Address at the Fifteenth Regular Meeting of the Business Organization of the Government

Members of the Government's Business Organization:

It has always seemed natural at these business conferences to discuss the finances of the Government in their relation to national prosperity. While that relation, I believe, is exceedingly intimate, it is nevertheless possible to place upon it altogether too much emphasis. It is true that our Government has been established and is conducted for the people. Its finances should be so administered as to promote their welfare. Yet the reciprocal duties of the people should by no means be forgotten. The obligation is equally on them to support the Government with their services and with their money. This has to be done not only when times are good but when times are bad. This Government of the United States must always be supported for its own sake.

It has been my endeavor, however, so to manage the national finances as to secure the greatest benefit to the people. I have rejoiced in keeping down the annual Budget, in reducing taxes, and paying off the national debt, because the influence of such action is felt in every home in the land. It has meant that the people not only have greater resources with which to provide themselves with food and clothing and shelter, but also for the enjoyment of what was but lately considered the luxuries of the rich. We call these results prosperity. They have come because the people have been willing to do their duty. They have refrained from waste, they have shunned extravagance. They have paid their debts, they have improved their credit. If, out of all these efforts, the reward of prosperity has come, there is reason for national thanksgiving.

It would be unfortunate, however, if out of these discussions the impression should be gained that it is the obligation of the Government to furnish the people with prosperity. They are entitled to such an administration of their affairs as will give them every fair opportunity, but it should always be remembered that it there is to be prosperity they must furnish it for themselves. Neither should it be supposed that prosperity is something to be worship. The moral power of the people may be just as great, the standard of character may be just as high, the entire spiritual condition of the Nation may be just as good in time of adversity as in time of prosperity. It all depends upon what use is made of the rewards of success. It is always possible to use them extravagantly and in disreputable ways. It is also possible to use them as the main supports of the real progress of enlightened civilization. Prosperity is only an instrument to be used, not a deity to be worshiped.

It is my firm belief for the most part the people of the United States are making a proper use of their prosperity. When we emerged from the war with its great burden of debt and high taxes, it soon became evident that, although the country appeared prosperous, in reality it was consuming its capital. It was necessary to bring it back to a condition where it would live on its income and out of its surplus restore its exhausted capital. The first step in that direction was National Government economy. To secure this, a Budget Bureau was established by the Congress to bring appropriations within our resources, and a Comptroller General's office was established to bring expenditure within appropriations. It is seven years now since this plan went into effect. The results are far beyond anything which could have been foreseen.

The industry and trade of the United States in 1921 were suffering from grave depression. They had been severely affected by the inevitable reaction from the war period. Our foreign trade was experiencing a great decline. Production had been sharply restricted. There were many cancellations of orders. Business failure were numerous. Railway traffic, commodity prices, and the value of securities declined by June, 1921, to the lowest point in a decade. Unemployment had reached a most disquieting state. The prevailing feeling in the commercial world was one of pessimism and profound uncertainty. Commercially speaking, we were at that time at the bottom of the pit.

There is a striking contrast between those dark days of 1921 and the remarkably favorable position of our trade industry to-day. It is the human element in the situation that deserves to be stressed first, and here the question of unemployment comes strongly to the front. In July, 1921, more than 5,700, 000 people were without work in the United States. At the present time, according to the most careful computation by the Department of Labor, the number is not much more than 1,800,000, nearly half of whom are normally to be expected as temporarily unemployment while in transit from one position to another. Forces are in operation which promise to take care of many of those who still find themselves without remunerative employment.

Manufacturing output during the first quarter of 1928 was at a rate nearly one-third higher than in 1921. Iron and steel production was more than twice as large as in the earlier year, and the automobile industry has shown a much more rapid growth. Various manufacturing industries have achieved an extraordinary increase in efficiency, and the average output per worker is therefore substantially greater.

The mining industries were in a particularly depressed condition in 1921, whereas several of them have been very active thus far in the present year. Check payments, electric-power production, and contract awards for new building have had, in the early months of 1928, a monthly average about twice as large as in the year 1921. Railway traffic is about one-fourth greater. Agricultural prices have been more favorable during the current year, whereas the reverse was the case in 1921.

Stabilization and a feeling of security have been the primary factors in the great "upward swing" of American industry and commerce since 1921.

