Evening Star Newspaper, December 3, 1929, Page 6

THE EV ENING STAR, WASHINGTOR, HOOVER IN MESSAGE PROMISES U. S. Defense Forces Should Be Modified, He Declares. CITES HIGH ARMS COST Says National Needs and Steps for International Amity Should Rule. To the Senate and House of Representatives: HE Constitution requires that the President “shall, from time to time, give to the Con- gress information of the state of the Union, and recommend to their consideration such mersures as he shall judge necessary and expedient.” In complying with that requirement I wish to emphasize that during the past year the Nation has continued to grow in strength; our people have advanced in comfort; we have gained in knowledge; the education of youth has been more widely spread; moral and spiritual forces hate been maintained; peace has become more assured. The problems with which we are con- fronted are the problems of growth and of progress. In their solution we have to determine the facts, Jo develop the relative importance to be assigned to such facts, to formulate a common judgment upon them, and to realize solutions in a spirit of conciliation, Foreign Relations. ‘We are not only at peace with all the world, but the foundations for future peace are being sub- stantially strengthened. To promote peace is our long-established policy. ~Through the Kellogg® Briand pact a great moral standard has been raised in the world. By it fifty-four nations have cov- enanted to renounce war and to sett] 1l disputes by pacific means. Through it a new world outlook has been inaugurated which has profoundly af- fected the foreign policies of nations. Since its uguration we have initiated new efforts not only s-the organization of the machinery of peace but also to eliminate dangerous forces which produce controversies amongst nations. In January, 1926, the Senate gave its consent to adherence to The Court of International Justice with certain reservations. In, September of this year, the statute establishing the court has, by the action of the nations signatory, been amended to meet the Senate’s reservations and to go even beyond those reservations to make clear that the court is a true international court of justice. I believe it will be clear to every one that no con- troversy or question in which this country has or claims an interest can be passed on by the court without our consent at the time the question arises. ‘The doubt about advisory opinions has been com- pletely safeguarded. Our adherence to the Inter- national Court is, as now constituted, not the slight- est step toward entry into the League of Nations. As I have before indicated, I shall direct that our signature be aflixed to the protocol of adherence and shall submit it for the approval of the Senate with a special message at some time when it is convenient to deal with it. Pins High Hopes on Conference. In the hope of reducing friction in fhe world; and with the desire that we may reduce the great eco- nomic burdens of naval armament, we have joined in conference with Great Britain, France, Italy, and Japan to be held in London in January to con- sider the further limitation and reduction of naval arms. We hold high hopes that success may at- tend this effort. At the beginning of the present fldmhhtr’tlnn the neighboring State of Mexico was beset ‘with domestic insurrection. We maintained the embargo upon the shipment, of arms to Mexico but permitted s guly constituted Government to procure sup- plies from our surplus war stocks. Fortunately, the Mexican Government by its own strength success- fully withstood the insurrection with but slight damage. Opportunity of further peaceful develop- ment is given to that country. At the uest of the Mexican Government, we have since lifted the embargo on shipment of arms altogether. The two governments have taken further steps to promote friendly relationships and so solve our differences. Conventions prolonging for a period of two years the life of the general and special claims commissions have been concluded. . South American Peace Efforts. In South America we are proud to have had part in the settlement of the long-standing dispute between Chile and Peru in the disposal of the question of Tacna-Arica. The work of the commission of inquiry and conciliation between Bolivia and Paraguay, in' which a representative of this Government participated, has suctessfully terminated an incident ~which seemed to threaten war. The tgmpmed plan for final settlement as suggested by the neutral govern- ments is still under consideration. This Government has continued its efforts to act as & mediator in boundary difficulties between Guatemala and Honduras. A further instance of profound importance in establishing good will was the inauguration of reg- ular airmail service between the United States and Caribbean, Central American, and South American countries. We still have marines on foreign soil—in Nica- ragua, Haiti, and China. In the large sense we do not wish to be represented abroad in such manner. About 1,600 marines remain in Nicaragua at the urgent request of that government the leaders of all parties pending the training of a domestic constabulary capable of insuring tranquility. We have already reduced these forces materially and we are anxious to withdraw them further as the situation warrants. In Haiti we have about 700 marines, but it is a much more difficult problem, the solution of which is still obscure. If Congress approves, 1 shall dispatch a commission to Haiti to review and study the matter in an endeavor to arrive at some more definite policy than at present. Our forces in China constitute 2,605 men, which we hope also further to reduce to the normal legation guard. ¢ Latin American Relations. It is my desire to establish more firmly our understanding and _relationships with the Latin American countries by strengthening the diplomatic missions to those countries. It is my hope to secure men long experienced in our diplomatic service, who speak the languages of the peoples to whom they are accredited, as chiefs of our diplomatic missions in these States. I shall send to the Senate at an early date the nominations of several such men. The Congress has by numerous wise and fore- sighted acts in the past few years greatly strength- ened the character of our representation abroad. It has made liberal provision for the establishment of suitable quarters for our foreign staffs in the different countries. In order, however, that we may further develop the most effective force in this, one of the most responsible functions of our Gov- ernment, 1 shall recommend to the Congress more liberal appropriations for the wurk of the State Departmen’ * *==x. .1 no expenditure of public money frcm which a greater_economic and moral return can come to us than by assuring the most effective conduct of our foreign relations. National Defens~. ‘To preserve interna, order