TO THE SENATE AND HOUSE OF REPRESENTATIVES:

I sincerely regret that I cannot be present at the opening of this session
of the Congress. I am thus prevented from presenting in as direct a way as
I could wish the many questions that are pressing for solution at this
time. Happily, I have had the advantage of the advice of the heads of the
several executive departments who have kept in close touch with affairs in
their detail and whose thoughtful recommendations I earnestly second.

In the matter of the railroads and the readjustment of their affairs
growing out of Federal control, I shall take the liberty at a later date of
addressing you.

I hope that Congress will bring to a conclusion at this session legislation
looking to the establishment of a budget system. That there should be one
single authority responsible for the making of all appropriations and that
appropriations should be made not independently of each other, but with
reference to one single comprehensive plan of expenditure properly related
to the nation's income, there can be no doubt I believe the burden of
preparing the budget must, in the nature of the case, if the work is to be
properly done and responsibility concentrated instead of divided, rest upon
the executive. The budget so prepared should be submitted to and approved
or amended by a single committee of each House of Congress and no single
appropriation should be made by the Congress, except such as may have been
included in the budget prepared by the executive or added by the particular
committee of Congress charged with the budget legislation.

Another and not less important aspect of the problem is the ascertainment
of the economy and efficiency with which the moneys appropriated are
expended. Under existing law the only audit is for the purpose of
ascertaining whether expenditures have been lawfully made within the
appropriations. No one is authorized or equipped to ascertain whether the
money has been spent wisely, economically and effectively. The auditors
should be highly trained officials with permanent tenure in the Treasury
Department, free of obligations to or motives of consideration for this or
any subsequent administration, and authorized and empowered to examine into
and make report upon the methods employed and the results obtained by the
executive departments of the Government. Their reports should be made to
the Congress and to the Secretary of the Treasury.

I trust that the Congress will give its immediate consideration to the
problem of future taxation. Simplification of the income and profits taxes
has become an immediate necessity. These taxes performed indispensable
service during the war. They must, however, be simplified, not only to save
the taxpayer inconvenience and expense, but in order that his liability may
be made certain and definite.

With reference to the details of the Revenue Law, the Secretary of the
Treasury and the Commissioner of Internal Revenue will lay before you for
your consideration certain amendments necessary or desirable in connection
with the administration of the law-recommendations which have my approval
and support. It is of the utmost importance that in dealing with this
matter the present law should not be disturbed so far as regards taxes for
the calendar year 1920 payable in the calendar year 1921. The Congress
might well consider whether the higher rates of income and profits taxes
can in peace times be effectively productive of revenue, and whether they
may not, on the contrary, be destructive of business activity and
productive of waste and inefficiency. There is a point at which in peace
times high rates of income and profits taxes discourage energy, remove the
incentive to new enterprises, encourage extravagant expenditures and
produce industrial stagnation with consequent unemployment and other
attendant evils.

The problem is not an easy one. A fundamental change has taken place with
reference to the position of America in the world's affairs. The prejudice
and passions engendered by decades of controversy between two schools of
political and economic thought,-the one believers in protection of American
industries, the other believers in tariff for revenue only,-must be
subordinated to the single consideration of the public interest in the light
of utterly changed conditions. Before the war America was heavily the
debtor of the rest of the world and the interest payments she had to make
to foreign countries on American securities held abroad, the expenditures
of American travelers abroad and the ocean freight charges she had to pay
to others, about balanced the value of her pre-war favorable balance of
trade. During the war America's exports have been greatly stimulated, and
increased prices have increased their value. On the other hand, she has
purchased a large proportion of the American securities previously held
abroad, has loaned some $9,000,000,000 to foreign governments, and has
built her own ships. Our favorable balance of trade has thus been greatly
increased and Europe has been deprived of the means of meeting it
heretofore existing. Europe can have only three ways of meeting the
favorable balance of trade in peace times: by imports into this country of
gold or of goods, or by establishing new credits. Europe is in no position
at the present time to ship gold to us nor could we contemplate large
further imports of gold into this country without concern. The time has
nearly passed for international governmental loans and it will take time to
develop in this country a market for foreign securities. Anything,
therefore, which would tend to prevent foreign countries from settling for
our exports by shipments of goods into this country could only have the
effect of preventing them from paying for our exports and therefore of
preventing the exports from being made. The productivity of the country,
greatly stimulated by the war, must find an outlet by exports to foreign
countries, and any measures taken to prevent imports will inevitably
curtail exports, force curtailment of production, load the banking
machinery of the country with credits to carry unsold products and produce
industrial stagnation and unemployment. If we want to sell, we must be
prepared to buy. Whatever, therefore, may have been our views during the
period of growth of American business concerning tariff legislation, we
must now adjust our own economic life to a changed condition growing out of
the fact that American business is full grown and that America is the
greatest capitalist in the world.

