i9 C98 i9i1 Mr vi PAYMENT OF IMPORT DUTIES BY CERTIFIED CHECK PANAMA CANAL BONDS GOLD BULLION AND FOREIGN GOLD COIN HEARINGS BEFORE THE COMMIfTEE ON WAYS AND MEANS OF TITE HOUSE OF REPRESENTATIVES 6 1st congress, 3d SESSION H. K. 30569, H. R. 30570, and H. R. 31857 JANUARY 14, 1911 :' /i . WASHINGTON - OOVEENMENT PRINTING OFFIfE 1911 ' '•: As HI I committee; oisr "wa.ys a.nt> mieans, HOUSE OF REPRESENTATIVES, SlXTY-FlEST CONGBESS, ThIKD SESSION. SERENO E. PAYNE, Chairman. JOHN DALZBLL, JOHN W. DWIGHT, SAMUEL W. McCALL, WILLIAM R. ELLIS, EBBNEZER J. HILL, CHAMP CLARK, HENRY S. BOUTELL, OSCAR W. UNDERWOOD, JAMES C. NEEDHAM, EDWARD W. POU, WILLIAM A. CALDERHEAD, CHOICE B. RANDELL, JOSEPH W. FORDNEY, ROBERT F. BROUSSARD, JOSEPH H. GAINES, FRANCIS BURTON HARRISON, NICHOLAS LONGWORTH, WILLIAM G. BRANTLEY. Abthub E. Bladvelt, Clebk. II CONTENTS. Page. Bills under consideration (H. R. 30569; H. R. 30570; H. R. 31857) 268-271 Gold bullion and foreign gold coin: Consols of 1930 and Panama Canal bonds 268 Statement of — MacVeagh, Franklin, Secretary of the Treasury 258 Panama Canal bonds: Statement of — , Andrew, A. Piatt, Assistant Secretary of the Treasury. . 249, 250, 253, 256, 257 MacVeagh, Franklin, Secretary of the Treasiu-y 245-257 Payment of import duties by certified check : Statement of — Andrew, A. Piatt, Assistant Secretary of the Treasury 242 Hallock, James C ." 259-267 MacVeagh, Franklin, Secretary of the Treasury 241-243 III mm S Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924005749449 PAYMENT OF IMPORT DUTIES BY CERTIFIED CHECK. The Committee on Wats and Means, Saturday, January I4, 1911. The committee this day met, Hon. Sereno E. Payne (chairman) presiding. Present: The chairman, and Messrs. Dalzell, Hill, Boutell, Need- ham, Calderhead, Fordney, Gaines, Longworth, EUis, Clark, Under- wood, Pou, and Randell. STATEMENT OF HON. FRANKLIN MacVEAGH, SECKETARY OF THE TREASURY, ACCOMPANIED BY MR. A. PIATT ANDREW, ASSISTANT SECRETARY OF THE TREASURY. The Chairman. Mr. Secretary, I called the meeting this morning for the purpose of considering two or tliree bills that you trans- mitted to Congress, thinking the committee might want to ask you some questions. Secretary MacVeagh. Yes, sir. The Chairman. The first bill is H. R. 30570, to authorize the receipt of certified checks drawn on national banks for duties on imports and internal taxes and for other purposes. The committee Jias had a number of hearings on the subject in the last five or six years, and there has been a doctor from Baltimore who has been very much interested in the matter. I think a good many members of the committee have had the feeling that it would work no harm to the customs and would be more in accordance with modern meth- ods of doing business. Will you please state briefly your ideas in reference to the propriety of the passage of the bill ? Secretary MacVeagh. It would be considered an ordinary thing in general business, and all the financial transactions of the country are done in that way with perfect safety. Of course, in the case of the Government it is always expected that it will have extra, and even unnecessary, protections thrown about all its transactions. It also has privileges which nobody else has, so that it would be quite proper for the Treasury Department to make requirements that would be considered excessive in ordinary business, which would make the transactions doubly and trebly secure and protected. The regulations and the law are being evaded under certain stress of business necessity. For example, in New Y'ork City, the banks deposit money with the subtreasury every day and draw checks, or, they do not call them checks, they call them something else, which are taken down to the customhouse to avoid the carrying of this money through the streets back and forth, because it has to be carried back from the customhouse to the subtreasury just as carried down to the customhouse every day. To avoid that they deposit 241 242 PAYMENT OF IMPORT DUTIES BY OEETIFIED OHEOK. money. That has been permitted by the Treasury Department for a number of years now^ and lately we have extended that privilege to the other subtreasury cities. It is perfectly safe. The collector telephones to ascertain how much money there is in the subtreasury to the credit of a bank, and they just take the drafts on that deposit. It is simply a way of getting around the practical difficulty of paying the actual money into the customhouse. Also in the case of internal revenue checks are being taken all the time. Business could not be carried on without that, but it is done at the risk of the collector and is ia actual violation of the law. This is to make legal a practice that has been growing up for some time, as I say, under the necessities of the case. In accordance with the provisions . of this bill the checks would be a lien on the assets of the bank. The banks do not object to that sort of thing by the Government. They expect it to do these excessive things which nobody else would be permitted to do in the way of protecting him- self and in contrast to every other depositor and every other check holder. It seems to us a very simple proposition. Are there any questions? Mr. Andrew, the Assistant Secretary of the Treasurj^, who is very famiUar with all these facts, is present. Mr. Randell. Making these checks a lien on the assets of the bank for the payment of any certified checks not paid would bring them in competition with the depositors and other creditors of the bank and render their payment more uncertain ? Secretary MacVeagh. Yes, sir; it would. Of course, there is no great injustice in it. The bank has certified on the face of the check that the money is there and this certification sets apart and appro- priates the money in this deposit so this purpose. Therefore, there IS no real injustice in it, only nobody else has that sort of protection,^ Mr. Randele. But if that money is not forthcoming they have a lien on the assets of the bank ? Secretary MacVeagh. Yes, sir; but the actual money itself for which this certified check is given is there and by the act of certifica- tion is supposed to be set aside and appropriated, and if the bank fails to do that it, of course, is liable. Mr. Randell. If it is duly paid, there is no necessity for the lien. If it is not duly paid, then the prior lien of the Government comes in ahead of the depositors who may have made deposits after the check was certified ? Secretary MaoVeaq-h. Yes, sir. Mr. Randell. In case the Government had a law guaranteeino- deposits in national banks, then this sort of protection would not come in conflict with innocent depositors ? Secretary MacVeagh. Unless it was made superior. If, however the Government guaranteed the deposits, it would have to pay all of them, anyway. Mr. Andrew. Under the present system in New York, where the Chase National Bank will deposit a certain amount of money, $300,000 at the beginning of the day with the subtreasury, that money is pledged for every cent that is drawn against it. That is the present practice. It really does not alter that practice, except in the way of sirnplifying it. The Chairman. This bill authorizes and makes it a first lien on the assets of the bank. PAYMENT OF IMPOBT DUTIES BY CEETIFIED CHECK. 243 Mr. Randell. I understand that. The system which has grown up is unlawful and this bill would make it lawful. The Chairman. So far as customs duties were concerned. Mr. E.ANDELL. Yes, sir; and at the same time bring in competition the Government of the United States as against the security the depositors otherwise would have. Mr. Underwood. I take it, Mr. Secretary, that if you did not have any law of this kind and a man had to pay his taxes, he would have to go and get the money and carry it down to the customhouse ? Secretary MacVeagh. Yes, sir; and a certain kind of money. He would have to carry it through the streets and pay it to the cashier. Mr. Underwood. Instead of going to the bank and getting a check certified and having the money set aside ? Secretary MacVeagh. Yes, sir. _ Mr. BouTELL. I would like to ask, Mr. Secretary, whether the pro- visions of the sinking fund of 1862, which are stiU in force, havebeen considered in reference to the terms of this biU ? Secretary MacVeagh. No, sir. You are the great authority in this country on the sinking fund. Mr. BotTTELL. It does seem to be a surprise to a great many people that the sinking-fund provisions are still m force. I know it created some surprise in a debate in the House not long ago, but the thought I had in my mind was to what extent, if the smkmg-fund provisions are of present force and merit, this bill might weaken the sinking fund. It reads: The coin paid for duties on imported goods shall be set apart as a special fund, and shall be applied as follows: First, to the payment in coin of the interest on the bonds and notes of the United States. Second, to the purchase or payment of 1 percent of the entire debt of the United States, to be made within each fiscal year, which is to be set apart as a sinking fund, and the interest of which shall in like manner be applied to the purchase or payment of the public debt, as the Secretary of the Treasury shall from time to time direct. Third, the residue to be paid into the Treasury. In other words, according to a literal interpretation of the sLaking- fund provisions no customs duties go into the Treasury until the sinking-fund provisions, which are fiterally mandatory, have been complied with. Secretary MacVeagh. I call the attention of the committee to a paragraph in my report where I say: I beg to call the attention of the Congress to the matter of the sinking fund. The sinking-fund law has fallen into neglect. It should be revised to a point where it can be obeyed. It is impossible to carry out the law as it is, for the Treasury Department has not at present any funds with which to pay off its debt. Presumably, I should set aside 1 per cent of the debt; and Congress has made a permanent appropriation for this purpose, but it does not furnish the money with which to carry it out; and the sinking-fund law has been not exactly a dead letter but a dead-and-alive letter for nearly 40 years. It is not pleasant to continue this present situation, and it is not necessary in the least that it should be continued. Very little legislation would make the matter right; and I commend to Congress the suggestion that it make the sinking- fund law conform with the actual facts of the Government's finances. Mr. BouTELL. That is exactly what I had in mind, that we should take up the sinking fund amendments in connection with this biU. Secretary MacVeagh. That should be done. Mr. Hill. As a matter of fact, that is simply on the question of the appropriation, not on the character of the money ? Secretary MacVeagh. Yes, sir. 244 PAYMENT Of impost duties by chetified check. Mr. Hill. There is an Executive order making all forms of United States money interchangeable with all others in the Treasury. That practice is being carried out. This simply relieves the comnaercial conamunity of the United States from furnishing a particular kind of money to the Government and puts the burden where it should be, because the Government would have to exchange it. In other words, a man can go to the subtreasury and get the money with which to pay the duties and go to the customhouse and pay the duties. A man should not be compelled to do that. I am heartily in favor of the proposition that national-bank notes and all kinds of money should be receivable for duties and the burden should be placed upon the Government for the redemption of the money. It might just as well be done in the first instance as in the last. PANAMA CANAL BONDS. The Chairman. Mr. Secretary, a bill (H. R. 30569) \va,s introduced by me in response to a request by the Secretary, in reference to Panama Canal bonds. Please explain to the committee the pro- priety of this bill. Secretary MaoVeagh. Tlie present borrowing facilities of the Treasury are confined to the $200,000,000 of 3 per cent certificates, which would run for a year and represent a temporary loan. The Congress, at the suggestion of your chairman and with the acquies- cence of everybody concerned, provided for $290,000,000 of 3 per cent Panama bonds with the circulation privilege attached. By an oversight the tax on the circulation secured by these bonds was not considered and the law was left to stand as it was. That left a tax of 1 per cent which makes a discrimination against the 2 per cent bonds which have no way to sustain themselves m the world, except through their circulation privilege. If you take from the 3 per cent bonds a tax of 1 per cent, it leaves the net 2 per cent. If you take one-half per cent from the 2 per cent bonds it leaves you 11 per cent. So the net income of the $730,000,000 of 2 per cent bonds would be only H per cent while the net income