and freedom from encroachment is the first purpose of government. Our Army and Navy are being maintained in a most_efficient state under officers of high intelli- gence and zeal. The extent and expansion of their numbers and equipment as at present authorized are ample for this purpose. We can well be deeply concerned, however, at the growing expense. From a total expenditure for national defense purposes in 1914 of $267,000,- 000, it naturally tose with the Great War, but re- ceded again to $612,000,000 in 1924, when again it began to rise, until during the current fiscal year the expenditures will reach to over $730,000,000, excluding all civilian services of those departments Programs now authorized will carry it to still larger figures in future years. While the remuneration paid to our soldiers and sailors is justly at a higher rate than that of any other country in the world, and while the cost of subsistence is higher, vet the total of our expendilures is in excess of those of the most highly militarized nations of the world. -+ Upon the conference shortly to be held in Lon- don will depend such moderation as we can make in naval expenditure. If we shall be compelied to un- dertake the naval construction implied in the Wash- ngton arms treaty as well as other construction which would appear to be necessary if no interna- tional agreement can be completed, we shall be committed during the next six years to a construc- tion expenditure of upward of $1,200,000,000- besides the necessary further increase in costs for annual upkeep. Army for Defense Only. After 1914 the various Arntff contingents neces- sarily expanded to the end of ‘the Great War and #hen receded to the low point in 1924, when ex- “and pansion again began. In 1914 the officers and men in our regular forces, both Army and Navy, were about 164,000, in 1924 there were about 256,000, and in 1929 there were about 250,000. Our citizens’ army, however, including the National Guard and other forms of reserves, increase these totals up to about 299,000 in 1914, about 672,000 in 1924, and about 728,000 in 1929, Under' the Kellogg pact we have undertaken never to use war as an instrument of national policy. We have, therefore, undertaken by covenant to use these equipments solely for defensive pur- poses. From a defense point of view our forces should be proportioned to national need and should, therefore, to some extent be modified by the pros- pects of peace, which were never brighter than to- day. It Thnuld be borne In mind that the improve- ment in the National Guard by Federal support begun in 1920 has definitely strengthened our na- tional security by rendering them far more effective than ever heretofore. The advance of aviation has also greatly increased our effectiveness in defense. In addition to the very large program of air forces which we are maintaining in the Army and Navy, there has been an enormous growth of commercial aviation. This has provided unanticipated reserves in manufacturing capacity and in industrial and air personnel, which again adds to our security. I rs22imond that Congress give earpest consid- eration to the possibilities of prudent action which will f"e felief from our continuously mounting ex- penditures. Finances of Government. The finances of the Government are in sound condition. I shall submit the detailed evidences and the usual recommendations in the special Budget message, I may, however, summarize our position. The public debt on June 30 this year stood at $16,931,000,000, compared to the maximum in August, 1919, of $26,596,000,000. Since June 30 it has been reduced by a further $238,000,000. In the Budget to be submitted the total appropriations recommended for the fiscal year 1931 are $3,830,~ 445,231, as compared to $3,976,141,651 for the pres- ent fiscal year. The present fiscal year, however, includes $150,000,000 for the Federal Farm Board, as to which no estimate can as yet be determined for 1931, Owing to the many *necessary burdens assumed by Congress in previous years which now require outlays, it is with extrem> difficulty that we shall be able to ke:p the expenditures for the next fiscal year wilhin the bounds of the present year. Economies in many directions have permitted some accommodation of pressing needs, the net result be- ing an Increase, as shown above, of about one-tenth of 1 per cent above the present fiscal year. We can- not fail to recognize the obligations of the Govern- ment in support of the public welfare, but we must coincidentally bear in mind the burden of taxes and strive to find relief through some tax reduction. EV!‘I;I)' dollar so returned fertilizes the soil of pros- perity. Tax Reduction. The estimate submitted to m= by the Secretary of the Treasury and the Budget Director indicates that the Government will close the fiscal year 1930 with a surplus of about $225,000,000 and the fiscal year 1931 with a surplus of about $123,000,000. Ow- ing to unusual circumstances, it has been extremely difficult to estimate future revenues with accuracy. I believe, however, that the Congress will be fully justified in giving the benefits of th: prospective sur- pluses to the taxpayers, particularly as ample pro- vision for debt reduction has been made in both years through the form of debt retiremgnt from ordinary revenues. In view of the uncertainty in respect of future revenues and the comparatively small size of the indicated surplus in 1931, relief should take the form of a provisional revision of tax rates, I recomm:nd that the normal income tax rates applicable to the incomes of individuals for the cal- endar year 1929 be reduced from 5, 3, and 1', per cent, to 4, 2, and 1, per cent, and that the tax on the income of corporations for the calendar year 1929 be reduced from 12 to 11 per cent. It is esti- mated that this will result in a reduction of $160,- 000,000 in income taxes to be collected during the cal:ndar year 1930. The loss in revenue will be divided approximately equally between the fiscal years 1930 and 1931. Such a program will give a measure of tax relief to the maximum number of taxpayers, with relatively larger benefits to taxpay- ers with small or moderate incomes. Foreign Debts. ‘The past year has brought us near to comple- tion of settlements of the indebtedness of foreign governments to the United States. ‘The act of Congress approved February 4, 1929, authorized the settlement with the Government, of Austria_along lines similar to the terms of settle. ment offered by that Government to its other rellef creditors. No agreement has yet been concluded with that government, but the form of agreement has been settled and its execution only awalts the ‘Government of Austria securing the assent by all the other relief creditors of the terms offered. act of Congress approved February 14, 1929, author- ized the settlement with the Government of Greece, and an agreement was concluded