United States Government is still holding property of the German,
|
. ¡H
Austrian and Hungarian Nationals of a value well in excess of 25 O million
dollars.
In addition, the United States Government itself owes foreign
Nationals vast sums of money on account of property such as ships, radios
and patents, seized during the War and applied to our own uses. On the
■
other hand, there are pending and unpaid claims of the United States Govern
ment and its citizens against the German, Austrian and Hungarian Governments,
for damages arising from the War, aggregating approximately 2^2 millions of
dollars.
The property held by the Alien Property Custodian is the property
seized under what is known as "The Trading with the Enemy Act," which
provided, generally speaking,that property‘of enemies or allies of enemies
residing in enemy countries should be seized and should be held until after
the War, and disposed of as Congress shall direct. There are two opposing
views as to what should be done with this property. Some have urged that
it be liquidated and the proceeds be devoted to the satisfaction of tne
claims of American Nationals against the claims of the German Government,
the German owners to be reimbursed by their Government. Others hole«. that
1
1
this confiscation is unjustified, is opposed by sound public policy, and tnat
I
the enemy property should "be returned at once to its owners or, if not,
should lie held as security until American claims are paid. It seems to be
clear that, under a decision of the Supreme Court, and under the provisions
of the Treaties of Berlin, Vienna and Budapest, the United States Government
has the legal right to confiscate the property; though it should be noted
that the Preamble of our Treaty with Germany includes in full the provision
of the Joint Resolution of Congress Declaring Peace, and that the Joint Reso
lution provided merely that the property should be retained by the United
States until such time as the Imperial German Government should have made
suitable provision for the satisfaction of all claims against said Govern
ment.
It is apparent that the language of the Preamble is inconsistent
with the provisions of the Treaty proper.
But there is one interpretation
which will reconcile the inconsistency, and that is, that the United States
Government, while specifically reserving the right to confiscate, at the
same time expressed an intention not to exercise that right if Germany
should make proper provision for the payment of the just claims of our na
tionals.
This, then, is the situation as I see it, in so far as the prop
erty held by the Alien Property Custodian is concerned.
Under the decision
of the Supreme Court, and under existing treaties, we have apparently the
right to confiscate this property, but, at the some time, all of the laws
which we have passed in relation thereto, and the Preamble of the very
treaty which gives us the right to confiscate, express on our part an in
tention not to confiscate, but merely to hold as security.
Moreover, there are to me some very compelling arguments against
confiscation. Spell a program is repugnant to the American sense of justice
and public morality, and would constitute a violation of a sound policy al
ways pursued oy our Country,
Ever since we have "been a Nation, we have
recognized the inviolability of the property of private citizens in time
War.
of
As early as 1802, our Government, then comparatively poor, paid $3,000,000
to the British Government to reimburse its citizens for property destroyed durring the Revolutionary War.
As Alexander Hamilton said, T,No powers of language
at my command can express the abhorrence I feel at the idea of violating the
property of individuals which, in an authorized intercourse in time of peace,
has been confided to the faith of our Government and laws, on account of con
troversy between nation and nation.
In my view, every moral and political
sense unite to consign it to execration.”
In the wars in which we have been
engaged with foreign powers, I know of no instance in which we have confiscated
the property of the citizens of the nation with which we were at war.
This was
in accordance with the policy initiated as early as Magna Charta, and followed
generally for#centuries by civilized nations.
Thus, as late as 1918, the
English House of Lords reiterated this time-honored doctrine:
”It is not the lav/ of this Country that the property
of enemy subjects is confiscated until the restoration of
peace.
Tne enemy can, of course, make no claim to have it
delivered to him, but when peace is restored, he is consid
ered as entitled to his property with any fruits it may have
borne in the meantime."
It is true
the Treaty of Versailles modified this rule, but we have
not ratified the Treaty of Versailles.
Moreover, pn February 8, 1917, two
months before we entered the t/ar, and while there was still ample time for
German citizens to remove much of their property from this Country, the Secretary
of State issued a statement, with presidential sanction, in which he said:
-
6-
”The Government of the United States will in no circumstance
take advantage of a state of war to take possession of property
to which international understandings and the recognized law of the
land give it no just name or title.
