To the Congress of the United States:

You are confronted at the threshold of your legislative duties with a
condition of the national finances which imperatively demands immediate and
careful consideration.

The amount of money annually exacted, through the operation of present
laws, from the industries and necessities of the people largely exceeds the
sum necessary to meet the expenses of the Government.

When we consider that the theory of our institutions guarantees to every
citizen the full enjoyment of all the fruits of his industry and
enterprise, with only such deduction as may be his share toward the careful
and economical maintenance of the Government which protects him, it is
plain that the exaction of more than this is indefensible extortion and a
culpable betrayal of American fairness and justice. This wrong inflicted
upon those who bear the burden of national taxation, like other wrongs,
multiplies a brood of evil consequences. The public Treasury, which should
only exist as a conduit conveying the people's tribute to its legitimate
objects of expenditure, becomes a hoarding place for money needlessly
withdrawn from trade and the people's use, thus crippling our national
energies, suspending our country's development, preventing investment in
productive enterprise, threatening financial disturbance, and inviting
schemes of public plunder.

This condition of our Treasury is not altogether new, and it has more than
once of late been submitted to the people's representatives in the
Congress, who alone can apply a remedy. And yet the situation still
continues, with aggravated incidents, more than ever presaging financial
convulsion and widespread disaster.

It will not do to neglect this situation because its dangers are not now
palpably imminent and apparent. They exist none the less certainly, and
await the unforeseen and unexpected occasion when suddenly they will be
precipitated upon us.

On the 30th day of June, 1885, the excess of revenues over public
expenditures, after complying with the annual requirement of the
sinking-fund act, was $17,859,735.84; during the year ended June 30, 1886,
such excess amounted to $49,405,545.20, and during the year ended June 30,
1887, it reached the sum of $55,567,849.54.

The annual contributions to the sinking fund during the three years above
specified, amounting in the aggregate to $138,058,320.94, and deducted from
the surplus as stated, were made by calling in for that purpose outstanding
3 per cent bonds of the Government. During the six months prior to June 30,
1887, the surplus revenue had grown so large by repeated accumulations, and
it was feared the withdrawal of this great sum of money needed by the
people would so affect the business of the country, that the sum of
$79,864,100 of such surplus was applied to the payment of the principal and
interest of the 3 per cent bonds still outstanding, and which were then
payable at the option of the Government. The precarious condition of
financial affairs among the people still needing relief, immediately after
the 30th day of June, 1887, the remainder of the 3 per cent bonds then
outstanding, amounting with principal and interest to the sum of
$18,877,500, were called in and applied to the sinking-fund contribution
for the current fiscal year. Notwithstanding these operations of the
Treasury Department, representations of distress in business circles not
only continued, but increased, and absolute peril seemed at hand. In these
circumstances the contribution to the sinking fund for the current fiscal
year was at once completed by the expenditure of $27,684,283.55 in the
purchase of Government bonds not yet due bearing 4 and 41/2 per cent
interest, the premium paid thereon averaging about 24 per cent for the
former and 8 per cent for the latter. In addition to this, the interest
accruing during the current year upon the outstanding bonded indebtedness
of the Government was to some extent anticipated, and banks selected as
depositories of public money were permitted to somewhat increase their
deposits.

While the expedients thus employed to release to the people the money lying
idle in the Treasury served to avert immediate danger, our surplus revenues
have continued to accumulate, the excess for the present year amounting on
the 1st day of December to $55,258,701.19, and estimated to reach the sum
of $113,000,000 on the 30th of June next, at which date it is expected that
this sum, added to prior accumulations, will swell the surplus in the
Treasury to $140,000,000.

There seems to be no assurance that, with such a withdrawal from use of the
people's circulating medium, our business community may not in the near
future be subjected to the same distress which was quite lately produced
from the same cause. And while the functions of our National Treasury
should be few and simple, and while its best condition would be reached, I
believe, by its entire disconnection with private business interests, yet
when, by a perversion of its purposes, it idly holds money uselessly
subtracted from the channels of trade, there seems to be reason for the
claim that some legitimate means should be devised by the Government to
restore in an emergency, without waste or extravagance, such money to its
place among the people.

