Members of the Congress:

In meeting the constitutional requirement of informing the Congress upon
the state of the Union, it is exceedingly gratifying to report that the
general condition is one of progress and prosperity. Here and there are
comparatively small and apparently temporary difficulties needing
adjustment and improved administrative methods, such as are always to be
expected, but in the fundamentals of government and business the results
demonstrate that we are going in the right direction. The country does not
appear to require radical departures from the policies already adopted so
much as it needs a further extension of these policies and the improvement
of details. The age of perfection is still in the somewhat distant future,
but it is more in danger of being retarded by mistaken Government activity
than it is from lack of legislation. We are by far the most likely to
accomplish permanent good if we proceed with moderation.

In our country the people are sovereign and independent, and must accept
the resulting responsibilities. It is their duty to support themselves and
support the Government. That is the business of the Nation, whatever the
charity of the Nation may require. The functions which the Congress are to
discharge are not those of local government but of National Government. The
greatest solicitude should be exercised to prevent any encroachment upon
the rights of the States or their various political subdivisions. Local
self-government is one of our most precious possessions. It is the greatest
contributing factor to the stability strength liberty, and progress of the
Nation. It ought not to be in ringed by assault or undermined by purchase.
It ought not to abdicate its power through weakness or resign its authority
through favor. It does not at all follow that because abuses exist it is
the concern of the Federal Government to attempt the r reform.

Society is in much more danger from encumbering the National Government
beyond its wisdom to comprehend, or its ability to administer, than from
leaving the local communities to bear their own burdens and remedy their
own evils. Our local habit and custom is so strong, our variety of race and
creed is so great the Federal authority is so tenuous, that the area within
which it can function successfully is very limited. The wiser policy is to
leave the localities, so far as we can, possessed of their own sources of
revenue and charged with their own obligations.

GOVERNMENT ECONOMY

It is a fundamental principle of our country that the people are sovereign.
While they recognize the undeniable authority of the state, they have
established as its instrument a Government of limited powers. They hold
inviolate in their own hands the jurisdiction over their own freedom and
the ownership of their own property. Neither of these can be impaired
except by due process of law. The wealth of our country is not public
wealth, but private wealth. It does not belong to the Government, it
belongs to the people. The Government has no justification in taking
private Property except for a public purpose. It is always necessary to
keep these principles in mind in the laying of taxes and in the making of
appropriations. No right exists to levy on a dollar, or to order the
expenditure of a dollar, of the money of the people, except for a necessary
public purpose duly authorized by the Constitution. The power over the
purse is the power over liberty.

That is the legal limitation within which the Congress can act, How it
will, proceed within this limitation is always a question of policy. When
the country is prosperous and free from debt, when the rate of taxation is
low, opportunity exists for assuming new burdens and undertaking new
enterprises. Such a condition now prevails only to a limited extent. All
proposals for assuming new obligations ought to be postponed, unless they
are reproductive capital investments or are such as are absolutely
necessary at this time. We still have an enormous debt of over
$20,000,000,000, on which the interest and sinking-fund requirements are
$1,320,000,000. Our appropriations for the Pension Office and the Veterans'
Bureau are $600,000,000. The War and Navy Departments call for
$642,000,000. Other requirements, exclusive of the Post Office which is
virtually self-sustaining, brought the appropriations for the current year
up to almost $3,100,060,000. This shows an expenditure of close to $30 for
every inhabitant of our country. For the average family of five it means a
tax, directly or indirectly paid, of about $150 for national purposes
alone. The local tax adds much more. These enormous expenditures ought not
to be increased, but through every possible effort they ought to be
reduced.

Only one of these great items can be ultimately extinguished. That is the
item of our war debt. Already this has been reduced to about
$6,000,000,000, which means an annual saving in interest of close to
$250,000,000. The present interest charge is about $820,000,000 yearly. It
would seem to be obvious that the sooner this debt can be retired the more
the taxpayers will save in interest and the easier it will be to secure
funds with which to prosecute needed running expenses, constructions, and
improvements. This item of $820,000,000 for interest is a heavy charge on
all the people of the country, and it seems to me that we might well
consider whether it is not greatly worth while to dispense with it as early
as possible by retiring the principal debt which it is required to serve.

It has always been our policy to retire our debts. That of the
Revolutionary War period, notwithstanding the additions made in 1812, was
paid by 1835. and the Civil War debt within 23 years. Of the amount already
paid, over $1,000,000,000 is a reduction in cash balances. That source is
exhausted. Over one and two-thirds billions of dollars was derived from
excess receipts. Tax reduction eliminates that. The sale of surplus war
materials has been another element of our income. That is practically
finished. With these eliminated, the reduction of the debt has been only
about $500,000,000 each year, not an excessive sum on so large a debt.

Proposals have been made to extend the payment over a period of 62 years.
If $1,000,000,000 is paid at the end of 20 years, the cost to the taxpayers
is the principal and, if the interest is 4% per cent, a total of
$1,850,000,000. If the same sum is paid at the end of 62 years, the cost is
$3,635,000,000, or almost double. Here is another consideration: Compared
with its purchasing power in 1913, the dollar we borrowed represented but
52 cents. As the value of our dollar increases, due to the falling prices
of commodities, the burden of our debt increases. It has now risen to 631/2
cents. The taxpayer will be required to produce nearly twice the amount of
commodities to pay his debt if the dollar returns to the 1913 value. The
more we pay while prices are high, the easier it will be.

Deflation of government after a war period is slower than deflation of
business, where curtailment is either prompt and effective or disaster
follows. There is room for further economy in the cost of the Federal
Government, but a co n of current expenditures with pre-war expenditures is
not able to the efficiency with which Government business is now being
done. The expenditures of 19161 the last pre-war year, were $742,000,000,
and in 1925 over $3,500,000,000, or nearly five times as great. If we
subtract expenditures for debt retirements and interest, veterans' relief,
increase of pensions, and other special outlays, consisting of refunds,
trust investments, and like charges, we find that the general expenditures
of the Government in 1925 were slightly more than twice as large as in
1916.

