Address at the Banquet of the Board of Trade in Newark, New Jersey

Gentlemen of the Board of Trade of the City of Newark:

It is an opportunity to be able to speak to the business men of New Jersey, of whom this is a most repre¬sentative gathering. The proximity of New Jersey to New York, and the fact that from the West one can hardly get to New York without passing through New Jersey, make one forget at times the importance of Newark and of all the rest of the hive of industry that spreads west from the Hudson River far into and across this prosperous State. It comes to a stranger with considerable surprise to find a city of 350,000, nine miles west of Jersey City, so extended in its manufacturing industries, so solid in its invested capital.

When I accepted the invitation to come here, I learned that I was to have the pleasure of being a fellow-guest with my friend, Senator Lodge, and that he was to take up the question of high prices, a question which has occupied the attention of all the people and has invited the investigation into its causes of the Congress of the United States and some of the State legislatures.

For my part of the evening, I should like to direct your attention to a more prosy subject, to the question of gov¬ernment expenses and government revenues, and the possible economies, and what expenditures are essential at whatever burden of taxation.

In the first place, it should be said that we have been so far from exhausting the resources of national taxation, and Federal revenues have been collected so easily and in such an amount, that we have failed in the past to adopt a budget system which is practiced in every other civilized country. By a budget system I mean a reference of proposed expen¬ditures and receipts to some one authority or tribunal, which, after determining what the revenues are to be, must also determine what the expenditures can be, and make a budget without a deficit.

In our legislative body, which provides the revenue and authorizes the expenditures, time was when the Committee on Ways and Means, on the one hand, determined the revenues of the Government, or provided the laws for raising them, and, on the other hand, determined the appropriations and measured the expenditures. But for many years in our Congress these functions have been divided. The revenues are provided by the Ways and Means Committee of the House and the Finance Committee of the Senate, and submitted to their respective Houses, while the appropriations are made by the appropriation committees of the House and the Senate, and in too many instances without apparent reference to the revenues which are to be available to meet the appropriations.

It has so happened that in many years of the past, the revenues have increased more rapidly than the expenditures, and there has been a surplus. During the life of the Dingley Bill, which carried us from 1896 to 1908, the appropriations exceeded the expenditures by about $250,000,000; but the surplus took place in the earlier years, so that in 1908 we had a deficit, and in 1909 we had a deficit. The pinching effect of the falling off of the revenues and the continuance of the expenditures at the same rate attracted the attention of Congress, so that now a preliminary duty is thrown upon the Secretary of the Treasury to make a budget; that is, by law he is required to receive all the estimates of all the Depart¬ments, himself to make an estimate of the probable revenues, and if his calculations show a deficit, to recommend legis¬lation for additional taxation or the raising of money by bonds sufficient to meet it.

The calculation of the Secretary of the Treasury for the present year showed that the deficit was likely to be $34,000,000 in respect to ordinary receipts and expendi¬tures. I am glad to say that the operation of the new tariff bill has been so much more productive of income that this deficit for the current year is likely to be considerably reduced. In addition, however, to the ordinary deficit, we have to add the Panama Canal expenditures for immediate provision $38,000,000; or what was estimated to be a total deficit of $72,000,000 is now reduced considerably by the better rates under the present tariff bill.

By meeting the expenditures on the Panama Canal with the proceeds of bond issues, we have enough cash in the Treasury to meet the deficit in our ordinary expenses for the current year, and if we meet the expenditures on the Panama Canal for the following year, we shall have a surplus of $35,000,000; or if the revenue-producing capacity of the new tariff keeps up to its present indications, this surplus may be increased to $50,000,000. On the other hand, if the Congress proposes to add to the expenditures of the Government over those estimated for, for new enterprises in the Rivers and Harbors Bill, and for the construction of Federal buildings under a building act, it will be very easy to consume or exceed the entire surplus.

Every one must admit the wisdom of providing for the payment of the canal expenditure by bonds. The original act made provision for the issuing of bonds, and while the amount therein estimated was far short of the actual cost, the policy of the Government in supplying funds for the enterprise by bonds was sufficiently declared. This is a work of a permanent character for the millions who come after us, and it seems only fair that that which we provide in such a generous measure for posterity should be paid for, in part at least, by posterity.

