Speech Transcript:

 To the Senate and House of Representatives:

The Constitution requires that the President "shall, from time to
time, give to the Congress information of the state of the Union, and
recommend to their consideration such measures 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 have been maintained; peace has become
more assured. The problems with which we are confronted are the
problems of growth and of progress. In their solution we have to
determine the facts, to develop the relative importance to be
assigned to such facts, to formulate a common judgment upon them, and
to realize solutions in spirit of conciliation.

FOREIGN RELATIONS

We are not only at peace with all the world, but the foundations for
future peace are being substantially 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 covenanted to renounce war and to settle all disputes by
pacific means. Through it a new world outlook has been inaugurated
which has profoundly affected the foreign policies of nations. Since
its inauguration we have initiated new efforts not only in 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 everyone that no controversy 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 completely safeguarded. Our adherence to
the International Court is, as now constituted, not the slightest
step toward entry into the League of Nations. As I have before
indicated, I shall direct that our signature be affixed 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.

In the hope of reducing friction in the world, and with the desire
that we may reduce the great economic burdens of naval armament, we
have joined in conference with Great Britain, France, Italy, and
Japan to be held in London in January to consider the further
limitation and reduction of naval arms. We hold high hopes that
success may attend this effort.

At the beginning of the present administration the neighboring State
of Mexico was best with domestic insurrection. We maintained the
embargo upon the shipment of arms to Mexico but permitted the duly
constituted Government to procure supplies from our surplus war
stocks. Fortunately, the Mexican Government by its own strength
successfully withstood the insurrection with but slight damage.
Opportunity of further peaceful development is given to that country.
At the request 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.

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 successfully terminated an incident which seemed to
threaten war. The proposed plan for final settlement as suggested by
the neutral governments is still under consideration.

This Government has continued its efforts to act as a mediator in
boundary difficulties between Guatemala and Honduras.

A further instance of profound importance in establishing good will
was the inauguration of regular air mail service between the United
States and Caribbean, Central American, and South American
countries.

We still have marines on foreign soil--in Nicaragua, 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 and 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, I 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.

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 foresighted acts in the past
few years greatly strengthened 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
Government, I shall recommend to the Congress more liberal
appropriations for the work of the State Department. I know of no
expenditure of public money from which a greater economic and moral
return can come to us than by assuring the most effective conduct of
our foreign relations.

NATIONAL DEFENSE

To preserve internal 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 intelligence 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 rose with the Great War, but receded 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, yet the total of our expenditures
is in excess of those of the most highly militarized nations of the
world.

Upon the conference shortly to be held in London will depend such
moderation as we can make in naval expenditure. If we shall be
compelled to undertake the naval construction implied in the
Washington arms treaty as well as other construction which would
appear to be necessary if no international agreement can be
completed, we shall be committed during the next six years to a
construction expenditure of upward of $1,200,000,000 besides the
necessary further increase in costs for annual upkeep.

After 1914 the various Army contingents necessarily expanded to the
end of the Great War and then receded to the low point in 1924, when
expansion 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 purposes. From
a defense point of view our forces should be proportioned to national
need and should, therefore, to some extent be modified by the
prospects of peace, which were never brighter than to-day.

It should be borne in mind that the improvement in the National Guard
by Federal support begun in 1920 has definitely strengthened our
national 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 recommend that Congress give earnest consideration to the
possibilities of prudent action which will give relief from our
continuously mounting expenditures.

FINANCES OF THE 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 present 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 large outlays, it is with extreme difficulty
that we shall be able to keep the expenditures for the next fiscal
year within the bounds of the present year. Economies in many
directions have permitted some accommodation of pressing needs, the
net result being 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 Government 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. Every dollar so
returned fertilizes the soil of prosperity.

TAX REDUCTION

The estimate submitted to me 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. Owing 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 the prospective surpluses to the taxpayers,
particularly as ample provision for debt reduction has been made in
both years through the form of debt retirement 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 recommend that the normal income tax rates applicable to the
incomes of individuals for the calendar year 1929 be reduced from 5,
3, and 1 1/2; per cent, to 4, 2, and 1/2; 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 estimated that this will result in a
reduction of $160,000,000 in income taxes to be collected during the
calendar 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 taxpayers with small or moderate
incomes.