As prices in 1925 were approximately 40 per cent higher than in 1916, the
cost of the same Government must also have increased. But the Government is
not the same. It is more expensive to collect the much greater revenue
necessary and to administer our great debt. We have given enlarged and
improved services to agriculture and commerce. Above all, America has grown
in population and wealth. Government expenditures must always share in
this growth. Taking into account the factors I have mentioned, I believe
that present Federal expenses are not far out of line with pre-war
expenses. We have nearly accomplished the deflation.

This does not mean that further economies will not come. As we reduce our
debt our interest charges decline. There are many details yet to correct.
The real improvement, however, must come not from additional curtailment of
expenses, but by a more intelligent, more ordered spending. Our economy
must be constructive. While we should avoid as far as possible increases in
permanent current expenditures, oftentimes a capital outlay like internal
improvements will result in actual constructive saving. That is economy in
its best sense. It is an avoidance of waste that there may be the means for
an outlay to-day which will bring larger returns to-morrow. We should
constantly engage in scientific studies of our future requirements and
adopt an orderly program for their service. Economy is the method by which
we prepare to-day to afford the improvements of to-morrow.

A mere policy of economy without any instrumentalities for putting it into
operation would be very ineffective. The Congress has wisely set up the
Bureau of the Budget to investigate and inform the President what
recommendations he ought to make for current appropriations. This gives a
centralized authority where a general and comprehensive understanding can
be reached of the sources of income and the most equitable distribution of
expenditures. How well it has worked is indicated by the fact that the
departmental estimates for 1922, before the budget law, were $4,068,000,000
while the Budget estimates for 1927 are $3,156,000,000. This latter figure
shows the reductions in departmental estimates for the coming year made
possible by the operation of the Budget system that the Congress has
provided.

But it is evidently not enough to have care in making appropriations
without any restraint upon expenditure. The Congress has provided that
check by establishing the office of Comptroller General.

The purpose of maintaining the Budget Director and the Comptroller General
is to secure economy and efficiency in Government expenditure. No better
method has been devised for the accomplishment of that end. These offices
can not be administered in all the various details without making some
errors both of fact and of judgment. But the important consideration
remains that these are the instrumentalities of the Congress and that no
other plan has ever been adopted which was so successful in promoting
economy and efficiency. The Congress has absolute authority over the
appropriations and is free to exercise its judgment, as the evidence may
warrant, in increasing or decreasing budget recommendations. But it ought
to resist every effort to weaken or break down this most beneficial system
of supervising appropriations and expenditures. Without it all the claim of
economy would be a mere pretense.

TAXATION

The purpose of reducing expenditures is to secure a reduction in taxes.
That purpose is about to be realized. With commendable promptness the Ways
and Means Committee of the House has undertaken in advance of the meeting
of the Congress to frame a revenue act. As the bill has proceeded through
the committee it has taken on a nonpartisan character, and both Republicans
and Democrats have joined in a measure which embodies many sound principles
of tax reform. The bill will correct substantially the economic defects
injected into the revenue act of 1924, as well as many which have remained
as war-time legacies. In its present form it should provide sufficient
revenue for the Government.

The excessive surtaxes have been reduced, estate tax rates are restored to
more reasonable figures, with every prospect of withdrawing from the field
when the States have had the opportunity to correct the abuses in their own
inheritance tax laws, the gift tax and publicity section are to be repealed
many miscellaneous taxes are lowered or abandoned, and the Board of Tax
Appeals and the administrative features of the law are improved and
strengthened. I approve of the bill in principle. In so far as income-tax
exemptions are concerned, it seems, to me the committee has gone as far as
it is Safe to go and somewhat further than I should have gone. Any further
extension along these lines would, in my opinion, impair the integrity of
our income-tax system.

I am advised that the bill will be through the House by Christmas. For
this prompt action the country call thank the good sense of the Ways and
Means Committee in framing an economic measure upon economic
considerations. If this attitude continues to be reflected through the
Congress, the taxpayer will have his relief by the time his March 15th
installment of income taxes is due. Nonpartisan effort means certain, quick
action. Determination of a revenue law definitely, promptly and solely as a
revenue law, is one of the greatest gifts a legislature can bestow upon its
constituents. I commend the example of file Ways and Means Committee. If
followed, it will place sound legislation upon the books in time to give
the taxpayers the full benefit of tax reduction next year. This means that
the bill should reach me prior to March 15.

All these economic results are being sought not to benefit the rich, but to
benefit the people. They are for the purpose of encouraging industry in
order that employment may be plentiful. They seek to make business good in
order that wages may be good. They encourage prosperity in order that
poverty may be banished from the home. They, seek to lay the foundation
which, through increased production, may, give the people a more bountiful
supply of the necessaries of life, afford more leisure for the improvement
of the mind, the appreciation of the arts of music and literature,
sculpture and painting, and the beneficial enjoyment of outdoor sports and
recreation, enlarge the resources which minister to charity and by all
these means attempting to strengthen the spiritual life of the Nation.

FOREIGN RELATIONS

The policy of our foreign relations, casting aside any suggestion of force,
rests solely on the foundation of peace, good will, and good works. We have
sought, in our intercourse with other nations, better understandings
through conference and exchange of views its befits beings endowed with
reason. The results have been the gradual elimination of disputes, the
settlement of controversies, and the establishment of a firmer friendship
between America and the rest of the world that has ever existed tit any
previous time.

The example of this attitude has not been without its influence upon other
countries. Acting upon it, an adjustment was made of the difficult problem
of reparations. This was the second step toward peace in Europe. It paved
the way for the agreements which were drawn up at the Locarno Conference.
When ratified, these will represent the third step toward peace. While they
do not of themselves provide an economic rehabilitation, which is necessary
for the progress of Europe, by strengthening the guarantees of peace they
diminish the need for great armaments. If the energy which now goes into
military effort is transferred to productive endeavor it will greatly
assist economic progress.

The Locarno agreements were made by the, European countries directly
interested without any formal intervention of America, although on July 3
I publicly advocated such agreements in an address made in Massachusetts.
We have consistently refrained from intervening except when our help has
been sought and we have felt it could be effectively given, as in the
settlement of reparations and the London Conference. These recent Locarno
agreements represent the success of this policy which we have been
insisting ought to be adopted, of having European countries settle their
own political problems without involving this country. This beginning seems
to demonstrate that this policy is sound. It is exceedingly gratifying to
observe this progress, both in its method and in its result promises so
much that is beneficial to the world.