Not only is the application of such a principle just and right in the case of an enterprise like the Panama Canal, but it seems to me wise and appropriate to adopt it with reference to other projects which commend themselves to Congress, and the economical completion of which requires the issuing of bonds. I refer to those definite projects that have been agreed upon in respect to the improvement of our inland waterways. I would not begin the expenditure of any money on any project the wisdom of which had not been fully vindicated by experts and the cost of which had not been fully ascertained by the most experienced engineers; but having determined to put through the improvement, it ought not to be done by fits and starts, but it ought to be done as one job, and provision for its completion ought to be made by the issuing of bonds, unless the current revenues afford a sufficient amount to complete it within a reasonable time.

This statement has peculiar application to the River and Harbor Bill, which now has passed the House. There the Ohio River improvement, to cost $63,000,000, is entered upon, and an appropriation made for its continuing. The same thing is true of the improvement of the Mississippi from St. Paul to St. Louis, and the same river from St. Louis to Cairo; and of the Missouri River from Kansas City to St. Louis. These projects seem to be warranted by the traffic in sight.

While I am dealing with the Panama Canal, however. I ought to refer to the discrepancy between the estimated cost of the enterprise and the actual cost as we are now able to fix it with very considerable accuracy within four or five years of its completion. The estimated cost of the engineering and construction of the canal was $189,700,000. Its actual cost for engineering and construction will be $297,000,000, an increase of about $157,300,000. This increase is to be explained first by the very great appreciation in the cost of labor and material between the time when the estimate was made in 1900 and the time when the work was done between 1904 and 1909. Second, by the fact that the canal has been enlarged substantially beyond the original dimensions estimated for. You know that the great work of excavation in the canal is called the Culebra Cut. This is where the backbone of the continent, reduced to its lowest height, is cut through in order to permit the flowing of the canal; and through five miles of that cut, which altogether is about nine miles long, for purposes of economy the original plan and estimate made the bottom of the canal in the rock 200 feet wide. This would not enable two of the largest steamers to pass each other in the canal with any degree of safety, and would require that one of them should tie up to the bank while the other went by. In order to avoid this delay in that part of the canal it has been thought wise to increase the bottom width from 200 to 300 feet in a place and in material that of course make the change most expensive. So, too, in order that the canal may be adapted to the largest size of steamers possible, the dimensions of the six locks have been increased from 900 feet, usable length, by 90 feet width, to 1,000 feet, usable length, and 110 feet width. This was done at the instance of the Navy Department, on the ground that they could look forward in the future and see vessels of a beam exceeding 100 feet.

It has also been found necessary to change the character of the canal on the Pacific side from a lake with a dam and locks on the shore of the Bay of Panama to a sea level canal running four miles inland, so as to remove the locks four miles inland and beyond the possible reach of the guns of an enemy in Panama Bay. These two changes also have added very considerably to the cost.

Again it has been found wise to enlarge the canal into a lake or basin at the foot of the Gatun locks, and with other variations in the plans which experience in the construction has demonstrated the necessity for, the more than doubling of the cost of construction and engineering has been made necessary. In addition to this, the cost of sanitation and government, without which the canal could not have been built, will be about $73,000,000, and will carry the entire cost of the canal to $373,000,000.

To return to the state of finances, I repeat that the-surplus for the year ending June 30, 1911, for which we are now making provision in this Congress by appropriation, will be about $35,000,000, if the estimates made by the Depart¬ments as transmitted by the Secretary of the Treasury to Congress are not exceeded, and if the revenue from the tariff bill equals that which the Secretary of the Treasury has estimated it as likely to be. This surplus is also upon the supposition that the $38,000,000 necessary annually in the construction of the Panama Canal will be met by bonds.

In view of the threatened shortage for the year ending June 30, 1911, I directed the heads of Departments in making their estimates to cut them to the quick and to avail themselves of every possible economy and reduction. The result was that the total of the estimates forwarded by the Secretary of the Treasury was $42,818,000 less than the total of the appropriations for the previous year, ending June 30, 1910.

