Excerpts from the Press Conference

Q. Mr. President, yesterday Senator Robinson of Arkansas said that he was for a unified air force. I was wondering whether that is a reflection of the Administration's viewpoint or just his own. Can you tell us anything about that?

THE PRESIDENT: Only this, for background. We have by no means solved permanently the general aviation policy of the Government. It has been kicking around, as you all know—you have to use this as background—and the present board that has been reconstituted will take it up from the point of view of the Army Air Service. It is primarily limited to that. Now, of course, that covers only a part of the story. You still have all the other relationships of Government to aviation. You have the Customs Service, the Internal Revenue Service, and the Department of Commerce and its relationship to civilian aviation. You have the Navy and the Marine Corps. There has never yet been worked out a satisfactory complete Government policy. It is a thing you cannot work out immediately. The only thing you can say is that we are all studying it and hope to work out a complete Government policy. That will be the objective. The appointment of the Board is only in relation to the Army Air Service. I think we shall be able to work something out. We may eventually appoint a board or an individual, but the object will be' to get a complete Government policy. . . .

Q. Mr. President, they are about to vote today on the St. Lawrence Treaty, and it looks like the vote is against you. I was wondering if you would care to offer any comment on that.

THE PRESIDENT: No. However, there is one phase of it—in fact, two phases of it. One is perfectly simple to mention and the other is a bit more difficult.

The first phase of it is that whether the thing goes through this afternoon or not makes little difference, because the St. Lawrence Seaway will ultimately be built. That is perfectly obvious. And it will be built at a very, very low cost as things go today. There are left only the International Rapids Section and the Lachine Rapids Section. You can visualize the whole navigation problem; it is obvious that man is going to follow the lead of Nature. Whether the thing goes through today or next year makes, on the whole, very little difference-it is going through.

You see, you have got today a seaway practically from the top end of Lake Superior down through the Sault Ste. Marie locks, which are big locks, down through Lake Michigan and Lake Huron, then through the Detroit River into Lake Erie, through the Welland locks, which are big locks, and then through Lake Ontario to the St. Lawrence River. And of course the St. Lawrence River runs to the sea.

Now, there are three waterfalls—rapids. One of them, the middle one, at Beauharnois, has already been built or they are nearly finished with it. Some of you were up there with me about three years ago. They have already practically completed the power development and, as a part of that power development, they can add locks for just a very small sum.

The Canadian Government is also proceeding, with plans for the last waterfall, the Lachine. There they can do one of two things: They can either build a dam and put locks in the dam, or they can deepen the old Lachine Canal from twelve to thirty feet without building a dam. That leaves only the top or western waterfall, called the International Rapids. Canada already has a twelve-foot canal around the International Rapids.

It is not the least bit necessary to develop power which, of course, calls for a dam. It would be a perfectly proper thing and a perfectly possible thing for Canada to enlarge the International Rapids Canal on the Canadian side of the river without ever building a dam. Canada isn't so crazy to have water power; they have an awful lot of it. If Canada were to do that on the Canadian side of the river, there would be a Canadian seaway. Mind you, the amount necessary to do that canal over would be less than one hundred million dollars, so you see what a small amount it is. There would then be a Canadian seaway from salt water up the St. Lawrence River, past the Lachine, Beauharnois and the International sections, and then you would be in the lake. That seaway would be 100 percent under the control of Canada ....

Now, one other phase of it—and I will tell you a story. A certain Senator said that he was going to vote against the treaty because of the Mississippi and the taking of water out of Lake Michigan. I asked him if he thought we had any right to divert water over and above the need for drinking and health purposes from one watershed into another. Then I told him a story about an old case in up-State New York. A fellow had a piece of property on a river, but, at that particular point, there was practically no drop in the river—it was practically a flat river. He was most anxious to put up a grist mill and he didn't have any water power. People down in the stream below him had grist mills. Suddenly he had a bright thought one night. He said to himself, "By cutting a little ditch through a little hill on my property I can run this water over into the watershed of another little river and I can get a fifty-foot drop. I can take the water out of this river and carry it through the ditch, drop it down over a wheel and put it into another river." Of course, it was a grand idea. But, unfortunately, he ran up against what is known in the common law as the riparian right of the man farther down the stream. . . .

The Government of the United States believes in the common law and believes that we have no right to injure our neighbor, Canada, by diverting water out of the Great Lakes into another watershed, any more than the fellow upstream a hundred years ago in New York had a right to divert water from one creek into another. Canada is absolutely entitled, under the common law and under common decency, to all the water it wants to drink, to all the water it needs for sewage purposes. Canada has even gone further—it has given up enough water by treaty to provide, in all probability, pretty decent navigation down to the Mississippi and down from there to the Gulf—of course, not for ocean-going steamers, but probably a nine-foot draft, which is the same as the upper Mississippi.

The thing is going through; perhaps not today, but the St. Lawrence Seaway is going to be built just as sure as God made little apples. The only difference is that I would like to see it done by joint action of two neighboring Nations. If we don't go along, Canada has a perfect right to build an all-Canadian seaway and discriminate against us, if it so desires.

Q. In other words, this treaty will go back again?

THE PRESIDENT: It will go back in some form. How soon, I don't know, but it will go back as soon as it can.

Q. Can we use this?

THE PRESIDENT: As background, I think it is all right.

Q. What did the Senate leaders tell you about the bonus?

THE PRESIDENT: I haven't talked to them about the bonus at all.