on May 10, 1929. ‘The Government of France ratified the agree- ment with us on July 27, 1929. This agreement will shortly be before the Congress and I recommend its approval. ‘The only indebtedness of for-ign 'governments to the United States now unsettled is that of Russia Armenia, Claims Against Germany. During the past year a'committee of distin- guished experts under American leadership sub- mitted a plan looking to a revision of claims against ‘Germany by the various Governments. The United States denled itself any participation in the war settl:ment of general reparations and our claims are comparatively small in amount. They arise from costs of the army of occupation and claims of our private citizens for losses under awards from the Mixed Claims Commission established under agree- ment with the German Government. In_ finding basis for settlement it was necessary for the com- mittce of experts to request 4l the Governments concerncd to make some contribution to the adjust- ment and we have felt that we should share a pro- portion of the concessions made. The State and Treasury Departments will be in a position shortly to submit for your considera- tion & draft of an agreem-nt to be executed between the United States and Germany providing for the payments of these revised amounts. A more ex- tensive statement will be submitted at that time. The total amount of indebtedness of the various countries 1o the United States now funded is $11,- 579.465,885. This sum was in effect provided by the issue of United States Government bonds to our own people. The payments of the various Govern- ments to us on account of principal and interest for 1930 are estimated at a total of about $239,000,000, for 1931 at about $236,000,000, for 1932 at about $246,000,000. The measure of American compromise in these settlements may be appreciated from the fact that our taxpayers are called upon to find an- nually about $475,000,000 in interest and in addition to redeem the principal of sums borrowed by the United States Government for these purposes. Alien Enemy Property. ' The wise determination that this property selzed in war should be returned to its owners has pro- ceeded with considerable rapidity. Of the original seized cash and property’ (valued at a total of about $625,000,000), all but $111,566.700 has been returned. Most of the remainder should be disposed of during the next year. General Economic Situation. The country has ¢njoyed & large degree of pros- perity and sound progress during the past year with a steady improvement in methods of production and distribution and consequent advancement in stand- ards of living. Progress has, of course, been yn- equal among industries, and some, such as coal, lumber, leather, and textlles, still lag behind. The long upward trend of fundamental progress, how- ever, gave rise to over-optimism as to profits, which translated itself into a wave of uncontrolled specu- lation in securities, resulting in the diversion of capital from business to the stock market and the inevitable crash. The natural consequences have be<n a reduction in the consumption of luxuries and semi-necessities by those who have met with losses, and a number of persons thrown temporarily out of employment. Prices ofgricultural products dealt in upon the great markets have been affected in sympathy with the stock crash. Federal Reserve to Rescue, Fortunately, the Federal Reserve system had tak- en messures 1o strengthen the position against the day whtn speculation would break, which together with the strong position of the banks has carrled the gwhole credit system through the crisis without impRirment. The capital which has been hitherto absorbed in stock-market Joans for speculative pur- poses is now returning to th: normal channels of business. There has been no inflation in the prices of commodities; there has been no undue accumu- lation of goods, and foreign trade has expanded to a magnitude which exerts a steadying influence upon activity in industry and employment, ‘The sudden threat of unemployment and espe- cially the recollection of the economic consequences vious crashes under a much less secured finan- >ial system created unwarranted pessimism and fear. It was recalled that past storms of similar charac- ter had gesulted in retrenchment of construction, ;. reduction of wages, and laying off of workers. The natural result was the tendency of business agencles tiaroug! the country to pause in their plans . ¢elght and nine year_program f proposals for continuation and extension of their businesses, and this hesitation unchecked could in itself intensify into a depression with widespread unemplo¥ment and suffering. Measures of Co-operation. I have, therefore, instituted systematic, voluntary measures of co-operation with the business institu- tions and with State and municipal authorities to make certain that fundamental businesses of the country shall continue as usual, that wages and therefore consuming power shall not be reduced, and that a special effort shall be made to expand construction work in order to assist in equalizing Gther deficits in employment. Due to the enlarged sense of co-operation and responsibility which has grown in the business world during the past few years the response has been remarkable and satis- factory. We have canvassed the Federal Govern- " ment and instituted measures of prudent expansion in such work that should be helpful, the different departments will mal ommendations to Congress. I am eonvinced that through these measures we have re-established confidence. Wages should re- main stable. A very large degree of ndusgial un- employment and suffering which would olherwise have occurred has been prevented. Agricultural prices have reflected the returning confidnce. The measures taken musi be vigorously pursued until normal conditions are restored. nd upon which some early rec- Agriculture. ‘The agricultural situation is improving. The gross farm incbme as estimated by the Department of Agriculture for the crop season 1926-27 was $12,100,000,000; for 1927-28 it was $12,300,000,000; for 1928-1929 it was $12,500,000,000; and estimated on the basis of prices since the last harvest the value of the 1929-30 crop would be over $12,650,~ 000,000. The slight decline in general commodity prices during the past few years naturally assists the farmers’ buying power. number of farmer bankruptcies is very ma= terially decreased below previous years. The decline in Jand values now seems to be arrested and rate of movement from the farm to the city has been reduced. Not all sections of agriculture, of course, have fared equally, and some areas have suffered from drought. Responsible farm leaders have as- sured me that a large measure of confidence is re- turning to agriculture and that a feeling of op- timism pervades that industry. Federal Farm Board. ‘The most extensive action for strengthening