ANNUAL REPORT ON THE FINANCES.

TREASURY DEPARTMENT,

Washington, December 5, 1910.

SIR: I have the honor to make the following report:

ESTIMATES.

In submitting herewith the estimates of expenditures for the executive departments for the year beginning July 1, 1911, I wish to call attention, as I did last year, to the exceeding care on the part of the heads of departments with which these estimates have been compiled, under the immediate attention of the President. There could scarcely be more scrutiny given to the work of the estimates than was given last year and has been given this year by the President and the members of his Cabinet. And I am sure that they will be received by the Congress this year as they were last year for what they are-an exhaustive endeavor to reduce the requirements, not only in the gross but in every detail, to the lowest point consistent with proper administration. These estimates are, as a matter of course, subject to the revision of Congress, and it may well be that in their details they can be improved. I do not believe that the gross can be materially reduced. The total ordinary estimates for 1912-the fiscal year beginning July 1, 1911-are $630,494,013.12. The estimate for the Panama Canal is $56,920,847.69, making the grand total $687,414,860.81. The total appropriations for 1911-that is, for the current year-were $721,313,900.48. The estimates for next year now submitted are, therefore, $33,899,039.67 less than the appropriations for this year. The decrease of $21,000,000 in the estimates for rivers and harbors and the reduction in the Interior Department of $20,000,000, due to the appropriation last year of that amount for an issue of bonds for reclamation projects, have been offset in part by an increase of $19,000,000 in the Panama Canal estimate and $6,299,000 to meet the requirements of public building legislation. It leaves, therefore, over $18,000,000 of savings in the executive departments proper, as compared with the appropriations for the current year.

The ordinary appropriations for 1910 were $693,313,166.40; those for 1911 were $683,458,900.48. The estimates now submitted for 1912 are $630,494,013.12.

65872°- -FI 1910-1

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In the preceding paragraphs the ordinary estimates for 1912 have been compared with the appropriations for 1911. Compared with the original estimates for 1911, submitted to the Congress one year ago, these estimates are $5,500,000 less, and they are almost $17,000,000 less than the estimates ultimately reported to the Congress for the year 1911.

The large reduction in the estimated expenditures for 1912 for purposes of administration is to be added to the large reduction of last year. These figures make two successive years during which not only the former habitual large annual increase has been completely arrested but when estimates in largely reduced figures have been submitted to the Congress. There are these two factors to be considered in measuring the results of the movement of this administration toward economies. First, there is the saving of the regular annual increase by putting a complete period to it; and, secondly, the actual reductions made which take the place of the usual increases.

The estimates of receipts submitted herewith we are obliged to make without that exact or nearly exact basis with which we estimate expenditures. The revised estimated receipts for the current year-the year ending July 1, 1911-are $6,000,000 more than the figures I submitted in December a year ago. This is about $2,000,000 less than the amount of the increased revenues from tobacco due to the new taxes. The customs duties are estimated now $25,000,000 less than before, while the internal-revenue receipts are estimated $28,000,000 higher, exclusive of the corporation tax, which remains as it was. Three million dollars have been added to the estimated receipts from miscellaneous revenues. The decline in customs revenues leaves them still at the very high mark of $320,000,000. The increase. in appropriations over the estimates for the current year will make the expenditures larger than was estimated. It is now estimated that the ordinary surplus will be $15,805,000 instead of $35,931,000. And the deficit with the Panama Canal disbursements will be $29,595,000 instead of $12,100,000. In preparing for submission to Congress at its meeting in December an estimate of receipts and expenditures for a period of a year commencing the July following, we are obliged to adopt as a basis our receipts and expenditures of the present incomplete year. Our figures, therefore, can only be approximate. The appropriations of course have not been made, and can not, therefore, be used as a basis of calculation until a year later, when a new estimate is made.