When these agreements are finally adopted, they will provide guarantees of
peace that make the present prime reliance upon force in some parts of
Europe very much less necessary. The natural corollary to these treaties
should be further international contracts for the limitation of armaments.
This work was successfully begun at the Washington Conference. Nothing was
done at that time concerning land forces because of European objection. Our
standing army has been reduced to around 118,000, about the necessary
police force for 115,000,000 people. We are not proposing to increase it,
nor is it supposable that any foreign country looks with the slightest
misapprehension upon our land forces. They do not menace anybody. They are
rather a protection to everybody.

The question of disarming upon land is so peculiarly European in its
practical aspects that our country would look with particular gratitude
upon any action which those countries might take to reduce their own
military forces. This is in accordance with our policy of not intervening
unless the European powers are unable to agree and make request for our
assistance. Whenever they are able to agree of their own accord it is
especially gratifying to its, and such agreements may be sure of our
sympathetic support.

It seems clear that it is the reduction of armies rather than of navies
that is of the first importance to the world at the present time. We shall
look with great satisfaction upon that effort and give it our approbation
and encouragement. If that can be settled, we may more easily consider
further reduction and limitation of naval armaments. For that purpose our
country has constantly through its Executive, and through repeated acts of
Congress, indicated its willingness to call such a conference. Under
congressional sanction it would seem to be wise to participate in any
conference of the great powers for naval limitation of armament proposed
upon such conditions that it would hold a fair promise of being effective.
The general policy of our country is for disarmament, and it ought not to
hesitate to adopt any practical plan that might reasonably be expected to
succeed. But it would not care to attend a conference which from its
location or constituency would in all probability prove futile.

In the further pursuit, of strengthening the bonds of peace and good will
we have joined with other nations in an international conference held at
Geneva and signed an agreement which will be laid before the Senate for
ratification providing suitable measures for control and for publicity in
international trade in arms, ammunition, and implements of war, and also
executed a protocol providing for a prohibition of the use of poison gas in
war, in accordance with the principles of Article 5 of the treaty relating
thereto signed at the Washington Conference. We are supporting the Pan
American efforts that are being made toward the codification of
international law, and looking with sympathy oil the investigations
conducted under philanthropic auspices of the proposal to agreements
outlawing war. In accordance with promises made at the Washington
Conference, we have urged the calling of and are now represented at the
Chinese Customs Conference and on the Commission on Extraterritoriality,
where it will be our policy so far as possible to meet the, aspirations of
China in all ways consistent with the interests of the countries involved.

COURT OF INTERNATIONAL JUSTICE

Pending before the Senate for nearly three years is the proposal to adhere
to the protocol establishing the Permanent Court of International Justice.
A well-established line of precedents mark America's effort to effect the
establishment of it court of this nature.. We took a leading part in laying
the foundation on which it rests in the establishment of The Hague Court of
Arbitration. It is that tribunal which nominates the judges who are elected
by the Council and Assembly of the League of Nations.

The proposal submitted to the Senate was made dependent upon four
conditions, the first of which is that by supporting the court we do not
assume any obligations under the league; second, that we may participate
upon an equality with other States in the election of judges; third, that
the Congress shall determine what part of the expenses we shall bear;
fourth, that the statute creating the court shall not be amended without
out consent; and to these I have proposed an additional condition to the
effect that we are not to be bound by advisory opinions rendered without
our consent.

The court appears to be independent of the league. It is true the judges
are elected by the Assembly and Council, but they are nominated by the
Court of Arbitration, which we assisted to create and of which we are a
part. The court was created by it statute, so-called, which is really a
treaty made among some forty-eight different countries, that might properly
be called a constitution of the court. This statute provides a method by
which the judges are chosen so that when the Court of Arbitration
nominates them and the Assembly and Council of the League elect them, they
are not acting as instruments of the Court of Arbitration or instruments of
the league, but as instruments of the statute.

This will be even more apparent if our representatives sit with the members
of the council and assembly in electing the judges. It is true they are
paid through the league though not by the league, but by the countries
which are members of the league and by our country if we accept the
protocol. The judges are paid by the league only in the same sense that it
could be said United States judges are paid by the Congress. The court
derives all its authority from the statute and is so completely independent
of the league that it could go on functioning if the league were disbanded,
at least until the terms of the judges expired.

The most careful provisions are made in the statute as to the
qualifications of judges. Those who make the nominations are recommended to
consult with their highest court of justice, their law schools and
academies. The judges must be persons of high moral character, qualified to
hold the highest judicial offices in that country, or be jurisconsults of
recognized competence in international law. It must be assumed that these
requirements will continue to be carefully met, and with America joining
the countries already concerned it is difficult to comprehend how human
ingenuity could better provide for the establishment of a court which would
maintain its independence. It has to be recognized that independence is to
a considerable extent a matter of ability, character, and personality. Some
effort was made in the early beginnings to interfere with the independence
of our Supreme Court. It did not succeed because of the quality of the men
who made up that tribunal.

It does not seem that the authority to give advisory opinions interferes
with the independence of the court. Advisory opinions in and of themselves
are not harmful, but may be used in such a way as to be very beneficial
because they undertake to prevent injury rather than merely afford a remedy
after the injury has been done. As a principle that only implies that the
court shall function when proper application is made to it. Deciding the
question involved upon issues submitted for an advisory opinion does not
differ materially from deciding the question involved upon issues submitted
by contending parties. Up to the present time the court has given an
advisory opinion when it judged it had jurisdiction, and refused to give
one when it judged it did not have jurisdiction. Nothing in the work of the
court has yet been an indication that this is an impairment of its
independence or that its practice differs materially from the giving of
like opinions under the authority of the constitutions of several of our
States.

No provision of the statute seems to me to give this court any authority to
be a political rather than a judicial court. We have brought cases in this
country before our courts which, when they have been adjudged to be
political, have been thereby dismissed. It is not improbable that political
questions will be submitted to this court, but again up to the present time
the court has refused to pass on political questions and our support would
undoubtedly have a tendency to strengthen it in that refusal.