If such an emergency arises, there now exists no clear and undoubted
executive power of relief. Heretofore the redemption of 3 per cent bonds,
which were payable at the option of the Government, has afforded a means
for the disbursement of the excess of our revenues; but these bonds have
all been retired, and there are no bonds outstanding the payment of which
we have a right to insist upon. The contribution to the sinking fund which
furnishes the occasion for expenditure in the purchase of bonds has been
already made for the current year, so that there is no outlet in that
direction.

In the present state of legislation the only pretense of any existing
executive power to restore at this time any part of our surplus revenues to
the people by its expenditure consists in the supposition that the
Secretary of the Treasury may enter the market and purchase the bonds of
the Government not yet due, at a rate of premium to be agreed upon. The
only provision of law from which such a power could be derived is found in
an appropriation bill passed a number of years ago, and it is subject to
the suspicion that it was intended as temporary and limited in its
application, instead of conferring a continuing discretion and authority.
No condition ought to exist which would justify the grant of power to a
single official, upon his judgment of its necessity, to withhold from or
release to the business of the people, in an unusual manner, money held in
the Treasury, and thus affect at his will the financial situation of the
country; and if it is deemed wise to lodge in the Secretary of the Treasury
the authority in the present juncture to purchase bonds, it should be
plainly vested, and provided, as far as possible, with such checks and
limitations as will define this official's right and discretion and at the
same time relieve him from undue responsibility.

In considering the question of purchasing bonds as a means of restoring to
circulation the surplus money accumulating in the Treasury, it should be
borne in mind that premiums must of course be paid upon such purchase, that
there may be a large part of these bonds held as investments which can not
be purchased at any price, and that combinations among holders who are
willing to sell may unreasonably enhance the cost of such bonds to the
Government.

It has been suggested that the present bonded debt might be refunded at a
less rate of interest and the difference between the old and new security
paid in cash, thus finding use for the surplus in the Treasury. The success
of this plan, it is apparent, must depend upon the volition of the holders
of the present bonds; and it is not entirely certain that the inducement
which must be offered them would result in more financial benefit to the
Government than the purchase of bonds, while the latter proposition would
reduce the principal of the debt by actual payment instead of extending
it.

The proposition to deposit the money held by the Government in banks
throughout the country for use by the people is, it seems to me,
exceedingly objectionable in principle, as establishing too close a
relationship between the operations of the Government Treasury and the
business of the country and too extensive a commingling of their money,
thus fostering an unnatural reliance in private business upon public funds.
If this scheme should be adopted, it should only be done as a temporary
expedient to meet an urgent necessity. Legislative and executive effort
should generally be in the opposite direction, and should have a tendency
to divorce, as much and as fast as can be safely done, the Treasury
Department from private enterprise.

Of course it is not expected that unnecessary and extravagant
appropriations will be made for the purpose of avoiding the accumulation of
an excess of revenue. Such expenditure, besides the demoralization of all
just conceptions of public duty which it entails, stimulates a habit of
reckless improvidence not in the least consistent with the mission of our
people or the high and beneficent purposes of our Government.

I have deemed it my duty to thus bring to the knowledge of my countrymen,
as well as to the attention of their representatives charged with the
responsibility of legislative relief, the gravity of our financial
situation. The failure of the Congress heretofore to provide against the
dangers which it was quite evident the very nature of the difficulty must
necessarily produce caused a condition of financial distress and
apprehension since your last adjournment which taxed to the utmost all the
authority and expedients within executive control; and these appear now to
be exhausted. If disaster results from the continued inaction of Congress,
the responsibility must rest where it belongs.

Though the situation thus far considered is fraught with danger which
should be fully realized, and though it presents features of wrong to the
people as well as peril to the country, it is but a result growing out of a
perfectly palpable and apparent cause, constantly reproducing the same
alarming circumstances--a congested National Treasury and a depleted
monetary condition in the business of the country. It need hardly be stated
that while the present situation demands a remedy, we can only be saved
from a like predicament in the future by the removal of its cause.

