Speech Transcript:

 Members of the Congress:

In reporting to the Congress the state of the Union, I find it
impossible to characterize it other than one of general peace and
prosperity. In some quarters our diplomacy is vexed with difficult
and as yet unsolved problems, but nowhere are we met with armed
conflict. If some occupations and areas are not flourishing, in none
does there remain any acute chronic depression. What the country
requires is not so much new policies as a steady continuation of
those which are already being crowned with such abundant success. It
can not be too often repeated that in common with all the world we
are engaged in liquidating the war.

In the present short session no great amount of new legislation is
possible, but in order to comprehend what is most desirable some
survey of our general situation is necessary. A large amount of time
is consumed in the passage of appropriation bills. If each Congress
in its opening session would make appropriations to continue for two
years, very much time would be saved which could either be devoted to
a consideration of the general needs of the country or would result in
decreasing the work of legislation.
Economy

Our present state of prosperity has been greatly promoted by three
important causes, one of which is economy, resulting in reduction and
reform in national taxation. Another is the elimination of many kinds
of waste. The third is a general raising of the standards of
efficiency. This combination has brought the perfectly astonishing
result of a reduction in the index price of commodities and an
increase in the index rate of wages. We have secured a lowering of
the cost to produce and a raising of the ability to consume.
Prosperity resulting from these causes rests on the securest of all
foundations. It gathers strength from its own progress.

In promoting this progress the chief part which the National
Government plays lies in the field of economy. Whatever doubts may
have been entertained as to the necessity of this policy and the
beneficial results which would accrue from it to all the people of
the Nation, its wisdom must now be considered thoroughly
demonstrated. It may not have appeared to be a novel or perhaps
brilliant conception, but it has turned out to be preeminently sound.
It has not failed to work. It has surely brought results. It does not
have to be excused as a temporary expedient adopted as the lesser
evil to remedy some abuse, it is not a palliative seeking to treat
symptoms, but a major operation for the, eradication at the source of
a large number of social diseases.

Nothing is easier than the expenditure of public money. It does not
appear to belong to anybody. The temptation is overwhelming to bestow
it on somebody. But the results of extravagance are ruinous. The
property of the country, like the freedom of the country, belongs to
the people of the country. They have not empowered their Government
to take a dollar of it except for a necessary public purpose. But if
the Constitution conferred such right, sound economics would forbid
it. Nothing is more, destructive of the progress of the Nation than
government extravagance. It means an increase in the burden of
taxation, dissipation of the returns from enterprise, a decrease in
the real value of wages, with ultimate stagnation and decay. The
whole theory of our institutions is based on the liberty and
independence of the individual. He is dependent on himself for
support and therefore entitled to the rewards of his own industry. He
is not to be deprived of what he earns that others may be benefited by
what they do not earn. What he saves through his private effort is not
to be wasted by Government extravagance.

Our national activities have become so vast that it is necessary to
scrutinize each item of public expenditure if we are to apply the
principle of economy. At the last session we made an immediate
increase in the annual budget of more than $100,000,000 in benefits
conferred on the veterans of three wars, public buildings, and river
and harbor improvement. Many projects are being broached requiring
further large outlays. I am convinced that it would be greatly for
the welfare of the country if we avoid at the present session all
commitments except those of the most pressing nature. From a
reduction of the debt and taxes will accrue a wider benefit to all
the people of this country than from embarking on any new enterprise.
When our war debt is decreased we shall have resources for expansion.
Until that is accomplished we should confine ourselves to
expenditures of the most urgent necessity.

The Department of Commerce has performed a most important function in
making plans and securing support of all kinds of national enterprise
for the elimination of waste. Efficiency has been greatly promoted
through good management and the constantly increasing cooperation of
the wage earners throughout the whole realm of private business. It
is my opinion that this whole development has been predicated on the
foundation of a protective tariff.
Tax reduction

As a result of economy of administration by the Executive and of
appropriation by the Congress, the end of this fiscal year will leave
a surplus in the Treasury estimated at $383,000,000. Unless otherwise
ordered, such surplus is used for the retirement of the war debt. A
bond which can be retired today for 100 cents will cost the people
104 1/4 cents to retire a year from now. While I favor a speedy
reduction of the debt as already required by law and in accordance
with the promises made to the holders of our Liberty bonds when they
were issued, there is no reason why a balanced portion of surplus
revenue should not be applied to a reduction of taxation. It can not
be repeated too often that the enormous revenues of this Nation could
not be collected without becoming a charge on all the people whether
or not they directly pay taxes. Everyone who is paying or the bare
necessities of fool and shelter and clothing, without considering the
better things of life, is indirectly paying a national tax. The nearly
20,000,000 owners of securities, the additional scores of millions of
holders of insurance policies and depositors in savings banks, are
all paying a national tax. Millions of individuals and corporations
are making a direct contribution to the National Treasury which runs
from 11/2 to 25 per cent of their income, besides a number of special
requirements, like automobile and admission taxes. Whenever the state
of the Treasury will permit, I believe in a reduction of taxation. I
think the taxpayers are entitled to it. But I am not advocating tax
reduction merely for the benefit of the taxpayer; I am advocating it
for the benefit of the country.