FOREIGN DEBTS

The past year has brought us near to completion 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 settlement offered by that Government to its other relief
creditors. No agreement has yet been concluded with that government,
but the form of agreement has been settled and its execution only
awaits the Government of Austria securing the assent by all the other
relief creditors of the terms offered. The act of Congress approved
February 14, 1929, authorized the settlement with the Government of
Greece, and an agreement was concluded on May 10, 1929.

The Government of France ratified the agreement with us on July 27,
1929. This agreement will shortly be before the Congress and I
recommend its approval.

The only indebtedness of foreign governments to the United States now
unsettled is that of Russia and Armenia.

During the past year a committee of distinguished experts under
American leadership submitted a plan looking to a revision of claims
against Germany by the various Governments. The United States denied
itself any participation in the war settlement 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 agreement with the German Government. In finding a basis for
settlement it was necessary for the committee of experts to request
all the Governments concerned to make some contribution to the
adjustment and we have felt that we should share a proportion of the
concessions made.

The State and Treasury Departments will be in a position shortly to
submit for your consideration a draft of an agreement to be executed
between the United States and Germany providing for the payments of
these revised amounts. A more extensive statement will be submitted
at that time.

The total amount of indebtedness of the various countries to 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 Governments 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 annually 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 seized in war should be
returned to its owners has proceeded 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 enjoyed a large degree of prosperity and sound
progress during the past year with a steady improvement in methods of
production and distribution and consequent advancement in standards of
living. Progress has, of course, been unequal among industries, and
some, such as coal, lumber, leather, and textiles, still lag behind.
The long upward trend of fundamental progress, however, gave rise to
over-optimism as to profits, which translated itself into a wave of
uncontrolled speculation in securities, resulting in the diversion of
capital from business to the stock market and the inevitable crash.
The natural consequences have been 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 of
agricultural products dealt in upon the great markets have been
affected in sympathy with the stock crash.

Fortunately, the Federal reserve system had taken measures to
strengthen the position against the day when speculation would break,
which together with the strong position of the banks has carried the
whole credit system through the crisis without impairment. The
capital which has been hitherto absorbed in stock-market loans for
speculative purposes is now returning to the normal channels of
business. There has been no inflation in the prices of commodities;
there has been no undue accumulation 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 especially the recollection of
the economic consequences of previous crashes under a much less
secured financial system created unwarranted pessimism and fear. It
was recalled that past storms of similar character had resulted in
retrenchment of construction, reduction of wages, and laying off of
workers. The natural result was the tendency of business agencies
throughout the country to pause in their plans and proposals for
continuation and extension of their businesses, and this hesitation
unchecked could in itself intensify into a depression with widespread
unemployment and suffering.

I have, therefore, instituted systematic, voluntary measures of
cooperation with the business institutions 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
other deficits in employment. Due to the enlarged sense of
cooperation and responsibility which has grown in the business world
during the past few years the response has been remarkable and
satisfactory. We have canvassed the Federal Government and instituted
measures of prudent expansion in such work that should be helpful, and
upon which the different departments will make some early
recommendations to Congress.

I am convinced that through these measures we have reestablished
confidence. Wages should remain stable. A very large degree of
industrial unemployment and suffering which would otherwise have
occurred has been prevented. Agricultural prices have reflected the
returning confidence. The measures taken must be vigorously pursued
until normal conditions are restored.

AGRICULTURE

The agricultural situation is improving. The gross farm income 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
1928-29 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.

The number of farmer bankruptcies is very materially decreased below
previous years. The decline in land 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
assured me that a large measure of confidence is returning to
agriculture and that a feeling of optimism pervades that industry.

The most extensive action for strengthening the agricultural industry
ever taken by any government was inaugurated through the farm
marketing act of June 15 last. Under its provisions the Federal Farm
Board has been established, comprised of men long 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 efficient organization of agriculture,
toward the elimination of waste in marketing, and toward the
upbuilding of farmers' marketing organizations on sounder and more
efficient lines. Substantial headway has been made in the
organization of four of the basic commodities--grain, cotton,
livestock, and wool. Support by the board to cooperative marketing
organizations and other board activities undoubtedly have served to
steady the farmers' market during the recent crisis and have operated
also as a great stimulus to the cooperative organization 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 farmer-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 expedite the
fulfillment of party pledges of agricultural 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 competition in our export markets
increasingly serious. It 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 foreign access to our domestic market should be
regulated by taking into account the differences in our costs of
production.