No policy of isolation will satisfy the growing needs and opportunities of
America. The provincial standards and policies of the past, which have held
American business as if in a strait-jacket, must yield and give way to the
needs and exigencies of the new day in which we live, a day full of hope
and promise for American business, if we will but take advantage of the
opportunities that are ours for the asking. The recent war has ended our
isolation and thrown upon us a great duty and responsibility. The United
States must share the expanding world market. The United States desires for
itself only equal opportunity with the other nations of the world, and that
through the process of friendly cooperation and fair competition the
legitimate interests of the nations concerned may be successfully and
equitably adjusted.

There are other matters of importance upon which I urged action at the last
session of Congress which are still pressing for solution. I am sure it is
not necessary for me again to remind you that there is one immediate and
very practicable question resulting from the war which we should meet in
the most liberal spirit. It is a matter of recognition and relief to our
soldiers. I can do no better than to quote from my last message urging this
very action:

"We must see to it that our returning soldiers are assisted in every
practicable way to find the places for which they are fitted in the daily
work of the country. This can be done by developing and maintaining upon an
adequate scale the admirable organization created by the Department of
Labor for placing men seeking work; and it can also be done, in at least
one very great field, by creating new opportunities for individual
enterprise. The Secretary of the Interior has pointed out the way by which
returning soldiers may be helped to find and take up land in the hitherto
undeveloped regions of the country which the Federal Government has already
prepared, or can readily prepare, for cultivation and also on many of the
cutover or neglected areas which lie within the limits of the older states;
and I once more take the liberty of recommending very urgently that his
plans shall receive the immediate and substantial support of the
Congress."

In the matter of tariff legislation, I beg to call your attention to the
statements contained in my last message urging legislation with reference
to the establishment of the chemical and dyestuffs industry in America:

"Among the industries to which special consideration should be given is
that of the manufacture of dyestuffs and related chemicals. Our complete
dependence upon German supplies before the war made the interruption of
trade a cause of exceptional economic disturbance. The close relation
between the manufacture of dyestuffs, on the one hand, and of explosive and
poisonous gases, on the other, moreover, has given the industry an
exceptional significance and value. Although the United States will gladly
and unhesitatingly join in the programme of international disarmament, it
will, nevertheless, be a policy of obvious prudence to make certain of the
successful maintenance of many strong and well-equipped chemical plants.
The German chemical industry, with which we will be brought into
competition, was and may well be again, a thoroughly knit monopoly capable
of exercising a competition of a peculiarly insidious and dangerous kind."

During the war the farmer performed a vital and willing service to the
nation. By materially increasing the production of his land, he supplied
America and the Allies with the increased amounts of food necessary to keep
their immense armies in the field. He indispensably helped to win the war.
But there is now scarcely less need of increasing the production in food
-and the necessaries of life. I ask the Congress to consider means of
encouraging effort along these lines. The importance of doing everything
possible to promote production along economical lines, to improve
marketing, and to make rural life more attractive and healthful, is
obvious. I would urge approval of the plans already proposed to the
Congress by the Secretary of Agriculture, to secure the essential facts
required for the proper study of this question, through the proposed
enlarged programmes for farm management studies and crop estimates. I would
urge, also, the continuance of Federal participation in the building of
good roads, under the terms of existing law and under the direction of
present agencies; the need of further action on the part of the States and
the Federal Government to preserve and develop our forest resources,
especially through the practice of better forestry methods on private
holdings and the extension of the publicly owned forests; better support
for country schools and the more definite direction of their courses of
study along lines related to rural problems; and fuller provision for
sanitation in rural districts and the building up of needed hospital and
medical facilities in these localities. Perhaps the way might be cleared
for many of these desirable reforms by a fresh, comprehensive survey made
of rural conditions by a conference composed of representatives of the
farmers and of the agricultural agencies responsible for leadership.