We are not proposing to subject ourselves to any compulsory jurisdiction.
If we support the court, we can never be obliged to submit any case which
involves our interests for its decision. Our appearance before it would
always be voluntary, for the purpose of presenting a case which we had
agreed might be presented. There is no more danger that others might bring
cases before the court involving our interests which we did not wish to
have brought, after we have adhered, and probably not so much, than there
would be of bringing such cases if we do not adhere. I think that we would
have the same legal or moral right to disregard such a finding in the one
case that we would in the other.

If we are going to support any court, it will not be one that we have set
up alone or which reflects only our ideals. Other nations have their
customs and their institutions, their thoughts and their methods of life.
If a court is going to be international, its composition will have to yield
to what is good in all these various elements. Neither will it be possible
to support a court which is exactly perfect, or under which we assume
absolutely no obligations. If we are seeking that opportunity, we might as
well declare that we are opposed to supporting any court. If any agreement
is made, it will be because it undertakes to set up a tribunal which can do
some of the things that other nations wish to have done. We shall not find
ourselves bearing a disproportionate share of the world's burdens by our
adherence, and we may as well remember that there is absolutely no escape
for our country from bearing its share of the world's burdens in any case.
We shall do far better service to ourselves and to others if we admit this
and discharge our duties voluntarily, than if we deny it and are forced to
meet the same obligations unwillingly.

It is difficult to imagine anything that would be more helpful to the world
than stability, tranquility and international justice. We may say that we
are contributing to these factors independently, but others less
fortunately located do not and can not make a like contribution except
through mutual cooperation. The old balance of power, mutual alliances, and
great military forces were not brought bout by any mutual dislike for
independence, but resulted from the domination of circumstances. Ultimately
they were forced on us. Like all others engaged in the war whatever we said
as a matter of fact we joined an alliance, we became a military power, we
impaired our independence. We have more at stake than any one else in
avoiding a repetition of that calamity. Wars do not, spring into existence.
They arise from small incidents and trifling irritations which can be
adjusted by an international court. We can contribute greatly to the
advancement of our ideals by joining with other nations in maintaining such
a tribunal.

FOREIGN DEBTS

Gradually, settlements have been made which provide for the liquidation of
debts due to our Government from foreign governments. Those made with Great
Britain, Finland, Hungary Lithuania, and Poland have already been approved
by the Congress. Since the adjournment, further agreements have been
entered into with Belgium, Czechoslovakia, Latvia, Estonia, Italy, and
Rumania. These 11 nations, which have already made settlements, represent
$6,419,528,641 of the original principal of the loans. The principal sums
without interest, still pending, are the debt of France, of $3,340,000,000;
Greece, $15,000,000; Yugoslavia, $.51,000,000; Liberia, $26,000; Russia,
$192,000,000, which those at present in control have undertaken, openly to
repudiate; Nicaragua, $84,000, which is being paid currently; and Austria,
$24,000,000, on which by act of Congress a moratorium of 20 years has been
granted. The only remaining sum is $12,000,000, due from Armenia, which has
now ceased to exist as an independent nation.

In accordance with the settlements made, the amount of principal and
interest which is to be paid to the United States under these agreements
aggregate $15,200,688,253.93. It is obvious that the remaining settlements,
which will undoubtedly be made, will bring this sum up to an amount which
will more than equal the principal due on our present national debt. While
these settlements are very large in the aggregate, it has been felt that
the terms granted were in all cases very generous. They impose no undue
burden and are mutually beneficial in the observance of international faith
and the improvement of international credit.

Every reasonable effort will be made to secure agreements for liquidation
with the remaining countries, whenever they are in such condition that they
can be made. Those which have already been negotiated under the bipartisan
commission established by the Congress have been made only after the most
thoroughgoing and painstaking investigation, continued for a long time
before meeting with the representatives of the countries concerned. It is
believed that they represent in each instance the best that can be done and
the wisest settlement that can be secured. One very important result is the
stabilization of foreign currency, making exchange assist rather than
embarrass our trade. Wherever sacrifices have been made of money, it will
be more than amply returned in better understanding and friendship, while
in so far as these adjustments will contribute to the financial stability
of the debtor countries, to their good order, prosperity, and progress,
they represent hope of improved trade relations and mutual contributions to
the civilization of the world.

ALIEN PROBLEM

Negotiations are progressing among the interested parties in relation to
the final distribution of the assets in the hands of the Alien Property
Custodian. Our Government and people are interested as creditors; the
German Government and people are interested as debtors and owners of the
seized property. Pending the outcome of these negotiations, I do not
recommend any affirmative legislation. For the present we should continue
in possession of this property which we hold as security for the settlement
of claims due to our people and our Government.

IMMIGRATION

While not enough time has elapsed to afford a conclusive demonstration,
such results as have been secured indicate that our immigration law is on
the whole beneficial. It is undoubtedly a protection to the wage earners of
this country. The situation should however, be carefully surveyed, in order
to ascertain whether it is working a needless hardship upon our own
inhabitants. If it deprives them of the comfort and society of those bound
to them by close family ties, such modifications should be adopted as will
afford relief, always in accordance with the principle that our Government
owes its first duty to our own people and that no alien, inhabitant of
another country, has any legal rights whatever under our Constitution and
laws. It is only through treaty, or through residence here that such rights
accrue. But we should not, however, be forgetful of the obligations of a
common humanity.

While our country numbers among its best citizens many of those of foreign
birth, yet those who now enter in violation of our laws by that very act
thereby place themselves in a class of undesirables. Investigation
reveals that any considerable number are coming here in defiance of our
immigration restrictions, it will undoubtedly create the necessity for the
registration of all aliens. We ought to have no prejudice against an alien
because he is an alien. The standard which we apply to our inhabitants is
that of manhood, not place of birth. Restrictive immigration is to a large
degree for economic purposes. It is applied in order that we may not have a
larger annual increment of good people within our borders than we can weave
into our economic fabric in such a way as to supply their needs without
undue injury to ourselves.