"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
experience under the tariff bill enacted in 1922 have demonstrated
the wisdom of Congress in the enactment of that measure. On the whole
it has worked well. In the main our wages have been maintained at high
levels; our exports and imports have steadily increased; with some
exceptions our manufacturing industries have been prosperous.
Nevertheless, economic changes have taken place during that time
which have placed certain domestic products at a disadvantage and new
industries have come into being, all of which create the necessity for
some limited changes in the schedules and in the administrative
clauses of the laws as written in 1922.

"It would seem to me that the test of necessity for revision is, in
the main, whether there has been a substantial slackening of activity
in an industry during the past few years, and a consequent decrease of
employment due to insurmountable competition in the products of that
industry. 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 whatever substantial loss of employment may have
resulted from shifts since that time.

"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 include 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 application 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 cooperating to
minimize future uncertainties. It is just that they should know what
the rates are to be.

Even a limited revision requires the consideration and readjustment
of many items. The exhaustive inquiries and valuable debate from men
representative of all parts of the country which is needed to
determine the detailed rates must necessarily 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
develop, such as were experienced by the dairymen, the flaxseed
producers, the glass industry, and others, 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 recommendation of
the Tariff Commission after exhaustive investigation. Changes by the
Congress in the isolated items such as those 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 conflict 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 common heritage as Americans, and the
infinite web of national sentiment, have created a solidarity in a
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 Congress $300,000,000 has
been authorized for public buildings and the land upon which to
construct them, being $75,000,000 for the District of Columbia and
$225,000,000 for the country at large. Excluding $25,000,000 which is
for the acquisition of land in the so-called "triangle" in this city,
this public building legislation provides for a five-year program for
the District of Columbia and between an eight and nine year program
for the country at large. Of this sum approximately $27,400,000 was
expended up to June 30 last, of which $11,400,000 has been expended
in the District and $16,000,000 outside.

Even this generous provision for both the District of Columbia and
the country is insufficient For most pressing governmental needs.
Expensive rents and inadequate facilities are extravagance and not
economy. In the District even after the completion of these projects
we shall have fully 20,000 clerks housed in rented and temporary war
buildings which can last but a little longer.

I therefore recommend that consideration should be given to the
extension of authorizations both for the country at large and for the
District of Columbia again distributed over a term of years. A survey
of the need in both categories has been made by the Secretary of the
Treasury and the Postmaster General. It would be helpful in the
present economic situation if such steps were taken as would enable
early construction work.

An expedition and enlargement 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 acknowledged need
would add dignity to the celebration in 1932 of the two hundredth
anniversary of the birth of President Washington.

In consideration of these projects which contribute 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
buildings which are proposed for sites facing upon public buildings
and parks. Without such control much of the effort of the Congress in
beautification of the Capital will be minimized.

THE WATERWAYS AND FLOOD CONTROL

The development of inland waterways has received new impulse from the
completion during this year of the canalization of the Ohio to a
uniform 9-foot depth. The development of the other segments of the
Mississippi system should be expedited and with this in view I am
recommending an increase in appropriations for rivers and harbors
from $50,000,000 to $55,000,000 per annum which, together 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 Mississippi system
and thus bring it to early completion.

Conflict of opinion which has arisen over the proposed 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 recommendation to Congress. The other
portions of the project are being vigorously prosecuted and I have
recommended an increase in 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 effective barge depths is
well warranted. We are awaiting the action of Canada upon the St.
Lawrence waterway project.

HIGHWAYS

There are over 3,000,000 miles of legally established highways in the
United States, 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 been 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 about 22 per cent of the State highway
systems and about 8 per cent of the local roads.

While proper planning should materially reduce the listed mileage of
public roads, particularly in the agricultural districts, and turn
these roads back to useful purposes, it is evident that road
construction 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
construction 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
ultimately 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 is due to losses on ocean mail and air
mail contracts. The department is making an exhaustive study of the
sources of the deficit with view to later recommendation 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
arrangements. The practice has grown up in recent years of
contracting long term leases under which both rent and amortization
principal cost of buildings is included. 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
Government 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 air mail rates upon a more systematic and permanent
footing is necessary. The subject is under study, and if legislation
should prove necessary the subject will be presented to the Congress.
In the meantime I recommend that the Congress should consider the
desirability of authorizing further expansion of the South American
services.