I would call your attention to the widespread condition of political
restlessness in our body politic. The causes of this unrest, while various
and complicated, are superficial rather than deep-seated. Broadly, they
arise from or are connected with the failure on the part of our Government
to arrive speedily at a just and permanent peace permitting return to
normal conditions, from the transfusion of radical theories from seething
European centers pending such delay, from heartless profiteering resulting
in the increase of the cost of living, and lastly from the machinations of
passionate and malevolent agitators. With the return to normal conditions,
this unrest will rapidly disappear. In the meantime, it does much evil. It
seems to me that in dealing with this situation Congress should not be
impatient or drastic but should seek rather to remove the causes. It should
endeavor to bring our country back speedily to a peace basis, with
ameliorated living conditions under the minimum of restrictions upon
personal liberty that is consistent with our reconstruction problems. And
it should arm the Federal Government with power to deal in its criminal
courts with those persons who by violent methods would abrogate our
time-tested institutions. With the free expression of opinion and with the
advocacy of orderly political change, however fundamental, there must be no
interference, but towards passion and malevolence tending to incite crime
and insurrection under guise of political evolution there should be no
leniency. Legislation to this end has been recommended by the Attorney
General and should be enacted. In this direct connection, I would call your
attention to my recommendations on August 8th, pointing out legislative
measures which would be effective in controlling and bringing down the
present cost of living, which contributes so largely to this unrest. On
only one of these recommendations has the Congress acted. If the
Government's campaign is to be effective, it is necessary that the other
steps suggested should be acted on at once.

I renew and strongly urge the necessity of the extension of the present
Food Control Act as to the period of time in which it shall remain in
operation. The Attorney General has submitted a bill providing for an
extension of this Act for a period of six months. As it now stands, it is
limited in operation to the period of the war and becomes inoperative upon
the formal proclamation of peace. It is imperative that it should be
extended at once. The Department of justice has built up extensive
machinery for the purpose of enforcing its provisions; all of which must be
abandoned upon the conclusion of peace unless the provisions of this Act
are extended.

During this period the Congress will have an opportunity to make similar
permanent provisions and regulations with regard to all goods destined for
interstate commerce and to exclude them from interstate shipment, if the
requirements of the law are not compiled with. Some such regulation is
imperatively necessary. The abuses that have grown up in the manipulation
of prices by the withholding of foodstuffs and other necessaries of life
cannot otherwise be effectively prevented. There can be no doubt of either
the necessity of the legitimacy of such measures.

As I pointed out in my last message, publicity can accomplish a great deal
in this campaign. The aims of the Government must be clearly brought to the
attention of the consuming public, civic organizations and state officials,
who are in a position to lend their assistance to our efforts. You have
made available funds with which to carry on this campaign, but there is no
provision in the law authorizing their expenditure for the purpose of
making the public fully informed about the efforts of the Government.
Specific recommendation has been made by the Attorney General in this
regard. I would strongly urge upon you its immediate adoption, as it
constitutes one of the preliminary steps to this campaign.

I also renew my recommendation that the Congress pass a law regulating cold
storage as it is regulated, for example, by the laws of the State of New
Jersey, which limit the time during which goods may be kept in storage,
prescribe the method of disposing of them if kept beyond the permitted
period, and require that goods released from storage shall in all cases
bear the date of their receipt. It would materially add to the
serviceability of the law, for the purpose we now have in view, if it were
also prescribed that all goods released from storage for interstate
shipment should have plainly marked upon each package the selling or market
price at which they went into storage. By this means the purchaser would
always be able to learn what profits stood between him and the producer or
the wholesale dealer.

I would also renew my recommendation that all goods destined for interstate
commerce should in every case, where their form or package makes it
possible, be plainly marked with the price at which they left the hands of
the producer.