from the 3 per cent bonds would be 2 per cent. That would have made such a discrimination against the 2 per cent bonds as would have knocked them out as an invest- ment, and I did not feel that we ought to use those bonds under those conditions, and I think that attitude had the approval of the entire financial interests of the country. Xow, the question is what to do under these circumstances. The Treasur}' has nothing, as I have told you, but these short-term one-year certificates. We have a deficit and that deficit is contin- uing, so far as we can see. On ordinary receipts and disbursements we show a surplus, but the Panama Canal eats it up and leaves us with a deficit. We figure out a deficit this year of about $30,000,000, and for next year our deficit is at present figured, but that is purelv nominal, at about $7,000,000— between $7,000,000 and $8,000,000. ' Mr. Hill. Including the Panama Canal expenses ? Secretary MacVeagh. Including the Panama Canal expenses, but I just sent to Congress j'esterday a statement on the building appro- priation that will undoubtedly lead to $12,000,000 more and possibly considerably more than that. So the deficit for next year will be increased at least that much, running it up to $20,000,000, and there are plenty of other things in sight which may run it beyond that. The Chairman. You do not take into account in that computa- tion the pension bill which passed the House the other day ? Secretary MacVeagh. No, sir. I was going to say that these are the present and ordinaiy figures. In addition there is pending in the Supreme Court a case against us on the corporation taxes. We 245 246 PANAMA CANAL BONDS. have collected $27,000,000. If we have to pay that money out, you can see where we are. I do not think we shall have to pay it back, but no one can speak for the Supreme Court. There is that liability; but it is not limited to the $27,000,000 that we have collected and would have to pav back, but we would have to take out of our esti- mates 125,000,000, which makes a difference of $52,000,000 in that item. You gentlemen by an overwhelming majority, which we down in the Treasury Department are bound to respect and take notice of, have just passed a pension bill that means probably another $50,000,000. Then apart from that I have been, under the stress of circumstances, of course, running the balance as low as possible, and our balance to-day is too low for the Government to have. It is not quite respec- table to have as small a balance as we have, a balance that we have to watch every day, as one of those tied-up business men who have to look at their bank account every morning to be sure that their checks are good. We do not want to be in that position. We are not exactly in that position, but it is a bank account that everybody watches. The whole country is looking at our balance every day, and we ought to have more money in hand undoubtedly. I have spoken thus far as to the necessity for the authority to issue bonds; and, I think, that is generally recognized. I think your chairman recognizes the situation, and the chairman of the Finance Committee of the Senate recognizes it as one that ought to be remedied some way or other. This depends, however, upon your committee and upon ^he House of Representatives mainly, because action will not be taken in the Senate for some time, owing to the fact that Senator Aldrich is not very well. And we therefore very much hope that the House can take action on this very fair and simple proposal. Now, one other matter which ought to be explained and that is why we have proposed this particular form of bond. The necessity is perfectly clear and it is only a question of how jou will meet the necessity. The present proposition seems to be more acceptable to all concerned than any other. I think that the financial inter- ^ests of the country would be very much pleased with this solution, with the authorization of this $100,000,000 of 3 per cent bonds without the circulation privilege. The $730,000,000 of 2 per cent bonds is all the load that can be carried by the banks for the pur- pose of circulation or for the purpose of security for deposits. You see the deposits have run down practically to almost nothing, and therefore there is no longer a large demand for these 2 per cent bonds for that purpose. As we have drawn in the large amount of money that the Government had scattered all over the country when it had a large surplus, we have released the 2 per cent bonds and thus thrown them upon the single use of sustaining circulation', and that has overloaded the banks tremendously and it has driven the price of the bonds down. The national banks have charged off somewhere from $30,000,000 to $40,000,000 of loss on those bonds. I am told by the Comptroller of the Currency that the banks have handled it pretty well, and it has nearly all been wiped out, but they have lost already from $30,000,000 to $40,000,000 on the 2 per cent bonds scattered all over the country. Now, we do not want, even if we could, to put any more of a burden of that sort upon the banks, but we could not if we would; we could PANAMA CANAL BONDS. 247 not sell more 2 per cent bonds. By the opinion of everybody 3 per cent is as low as you can market these bonds, unless, of course, you could force them on the banks as the 2 per cent bonds were previously forced on the banks, but that is no longer possible. It is a condition of complete saturation and you can not put in any more moisture; but we would not want to do this if we could. It would be' utterly unfair and it would destroy the present market value of the bonds. They have been held at par, but held there by their eyelids. They have succeeded in holding them at par, but if you put another issue on top there is no power in the financial world which could hold them at par. They would go down and it would be an absolute disgrace to the Government, and, in my judgment, it would be a violation of a distinct moral obligation which we incurred when we issued those bonds. We knew that 2 per cent was no measure of the actual credit of this Government. It was never the measure of the credit of any government and never will be within your time or within any time in sight. It was purely fictitious and arbitrary, and, as the President said in one of his public speeches which I read, "we took the banks by the coat collar and obhged them to take tlie 2 per cent bonds." Mr. Underwood. Will you explain to me why we are under a moral obligation to maintain the price of bonds that the Government has already issued and which have gone into the hands of private persons? How did the Government force the banks to take these bonds ? Secretary MacVeagh. What we did was to give this circulation privilege and it was supposed to be a privilege that would inhere in these specific bonds. Mr. Underwood. But no inducement was held out to the bankers that we would not issue bonds with the same privilege at a future date ? Secretary MacVeagh. None, except the assumption was evcMV- where accepted that the Government would not impair the privileges of those bonds. Those issued were supposed to be needed for the purpose of circulation and in that way we would reserve to them the right of circulation. Mr. Underwood. What I want to know is did the Government, if it did do it, hold out to the bankers who bought the bondi. and I understand they were not sold to the bankers, that the 2 per cent bonds were sold to individuals, only a limited amount of wliich an individual could buy, and that subsequently the bankers gathered them in from the individuals ? Secretary >,IacVeagh. That is true. They were put out in various ways. There never, however, was any question of where those bonds would go. It was the circulation privilege that made them go. Nobody in this country believed for a moment that we could borrow money in an iuA^estment market at 2 per cent and nobody ever tried to do it. Mr. Underwood.* When you put those ponds out to the people in limited amounts — I think there was a limitation that no man could get more than $2,000 — what was the limitation on the bonds when originally sold * Secretary MacVeagh. I do not remember tlie conditions under which the bonds were sold. 248 PAXAMA CANAL BONDS. ilr. Underwood. There was a limitation on the amount which an individual could buy, and there were men lined up here in Wash- ington waiting to buy them. Secretary MacVeagh. Are you not speaking of the Spanish War 3 per cent bonds ? Mr. Underwood. These 2 per cent bonds were sold under the same conditions. I am not positive, but "that is my recollection. Secretary MacVeagh. I think not. The Chairman. I do not think there was any hmitation on the bonds. Mr. Hill. There was no hmitation, the provision was that the small bidders should first be taken care of, but a man could take $100,000,000 if there was no higher bid. Mr. Underwood. But the amount which individual could get was limited, and those bonds were not sold to the bankers of the country but to' individuals and subsequently, as I -understand it, the bankers ran up the price of the bonds. It was not the price paid to the Government, but the bankers themselves ran up the price. Secretary MacVeagh. The bonds were sold by the Government at a premium. Mr. Underwood. What was the premium? Secretary MacVeagh. I have not those figures, but they were nearly all sold at a premium. Mr. Underwood. If we are going to pay for the moral obligation I think we ought to know the facts exactly. They are hazy in our minds and I would like very much if you can ascertain from the Treasury records exactly what the figures were at which the bonds were sold to individuals, what the limitations were, and to whom sold. Secretary MacVeagh. There will be no difficulty in furnishing the information. Mr. Underwood. I will be obliged if you will send that informa- tion to the committee.' Secretary MacVeagh. Yes, sir. I do not claim tliat there is any specific or legal obligation on the part of the Government. They can do exactly what they please about issuing more bonds. There is no question about that. But it is a question of what the sense of the business world is as to that subject, it is simply that and nothing more. It is not a matter that is expressed in any law — not a matter expressed in any circular of the Treasury Dejiartment — it is wholly a question of what the sentiment of the business world is on this auestion, and I think I am safe in saying that the feeling is that the overnment is bound to see to it that those bonds, issued at a fictitious rate, are reasonably and fairly treated by the Government in making a further issue of bonds. Mr. Hill. Is not more involved? Was not the taking of the 2 per cent bonds largely the result of the refunding of the higher rate bonds, the Government itself allowing circulation at par instead of at 90 per cent as an inducement to the bajik^ to take them and refund the old bonds, and did not the Government increase the rate at which they would take them as a basis of circulation from 90 per cent to par ? Mr. Underwood. I think, if I recollect aright, that the gentleman from Connecticut stated on the floor of the House that if we gave to > See p. 268. PANAMA CANAL BONDS. 