COMMERCIAL AVIATION

During the past year progress in civil aeronautics has been
remarkable. This is to a considerable degree due to the wise
assistance of the Federal Government through the establishment and
maintenance of airways by the Department of Commerce and the mail
contracts from the Post Office Department. The Government-improved
airways 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 municipal
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 enterprise. 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
aviation companies have increased regular air transportation until it
now totals 90,000 miles per day--one-fourth of which is flown by
night. Mail and express services now connect our principal cities,
and extensive services for passenger transportation have been
inaugurated, and others of importance are imminent. American air
lines now reach into Canada and Mexico, to Cuba, Porto Rico, Central
America, and most of the important countries of South America.

RAILWAYS

As a whole, the railroads never were in such good physical and
financial condition, and the country 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 reduction 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, however, not yet assured for the future that adequate system
of transportation through consolidations 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 distribution of traffic, greater efficiency, and
single-line instead of multiple-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 from the necessity of detailed attention to comparatively
inconsequential matters which, under the existing law, must receive
their direct and personal consideration. It is in the public interest
that the members of the Commission 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 revisory, and the primary responsibility delegated
to subordinate officials after the practice long in vogue in the
executive departments.

MERCHANT 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 increasing success. The Shipping Board now operates
about 18 lines, which is less than 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 one-half. Construction loans have been made to the
amount of approximately $75,000,000 out of the revolving fund
authorized by Congress and have furnished an additional aid to
American shipping and further stimulated the building of vessels in
American yards.

Desirous of securing the full values to the Nation of the great
effort to develop our merchant marine by the merchant marine act soon
after the inauguration of the present administration, I appointed an
interdepartmental committee, consisting of the Secretary of Commerce,
as chairman, the Secretary of the Navy, the Postmaster General, and
the chairman of the Shipping Board, to make 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.

In particular it seemed to me necessary to determine 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 in the transportation of the foreign trade of the United
States, and for other purposes," and to develop a coordinated policy
by which these purposes may be translated into actualities.

In review of the mail 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 construction of new vessels with which to
replace and expand services. These requirements come to a 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 substantially completed and the committee has
advised the desirability and the necessity of securing much larger
undertakings as to service and new construction in future contracts.
The committee at this time is recommending the advertising of 14
additional routes, making substantial requirements for the
construction of new vessels during the life of each contract
recommended. A total of 40 new vessels will be required under the
contracts proposed, about half of which will be required to be built
during the next three years. The capital cost of this new
construction will be approximately $250,000,000, involving
approximately 460,000 gross tons. Should bidders be found who will
make these undertakings, it will be necessary to recommend to
Congress an increase in the authorized expenditure by the Post Office
of about $5,500,000 annually. It will be most advantageous 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 entitled to mail 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 Congress should consider the revision of some
portions of the banking law.

The development of "group" and "chain" banking 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 be subject to the restraints of local interest and public
opinion in those areas. To some degree, however, this movement of
chain or group banking is a groping for stronger support to the banks
and a more secure basis for these institutions.

The growth in size and stability of the metropolitan 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
agricultural community.

The relinquishment of charters of national banks in great commercial
centers in favor of State charters indicates that some conditions
surround the national banks which render them unable to compete with
State banks; and their withdrawal results in weakening our national
banking system.

It has been proposed 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 control of
such credit institutions.

All these subjects, however, require careful investigation, and it
might be found advantageous to create a joint commission embracing
Members of the Congress and other appropriate Federal officials for
subsequent report.

ELECTRICAL POWER REGULATION

The Federal Power Commission is now comprised of three Cabinet
officers, and the duties involved in the competent conduct of the
growing responsibilities of this commission far exceed the time and
attention which these officials can properly afford from other
important duties. I recommended that authority be given for the
appointment of full-time commissioners to replace them.

It is also desirable that the authority of the commission should be
extended to certain phases of power 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 the States 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 the States. There are cases, however,
of interstate character beyond the jurisdiction of the States. To meet
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 Federal
Power Commission with a reserve to act on its own motion in case of
disagreement or 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 the 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 specially charged with
supervision of radio affairs in the zone from which each is appointed.
As a result there is danger that the system will degenerate from a
national system into five regional agencies with varying practices,
varying policies, competitive tendencies, and consequent failure to
attain its utmost 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 obtained from them.