If it appeared feasible, I should welcome permanent tax reduction at
this time. The estimated surplus, however, for June 30, 1928, is not
much larger than is required in a going business of nearly
$4,000,000,000. We have had but a few months' experience under the
present revenue act and shall need to know what is developed by the
returns of income produced under it, which are not required t o be
made until about the time this session terminates, and what the
economic probabilities of the country are in the latter part of 1927,
before we can reach any justifiable conclusion as to permanent tax
reduction. Moreover the present surplus results from many
nonrecurrent items. Meantime, it is possible to grant some real
relief by a simple measure making reductions in the payments which
accrue on the 15th of March and June, 1927. I am very strongly of the
conviction that this is so much a purely business matter that it ought
not to be dealt with in a partisan spirit. The Congress has already
set the notable example of treating tax problems without much
reference to party, which might well be continued. What I desire to
advocate most earnestly is relief for the country from unnecessary
tax burdens. We can not secure that if we stop to engage in a
partisan controversy. As I do not think any change in the special
taxes, or tiny permanent reduction is practical, I therefore urge
both parties of the House Ways and Means Committee to agree on a bill
granting the temporary relief which I have indicated. Such a reduction
would directly affect millions of taxpayers, release large sums for
investment in new enterprise, stimulating industrial production and
agricultural consumption, and indirectly benefiting every family in
the whole country. These are my convictions stated with full
knowledge that it is for the Congress to decide whether they judge it
best to make such a reduction or leave the surplus for the present
year to be applied to retirement of the war debt. That also is
eventually tax reduction.
Protective tariff

It is estimated that customs receipts for the present fiscal year
will exceed $615,000,000, the largest which were ever secured from
that source. The value of our imports for the last fiscal year was
$4,466,000,000, an increase of more than 71 per cent since the
present tariff law went into effect. Of these imports about 65 per
cent, or, roughly, $2,900,000,000, came in free of duty, which means
that the United States affords a duty-free market to other countries
almost equal in value to the total imports of Germany and greatly
exceeding the total imports of France. We have admitted a greater
volume of free imports than any other country except England.

We are, therefore, levying duties on about $1,550,000,000 of imports.
Nearly half of this, or $700,000,000, is subject to duties for the
protection of agriculture and have their origin in countries other
than Europe. They substantially increased the prices received by our
farmers for their produce. About $300,000.000 more is represented by
luxuries such as costly rugs, furs, precious stones, etc. This leaves
only about $550,000,000 of our imports under a schedule of duties
which is in general under consideration when there is discussion of
lowering the tariff. While the duties on this small portion,
representing only about 12 per cent of our imports, undoubtedly
represent the difference between a fair degree of prosperity or
marked depression to many of our industries and the difference
between good pay and steady work or wide unemployment to many of our
wage earners, it is impossible to conceive how other countries or our
own importers could be greatly benefited if these duties are reduced.
Those who are starting an agitation for a reduction of tariff duties,
partly at least for the benefit of those to whom money has been lent
abroad, ought to know that there does not seem to be a very large
field within the area of our imports in which probable reductions
would be advantageous to foreign goods. Those who wish to benefit
foreign producers are much more likely to secure that result by
continuing the present enormous purchasing power which comes from our
prosperity that increased our imports over 71 per cent in four years
than from any advantages that are likely to accrue from a general
tariff reduction.
Agriculture

The important place which agriculture holds in the economic and
social life of the Nation can not be overestimated. The National
Government is justified in putting forth every effort to make the
open country a desirable place to live. No condition meets this
requirement which fails to supply a fair return on labor expended and
capital invested. While some localities and some particular crops
furnish exceptions, in general agriculture is continuing to make
progress in recovering from the depression of 1921 and 1922. Animal
products and food products are in a more encouraging position, while
cotton, due to the high prices of past years supplemented by ideal
weather conditions, has been stimulated to a point of temporary over
production. Acting on the request of the cotton growing interests,
appointed a committee to assist in carrying out their plans. As it
result of this cooperation sufficient funds have been pledged to
finance the storage and carrying of 4,000,000 bales of cotton.
Whether those who own the cotton are willing to put a part of their
stock into this plan depends on themselves. The Federal Government
has cooperated in providing ample facilities. No method of meeting
the situation would be adequate which does not contemplate a
reduction of about one-third in the acreage for the coming year. The
responsibility for making the plan effective lies with those who own
and finance cotton and cotton lands.

The Department of Agriculture estimates the net income of agriculture
for the year 1920-21 at only $375,000,000; for 1924-25,
$2,656,000,000; for 1925-26, $2,757,000,000. This increase has been
brought about in part by the method already referred to, of Federal
tax reduction, the elimination of waste, and increased efficiency in
industry. The wide gap that existed a few years ago between the index
price of agricultural products and the index price of other products
has been gradually closing up, though the recent depression in cotton
has somewhat enlarged it. Agriculture had on the whole been going
higher while industry had been growing lower. Industrial and
commercial activities, being carried on for the most part by
corporations, are taxed at a much higher rate than farming, which is
carried on by individuals. This will inevitably make industrial
commodity costs high while war taxation lasts. It is because of this
circumstance that national tax reduction has a very large indirect
benefit upon the farmer, though it can not relieve him from the very
great burden of the local taxes which he pays directly. We have
practically relieved the farmer of any Federal income tax.

There is agreement on all sides that some portions of our
agricultural industry have lagged behind other industries in recovery
from the war and that further improvement in methods of marketing of
agricultural products is most desirable. There is belief also that
the Federal Government can further contribute to these ends beyond
the many helpful measures taken during the last five years through
the different acts of Congress for advancing the interests of the
farmers.

The packers and stockyards act,

Establishing of the intermediate credit banks for agricultural
purposes,

The Purnell Act for agricultural research,

The Capper-Volstead Cooperative Marketing Act,

The cooperative marketing act of 1926,

Amendments to the warehousing act,

The enlargement of the activities of the Department of Agriculture,

Enlargement of the scope of loans by the Farm Loan Board,

The tariff on agricultural products,

The large Federal expenditure in improvement of waterways and
highways,

The reduction of Federal taxes, in all comprise a great series of
governmental actions in the advancement of the special interest of
agriculture.

In determination of what further measures may be undertaken it seems
to me there are certain pitfalls which must be avoided and our test
in avoiding them should be to avoid disaster to the farmer himself.

