ciency. The branches ought not to be in any respect independent of the parent institutions, but should be mere agencies to receive and hold deposits, discount notes, purchase bills, and transact other business authorized by law, except the issue of circulating notes; and they should, of course, be subject to official inspection and to all the laws, rules, and regulations applicable to the kind of business in which they engage.

The propriety of prohibiting the issue of United States notes, Treasury notes, and national-bank notes of lower denominations than ten dollars, in order to secure a larger and more permanent use of silver coins and certificates, has been urged upon Congress in all my annual reports, and the subject is again referred to only for the purpose of saying that the reasons heretofore stated in support of such a policy still exist and have been strengthened by the experience of each year.

It has been shown by experience that the effect of the provision contained in the 12th section of the act of July 12, 1882, authorizing the issue of gold certificates has been to increase the difficulties of maintaining the free gold in the Treasury at or above the amount of the lawful reserve, and I recommend its repeal. The manifest purpose of the law was to accommodate citizens and financial institutions having gold coin on hand, by providing for its safe custody in the vaults of the Treasury and at the same time facilitating its practical use in the form of certifi cates, as a part of the active currency of the country, or in the reserves of the national and other banks. It was evidently supposed that its effect would be simply to increase the total gold holdings in the Treasury, without diminishing the amount of free gold; but it has been found that the privilege to make deposits and receive certificates is a constant temptation to present notes and withdraw free gold from the Treasury, to be redeposited for the benefit of the holders of the redeemed notes. Attention was called to this subject during the last Congress, and the House of Representatives passed a bill repealing the provision referred to, but it was not passed in the Senate.

PUBLIC EXPENDITURES AND REVENUE.

At the close of the fiscal year 1895, the available cash balance in the Treasury, after deducting all current liabilities, but including the gold reserve of $100,000,000, was $195,240,153.87, and at the close of the fiscal year 1896, the available cash balance, excluding the current liabilities, but including the gold reserve of $100,000,000, was $267,432,096.70, an increase of $72,191,942.83. The excess of expenditures over receipts during the year was $25,203,245.70, while the deficiency during the fiscal years 1894 and 1895 was $69,803,260.58 and $42,805,223.18, respectively, making the total excess of expenditures over receipts from the ordinary sources of revenue during the three years, $137,811,729.46. The ordinary expenditures of the Government, including pensions and interest on the public debt, were $31,298,508.41 less during the fiscal FI 96

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year than during the fiscal year which closed on the 30th day of June, 1893, $15,345,833.75 less than in 1894, and 4,015,852.21 less than during the year 1895. The total receipts from the ordinary sources of revenue, including the postal service, for the fiscal year 1895 were $17,570,705 greater than in 1894, and for the year 1896 they were $19,102,205.48 greater than in 1895, making an aggregate increase of $36,672,913.48 in 1896 over the year 1894. The increase in the receipts from customs during the year 1896 was $28,203,221.05 over the receipts from the same source in 1894, and $7,863,134.22 in excess of the receipts for 1895; but during the first five months of the current fiscal year the receipts from all sources have been $9,628,628.48 less than during the corresponding five months of last year, while the expenditures for the same time have increased $14,448, 891.62, resulting in a deficiency of $39,946, 845.89 on the 1st day of December. The decrease in the receipts from customs during the five months was $12,980,244, while the receipts from internal taxes were about the same as during the corresponding period last year. For the eleven months next preceding December 1, 1896, the total value of our importations, dutiable and free, was $116,800,000 less than during the corresponding eleven months in the calendar year 1895, the decrease in free goods being $65,300,000, and in dutiable goods, $51,500,000. More than four-fifths of these large decreases occurred in the first five months of the present fiscal year, the falling off during that period being $50,251,000 in free goods, and $14,679,000 in dutiable goods. The official returns show not only that the reductions have been greater in the importations of free goods than in the importations of dutiable goods, but that, with a few exceptions, the largest decreases in proportion to the total amount of the importations have occurred in raw materials and partly finished products procured abroad for use in our domestic industries and which, when brought here, furnish additional employment for our artisans and laborers. In the free list the importations of five articles-hides and skins other than fur skins, crude india rubber and gutta percha, raw silk and wool, decreased $31,622,254 during the four months, July to October, and in the dutiable list five articles-manufactures of cotton, manufactures of furs, iron, and steel and manufactures of iron and steel, and leaf tobacco fell off $13,489,328 during the same time.