It will scrupulously respect
all private rights alike of its own citizens and of the subjects of
foreign nations.”
To confiscate the property of German citizens would, therefore, constitute
a violation of our own tradition, of sound public morality and of an assurance
given by a President of the United States.
But, if we are not to confiscate the property, what then?
The desirable
thing to do, of course, would be to return it in toto at once to its rightful
owners.
But, while the United States owes a very real obligation to the German
owners of the property which it holds, it is under an even greater obligation
to protect its.own Nationals, and to see that the just claims which they hold
against Germany shall be met.
The property which we hold constitutes a
security for the payment of their claims.
T7e have, as a nation, no right to
to justice to foreign citizens by doing an injustice to our own.
to treat the foreigner as fairly as we treat our own people;
I am willing
I recognize no
obligation to treat him more fairly.
This brings me to the subject of American claims and their status.
These
arise by reason of property seized by the Germ on Government, of regulations of
the German Government which made it impossible for our citizens to withdraw
their property from Germany, of acts of violence, such as the sinking of ships,
the destruction of property, the taking of lives, and the infliction of personal
injuries
By an agreement dated August 10, 1922, 'between the United States Govern
ment and Germany, the Mixed Claims Commission was set up to adjudicate these
[claims of American citizens against the German Government.
It is estimated
|hat the awards of the Mixed Claims Commission will aggregate approximately
$248,000,000.
They constitute a direct obligation of the Government of
Germany, and if Germany were a strictly solvent nation, able to meet all of
[its international or financial obligations, the situation would present no
pay reparations in an amount to be fixed by the Reparations Commission.
became apparent that Germany was unable to meet the required payments.
The
Ac-
■cordingly, in 1924, the povrers entitled to reparations, but not including the
fciited States, on August 30, 1924, signed what is known as the London Protoco
Subsequently, on January 14, 1925, the representatives of the powers who had
signed the London Protocol and représentatives of the United States signed
what is known as the Paris Agreement, allocating the Dawes annuities to the
various governments having claims against Germany.
Under this agreement
[when the Dawes annuities read, their maximum, the United States Government will
(receive from the Reparations Corsaission approximately $10,700,000 a year for
-
This, thon, is the situation:
8
-
Thc powers having claims against Germany
1 have agreed, to scale down the payments due on those claims, and have further
I agreed that all of those claims shall he. paid from a common fund in the hands
I of the Reparations Commission.
So that the American claimants cannot look
I directly to the German Government for full and immediate payment, hut must
I look for the satisfaction of their claims to the '•>10,700,000 which their
1 Government has agreed to accept from the Reparations Commission as a settlement
[ of the obligation of the German Government •
'‘
That does this mean?
It means
| that the United States Government has made an agreement providing for the
\ settlement
of the claims of its Nationals, under the terms of which it will
: take something like 65 or 70 years to liquidate those claims.
If, then, the property of German Nationals were to he returned at
j
once and nothing further were done to provide for the prompt settlement of the
I American claims, the German citizen would he wholly reimbursed at m
early
date, the American claimant would he deprived of whatever security may he efforded by the holding of the German property, and the best he could hope for
I Would he to have his claim satisfied in the course of three-quarters of a
I
r century.
In other words, the United States would he doing an act of justice
[ as a nation by perpetrating an act of injustice on a group of its own citizens.
I now come to the third class of claims, which I shall deal with very
briefly.
Our Government
seized, and has made use of, ships, patents and one
radio station belonging to German Nationals.
property is, I do not know.
Just what the value of this
It hr.s been valued, on the one hand, as high as
I ^250,000,000, and, on the other hand, ns low as .)33,000,000, hut, whatever
the value of the property may he, for the United States CrOvernment to retain
9
this property without compensating the owners, would be an act of confiscation and would, in ray judgment, constitute as great a violation of sound
policy and public morality as would the retention and liquidation of the
so-called alien property.
Moreover, as I have already pointed out to you,
under the terms of the Treaty of Berlin, which incorporate by reference cer
tain provisions of the Treaty of Versailles, the United States (Government,
cannot retain
this property without compensation unless at the same time it
credits to the German Government for reparation purposes the full value of
this property.
