Members of the Congress:

It is gratifying to report that for the fourth consecutive year the state
of the Union in general is good. We are at peace. The country as a whole
has had a prosperity never exceeded. Wages are at their highest range,
employment is plentiful. Some parts of agriculture and industry have
lagged; some localities have suffered from storm and flood. But such losses
have been absorbed without serious detriment to our great economic
structure. Stocks of goods are moderate and a wholesome caution is
prevalent. Rates of interest for industry, agriculture, and government have
been reduced. Savers and investors are providing capital for new
construction in industry and public works. The purchasing power of
agriculture has increased. If the people maintain that confidence which
they are entitled to have in themselves, in each other, and in America, a
comfortable prosperity will continue.

CONSTRUCTIVE ECONOMY

Without constructive economy in Government expenditures we should not now
be enjoying these results or these prospects. Because we are not now
physically at war, some people are disposed to forget that our war debt
still remains. The Nation must make financial sacrifices, accompanied by a
stern self-denial in public expenditures, until we have conquered the
disabilities of our public finance. While our obligation to veterans and
dependents is large and continuing, the heavier burden of the national debt
is being steadily eliminated. At the end of this fiscal year it will be
reduced from about $26,600,000,000 to about $17,975,000,000. Annual
interest, including war savings, will have been reduced from $1,055,000,000
to $670,0001,000. The sacrifices of the people, the economy of the
Government, are showing remarkable results. They should be continued for
the purpose of relieving the Nation of the burden of interest and debt and
releasing revenue for internal improvements and national development.

Not only the amount, but the rate, of Government interest has been reduced.
Callable bonds have been refunded and paid, so that during this year the
average rate of interest on the present public debt for the first time fell
below 4 per cent. Keeping the credit of the Nation high is a tremendously
profitable operation.

TAX REDUCTION

The immediate fruit of economy and the retirement of the public debt is tax
reduction. The annual saving in interest between 1925 and 1929 is
$212,000,000. Without this no bill to relieve the taxpayers would be worth
proposing. The three measures already enacted leave our Government revenues
where they are not oppressive. Exemptions, have been increased until
115,000,000 people make but 2,500,000 individual taxable returns, so that
further reduction should be mainly for the purpose of removing
inequalities. The Secretary of the Treasury has recommended a measure which
would give us a much better balanced system of taxation and without
oppression produce sufficient revenue. It has my complete support.

Unforeseen contingencies requiring money are always arising. Our probable
surplus for June 30, 1929, is small. A slight depression in business would
greatly reduce our revenue because of our present method of taxation. The
people ought to take no selfish attitude of pressing for removing moderate
and fair taxes which might produce a deficit. We must keep our budget
balanced for each year. That is the corner stone of our national credit,
the trifling price we pay to command the lowest rate of interest of any
great power in the world. Any surplus can be applied to debt reduction, and
debt reduction is tax reduction. Under the present circumstances it would
be far better to leave the rates as they are than to enact a bill carrying
the peril of a deficit. This is not a problem to be approached in a narrow
or partisan spirit. All of those who participate in finding a reasonable
solution will be entitled to participate in any credit that accrues from it
without regard to party. The Congress has already demonstrated that tax
legislation can be removed from purely political consideration into the
realm of patriotic business principles.

Any bill for tax reduction should be written by those who are responsible
for raising, managing, and expending the finances of the Government. If
special interests, too often selfish, always uninformed of the national
needs as a whole, with hired agents using their proposed beneficiaries as
engines of propaganda, are permitted to influence the withdrawal of their
property from taxation, we shall have a law that is unbalanced and unjust,
bad for business, bad for the country, probably resulting in a deficit,
with disastrous financial Consequences. The Constitution has given the
Members of the Congress sole authority to decide what tax measures shall be
presented for approval. While welcoming information from any quarter, the
Congress should continue to exercise its own judgment in a matter so vital
and important to all the interests of the country as taxation.

NATIONAL DEFENSE

Being a nation relying not on force, but on fair dealing and good will, to
maintain peace with others, we have provided a moderate military force in a
form adapted solely to defense. It should be continued with a very generous
supply of officers and with the present base of personnel, subject to
fluctuations which may be temporarily desirable.

The five-year program for our air forces is in keeping with this same
policy and commensurate with the notable contributions of America to the
science of aeronautics. The provisions of the law lately enacted are being
executed as fast as the practical difficulties of an orderly and stable
development permit.

While our Army is small, prudence requires that it should be kept in a high
state of efficiency and provided with such supplies as would permit of its
immediate expansion. The garrison ration has lately been increased.
Recommendations for an appropriation of $6,166,000 for new housing made to
the previous Congress failed to pass. While most of the Army is well
housed, some of it which is quartered in wartime training camps is becoming
poorly housed. In the past three years $12,533,000 have been appropriated
for reconstruction and repairs, and an authorization has been approved of
$22,301,000 for new housing, under which $8,070,000 has already been
appropriated. A law has also been passed, complying with the request of the
War Department, allocating funds received from the sale of buildings and
land for housing purposes. The work, however, is not completed, so that
other appropriations are being recommended.