Q. Will you say anything on the House action on the bonus?

THE PRESIDENT: No. I never comment on that. There is an article in this morning's Wall Street Journal by Bernard Kilgore that really anybody who writes about finances and bonuses and currency issues and so forth ought to read, because it is pretty good. I don't agree with the story all the way through; but it is a good story. It is an analytical story on an exceedingly difficult subject—on the question of issuing currency to meet Government obligations. I think that Kilgore could have gone just a little bit further than he did. Of course this is all background.

It was along the general line that almost everybody who has studied- well, I will tell you a story: A good many years ago, ten years ago, Paul Warburg, who had a very great mind, talked over with me one day the proposition of issuing Government currency to retire Government debts. In other words, they were what might be called baby bonds to retire outstanding Government debts. As he put it, there is nothing wrong about it except the opportunity that it gives to a legislative body in the future to pay the running expenses of Government by printing paper. Now, there is all the difference in the world between paying the running expenses of the Government by issuing paper and retiring the outstanding interest-bearing obligations by the issuance of paper, provided always that the paper is amortized and retired year by year as the bonds would have been.

But the one fear is that, if a legislative body gets into the habit of it, they will just run wild year after year. And if they once started to run wild, they would pay off the veterans this year, and then next year they would say to the people who in 1917 and 1918 worked on munitions in this country, who had rather unhealthful conditions, long hours and not much sanitation—good, patriotic men and women who probably came out of the war physically rather worse off than they went in, certainly far worse off than the men in uniforms who spent their time in camps a few miles away from them—they would say, "Why shouldn't you come in for a bonus on the ground that you have worked overtime and under difficult conditions for two horrible years?" And then, if you paid them, you would find some other class in the community entitled to the same treatment. "Take Government employees, for example, why shouldn't they get better treatment, get 25 percent more than anybody else?"

And so you would start paying with paper and you would keep on paying with paper. In other words, this bonus bill comes down to a fundamental—you might say two fundamentals: One is the method of payment, and the other is whether the Government is going back on its contract. The Government has a contract. Kilgore's article is well worth reading.

Q. The other day the Department of Justice gave notice that they were going to seek proceedings against Mellon and others on tax evasion. Can we look for others on that?

THE PRESIDENT: I will give you something off the record on that, if you wish.

Q. Yes.

THE PRESIDENT: The income-tax prosecutions are not exactly prosecutions. Here is the real problem that was put up; and, frankly, it is a problem in government. I think the reason there was an announcement of names the other day—and of course there are a great many other names—was because if there had not been an announcement from here, the story about these particular names would have broken in each of the districts very shortly. Therefore it was easier to announce them from here. Now, these actions are by no means confined to the names announced. There are several hundred cases in exactly the same category.

Here is the Government problem, and I will put it up to you. The Government finds, in going over income-tax records, that there are a certain number of people who have failed to include certain income. Putting it the simplest way, they have either done that, or in working out their returns they have made the amount owing to the Government a great deal less than the Government thinks it ought to get. Immediately there arises the question of motive. If the motive was to cheat the Government, it is a criminal offense. If, however, the motive was perfectly honest, if there was a bona-fide mistake, it is not a criminal offense and the Government has only a civil suit to recover the legal tax. Now, who is going to determine what the motive was in filing a return that lacked either the proper amount or the inclusion of certain income? Who is going to determine whether the motive was to cheat the Government or not?

If you leave that determination to some individual in the Department of Justice or in the Internal Revenue Bureau, and if he lets off a very prominent man, you know what the people of this country will say. If he decides to prosecute the little fellow and let the big fellow off, you know what the country will say. On the other hand, if he decides to prosecute the big fellow, you know what some people will say. They will say that it is persecution and not prosecution.

It puts Government action up to some Government individual in Washington. Well, they are human; and it is a mighty difficult thing to put up to them. We have, in our laws, an organization for determining motive. It is called a grand jury. Now, the policy that has been adopted is based not only on law as we have it, but on common sense. If we were to determine these matters here and say, "Why, no; Mr. Jones did not intend to cheat the Government; he merely followed his highly paid lawyer's advice," every other Mr. Jones in the country would thereupon go to his high-priced lawyer for similar advice. He would be open to the temptation of putting in a return that was, in effect, cheating the Government, with the assurance, mind you, that two or three years later all he would have to do would be to go to Washington and say, "I did not intend to cheat the Government; I merely took the advice of my lawyer." And he, too, would ask for a clean bill of health.

In other words, it is a definite invitation to people to cheat the Government, and then afterwards say, "I did not cheat the Government; I did not intend to." Therefore, what we are doing is taking all of these cases, sending them to the District Attorneys of the respective districts and saying to them: "Put these up to the grand jury. If the grand jury does not think that the man or his lawyer was trying to cheat the Government, it is perfectly all right. In that case we will bring a civil suit and recover our money. If the grand jury does think there was a motive there to cheat and avoid the payment of taxes, then the grand jury will indict." And so, you have a panel of twenty-three men who determine the question of motive. Now, that is all there is to any of these income-tax cases. They catch the big fellow and the little fellow; and we apply the same rule to the big fellow and the little fellow. We are going to put them all up to the grand jury.

Q. Is that off the record, Mr. President?

THE PRESIDENT: You can make it background. Don't write the story around the Mellon case because the rule applies just as much to the man with an income of $3,000 a year as it does to the man whose income is very high, or to Mr. Mellon. It is a matter of principle.