What does that mean?
It means that the value of this prop
erty, whether fifty million, seventy-five million or one hundred million dol
lars, would be credited to Germany as against the $10,700,000 to be paid an
nually for the satisfaction of American claimants;. or, in other words, not
only would the United States Government be confiscating the property of German
Nationals, but it would, in fact, be depriving its own citizens of a large
portion of the fund which has been set up for the payment of their just claims.
There is no auestion, then, but that the United States Government
should pay for this property, and here again the strictly right thing to do
is to pay at once.
But the question immediately arises, Why should the German
owners of property seized
the United States Government, be paid to-day, while
American claimants must wait seventy-five years for payment?
The problem, admittedly,is a difficult one, but during the last
Session of Congress the Ways and Means Committee of the House drafted,
and the House adopted, a measure which seems to me to work out a practical
and, on the whole,
sound solution.
The fundamental basis of the plan is
that the three groups cf claimants shall each be asked to make a sacrifice,
a sacrifice not of any part of their claim, but a sacrifice which entails
a delay in the payment of part of their claim.
ultimately, all will be paid
in full, butvthey shall be asked, in the interest of a common and early settle
ment, to agree to extend the time'of payment of a portion of what is due them
over a period of years.
partment.
A suecial fund is to be created in the Treasury De
That fund is to be made up by withholding 20/o of the alien property,
and the so-called unallocated interest fund, both of which the Alien Property
Custodian is authorised and directed to deposit, receiving in return, as
evidence of rights in the fund, so-called participating certificates, bearing
interest at 5 per cent.
In the second place, there is to be withheld and de
posited 50 per cent, of the money appropriated for the payment of the ship,
radio and patent claims, with a proviso that, of the first $50,000,000 ap
propriated, $25,000,000 shall be earmarked for immediate payment to the owners.
In the third place, there is to be deposited in the special fund the amount
received from the Reparations Commission on account of mixed claims, that is,
payments received to date and all future payments.
All three groups of claimants have an interest in this fund, but, in
order to do Justice between the three groups, it is necessary to establish
certain priorities.
For instance, since the alien property holders will have
received 80 per cent, of their property at once, and ship, patent and raaio
claimants 50 per cent., when final awards are made, it is provided that the
American claimants shall have priority until they shall have received from
the fund 80 per cent, of their claims, and that thereafter, as money is re
ceived from the Reparations Commission, all three groups will share and share
alike.
As between American claimants, certain priorities are established*
Thus, all claims arising from death or personal injury are to be paid
-
first.
11
-
Secondly, all cleins of $100,000 or less, and, third, $100,000 on
account of all other claims.
Leaving aside for a moment the question of unallocated interest,
it will de seen that as between American claimants and the owners of alien
property, the purpose of the Bill is to put them on an equal basis at as
early a date as possible,
We retain 00 per cent, of the German property
until 80 per cent, of the American claims have been paid, and then for
every dollar paid to the American claimants we pay a dollar to the (German
claimants.
In other words, we are retaining .just enough German property
to serve as security for the payment of American claims, and we declare it
to be our purpose in retaining it not to appropriate, but simply to hold
it as security.
It may be urged, and urged with a great deal of force and convic
tion, that the retention of the 20 per cent, of the alien property consti
tutes a violation of the wrinciple of non-confiscation and is so serious a
breach of the international policy which we enunciate as a matter of prin
ciple as to justify the defeat of this Bill.
My answer is that Section 2 specifically provides that all proper
ty of German nationals held by the Alien property Custodian shall ultimate
ly be returned, together with the accrued interest and other earnings there
on; that every line of the Bill indicates that W'e do not propose to appropri
ate it finally to our own uses, but to retain it as security until the Aneri
can claimants are satisfied, and that, as I have pointed out, when American
claimants have been put on a parity with the German owners by the payment of
80 per cent, of their claims, öfter that for every c-ollar paid an Ane rican
claimant a dollar will be returned to the German claimant.