the agricultural industry ever taken by any govern- ment was inaugurated through the farm marketing act of June 15 last. Under its provisions the Fed- eral Board has been established, comprised of men Jong and widely experienced in agriculture and sponsored by the farm organizations of the country. During its short period of existence the board has taken definite steps toward a more effi- clent organization of agriculture, toward the elim- ination of waste in marketing, and toward the up- building of farmers’ marketing organizations on sounder and more efficient lines. Substantial head- way has been made in the organization of four of the basic commodities—grain, cotton, livestock, and wool. Support by the board to co-operative ma keting organizations and other board activities un- doubtedly have served to steady the farmers' market during the recent crisis and have operated also as a great stimulus to the co-operative qrganization of agriculture. The problems of the industry are most complex, and the need for sound organization is imperative. Yet the board is moving rapidly along the lines laid out for it in the act, facilitating the creation by farmers of farmer-owned and farm- sr-controlled organizations and federating them into central institutions, with a view to increasing the bargaining power of agriculture, preventing and controlling surpluses, and mobilizing the economic power of agriculture The Tariff. The special session of Congress was called to ex- pedite the fulfillment of party pledges of agricul- aural relief and the tariff. The pledge of farm relief has been carried out. At that time I stated the principles upon which I'believed action should be taken in respect to the tariff: “An effective tariff upon agricultural products, that will compensate the farmer's higher costs and higher standards of living; has a dual purpose. Such a tariff not only protects the farmer in our domestic market but it also stimulates him to diversify his crops and to grow products that he could not otherwise produce, and thus lessens his dependence upon exports to foreign markets, The great expansion of production abroad under the conditions I have mentioned renders foreign com- petition in our export markets increasingly serious. 1t seems but natural, therefore, that the American farmer, having been greatly handicapped in his foreign market by such competition from the younger expanding countries, should ask that for- ‘eign access to our domestic market should be reg- ulated by taking into account the differences in our costs of produgtion, * ¢ * Need for Changes. “In considering the tariff for other industries than agriculture, we find that there have been economic shifts necessitating a readjustment of some of the tariff schedules. Seven years of ex- perience under the tariff bill enacted in 1922 have d:-monstrated the wisdom of Congress in the en- actment of that measure. On the whole it' has worked well. In the main our wages have been maintained at high levels; our exports and im- ports have steadily increassd; with some excep- tions our manufacturing industries have been prosperous. Nevertheless, economic changes have taken place during that time which have placed certain domestic products at a 8isadvantage and 'w ‘Industries have come into being, all of which create the necessity for some limited changss in the schedules and in the administrative clauses of the laws as written in 1922. “It would seem to me that the test of neces- sity for revision is, in the main, whether there has zen & substantial slackening of activity in an dustry during the past few years, and a con- sequent decrease of employment due to insur- mountable competition in the produets of that in- dustry. It is not as if we were setting up a new basis of protective duties. We did that seven years ago. What we need to remedy now is what- ever substantial loss of employment may have resulted from shifts since that time. GaT e Interest of Other Countries. “In determining changes in our tariff we must not fail to take into account the broad interests of the country as a whole, and such interests in- clude our trade relations with other countries.” No condition has arisen in my view to change these principles stated at the opening of the special *session. I am firmly of the opinion that their ap- plication to the pending revision will give the country the kind of a tariff law it both needs and wants. It would be most helpful if action should be taken at an early moment, more especially at a. time when business and agriculture are both co- operating to minimize future uncertainties. It is just that they should know what the rates are to be. Even a limited revision requires the considera. tion and readjustment of many items. The ex- haustive inquiries and valuable debate from men Trepresentative of all parts of the country which is needed to determine the detailed rates must neces- sarily be accomplished in the Congress. However perfectly this rate structure may be framed at any given time, the shifting of economic forces which inevitably occurs will render changes in some items desirable between the necessarily long intervals of congressional revision. Injustices are bound to de- velop, such as were experienced by the dairymen, the flaxseed producers, the glass industry, and oth- ers, under the 1922 rates. . For this reason, I have been most, anxious that the broad principle of the flexible tariff as provided in the existing law should be preserved and its delays in action avoided by more expeditious methods of determining the costs of production at home and abroad, with executive authority to promulgate such changes upon recom- mendation of the Tariff Commission after ex- < haustive investigation. Changes by the Congress in the isolated items such as t to which I have referred would have been most unlikely both because of the concentrations of oppositions in the country, who could see no advantage to their own industry or State, and because of the difficulty of limiting consideration by the Congress to such isolated cases. There is no fundamental conflict between the interests of the farmer and the worker. Lowering of the standards of living of either tends to destroy the other. The prosperity of one rests upon the well-being of the other. Nor is there any real con- flict between the East and the West or the North and the South in the United States. The complete interlocking of economic dependence, the common striving for social and spiritual progress, our com- mon heritage a8 Americans, and the infinite web of national sentiment, have created a solidarity in great people unparalleled in all human history. ‘These invisible bonds should not and can not be shattered by differences of opinion growing out of discussion of a tariff, Public Buildings. Under the provisions of various acts of Col $300,000,000 has been authorized for public build- ings and the land upon which to construct them, being $75,000.000 for ihe Disiricr of Columbia and, * $225,000000 for the country at large. ccluding $25,000,000 which is for the acquisition of land in the so-called “triangle” in this city, this public bullding legislation provides for a five-year pro- gram for the Dlnrlc? of Columbia and be'ween an for the country at Of this sum Approximately $27,400,000 was UP to June 30 last, of which $11,400,000 D. ., TUESDAY, DECEMBER 3, 19%9. TO SIGN WORLD COURT PACT | hnlbdeen expended in the District and $16,000,000 outside. Even this generous provision for both the Dis- trict of Columbia and the country is insufficient for most pressing govcjpnmental needs. Expensive rents and inadequate facilities are extravagance and not economy. In the District even after the completion ‘of these projeots we shall have fully 20,000 clerks housed in rented and temparary war buildings which can last but a little Jonger. Proposes Early Construction. 