We should formulate a law requiring a Federal license of all corporations
engaged in interstate commerce and embodying in the license or in the
conditions under which it is to be issued, specific regulations designed to
secure competitive selling and prevent unconscionable profits in the method
of marketing. Such a law would afford a welcome opportunity to effect other
much needed reforms in the business of interstate shipment and in the
methods of corporations which are engaged in it; but for the moment I
confine my recommendations to the object immediately in hand, which is to
lower the cost of living.

No one who has observed the march of events in the last year can fail to
note the absolute need of a definite programme to bring about an
improvement in the conditions of labor. There can be no settled conditions
leading to increased production and a reduction in the cost of living if
labor and capital are to be antagonists instead of partners. Sound thinking
and an honest desire to serve the interests of the whole nation, as
distinguished from the interests of a class, must be applied to the
solution of this great and pressing problem. The failure of other nations
to consider this matter in a vigorous way has produced bitterness and
jealousies and antagonisms, the food of radicalism. The only way to keep
men from agitating against grievances is to remove the grievances. An
unwillingness even to discuss these matters produces only dissatisfaction
and gives comfort to the extreme elements in our country which endeavor to
stir up disturbances in order to provoke governments to embark upon a
course of retaliation and repression. The seed of revolution is repression.
The remedy for these things must not be negative in character. It must be
constructive. It must comprehend the general interest. The real antidote
for the unrest which manifests itself is not suppression, but a deep
consideration of the wrongs that beset our national life and the
application of a remedy.

Congress has already shown its willingness to deal with these industrial
wrongs by establishing the eight-hour day as the standard in every field of
labor. It has sought to find a way to prevent child labor. It has served
the whole country by leading the way in developing the means of preserving
and safeguarding lives and health in dangerous industries. It must now help
in the difficult task of finding a method that will bring about a genuine
democratization of industry, based upon the full recognition of the right
of those who work, in whatever rank, to participate in some organic way in
every decision which directly affects their welfare. It is with this
purpose in mind that I called a conference to meet in Washington on
December 1st, to consider these problems in all their broad aspects, with
the idea of bringing about a better understanding between these two
interests.

The great unrest throughout the world, out of which has emerged a demand
for an immediate consideration of the difficulties between capital and
labor, bids us put our own house in order. Frankly, there can be no
permanent and lasting settlements between capital and labor which do not
recognize the fundamental concepts for which labor has been struggling
through the years. The whole world gave its recognition and endorsement to
these fundamental purposes in the League of Notions. The statesmen gathered
at Versailles recognized the fact that world stability could not be had by
reverting to industrial standards and conditions against which the average
workman of the world had revolted. It is, therefore, the task of the states
men of this new day of change and readjustment to recognize world
conditions and to seek to bring about, through legislation, conditions that
will mean the ending of age-long antagonisms between capital and labor and
that will hopefully lead to the building up of a comradeship which will
result not only in greater contentment among the mass of workmen but also
bring about a greater production and a greater prosperity to business
itself.

To analyze the particulars in the demands of labor is to admit the justice
of their complaint in many matters that lie at their basis. The workman
demands an adequate wage, sufficient to permit him to live in comfort,
unhampered by the fear of poverty and want in his old age. He demands the
right to live and the right to work amidst sanitary surroundings, both in
home and in workshop, surroundings that develop and do not retard his own
health and wellbeing; and the right to provide for his children's wants in
the matter of health and education. In other words, it is his desire to
make the conditions of his life and the lives of those dear to him
tolerable and easy to bear.

The establishment of the principles regarding labor laid down ill the
covenant of the League of Nations offers us the way to industrial peace and
conciliation. No other road lies open to us. Not to pursue this one is
longer to invite enmities, bitterness, and antagonisms which in the end
only lead to industrial and social disaster. The unwilling workman is not a
profitable servant. An employee whose industrial life is hedged about by
hard and unjust conditions, which he did not create and over which he has
no control, lacks that fine spirit of enthusiasm and volunteer effort which
are the necessary ingredients of a great producing entity. Let us be frank
about this solemn matter. The evidences of world-wide unrest which manifest
themselves in violence throughout the world bid us pause and consider the
means to be found to stop the spread of this contagious thing before it
saps the very vitality of the nation itself. Do we gain strength by
withholding the remedy? Or is it not the business of statesmen to treat
these manifestations of unrest which meet us on every hand as evidences of
an economic disorder and to apply constructive remedies wherever necessary,
being sure that in the application of the remedy we touch not the vital
tissues of our industrial and economic life? There can be no recession of
the tide of unrest until constructive instrumentalities are set up to stem
that tide.