249 the banks the privilege to issue circulation on these 2 per cent bonds to the full face value of the bonds that the banks would take them as a business proposition. Mr. Hill. They did take them. Mr. Underwood. If the Government is under any moral obligation, 1 believe the Government should keep its obligation as well as an indi- vidual, but if these banks have bought up a Tot of bonds which they thought were good and they lose money bj- the speculation because the Government issues more bonds, I do not see any obligation on our part to make good. Secretary MacVeagh. This is not really essential. It is not involved. I probably inadvertently mentioned it. It is certainly on my mind as an obligation, but is not involved in this case at all, because we could not issue any more 2 per cent bonds if we wanted to, in my judgment, and you could not issue any 2^ per cent bonds. These questions have been investigated very considerably and that is the opinion that every one has arrived at. Mr. Underwood. I understand, but we have already given you au- thority to issue a 3 per cent bond for the Panama Canal purposes ? Secretary MacVeagh. Yes, sir. Mr. Underwood. And you can sell that bond to-day without any further enactment of legislation ? Secretary MacVeagh. Yes, sir. Mr. Underwood. The object of this bill is not to allow you to issue bonds to carry on the work on the Panama Canal, but is to change the basis on ■vyhich bonds shall be issued so they shall not bear the market on the 2 per cent bonds. That is it ? Secretary MacVeagh. No, sir. That is partly true. But apart from any question of moral obhgation such as I spoke of it is a mere business ooligation. Those bonds ought not to be discriminated against. Now, this proposition is not to do anything in behalf of the 2 per cent bonds. It is a proposition to avoid doing something against them. Mr. Underwood. The only question we have to face is this. If we take out the provision in the Panama bonds that they can ba used for banking purposes, ot necessity the Panama bonds you are about to sell will not sell for as high a price as if we left the provision in? Secretary MacVeagh. That is a question. It is a question whether the market wants any more bonds at this time with the circulating privilege. Mr. Andrew. There is another point that is of considerable importance, and that is the fact that there is no real connection between the country's need for more money and the Government's need for money to build the canal. The fact that we have to spend $290,000,000 to construct the canal has no relation whatever to the need of the country for more currency. Mr. Underwood (interrupting). The purpose of this bill is to sustain the market price of the 2 per cent bonds; that is the real purpose. You can sell the 3 per cent bonds for the Panama Canal purposes even if you have not any legislation at all, if j'ou want to put them on the market, and they would sell better with this pro- vision in than with it out. 250 PANAMA CANAL BONDS. Mr. Andrew. What I meant was that there were other objections to the existing situation than those that have already beeri men- tioned. There is ttiis objection — that under the situation as it now exists we are practically increasing the currency at the same time and to the same extent that we are borrowing for the canal. Mr. Underwood. I realize that, of course. But it seems to me that the only purpose of this bill is, as the Secretary said originally, to redeem a moral obligation of the Government. If that moral obli- gation exists, I am willing to stand up for it. But I want to know it, and therefore I tliink that we ought to be advised fully as to these 2 per cent bonds sold, to whom they were sold and the price at which they were sold. Then we are able to judge whether we are under any obligation. Secretary MacVeagh. Even with that information .before you I am confident that j^ou would not recommend issuing bonds that were a discrimination against the 2 per cent bonds, would you ? Mr. Underwood. No; I do not want to do anything that would hurt the country's credit Secretary MacVeagh. That is the proposition. Mr. Underwood (continuing). Or not carry out an obhgation. I want to know distinctly and clearly that we are under an obligation and that we are going to injure the public credit before I would be wiUing to put a bond on the market to sell for less than what it is worth. Mr. Gaines. I understood that the value of these 2 per cent bonds was in part due, of course, to the circulation. Nobody had any 2 per cent money to invest. Secretary MacVeagh. No. Mr. Gaines. When the bankers paid the price they did pay for the bonds there was in that price something for the privilege, which they were purchasing, of issuing circulation against them. As a matter of fact, has that privilege been worth to the bankers what they paid for it ? If it has, it seems to me that our obligation to make good that much of the value of the purchase price of the bond, if any such obligation ever existed, vanishes. They bought something, and what they got was the privilege of issuing circulation against these bonds for the time thej' have had the privilege. Secretary MacVeagh. Of course I have no statistics on that ques- tion at all. Presumably, the banks if they had not lost money on their bonds would have made a fairly good transaction and there would be nothing to complain of at all, and they have nothing to com- plain of now, up to date, and I think nobody does complain up to date. The banks are not crying at all. The only question is whether now the Treasury Department should do something or whether Congress should ask the Treasury Department to do something that would be an injury to the people who hold these bonds. Get that clear. There is no complaint up to date and there would be no com- plaint at all if the Panama bonds had been issued on a parity of privilege with the existing bonds — the 2 per cent bonds. That was my proposition to Congress last year; it is a part of the proposition ■vV-hich I reported to them this year — that they should simply create a parity and avoid a discrimination against the 2 per cent bonds — and I am free to say that was acceptable throughout the country. All last year my position was entirely acceptable to the financial and PANAMA CANAL BONDS. 251 banking interests, but T could not get that done. I tried that all last year, but I could not get that parity established; could not get the discrimination removed. It is not that there is any favor asked ; it is only to avoid a discrimination, an unfair discrimination, against these bonds. In speaking of that I used the expression that there was a moral obligation; that, perhaps, was unfortunate. But I think I have defined exactly the situation. Mr. Gaines. I do not think there is any objection whatever to that language. If there is an obligation at all it is moral. But is there any? Mr. Hill. Is it not a fact that in all the refunding operations there never has been a case yet where the Government sold these bonds at par? Invariably they received a premium. I know of instances where the bank paid as high as 1 10. The Government itself accepted the premium, fixed the rates at a premium in their refunding opera- tions, and if the banks took them they had to take them at that price or not get them. Is there not a moral obligation for the Gov- ernment to maintain its own note, just as much as an individual, if it takes advantage of the premium? Secretary MacVeagh. Of course. I only withdraw my statement as to moral obligation for the purposes of this discussion. I have not changed my mind about it. Mr. Underwood. I think Mr. Hill's illustration involved the fact that 110 was paid to the individual; it was not paid to the Govern- ment. Mr. Hill. I am not sure about that. Mr. Underwood. Of course, a man can not bear all these things in his mind, but my recollection is that these 2 per cent bonds were not sold by the Government at any less than the 102 or 104. Mr. Hill. The Government fixed a rate at which they would receive the threes and fours in exchange for the twos, and made the arrangements with the banks. Mr. Underwood. The banks did not have to take them if they did not want to. Mr. Hill. But the constant demand to Congress was that evety bank be forced to take the circulation, and bill after bill was offered requiring that they should take out the full circulation. Mr. Underwood. Such bills were not offered by your friends on this side of the table. Mr. Hill. I did not say by you. Mr. Underwood. This end of the table has never stood for national bank circulation. Mr. FoRDNEY. Mr. Secretary, I came in late, and if you will pardon me for asking a question, without asking for a lengthy reply, what reason is there given for not accepting those bonds as security for circulating notes by national banks ; because they are 2 per cent bonds, and there are 2 per cent bonds already accepted ? Secretary MacVeagh. There is a strong feeling throughout the country aad a strong feeling in Congress, in the House and in the Senate, that the bonds available for circulation are now even exces- sive in amount, and there is not only no need for more, but that it might be injurious. Mr. LoNGWORTH. How much is there ? 252 - PANAMA GANAL BONDS. Secretary MacVeagh. Nearly nine hundred millions, or about that amount; practically all of the bonds that are out. It is about nine hundred and twenty millions. Mr. FoKDNEY. Not in excess of those already available ? Secretary MacVeagh. There are about seven hundred millioils that are used to secure circulation. Mr. LoNGWOETH. Actually used ? Secretary MacVeagh. Yes, sir. And there is a surplus of $22.5,000,000 that is available for this purpose in case of need. It is thought generally by financial authorities that there are no more of those needed at this time. Congress could provide them if they were needed. And meanwhile the Monetary Commission is going to report. It is better, on general principles, not to add to that great mass of bonds already available for circulation. Then there is another feeling that is general, and, I think, well held, that it is in the interests of the Government as well as in the interests of the peo- ple that further issue of bonds should go into the hands of investors on legitimate investment bases; that our people should acquire the habit of investing in their own Government oonds; and that these bonds should be investment bonds pure and simple, and should go into different channels entirely from those which the 2 per cent bonds had to seek. Mr. Underwood. Is it the purpose of the Government to use these 3 per cent bonds to take up savings under the postal savings- bank bill ? Secretary MacVeagh. Yes; if I understand your question. Some of the Panama bonds, you mean, that are already authorized ? Mr. Underwood. Yes. Is it the purpose to use those to take up the savings or income into the Government from the postal savings- bank bill 5 Secretary MacVeagh. The balance, you mean ? There are two hundred and ninety millions authorized. If you now pass this bill, it would leave one hundred and ninety millions under the old authori- zation. All of those would be available for the postal savings depositors, and for the investment of the trustees, if they chose to invest them. Of course that is all guesswork about the postal savings. Mr. Underwood. You are compelled to sell those to the depositors at par, are you not? Secretary MacVeagh. Yes, compelled to sell them at piir; but j'ou could sell them at 2^ per cent. They have no circulation privilege either. The postal savings bill cuts that out. Mr. Underwood. I understand. The bonds under the postal sav- ings bill cut out this privilege. But now will not these Panama bonds be used by the trustees under that postal savings-bank bill for the investment of the money that comes into their hands ? Secretary MacVeagh. It may be so. Mr. Underwood. I wanted to know whether that was the purpose of the Government — to use those funds at this time to take up tliese bonds; whether it was the purpose of the Government to use the funds that the trustees must invest, that come into the postal savings banks, in an investment in these Panama bonds ? Secretary MacVeagh. In Government bonds. They could invest, of course, in any of the bonds. Whether they will want to take a 2i per cent bond I do not know. They may, and they may not. PANAMA CANAL BONDS. 253 Mr. Andrew. That is for the trustees to decide. Mr. Undekwood. I understand. But the point I had ia mind was that if the trustees intend to invest in bonds, and these 3 per cent bonds are available, and if the Panama bonds go into the hands of the trustees of the postal savings bank, it does not make any differ- ence whether this provision is m there or not. They are not going to use it for circulation purposes. Secretary MacVeagh. On, no. You are speaking of these 3 per cent bonds ? Mr. Undekwood. Yes. Secretary MacVeagh. No. Certainly I have not had it in contem- plation to hold them for the trustees. If you authorize us to issue them, I should probably issue the first of them, at any rate, to the investment market. Mr. Underwood. What will those bonds sell for to-day with this provision in the bond ? Secretary MacVeagh. Some people think they could sell them at a small premium at the 3 per cent rate. Others think that the 'Gov- ernment has no investment credit below 3 per cent. I am inclined to that view myself. Mr. Underwood. What would they sell for if we cut this out ? Secretary MacVeagh. I am talking about them with it in. I do not think it would make a great deal of difference. As I say, there is circulation privilege enough lying around loose already to supply the demand, and I do not think the adding of it to these bonds would make any great difference in the rate at which they would sell. Indeed, they would go into the hands of a class of investors who do not want them for circulation privileges and do not intend to dispose of them. If they go to the people I would like to see them go to, they would not value the circulation privilege at all. They want them for investment and they keep them out of the market. Mr. Randall. Would not the bonds sell for more with the circu- lation privilege than they would without it 1 Secretary MacVeagh. That is just the question we were dis- cussing. Mr. Randall. In your opinion, would they not ? Secretary MacVeagh. Of course, that is an open question. But at this particular juncture I do not think they would sell for any less or any more. Mr. BouTELL. Right in that line, besides the bonds available for securing