Members of the Congress:

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

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

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

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

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

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

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

TAX REDUCTION

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

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

PROTECTIVE TARIFF

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

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

AGRICULTURE

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

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

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

The packers and stockyards act,

Establishing of the intermediate credit banks for agricultural purposes,

The Purnell Act for agricultural research,

The Capper-Volstead Cooperative Marketing Act,

The cooperative marketing act of 1926,

Amendments to the warehousing act,

The enlargement of the activities of the Department of Agriculture,

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

The tariff on agricultural products,

The large Federal expenditure in improvement of waterways and highways,

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

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

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

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

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

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

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

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

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

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

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

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

DEVELOPMENT OF WATER RESOURCES

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

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

RECLAMATION

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

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

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

TRANSPORTATION

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

MERCHANT MARINE

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

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

RADIO LEGISLATION

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

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

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

THE WAGE EARNER

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

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

BITUMINOUS COAL

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

JUDICIARY

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

BANKING

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

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

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

FEDERAL REGULATION

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

THE NEGRO

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

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

INSULAR POSSESSIONS

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

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

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

NATIONAL DEFENSE

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

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

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

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

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

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

VETERANS

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

ALIEN PROPERTY

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

PROHIBITION

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

FOREIGN RELATIONS

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

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

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

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

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

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

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

DEPARTMENT REPORTS

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

THE CAPITAL CITY

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

AMERICAN IDEALS

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

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