Acting upon my recommendation, the Congress has ordered the
interstate Commerce Commission to investigate the freight-rate
structure, directing that such changes shall be made in freight rates
as will promote freedom of movement of agricultural products. Railroad
consolidation which I am advocating would also result in a situation
where rates could be made more advantageous for farm produce, as has
recently been done in the revision of rates on fertilizers in the
South. Additional benefit will accrue from the development of our
inland waterways. The Mississippi River system carries a commerce of
over 50,000,000 tons at a saving of nearly $18,000,000 annually. The
Inland Waterways Corporation operates boats on 2,500 miles of
navigable streams and through its relation with 165 railroads carries
freight into and out of 45 States of the Union. During the past six
months it has handled over 1,000,000 bushels of grain monthly and by
its lower freight rates has raised the price of such grain to the
farmer probably 21/2 cents to 3 cents a bushel. The highway system on
which the Federal Government expends about $85,000,000 a year is of
vital importance to the rural regions.

The advantages to be derived from a more comprehensive and less
expensive system of transportation for agriculture ought to be
supplemented by provision for an adequate supply of fertilizer at a
lower cost than it is at present obtainable. This advantage we are
attempting to secure by the proposed development at Muscle Shoals,
and there are promising experiments being made in synthetic chemistry
for the production of nitrates.

A survey should be made of the relation of Government grazing lands
to the livestock industry. Additional legislation is desirable more
definitely to establish the place of grazing in the administration of
the national forests, properly subordinated to their functions of
producing timber and conserving the water supply. Over 180,000,000
acres of grazing lands are still pastured as commons in the public
domain with little or no regulation. This has made their use so
uncertain that it has contributed greatly to the instability of the
livestock industry. Very little of this land is suited to settlement
or private ownership. Some plan ought to be adopted for its use in
grazing, corresponding broadly to that already successfully applied
to the national forests.

The development of sound and strong cooperative associations is of
fundamental importance to our agriculture. It is encouraging to note,
therefore, that a vigorous and healthy growth in the cooperative
movement is continuing. Cooperative associations reporting to the
Department of Agriculture at the end of 1925 had on their membership
rolls a total of 2,700,000 producers. Their total business in 1925
amounted to approximately $2,400,000,000, compared with $635,800,000
in 1915. Legislative action to assist cooperative associations and
supplement their efforts was passed at the last session of Congress.
Important credit measures were also provided by Congress in 1923
which have been of inestimable value to the cooperative associations.
Although the Federal credit agencies have served agriculture well, I
think it may be possible to broaden and strengthen the service of
these institutions.

Attention is again directed to the surplus problem of agriculture by
the present cotton situation. Surpluses often affect prices of
various farm commodities in a disastrous manner, and the problem
urgently demands a solution. Discussions both in and out of Congress
during the past few years have given us a better understanding of the
subject, and it is my hope that out of the various proposals made the
basis will be found for a sound and effective solution upon which
agreement can be reached. In my opinion cooperative marketing
associations will be important aids to the ultimate solution of the
problem. It may well be, however, that additional measures will be
needed to supplement their efforts. I believe all will agree that
such measures should not conflict with the best interests of the
cooperatives, but rather assist and strengthen them. In working out
this problem to any sound conclusion it is necessary to avoid putting
the Government into the business of production or marketing or
attempting to enact legislation for the purpose of price fixing. The
farmer does not favor any attempted remedies that partake of these
elements. He has a sincere and candid desire for assistance. If
matched by an equally sincere and candid consideration of the
different remedies proposed a sound measure of relief ought to
result. It is unfortunate that no general agreement has been reached
by the various agricultural interests upon any of the proposed
remedies. Out of the discussion of various proposals which can be had
before the Committees of Agriculture some measure ought to be
perfected which would be generally satisfactory.

Due to the emergency arising from a heavy tropical storm in southern
Florida, I authorized the Secretary of Agriculture to use certain
funds in anticipation of legislation to enable the farmers in that
region to plant their crops. The department will present a bill
ratifying the loans which were made for this purpose.

Federal legislation has been adopted authorizing the cooperation of
the Government with States and private owners in the protection of
forest lands from fire. This preventive measure is of such great
importance that I have recommended for it an increased
appropriation.

Another preventive measure of great economic and sanitary importance
is the eradication of tuberculosis in cattle. Active work is now in
progress in one-fourth of the counties of the United States to secure
this result. Over 12,000,000 cattle have been under treatment, and the
average degree of infection has fallen from 4.9 per cent to 2.8 per
cent. he Federal Government is making substantial expenditures for
this purpose.

Serious damage is threatened to the corn crop by the European corn
borer. Since 1917 it has spread from eastern New England westward
into Indiana and now covers about 100,000 square miles. It is one of
the most formidable pests because it spreads rapidly and is
exceedingly difficult of control. It has assumed a menace that is of
national magnitude and warrants the Federal Government in extending
its cooperation to the State and local agencies which are attempting
to prevent its further spread and secure its eradication.

The whole question of agriculture needs most careful consideration.
In the past few years the Government has given this subject more
attention than any other and has held more consultations in relation
to it than on any other subject. While the Government is not to be
blamed for failure to perform the impossible, the agricultural
regions are entitled to know that they have its constant solicitude
and sympathy. Many of the farmers are burdened with debts and taxes
which they are unable to carry. We are expending in this country many
millions of dollars each year to increase farm production. We ought
now to put more emphasis on the question of farm marketing. If a
sound solution of a permanent nature can be found for this problem,
the Congress ought not to hesitate to adopt it.
Development of water resources

In previous messages I have referred to the national importance of
the proper development of our water resources. The great projects of
extension of the Mississippi system, the protection an development of
the lower Colorado River, are before Congress, and I have previously
commented upon them. I favor the necessary legislation to expedite
these projects. Engineering studies are being made for connecting the
Great Lakes with the North Atlantic either through an all-American
canal or by way of the St. Lawrence River. These reports will
undoubtedly be before the Congress during its present session. It is
unnecessary to dwell upon the great importance of such a waterway not
only to our mid-continental basin but to the commerce and development
of practically the whole Nation. Our river and harbor improvement
should be continued in accordance with the present policy.
Expenditure of this character is compatible with economy; it is in
the nature of capital investment. Work should proceed on the basic
trunk lines if this work is to be a success. If the country will be
content to be moderate and patient and permit improvements to be made
where they will do the greatest general good, rather than insisting on
expenditures at this time on secondary projects, our internal
Waterways can be made a success. If proposes legislation results in a
gross manifestation of local jealousies and selfishness, this program
can not be carried out. Ultimately we can take care of extensions,
but our first effort should be confined to the main arteries.