NATIONAL DEFENSE

Never before in time of peace has our country maintained so large and
effective a military force as it now has. The Army, Navy, Marine Corps,
National Guard, and Organized Reserves represent a strength of about
558,400 men. These forces are well trained, well equipped, and high in
morale.

A sound selective service act giving broad authority for the mobilization
in time of peril of all the resources of the country, both persons and
materials, is needed to perfect our defense policy in accordance with our
ideals of equality. The provision for more suitable housing to be paid for
out of funds derived from the sale of excess lands, pending before the last
Congress, ought to be brought forward and passed. Reasonable replacements
ought to be made to maintain a sufficient ammunition reserve.

The Navy has the full treaty tonnage of capital ships. Work is going
forward in modernizing the older ones, building aircraft carriers,
additional fleet submarines, and fast scout cruisers, but we are carefully
avoiding anything that might be construed as a competition in armaments
with other nations. The joint Army and Navy maneuvers at Hawaii, followed
by the cruise of a full Battle Fleet to Australia and New Zealand, were
successfully carried out. These demonstrations revealed a most satisfactory
condition of the ships and the men engaged.

Last year at my suggestion the General Board of the Navy made an
investigation and report on the relation of aircraft to warships. As a
result authorizations and appropriations were made for more scout cruisers
and fleet submarines and for completing aircraft carriers and equipping
them with necessary planes. Additional training in aviation was begun at
the Military and Naval Academies. A method of coordination and cooperation
of the Army and Navy and the principal aircraft builders is being
perfected. At the suggestion of the Secretaries of War and Navy I appointed
a special board to make a further study of the problem of aircraft.

The report of the Air Board ought to be reassuring to the country,
gratifying to the service and satisfactory to the Congress. It is
thoroughly complete and represents the mature thought of the best talent in
the country. No radical change in organization of the service seems
necessary. The Departments of War, Navy, and Commerce should each be
provided with an additional assistant secretary, not necessarily with
statutory duties but who would be available under the direction of the
Secretary to give especial attention to air navigation. We must have an air
strength worthy of America. Provision should be made for two additional
brigadier generals for the Army Air Service. Temporary rank corresponding
to their duties should be awarded to active flying officers in both Army
and Navy.

Aviation is of great importance both for national defense and commercial
development. We ought to proceed in its improvement by the necessary
experiment and investigation. Our country is not behind in this art. It has
made records for speed and for the excellence of its planes. It ought to go
on maintaining its manufacturing plants capable of rapid production, giving
national assistance to the la in out of airways, equipping itself with a
moderate number of planes and keeping an air force trained to the highest
efficiency.

While I am a thorough believer in national defense and entirely committed
to the policy of adequate preparation, I am just as thoroughly opposed to
instigating or participating in a policy of competitive armaments. Nor does
preparation mean a policy of militarizing. Our people and industries are
solicitous for the cause of 0111, country, and have great respect for the
Army and Navy and foil the uniform worn by the men who stand ready at all
times for our protection to encounter the dangers and perils necessary to
military service, but all of these activities are to be taken not in behalf
of aggression but in behalf of peace. They are the instruments by which we
undertake to do our part to promote good will and support stability among
all peoples.

VETERANS

If any one desires to estimate the esteem in which the veterans of America
are held by their fellow citizens, it is but necessary to remember that the
current budget calls for an expenditure of about $650,000.000 in their
behalf. This is nearly the amount of the total cost of the National
Government, exclusive of the post office, before we entered the last war.

At the two previous sessions of Congress legislation affecting veterans'
relief was enacted and the law liberalized. This legislation brought into
being a number of new provisions tending more nearly to meet the needs of
our veterans, as well as afford the necessary authority to perfect the
administration of these laws.

Experience with the new legislation so far has clearly demonstrated its
constructive nature. It has increased the benefits received by many and has
made eligible for benefits many others. Direct disbursements to the veteran
or his dependents exceeding $21,000,000 have resulted, which otherwise
would not have been made. The degree of utilization of our hospitals has
increased through making facilities available to the incapacitated veteran
regardless of service origin of the disability. This new legislation also
has brought about a marked improvement of service to the veteran.

The organizations of ex-service men have proposed additional legislative
changes which you will consider, but until the new law and the
modifications made at the last session of Congress are given a more
thorough test further changes in the basic law should be few and made only
after careful though sympathetic consideration.

The principal work now before the Veterans' Bureau is the perfection of its
organization and further improvements in service. Some minor legislative
changes are deemed necessary to enable the bureau to retain that high grade
of professional talent essential in handling the problems of the bureau.
Such changes as tend toward the improvement of service and the carrying
forward to completion of the hospital construction program are recommended
for the consideration of the proper committees of Congress.

With the enormous outlay that is now being made in behalf of the veterans
and their dependents, with a tremendous war debt still requiring great
annual expenditure, with the still high rate of taxation, while every
provision should be made for the relief of the disabled and the necessary
care of dependents, the Congress may well consider whether the financial
condition of the Government is not such that further bounty through the
enlargement of general pensions and other emoluments ought not to be
postponed.

AGRICULTURE

No doubt the position of agriculture as a whole has very much improved
since the depression of three and four years ago. But there are many
localities and many groups of individuals, apparently through no fault of
their own, sometimes due to climatic conditions and sometimes to the
prevailing price of a certain crop, still in a distressing condition. This
is probably temporary, but it is none the less acute. National Government
agencies, the Departments of Agriculture and Commerce, the Farm Loan Board,
the intermediate credit banks, and the Federal Reserve Board are all
cooperating to be of assistance and relief. On the other hand, there are
localities and individuals who have had one of their most prosperous years.
The general price level is fair, but here again there are exceptions both
ways, some items being poor while others are excellent. In spite of a
lessened production the farm income for this year will be about the same as
last year and much above the three preceding years.

Agriculture is a very complex industry. It does not consist of one problem,
but of several. They can not be solved at one stroke. They have to be met
in different ways, and small gains are not to be despised.