Our Navy is likewise a weapon of defense. We have a foreign commerce and
ocean lines of trade unsurpassed by any other country. We have outlying
territory in the two great oceans and long stretches of seacoast studded
with the richest cities in the world. We are responsible for the protection
of a large population and the greatest treasure ever bestowed upon any
people. We are charged with an international duty of defending the Panama
Canal. To meet these responsibilities we need a very substantial sea
armament. It needs aircraft development, which is being provided under the
five-year program. It needs submarines as soon as the department decides
upon the best type of construction. It needs airplane carriers and a
material addition to its force of cruisers. We can plan for the future and
begin a moderate building program.

This country has put away the Old World policy of competitive armaments. It
can never be relieved of the responsibility of adequate national defense.
We have one treaty secured by an unprecedented attitude of generosity on
our part for a limitation in naval armament. After most careful
preparation, extending over months, we recently made every effort to secure
a three-power treaty to the same end. We were granted much cooperation by
Japan, but we were unable to come to an agreement with Great Britain. While
the results of the conference were of considerable value, they were mostly
of a negative character. We know now that no agreement can be reached which
will be inconsistent with a considerable building program on our part. We
are ready and willing to continue the preparatory investigations on the
general subject of limitation of armaments which have been started under
the auspices of the League of Nations.

We have a considerable cruiser tonnage, but a part of it is obsolete.
Everyone knew that had a three-power agreement been reached it would have
left us with the necessity of continuing our building program. The failure
to agree should not cause us to build either more or less than we otherwise
should. Any future treaty of limitation will call on us for more ships. We
should enter on no competition. We should refrain from no needful program.
It should be made clear to all the world that lacking a definite agreement,
the attitude of any other country is not to be permitted to alter our own
policy. It should especially be demonstrated that propaganda will not cause
us to change our course. Where there is no treaty limitation, the size of
the Navy which America is to have will be solely for America to determine.
No outside influence should enlarge it or diminish it. But it should be
known to all that our military power holds no threat of aggrandizement. It
is a guaranty of peace and security at home, and when it goes abroad it is
an instrument for the protection of the legal rights of our citizens under
international law, a refuge in time of disorder, and always the servant of
world peace. Wherever our flag goes the rights of humanity increase.

MERCHANT MARINE

The United States Government fleet is transporting a large amount of
freight and reducing its drain on the Treasury. The Shipping Board is
constantly under pressure, to which it too often yields, to protect private
interests, rather than serve the public welfare. More attention should be
given to merchant ships as an auxiliary of the Navy. The possibility of
including their masters and crews in the Naval Reserve, with some
reasonable compensation, should be thoroughly explored as a method of
encouraging private operation of shipping. Public operation is not a
success. No investigation, of which I have caused several to be made, has
failed to report that it could not succeed or to recommend speedy transfer
to private ownership. Our exporters and importers are both indifferent
about using American ships. It should be our policy to keep our present
vessels in repair and dispose of them as rapidly as possible, rather than
undertake any new construction. Their operation is a burden on the National
Treasury, for which we are not receiving sufficient benefits.

COMMERCIAL AVIATION

A rapid growth is taking place in aeronautics. The Department of Commerce
has charge of the inspection and licensing system and the construction of
national airways. Almost 8,000 miles are already completed and about 4,000
miles more contemplated. Nearly 4,400 miles are now equipped and over 3,000
miles more will have lighting and emergency landing fields by next July.
Air mail contracts are expected to cover 24 of these lines. Daily airway
flying is nearly 15,000 miles and is expected to reach 25,000 miles early
next year.

Flights for other purposes exceed 22,000 miles each day. Over 900 airports,
completed and uncompleted, have been laid out. The demand for aircraft has
greatly increased. The policy already adopted by the Congress is producing
the sound development of this coming industry.

WESTERN HEMISPHERE AIR MAIL

Private enterprise is showing much interest in opening up aviation service
to Mexico and Central and South America. We are particularly solicitous to
have the United States take a leading part in this development. It is
understood that the governments of our sister countries would be willing to
cooperate. Their physical features, the undeveloped state of their
transportation, make an air service especially adaptable to their usage.
The Post Office Department should be granted power to make liberal
long-term contracts for carrying our mail, and authority should be given to
the Army and the Navy to detail aviators and planes to cooperate with
private enterprise in establishing such mail service with the consent of
the countries concerned. A committee of the Cabinet will later present a
report on this subject.

GOOD ROADS

The importance and benefit of good roads is more and more coming to be
appreciated. The National Government has been making liberal contributions
to encourage their construction. The results and benefits have been very
gratifying. National participation, however, should be confined to
trunk-line systems. The national tax on automobiles is now nearly
sufficient to meet this outlay. This tax is very small, and on low-priced
cars is not more than $2 or $3 each year.