circulation, that are so used, are there any bonds available for circulation now used to secure Government deposits ? Secretary MacVeagh. Yes, some; about 32 or 33 millions. Mr. BouTELL. .So that that confirms what you say about the sat- urated condition, if there are still between tliirty and forty milhons that could be used for circulation ? Secretary MacVeagh. Yes, because other bonds could be taken there. The Chairman. The Treasury has been running on a pretty close margin for two or three years ? Secretary Mac^'eagh. A ery. The Chairman. Partially growing out of the fact of the large pay- ments each year on the Panama Canal ? Secretary jMacVeagh. Yes, sir. 74706—11 2 254 PANAMA CANAL BONDS. • The Chairman. It is up to about $30,000,000; it is a little larger rate this year. I believe there is about $19,000,000 that has been paid out so far this year for the construction of the canal ? Secretary MacVeagh. Yes. The Chairman. The margin in the future depends largely on the prosperity of the country, as the revenues are always larger when the country is prosperous than at other times, both from import duties and from taxes ; is not that the fact ? Secretary MacVeagh. Yes. The Chairman. Then, of course, a reverse of prosperity, any loss of prosperity in any way, endangers the revenue to that extent, iio matter what your system of taxation or what revenue laws are in force. That is the usual rule, is it not? Secretary MacVeagh. Yes; of course. The Chairman. And if you could be assured that the condition of the Treasury would remain the same as it is now for the coming three or four years this legislation would not be absolutely necessary; it would be more comfortable, but not absolutely necessary? Secretary MacVeagh. Yes. We would still have a deficit, due to the Panama Canal. The Chairman. It would make the Treasury stronger, of course, to issue bonds; it would put more money in the Treasury. Secretary ]\IacVeagh. We have not money enough to pay these deficits much longer. We have been very fortunate, and we have hung on. We have not gotten anxious or have not borrowed money at any time when it looked as though we would have to do it in a very short time. But we can not go on much longer. Of course, it is true that if the commercial situation is going to quiet down it will affect our importations; it will affect our revenues, more or less. And that adds another reason why we need some facilities in the Treasury — borrowing facilities. We are not going to borrow exces- sively under any circumstances. The Chairman. You could have issued certificates any day in the last three or four years if the Treasury demanded ? Secretary MacVeagh. Yes. The Chairman. And you can now? Secretary MacVeagh. Yes; we can now. The Chairman. Mr. Secretary, it was supposed when the postal savings-bank law was enacted that the Treasury would experience relief from those deficits, and especially that portion of them where the depositors took their option and took bonds for the deposits-. Secretary MacVeagh. Yes. The Chairman. Was it supposed that would be the result? Secretary MacVeagh. Yes. The Chairman. But under the hmited appropriation only a lim- ited number of savings banks have been opened, and those only for a few days ? Secretary MacVeagh. Yes. The Chairman. I do not suppose the experiment has gone far enough to give you the sUghtest idea what funds will be available from that source ? Secretary MacVeagh. Not at all; that is all in the future. It is mere guesswork to attempt to estimate. PANAMA CANAL BONDS. 255 The Chairman. If you get this authority in this law, it is not your purpose to issue $100,000,000 of bonds? Secretary MacVeagh. Not at all. The Chairman. Nor to issue them beyond what is absolutely necessary for the needs of the Treasury ? Secretary MacVeagh. Certainly. The Chairman. Although you have a limited issue of bonds equal to the extent of the cost of the Panama Canal, by law. Secretary MacVeagh. There is one other thing which adds to the obhgations of the Treasury, and' that is this reclamation certificate issue. They are going to call for that in a steady stream, but I can not go out and borrow money every time they make a draft on the Treasury; it would not be dignified. I have to furnish them prob- ably $10,000,000 before I can issue bonds — issue their certificates. The Chairman. Can you not issue those bonds in advance of the expenditure, under the law ? Secretary MacVeagh. I think not. Mr. Dalzell. You can only pay them out in accordance with the work as it progresses; but I do not think there is any limit on the time. The Chairman. My idea was that you could borrow money in expectation. Secretary MacVeagh. If we sold ten millions of those certificates we would have the money all used up, at our present rate of going, before they drew it. It would go into the general fund, in all probaoility. Mr. Longworth. If this Congress should pass any sort of legisla- tion which would involve an additional charge of, say, $50,000,000 on the revenues, what, in your judgment, would be the condition of the Treasur}^ ? Secretary MacVeagh. Before you came in I spoke of that. We simply could not meet it without the bond issue, or without addi- tional taxation, whatever you choose. I also called attention, before you came in, to the liability we had, citing this case in the Supreme Court as to the corporation tax. If that goes against the Govern- ment we will have to pay back twenty-seven millions, and also take twenty-five millions out of the estimates, making a difference of fifty-two millions, and then, if you add fifty millions in pensions, there is only one thing to do, to issue bonds or put on some addi- tional taxation. Mr. Hill. Why do you limit the amount to one hundred millions instead of covering the amount of the Panama debt 1 Is it not a pro- vision for the payment of the Panama Canaldebt? Secretary MacVeagh. Yes. Mr. Hill. Why do you not cover the whole debt, then ? Secretary MacVeagh. I have no objection to that at all. I thought the one hundred million would go through easier than the two hundred and ninety million. Mr. Hill. As I understand it, you are practically looking forward to a surplus, as far as ordinary expenses and ordinary revenues are concerned. But this is practically and actually a provision made by Congress for the payment of the cost of building the Panama Canal. Why do vou make two separate bites of this cherry ? Why do you not give the same qualification to the whole amount issued, as far as the Panama debt is concerned, and have it stand by itself? 256 PANAMA CANAL BONDS. Secretary MacVeigh. It is a matter for you, gentlemen, to decide. It is satisfactory to the Treasury Department. They do not care what you say as to that. Mx. Hill. You must have had some reason for limiting it to »»ne hundred million when the bond issue is two hundred and ninety millions. Secretary MacVeigh. What we want is to make those Panama bonds available, and the one hundred millions would suit us. The others would not be available at present. They may become so through the postal savings bank law. Mr. Gaines. Has any statistician, or anybody in the Treasury Department, estimated the price at which these 2 per cent bonds would have been sold if they had not had the circulation secur- ing privilege ? Secretary MacVeigh. They would have been relegated to the rate of interest at which Governments like ours may borrow money. Mr. Gaines. Exactly; and I had in mind that that would be, of course, the basis of calculation. Therefore I thought somebody in the Treasury Department could very easily calculate it. Secretary MacVeagh. We know what that rate is now. It varies somewhat, of course. Now, and for some time back, it is 3 per cent. France, for instance, always has had the highest credit; that is, as high credit as it is possible for a government to have — a trifle over 3 per cent now. The British consols at present yield 3.16; the French rentes, 3.06. The credit of the French Government is .;^igh -water mark, and is likely to remain so for a long time. It is reaUy the standard, for the reason that the people there, being a frugal people, have a great deal of money, and they have the wide-spread habit of investing in Government bonds, Government securities. There is always, therefore, a large market for aU the French Government securities. Of course, France is just as good for its debts as anybody. And then another thing is, those people over there have compara- tively few things to invest in, and they naturally gravitate to Gov- ernment bonds. Therefore you always find, in all the statistics, that the French credit is always at high-water mark; and it will be. Now it is 3.06. Mr. LoNGWORTH. What is the rate of British consols ? Mr. Andrew. Two and one-half, and they sell about 78. Secretary MacVeagh. They have gravitated down recently. Mr. Gaines. Are the rates you mentioned there, 3.16, in England, and 3.06 in France, higher or lower than the average, or are they just about the average? Secretary MacVeagh. The average of what? Mr. Gaines. Of the interest in the same countries; is interest now higher ? Mr. Andrew. On the whole the prices of those bonds are con- siderably lower to-day than they have been in past years. That is to say, the interest rate the world over is considerably higher than it has been. Mr. Gaines. British consuls used to yield a good deal less than 3 per cent, did they not? Mr. Andrew. That is, yield at their market price ? Mr. Gaines. I mean at their market price. Mr. Andrew. Yes. This decline began with the Boer War, and has continued ever since, and to-day they sell at the lowest price at PANAMA CANAL BONDS. 257 which they have ever sold. The consols used to yield 3 per cent and sold above par, and this winter, I think for the first time since the panic of 1847, they sold as low as 78. Mr. Clark. Mr. Secretary, what is the reason it is more difficult to sell a 2-per cent bond now that it was three or four years ago ? Secretary MacVeagh. In the first place, the interest rates are higher, the Government interest rates are higher the world over; and moreover when they sold at 2 per cent we could not have bor- rowed money in the open market at 2 per cent, or anything like it. Mr. Gaines. This depreciation that the banks have had to mark off on account of the current market value of these 2 per cent bonds — somewhere between $30,000,000 and $40,000,000, I believe, you said ? Secretary MacVeagh. Yes. Mr. Gaines. Is that depreciation greater or less than has taken place in the securities of other governments during the same time; for instance, the British consol or the French rente ? Mr. Andrew. There is a decUne in our securities which I am sure is very much less than in the securities of other leading countries. Our 2 per cent bonds never went above 109 or 110, and they have never sold more than a fraction below par, whereas the British con- sols have fallen from about par to 78 in 10 years. GOLD BULLION AND FOREIGN GOLD COIN. The Chairman. The Secretary has also made another suggestion in regard to the additional deposit of gold bars, gold bulhon, and for- eign coin, and to issue certificates for it. I think the objects are well covered in his letter (H. Doc. No. 1184, 61st Cong., 3d sess.), and I do not think it is necessary to go through a hearing on that. The object is to save the- expense of a larger amount of coining of gold. It can just as well be handled in the bars as the coinage. Mr. Clark. There never ought to be another bit of gold coined. It is an absolute waste of money. The Chairman. The bill does not go quite so far as that. ^Laughter.] I have had a bill drawn amending the sections,' instead of the bill drawn by you, Mr. Secretary, in order that a whole section may appear in'each instance as amended. We think that is the better way of amending the law, because when it is referred to hereafter you will have the law altogether I want to have this draft of the bill inspected before it is introduced, and want you to see if you have any changes to suggest, and whether you think it will accomplish your purpose. Secretary MacVeagh. The Treasury Department is very large minded about these matters, and is perfectly willing to allow you to write your law. The Chairman. We shall take that privilege every time. I still would like to have you have that bill inspected and see whether it accomplishes the objects you have in view. It was drawn by the clerk of the committee, and I have no doubt it is all right. Mr. Underwood. As I understand, the purpose of the Secretary is merely to allow the issuance of gold certificates instead of coining the gold ? The Chairman. Yes. Mr. Underwood. There is no objection to that. Mr. Boutell. In sending the information that was asked for would you kindly have included a statement giving the details of the sales or the refunding of the 2 per cent bond, the range of premium at which the bonds were sold by the Government, either in actual sales or in the refunding operations referred to by Mr. Hill; and, secondly, the range of prices of the 2 per cent bonds in the open market, or on the stock exchange ? Mr. Andrew. Since the issuance? Mr. Boutell. The highest and lowest since the first issuing of the 2 per cent bond. Secretary MacVeagh. We are very much indebted to you, gentle- men, for your courtesy. (Thereupon, at 11.45 o'clock a. m., the committee proceeded to other business.) I See appendix, H. R. 31857, pp. 270-271. 