1 therefore recommend that consideration should be’given to the extension of authorization both for the country ‘at large and for the District of Co- lumbia again distributed over a term of years. A survey of the need in both categories has beeu made by the Secrctary of tge Treasury and jhe Postinaster General. It woukl be helpful in the present economic situation if such steps were as would enable early construction work. An expedition and enlargeinent of the program in the District would bring about direct economies in construction by enabling the erection of buildings in regular sequence. By maintaining a stable labor force in the city, contracts can be made on more advantageous terms, The earlier completion of this program which is an acknowledgsd need would add dignity to the celebration in 1932 of the two hundredth anniver- sary of the birth of President Washington, In consideration of these projects whith con- tribute so much to dignify the National Capital I should like to renew the suggestion that the Fine Arts Commission should be required to pass upon private bulldings which are proposed for sites facing upon public buildings and parks. Without such control much of the effort of the Congress in beauti- fication of the Capital will be minirnized. Waterways and Flood Control. The development of inland waterways has re- ceived new impulse from the completion during this ar of the canalization of the Ohlo to a uniform 9-foot. d;pth. ‘The development of the other seg- ments of the Mississippl system should be expedited and with this in view I am recommending an in- crease in appropriations for rivers and harbors from $50,000,000 to $55,000,000 per annum, which, to- gether with about $4,000,000 per annum released by completion of the Ohio, should make available after providing for other river and harbor works a sum of from $25,000,000 to $30,000,000 per annum for the Mississippl system and thus bring it to early com- pletion, Conflict_of opinion which has arisen over the roposed floodway from the Arkansas River to the Gulf of Mexico via the Atchafalaya River has led me to withhold construction upon this portion of the Mississippi flood . control plan until it could be again reviewed by the engineers for any further rec- ommendation to Congress. The other portions of the project are being vlfl:arwaly g‘mecuud and I have recommended an increase appropriations for this from $30,000,000 of the present year to $35,~ 000,000 during the next fiscal year. Expansion of our intracoastal waterways to ef- fective barge depths is well warranted. . We are awaiting the action of Canada upon the St. Law- rence waterway project. Highiays. There are over 3,000,000 miles of legally estab- lished highways in the United Stat:s, of which about 10 per cent are included in the State highway systems, the remainder being county and other local roads ~ About 626,000 miles have be:n improved with some type of surfacing comprising some 63 per cent of the State highway systems and 16 per cent of the local roads. Of the improved roads about 102,000 miles are hard surfaced, comprising ~eout 22 per cent of the State highway systems and acout 8 per cent of the local roads. While proper planning should materially reduce the listed mileag: of public roads, particularly in the agricultural districts, and turn these roads back to useful purposes, it is evident that road construc- tion must be a long-continued program. Progress in improvement is about 50,000 miles of all types per annum, of which some 12,000 miles are of the more durable types. The total expenditures of Federal, State, and local governments last year for construe- tion and maintenance assumed the huge total of $1,660,000,000. Federal aid in the construction of the highway systems in conjunction with the States has proved to be beneficial and stimulating. We must ulti- mately give consideration to the increase of our contribution to these systems, particularly with a view to stimulating the improvement of farm-to- market roads, . Post Office. Our Post Office deficit has now increased to over’ $80,000,000 a year,"of which perhaps $14,000,000 1§ due to losses on ocea mail and airmail contracts. ‘The department is making an exhaustive study of the sources of the deficit with view to later recom- mendation to Congress in respect to it. The Post Office quarters are provided in part by the Federal construction, in part by various forms of rent and lease arrangemcnts. The practice has £/own up in recent years of contracting long term “Cases under which both rent and amortization prin- cipal cost of buildings is induded. I am advised that fully 40 per cent could be saved from many such rent and lease agreements even after allowing interest on the capital required at the normal Gov- ernment rate. There are also many objectionable features to some of these practices. The provision of adequate quarters for the Post Office should be put on a sound basis. * A revision of airmail rates upon a more system- atic and permanent footing is necessary, The sub- Ject Is under study, and if legislation should prove necessary the subject will be presented to the Con- gress. In th> meantime I recommend that the Congress should consider the desirability of author- llhl’c further expansion of the South American services. . Commercial Aviation, During the past year progress in civil aero- nautics has been remarkable. This is to a consid- erable degree due to the wise assistance of the Federal Government through the establishment and maintenance of airways by the Department of Com-~ merce and the mail contracts from the Post Office Department. The Government-improved alrways now exceed 25,000 miles—more than 14,000 miles of which will be lighted and equipped for night-flying operations by the close of the current year. Airport construction through all the States is extremely active. There are now 1,000 commercial and mu- nicipal airports in operation with an additional 