It has appeared from all the investigations that I have been able to make
that the farmers as a whole are determined to maintain the independence of
their business. They do not wish to have meddling on the part of the
Government or to be placed under the inevitable restrictions involved in
any system of direct or indirect price-fixing, which would result from
permitting the Government to operate in the agricultural markets. They are
showing a very commendable skill in organizing themselves to transact their
own business through cooperative marketing, which will this year turn over
about $2,500,000,000, or nearly one-fifth of the total agricultural
business. In this they are receiving help from the Government. The
Department of Agriculture should be strengthened in this facility, in order
to be able to respond when these marketing associations want help. While
it ought not to undertake undue regulation, it should be equipped to give
prompt information on crop prospects, supply, demand, current receipts,
imports, exports, and prices.

A bill embodying these principles, which has been drafted under the advice
and with the approval of substantially all the leaders and managers in the
cooperative movement, will be presented to the Congress for its enactment.
Legislation should also be considered to provide for leasing the
unappropriated public domain for grazing purposes and adopting a uniform
policy relative to grazing on the public lands and in the national
forests.

A more intimate relation should be established between agriculture and the
other business activities of the Nation. They are mutually dependent and
can each advance their own prosperity most by advancing the prosperity of
the other. Meantime the Government will continue those activities which
have resulted in an unprecedented amount of legislation and the pouring out
of great sums of money during the last five years. The work for good roads,
better land and water transportation, increased support for agricultural
education, extension of credit facilities through the Farm Loan Boards and
the intermediate credit banks, the encouragement of orderly marketing and a
repression of wasteful speculation, will all be continued.

Following every other depression, after a short period the price of farm
produce has taken and maintained the lead in the advance. This advance had
reached a climax before the war. Everyone will recall the discussion that
went on for four or five years prior to 1914 concerning the high cost of
living. This history is apparently beginning to repeat itself. While
wholesale prices of other commodities have been declining, farm prices have
been increasing. There is every reason to suppose that a new era in
agricultural prosperity lies just before us, which will probably be
unprecedented.

MUSCLE SHOALS

The problem of Muscle Shoals seems to me to have assumed a place all out of
proportion with its real importance. It probably does not represent in
market value much more than a first-class battleship, yet it has been
discussed in the Congress over a period of years and for months at a time.
It ought to be developed for the production of nitrates primarily, and
incidentally for power purposes. This would serve defensive, agricultural,
and industrial purposes. I am in favor of disposing of this property to
meet these purposes. The findings of the special commission will be
transmitted to the Congress for their information. I am convinced that the
best possible disposition can be made by direct authorization of the
Congress. As a means of negotiation I recommend the immediate appointment
of a small joint special committee chosen from the appropriate general
standing committees of the House and Senate to receive bids, which when
made should be reported with recommendations as to acceptance, upon which a
law should be enacted, effecting a sale to the highest bidder who will
agree to carry out these purposes.

If anything were needed to demonstrate the almost utter incapacity of the
National Government to deal directly with an industrial and commercial
problem, it has been provided by our experience with this property. We have
expended vast fortunes, we have taxed everybody, but we are unable to
secure results, which benefit anybody. This property ought, to be
transferred to private management under conditions which will dedicate it
to the public purpose for which it was conceived.

RECLAMATION

The National Government is committed to a policy of reclamation and
irrigation which it desires to establish on a sound basis and continue in
the interest of the localities concerned. Exhaustive studies have recently
been made of Federal reclamation, which have resulted in improving the
projects and adjusting many difficulties. About one third of the projects
is in good financial condition, another third can probably be made
profitable, while the other third is under unfavorable conditions. The
Congress has already provided for a survey which will soon be embodied in a
report. That ought to suggest a method of relief which will make
unnecessary further appeals to the Congress. Unless this can be done,
Federal reclamation will be considerably retarded. With the greatly
increased cost of construction and operation, it has become necessary to
plan in advance, by community organization and selective agriculture,
methods sufficient to repay these increasing outlays.

The human and economic interests of the farmer citizens suggest that the
States should be required to exert some effort and assume some
responsibility, especially in the intimate, detailed, and difficult work of
securing settlers and developing farms which directly profit them, but only
indirectly and remotely can reimburse the Nation. It is believed that the
Federal Government should continue to be the agency for planning and
constructing the great undertakings needed to regulate and bring into use
the rivers the West, many of which are interstate in character, but the
detailed work of creating agricultural communities and a rural civilization
on the land made ready for reclamation ought to be either transferred to
the State in its entirety or made a cooperative effort of the State and
Federal Government.

SHIPPING

The maintenance of a merchant marine is of the utmost importance for
national defense and the service of our commerce. We have a large number of
ships engaged in that service. We also have a surplus supply, costly to
care for, which ought to be sold. All the investigations that have been
made under my direction, and those which have been prosecuted
independently, have reached the conclusion that the fleet should be under
the direct control of a single executive head, while the Shipping Board
should exercise its judicial and regulatory functions in Accordance with
its original conception. The report of Henry G. Dalton, a business man of
broad experience, with a knowledge of shipping, made to me after careful
investigation, will be transmitted for the information of the Congress, the
studies pursued under the direction of the United States Chamber of
Commerce will also be accessible, and added to these will be the report of
the special committee of the House.

I do not advocate the elimination of regional considerations, but it has
become apparent that without centralized executive action the management of
this great business, like the management of any other great business, will
flounder in incapacity and languish under a division of council. A plain
and unmistakable reassertion of this principle of unified control, which I
have always been advised was the intention of the Congress to apply, is
necessary to increase the efficiency of our merchant fleet.

COAL

The perennial conflict in the coal industry is still going on to the great
detriment of the wage earners, the owners, and especially to the public.
With deposits of coal in this country capable of supplying its needs for
hundreds of years, inability to manage and control this great resource for
the benefit of all concerned is very close to a national economic failure.
It has been the subject of repeated investigation and reiterated
recommendation. Yet the industry seems never to have accepted modern
methods of adjusting differences between employers and employees. The
industry could serve the public much better and become subject to a much
more effective method of control if regional consolidations and more
freedom in the formation of marketing associations, under the supervision
of the Department of Commerce, were permitted.