As there were no changes in our tariff laws, nor any unusual interruption of our trade with other countries during this period, except in the case of Cuba, from which a considerable quantity of leaf tobacco is procured, these decreases in importations, and consequent reductions of revenue from that source, must be attributed largely, if not entirely, to the unsettled and depressed condition of business produced by the agitation of questions seriously affecting the stability and value of our currency, the necessary effect of which has been to reduce production and consumption, and to a great extent suspend the ordinary commercial operations based upon contracts to be executed in the future. The effect

of business depressions upon the amount and value of importations, and upon the public revenues derived from other sources, is very forcibly illustrated by a comparison of the official returns for the fiscal years 1893 and 1894. The whole body of tariff and internal revenue laws in force during the fiscal year 1893 remained in force, without change in any respect, during the entire fiscal year 1891, and yet the value of the importations in the latter year was $211,416,300 less than in the former year, and the revenue from customs was $71,536,486.11 less, while the decrease in receipts from internal revenue amounted to $13,836,539.97, all which was on account of diminished consumption of distilled spirits, manufactured tobacco, and fermented liquors.

During the first five months of last year, 21,957,632 taxable gallons of distilled spirits, on which the tax was $23,865,133, were withdrawn for consumption, while during the corresponding five months of the current year, 22,768,275 taxable gallons of spirits were withdrawn, upon which the tax collected amounted to $25,064,903; but the consumption of distilled spirits during the last fiscal year was only 68,480,720 gallons, as against an average annual consumption of 91,927,112 gallons for the years 1890 to 1893, both inclusive. If the usual annual increase in the consumption of this article for all purposes had been substantially maintained, the total withdrawals during the present year would be at least 109,000,000 gallons, upon which the tax would amount to $119,900,000, and even if there should hereafter be only such an increase as to raise the consumption to the average for the four years mentioned, the annual tax would amount to more than $101,000,000 at the present rate. In the estimates submitted for the current fiscal year the revenue to be derived from this source has been placed at $75,900,000, based upon a consumption of 69,000,000 gallons, and in the estimates for the year 1898 it has been placed at $78,100,000, based upon consumption of 71,000,000 gallons, which will certainly prove to be much below the amount received, if the promise of future improvement in our business conditions is even partially realized.

The unusual increase in the expenditures during the first five months of the present fiscal year is partly accounted for by the payment of $5,000,000 for bounty on sugar, $1,540,000 to the Southern Pacific Railway Company, $725,000 on judgments of the Court of Claims, and several other considerable amounts which do not constitute any part of the ordinary or regular expenses of the Government, and, therefore, will not again appear in the accounts of payments. It is believed that a careful consideration of the existing situation, and a conservative reliance upon improved business conditions in the future, fully justify the conclusion that the estimated deficiencies for the current year and for the year 1898 will not be realized, unless our public expenditures shall be very materially increased by acts of Congress, and that, with proper economy in administration and such reductions in appropriations as might be made without detriment to the public.

service, the receipts will be equal to the disbursements in 1898. But, however this may be, the condition of the Treasury is such that no revenue legislation is immediately necessary, or can become necessary for a considerable time, in order to enable the Government promptly to meet all its ordinary obligations. Although the receipts from the ordinary sources of revenue during the last three fiscal years have been less than the expenditures, there have been at all times sufficient available funds in the Treasury to maintain an efficient public service and discharge the current obligations of the Government, and no public creditor has been delayed in the collection of his claim; nor has the business of the country ever been disturbed by a doubt concerning the ability of the Government to defray its ordinary expenses.