1,200 proposed for early development. ‘Through this assistance the Nation is building a sound aviation system, operated by private en- terprise. Over 6,400 planes are in commercial use, and 9,400 pilots are licensed by the Government. Our manufacturing capacity has risen to 7,500 planes per annum. The sviation companies have increased regular air transportation until it now totals 90,000 miles per day—one-fourth of which is flown by resht. Mall and express services now con- nect our cipal cities, and extensive services for passen| ansportation have been inaugurated, and others importance are imminent. American airlines now reach into Canada and Mexico, to Cuba, Porto Rico, Central America, and most of the lx;worl:nt countries of South America. Railways. As a whole, the railroads never were in such 300d physical and financial condition, and the coun- try has never been so well served by them. The greatest volume of freight traffic ever tendered is being carried at a speed never before attained and with satisfaction to the shippers. Efficiencies and new methods have resulted in rediction in the cost of providing freight transportation, and freight rates show a continuous descending line from the level enforced by the World War. We have, howevcr, not yet assured for the future ‘hat adequate system of transportation through con- solidations which was the objective of the Congress in the transportation act. The chief purpose of consolidation is to secure well balanced systems with more uniform and satisfactory rate structure, a more stable financial structure, more equitable dis- tribution of traffic, greater efficiency, and single-line instead of muitiple-line hauls, In this way the country will have the assurance of better service and ultimately at lower and more even rates than would otherwise be attained. Legislation to simplify and expedite consolidation methods and better to protect Public interest should be enacted. Consideration should also be given to relief of the members of the <Commission {mm the necessity of detailed attention to comparatively inconsequen- tial matters which, under the existing law, must re- celve their direct and personal consideration, Tt is In the public interest that the members of the Com- mission should not be so pressed by minor matters that they have inadequate time for investigation and consideration of the larger questions committed to them for solution. As to many of these minor matters, the function of the Commission might well be made revlsog. and the primary responsibility delegated to sul inate officials after the practice long in vogue in the executive departments, Me:=chant Marine. Under the impulse of the merchant marine act of 1928 the transfer to private enterprise of the Government-owned steamship lines is going forward with ine; success, The sh!pplnaulolrd now operates about 18 lines, which is less n half the number originally established, and the estimate of expenditures for the coming fiscal year is based upon reduction in losses on Government lines by approximately onedhalf. Constructipn loans have bsen made to the gghount of approximately $75,000,~ 000 out of the revolving fund authorized by Con- gress and have furnished an additional aid to American shipping and further stimulated the build- yards. e full values to the Na- develop our merchant merchant marine act soon afte the inauguration of the +hRing of the Secretary of Gomm sisting o o the Secretary of the Navy, the and the chairman of the Shipping a survey of the policies being pursued under the act of 1928 in respect of mail contracts; to inquire into its workings and to advise the Postmaster General in the administration of the act. Co-ardinated Policy. In particular it seemed to me necessary to de- termine if the result of the contracts already let ‘would assure the purpose expressed in the act, “to further develop an American merchant marine, to assure its permanence jn the transportation of the foreign trade of the United States, and for other purposes,” and to develop a co-ordinated policy by :hlfifi these purposes may be translated into ac- ualities. In review of the mall contracts already awarded it was found that they aggregated 25 separate awards imposing a governmental obligation of a little over $12,000,000 per annum. Provision had been imposed in five of the contracts for construc- tion af new vessels with which to replace and ex- pand services. These requirements come to & total of 12 vessels in the 10-year period, aggregating 122,~ 000 tons. Some other conditions in the contracts had not worked out satisfactorily. ‘That study has now been substentially completed and the committee has advised the desirability and the necessity of securing much larger undertakings as to service and new construction in future con- tracts. The committee at this time is recommend- ing the advertising of 14 additional routes, making substantial requirements.for the construction of new vessels during the life of each contract recom- mended. A total of 40 new vessels will be required under the contracts proposed, about halt of which will be required to be built during the next three years. The capital cost of this new construc- tion will be approximately $250,000,000, involving approximately 460,000 gross tons. Should bidders be found who will make these undertakings, it will b2 necessary to recommend to Congress an increase in the authorized expenditure by the Post Office of about $5.500,000 anu: . It will be more advan- tageous to grant such an authority. A conflict as to the administration of the act has arisen in the contention of persons who have purchased Shipping Board vessels that they are en- titled to mall contracts irrespective of whether they are the lowest bidder, the Post Office, on the other hand, being required by law to let contracts in that manner. It is urgent that Congress should clarify this situation, The Banking System. It is desirable that Con, should consider the revision of some portions of the banking law. ‘The development of “group” and “chal ‘bank- ing presents many new problems. The question naturally arises as to whether if allowed to expand without restraint these methods would dangerously concentrate control of credit, and whether they would not in any event seriously threaten one of the fundamentals of the American credit system— which is that credit which is based upon banking deposits should be controlled by persons within those areas which furnish these deposits and thus b2 subject to the restraints of local interest and public opinion in those areas. To some de; however, this movement of chain or group banking is a groping for stronger support to the banks and & more secure basis for these institutions. The growth in size and stability of the metro- rollhn banks is in marked contrast to the trend in the country districts, with its many failures and the losses these failures have imposed upon the ag- ricultural community. Con;peu'ug With State Banks. ‘The relinquishment of charters of national banks in great commercial centers in favor of State char- ters indicates that some conditions surround the national banks which render them unable to com- pete with State banks; and their withdrawal results in weakening our national banking system. It has been propossd that permission should be granted to national banks to engage in branch banking of a nature that would preserve within limited regions the local responsibility and the con- trol of such credit institutions, All these subjects, however, require careful in- vestigation, and it might be found advantageous to create a joint commission embracing Members of the Congress and other appropriate eral offi- clals for subsequent report. Electrical Power Ragnlalion.