While the advantage of having good roads is very large, the desire for
improved highways is not limited to our own country. It should and does
include all the Western Hemisphere. The principal points in Canada are
already accessible. We ought to lend our encouragement in any way we can
for more good roads to all the principal points in this hemisphere south of
the Rio Grande. It has been our practice to supply these countries with
military and naval advisers, when they have requested it, to assist them in
national defense. The arts of peace are even more important to them and to
us. Authority should be given by law to provide them at their request with
engineering advisers for the construction of roads and bridges. In some of
these countries already wonderful progress is being made in road building,
but the engineering features are often very exacting and the financing
difficult. Private interests should look with favor on all reasonable loans
sought by these countries to open such main lines of travel.

This general subject has been promoted by the Pan American Congress of
Highways, which will convene again at Rio de Janeiro in July, 1928. It is
desirable that the Congress should provide for the appointment of delegates
to represent the Government of the United States.

CUBAN PARCEL POST

We have a temporary parcel-post convention with Cuba. The advantage of it
is all on our side. During 1926 we shipped twelve times as many parcels,
weighing twenty-four times as much, as we received. This convention was
made on the understanding that we would repeal an old law prohibiting the
importation of cigars and cigarettes in quantities less than 3,000 enacted
in 1866 to discourage smuggling, for which it has long been unnecessary.
This law unjustly discriminates against an important industry of Cuba. Its
repeal has been recommended by the Treasury and Post Office Departments.
Unless this is done our merchants and railroads will find themselves
deprived of this large parcel-post business after the 1st of next March,
the date of the expiration of the convention, which has been extended upon
the specific understanding that it would expire at that time unless this
legislation was enacted. We purchase large quantities of tobacco made in
Cuba. It is not probable that our purchases would be any larger if this law
was repealed, while it would be an advantage to many other industries in
the United States.

INSULAR POSSESSIONS

Conditions in the Philippine Islands have been steadily improved.
Contentment and good order prevail. Roads, irrigation works, harbor
improvements, and public buildings are being constructed. Public education
and sanitation have been advanced. The Government is in a sound financial
condition. These immediate results were especially due to the
administration of Gov. Gen. Leonard Wood. The six years of his governorship
marked a distinct improvement in the islands and rank as one of the
outstanding accomplishments of this distinguished man. His death is a loss
to the Nation and the islands.

Greater progress could be made, more efficiency could be put into
administration, if the Congress would undertake to expend, through its
appropriating power, all or a part of the customs revenues which are now
turned over to the Philippine treasury. The powers of the auditor of the
islands also need revision and clarification. The government of the islands
is about 98 per cent in the hands of the Filipinos. An extension of the
policy of self-government will be hastened by the demonstration on their
part of their desire and their ability to carry out cordially and
efficiently the provisions of the organic law enacted by the Congress for
the government of the islands. It would be well for a committee of the
Congress to visit the islands every two years.

A fair degree of progress is being made in Porto Rico. Its agricultural
products are increasing; its treasury position, which has given much
concern, shows improvement. I am advised by the governor that educational
facilities are still lacking. Roads are being constructed, which he
represents are the first requisite for building schoolhouses. The loyalty
of the island to the United States is exceedingly gratifying. A memorial
will be presented to you requesting authority to have the governor elected
by the people of Porto Rico. This was never done in the case of our own
Territories. It is admitted that education outside of the towns is as yet
very deficient. Until it has progressed further the efficiency of the
government and the happiness of the people may need the guiding hand of an
appointed governor. As it is not contemplated that any change should be
made immediately, the general subject may well have the thoughtful study of
the Congress.

PANAMA CANAL

The number of commercial ships passing through the Panama Canal has
increased from 3,967 in 1923 to 5,475 in 1927. The total amount of tolls
turned into the Treasury is over $166,000,000, while all the operations of
the canal have yielded a surplus of about $80,000,000. In order to provide
additional storage of water and give some control over the floods of the
Chagres River, it is proposed to erect a dam to cost about $12,000,000 at
Alhajuela. It will take some five years to complete this work.

AGRICULTURE

The past year has seen a marked improvement in the general condition of
agriculture. Production is better balanced and without acute shortage or
heavy surplus. Costs have been reduced and the average output of the worker
increased. The level of farm prices has risen while others have fallen, so
that the purchasing power of the farmer is approaching a normal figure. The
individual farmer is entitled to great credit for the progress made since
1921. He has adjusted his production and through cooperative organizations
and other methods improved his marketing. He is using authenticated facts
and employing sound methods which other industries are obliged to use to
secure stability and prosperity. The old-fashioned haphazard system is
being abandoned, economics are being applied to ascertain the best adapted
unit of land, diversification is being promoted, and scientific methods are
being used in production, and business principles in marketing.

Agriculture has not fully recovered from postwar depression. The fact is
that economic progress never marches forward in a straight line. It goes in
waves. One part goes ahead, while another halts and another recedes.
Everybody wishes agriculture to prosper. Any sound and workable proposal to
help the farmer will have the earnest support of the Government. Their
interests are not all identical. Legislation should assist as many
producers in as many regions as possible. It should be the aim to assist
the farmer to work out his own salvation socially and economically. No plan
will be of any permanent value to him which does not leave him standing on
his own foundation.