It is my belief that such parts of these plants as would be useful
and the revenues from the remainder should be dedicated for all time
to the farmers of the United States for investigation and
experimentation on a commercial scale in agricultural chemistry. By
such means advancing discoveries of science can be systematically
applied to agricultural need, and development of the chemical
industry of the Tennessee Valley can be assured.

I do not favor the operation by the Government of either power or
manufacturing business except as an unavoidable by-product of some
other major public purpose.

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 parts and the reservation of facilities, products, or income
for agricultural purposes. The extremely technical and involved
nature of such contracts 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
Congress create a special commission, not to investigate and report
as in the past, but with authority to negotiate and complete some
sort of contract or contracts on behalf of the Government, subject,
of course, to such general requirements as Congress may stipulate.

BOULDER DAM

The Secretary of the Interior is making satisfactory 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 soon as the contracts are in the hands of Congress.

CONSERVATION

Conservation of national resources is a fixed policy of the
Government. Three important questions bearing upon conservation of
the public lands have become urgent.

Conservation of our oil and gas resources against future need is a
national necessity. The working of the oil permit system in
development of oil and gas resources on the public domain has been
subject to great abuse. I considered it necessary to suspend the
issuance of such permits and to direct the review of all outstanding
permits as to compliance of the holders with the law. The purpose was
not only to end such abuse but to place the Government in position to
review the entire subject.

We are also confronted with a 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 impairing
the ground coverage seriously to menace the water supply in many parts
of the West through quick run-off, spring floods, and autumn drought.

We have a third problem of major dimensions in the reconsideration of
our reclamation policy. The inclusion of most of the available lands
of the public domain in existing or planned reclamation projects
largely completes the original purpose of the Reclamation Service.
There still remains the necessity for extensive storage of water in
the arid States which renders it desirable that we should give a
wider vision and purpose to this service.

To provide for careful consideration of these questions and also of
better division of responsibilities 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 should authorize a moderate sum to defray their expenses.

SOCIAL SERVICE

The Federal Government provides for an extensive 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 a broad sense Federal activity in these directions has been
confined to research and dissemination of information and experience,
and at most to temporary 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 officials can, however, make a further and most important
contribution by leadership in stimulation of the community and
voluntary agencies, and by extending Federal assistance in
organization of these forces and bringing about cooperation among
them.

As an instance of this character, I have recently, in cooperation
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 cooperative
movement among interested agencies 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 Government with respect to
education, I have appointed a committee representative of the
important educational associations and others to investigate and
present recommendations. In cooperation with the Secretary of the
Interior, I have also appointed a voluntary committee of
distinguished membership to assist in a nation-wide movement for
abolition of illiteracy.

I have recommended additional appropriations for the Federal
employment service in order that it may more fully cover its
cooperative 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; in protection from spread
of contagious disease; in the relation of physical and mental
disabilities to criminality; and in the economic and moral
advancement which is fundamentally associated with sound body and
mind. The organization of preventive measures and health education in
its personal application is the province of public health service.
Such organization should be as universal as public education. Its
support is a proper burden upon the taxpayer. It can not be organized
with success, either in its sanitary or educational phases, except
under public authority. It should be based upon local and State
responsibility, but I consider that the Federal Government has an
obligation of contribution to the establishment of such agencies.

In the practical working out of organization, exhaustive experiment
and trial have demonstrated that the base should be competent
organization of the municipality, county, or other local unit. Most
of our municipalities and some 400 rural counties out of 3,000 now
have some such unit organization. Where highly developed, a health
unit comprises at least a physician, sanitary engineer, and community
nurse with the addition, in some cases, of another nurse devoted to
the problems of maternity and children. Such organization gives at
once a fundamental control of preventive measures and assists in
community instruction. The Federal Government, through its interest
in control of contagion, 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 progress.
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 should be positively coordinated 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
appropriated should of course be applied through the States, so that
the public health program of the county or local unit will be
efficiently coordinated with that of the whole State.

FEDERAL PRISONS

Closely related to crime conditions is the administration 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 conditions make it
impossible to perform the work of personal reconstruction of
prisoners so as to prepare them for return to the duties of
citizenship. In order to relieve the pressing evils I have directed
the temporary transfer of the Army Disciplinary Barracks at
Leavenworth to the Department of Justice for use as a Federal prison.
Not only is this temporary but it is inadequate for present needs.