258 APPENDIX. PAYMENT OF IMPORT DUTIES BY CERTIFIED CHECK. Statement filed by Mr. James C. Hallock, of Brooklyn, N. Y. On December 23, 1910, the president, vice president, and some other members of the Baltimore Clearing House addressed the following letter to the Secretary of the Treasury: "The undersigned banks of Baltimore especially commend the statement in your annual report for 1910 that ' the relations of the Treasury Department with the busi- ness communities are still quite artificial, unbusinesslike, and burdensome. Unbusi- nesslike [you say] because unlike any business done by anybody else, governmental cff private.' ' It is encouraging that you have submitted to Congress a bill, prepared in the department, 'to authorize the receipt of certified checks drawn on national banks for duties on imports and internal taxes.' "Such an amendment of existing law would, if enacted, be of advantage to the business men and banks of this city, provided the checks when received here were deposited with Baltimore banks by the collectors, as has long been done by the col- lector of internal revenue; and further, provided the deposits were permitted to remain with the depositary banks until required for disbursement, then to be checked out to public creditors by the United States disbursing officers, to whom the funds should be transferred from time to time for that purpose. "Second National Bank, Baltimore, Chas. C. Homer, president; The National Mechanics Bank of Baltimore, Md., John B. Ramsay, president; The National Exchange Bank, Baltimore, Md,, Waldo Newcomer, president; Citizens' National Bank of Baltimore, Wm. H. O'Connell, president; Farmers & Merchants Nat. Bank, Baltimore, Md., Chas. T. Crane, president; Third National Bank, Baltimore, Md., T. R. Thomas, president." This letter points out two serious omissions in the bill (H. R. 30570) introduced as drafted in the department and referred to the Committee on Ways and Means. The Baltimore bankers have in mind the recommendations made by them to Secretary Cortelyou on the 4th of April, 1907, and printed in my statement at the hearing of April 8, 1908, before your committee in the first session of the Sixtieth Congress (hearings, p. 189), to wit: "1. 'The employment of certified checks drawn on city banks by importers in payment of customs duties. "2. The deposit of such checks in depositary banks to the credit of the Treasurer of the United States. "3. The drawing of checks on such deposits by the Treasurer or Assistant Treasurer of the United States (or disbursing ofiicers) in payment of public dues." In the Sixtieth Congress the Treasury Department opposed all of these recom- mendations. In the closing weeks of the Sixty-first Congress, the department, com- pelled by the Secretary of the Treasury to do something, produces a bill which would carry out the first of the Baltimore recommendations partially in a peculiar way. However, the payment of duties by checks is so important that, notwithstanding its faults, if the bill in its present form were reasonably certain to pass at this session, I should say nothing. Unfortunately it contains provisions which might arouse so much opposition in both Houses as to prevent its passage. For instance, section 2 provides that "it shall be lawful at all times for duties on imports to be paid in United States notes and notes of national banks." Personally, I am in favor of that. However, since the first issue of legal tender notes in 1862 and of national-bank notes in 1863, Congress has uniformly pursued the policy of with- holding consent to the payment of duties in greenbacks or national-bank notes. As a matter of fact, United States notes (greenbacks) have been received for duties on imports since 1879 by order of the secretary, but without any change in the law, which still says they shall be "a legal tender in payment of all debts, public and private, . 259 260 APPENDIX. within the United States, except for duties on iqiports and interest on the jsublic debt." (Sec. 3588, R. S.) Can this subject of bitter controversy and heartburning for nearly half a century be settled or disposed of without opposition or unawares near the close of this Congress? I fear the retention of any controversial point in the bill will com- pass its defeat. Moreover, the receivability of United States notes and national-bank notes has nothing whatever to do with paying import duties by checks. It is an irrelevant matter. Another provision which, unless stricken out, may endanger the passage of the bill is the proposed restriction as to the kind of checks that may be tendered. Only checks drawn on national banks are to be received. Since 1863 collectors of internal revenue have received certified checks on State banks and trust companies as well as on national banks. Since 1907 collectors of customs outside of Subtreasury cities have received State bank and trust company checks more or less. Is that to be stopped? If so, why? It is true the bill provides that for every certified check received and unpaid the United States shall have a lien for the amount of such check upon all the assets of the certifying bank, such amount to be paid out of its assets in preference to ahnost all other claims. Of course, the Treasury Department could not well ask Congress to set up by law in any circumstances the claim of a first lien on the assets of a State bank. For this reason, perhaps, State bank checks are ignored in the bill. The practical result, apparently, is that if this bill were enacted , without amendment, the use of checks in payment of taxes would be curtailed by discontinuing the receipt of checks on State banks and trust companies. To understand the real effect, the traditional routine of a collector's ofiice must first be considered. In the 1908 hearings before your committee no direct proof was introduced that collectors were receiving checks and had been for years. I now submit the following evidence, all taken from the letter of Secretary Cortelyou to the Senate dated April 13, 1908 (S. Doc. No. 435, 60th Cong., 1st sess.), transmitting the correspondence of the Treasury Department with national bank depositaries during the panic of 1907. The Citizens National Banh, Louisville, Ky.: "The collectors' deposits are made up almost wholly of checks" (p. 3). Southern National Banlc, Louisville, Ky.: "The collector of internal revenue deposited in this bank $55,491.42. * * * The deposit contained but a few hun- dred dollars in cash, the majority being made up of certified checks on banks in this city, which had been tendered in payment of taxes and the purchase of stamps" (p. 4). National Bank of the Republic, Salt Lake City, Utah: "Nearly all the money we received from the post ofiice and other Government officials here is in the form of checks" (p. 5). The Old State National Bank, Evansville, Ind.: "The deposits of the local internal revenue collector and postmaster come to us largely in checks and with very little currency" (p. 6). The National Exchange Bank, Baltimore, Md.: "Almost the entire amount of deposits from the internal-revenue collector consists of checks" (p. 11). First National Bank, Santa Fe, N. Mex.: "A paper deposit" (p. 16.) Ohio National Bank, Columbus, Ohio: "The largest payers of internal revenue in this district keep their account with us. They buy beer stamps to the amount of nearly $10,000 a week, and of course, have been in the habit, as usual, of giving their certified check on us for such stamps. This has been the rule for a number of years " (p. 17). Quaker City National Bank, Philadelphia, Pa.: "Of this (internal-revenue) deposit ($25,074.11) only a little over $100 was in cash, the remainder being in checks ' (p. 20). The Commercial National Bank, Detroit, Mich.: "The deposits that we receive from the postmaster, and also the internal revenue, are paid to us by drafts and checks " (p. 24). South Texas National Bank, Houston, Tex.: "These moneys (from the postmaster) do not come to us in the form of cash " (p. 25). The National Exchange Bank, Milwaukee, Wis.: "We have notified the collectors of internal revenue and of customs that hereafter all deposits must be made in cash " (p. 26). Merchants National Bank, Savannah, Ga.: "Major part Government deposits with us made by checks" (p. 28). The Utah National Bank, Ogden, Utah: "Very little of the deposit reaches us in actual cash" (p. 28). These extracts indicate that collectors of internal revenue are receiving checks in all parts of the country, including subtreasury cities, as Baltimore and Philadelphia. "They show that collectors of customs receive checks outside of subtreasury cities. APPENDIX. . 261 They refer to postmasters and other Government officers that receive checks. They prove that such receipts of checks by collectors in some cities is already thorough and complete, without any statute making it lawful to tender certified checks for taxes and without the checks being secured by a preferential lien on the assets of the cer- tifying banks. This demonstrates not only that collectors receive checks without statutory com- pulsion, but also that, even if certified checks on national banks were made a legal tender in payment of duties and taxes, as provided in this bill, collectors would almost certainly receive State bank checks as now, unless the bill was amended so as to make their receiving checks drawn on State banks and trust companies a misde- meanor punishable by fine or imprisonment. At present, in payments to the Govern- ment, gold coin, silver dollars, gold certificates, silver certificates, and Treasury notes of 1890 are unlimited legal tenders and, except for duties on imports, so are United States notes and national-bank notes, while checks are not a legal tender at all. Nevertheless depositary banks in these letters or telegrams inform the Secretary of the Treasury or Treasiu'er of the United States that the deposits received by them from collectors, postmasters, and other Government officers are "almost wholly," "nearly all," "almost the entire amount," "a paper deposit," "made up of certified checks on banks," or "drafts and checks." If that is done now, would it not also be done though another variety of legal tender were created by this bill? This new form of legal tender would be different from any other on the face of the earth, so far as I know. Where else are checks made a legal tender? And it would not be all checks here, but only such as importers and taxpayers would be permitted by the Secretary of the Treasury to tender in payment of duties and other taxes. The bill provides that the checks shall only be a legal tender "during such time and under such regulations as the Secretary may prescribe." It would be an intermittent legal tender. When would its legal-tender quality be preter- mitted? Just when the use of checks to pay duties and taxes would be most needed — during panics. The above extracts are from letters of depositary banks, complaining of just such a failure on the part of the Treasury to facilitate the use of checks by importers and taxpayers in 1907. This brings us to the greater defects of the bill. what shall be done with the certified checks when received for duties on imports and (what is called in this bill) "internal taxes?" The bill does not contain one word about that. For 48 years the collectors of internal revenue have received checks and deposited their receipts in banks. In the fiscal year 1910, out of $289,957,220 collected, they deposited all but $45,903 in banks, that is, 99.84 per cent. For every dollar of internal revenue they deposited in subtreasuries they put $6,317 in banks. Evidently there is no need of more law to receive checks for internal revenue. The use of checks by collectors of customs is another story. For 60 years, from 1847 to 1907, customs receipts were deposited in no banks, such deposits being for- bidden by the subtreasury act of August 6, 1846, the national currency act of Feb- ruary 25, 1863, the national-bank act of June 3, 1864, and the act of March 3, 190_1, amending section 5153 of the Revised Statutes. But some four years ago many collectors of customs, a large majority, began to receive checks and deposit their receipts in banks. In his annual report for 1907 (p. 58) Secretary Cortelyou said: "In pursuance of the authority contained in an act of the Congress approved March 4, 1907, all collectors of