In the past the Government has spent vast sums to bring land under
cultivation. It is apparent that this has reached temporarily the
saturation point. We have had a surplus of production and a poor market for
land, which has only lately shown signs of improvement. The main problem
which is presented for solution is one of dealing with a surplus of
production. It is useless to propose a temporary expedient. What is needed
is permanency and stability. Government price fixing is known to be unsound
and bound to result in disaster. A Government subsidy would work out in the
same way. It can not be sound for all of the people to hire some of the
people to produce a crop which neither the producers nor the rest of the
people want.

Price fixing and subsidy will both increase the surplus, instead of
diminishing it. Putting the Government directly into business is merely a
combination of subsidy and price fixing aggravated by political pressure.
These expedients would lead logically to telling the farmer by law what and
how much he should plant and where he should plant it, and what and how
much he should sell and where he should sell it. The most effective means
of dealing with surplus crops is to reduce the surplus acreage. While this
can not be done by the individual farmer, it can be done through the
organizations already in existence, through the information published by
the Department of Agriculture, and especially through banks and others who
supply credit refusing to finance an acreage manifestly too large.

It is impossible to provide by law for an assured success and prosperity
for all those who engage in farming. If acreage becomes overextended, the
Government can not assume responsibility for it. The Government can,
however, assist cooperative associations and other organizations in orderly
marketing and handling a surplus clearly due to weather and seasonal
conditions, in order to save the producer from preventable loss. While it
is probably impossible to secure this result at a single step, and much
will have to be worked out by trial and rejection, a beginning could be
made by setting up a Federal board or commission of able and experienced
men in marketing, granting equal advantages under this board to the various
agricultural commodities and sections of the country, giving encouragement
to the cooperative movement in agriculture, and providing a revolving loan
fund at a moderate rate of interest for the necessary financing. Such
legislation would lay the foundation for a permanent solution of the
surplus problem.

This is not a proposal to lend more money to the farmer, who is already
fairly well financed, but to lend money temporarily to experimental
marketing associations which will no doubt ultimately be financed by the
regularly established banks, as were the temporary operations of the War
Finance Corporation. Cooperative marketing especially would be provided
with means of buying or building physical properties.

The National Government has almost entirely relieved the farmer from income
taxes by successive tax reductions, but State and local taxes have
increased, putting on him a grievous burden. A policy of rigid economy
should be applied to State and local expenditures. This is clearly within
the legislative domain of the States. The Federal Government has also
improved our banking structure and system of agricultural credits. The
farmer will be greatly benefited by similar action in many States. The
Department of Agriculture is undergoing changes in organization in order
more completely to separate the research and regulatory divisions, that
each may be better administered. More emphasis is being placed on the
research program, not only by enlarging the appropriations for State
experiment stations but by providing funds for expanding the research work
of the department. It is in this direction that much future progress can be
expected.

THE PROTECTIVE TARIFF

The present tariff rates supply the National Treasury with well over
$600,000,000 of annual revenue. Yet, about 65 per cent of our imports come
in duty free. Of the remaining 35 per cent of imports on which duties are
laid about 23 per cent consists of luxuries and agricultural products, and
the balance of about 12 per cent, amounting, to around $560,000,000 is made
up of manufactures and merchandise. As no one is advocating any material
reduction in the rates on agriculture or luxuries, it is only the
comparatively small amount of about $560,000,000 of other imports that are
really considered in any discussion of reducing tariff rates. While this
amount, duty free, would be large enough seriously to depress many lines of
business in our own country, it is of small importance when spread over the
rest of the world.

It is often stated that a reduction of tariff rates on industry would
benefit agriculture. It would be interesting to know to what commodities it
is thought this could be applied. Everything the farmer uses in farming is
already on the free list. Nearly everything he sells is protected. It would
seem to be obvious that it is better for the country to have the farmer
raise food to supply the domestic manufacturer than the foreign
manufacturer. In one case our country would have only the farmer; in the
other it would have the farmer and the manufacturer. Assuming that Europe
would have more money if it sold us larger amounts of merchandise, it is
not certain it would consume more food, or, if it did, that its purchases
would be made in this country. Undoubtedly it would resort to the cheapest
market, which is by no means ours. The largest and best and most profitable
market for the farmer in the world is our own domestic market. Any great
increase in manufactured imports means the closing of our own plants.
Nothing would be worse for agriculture.

Probably no one expects a material reduction in the rates on manufactures
while maintaining the rates on agriculture. A material reduction in either
would be disastrous to the farmer. It would mean a general shrinkage of
values, a deflation of prices, a reduction of wages, a general depression
carrying our people down to the low standard of living in our competing
countries. It is obvious that this would not improve but destroy our market
for imports, which is best served by maintaining our present high
purchasing power under which in the past five years imports have increased
63 per cent.