‘ The Federal Power Commission is now com- prised of three Cabinet officers, and the duties in- volved it the competent conduct of the growing re- sponsibilities of this commission far exceed the time and attention which these officials can properly af- ford from other important duties. I recommend that authority be given for the appointment of full- time commissioners xy replace them. It is also desirable that the authority of the commission should be extended to certain phases of wer regulation. The nature of the electric utilities industry is such that about 90 per cent of all power generation and distribution is intrastate in character, and most of theStates have developed their own regulatory systems as to certificates of convenience, rates, and profits of such utilities. To encroach upon their authorities and responsibilities would be an encroachment upon the rights of States. There are cases, however, of interstate character beyond the jurisdiction of the States. To mezet these cases it would be most desirable if a method could be worked out by which initial action may be taken between the commissions of the States whose joint action should be made effective by the F:deral Power Commission with a reserve to nonaction by the States. The Radio Commission. I recommend the reorganization of the Radio Commission into a permanent body from its present temporary status. The requirement of the present law that ghe commissioners shall be appointed from specified Zones should be abolished and a general provision made for their equitable selection from different parts of the country. Despite the effort of the commissioners, the present method develops a public insistence that the commissioners are espe- cially charged with supervision of radio affaiss in the zone from which each is appointed. As a result there is danger that the system will degenerate from & national syitem into five regional agencies with ying practices, varying policies, competitive tendencles, and juent failure to attain its ut- must capacity for service to the people as a whole. Muscle Shoals. It is most desirable that this question should be disposed of. Under present conditions the income from these plants is less than could otherwise be secured for its use, and more especially the public is not securing the full benefits which could be Dbhx:n’:d !I'o:;ulhem. T my bellef that such parts of these plants as would be useful and the revenues from the re- mainder should be dedicated for all time to the farmers of the United States for investigation and experimentation on a‘commercial scale in agricul- tural chemistry. By such means advancing discov- eries of sclence can be systematically applied to agricultural need. and development of the chemical industry of the Tennessee Valley can be assured. I do mot favor the operation by the Govern- ment of either power or manufacturing business except as an unavoldable by-product of, some other major public 3 Any form of settlement of this question will imply entering upon a contract or contracts for the lease of the plants either as a whole or in rlm and the reservation of facilities, products, or income for agricultural purposes. The extremel technical and involved nature of such contrac dealing with chemical and electrical enterprises added to the unusual difficulties surrounding these special plants, and the rapid commercial changes now in progress in power and synthetic nitrogen manufacture, lead me to suggest that gress create a special commission, not to investigats and Teport as in the past, but with authority to nego- tiate and complete some sort of contract or con- tracts on behalf of the Government, subject, of course, to such general requirements as Congress may stipulate, Boulder Dam. ‘The Segretary of the Interior is satisfac- tory progress in negotiation of the very complex contracts required for the sale of the power to be generated at this project. These contracts must assure the return of all Government outlays upon the project. I recommend that the necessary funds be appropriated for the initiation of this work as a0on ‘as contracts are in the hands of Congress. Conservation. Conservation of national resources is a fixed policy of the Government. Three important ques- tions upon conservation of the public lands have became urgent. tion of our oil and suu-oureu st tuture need is a national necessity, The of the oil permit system in development of oil and gas resources on the public domain has been subject to great abuse. I vonsidered it necessary to suspend the tssuance of such permits and to direct the review of all outstanding permits as to lance of the holders with the law. The purpose only to end such abuse but to gisce the in act on its own motion in case of disagreement or Farm Situation Held to Be Improving Over Nation. " TOUCHES ON TARIFF Economic Shifts Require Changes, President Tells Congress. * position to review the entire subject. We are also confronted with & major problem in conservation due to the overgrazing on public lands. The effect of overgrazing (which has now become general) is not only to destroy the ranges but by impaliring the ground coverage seriously to n#nace the water supply in many parts of ths West through quick run-off, spring floods, and autumn drought, *Reclamation Policy. We have a third problem of major dimensions in the reconsideration of our reclamation policy. The inclysion of most of the available lands of the pub- lic domain in existing, or planned reclamation o ects largely completes the original purpose of the Reclamation Service. There still remains the ne- cessity for extensive storage of water in the arid States which renders it desirable that we should give & wider vision and purpose to this service, To provide for careful consideration® of these questions and also of better division of responsibil: tles in them as between the State and Federal Governments, including the possible transfer to the * States for school purposes of the lands unreserved for forests, parks, power, minerals, etc, I have appointed a Commission on Conservation of the