Our inland commerce has been put to great inconvenience and expense
by reason of the lowering of the water level of the Great Lakes. This
is an international problem on which competent engineers are making
reports. Out of their study it is expected that a feasible method
will be developed for raising the level to provide relief for our
commerce and supply water for drainage. Whenever a practical plan is
presented it ought to be speedily adopted.
Reclamation

It is increasingly evident that the Federal Government must in the
future take a leading part in the impounding of water for
conservation with incidental power for the development of the
irrigable lands of the and region. The unused waters of the West are
found mainly in large rivers. Works to store and distribute these
have such magnitude and cost that they are not attractive to private
enterprise. Water is the irreplaceable natural resource. Its
precipitation can not be increased. Its storage on the higher reaches
of streams, to meet growing needs, to be used repeatedly as it flows
toward the seas, is a practical and prudent business policy.

The United States promises to follow the course of older irrigation
countries, where recent important irrigation developments have been
carried out as national undertakings. It is gratifying, therefore,
that conditions on Federal reclamation projects have become
satisfactory. The gross value of crop, grown with water from project
works increased from $110,000,000 in 1924 to $131,000,000 in 1925.
The adjustments made last year by Congress relieved irrigators from
paying construction costs on unprofitable land, and by so doing
inspired new hope and confidence in ability to meet the payments
required. Construction payments by water users last year were the
largest in the history of the bureau.

The anticipated reclamation fund will be fully absorbed for a number
of years in the completion of old projects and the construction of
projects inaugurated in the past three years. We should, however,
continue to investigate and study the possibilities of a carefully
planned development of promising projects, logically of governmental
concern because of their physical magnitude, immense cost, and the
interstate and international problems involved. Only in this way may
we be fully prepared to meet intelligently the needs of our
fast-growing population in the years to come.
Transportation

It would be difficult to conceive of any modern activity which
contributes more to the necessities and conveniences of life than
transportation. Without it our present agricultural production and
practically all of our commerce would be completely prostrated. One
of the large contributing causes to the present highly satisfactory
state of our economic condition is the prompt and dependable service,
surpassing all our previous records, rendered by the railroads. This
power has been fostered by the spirit of cooperation between Federal
and State regulatory commissions. To render this service more
efficient and effective and to promote a more scientific regulation,
the process of valuing railroad properties should be simplified and
the primary valuations should be completed as rapidly as possible.
The problem of rate reduction would be much simplified by a process
of railroad consolidations. This principle has already been adopted
as Federal law. Experience has shown that a more effective method
must be provided. Studies have already been made and legislation
introduced seeking to promote this end. It would be of great
advantage if it could be taken up at once and speedily enacted. The
railroad systems of the country and the convenience of all the people
are waiting on this important decision.
Merchant marine

It is axiomatic that no agricultural and industrial country can get
the full benefit of its own advantages without a merchant marine. We
have been proceeding under the act of Congress that contemplates the
establishment of trade routes to be ultimately transferred to private
ownership and operation. Due to temporary conditions abroad and at
home we have a large demand just now for certain types of freight
vessels. Some suggestion has been made for new construction. I do not
feel that we are yet warranted in entering, that field. Such ships as
we might build could not be sold after they are launched for anywhere
near what they would cost. We have expended over $250,000,000 out of
the public Treasury in recent years to make up the losses of
operation, not counting the depreciation or any cost whatever of our
capital investment. The great need of our merchant marine is not for
more ships but for more freight.

Our merchants are altogether too indifferent about using American
ships for the transportation of goods which they send abroad or bring
home. Some of our vessels necessarily need repairs, which should be
made. I do not believe that the operation of our fleet is as
economical and efficient as it could be made if placed under a single
responsible head, leaving the Shipping Board free to deal with general
matters of policy and regulation.
Radio legislation

The Department of Commerce has for some years urgently presented the
necessity for further legislation in order to protect radio listeners
from interference between broadcasting stations and to carry out other
regulatory functions. Both branches of Congress at the last session
passed enactments intended to effect such regulation, but the two
bills yet remain to be brought into agreement and final passage.

Due to decisions of the courts, the authority of the department under
the law of 1912 has broken down; many more stations have been
operating than can be accommodated within the limited number of wave
lengths available; further stations are in course of construction;
many stations have departed from the scheme of allocation set down by
the department, and the whole service of this most important public
function has drifted into such chaos as seems likely, if not
remedied, to destroy its great value. I most urgently recommend that
this legislation should be speedily enacted.