FARM LOAN SYSTEM

It is exceedingly important that the Federal land and joint-stock land
banks should furnish the best possible service for agriculture. Certain
joint-stock banks have fallen into improper and unsound practices,
resulting in the indictment of the officials of three of them. More money
has been provided for examinations, and at the instance of the Treasury
rules and regulations of the Federal Farm Board have been revised. Early
last May three of its members resigned. Their places were filled with men
connected with the War Finance Corporation. Eugene Meyer being designated
as Farm Loan Commissioner. The new members have demonstrated their ability
in the field of agricultural finance in the extensive operations of he War
Finance Corporation. Three joint-stock banks have gone into receivership.
It is necessary to preserve the public confidence in this system in order
to find a market for their bonds. A recent flotation was made at a record
low rate of 4 per cent. Careful supervision is absolutely necessary to
protect the investor and enable these banks to exercise their chief
function in serving agriculture.

MUSCLE SHOALS

The last year has seen considerable changes in the problem of Muscle
Shoals. Development of other methods show that nitrates can probably be
produced at less cost than by the use of hydroelectric power. Extensive
investigation made by the Department of War indicates that the nitrate
plants on this project are of little value for national defense and can
probably be disposed of within two years. The oxidation part of the plants,
however, should be retained indefinitely. This leaves this project mostly
concerned with power. It should, nevertheless, continue to be dedicated to
agriculture. It is probable that this desire can be best served by
disposing of the plant and applying the revenues received from it to
research for methods of more economical production of concentrated
fertilizer and to demonstrations and other methods of stimulating its use
on the farm. But in disposing of the property preference should be given to
proposals to use all or part of it for nitrate production and fertilizer
manufacturing.

FLOOD CONTROL

For many years the Federal Government has been building a system of dikes
along the Mississippi River for protection against high water. During the
past season the lower States were overcome by a most disastrous flood. Many
thousands of square miles were inundated a great many lives were lost, much
livestock was drowned, and a very heavy destruction of property was
inflicted upon the inhabitants. The American Red Cross at once went to the
relief of the stricken communities. Appeals for contributions have brought
in over $17,000,000. The Federal Government has provided services,
equipment, and supplies probably amounting to about $7,000,000 more.
Between $5,000,000 and $10,000,000 in addition have been provided by local
railroads, the States, and their political units. Credits have been
arranged by the Farm Loan Board, and three emergency finance corporations
with a total capital of $3,000,000 have insured additional resources to the
extent of $12,000,000. Through these means the 700,000 people in the
flooded areas have been adequately supported. Provision has been made to
care for those in need until after the 1st of January.

The Engineering Corps of the Army has contracted to close all breaks in the
dike system before the next season of high water. A most thorough and
elaborate survey of the whole situation has been made and embodied in a
report with recommendations for future flood control, which will be
presented to the Congress. The carrying out of their plans will necessarily
extend over a series of years. They will call for a raising and
strengthening of the dike system with provision for emergency spillway's
and improvements for the benefit of navigation.

Under the present law the land adjacent to the dikes has paid one-third of
the cost of their construction. This has been a most extraordinary
concession from the plan adopted in relation to irrigation, where the
general rule has been that the land benefited should bear the entire
expense. It is true, of course, that the troublesome waters do not
originate on the land to be reclaimed, but it is also true that such waters
have a right of way through that section of the country and the land there
is charged with that easement. It is the land of this region that is to be
benefited. To say that it is unable to bear any expense of reclamation is
the same thing as saying that it is not worth reclaiming. Because of
expenses incurred and charges already held against this land, it seems
probable that some revision will have to be made concerning the proportion
of cost which it should bear. But it is extremely important that it should
pay enough so that those requesting improvements will be charged with some
responsibility for their cost, and the neighborhood where works are
constructed have a pecuniary interest in preventing waste and extravagance
and securing a wise and economical expenditure of public funds.

It is necessary to look upon this emergency as a national disaster. It has
been so treated from its inception. Our whole people have provided with
great generosity for its relief. Most of the departments of the Federal
Government have been engaged in the same effort. The governments of the
afflicted areas, both State and municipal, can not be given too high praise
for the courageous and helpful way in which they have come to the rescue of
the people. If the sources directly chargeable can not meet the demand, the
National Government should not fail to provide generous relief. This,
however, does not mean restoration. The Government is not an insurer of its
citizens against the hazard of the elements. We shall always have flood and
drought, heat and cold, earthquake and wind, lightning and tidal wave,
which are all too constant in their afflictions. The Government does not
undertake to reimburse its citizens for loss and damage incurred under such
circumstances. It is chargeable, however, with the rebuilding of public
works and the humanitarian duty of relieving its citizens from distress.

The people in the flooded area and their representatives have approached
this problem in the most generous and broad-minded way. They should be met
with a like spirit on the part of the National government. This is all one
country. The public needs of each part must be provided for by the public
at large. No required relief should be refused. An adequate plan should be
adopted to prevent a recurrence of this disaster in order that the people
may restore to productivity and comfort their fields and their towns.

Legislation by this Congress should be confined to our principal and most
pressing problem, the lower Mississippi, considering tributaries only so
far as they materially affect the main flood problem. A definite Federal
program relating to our waterways was proposed when the last Congress
authorized a comprehensive survey of all the important streams of the
country in order to provide for their improvement, including flood control,
navigation, power, and irrigation. Other legislation should wait pending a
report on this survey. The recognized needs of the Mississippi should not
be made a vehicle for carrying other projects. All proposals for
development should stand on their own merits. Any other method would result
in ill-advised conclusions, great waste of money, and instead of promoting
would delay the orderly and certain utilization of our water resources.