Governments must recognize the right of men collectively to bargain for
humane objects that have at their base the mutual protection and welfare of
those engaged in all industries. Labor must not be longer treated as a
commodity. It must be regarded as the activity of human beings, possessed
of deep yearnings and desires. The business man gives his best thought to
the repair and replenishment of his machinery, so that its usefulness will
not be impaired and its power to produce may always be at its height and
kept in full vigor and motion. No less regard ought to be paid to the human
machine, which after all propels the machinery of the world and is the
great dynamic force that lies back of all industry and progress. Return to
the old standards of wage and industry in employment are unthinkable. The
terrible tragedy of war which has just ended and which has brought the
world to the verge of chaos and disaster would be in vain if there should
ensue a return to the conditions of the past. Europe itself, whence has
come the unrest which now holds the world at bay, is an example of
standpatism in these vital human matters which America might well accept as
an example, not to be followed but studiously to be avoided. Europe made
labor the differential, and the price of it all is enmity and antagonism
and prostrated industry, The right of labor to live in peace and comfort
must be recognized by governments and America should be the first to lay
the foundation stones upon which industrial peace shall be built.

Labor not only is entitled to an adequate wage, but capital should receive
a reasonable return upon its investment and is entitled to protection at
the hands of the Government in every emergency. No Government worthy of the
name can "play" these elements against each other, for there is a mutuality
of interest between them which the Government must seek to express and to
safeguard at all cost.

The right of individuals to strike is inviolate and ought not to be
interfered with by any process of Government, but there is a predominant
right and that is the right of the Government to protect all of its people
and to assert its power and majesty against the challenge of any class. The
Government, when it asserts that right, seeks not to antagonize a class but
simply to defend the right of the whole people as against the irreparable
harm and injury that might be done by the attempt by any class to usurp a
power that only Government itself has a right to exercise as a protection
to all.

In the matter of international disputes which have led to war, statesmen
have sought to set up as a remedy arbitration for war. Does this not point
the way for the settlement of industrial disputes, by the establishment of
a tribunal, fair and just alike to all, which will settle industrial
disputes which in the past have led to war and disaster? America,
witnessing the evil consequences which have followed out of such disputes
between these contending forces, must not admit itself impotent to deal
with these matters by means of peaceful processes. Surely, there must be
some method of bringing together in a council of peace and amity these two
great interests, out of which will come a happier day of peace and
cooperation, a day that will make men more hopeful and enthusiastic in
their various tasks, that will make for more comfort and happiness in
living and a more tolerable condition among all classes of men. Certainly
human intelligence can devise some acceptable tribunal for adjusting the
differences between capital and labor.

This is the hour of test and trial for America. By her prowess and
strength, and the indomitable courage of her soldiers, she demonstrated her
power to vindicate on foreign battlefields her conceptions of liberty and
justice. Let not her influence as a mediator between capital and labor be
weakened and her own failure to settle matters of purely domestic concern
be proclaimed to the world. There are those in this country who threaten
direct action to force their will, upon a majority. Russia today, with its
blood and terror, is a painful object lesson of the power of minorities. It
makes little difference what minority it is; whether capital or labor, or
any other class; no sort of privilege will ever be permitted to dominate
this country. We are a partnership or nothing that is worth while. We are a
democracy, where the majority are the masters, or all the hopes and
purposes of the men who founded this government have been defeated and
forgotten. In America there is but one way by which great reforms can be
accomplished and the relief sought by classes obtained, and that is through
the orderly processes of representative government. Those who would propose
any other method of reform are enemies of this country. America will not be
daunted by threats nor lose her composure or calmness in these distressing
times. We can afford, in the midst of this day of passion and unrest, to be
self-contained and sure. The instrument of all reform in America is the
ballot. The road to economic and social reform in America is the straight
road of justice to all classes and conditions of men. Men have but to
follow this road to realize the full fruition of their objects and
purposes. Let those beware who would take the shorter road of disorder and
revolution. The right road is the road of justice and orderly process.