At the present time the National Government has little or no authority to
deal with this vital necessity of the life of the country. It has permitted
itself to remain so powerless that its only attitude must be humble
supplication. Authority should be lodged with the President and the
Departments of Commerce and Labor, giving them power to deal with an
emergency. They should be able to appoint temporary boards with authority
to call for witnesses and documents, conciliate differences, encourage
arbitration, and in case of threatened scarcity exercise control over
distribution. Making the facts public under these circumstances through a
statement from an authoritative source would be of great public benefit.
The report of the last coal commission should be brought forward,
reconsidered, and acted upon.

PROHIBITION

Under the orderly processes of our fundamental institutions the
Constitution was lately amended providing for national prohibition. The
Congress passed an act for its enforcement, and similar acts have been
provided by most of the States. It is the law of the land. It is the duty
of all who come under its, jurisdiction to observe the spirit of that law,
and it is the duty of the Department of Justice and the Treasury Department
to enforce it. Action to prevent smuggling, illegal transportation in
interstate commerce, abuse in the use of permits, and existence of sources
of supply for illegal traffic is almost entirely imposed upon the Federal
Government.

Through treaties with foreign governments and increased activities of the
Coast Guard, revenue agents, district attorneys and enforcement agents
effort is being made to prevent these violations. But the Constitution also
puts a concurrent duty on the States. We need their active and energetic
cooperation, the vigilant action of their police, and the jurisdiction of
their courts to assist in enforcement. I request of the people observance,
of the public officers continuing efforts for enforcement, and of the
Congress favorable action on the budget recommendation for the prosecution
of this work.

WATERWAY DEVELOPMENT

For many years our country has been employed in plans and M for the
development of our intracoastal and inland waterways. This work along our
coast is an important adjunct to our commerce. It will be carried on,
together with the further opening up of our harbors, as our resources
permit. The Government made an agreement during the war to take over the
Cape Cod Canal, under which the owners made valuable concessions. This
pledged faith of the Government ought to be redeemed.

Two other main fields are under consideration. One is the Great Lakes and
St. Lawrence, including the Erie Canal. This includes stabilizing the lake
level, and is both a waterway and power project. A joint commission of the
United States and Canada is working on plans and surveys which will not be
completed until next April. No final determination can be made, apparently,
except under treaty as to the participation of both countries. The other is
the Mississippi River stem. This is almost entirely devoted to navigation.
Work on the Ohio River will be completed in about three years. A modern
channel connecting Chicago, New Orleans, Kansas City, and Pittsburgh should
be laid out and work on the tributaries prosecuted. Some work is being done
of a preparatory nature along the Missouri, and large expenditures are
being made yearly in the lower reaches of the Mississippi and its
tributaries which contribute both to flood control and navigation.
Preliminary measures are being taken on the Colorado River project, which
is exceedingly important for flood control, irrigation, power development,
and water supply to the area concerned. It would seem to be very doubtful,
however, whether it is practical to secure affirmative action of the
Congress, except under a Joint agreement of the several States.

The Government has already expended large sums upon scientific research and
engineering investigation in promotion of this Colorado River project. The
actual progress has been retarded for many years by differences among the
seven States in the basin over their relative water rights and among
different groups as to methods. In an attempt to settle the primary
difficulty of the water rights, Congress authorized the Colorado River
Commission which agreed on November 24, 1922, upon an interstate compact to
settle these rights, subject to the ratification of the State legislatures
and Congress. All seven States except Arizona at one time ratified, the
Arizona Legislature making certain reservations which failed to meet the
approval of the governor. Subsequently an attempt was made to establish the
compact upon a six-State basis, but in this case California imposed
reservations. There appears to be no division of opinion upon the major
principles of the compact, but difficulty in separating contentions to
methods of development from the discussion of it. It is imperative that
flood control be undertaken for California and Arizona. preparation made
for irrigation, for power, and for domestic water.

Some or all of these questions are combined in every proposed development.
The Federal Government is interested in some of these phases, State
governments and municipalities and irrigation districts in others, and
private corporations in still others. Because of all this difference of
view it is most desirable that Congress should consider the creation of
some agency that will be able to determine methods of improvement solely
upon economic and engineering facts, that would be authorized to negotiate
and settle, subject to the approval of Congress, the participation, rights,
and obligations of each group in any particular works. Only by some such
method can early construction be secured.

WATER POWER

Along with the development of navigation should go every possible
encouragement for the development of our water power. While steam still
plays a dominant part, this is more and more becoming an era of
electricity. Once installed, the cost is moderate, has not tended greatly
to increase, and is entirely free from the unavoidable dirt and
disagreeable features attendant upon the burning of coal. Every facility
should be extended for the connection of the various units into a
superpower plant, capable at all times of a current increasing uniformity
over the entire system.

RAILROADS

The railroads throughout the country are in a fair state of prosperity.
Their service is good and their supply of cars is abundant. Their condition
would be improved and the public better served by a system of
consolidations. I recommend that the Congress authorize such consolidations
tinder the supervision of the Interstate Commerce Commission, with power to
approve or disapprove when proposed parts are excluded or new parts added.
I am informed that the railroad managers and their employees have reached a
substantial agreement as to what legislation is necessary to regulate and
improve their relationship. Whenever they bring forward such proposals,
which seem sufficient also to protect the interests of the public, they
should be enacted into law.

It is gratifying to report that both the railroad managers and railroad
employees are providing boards for the mutual adjustment of differences in
harmony with the principles of conference, conciliation, and arbitration.
The solution of their problems ought to be an example to all other
industries. Those who ask the protections of civilization should be ready
to use the methods of civilization.

A strike in modern industry has many of the aspects of war in the modern
world. It injures labor and it injures capital. If the industry involved is
a basic one, it reduces the necessary economic surplus and, increasing the
cost of living, it injures the economic welfare and general comfort of the
whole people. It also involves a deeper cost. It tends to embitter and
divide the community into warring classes and thus weakens the unity and
power of our national life.

Labor can make no permanent gains at the cost of the general welfare. All
the victories won by organized labor in the past generation have been won
through the support of public opinion. The manifest inclination of the
managers and employees of the railroads to adopt a policy of action in
harmony with these principles marks a new epoch in our industrial life.