Very recently several of the New England States have suffered somewhat
similarly from heavy rainfall and high water. No reliable estimate of
damage has yet been computed, but it is very large to private and public
property. The Red Cross is generously undertaking what is needed for
immediate relief, repair and reconstruction of houses, restocking of
domestic animals, and food, clothing, and shelter. A considerable sum of
money will be available through the regular channels in the Department of
Agriculture for reconstruction of highways. It may be necessary to grant
special aid for this purpose. Complete reports of what is required will
undoubtedly be available early in the session.

INLAND NAVIGATION

The Congress in its last session authorized the general improvements
necessary to provide the Mississippi waterway system with better
transportation. Stabilization of the levels of the Great Lakes and their
opening to the sea by an effective shipway remain to be considered. Since
the last session the Board of Engineers of the War Department has made a
report on the proposal for a canal through the State of New York, and the
Joint Board of Engineers, representing Canada and the United States, has
finished a report on the St. Lawrence River. Both of these boards conclude
that the St. Lawrence project is cheaper, affords a more expeditious method
of placing western products in European markets, and will cost less to
operate. The State Department has requested the Canadian Government to
negotiate treaties necessary to provide for this improvement. It will also
be necessary to secure an agreement with Canada to put in works necessary
to prevent fluctuation in the levels of the Great Lakes.

Legislation is desirable for the construction of a dam at Boulder Canyon on
the Colorado River, primarily as a method of flood control and irrigation.
A secondary result would be a considerable power development and a source
of domestic water supply for southern California. Flood control is clearly
a national problem, and water supply is a Government problem, but every
other possibility should be exhausted before the Federal Government becomes
engaged in the power business. The States which are interested ought to
reach mutual agreement. This project is in reality their work. If they wish
the Federal Government to undertake it, they should not hesitate to make
the necessary concessions to each other. This subject is fully discussed in
the annual report of the Secretary of the Interior. The Columbia River
Basin project is being studied and will be one to be considered at some
future time.

The Inland Waterways Corporation is proving successful and especially
beneficial to agriculture. A survey is being made to determine its future
needs. It has never been contemplated that if inland rivers were opened to
navigation it would then be necessary for the Federal Government to provide
the navigation. Such a request is very nearly the equivalent of a
declaration that their navigation is not profitable, that the commodities
which they are to carry can be taken at a cheaper rate by some other
method, in which case the hundreds of millions of dollars proposed to be
expended for opening rivers to navigation would be not only wasted, but
would entail further constant expenditures to carry the commodities of
private persons for less than cost.

The policy is well established that the Government should open public
highways on land and on water, but for use of the public in their private
capacity. It has put on some demonstration barge lines, but always with the
expectation that if they prove profitable they would pass into private
hands and if they do not prove profitable they will be withdrawn. The
problems of transportation over inland waterways should be taken up by
private enterprise, so that the public will have the advantage of
competition in service. It is expected that some of our lines can be sold,
some more demonstration work done, and that with the completion of the Ohio
project a policy of private operation can be fully developed.

PROHIBITION

After more than two generations of constant debate, our country adopted a
system of national prohibition under all the solemnities involved in an
amendment to the Federal Constitution. In obedience to this mandate the
Congress and the States, with one or two notable exceptions, have passed
required laws for its administration and enforcement. This imposes upon the
citizenship of the country, and especially on all public officers, not only
the duty to enforce, but the obligation to observe the sanctions of this
constitutional provision and its resulting laws. If this condition could be
secured, all question concerning prohibition would cease. The Federal
Government is making every effort to accomplish these results through
careful organization, large appropriations, and administrative effort.
Smuggling has been greatly cut down, the larger sources of supply for
illegal sale have been checked, and by means of injunction and criminal
prosecution the process of enforcement is being applied. The same vigilance
on the part of local governments would render these efforts much more
successful. The Federal authorities propose to discharge their obligation
for enforcement to the full extent of their ability.

THE NEGRO

History does not anywhere record so much progress made in the same length
of time as that which has been accomplished by the Negro race in the United
States since the Emancipation Proclamation. They have come up from slavery
to be prominent in education, the professions, art, science, agriculture,
banking, and commerce. It is estimated that 50,000 of them are on the
Government pay rolls, drawing about $50,000,000 each year. They have been
the recipients of presidential appointments and their professional ability
has arisen to a sufficiently high plane so that they have been intrusted
with the entire management and control of the great veterans hospital at
Tuskegee, where their conduct has taken high rank. They have shown that
they have been worthy of all the encouragement which they have received.
Nevertheless, they are too often subjected to thoughtless and inconsiderate
treatment, unworthy alike of the white or colored races. They have
especially been made the target of the foul crime of lynching. For several
years these acts of unlawful violence had been diminishing. In the last
year they have shown an increase. Every principle of order and law and
liberty is opposed to this crime. The Congress should enact any legislation
it can under the Constitution to provide for its elimination.