I do not believe it is desirable to set up further independent
agencies in the Government. Rather I believe it advisable to entrust
the important functions of deciding who shall exercise the privilege
of radio transmission and under what conditions, the assigning of
wave lengths and determination of power, to a board to be assembled
whenever action on such questions becomes necessary. There should be
right of appeal to the courts from the decisions of such board. The
administration of the decisions of the board and the other features
of regulation and promotion of radio in the public interest, together
with scientific research, should remain in the Department of Commerce.
Such an arrangement makes for more expert, more efficient, and more
economical administration that an independent agency or board, whose
duties, after initial stages, require but little attention, in which
administrative functions are confused with semijudicial functions and
from which of necessity there must be greatly increased personnel and
expenditure.
The wage earner

The great body of our people are made up of wage earners. Several
hundred thousands of them are on the pay rolls of the United States
Government. Their condition very largely is fixed by legislation. We
have recently provided increases in compensation under a method of
reclassification and given them the advantage of a liberal retirement
system as a support for their declining years. Most of them are under
the merit system, which is a guaranty of their intelligence, and the
efficiency of their service is a demonstration of their loyalty. The
Federal Government should continue to set a good example for all
other employers.

In the industries the condition of the wage earner has steadily
improved. The 12-hour day is almost entirely unknown. Skilled labor
is well compensated. But there are unfortunately a multitude of
workers who have not yet come to share in the general prosperity of
the Nation. Both the public authorities and private enterprise should
be solicitous to advance the welfare of this class. The Federal
Government has been seeking to secure this end through a protective
tariff, through restrictive immigration, through requiring safety
devices for the prevention of accidents, through the granting of
workman's compensation, through civilian vocational rehabilitation
and education, through employment information bureaus, and through
such humanitarian relief as was provided in the maternity and infancy
legislation. It is a satisfaction to report that a more general
condition of contentment exists among wage earners and the country is
more free from labor disputes than it has been for years. While
restrictive immigration has been adopted in part for the benefit of
the wage earner, and in its entirety for the benefit of the country,
it ought not to cause a needless separation of families and
dependents from their natural source of support contrary to the
dictates of humanity.
Bituminous coal

No progress appears to have been made within large areas of the
bituminous coal industry toward creation of voluntary machinery by
which greater assurance can be given to the public of peaceful
adjustment of wage difficulties such as has been accomplished in the
anthracite industry. This bituminous industry is one of primary
necessity and bears a great responsibility to the Nation for
continuity of supplies. As the wage agreements in the unionized
section of the industry expire on April 1 next, and as conflicts may
result which may imperil public interest, and have for many years
often called for action of the Executive in protection of the public,
I again recommend the passage of such legislation as will assist the
Executive in dealing with such emergencies through a special
temporary board of conciliation and mediation and through
administrative agencies for the purpose of distribution of coal and
protection of the consumers of coal from profiteering. At present the
Executive is not only without authority to act but is actually
prohibited by law from making any expenditure to meet the emergency
of a coal famine.
Judiciary

The Federal courts hold a high position in the administration of
justice in the world. While individual judicial officers have
sometimes been subjected to just criticism, the courts as a whole
have maintained an exceedingly high standard. The Congress may well
consider the question of supplying fair salaries and conferring upon
the Supreme Court the same rule-making power on the law side of the
district courts that they have always possessed on the equity side. A
bill is also pending providing for retirement after a certain number
of years of service, although they have not been consecutive, which
should have your favorable consideration. These faithful servants of
the Government are about the last that remain to be provided for in
the postwar readjustments.
Banking

There has been pending in Congress for nearly three years banking
legislation to clarify the national bank act and reasonably to
increase the powers of the national banks. I believe that within the
limitation of sound banking principles Congress should now and for
the future place the national banks upon a fair equality with their
competitors, the State banks, and I trust that means may be found so
that the differences on branch-banking legislation between the Senate
and the House of Representatives may be settled along sound lines and
the legislation promptly enacted.

It would be difficult to overestimate the service which the Federal
reserve system has already rendered to the country. It is necessary
only to recall the chaotic condition of our banking organization at
the time the Federal reserve system was put into operation. The old
system consisted of a vast number of independent banking units, with
scattered bank reserves which never could be mobilized in times of
greatest need. In spite of vast banking resources, there was no
coordination of reserves or any credit elasticity. As a consequence,
a strain was felt even during crop-moving periods and when it was
necessary to meet other seasonal and regularly recurring needs.

The Federal reserve system is not a panacea for all economic or
financial ills. It can not prevent depression in certain industries
which are experiencing overexpansion of production or contraction of
their markets. Its business is to furnish adequate credit and
currency facilities. This it has succeeded in doing, both during the
war and in the more difficult period of deflation and readjustment
which followed. It enables us to look to the future with confidence
and to make plans far ahead, based on the belief that the Federal
reserve system will exercise a steadying influence on credit
conditions and thereby prevent tiny sudden or severe reactions from
the period of prosperity which we are now enjoying. In order that
these plans may go forward, action should be taken at the present
session on the question of renewing the banks' charters and thereby
insuring a continuation of the policies and present usefulness of the
Federal reserve system.
Federal regulation

I am in favor of reducing, rather than expanding, Government bureaus
which seek to regulate and control the business activities of the
people. Everyone is aware that abuses exist and will exist so long as
we are limited by human imperfections. Unfortunately, human nature can
not be changed by an act of the legislature. When practically the sole
remedy for many evils lies in the necessity of the people looking out
for themselves and reforming their own abuses, they will find that
they are relying on a false security if the Government assumes to
hold out the promise that it is looking out for them and providing
reforms for them. This principle is preeminently applicable to the
National Government. It is too much assumed that because an abuse
exists it is the business of the National Government to provide a
remedy. The presumption should be that it is the business of local
and State governments. Such national action results in encroaching
upon the salutary independence of the States and by undertaking to
supersede their natural authority fills the land with bureaus and
departments which are undertaking to do what it is impossible for
them to accomplish and brings our whole system of government into
disrespect and disfavor. We ought to maintain high standards. We
ought to punish wrongdoing. Society has not only the privilege but
the absolute duty of protecting itself and its individuals. But we
can not accomplish this end by adopting a wrong method. Permanent
success lies in local, rather than national action. Unless the
locality rises to its own requirements, there is an almost
irresistible impulse for the National Government to intervene. The
States and the Nation should both realize that such action is to be
adopted only as a last resort.
The negro

The social well-being of our country requires our constant effort for
the amelioration of race prejudice and the extension to all elements
of equal opportunity and equal protection under the laws which are
guaranteed by the. Constitution. The Federal Government especially is
charged with this obligation in behalf of the colored people of the
Nation. Not only their remarkable progress, their devotion and their
loyalty, but, our duty to ourselves under our claim that we are an
enlightened people requires us to use all our power to protect them
from the crime of lynching. Although violence of this kind has very
much decreased, while any of it remains we can not justify neglecting
to make every effort to eradicate it by law.