customs, except those in subtreasury cities, have been in- structed to deposit their entire collections with a national-bank depositary if there be one located in the same town. ******* "The advisability of depositing customs receipts in this manner at subtreasury cities has been under consideration for some time, but no satisfactory conclusion has yet been reached." This state of indecision has continued four years, and the law of 1907 is not yet carried out at the principal ports and the capital of the nation. In these 10 cities discriminated against over 90 per cent of all the customs revenues is collected. Else- where the law is obeyed, but at all of the ports outside of subtreasury cities the aggre- gate collections are only one-eleventh or one-twelfth of the total customs revenues. In the fiscal year 1910 of some $333,000,000 received no less than $303,000,000 was deposited in subtreasuries and but $30,000,000 in banks outside of subtreasury cities. To every $1,000 of internal revenue deposited in subtreasuries 57,000,000 of customs is deposited in them. On the other hand, to every $1,000 of customs deposited by collectors in banks $9,600 of internal revenue is deposited in them. ^^Tiat is the reason why these receipts are handled so differently? Let us see. 262 ■ APPENDIX. In the fiscal year 1910 no internal revenue was deposited in the Treasury at Wash- ington or in the subtreasuries at Philadelphia, Boston, Cincinnati, New Orleans, and San Francisco. At New York $25,557,000 of internal revenue was collected and only $194 of it deposited in the subtreasury where $220,000,000 of customs receipts was deposited; $50 of internal revenue was deposited in the subtreasury at Chicago; $3,553 at St. Louis, and $42,106 at Baltimore. No collector of customs at these 10 cities deposited a dollar of his receipts in any bank. I believe the collector of customs at Baltimore,' William F. Stone, is the only col- lector at any subtreasury city who has asked the Secretary of the Treasury for per- mission to deposit customs receipts in national banks under the law of 1907. He asked for it in 1907 at the request of the depositary banks in Baltimore, and again in 1910 at the request of Baltimore merchants. Why? To receive checks for duties. In the Baltimore customhouse, upstairs, the collector of internal revenue receives checks in payment of taxes, while downstairs the collector of customs wants to take a preliminary step. The official on the second floor accepts checks for taxes or stamps from brewers and distillers, because he is a bank depositor, permitted by the Secretary of the Treasury to deposit his receipts in designated iDanks. The other official on the ground floor finds it inconvenient to accept checks from importers, because he is not a bank depositor. If the Secretary granted his repeated request and directed him to deposit his receipts in Baltimore banks, he would take checks like his fellow tax-gatherer in the same building. Under existing law the Secretary can not direct collectors to accept checks. In Baltimore Mr. Goldsborough is not directed to take them for internal revenue. He does it voluntarily, at his own risk. It is the immemorial usage of his office. And he is happy to accept checks that he knows are good . So it would be with the gentleman on the ground floor if the order came for him to deposit his collections in banks. But nothing would be said to him about checks. Taking them 'is his business, done at his peril, and naturally in safe ways. Last month I went to the office of the internal-revenue collector in Washington to see whether checks were not accepted on the next block to the Treasury. There was this sign on the closed doors: "Gone to bank; will return in 20 minutes." What had he gone to bank for? To deposit checks received for taxes. The same law that authorizes the Secretary to permit the deposit of customs receipts in banks by the collector at Milwaukee would authorize such deposits in banks at the home of the President (Cincinnati), at the Secretary's own home (Chicago), at Phila- delphia, at New York, Baltimore, Boston, New Orleans, St. Louis, San Francisco, and Washington, cities against which the Treasury Department discriminates for some reason. To read Secretary MacVeagh's annual reports, or hear him talk privately, no one could imagine a more fair-spoken man, a public officer less likely to treat any city or community with injustice, a keener lover of progress and enlightenment. In his annual report for 1909 (p. 13) Secretary MacVeagh said: "concessions to public convenience. ' 'The tendency to affiliate the Subtreasuries with the clearing houses of their localities is, I think, clearly in the right direction. There seems to be no good reason why the receiving and paying work of the Government should not be on the lines of the receiv- ing and paying work of other business organizations, and so far as the discretion lies with the Secretary of the Treasury, I shall consider with great interest suggestions for the adjustment of the ordinary paying and receiving business of the Government to the convenience of the people. "I even hope for, and I beg to suggest to the consideration of the Congress, a recon- sideration of the methods of the payment of customs duties so that these transactions may cease to be so very inconvenient and may conform themselves to the ordinary practices of business. The spectacle should not be possible of a detail from the Navy carrying $30,000 in cash through the streets of New York from the Subtreasury to the customhouse to pay duties on Navy importations and of a return trip from the custom- house by the representatives of the collector back to the Subtreasury with this same money, all because the collector of customs could not legally accept a check of the Navy Department upon the Subtreasury." It will be noticed that the Secretary here calls upon Congress for help, as the carter called upon Jupiter. Is the handsome sailor boy with a big revolver on his hip still carrying $30,000 in cash through the streets of New York from the Subtreasury to the customhouse to pay duties for the Navy? No longer. That was stopped, not by Con- gress, but by the Secretary himself. This disproves that " the spectacle " was possible, all because the collector of customs could not legally accept a check of the Navy De- partment upon the Subtreasury." APPENDIX. 263 Is it true that Collector Loeb can not by law accept a check on the same Subtreasury where he deposits annually over $200,000,000? It would be very strange it that were so. Take this case of the Navy importations. They numbered only 25 in the fiscal year 1909. The amount of duties ranged from 85 cents to 137,581. The total was $203,848; the average $8,154, The pay inspector in charge of the United States Navy pay office in New York disburses $40,000,000 annually and is kept constantly supplied with a deposit of $1,000,000 in the Subtreasury at New York. About as fast as he draws it down the deposit is replenished, day after day, by transferring funds to his account. Practically every day he has $1,000,000 to check against, which is far more than enough to pay these customs duties. But suppose the collector accepted a check from the Navy Department for 85 cents or for $30,000 and upon its deposit by the collector in the Subtreasury the pay inspector's balance was less than 85 cents or $30,000. What then? On April 22, 1865, the Attorney General decided that checks given by paymasters are valid obligations of the Government, although dishonored for want of funds to the credit of the officers who issue them (11 A. G. Op., 216). Consequently the collector would not suffer by taking these Navy checks under any circumstances or whatever the condition of the pay inspector's balance at the Subtreasury. In this matter of Navy importations there is another element making it absolutely safe for the collector to take these checks. There is no real collection of duties, no true increase of revenue, no net gain or loss. The Government pays duties to itself. The United States starts with the money and ends with it, gives it to the Navy with one hand and, with the other, takes it back from the collector, having as much as before. It is a question of shifting appropriations. So much appropriated for the Navy is charged to duties paid and is credited to the Treasury Department as cus- toms receipts. It is no money transaction. Drawing checks does not make it so. If what never happens were true and there were no money to cover the Navy's check, there would be no risk to the collector who received the check for duties, no risk to anybody, nothing but mere transferring of amounts between departments. This outlandish transaction of one department carrying actual cash through the streets of New York to pay duties to another department was first brought to my attention by Secretary MacVeagh when I saw him in August, 1909, at Dublin, N. H. In October at Washington, I got the particulars from the Navy Department, and inquired of a Treasury official what there was about Treasury bookkeeping to pre- vent the collector from accepting the check of a Navy paymaster. In November at New York I repeatedly visited the Navy pay office, the Subtreasury, and the cus- tomhouse to have checks received by the collector. He does not take them yet. But in February, 1910, the Treasury Department issued the following circular: " [1910. Department Circular No. 7. Division of Public Moneys.] "amending circular no. 102, DECEMBER 7, 1906, CONCERNING UNITED STATES DISBURSING officer's CHECKS. "Treasury Department, "Office of the Secretary, "Washington, February?, 1910. "To make payments of United States customs duties levied upon the importation of public property purchased abroad, any United States disbursing officer may draw his cheek m favor of the Assistant Treasurer of the United States with whom his account is kept and obtain from him a certificate of deposit to the credit of the Treasurer of the United States, in the name of the collector of customs, for the amount of the duties to be paid. The Assistant Treasurer will forward the original certificate to the Secretary of the Treasury and give the duplicate and triplicate to the disbursing officer. The disbursing officer will present the duplicate and triplicate to the collector of customs, who will accept them the same as that amount of money in payment of duties and issue a receipt therefor. "Department circular regulations of December 7, 1906, No. 102, concerning United States disbursing officer's checks are hereby amended accordingly. "Charles D. Norton, "Acting Secretary." Still the collector does not get the check. It seems to be considered not quite the proper thing to offer a collector. Therefore it is transformed into three certificates of deposit — that is, one in three forms, the original coming to Washington and two going to the collector. The disbursing officer instead of sending his check direct to the collector must have it taken to the Subtreasury and exchanged for certificates made 264 APPENDIX. while his messenger waits. That is the way the Government pays duties on imports to itself at the port of New York where the collector of customs will not accept for duties a check on the Subtreasury any more than on national banks, State banks, or trust companies. When Government officials are so excessively cautious that a collector of customs at New York dares not accept a check on the Treasury, nothing can be more refreshing than the brave words of Secretary MacVeagh that "there is no serious practical danger in taking a certified check. * * * The Government probably would not lose a penny in a thousand years" by taking certified checks in pajonent of revenue; but instead of proposing to act for himself decisively the Secretary again calls on Congress for help in his Annual Report for 1910 (p. 7): "relations of the department with business communities. " The relations of the Treasury Department with the business communities are still quite artificial, unbusinesslike, and burdensome. Unbusinesslike, I say, because unlike any business done by anybody else, governmental or private. I beg to call the attention of the Congress to a few of these matters that clearly ought to be set right, and which could be set right after the briefest consideration, for everything involved in them is palpable. Take, for instance, the payment of revenue to the Government. Why should an archaic regulation be permitted to continue that requires these pay- ments to be made in actual currency — and in only particular kinds of currency at that? There is no serious practical danger in taking a certified check. All of the' sirailar business of the country is done by checks, many not even certified. The certified check is considered the highest form of payment. The Government probably would not lose a penny in a thousand years by making this change; and in making it, the