OUTLYING POSSESSIONS

The time has come for careful investigation of the expenditures and success
of the laws by which we have undertaken to administer our outlying
possessions. A very large amount of money is being expended for
administration in Alaska. It appears so far out of proportion to the number
of inhabitants and the amount of production as to indicate cause for
thorough investigation. Likewise consideration should be given to the
experience under the law which governs the Philippines. From such reports
as reach me there are indications that more authority should be given to
the Governor General, so that he will not be so dependent upon the local
legislative body to render effective our efforts to set an example of the,
sound administration and good government, which is so necessary for the
preparation of the Philippine people for self-government under ultimate
independence. If they are to be trained in these arts, it is our duty to
provide for them the best that there is.

RETIREMENT OF JUDGES

The act of March 3, 1911, ought to be amended so that the term of years of
service of judges of any court of the United States requisite for
retirement with pay shall be computed to include not only continuous but
aggregate service.

MOTHERS' AID

The Government ought always to be alert on the side of the humanities. It
Ought to encourage provisions for economic justice for the defenseless. It
ought to extend its relief through its national and local agencies, as may
be appropriate in each case, to the suffering and the needy. It ought to be
charitable.

Although more than 40 of our States have enacted measures in aid of
motherhood, the District of Columbia is still without such a law. A
carefully considered bill will be presented, which ought to have most
thoughtful consideration in order that the Congress may adopt a measure
which will be hereafter a model for all parts of the Union.

CIVIL SERVICE

In 1883 the Congress passed the civil service act, which from a modest
beginning of 14,000 employees has grown until there are now 425,000 in the
classified service. This has removed the clerical force of the Nation from
the wasteful effects of the spoils system and made it more stable and
efficient. The time has come to consider classifying all postmasters,
collectors of customs, collectors of internal revenue, and prohibition
agents, by an act covering in those at present in office, except when
otherwise provided by Executive order.

The necessary statistics are now being gathered to form the basis of a
valuation of the civil service retirement fund based on current conditions
of the service. It is confidently expected that this valuation will be
completed in time to be made available to the Congress during the present
session. It will afford definite knowledge of existing, and future
liabilities under the present law and determination OF liabilities under
any proposed change in the present law. We should have this information
before creating further obligations for retirement annuities which will
become liabilities to be met in the future from the money of the taxpayer.

The classification act of 1923, with the subsequent legislative action
providing for adjustment of the compensation of field service positions,
has operated materially to improve employment conditions in the Federal
service. The administration of the act is in the hands of an impartial
board, functioning without the necessity of a direct appropriation. It
would be inadvisable at this time to place in other hands the
administration of this act.

FEDERAL TRADE COMMISSION

The proper function of the Federal Trade Commission is to supervise and
correct those practices in commerce which are detrimental to fair
competition. In this it performs a useful function and should be continued
and supported. It was designed also to be a help to honest business. In my
message to the Sixty-eighth Congress I recommended that changes in the
procedure then existing be made. Since then the commission by its own
action has reformed its rules, giving greater speed and economy in the
disposal of its cases and full opportunity for those accused to be heard.
These changes are improvements and, if necessary, provision should be made
for their permanency.

REORGANIZATION

No final action has yet been taken on the measure providing for the
reorganization of the various departments. I therefore suggest that this
measure, which will be of great benefit to the efficient and economical
administration of the business of the Government, be brought forward and
passed.

THE NEGRO

Nearly one-tenth of our population consists of the Negro race. The progress
which they have made in all the arts of civilization in the last 60 years
is almost beyond belief. Our country has no more loyal citizens. But they
do still need sympathy, kindness, and helpfulness. They need reassurance
that the requirements of the Government and society to deal out to them
even-handed justice will be met. They should be protected from all violence
and supported in the peaceable enjoyment of the fruits of their labor.
Those who do violence to them should be punished for their crimes. No other
course of action is worthy of the American people.

Our country has many elements in its population, many different modes of
thinking and living, all of which are striving in their own way to be loyal
to the high ideals worthy of the crown of American citizenship. It is
fundamental of our institutions that they seek to guarantee to all our
inhabitants the right to live their own lives under the protection of the
public law. This does not include any license to injure others materially,
physically, morally, to Incite revolution, or to violate the established
customs which have long had the sanction of enlightened society.

But it does mean the full right to liberty and equality before the law
without distinction of race or creed. This condition can not be granted to
others, or enjoyed by ourselves, except by the application of the principle
of broadest tolerance. Bigotry is only another name for slavery. It reduces
to serfdom not only those against whom it is directed, but also those who
seek to apply it. An enlarged freedom can only be secured by the
application of the golden rule. No other utterance ever presented such a
practical rule of life.

CONCLUSION

It is apparent that we are reaching into an era of great general
prosperity. It will continue only so long as we shall use it properly.
After all, there is but a fixed quantity of wealth in this country at any
fixed time. The only way that we can all secure more of it is to create
more. The element of time enters into production, If the people have
sufficient moderation and contentment to be willing to improve their
condition by the process of enlarging production, eliminating waste, and
distributing equitably, a prosperity almost without limit lies before its.
If the people are to be dominated by selfishness, seeking immediate riches
by nonproductive speculation and by wasteful quarreling over the returns
from industry, they will be confronted by the inevitable results of
depression and privation. If they will continue industrious and thrifty,
contented with fair wages and moderate profits, and the returns which
accrue from the development of oar natural resources, our prosperity will
extend itself indefinitely.

In all your deliberations you should remember that the purpose of
legislation is to translate principles into action. It is an effort to have
our country be better by doing better. Because the thoughts and ways of
people are firmly fixed and not easily changed, the field within which
immediate improvement can be secured is very narrow. Legislation can
provide opportunity. Whether it is taken advantage of or not depends upon
the people themselves. The Government of the United States has been created
by the people. It is solely responsible to them. It will be most successful
if it is conducted solely for their benefit. All its efforts would be of
little avail unless they brought more justice, more enlightenment, more
happiness and prosperity into the home. This means an opportunity to
observe religion, secure education, and earn a living under a reign of law
and order. It is the growth and improvement of the material and spiritual
life of the Nation. We shall not be able to gain these ends merely by our
own action. If they come at all, it will be because we have been willing to
work in harmony with the abiding purpose of a Divine Providence.