The education of the colored race under Government encouragement is
proceeding successfully and ought to have continuing support. An
increasing need exists for properly educated and trained medical
skill to be devoted to the service of this race.
Insular possessions

This Government holds in sacred trusteeship islands which it has
acquired in the East and West Indies. In all of them the people are
more prosperous than at any previous time. A system of good roads,
education, and general development is in progress. The people are
better governed than ever before and generally content.

In the Philippine Islands Maj. Gen. Leonard Wood has been Governor
General for five years and has administered his office with tact and
ability greatly to the success of the Filipino people. These are a
proud and sensitive race, who are making such progress with our
cooperation that we can view the results of this experiment with
great satisfaction. As we are attempting to assist this race toward
self-government, we should look upon their wishes with great respect,
granting their requests immediately when they are right, yet
maintaining a frank firmness in refusing when they are wrong. We
shall measure their progress in no small part by their acceptance of
the terms of the organic law under which the islands are governed and
their faithful observance of its provisions. Need exists for
clarifying the duties of the auditor and declaring them to be what
everyone had supposed they were. We have placed our own expenditures
under the supervision of the Comptroller General. It is not likely
that the expenditures in the Philippine Islands need less supervision
than our own. The Governor General is hampered in his selection of
subordinates by the necessity of securing a confirmation, which has
oftentimes driven him to the expediency of using Army officers in
work for which civilian experts would be much better fitted. Means
should be provided for this and such other purposes as he may require
out of the revenue which this Government now turns back to the
Philippine treasury.

In order that these possessions might stiffer no seeming neglect, I
have recently sent Col. Carmi A. Thompson to the islands to make a
survey in cooperation with the Governor General to suggest what might
be done to improve conditions. Later, I may make a more extended
report including recommendations. The economic development of the
islands is very important. They ought not to be turned back to the
people until they are both politically fitted for self-government and
economically independent. Large areas are adaptable to the production
of rubber. No one contemplates any time in the future either under
the present or a more independent form of government when we should
not assume some responsibility for their defense. For their economic
advantage, for the employment of their people, and as a contribution
to our power of defense which could not be carried on without rubber,
I believe this industry should be encouraged. It is especially adapted
to the Filipino people themselves, who might cultivate it individually
on a small acreage. It could be carried on extensively by American
capital in a way to furnish employment at good wages. I am opposed to
the promotion of any policy that does not provide for absolute freedom
on the part of the wage earners and do not think we should undertake
to give power for large holdings of land in the islands against the
opposition of the people of the locality. Any development of the
islands must be solely with the first object of benefiting the people
of the islands. At an early day, these possessions should be taken out
from under all military control and administered entirely on the civil
side of government.
National defense

Our policy of national defense is not one of making war, but of
insuring peace. The land and sea force of America, both in its
domestic and foreign implications, is distinctly a peace force. It is
an arm of the police power to guarantee order and the execution of the
law at home and security to our citizens abroad. No self-respecting
nation would neglect to provide an army and navy proportionate to its
population, the extent of its territory, and the dignity of the place
which it occupies in the world. When it is considered that no navy in
the world, with one exception, approaches ours and none surpasses it,
that our Regular Army of about 115,000 men is the equal of any other
like number of troops, that our entire permanent and reserve land and
sea force trained and training consists of a personnel of about
610,000, and that our annual appropriations are about $680,000,000 a
year, expended under the direction of an exceedingly competent staff,
it can not be said that our country is neglecting its national
defense. It is true that a cult of disparagement exists, but that
candid examination made by the Congress through its various
committees has always reassured the country and demonstrated that it
is maintaining the most adequate defensive forces in these present
years that it has ever supported in time of peace.

This general policy should be kept in effect. Here and there
temporary changes may be made in personnel to meet requirements in
other directions. Attention should be given to submarines, cruisers,
and air forces. Particular points may need strengthening, but as a
whole our military power is sufficient.

The one weak place in the whole line is our still stupendous war
debt. In any modern campaign the dollars are the shock troops. With a
depleted treasury in the rear, no army can maintain itself in the
field. A country loaded with debt is a country devoid of the first
line of defense. Economy is the handmaid of preparedness. If we wish
to be able to defend ourselves to the full extent of our power in the
future, we shall discharge as soon as possible the financial burden of
the last war. Otherwise we would face a crisis with a part of our
capital resources already expended.

The amount and kind of our military equipment is preeminently a
question for the decision of the Congress, after giving due
consideration to the advice of military experts and the available
public revenue. Nothing is more laudable than the cooperation of the
agricultural and industrial resources of the country for the purpose
of supplying the needs of national defense. In time of peril the
people employed in these interests volunteered in a most
self-sacrificing way, often at the nominal charge of a dollar a year.
But the Army and Navy are not supported for the benefit of supply
concerns; supply concerns are supported for the benefit of the Army
and Navy. The distribution of orders on what is needed from different
concerns for the purpose of keeping up equipment and organization is
perfectly justified, but any attempt to prevail upon the Government
to purchase beyond its needs ought not to be tolerated. It is
eminently fair that those who deal with the Government should do so
at a reasonable profit. However, public money is expended not that
some one may profit by it, but in order to serve a public purpose.