Our scheme of taxation, by means of which this needless surplus is taken
from the people and put into the public Treasury, consists of a tariff or
duty levied upon importations from abroad and internal-revenue taxes levied
upon the consumption of tobacco and spirituous and malt liquors. It must be
conceded that none of the things subjected to internal-revenue taxation
are, strictly speaking, necessaries. There appears to be no just complaint
of this taxation by the consumers of these articles, and there seems to be
nothing so well able to bear the burden without hardship to any portion of
the people.

But our present tariff laws, the vicious, inequitable, and illogical source
of unnecessary taxation, ought to be at once revised and amended. These
laws, as their primary and plain effect, raise the price to consumers of
all articles imported and subject to duty by precisely the sum paid for
such duties. Thus the amount of the duty measures the tax paid by those who
purchase for use these imported articles. Many of these things, however,
are raised or manufactured in our own country, and the duties now levied
upon foreign goods and products are called protection to these home
manufactures, because they render it possible for those of our people who
are manufacturers to make these taxed articles and sell them for a price
equal to that demanded for the imported goods that have paid customs duty.
So it happens that while comparatively a few use the imported articles,
millions of our people, who never used and never saw any of the foreign
products, purchase and use things of the same kind made in this country,
and pay therefor nearly or quite the same enhanced price which the duty
adds to the imported articles. Those who buy imports pay the duty charged
thereon into the public Treasury, but the great majority of our citizens,
who buy domestic articles of the same class, pay a sum at least
approximately equal to this duty to the home manufacturer. This reference
to the operation of our tariff laws is not made by way of instruction, but
in order that we may be constantly reminded of the manner in which they
impose a burden upon those who consume domestic products as well as those
who consume imported articles, and thus create a tax upon all our people.

It is not proposed to entirely relieve the country of this taxation. It
must be extensively continued as the source of the Government's income; and
in a readjustment of our tariff the interests of American labor engaged in
manufacture should be carefully considered, as well as the preservation of
our manufacturers. It may be called protection or by any other name, but
relief from the hardships and dangers of our present tariff laws should be
devised with especial precaution against imperiling the existence of our
manufacturing interests. But this existence should not mean a condition
which, without regard to the public welfare or a national exigency, must
always insure the realization of immense profits instead of moderately
profitable returns. As the volume and diversity of our national activities
increase, new recruits are added to those who desire a continuation of the
advantages which they conceive the present system of tariff taxation
directly affords them. So stubbornly have all efforts to reform the present
condition been resisted by those of our fellow-citizens thus engaged that
they can hardly complain of the suspicion, entertained to a certain extent,
that there exists an organized combination all along the line to maintain
their advantage.

We are in the midst of centennial celebrations, and with becoming pride we
rejoice in American skill and ingenuity, in American energy and enterprise,
and in the wonderful natural advantages and resources developed by a
century's national growth. Yet when an attempt is made to justify a scheme
which permits a tax to be laid upon every consumer in the land for the
benefit of our manufacturers, quite beyond a reasonable demand for
governmental regard, it suits the purposes of advocacy to call our
manufactures infant industries still needing the highest and greatest
degree of favor and fostering care that can be wrung from Federal
legislation.

It is also said that the increase in the price of domestic manufactures
resulting from the present tariff is necessary in order that higher wages
may be paid to our workingmen employed in manufactories than are paid for
what is called the pauper labor of Europe. All will acknowledge the force
of an argument which involves the welfare and liberal compensation of our
laboring people. Our labor is honorable in the eyes of every American
citizen; and as it lies at the foundation of our development and progress,
it is entitled, without affectation or hypocrisy, to the utmost regard. The
standard of our laborers' life should not be measured by that of any other
country less favored, and they are entitled to their full share of all our
advantages.

By the last census it is made to appear that of the 17,392,099 of our
population engaged in all kinds of industries 7,670,493 are employed in
agriculture, 4,074,238 in professional and personal service (2,934,876 of
whom are domestic servants and laborers), while 1,810,256 are employed in
trade and transportation and 3,837,112 are classed as employed in
manufacturing and mining.