AMERICAN INDIAN

The condition of the American Indian has much improved in recent years.
Full citizenship was bestowed upon them on June 2, 1924, and appropriations
for their care and advancement have been increased. Still there remains
much to be done.

Notable increases in appropriations for the several major functions
performed by the Department of the Interior on behalf of the Indians have
marked the last five years. In that time, successive annual increases in
appropriations for their education total $1,804,325; for medical care,
$578,000; and for industrial advancement, $205,000; or $2,582,325 more than
would have been spent in the same period on the basis of appropriations for
1923 and the preceding years.

The needs along health, educational, industrial and social lines however,
are great, and the Budget estimates for 1929 include still further
increases for Indian administration.

To advance the time when the Indians may become self-sustaining, it is my
belief that the Federal Government should continue to improve the
facilities for their care, and as rapidly as possible turn its
responsibility over to the States.

COAL

Legislation authorizing a system of fuel administration and the appointment
by the President of a Board of Mediation and Conciliation in case of actual
or threatened interruption of production is needed. The miners themselves
are now seeking information and action from the Government, which could
readily be secured through such a board. It is believed that a thorough
investigation and reconsideration of this proposed policy by the Congress
will demonstrate that this recommendation is sound and should be adopted.

PETROLEUM CONSERVATION

The National Government is undertaking to join in the formation of a
cooperative committee of lawyers, engineers, and public officers, to
consider what legislation by the States or by the Congress can be adopted
for the preservation and conservation of our supply of petroleum. This has
come to be one of the main dependencies for transportation and power so
necessary to our agricultural and industrial life. It is expected the
report of this committee will be available for later congressional action.
Meantime, the requirement that the Secretary of the Interior should make
certain leases of land belonging to the Osage Indians, in accordance with
the act of March 3, 1921, should be repealed. The authority to lease should
be discretionary, in order that the property of the Indians way not be
wasted and the public suffer a future lack of supply.

ALIEN PROPERTY

Under treaty the property held by the Alien Property Custodian was to be
retained until suitable provision had been made for the satisfaction of
American claims. While still protecting the American claimants, in order to
afford every possible accommodation to the nationals of the countries whose
property was held, the Congress has made liberal provision for the return
of a larger part of the property. All trusts under $10,000 were returned in
full, and partial returns were made on the others. The total returned was
approximately $350,000,000.

There is still retained, however, about $250,000,000. The Mixed Claims
Commission has made such progress in the adjudication of claims that
legislation can now be enacted providing for the return of the property,
which should be done under conditions which will protect our Government and
our claimants. Such a measure will be proposed, and I recommend its
enactment.

RAILROAD CONSOLIDATION

In order to increase the efficiency of transportation and decrease its cost
to the shipper, railroad consolidation must be secured. Legislation is
needed to simplify the necessary procedure to secure such agreements and
arrangements for consolidation, always under the control and with the
approval of the Interstate Commerce Commission. Pending this, no adequate
or permanent reorganization can be made of the freight-rate structure.
Meantime, both agriculture and industry are compelled to wait for needed
relief. This is purely a business question, which should be stripped of all
local and partisan bias and decided on broad principles and its merits in
order to promote the public welfare. A large amount of new construction and
equipment, which will furnish employment for labor and markets for
commodities of both factory and farm, wait on the decision of this
important question. Delay is holding back the progress of our country.

Many of the same arguments are applicable to the consolidation of the
Washington traction companies.

VETERANS

The care which this country has lavished on its veterans is known of all
men. The yearly outlay for this purpose is about $750,000,000, or about the
cost of running the Federal Government, outside of the Post Office
Department, before the World War. The Congress will have before it
recommendations of the American Legion, the Veterans of Foreign Wars, and
other like organizations, which should receive candid consideration. We
should continue to foster our system of compensation and rehabilitation,
and provide hospitals and insurance. The magnitude of the undertaking is
already so large that all requests calling for further expenditure should
have the most searching scrutiny. Our present system of pensions is already
sufficiently liberal. It was increased by the last Congress for Civil and
Spanish War veterans and widows and for some dependents.

It has been suggested that the various governmental agencies now dealing
with veterans' relief be consolidated. This would bring many advantages. It
is recommended that the proper committees of the Congress make a thorough
survey of this subject, in order to determine if legislation to secure such
consolidation is desirable.

EDUCATION

For many years it has been the policy of the Federal Government to
encourage and foster the cause of education. Large sums of money are
annually appropriated to carry on vocational training. Many millions go
into agricultural schools. The general subject is under the immediate
direction of a Commissioner of Education. While this subject is strictly a
State and local function, it should continue to have the encouragement of
the National Government. I am still of the opinion that much good could be
accomplished through the establishment of a Department of Education and
Relief, into which would be gathered all of these functions under one
directing member of the Cabinet.

DEPARTMENT OF LABOR

Industrial relations have never been more peaceful. In recent months they
have suffered from only one serious controversy. In all others difficulties
have been adjusted, both management and labor wishing to settle
controversies by friendly agreement rather than by compulsion. The welfare
of women and children is being especially guarded by our Department of
Labor. Its Children's Bureau is in cooperation with 26 State boards and 80
juvenile courts.