The one and only interest of our Government is the interest of our people. The two are inseparable. We have approached the tax question from the angle of requiring no more from the people than necessary efficiently to operate the Government. The effort has been to reduce the cost of Government so as to make room for tax reduction. That effort has been singularly successful. Since the commencement of the fiscal year, July 1, 1921, we have had four reductions in taxes.

The revenue acts of 1921, 1924, 1926, and 1928, when fully operative, will reduce taxes by approximately two billions of dollars a year as compared with what would have been collected if the act of 1918 had remained in force. It is inconceivable that in such a short space of time the Government could cut its tax rates to that extent. Yet that has been done. Millions of individuals in the lower brackets have been entirely stricken from the tax rolls. Personal exemptions for individuals and heads of families have been greatly increased. Preferential treatment has been given to earned income. War taxes and nuisance taxes have been repealed. Business has been freed of many hampering and uneconomic restriction. Instead of a complicated and burdensome system of war-time taxation, there has been evolved a system of new and relatively light taxes, balanced in such a way as to give benefits to all classes of taxpayers. The prosperity of to-day can be directly attributed in a large measure to the lessening of the burden of Federal taxes.

The reduction which has been made in the national debt since July 1, 1921, has contributed much to the ability of the Government to lessen taxes. That reduction at the end of this fiscal will amount to approximately $6,327,000,000. The total debt will then be $17,650,000,000. It is one-third paid. The total saving in interest over all that period will amount approximately to $950,000,000. The reductions in the debt required by law for the same period total $3,296,000,000. By the end of this fiscal year we will actually have applied to debt reduction $3,031,000,000 more than required by law. That represents what was saved from national revenue. These, together with refunding operations which converted securities bearing high rates of interest into securities having lower rates, represent perpetual saving in interest of $274,000,00 per year. The tangible results of constructive economy in the business of government are clearly indicated by the reductions in taxes and public debt.

We have been favored with a long-continued era of prosperity. Year after year the tide of good fortune has steadily risen. It seems not yet to have reached its flood. Measures and policies that contribute to a continuance of good times should be encouraged. Whatever threatens to interfere therewith should be discouraged. Students of business trends, experts in economic conditions, view with alarm the continued advance in the cost of government. The cost of government in the United States, Federal, State, and municipal, in 1921, was $9,500,000,000. In 1925 it had increased to $11,124,000,000. During that period the National Government had reduced its expenditure by $2,000,000,000. In that period States, counties, municipalities, and other taxing agencies increased their cost by $3,500,000,000. The year 1926 recorded another advance in cost to $11,607,000,000. This steady increase in governmental cost on the part of the States and municipalities is a menace to prosperity. It can not be ignored. It can not longer continue without disaster. It will not correct itself. I can conceive no more dependable guaranty of genuine prosperity than a nation-wide effort in behalf of less and wiser spending by State and local governments.

Already the adverse effects of the great increase in such expenditures, with the corresponding rise in their taxes, are being felt. With much capital in the country, new investments are showing a tendency to be insufficient to furnish as good a market as we could wish for labor. While no serious unemployment exists, and the trend of wages is still advancing, if all the money that can be made in employing labor is going to be taken away in local taxes, old and established industries will attempt to struggle along, but new enterprise is not going to be undertaken. About the worst enemy of the wage earner is Government extravagance. Another adverse tendency is for people to take their money and use it in speculation, which contributes nothing to the sum of our national wealth.

In conducting the business of the Federal Government we must necessarily look to the welfare of the future as well as the requirements of to-day. We are embarked upon a program of perfecting the physical plant of the Government. This involves a large outlay of funds and years for its completion. The means to accomplish this have been derived from the policy of economy in the expense of government.

I am not now concerned with the current fiscal year which closes within a few weeks. We will have for that year a substantial surplus in excess of $400,000,000. I am, however, concerned with the outlook for 1929, for which appropriations have been made, and with 1930, for which detailed estimates will be prepared within the next few months. Taking into consideration the legislation enacted during the last session of the Congress, we find that for 1929 our receipts will be about $3,707,000,000 and our estimated expenditures $3,801,000,000. These estimates might seem to forecast a deficit. We must not have a deficit. I am acquainting you with what the estimates show so as to impress upon you the need for the utmost care in arranging your expenditure programs for the coming fiscal year. I am counting on the prosperity of business for an increase in receipts. I am counting on you for a reduction in the amount of your estimated expenditures. I do not face the coming year with any thought that we will not balance the Budget.