While our policy of national defense will proceed in order that we
may be independent and self-sufficient, I am opposed to engaging in
any attempt at competitive armaments. No matter how much or how
little some other country may feel constrained to provide, we can
well afford to set the example, not of being dictated to by others,
but of adopting our own standards. We are strong enough to pursue
that method, which will be a most wholesome model for the rest of the
world. We are eminently peaceful, but we are by no means weak. While
we submit our differences with others, not to the adjudication of
force, but of reason, it is not because we are unable to defend our
rights. While we are doing our best to eliminate all resort to war
for the purpose of settling disputes, we can not but remember that
the peace we now enjoy had to be won by the sword and that if the
rights of our country are to be defended we can not rely for that
purpose upon anyone but ourselves. We can not shirk the
responsibility, which is the first requisite of all government, of
preserving its own integrity and maintaining the rights of its own
citizens. It is only in accordance with these principles that we can
establish any lasting foundations for an honorable and permanent
peace.

It is for these reasons that our country, like any other country,
proposes to provide itself with an army and navy supported by a
merchant marine. Yet these are not for competition with any other
power. For years we have besought nations to disarm. We have recently
expressed our willingness at Geneva to enter into treaties for the
limitation of all types of warships according to the ratio adopted at
the Washington Conference. This offer is still pending. While we are
and shall continue to be armed it is not as a menace, but rather a
common assurance of tranquility to all the peaceloving people of the
world. For us to do any less would be to disregard our obligations,
evade our responsibilities, and jeopardize our national honor.
Veterans

This country, not only because it is bound by honor but because of
the satisfaction derived from it, has always lavished its bounty upon
its veterans. For years a service pension has been bestowed upon the
Grand Army on reaching a certain age. Like provision has been made
for the survivors of the Spanish War. A liberal future compensation
has been granted to all the veterans of the World War. But it is in
the case of the, disabled and the dependents that the Government
exhibits its greatest solicitude. This work is being well
administered by the Veterans' Bureau. The main unfinished feature is
that of hospitalization. This requirement is being rapidly met.
Various veteran bodies will present to you recommendations which
should have your careful consideration. At the last session we
increased our annual expenditure for pensions and relief on account
of the veterans of three wars. While I approve of proper relief for
all suffering, I do not favor any further extension of our pension
system at this time.
Alien property

We still have in the possession of the Government the alien property.
It has always been the policy of America to hold that private enemy
property should not be confiscated in time of war. This principle we
have scrupulously observed. As this property is security for the
claims of our citizens and our Government, we can not relinquish it
without adequate provision for their reimbursement. Legislation for
the return of this property, accompanied by suitable provisions for
the liquidation of the claims of our citizens and our Treasury,
should be adopted. If our Government releases to foreigners the
security which it holds for Americans, it must at the same time
provide satisfactory safeguards for meeting American claims.
Prohibition

The duly authorized public authorities of this country have made
prohibition the law of the land. Acting under the Constitution the
Congress and the legislatures of practically all the, States have
adopted legislation for its enforcement. Some abuses have arisen
which require reform. Under the law the National Government has
entrusted to the Treasury Department the especial duty of regulation
and enforcement. Such supplementary legislation as it requires to
meet existing conditions should be carefully and speedily enacted.
Failure to support the Constitution and observe the law ought not to
be tolerated by public opinion. Especially those in public places,
who have taken their oath to support the Constitution, ought to be
most scrupulous in its observance. Officers of the Department of
Justice throughout the country should be vigilant in enforcing the
law, but local authorities, which had always been mainly responsible
for the enforcement of law in relation to intoxicating liquor, ought
not to seek evasion by attempting to shift the burden wholly upon the
Federal agencies. Under the Constitution the States are jointly
charged with the Nation in providing for the enforcement of the
prohibition amendment. Some people do not like the amendment, some do
not like other parts of the Constitution, some do not like any of it.
Those who entertain such sentiments have a perfect right to seek
through legal methods for a change. But for any of our inhabitants to
observe such parts of the Constitution as they like, while
disregarding others, is a doctrine that would break down all
protection of life and property and destroy the American system of
ordered liberty.
Foreign relations

The foreign policy of this Government is well known. It is one of
peace based on that mutual respect that arises from mutual regard for
international rights and the discharge of international obligations.
It is our purpose to promote understanding and good will between
ourselves and all other people. The American people are altogether
lacking in an appreciation of the tremendous good fortune that
surrounds their international position. We have no traditional
enemies. We are not embarrassed over any disputed territory. We have
no possessions that are coveted by others; they have none that are
coveted by us. Our borders are unfortified. We fear no one; no one
fears us. All the world knows that the whole extent of our influence
is against war and in favor of peace, against the use of force and in
favor of negotiation, arbitration, and adjudication as a method of
adjusting international differences. We look with disfavor upon all
aggressive warfare. We are strong enough so that no one can charge us
with weakness if we are slow to anger. Our place is sufficiently
established so that we need not be sensitive over trifles. Our
resources, are large enough so that we can afford to be generous. At
the same time we are a nation among nations and recognize a
responsibility not only to ourselves, but in the interests of a
stable and enlightened civilization, to protect and defend the
international rights of our Government and our citizens.

It is because of our historical detachment and the generations of
comparative indifference toward it by other nations that our public
is inclined to consider altogether too seriously the reports that we
are criticized abroad. We never had a larger foreign trade than at
the present time. Our good offices were never more sought and the
necessity for our assistance and cooperation was never more
universally declared in any time of peace. We know that the
sentiments which we entertain toward all other nations are those of
the most sincere friendship and good will and of all unbounded desire
to help, which we are perfectly willing to have judged by their
fruits. In our efforts to adjust our international obligations we
have met with a response which, when everything is considered, I
believe history will record as a most remarkable and gratifying
demonstration of the sanctity with which civilized nations undertake
to discharge their mutual obligations. Debt settlements have been
negotiated with practically all of those who owed us and all finally
adjusted but two, which are, in process of ratification. When we
consider the real sacrifice that will be necessary on the part of
other nations, considering all their circumstances, to meet their
agreed payments, we ought to hold them in increased admiration and
respect. It is true that we have extended to them very generous
treatment, but it is also true that they have agreed to repay its all
that we loaned to them and some interest.