Public Domain, with a membership representing the major public land States and at the same time the public at large. I recommend that Congress | d authorize a moderate sum to defray their expenses. Social Service, The Federal Government provides for an exs tensive and valuable program of constructive social service, in education, home building, protection to women and children, employment, public health, recreation, and many other directions. In & broad sense Federal activity in these direc- tions has been confined to research and dissemin: Uon of information and experience, and at most un‘:fonry subsidies to the States in order to secure uniform advancement in practice and methods. Any other attitude by the Federal Government will undermine one of the most precious possessions of the American people; that is, local and individual responsibility. We should adhere to this policy. Federal officlals can, however, make a further and most important contribution’ by leadership in stimulation of the community and voluntary agen- ‘;‘:&b‘nd( lg} exurndlng P!:eb"il I.\Sl!tnll,‘lvc‘: in organi- m of these forces and bringing about co-opera- tion among them. i Child Health Conference. As an instance of this character, I have recently, in co-operation with the Secretaries of Interior and Labor, laid the foundations of an exhaustive inquiry into the facts precedent to a' nation-wide White House conference on child health and protection. This co-operative movement among interested agen- cles will impose no_expense upon the Government. Similar nation-wide conferences will be called in connection with better housing and recreation at a later date. " In view of the considerable difference of opinion as to the policies which should be pursued by the Federal Gov:rnment with respect to education, I have appointed a committee representative of the important educetional associations and others to fn- vestigate and present recomm:ndations. In co-op- eration with the Secretary of the Interior, I have ' also appointed a voluntary committee of distin- guished membership to assist in a nation-wids movement for abolition of illiteracy. I have recommended additional appropriations for the Federal employment service in order that, it may mor: fully cover its co-operative work with State and local services. I 'have also recommended additional appropriations for the Women's 'and’ Children’s Bureaus for much-needed research as to facts which I feel will prove most helpful, Public Health. The advance in scientific discovery as to disease and health imposes new considerations upon us. The Nation as a whole is vitally interested in the health of all the people; im protection from spread of contaglous disease; in the relation of physical and mental disabilities to criminality; and in the economic and moral advancement which is funda- mentally associated with sound body and mind. The' organization of preventive measures and health ed- ucation in its personal application is the province . of public health service. Such organization should as universal as public aducation. Its support Pproper burden upon the taxpayer. It cannot be organiz:d with success, either in its sanitary or educational phases, except under public author- ity. It should be based upcn local and State re- sponsibility, but I consider that the Federal Gov- ernment has an obligation of contribution te the establfshment of such ag:ncies. Local Health Units. In the practical working out of organization, exhaustive experiment and trial have demonstrated that the base should be competent organization fi[f the municipality, county, or other local unit. ost of our municipaliti>s and some 400 rural coun- ties out of 3,000 now have some such unit za- “tlon. Where highly developed, a health unit com= prises at least a physician, sanitary engineer, and community nurse with the addition, in some cases, of anothr nurse devoted to the problems of mater- nity and children. Such- organization gives at once & fundamental control of preventive measures and assists in community instruction. The Federal Government, through its interest in control of con- tagion, acting through the United States Public Health Service and the State agencies, has in the past and should in the future concern itself with this development, particularly in the many rural sections which are unfortunately far behind in prog- ress. Some parts of the funds contributed under the Sheppard-Towner Act through the Children's Bureau of the Department of' Labor have also found their way into these channels, I recommend to the Congress that the purpose of the Sheppard-Towner Act should be continued through the Children’s Bureau for a limited period of years; and that the Congress should consider the desirability of confining the use of Federal funds by the States to the building up of such county or other local units, and that such outlay lhmnldY be positively co-ordinated with the funds expended through the United States Public Health Service directed to other phases of the same county or other local unit organization. All funds appro- priated should of course be applied through the States, so that the public health program of the county or local unit will be efficiently co-ordinated with that of the whole State, Federal Prisons, Closelv related to crime conditions is the ad- ministration of the Federal prison system. Our Federal penal institutions are overcrowded, and this condition is daily becoming worse. The parole and probation systems are inadequate. These condi- tions make it impossible to perform the work of per- sonal reconstruction of prisoners so as to prepare them for return to the duties of citizenship. In or- der to relleve the pressing evils I have directed the temporary transfer of the Army. Disciplinary Bar- Tacks at Leavenworth to the Department of Justice for use as a Federal prison. -Not only is this tem- porary but it is inadequate for present needs. ‘We need some new Federal prisons and {-nluuon of our probation and parole systems; and here should be established in the Department of Justice \Bul‘lnu of Prisons with a sufficient force to deal adequately with the growing activities of cur prison institutions. ~Authorization for the improve- ments should be given speedily, with initial appro- priations to allow the construction of the new in- stitutions to be undertaken at once, ., q Immigration. Restriction of immigration has from every aspect proved & sound national policy, Our pressing prob- lem is to formulate a method by which the Tlmlnd number of immigrants whom we do welcome shall. - be adapted to our national setting and our national needs. I have been o] to the basis of the now in force and I have hoped that we could fina some practical method to secure what I Seliew. ‘1‘?)‘.” be our n:l nn':hnhsl ?bmu;o: that is, fitness of the immigrant as to p! e, character, A and our need of urvlu.y'mrlh-pl some -y‘.'l'.’.'.'":: iy L !