immense convenience of large fractions of the business public would be conserved — and the convenience of the Government almost equally. We are already doing things in the Subtreasury cities — and in other cities — to avoid some of this hardship. For some time now the Treasury Department has allowed banks in New York to deposit every day certain actual money at the Subtreasury, and the collector of customs takes orders drawn by the cashiers of those banks up to the amount of the deposit, on the theory that as the money is on deposit at the Subtreasury it is actually paid, in accordance with the law, to the collector. And I have recently extended that privi- lege to all Subtreasury cities. Butin addition to such accommodation of the practical difiiculties of customs payments it has long been true that internal revenues nave, in some cases from actual necessity, been paid in checks at the risk of the collectors. That should be all wiped out, and certified checks of national banks should be uni- versally received under such restrictions devised by this department as will completely safeguard the Government from all danger of loss." Not Congress but only the Secretary himself can in the end correct what he describes as "still quite artificial, unbusinesslike and burdensome" in the Treasury manage- ment of public payments. Shall Congress compel collectors of customs to receive certified checks, and relieve them of all personal responsibility? Why compel officers to do what they will perform without compulsion if given proper facilities? Would not certified checks be received for customs if the Secretary gave Collector Stone, in Baltimore, the permission he applied for last January (1910), and also ordered the collectors of customs in all the other subtreasury cities to deposit their entire collections with national-bank depositaries? As the checks would be received at the collector's risk, the Government would be safeguarded, and the collector could protect himself by taking only checks duly certified and from responsible parties. This brings us to the third of the Baltimore recommendations, namely, the drawing of checks on deposits by disbursing officers in payment of public dues. That is not mentioned in the Secretary's report or provided for in the bill submitted by the department. Since 1866 no United States deposits have been checked out of banks in New York or any subtreasury city. When withdrawn, the deposits, instead of being checked out, are transferred by the banks themselves to some one or other of the 10 Treasury offices and checked out from there. Thus for the past 45 years the useful and con- venient process of drawing checks on United States deposits in New York banks has been wanting. This defect in Treasury methods makes certain banking operations impossible. Suppose a United States depositary bank in the West has $100,000 of excess balance to transfer to the Treasury, and sends a draft for that amount on its New York corre- spondent, which is also a national-bank depositary. If the assistant treasurer at New York deposited the draft with the bank drawn on to the credit of the Treasurer of the United States, and the deposit was to be checked out of the New York bank, the APPENDIX. 265 interior bank would have no trouble in making such transfers and anticipate none. During the panic of 1907 the Assistant Treasurer, instead of depositing the draft, would demand currency, which the New York bank would refuse to give, and the draft would be returned unpaid to the interior bank. Then, in many such cases, the interior banks would let the United States deposits accumulate without trying to transfer the excess balances. These accumulations of uncovered excess balances in depositary banks during and after the panic of 1907 are shown in the following table, compiled from the figures in Senate Document No. 208 and House Document No. 714, Sixtieth Congress, first session: State. City. Bank. United States deposit allot- ment. Maxi- mum deposit. Uncov- ered excess. Date. Arkansas - . . Little Rock Cripple Creek Denver E xchange Na- tional. First National Colorado National. First National Boise City Na. tional. Iowa National Security National . First National do $80,000 59,000 400,000 112,000 105,000 299,000 60,000 200,000 400,000 100,000 320,000 220,000 140,000 259,000 196, 000 56,000 50, 000 719,000 182,000 60,000 70,000 .52,000 130,000 360,000 90,000 50,000 50,000 50,000 150,000 82,000 100,000 $479,504 840,000 500,000 139,000 123,000 401,000 70,000 243,000 .526,000 134,000 1,201,000 330,000 180,000 283,000 473,000 138, .539 93, 144 807,000 862,560 84,000 146,000 106,266 388,289 417,000 200,000 131,731 86,000 77,000 248,624 309,125 161,000 $399,604 781,000 100,000 27,000 18,000 102,000 20,000 43,000 126,000 34,000 881,000 110,000 40,000 24,000 277,000 82, 539 43,144 88,000 070,560 34, 000 76,000 54,266 258,289 57,000 110,000 81,731 36,000 27,000 98,624 227, 125 61,000 Dec. 31,1907 Do. Do Dec. 7, 1907 Do Pueblo Nov. 30,1907 Idaho Boise City Do. Iowa Des Moines Sioux City Leavenworth Dec. 31,1907 Do Do. Do. Kentucky Do Dec. 7, 1907 Owensboro Detroit National Deposit.. First National Conunercial Na- tional. First National Union National . . . First National of Buchanan County. First National Citizens National. . First National Bank of C o m - merce. National Association. Ardmoro National. Commercial Na- tional. La Grande Na- tional. Quaker City Na- tional. Second National . . First National Aberdeen National Minnehaha N a - tional. Utah National National Bank of the Republic. Exchange Na- tional. Old National Dec. 31,1907 Do. Do do Do. Mississippi VicksbuTg... Do. Kansas City Do. Do Do. Do. Williston Dec. 7, 1907 Ohio Cleveland Dec. 31,1907 Do do Do. A rdmnrp Do. Do Muskogee Do. La Grande Philadelphia Deo. 7, 1907 Pennsylvania Do Dec. 31,1907 Do. Do Reading Do. Aberdeen Nov. 30,1907 Do Sioux Falls Ogden Dec. 31,1907 Utah Do. Do Salt Lake City PpnknTie Nov. 16,1907 Washington Do Dec. 31,1907 do Nov. 30, 1907 Total 5,181,000 10,167,782 4,986,782 Now, there can be no widespread panic unless the interior banks becoming alarmed withdraw their balances from New York. Whatever allays their fears tends to pre- vent panics. Possibly, if the interior banks knew that even during a panic transfers could be made through their correspondents at the central reserve cities, such an assurance would of itself sometimes avert a panic. The only obstacle is the inertia of Treasury officials who have so managed for many years that the United States Treasury has kept no checking accounts with banks in Washington, New York, or any Subtreasury city. Practically, to check United States deposits out of banks, it is necessary that dis- bursing officers should have accounts in the banks. Since 1866 no disbursing officers have been permitted to deposit public money for disbursement in banks at Sub- treasury cities. This is wrong, as Secretary MacVeagh knows, but he permits himself to be persuaded that the law does not put it within his discretion to authorize deposits 266 APPENDIX. of disbursing officers in banks at Subtreasury cities. Secretary MacVeagh has been grossly deceived. On November 16, 1910, I wrote the following letter to Assistant Secretary A. Piatt Andrew: "I submit, for your consideration, that strict conformity to law does not preclude a just, wise, and satisfactory decision in the matter of placing disbursing officers' balances with national-bank depositaries anywhere, e. g., Baltimore. "In 1864 Attorney General Edward Bates decided that disbursing officers could deposit with national-bank depositaries. Thus, in June, 1866, they could deposit with the Treasurer, 9 assistant treasurers, 33 designated depositaries (individuals) and 384 national banks, or 427 depositaries in all (Treasurer's report, 1866). This privilege being abused. Congress restricted the selection of depositaries by them to the offices of the Treasurer and Assistant Treasurers, that is, to 10 places of deposit instead of hundreds (act of June 14, 1866), leaving the use of 'any other public depository' by disbursing officers to be specially authorized in writing by the Secre- tary. "That is the way the law was construed by Secretary McCulloch in 1866 and Attorney General Devens in 1877. It conforms perfectly to the opinion of Attorney General Bates in 1864, which was on the unlimited power, given the Secretary of the Treasury, to employ designated national banks as 'depositaries of public money, under such regulations as may be prescribed by the Secretary' (acts of Feb. 25, 1863; June 3, 1864; and sec. 5153, Rev. Stat., as amended by the act of Mar. 4, 1907). "An exhaustive examination of the law shows that disbursing officers situated in Washington and the same cities with the Sub treasuries, as Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, Philadelphia, St. Louis, and San Francisco, may, by special direction of the Secretary in writing, be allowed to make deposits with national-bank depositaries in such cities and draw checks against balances placed to their credit in such specially authorized banks." On November 26, 1910, Assistant Secretary Andrew replied: "I have carefully considered your letter of November 16, 1910, in which you assert that the law allows disbursing officers in Subtreasury cities to make deposits with national-bank depositaries in these cities, and to draw checks against balances placed to their credit in these national-bank depositaries. A contrary opinion has been expressed by the Solicitor of the Treasury Department in a series of decisions in which he has stated that the Secretary of the Treasury is prevented by law from authorizing disbursing officers' balances to be kept in national-bank depositaries in Subtreasury cities. "These opinions of the Solicitor of the Treasury Department are considered by the Secretary and myself to definitely settle this question. This is a matter that will surely be considered by the National Monetary Commission within a very short time. Therefore it would be inappropriate at this present time for the Treasury Department to consider this matter further, especially as nothing can be done without a change in the existing law. This whole question of disbursing officers' balances in Subtreasury cities is one that properly should be referred to the National Monetary Commission, who I am sure will give it every consideration." Your committee will please notice that, though this letter says "nothing can be done without a change in the existing law, " the Secretary does not point out the need of any such change to Congress, or refer to the subject in his report, or provide for it in the departmental draft of the proposed legislation transmitted by him. The series of decisions referred to consist of three opinions — one by the former Solicitor of the Treasury and two by the present incumbent. The Secretary is not bound by opinions of a Solicitor unless he adopts them and chooses to be bound. On the other hand, the Secretary is bound by an opinion of the Attorney General if the Secretary or any of his predecessors in office has duly submitted the question to the Department of Jfustice for decision. In 1864 the Secretary of the "Treasury submitted for the opinion of Attorney General Edward Bates this question: "Does the term 'public moneys' (in the fifty-fourth section of the national currency act of February 25, 1863) include moneys placed to the credit of disbursing officers on the books of the assistant treasurers, or held by them for disbursement, so that such officers can avail themselves of these (national banking) associations as they may avail themselves of other designated depositaries? (11 A. G Op., 27.) On March 19, 1864, the Attorney General held that "national banking associations, employed under the fifty-fourth section of the national currrency act of February 25, 1863, are 'public depositaries,' within the meaning of the act of March 3, 1857, chapter 114, and disbursing officers may avail themselves of such associations, except for the deposit of receipts from customs." (Ibid., p. 23.) APPENDIX. 267 The sections referred to in the acts of 1863 and 1857 have become sections 5153 and 3620 of the Bevised Statutes. The act of March 4, 1907, amended section 5153 so as to permit the deposit of customs receipts in national banks. tJnder section 5153, as construed by the Attorney General in his opinion of 1864, it is lawful for the Secretary to authorize deposits in designated national banks of moneys placed to the credit of disbursing officers on the books of the assistant treasurers, or held by them for disbursement. Section 5153 says: "All national banking associations, designated for that purpose by the Secretary of the Treasury, shall be depositaries of public money, under such regulations as may be prescribed by the Secretary." Does not this section, then, apply to all national banks duly designated, including those located in cities where there is the Treasurer or an Assistant Treasurer of the United States? This is the second great opinion of an Attorney General that Secretary MacVeagh makes no use of. The opinion of 1865 declaring paymasters' checks valid obligations of the Government, though dishonored for want of funds to the credit of the paymas- ter, is the other. Both would be exceedingly useful, if followed, in New York and other subtreasury cities. The ungracious and maladroit refusal of checks on the New York Subtreasury for Navy importations would cease, and when the Govern- ment has a deposit of .