For present purposes, however, the last number given should be considerably
reduced. Without attempting to enumerate all, it will be conceded that
there should be deducted from those which it includes 375,143 carpenters
and joiners, 285,401 milliners, dressmakers, and seamstresses, 172,726
blacksmiths, 133,756 tailors and tailoresses, 102,473 masons, 76,241
butchers, 41,309 bakers, 22,083 plasterers, and 4,891 engaged in
manufacturing agricultural implements, amounting in the aggregate to
1,214,023, leaving 2,623,089 persons employed in such manufacturing
industries as are claimed to be benefited by a high tariff.

To these the appeal is made to save their employment and maintain their
wages by resisting a change. There should be no disposition to answer such
suggestions by the allegation that they are in a minority among those who
labor, and therefore should forego an advantage in the interest of low
prices for the majority. Their compensation, as it may be affected by the
operation of tariff laws, should at all times be scrupulously kept in view;
and yet with slight reflection they will not overlook the fact that they
are consumers with the rest; that they too have their own wants and those
of their families to supply from their earnings, and that the price of the
necessaries of life, as well as the amount of their wages, will regulate
the measure of their welfare and comfort.

But the reduction of taxation demanded should be so measured as not to
necessitate or justify either the loss of employment by the workingman or
the lessening of his wages; and the profits still remaining to the
manufacturer after a necessary readjustment should furnish no excuse for
the sacrifice of the interests of his employees, either in their
opportunity to work or in the diminution of their compensation. Nor can the
worker in manufactures fail to understand that while a high tariff is
claimed to be necessary to allow the payment of remunerative wages, it
certainly results in a very large increase in the price of nearly all sorts
of manufactures, which, in almost countless forms, he needs for the use of
himself and his family. He receives at the desk of his employer his wages,
and perhaps before he reaches his home is obliged, in a purchase for family
use of an article which embraces his own labor, to return in the payment of
the increase in price which the tariff permits the hard-earned compensation
of many days of toil.

The farmer and the agriculturist, who manufacture nothing, but who pay the
increased price which the tariff imposes upon every agricultural implement,
upon all he wears, and upon all he uses and owns, except the increase of
his flocks and herds and such things as his husbandry produces from the
soil, is invited to aid in maintaining the present situation; and he is
told that a high duty on imported wool is necessary for the benefit of
those who have sheep to shear, in order that the price of their wool may be
increased. They, of course, are not reminded that the farmer who has no
sheep is by this scheme obliged, in his purchases of clothing and woolen
goods, to pay a tribute to his fellow-farmer as well as to the manufacturer
and merchant, nor is any mention made of the fact that the sheep owners
themselves and their households must wear clothing and use other articles
manufactured from the wool they sell at tariff prices, and thus as
consumers must return their share of this increased price to the
tradesman.

I think it may be fairly assumed that a large proportion of the sheep owned
by the farmers throughout the country are found in small flocks, numbering
from twenty-five to fifty. The duty on the grade of imported wool which
these sheep yield is 10 cents each pound if of the value of 30 cents or
less and 12 cents if of the value of more than 30 cents. If the liberal
estimate of 6 pounds be allowed for each fleece, the duty thereon would be
60 or 72 cents; and this may be taken as the utmost enhancement of its
price to the farmer by reason of this duty. Eighteen dollars would thus
represent the increased price of the wool from twenty-five sheep and $36
that from the wool of fifty sheep; and at present values this addition
would amount to about one-third of its price. If upon its sale the farmer
receives this or a less tariff profit, the wool leaves his hands charged
with precisely that sum, which in all its changes will adhere to it until
it reaches the consumer. When manufactured into cloth and other goods and
material for use, its cost is not only increased to the extent of the
farmer's tariff profit, but a further sum has been added for the benefit of
the manufacturer under the operation of other tariff laws. In the meantime
the day arrives when the farmer finds it necessary to purchase woolen goods
and material to clothe himself and family for the winter. When he faces the
tradesman for that purpose, he discovers that he is obliged not only to
return in the way of increased prices his tariff profit on the wool he
sold, and which then perhaps lies before him in manufactured form, but that
he must add a considerable sum thereto to meet a further increase in cost
caused by a tariff duty on the manufacture. Thus in the end he is aroused
to the fact that he has paid upon a moderate purchase, as a result of the
tariff scheme, which when he sold his wool seemed so profitable, an
increase in price more than sufficient to sweep away all the tariff profit
he received upon the wool he produced and sold.