A river and harbor bill has now been introduced and has passed the House, which appropriates nearly $40,000,000. This is a very considerable increase over the amount esti¬mated for by the Secretary of the Treasury. If, in addition to this, a building bill passes Congress, appropriating $15,000,000 or $20,000,000 for the coming fiscal year, there may still be a deficit unless the receipts from the tariff bill and the corporation tax exceed what was originally estimated from them. I am bound to say that the results of the tariff bill thus far indicate a considerable increase over the esti¬mate of the Secretary.

Now, I would like for a moment to go into the question of what it was that we cut down in our estimates for the coming year in the departments.

The reduction in the estimate of the War Department below the appropriations of last year amounted to $10,000,000. The reduction in the estimate of the Navy Department for the expenses of the year ending June 30, 1911, also amounted to $10,000,000. The reduction in the Interior Department of estimated expenses for 1911 below the appropriations for 1910 amounted to $8,000,000. The reduction in the Treasury and in the Post-Office Department made up the balance of the $42,000,000.

Speaking with reference to the Army and the Navy, it should be said that the reductions were not in what may be called the permanent expenses of the Departments, but were rather in cutting down proposed improvements, which if the plans of the Departments are properly carried out must be some time met. In other words, it is a postpone¬ment only of expenditures that are necessary until the income shall be sufficient to meet them.

Let us take the War Department. There was a very considerable cut in the expenditures needed to complete with modern appliances the coast defences on the Pacific and Atlantic seaboard. There is needed at the mouth of Chesapeake Bay, between Cape Henry and Cape Charles, an artificial island upon the so-called middle ground, which shall command the entrance to Chesapeake Bay. Chesa¬peake Bay is the most important body of water from a strategic naval standpoint on the whole Atlantic coast, and must be defended.

So, too, we have now determined that the great naval base of the Pacific for us is to be Pearl Harbor, near Honolulu. For years there was discussion as to whether we ought to make the naval base at Subig Bay or at Cavite, in Manila Bay, in the Philippines. By unanimous consent of naval and military authorities, it is now concluded that we do not need a naval base in the Philippines at all; that we ought to make Corregidor Island, at the mouth of Manila Bay, impregnable, establish a naval supply station in Subig Bay, but rely upon the Sandwich Islands as our base. This will all involve a heavy expenditure at Honolulu, but for the present the amount proposed is comparatively small.

In the naval expenditures we have retained a provision for two battleships of the large 25,000 ton capacity, and we have done this on the ground that until the Panama Canal is completed we ought to go on and add to our naval strength. The Panama Canal will certainly be completed in 1915. and if we have two battleships a year until that time, the opening of the canal will so double the efficacy of our Navy for the protection of our Pacific and Atlantic coasts that we can then abate and reduce our expenditures in new construction.

The reductions in the Treasury Department were I think more of them in the administration than in the expenditures for improvements, and this was also the case in the Post-Office Department.

The reduction in the Interior Department was $5,000,000 of it due to a reduction of the amount of pensions to be paid out, and we may reasonably expect that as the years now go on this amount will gradually be reduced.

On the other hand, there are certain of our Departments, to wit, the Agricultural Department, with its Forestry Bureau, the War Department in so far as it is a construc¬tive department for the improvement of rivers, the Depart¬ment of Commerce and Labor, including as it ought, it seems to me, a Bureau of Health, which, as the opportunities for bettering the condition of the people by governmental investigation increase, grow in importance and in cost; and we ought not to expect a reduction either in the expenses growing out of a conservation of our resources.

For some time it has been said that we have ''billion dollar" Congresses. The statement in itself is an unjust one, because it is generally construed to mean that the total expense of the Departments to be paid out of taxation amounts to a billion dollars a year. This is quite an error, for the reason that in making up the billion dollars, the expenses for the Post-Office Department are always included, whereas the expenses of the Post-Office Department are not paid for out of the proceeds of taxes. They are paid for out of the receipts of that Department from the sale of stamps, with the exception of $17,500,000, which was the excess of the cost of the Post-Office Department last year over its receipts. This, therefore, reduces the cost of the Government by taxation each year to something like $750,000,000.