Through its Bureau of Immigration it has been found that medical
examination abroad has saved prospective immigrants from much hardship.
Some further legislation to provide for reuniting families when either the
husband or the wife is in this country, and granting more freedom for the
migration of the North American Indian tribes is desirable.

The United States Employment Service has enabled about 2,000,000 men and
women to gain paying positions in the last fiscal year. Particular
attention has been given to assisting men past middle life and in providing
field labor for harvesting agricultural crops. This has been made possible
in part through the service of the Federal Board for Vocational Education,
which is cooperating with the States in a program to increase the technical
knowledge and skill of the wage earner.

PUBLIC BUILDINGS

Construction is under way in the country and ground has been broken for
carrying out a public-building program for Washington. We have reached a
time when not only the conveniences but the architectural beauty of the
public buildings of the Capital City should be given much attention. It
will be necessary to purchase further land and provide the required
continuing appropriations.

HISTORICAL CELEBRATIONS

Provision is being made to commemorate the two hundredth anniversary of the
birth of George Washington. Suggestion has been made for the construction
of a memorial road leading from the Capital to Mount Vernon, which may well
have the consideration of the Congress, and the commission intrusted with
preparations for the celebration will undoubtedly recommend publication of
the complete writings of Washington and a series of writings by different
authors relating to him.

February 25, 1929. is the one hundred and fiftieth anniversary of the
capture of Fort Sackville, at Vincennes, in the State of Indiana. This
eventually brought into the Union what was known as the Northwest
Territory, embracing the region north of the Ohio River between the
Alleghenies and the Mississippi River. This expedition was led by George
Rogers Clark. His heroic character and the importance of his victory are
too little known and understood. They gave us not only this Northwest
Territory but by means of that the prospect of reaching the Pacific. The
State of Indiana is proposing to dedicate the site of Fort Sackville as a
national shrine. The Federal Government may well make some provision for
the erection under its own management of a fitting memorial at that point.

FOREIGN RELATIONS

It is the policy of the United States to promote peace. We are a peaceful
people and committed to the settling of disputes by amicable adjustment
rather than by force. We have believed that peace can best be secured by a
faithful observance on our part of the principles of international law,
accompanied by patience and conciliation, and requiring of others a like
treatment for ourselves. We have lately had some difference with Mexico
relative to the injuries inflicted upon our nationals and their property
within that country. A firm adherence to our rights and a scrupulous
respect for the sovereignty of Mexico, both in accordance with the law of
nations, coupled with patience and forbearance, it is hoped will resolve
all our differences without interfering with the friendly relationship
between the two Governments.

We have been compelled to send naval and marine forces to China to protect
the lives and property of our citizens. Fortunately their simple presence
there has been sufficient to prevent any material loss of life. But there
has been considerable loss of property. That unhappy country is torn by
factions and revolutions which bid fair to last for an indefinite period.
Meanwhile we are protecting our citizens and stand ready to cooperate with
any government which may emerge in promoting the welfare of the people of
China. They have always had our friendship, and they should especially
merit our consideration in these days of their distraction and distress.

We were confronted by similar condition on a small scale in Nicaragua. Our
marine and naval forces protected our citizens and their property and
prevented a heavy sacrifice of life and the destruction of that country by
a reversion to a state of revolution. Henry L. Stimson, former Secretary of
War, was sent there to cooperate with our diplomatic and military officers
in effecting a settlement between the contending parties. This was done on
the assurance that we would cooperate in restoring a state of peace where
our rights would be protected by giving our assistance in the conduct of
the next presidential election, which occurs in a few months. With this
assurance the population returned to their peacetime pursuits, with the
exception of some small roving bands of outlaws.

In general, our relations with other countries can be said to have improved
within the year. While having a due regard for our own affairs, the
protection of our own rights, and the advancement of our own people, we can
afford to be liberal toward others. Our example has become of great
importance in the world. It is recognized that we are independent,
detached, and can and do take a disinterested position in relation to
international affairs. Our charity embraces the earth. Our trade is far
flung. Our financial favors are widespread. Those who are peaceful and
law-abiding realize that not only have they nothing to fear from us, but
that they can rely on our moral support. Proposals for promoting the peace
of the world will have careful consideration. But we are not a people who
are always seeking for a sign. We know that peace comes from honesty and
fair dealing, from moderation, and a generous regard for the rights of
others. The heart of the Nation is more important than treaties. A spirit
of generous consideration is a more certain defense than great armaments.
We should continue to promote peace by our example, and fortify it by such
international covenants against war as we are permitted under our
Constitution to make.

AMERICAN PROGRESS

Our country has made much progress. But it has taken, and will continue to
take, much effort. Competition will be keen, the temptation to selfishness
and arrogance will be severe, the provocations to deal harshly with weaker
peoples will be many. All of these are embraced in the opportunity for true
greatness. They will be overbalanced by cooperation by generosity, and a
spirit of neighborly kindness. The forces of the universe are taking
humanity in that direction. In doing good, in walking humbly, in sustaining
its own people in ministering to other nations, America will work out its
own mighty destiny.