Much the greater part of the estimated deficiency for the current fiscal year has already been incurred, and has been paid, leaving still in the Treasury, on the 1st day of December, a balance of $225,357,098, which, after deducting the gold reserve, is about $100,000,000 more than is necessary as a permanent fund to insure the regular conduct of the ordinary fiscal operations of the Government. The fact that this money was not collected by taxation, but was procured by the issue of bonds, for a purpose other than the payment of ordinary expenses, does not affect the situation in the least. When the gold secured by the issue of bonds to replenish the reserve has been used for the redemption of notes, the notes redeemed are received and held as part of the general fund, and must be used for all the public purposes to which they can be legally applied. The money being actually in the Treasury, the sole question is, whether it shall be used, when necessary, to defray the expenses of the Government, or be held as an idle and useless fund, in order to afford an apparent reason for the imposition of additional taxes upon the people. This available balance is represented by outstanding bonds bearing interest, and, as its permanent retention in the Treasury can be of no advantage to the Government or its citizens, no substantial reason exists why it should not be expended, if required, before our trade and industries are subjected to new or increased burdens.

The proposition that money in the Treasury, not needed for any other purpose, ought not to be applied to the payment of public expenses, simply because it was not raised directly by taxation, would not be worthy of serious discussion if it had not been indorsed in apparent good faith by many whose opinions are entitled to respectful consideration. So far as the merits of this question are affected, it can make no difference how the money was procured, for it is actually in the Treasury as a part of the public funds, and, not being needed for any other special object, a proper regard for the interests of the people demands that it shall be used for general public purposes, before resorting to taxation or other modes of procuring additional revenue. The only effect of additional revenue, under the circumstances now existing and likely to con

tinue for some time to come, would be to increase, or, at least, to preserve, an unnecessary surplus already accumulated, and it will, I think, be generally admitted, that taxation for either of these purposes would be wholly unjustifiable.

What is most needed at present is not more taxes, but more economy in appropriations and expenditures.

The great increase in the ordinary expenditures of the Government during the last seven years has been without precedent in our history, in time of peace, and presents a subject which imperatively demands the most serious consideration of Congress. In 1870, for the first time after the close of the war, our public expenditures, excluding premiums on loans and purchases of bonds, but including interest and pensions, fell below the sum of $300,000,000, and they continued to decrease, with some fluctuations, until 1886, when they reached their lowest point, amounting to $242,483,138.50. During the four fiscal years beginning July 1, 1885, and ending June 30, 1889, the annual average expenditures, excluding premiums on loans, and purchases of bonds, but including all the other items mentioned above, was $263,016,473.18, but during the next four fiscal years, beginning July 1, 1889, and ending June 30, 1893, the annual average was $345,405, 163.60, an increase of $82,338,690.42 for each year. The average annual ordinary expenditures of the Government during the three fiscal years beginning July 1, 1893, and ending June 30, 1896, were $358,633,341.40, an annual increase of $13,228, 177.80 over the next preceding four years. The ordinary receipts of the Government during the last fiscal year-$326,976,200.38-would have paid the average annual expenditures during the four years from July 1, 1885, to June 30, 1889, and left a surplus of $63,959,727.20 at the end of each year, or $255,838,980 at the close of the period. The expenditures for the year 1896, although $31,298,508.41 less than in 1893, were nearly 25 per cent higher than in 1889. For the current fiscal year the ordinary expenditures, excluding the cost of the postal service, except the deficiency, will, according to the estimates, reach the sum of $382,500,000, an amount which has been equaled in only one year since 1866.

An examination of the expenditures and the objects for which they were made, shows that during the first period of four years-1886, 1887, 1888, and 1889—the average annual payments on account of civil and miscellaneous items were $78,262,020.13; on account of the War Department, $38,960, 721.39; on account of the Navy Department, $16,838,568.35; on account of Indians, $6,358,799.13; on account of pensions, $76,586,813.43, and on account of interest on the public debt, $46,009,553.75, while the average amount of expenditures for the same objects during the succeeding period of seven years was, for civil and miscellaneous items, $96,780,865.81; for the War Department, $49,577,677.53, for the Navy Department, $27,868,164; for Indians, $10,304,314.95; for pensions, $135,328,561.71, and for interest on the public debt, $31,213,341. The average annual excess of expenditures