We need some new Federal prisons and a reorganization of our
probation and parole systems; and there should be established in the
Department of Justice a Bureau of Prisons with a sufficient force to
deal adequately with the growing activities of our prison
institutions. Authorization for the improvements should be given
speedily, with initial appropriations to allow the construction of
the new institutions to be undertaken at once. IMMIGRATION

Restriction of immigration has from every aspect proved a sound
national policy. Our pressing problem is to formulate a method by
which the limited number of immigrants whom we do welcome shall be
adapted to our national setting and our national needs.

I have been opposed to the basis of the quotas now in force and I
have hoped that we could find some practical method to secure what I
believe should be our real national objective; that is, fitness of
the immigrant as to physique, character, training, and our need of
service. Perhaps some system of priorities within the quotas could
produce these results and at the same time enable some hardships in
the present system to be cleared up. I recommend that the Congress
should give the subject further study, in which the executive
departments will gladly cooperate with the hope of discovering such
method as will more fully secure our national necessities. VETERANS

It has been the policy of our Government almost from its inception to
make provision for the men who have been disabled in defense of our
country. This policy should be maintained. Originally it took the
form of land grants and pensions. This system continued until our
entry into the World War. The Congress at that time inaugurated a new
plan of compensation, rehabilitation, hospitalization, medical care
and treatment, and insurance, whereby benefits were awarded to those
veterans and their immediate dependents whose disabilities were
attributable to their war service. The basic principle in this
legislation is sound.

In a desire to eliminate all possibilities of injustice due to
difficulties in establishing service connection of disabilities,
these principles have been to some degree extended. Veterans whose
diseases or injuries have become apparent within a brief period after
the war are now receiving compensation; insurance benefits have been
liberalized. Emergency officers are now receiving additional
benefits. The doors of the Government's hospitals have been opened to
all veterans, even though their diseases or injuries were not the
result of their war service. In addition adjusted service
certificates have been issued to 3,433,300 veterans. This in itself
will mean an expenditure of nearly $3,500,000,000 before 1945, in
addition to the $600,000,000 which we are now appropriating annually
for our veterans' relief.

The administration of all laws concerning the veterans and their
dependents has been upon the basis of dealing generously, humanely,
and justly. While some inequalities have arisen, substantial and
adequate care has been given and justice administered. Further
improvement in administration may require some amendment from time to
time to the law, but care should be taken to see that such changes
conform to the basic principles of the legislation.

I am convinced that we will gain in efficiency, economy, and more
uniform administration and better definition of national policies if
the Pension Bureau, the National Home for Volunteer Soldiers, and the
Veterans' Bureau are brought together under a single agency. The total
appropriations to these agencies now exceed $800,000,000 per annum.

CIVIL SERVICE

Approximately four-fifths of all the employees in the executive civil
service now occupy positions subject to competitive examination under
the civil service law.

There are, however, still commanding opportunities for extending the
system. These opportunities lie within the province of Congress and
not the President. I recommend that a further step be taken by
authorization that appointments of third-class postmasters be made
under the civil service law.

DEPARTMENTAL REORGANIZATION

This subject has been under consideration for over 20 years. It was
promised by both political parties in the recent campaign. It has
been repeatedly examined by committees and
commissions--congressional, executive, and voluntary. The conclusions
of these investigations have been unanimous that reorganization is a
necessity of sound administration; of economy; of more effective
governmental policies and of relief to the citizen from unnecessary
harassment in his relations with a multitude of scattered
governmental agencies. But the presentation of any specific plan at
once enlivens opposition from every official whose authority may be
curtailed or who fears his position is imperiled by such a result; of
bureaus and departments which wish to maintain their authority and
activities; of citizens and their organizations who are selfishly
interested, or who are inspired by fear that their favorite bureau
may, in a new setting, be less subject to their influence or more
subject to some other influence.

It seems to me that the essential principles of reorganization are
two in number. First, all administrative activities of the same major
purpose should be placed in groups under single-headed responsibility;
second, all executive and administrative functions should be separated
from boards and commissions and placed under individual
responsibility, while quasi-legislative and quasi-judicial and
broadly advisory functions should be removed from individual
authority and assigned to boards and commissions. Indeed, these are
the fundamental principles upon which our Government was founded, and
they are the principles which have been adhered to in the whole
development of our business structure, and they are the distillation
of the common sense of generations.