It is now proposed to appoint a Congressional commission to look into the question of a general reorganization of the Departments of the Government, with a view to reducing the expense of administering the Government. I think I have already made clear the distinction between those expenditures of the Government that go into permanent improvements and that may be reduced one year and must be increased another, and the actual routine cost of admin¬istration. A reduction in the cost of proposed improvements is not an elimination of them, but merely a postponement of them; whereas a reduction in the cost of administration would be a permanent economy that, of course, on that account, becomes most important.

It has been stated on the floor of the Senate that it will be possible by this commission to reduce the cost of administering the government $100,000,000 a year, and that if a free hand were given to a business man the reduction in the expense of administration might be doubled or trebled, I am unable to confirm these statements as to exact amount, but I am very sure that a conservative, prudent, and fearless commission could make a most material reduction in the cost of administering the government. They will find opposition in Congress to every change recommended, because there is no branch or bureau so humble that it can not secure its adherents and defenders within the legislative halls. But, if by the totals that it shows this commission shall justify its existence, it is probable that it can secure a majority sufficient to carry through its proposed reforms. This Government has been constructed not all at one time, but bureau has been added to bureau, and department to department, and it has been impossible to avoid duplication and expensive methods. In creating a new bureau, there was no time to go back and reform the Government with reference to the adjustment of that bureau to its proper place or to consider the work of the entire Government with reference to it. This proposed commission, as I understand it, is to take up the bureaus of all the Departments, to see whether they may not often be consolidated, and also to lay down such rules governing the civil service as will secure the utmost efficiency from each civil servant or each unit of labor. It is undoubtedly true to-day that we have a great many more persons employed in the government than we would need, if every person in the government rendered to the government a service of a high degree of efficiency. This commission will have to take up the question, which has troubled great industrial corporations and great railroads, as to the method of disposing of superannuated servants. Our military pensions have reached so large an annual sum, to wit $150,000,000, that we have avoided the suggestion of civil pensions, but I am convinced that some method must be adopted by which superannuated civil servants may be retired on an income sufficient to support them, and that such a provision will ultimately bring about great economy in the administration.

It has been reported by the Postmaster-General that we are carrying in the Post-Office Department the weekly periodicals and magazines at a loss to that department of upward of $60,000,000, and that the business of the Government in the Post-Office Department is now run at a general loss of $17,500,000. The committees of Congress are investigating the correctness of this view. The owners of magazines dispute the correctness of the figures. There ought to be some way certainly of determining this fact, and if it is a fact it calls for a reform, and an increase in the postage of a sufficient amount at least to take away the deficit in the Post-Office Department. Should the two postal committees not be able to reach a conclusion satisfactory to them upon this question, the whole matter may well be left to the commission to consider. It will be essential for this commission to employ expert men who have had to do with the organization of great businesses and who are familiar with the most modern methods of economy. The truth is that the success of modern business has been the adoption of successful economies, and the time has come for us to make an effort at least to introduce something of these economies into an administration of the greatest business that we have in this country, the business of our Federal Government.

I am quite aware that things done by the Government are done under conditions so different from those of a busi¬ness concern that there are certain expenditures necessary, in view of the fact that the government business is done for the benefit of all the people, and that therefore all the people are entitled to know how it is done, and a number of them are entitled to be selected in a fair way to share in its doing. But in spite of the added expenditure of administration incident to the requirements of popular government, every one familiar with government methods now in vogue must recognize the possibility of reforms leading to great economy, if the Congress shall have the courage to adopt plans which may be recommended by this commission after a full exam¬ination by business experts.

I have already occupied your time too much, and I per¬haps have not made this statment very informing or inter¬esting, but I can not close without congratulating you and myself on the prospect that the present tariff bill offers such an increased income as to make deficits under any condition unnecessary. Of course if there were to be a halt in our prosperity and a panic, the reduction in imports might be so substantial as to lead to deficits again. Let us hope, however, that the prosperity of our country is founded on such a substantial basis that no flurry in the stock market and no other temporary cause may prevent the continuance of good business on a substantial basis.