But, it is going
12
-
to "be said that in turning 20 per cent, of the property into the special
fund, relieving the United States of legal responsibility therefor, and in
placing reliance for its repayment on the sums received from the Dawes an
nuities, we are, if not actually confiscating, at least so imperiling the
ultimate return of the property as to constitute confiscation.
to that is twofold;
My answer
In the first place, I believe that we are going to re
ceive the Dawes annuities over a sufficient -period of time to discharge all
these claims, and, in the second place, if those payments should for any
reason cease, it will be for the Congress then sitting to decide whether they
will keep the pledge which we give in this bill, and appropriate the necessary
funds, or Whether they will repudiate the pledge, and, by failure to appropri
ate, effect confiscation of the rights of German owners*
In so far as Austria and Hungary are concerned, the situation is by
no means as complicated.
7/hile the Tripartite Commission which set out to de
termine and adjudicate the claims of United States citizens has not completed
its work, it is in position to make a fair estimate as to what the claims
allowed will amount to.
As compared with the claims against (Germany, they
are comparatively small in amount.
Those against Austria can be met in large
measure by property of the Austrian Government at present held by the Alien
Property Custodian.
If this sum is inadequate, it should be possible to
reach some agreement with the Austrian Government which will insure the pay
ment of the claims allowed by the Tripartite Commission in full, and this is
likewise true of Hungary.
Once the Austrian and Hungarian Governments have
made such an agreement and furnished adequate guaranties, there is no reason
why the property of their nationals now held by the Alien Property Custodian
should not be returned to them at once.
I*
-
- 13 While there are probably comparatively few people in the United States who
axe directly interested in this proposition, yet all of ns have a vital interest
in seeing that onr country is true to its ideals and traditions.
It is nine
years since we seized hundreds of millions of dollars of property belonging to
thousands of private individuals, thus inflicting on them intolerable hardship.
We haven’t been conspicuously successful in the management of this trust.
record in this particular is not one to which we will point with pride.
situation demands an immediate solution.
— longer delayed.
I
Our
The
It is intolerable that it should be
Congress, I think, realizes this fully, and I have every reason
to hope and to believe that a solution will be found during the present session.
There is one factor which I haven’t mentioned, but which may prove
of real importance.
You have all read during recent months many state
ments as to the working out of the Dawes Plan, and the probability or
improbability of that Plan’s being carried out in its entirety during
the fifth year, or the first year of full payments.
In all of the ar
guments, the point that has been stressed is the anticipated difficulty
in transferring payments aggregating approximately $600,000,000.
The
¡Berman property held by the Alien Property.Custodian aggregates approxi-
if
mately $245,000,000.
80 per cent, of this amounts to $196,000,000.
If to
this be added $25,000,000 for ships, patents and radios, it will be seen
that there will be available approximately $221,000,000 to German Nationals
in dollar credits.
Much of this, of course, will not go back to Germany,
but it is equally certain that a very large sum in dollar credits will be
available, and will play a most important part in facilitating Dawes trans
fers during the crucial period, a result the importance of which to Europe—
|and, indeed, to ourselves— cannot be underestimated, and which cannot fully be
expressed in terms of money value.
- 14 In the discussion so far, I have traced the importance of these
credits only in so far as the transfer problem is concerned, hut the placing
of that amount of liquid capital at the disposal of German economy at this
particular time will prove to he no negligible contribution to the reconstruc
tion that is proceeding in that country.
Let me conclude by saying what I said last year in debating this
Bill before the House, that the solution presented is not an ideal one, but
that, given all the circumstances, political and otherwise, I believe it to
be the best that can be obtained.
If this Bill becomes law, the German
property owners will receive almost $200,000,000 at an early date.
The German
ship, patent and radio owners will receive in cash, as soon as their awards
are determined, 50 per cent, of the amount due them.
The American claimants
should receive, within the course of the next year or two, no less than
$113,000,000, while the 391 death and personal injury claims and the
claims under $100,000 will be paid almost immediately.
If this measure,
or a similar measure, should fail to become law, these vast sums which
should be put to fruitful use will continue to remain practically idle
and unproductive, and thousands of individuals will be deprived of their
property for years to come, perhaps for generations.
@FedFRASER