A special conference on the Chinese customs tariff provided for by
the treaty between the nine powers relating to the Chinese customs
tariff signed at Washington on February 6, 1922, was called by the
Chinese Government to meet at Peking, on October 26, 1925. We
participated in this conference through fully empowered delegates
and, with good will, endeavored to cooperate with the other
participating powers with a view to putting into effect promises made
to China at the Washington conference, and considering any reasonable
proposal that might be made by the Chinese Government for the
revision of the treaties on the subject of China's tariff. With these
aims in view the American delegation at the outset of the conference
proposed to put into effect the surtaxes provided for by the
Washington treaty and to proceed immediately to the negotiation of a
treaty, which, among other things, was to make provision for the
abolition of taxes collected on goods in transit, remove the tariff
restrictions in existing treaties, and put into effect the national
tariff law of China.

Early in April of the present year the central Chinese Government was
ousted from power by opposing warring factions. It became impossible
under the circumstances to continue the negotiations. Finally, on
July 3, the delegates of the foreign powers, including those of the
United States, issued a statement expressing their unanimous and
earnest desire to proceed with the work of the conference at the
earliest possible moment when the delegates of the Chinese Government
are in a position to resume discussions with the foreign delegates of
the problems before the conference. We are prepared to resume the
negotiations thus interrupted whenever a Government representing the
Chinese people and acting on their behalf presents itself. The fact
that constant warfare between contending Chinese factions has
rendered it impossible to bring these negotiations to a successful
conclusion is a matter of deep regret. Throughout these conflicts we
have maintained a position of the most careful neutrality. Our naval
vessels in Asiatic waters, pursuant to treaty rights, have been used
only for the protection of American citizens.

Silas H. Strawn, Esq., was sent to China as American commissioner to
cooperate with commissioners of the other powers in the establishment
of a commission to inquire into the present practice of
extraterritorial jurisdiction in China, with a view to reporting to
the Governments of the several powers their findings of fact in
regard to these matters. The commission commenced its work in
January, 1926, and agreed upon a joint report which was signed on
September 16, 1926. The commission's report has been received and is
being studied with a view to determining our future policy in regard
to the question of extraterritorial privileges under treaties between
the United States and China.

The Preparatory Commission for the Disarmament Conference met at
Geneva on May 18 and its work has been proceeding almost continuously
since that date. It would be premature to attempt to form a judgment
as to the progress that has been made. The commission has had before
it a comprehensive list of questions touching upon all aspects of the
question of the limitation of armament. In the commission's
discussions many differences of opinion have developed. However, I am
hopeful that at least some measure of agreement will be reached as the
discussions continue. The American representation on the commission
has consistently tried to be helpful, and has kept before it the
practical objective to which the commission is working, namely,
actual agreements for the limitation of armaments. Our
representatives will continue their work in that direction.

One of the most encouraging features of the commission's work thus
far has been the agreement in principle among the naval experts of a
majority of the powers parties to the Washington treaty limiting
naval armament upon methods and standards for the comparison and
further limitation of naval armament. It is needless to say that at
the proper time I shall be prepared to proceed along practical lines
to the conclusion of agreements carrying further the work begun at
the Washington Conference in 1921.
Department reports

Many important subjects which it is impossible even to mention in the
short space of an annual message you will find fully discussed in the
departmental reports. A failure to include them here is not to be
taken as indicating any lack of interest, but only a disinclination
to state inadequately what has been much better done in other
documents.
The capital city

We are embarking on an ambitious building program for the city of
Washington. The Memorial Bridge is under way with all that it holds
for use and beauty. New buildings are soon contemplated. This program
should represent the best that exists in the art and science of
architecture. Into these structures which must be considered as of a
permanent nature ought to go the aspirations of the Nation, its
ideals expressed in forms of beauty. If our country wishes to compete
with others, let it not be in the support of armaments but in the
making of a beautiful capital city. Let it express the soul of
America. Whenever an American is at the seat of his Government,
however traveled and cultured he may be, he ought to find a city of
stately proportion, symmetrically laid out and adorned with the best
that there is in architecture, which would arouse his imagination and
stir his patriotic pride. In the coming years Washington should be not
only the art center of our own country but the art center of the
world. Around it should center all that is best in science, in
learning, in letters, and in art. These are the results that justify
the creation of those national resources with which we have been
favored.
American ideals

America is not and must not be a country without ideals. They are
useless if they are only visionary; they are only valuable if they
are practical. A nation can not dwell constantly on the mountain
tops. It has to be replenished and sustained through the ceaseless
toil of the less inspiring valleys. But its face ought always to be
turned upward, its vision ought always to be fixed on high.

We need ideals that can be followed in daily life, that can be
translated into terms of the home. We can not expect to be relieved
from toil, but we do expect to divest it of degrading conditions.
Work is honorable; it is entitled to an honorable recompense. We must
strive mightily, but having striven there is a defect in our political
and social system if we are not in general rewarded with success. To
relieve the land of the burdens that came from the war, to release to
the individual more of the fruits of his own industry, to increase his
earning capacity and decrease his hours of labor, to enlarge the
circle of his vision through good roads and better transportation, to
lace before him the opportunity for education both in science and in
art, to leave him free to receive the inspiration of religion, all
these are ideals which deliver him from the servitude of the body and
exalt him to the service of the soul. Through this emancipation from
the things that are material, we broaden our dominion over the things
that are spiritual.