This Nation is committed irrevocably to balancing the Budget. Nothing short of a national emergency can trespass upon that commitment. We are facing a situation where the full utilization of the funds authorized by the Congress may exceed our estimated receipts. The duty is upon us to see that our outgo does not exceed our income. One of the main principles of a budget is the estimating of receipts and expenditures in advance of the period to which they relate. The business of our Government is a real business and it must be conducted as such. It immediately affects 120,000,000 of people. If there is anything worth while, it is the welfare of these 120,000,000 of people.

In less than six months the Budget for 1930 must be laid before the Congress. I intend that the estimate of appropriations contained therein shall reflect expenditures well within our estimated receipts. With this in view I have tentatively fixed upon $3,700,000,000 as the amount available for estimates for 1930. This figure covers tax refunds, permanent and indefinite appropriations, the postal deficit, and funds for extraordinary new projects, amounting in all to $460,000,000, which were not included in the maximum for 1929. The amount contemplated in the 1930 restrictive figure for the ordinary routine operations of government is really less by $60,000,000 than the availability for these purposes in 1929. The necessity of keeping expenditures within receipts, the importance of continuing our pay-as-we-go policy, can not be overemphasized. This primary limitation on estimates is the first step toward the continuation of that policy in 1930. It means that there will be no latitude for expansion where expansion is not made compulsory by new law or by conditions that leave no choice. In preparing your preliminary estimates for 1930, which you will submit to the Budget Bureau by July 15 next, you must keep this in mind.

Each succeeding year gives added evidence of the concern we have for the veterans of our various wars. There will be available for this purpose next year $743,000,000. This is for the veterans of all wars. And this is not a gratuity. It has been earned. During my term of office the pensions of all wars have been increased. We take pride in our great resources, our unparalleled prosperity, our phenomenal growth, but we should take equal if not greater pride in the generous and just treatment accorded those who fought our battles.

The annual rates of compensation of Federal personnel constitute an item which is not automatically affected by prosperous conditions which have raised the wage scale in private industry. The fixing of these rates is controlled, as it should be, by the Congress. That duty, however, has not been disregarded.

The classification act of 1923 and the application by law of its principles to the field service have done much to improve the Federal service. The arbitrary fixing of salary without specific regard to the particular kind of work being performed has been discarded. Compensation is now determined by the importance, difficulty, responsibility, and value of the work performed. That is right. All employees have been benefited by the change in the manner of determining compensation. The average compensation of these employees has been increased under the act from $1,674 to $1,886, an increase of $212. The cost of this increase for the 150,000 employees is nearly $32,000,000. The question of cost, however, has not been the controlling factor in fixing increased rates of pay. Proper compensation has been the objective.

We are concerned with the efficiency of our personnel. We can not hope to have the desired degree of efficiency with inadequate compensation. The two are incompatible. In a going business concern the most important requisite to maintain efficiency is an adequately compensated personnel. That is a business asset. I am just as much in favor of adequate compensation as I am opposed to overcompensation. What we are seeking is justice to the employee and justice to the tax-payer. The right principle for fixing compensation has been established. Readjustments may be necessary from time to time to correct inequalities in the salary schedules, but these should not interrupt the present principle nor destroy the uniformity assured by that principle.

Within the last month the Congress has enacted a measure which readjusts the salary schedules for certain classes of our employees. This readjustment will advance the average salary from $1,886 to $2,072 per year. While the pecuniary benefits of this act apply to both the departmental and the field services, the Congress has wisely provided for a study of the salaries of positions in the field services as compared with the compensation of like positions in private business and for the submission of recommendation with respect to the proper compensation for such positions. Now that salaries have been increased, it is the duty of all supervising officers to see that they are earned. One of the most valid criticisms against the Government service is its inefficiency, wherever it exists. Those persons on the pay roll who are not able to earn these high rates of salaries should be replaced by those who are more competent.

While credit must be given to the Congress for general moderation in the making of appropriations, and especially to the great abilities of Senator Warren and the late Representative Madden, the Senate and House chairmen of those important appropriation committees, and to the various departments for their wise recommendations and careful expenditures, nevertheless, the Director of the Bureau of the Budget has a great restraining influence upon us all and is the originating agency of Government economy. General Lord has so conducted this important office as to gain the respect of the Government and the country. If he is ever tempted to feel that his efforts are not appreciated, I trust he can find consolation in the reverence in which the memory of Representative Madden is universally held. General Lord will now address you.