When the number of farmers engaged in wool raising is compared with all the
farmers in the country and the small proportion they bear to our population
is considered; when it is made apparent that in the case of a large part of
those who own sheep the benefit of the present tariff on wool is illusory;
and, above all, when it must be conceded that the increase of the cost of
living caused by such tariff becomes a burden upon those with moderate
means and the poor, the employed and unemployed, the sick and well, and the
young and old, and that it constitutes a tax which with relentless grasp is
fastened upon the clothing of every man, woman, and child in the land,
reasons are suggested why the removal or reduction of this duty should be
included in a revision of our tariff laws.

In speaking of the increased cost to the consumer of our home manufactures
resulting from a duty laid upon imported articles of the same description,
the fact is not ever looked that competition among our domestic producers
sometimes has the effect of keeping the price of their products below the
highest limit allowed by such duty. But it is notorious that this
competition is too often strangled by combinations quite prevalent at this
time, and frequently called trusts, which have for their object the
regulation of the supply and price of commodities made and sold by members
of the combination. The people can hardly hope for any consideration in the
operation of these selfish schemes.

If, however, in the absence of such combination, a healthy and free
competition reduces the price of any particular dutiable article of home
production below the limit which it might otherwise reach under our tariff
laws, and if with such reduced price its manufacture continues to thrive,
it is entirely evident that one thing has been discovered which should be
carefully scrutinized in an effort to reduce taxation.

The necessity of combination to maintain the price of any commodity to the
tariff point furnishes proof that someone is willing to accept lower prices
for such commodity and that such prices are remunerative; and lower prices
produced by competition prove the same thing. Thus where either of these
conditions exists a case would seem to be presented for an easy reduction
of taxation.

The considerations which have been presented touching our tariff laws are
intended only to enforce an earnest recommendation that the surplus
revenues of the Government be prevented by the reduction of our customs
duties, and at the same time to emphasize a suggestion that in
accomplishing this purpose we may discharge a double duty to our people by
granting to them a measure of relief from tariff taxation in quarters where
it is most needed and from sources where it can be most fairly and justly
accorded.

Nor can the presentation made of such considerations be with any degree of
fairness regarded as evidence of unfriendliness toward our manufacturing
interests or of any lack of appreciation of their value and importance.

These interests constitute a leading and most substantial element of our
national greatness and furnish the proud proof of our country's progress.
But if in the emergency that presses upon us our manufacturers are asked to
surrender something for the public good and to avert disaster, their
patriotism, as well as a grateful recognition of advantages already
afforded, should lead them to willing cooperation. No demand is made that
they shall forego all the benefits of governmental regard; but they can not
fail to be admonished of their duty, as well as their enlightened
self-interest and safety, when they are reminded of the fact that financial
panic and collapse, to which the present condition tends, afford no greater
shelter or protection to our manufactures than to other important
enterprises. Opportunity for safe, careful, and deliberate reform is now
offered; and none of us should be unmindful of a time when an abused and
irritated people, heedless of those who have resisted timely and reasonable
relief, may insist upon a radical and sweeping rectification of their
wrongs.

The difficulty attending a wise and fair revision of our tariff laws is not
underestimated. It will require on the part of the Congress great labor and
care, and especially a broad and national contemplation of the subject and
a patriotic disregard of such local and selfish claims as are unreasonable
and reckless of the welfare of the entire country.