This explanation applies not only to the revised estimates for the current year but will throw light upon the uncertainties of the estimated surpluses and deficits submitted for the year beginning next July. The estimated receipts for the next year are submitted at $680,000,000, which is practically the same as the revised estimate of

receipts for the present year. Deducting our estimated expenditures from these estimated receipts (and assuming that the estimates will not in the gross be exceeded by the appropriations), the surplus of ordinary receipts over ordinary disbursements in 1912 will be $49,505,986.88. But taking also into account the estimates for the Panama Canal the deficit for the next year will be $7,414,860.81.

PANAMA CANAL BONDS.

The continuing deficit created by the Panama Canal expenditures is bringing us closer to the time when the indebtedness of the canal to the general fund will have to be paid, at least in part, by a sale of some of the Panama bonds authorized in the amount of $290,569,000 in the act of August 5, 1909. These bonds may be issued at any rate of interest found necessary up to 3 per cent. They also carry the privilege of being used as a basis for national-bank circulation. It was not observed at the time of their authorization that the existing law as to the tax on circulation needed to be changed to provide a higher tax for circulation secured by these bonds in order that they might not have an advantage over the 2 per cent bonds.

In order to preserve only a parity between the 2 per cent and 3 per cent bonds, the tax on circulation secured by the 3 per cent bonds should be 1 per cent. If it should be preferred to make the tax in the case of the new bonds 2 per cent instead of 1 per cent in order to further insure their going into the hands of investors in case they are issued at 3 per cent, that might have its advantages. It would add an additional check against undue use of the new bonds as a basis for circulation.

If, on the other hand, authority were given to issue $50,000,000 or $100,000,000 3 per cent bonds without the circulation privilege, we should be able to gauge experimentally the rate at which the Government could borrow on an investment basis, and we should then be better able to formulate a financial policy for the future.

A new factor has entered into the matter of the Panama Canal bonds since the passage of the postal savings bank bill. It is possible that these bonds may find a market through this new bank. Thirty per cent of its total deposits may be invested in government bonds, and in addition the depositors may turn their funds into such bonds. It is, therefore, within the possibilities that none of these new Panama bonds will ever reach the open market; and it is possible they may never have circulation privileges attached to them, for it is expressly provided that bonds issued to depositors shall not have circulation privileges.

While these new facts diminish the importance of the new Panama bonds to the open market, the correction of the circulation tax remains very desirable.

BANKING AND CURRENCY.

The reform of the banking and currency system is still in the future. It is very regrettable that circumstances have made earlier consideration of this great and pressing subject impracticable; and short as the present session of Congress is to be, it would be a great step forward if this subject could at least arrive at some form of definiteness and concentration before Congress adjourns. It is not like a new matter. It has received very great and very widespread consideration for years; and especially during the last two or three years the economic authorities under the lead of the National Monetary Commission have been greatly occupied with its problems and factors. No public question has in the last three years received so much competent study as this has; and it would be quite wrong to feel there is need of further hesitation in taking action.

The whole financial history of our country is a long series of troubles and agitations. And now that we have in sight the establishment of a real and permanent banking and currency system that will be both safe and sane it makes one impatient to see it accomplished. It is of the first consequence that this great economic questionimportant to all the people of this country, rich and poor alike— shall escape the deadly consequences of a partisan treatment. It is, therefore, to be hoped that it can come into Congress detached from political or sectional considerations.

As long as we continue under our present system we are liable to panics; and the vast devastations of panics reach Republicans and Democrats and all parts of the country alike. Panics are no longer necessary and no longer respectable. They are avoidable; but not under our system. Our system can fairly be called a panic-breeding system; whereas, every other great national banking and currency system is panic-preventing. It is for the Government to say whether it will have panics in the future or whether it will not. It is a mere matter of choice. We can continue to have panics or we can stop having panics, exactly as we prefer. It will not cost a penny to prevent them; and it has cost us untold millions and untold suffering every time we have had one.

We have no system of reserves. Our banking system destroys our reserves. It concentrates in New York what are pretended to be reserves and then forces the New York banks to lend and abolish them. Now, a reserve is necessary to the very idea of banking; but our system instead of building up a reserve destroys it as fast as it inclines to accumulate.

We have no way to increase our currency when it is needed, except under the Aldrich-Vreeland law, which will soon expire and which is only intended for emergencies. We have a currency which is forced