For instance, the conservation of national resources is spread among
eight agencies in five departments. They suffer from conflict and
overlap. There is no proper development and adherence to broad
national policies and no central point where the searchlight of
public opinion may concentrate itself. These functions should be
grouped under the direction of some such official as an assistant
secretary of conservation. The particular department or cabinet
officer under which such a group should be placed is of secondary
importance to the need of concentration. The same may be said of
educational services, of merchant marine aids, of public works, of
public health, of veterans' services, and many others, the component
parts of which are widely scattered in the various departments and
independent agencies. It is desirable that we first have experience
with these different groups in action before we create new
departments. These may be necessary later on.

With this background of all previous experience I can see no hope for
the development of a sound reorganization of the Government unless
Congress be willing to delegate its authority over the problem
(subject to defined principles) to the Executive, who should act upon
approval of a joint committee of Congress or with the reservation of
power of revision by Congress within some limited period adequate for
its consideration. PROHIBITION

The first duty of the President under his oath of office is to secure
the enforcement of the laws. The enforcement of the laws enacted to
give effect to the eighteenth amendment is far from satisfactory and
this is in part due to the inadequate organization of the
administrative agencies of the Federal Government. With the hope of
expediting such reorganization, I requested on June 6 last that
Congress should appoint a joint committee to collaborate with
executive agencies in preparation of legislation. It would be helpful
if it could be so appointed. The subject has been earnestly considered
by the Law Enforcement Commission and the administrative officials of
the Government. Our joint conclusions are that certain steps should
be taken at once. First, there should be an immediate concentration
of responsibility and strengthening of enforcement agencies of the
Federal Government by transfer to the Department of Justice of the
Federal functions of detection and to a considerable degree of
prosecution, which are now lodged in the Prohibition Bureau in the
Treasury; and at the same time the control of the distribution of
industrial alcohol and legalized beverages should remain in the
Treasury. Second, provision should be made for relief of congestion
in the Federal courts by modifying and simplifying the procedure for
dealing with the large volume of petty prosecutions under various
Federal acts. Third, there should be a codification of the laws
relating to prohibition to avoid the necessity which now exists of
resorting to more than 25 statutes enacted at various times over 40
years. Technical defects in these statutes that have been disclosed
should be cured. I would add to these recommendations the
desirability of reorganizing the various services engaged in the
prevention of smuggling into one border patrol under the Coast Guard.
Further recommendations upon the subject as a whole will be developed
after further examination by the Law Enforcement Commission, but it
is not to be expected that any criminal law will ever be fully
enforced so long as criminals exist.

The District of Columbia should be the model of city law enforcement
in the Nation. While conditions here are much better than in many
other cities, they are far from perfect, and this is due in part to
the congestion of criminal cases in the Supreme Court of the
District, resulting in long delays. Furthermore, there is need for
legislation in the District supplementing the national prohibition
act, more sharply defining and enlarging the duties and powers of the
District Commissioners and the police of the District, and opening the
way for better cooperation in the enforcement of prohibition between
the District officials and the prohibition officers of the Federal
Government. It is urgent that these conditions be remedied.

LAW ENFORCEMENT AND OBSERVANCE

No one will look with satisfaction upon the volume of crime of all
kinds and the growth of organized crime in our country. We have
pressing need so to organize our system of administering criminal
justice as to establish full vigor and effectiveness. We need to
reestablish faith that the highest interests of our country are
served by insistence upon the swift and even-handed administration of
justice to all offenders, whether they be rich or poor. That we shall
effect improvement is vital to the preservation of our institutions.
It is the most serious issue before our people.

Under the authority of Congress I have appointed a National
Commission on Law Observance and Enforcement, for an exhaustive study
of the entire problem of the enforcement of our laws and the
improvement of our judicial system, including the special problems
and abuses growing out of the prohibition laws. The commission has
been invited to make the widest inquiry into the shortcomings of the
administration of justice and into the causes and remedies for them.
It has organized its work under subcommittees dealing with the many
contributory causes of our situation and has enlisted the aid of
investigators in fields requiring special consideration. I am
confident that as a result of its stud