Under our present laws more than 4,000 articles are subject to duty. Many
of these do not in any way compete with our own manufactures, and many are
hardly worth attention as subjects of revenue. A considerable reduction can
be made in the aggregate by adding them to the free list. The taxation of
luxuries presents no features of hardship; but the necessaries of life used
and consumed by all the people, the duty upon which adds to the cost of
living in every home, should be greatly cheapened.

The radical reduction of the duties imposed upon raw material used in
manufactures, or its free importation, is of course an important factor in
any effort to reduce the price of these necessaries. It would not only
relieve them from the increased cost caused by the tariff on such material,
but the manufactured product being thus cheapened that part of the tariff
now laid upon such product, as a compensation to our manufacturers for the
present price of raw material, could be accordingly modified. Such
reduction or free importation would serve besides to largely reduce the
revenue. It is not apparent how such a change can have any injurious effect
upon our manufacturers. On the contrary, it would appear to give them a
better chance in foreign markets with the manufacturers of other countries,
who cheapen their wares by free material. Thus our people might have the
opportunity of extending their sales beyond the limits of home consumption,
saving them from the depression, interruption in business, and loss caused
by a glutted domestic market and affording their employees more certain and
steady labor, with its resulting quiet and contentment.

The question thus imperatively presented for solution should be approached
in a spirit higher than partisanship and considered in the light of that
regard for patriotic duty which should characterize the action of those
intrusted with the weal of a confiding people. But the obligation to
declared party policy and principle is not wanting to urge prompt and
effective action. Both of the great political parties now represented in
the Government have by repeated and authoritative declarations condemned
the condition of our laws which permit the collection from the people of
unnecessary revenue, and have in the most solemn manner promised its
correction; and neither as citizens nor partisans are our countrymen in a
mood to condone the deliberate violation of these pledges.

Our progress toward a wise conclusion will not be improved by dwelling upon
the theories of protection and free trade. This savors too much of bandying
epithets. It is a condition which confronts us, not a theory. Relief from
this condition may involve a slight reduction of the advantages which we
award our home productions, but the entire withdrawal of such advantages
should not be contemplated. The question of free trade is absolutely
irrelevant, and the persistent claim made in certain quarters that all the
efforts to relieve the people from unjust and unnecessary taxation are
schemes of so-called free traders is mischievous and far removed from any
consideration for the public good.

The simple and plain duty which we owe the people is to reduce taxation to
the necessary expenses of an economical operation of the Government and to
restore to the business of the country the money which we hold in the
Treasury through the perversion of governmental powers. These things can
and should be done with safety to all our industries, without danger to the
opportunity for remunerative labor which our workingmen need, and with
benefit to them and all our people by cheapening their means of subsistence
and increasing the measure of their comforts.

The Constitution provides that the President "shall from time to time give
to the Congress information of the state of the Union." It has been the
custom of the Executive, in compliance with this provision, to annually
exhibit to the Congress, at the opening of its session, the general
condition of the country, and to detail with some particularity the
operations of the different Executive Departments. It would be especially
agreeable to follow this course at the present time and to call attention
to the valuable accomplishments of these Departments during the last fiscal
year; but I am so much impressed with the paramount importance of the
subject to which this communication has thus far been devoted that I shall
forego the addition of any other topic, and only urge upon your immediate
consideration the "state of the Union" as shown in the present condition of
our Treasury and our general fiscal situation, upon which every element of
our safety and prosperity depends.

The reports of the heads of Departments, which will be submitted, contain
full and explicit information touching the transaction of the business
intrusted to them and such recommendations relating to legislation in the
public interest as they deem advisable. I ask for these reports and
recommendations the deliberate examination and action of the legislative
branch of the Government.

There are other subjects not embraced in the departmental reports demanding
legislative consideration, and which I should be glad to submit. Some of
them, however, have been earnestly presented in previous messages, and as
to them I beg leave to repeat prior recommendations.

As the law makes no provision for any report from the Department of State,
a brief history of the transactions of that important Department, together
with other matters which it may hereafter be deemed essential to commend to
the attention of the Congress, may furnish the occasion for a future
communication.