$1,000,000 or $10,000,000 iua New York bank it would be checked out. Assistant Secretary Andrew's letter is the first, within my knowledge, and ought to be the last, in which the head of the Treasury Department ever made the altogether unnecessary admission that the United States could make deposits in all national banks, but could not have them checked out of some banks by disbursing officers. In conclusion, it is evident that Congress should reaffirm the authority of the Sec- retary over the disbursement of United States deposits in whatever banks employed as depositaries and wherever located, even in Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, Philadelphia, St. Louis, San Francisco, or \\'ashington . Everything in the bill not essential to the emjjloyment of checks in public pay- ments should be left out. No distinction should be made between checks on national banks and checks on State banks and trust companies. No first lien of the United States on thef'assets of a State bank or trust company is practicable, and none should be required in the case of national bank checks received by collectors. Wherever checks are used throughout the world, it is without their being a legal tender in payment, and no such innovation should be introduced into United States law this year. If the risk of loss in receiving certified checks is but "a penny in a thousand years," let the collector take that risk. He will be careful not to lose his penny. The receipt of checks by public oflBcials is a matter of administrative expediency, which should not be prescribed by statute but by departmental regulations, as in England and practically as at present in this country. The present bill should be reduced to the equivalent of the first Baltimore recom- mendation and, besides the repealing clause, contain substantially only this: "That the Secretary of the Treasury shall, at his discretion and under such regu- lations as he may prescribe, permit the receipt of certified checks drawn on banks in payment of all public dues. 'The second Baltimore recommendation should be embodied in the bill in some such terms as these : "Du-ect the deposit of the same in depositary banks to the credit of the Treasurer of the United States." And the third Baltimore recommendation should be embodied in some such terms as these : "And authorize the transfer of such deposits to the credit of disbursing ofiicers in subtreasury cities as elsewhere." Finally, the act should go into effect as^oon as approved by the President, and not on June 1, 1911, as proposed by the department; it may be greatly needed before that date by the people and Government of the United States. 268 APPENDIX. Statement showing the total amount of 3, 4, and 5 per cent bonds refunded into 2 per cent consols of 19S0, and the premium paid by the purchasers for the new bonds. 3, 4, and 5 per cent bonds refunded under circular of Mar. 14, 1900 $445, 940, 750 New bonds issued at par. Old bonds refunded at following prices: 3 per cent bonds, at 105.562. 4 per cent bonds, at 111.349. 5 per cent bonds, at 109.535. 3 and 4 per cent bonds refunded under circular of Mar. 26, 1903 81, 142, 600 Price of new bonds, 102. 3 and 4 per cent bonds refunded under circular of Sept. 23, 1903 15, 826, 600 Price of new bonds, 102. 3 and 4 per cent bonds refunded under circular of Sept. 28, 1905 53, 032, 400 Price of new bonds, 101. 4 per cent bonds refunded under circular of Apr. 2, 1907 50, 307, 800 Price of new bonds, 103. The old bonds, for which the 2 per cent consols of 1930 were issued, were received by the Government at prices calculated every day to yield to the Government 2J per cent per annum upon the investment. The prices given in the above table are the average prices. Statement showing the amounts of t per cent Panama Canal bonds sold by the Govern- ment and the prices realized. Sold under the circular of July 2, 1906 $30, 000, 000 Price realized, 102.036. Sold under the circular of Nov. 18, 1907 24, 631, 980 Price realized 102 99 Sold under circular of Nov. 18, 1908 30, 000, 000 Price realized, 102.436. Range of market prices, by calendar years, of 2 per cent consols of 1930 and PanaTna Canal bonds of 1936. Calendar years. Two per cent consols. Panama Canal bonds. Highest. Lowest. Highest. Lowest. 1900 106i 109 110 109J 106} 1041 106 108 104i 103 101} 100 102 105 107 105 104 102f 102? 103i 102i 100 100 lOOJ 1901 1902 1903 1904 1905 1906 105 108 103i 102J 101 lOOJ 103i 102 lOlJ 99 100 lOOJ 1907 1908 1909 1910 ... 1911 [H, R. 30569, Slxty-flrst Congress, third session.) A BILL To restrain the Secretary of the Treasury from receiving bonds issued to provide money for the building of the Panama Canal as security for the issue of circulating notes to national banks, and tor other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury be, and he is hereby, author- ized to insert in the bonds to be issued by him under section thirty-nine of an act entitled "An act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August fifth, nineteen hundred and nine, a provision that such bonds shall not be receivable by the Treasurer of the APPENDIX. 269 United States as security for the issue of circulating notes to national banks; and the bonds containing such provision shall not be receivable for that purpose: Provided, That the authority bereby conferred shall cease when bonds to the value of one hun- dred million dollars, conteining such provision, shall have been issued. [H. R. 30570, Sixty-first Congress, third session.] A BILL To authorize the receipt of certified checljs drawn on national banlcs for duties on imports and internal taxes, and tor other purposes. Be it enacted by the Senate and Bouse of Representatives of the United States of Ameiica in Congress assembled, That it shall be lawful for collectors of customs and of internal revenue to receive for duties on imports and internal taxes certified checks drawn on national banks during such time and under such regulations as the Secretary of the Treasury may prescribe. No person, however, who may be indebted to the United States on account of duties on imports or internal taxes who shall have tendered a certified check or checks as provisional payment for such duties or taxes, in accord- ance with the terms of this act, shall be released from the obligation to make ultimate payment thereof until such certified check so received has been duly paid; and if any such check so received is not duly paid by the bank on which it is drawn and so certifying, the United States shall, in addition to its right to exact payment from the party originally indebted therefor, have a lien for the amount of such check upon all the assets of such bank; and such amount shall be paid out of its assets in preference to any or all other claims whatsoever against said bank, except the necessary costs and expenses of administration and the reimbursement of the United States for the amount expended in the redemption of the circulating notes of such bank. Sec. 2. That it shall be lawful at all times for duties on imports and for internal taxes to be paid in gold and silver coin, gold certificates, silver certificates. United States notes, and notes of national banks. Sec. 3. That section three thousand and nine of the Revised Statutes and all other acts and parts of acts inconsistent with this act are hereby repealed. Sec. 4. That this act shall be effective on and after .Tune first, nineteen hundred and eleven. [House Document No. 1184, Sixty-first Congress, third session.] Treasury Department, Office of the Secretary, Washington, December 10, 1910. Sir: I have the honor to recommend for the consideration of the Congress a request for authority for the Treasury to hold gold bullion and foreign coin in limited amounts as security for gold certificates. In the leading financial centers of Europe the large financial institutions — such as the Bank of England, the Bank of France, and the Reichsbank — count as part of their reserves, along with the domestic coins, foreign gold coin, and also gold bullion, and the change contemplated by this proposal is intended to bring our arrangements in these matters into line with the policies of other countries. The plan would add to the facilities of our great financial centers as free markets for gold by furnishing a better opportunity for bankers and dealers in exchange to secure or dispose of gold bars and foreign gold coin than has existed heretofore. Another important advantage, however, lies in the reduction of unnecessary coinage opera- tions in our mints. During the last 20 years there has been imported into this country $379,000,000 in foreign gold coin and of this amount $311,000,000 was deposited at the mints for recoinage. In the meantime, $829,000,000 of the United States gold coin has been exported. The $311,000,000 of foreign gold coin was recoined at our mints at the expense of our Government, while more than double that amount of our own money was exported during the same period. The coinage of $311,000,000 of foreign gold coin into American coin must have cost at least $800,000, or $40,000 per year. We have now some $940,000,000 in gold coin stored away in the various subtreas- uries and mints, the greater part of which is a reserve against gold certificates that in all liiielihood will never be presented for redemption in coin. In the majority of cases where gold certificates are presented in large quantities for redemption it is for the purpose of securing gold bars, yet we continue to coin each year nearly $100,000,000 in gold, at an annual cost of somewhere between $200,000 and $300,000. If gold 74706—11 3 270 APPENDIX. certifica-tes might be issued agaiiist this gold bullion, the m&,jbr part of this cost would be saved -without in any Vay irflpairing the redeenjability of the 'certificates, and at the sathe time 'ba;Qfcers and exc'hange dealers could be in a position to secure bars, which they prefer for purposes bf export, with greater prompthess and less expense. In view of the fact that America produces nearly $100,000,000 in gold per year, and that the inevitable drift of gold must be from America, it is peculiarly reasonable that a considerable part of the gold which we produce should not be transferred at once into coin. The plan contemplated in the following suggested bill offers abundant safeguards against the excessive reduction, of the deposits of United States gold coin held against the certificates in requiring that the amount of gold bullion so held shall not at a,ny time exceed one-third of the total amount of gold certificates atsuch time outstanding and in providing that the receipt of gold bullion and foreign gold coin shall always remain at the discretion of the Secretary of the Treasury. A BILL To amend section 6 of the currency act of Marcl). 14, 1900, as amended by the act approved ,-March4, 1907, Be it enacted by the Senate and House of Representatives of the United States of Ainerica in Congress assembled, That section six of the act of March fourteenth, nineteen hun- dred, as amended by the act of March fourth, nineteen hundred and seven, be, and the same is hereby, further amended by the addition of the following clauses: "And provided farther, That the Secretary of the Treasury may, at his discretion, receive, with the assistant treasurer in New York and the assistant treasurer in San Francisco, deposits of foreign gold coin at their bullion value in amounts of not lebs than one, thousand dollars in value and issue gold certificates therefor of the descrip- tion herein authorized. "And provided further, That the ^^cretary of the Treasury may, at his discretion, receive, with the Treasurer or any assistant treasurer of the United States, deposits of gold bullion bearing the stamp of the coinage 'mints of the United Stated or the assay office in New York certifying their weight, fineness, and value, in amounts of not less than one thousand dollars m value and issue gold certificates therefor of the description herein authorized. "But the amount of gold bullion and foreign coin so held shall not at any time exceed one-third of the total amount of gold certificates at such time outstanding." I hope that the recommendation embodisd in this suggested bill will have the support of the Congress. Sincerely, yours, Franklin MacVeagh, Secretary. The Speaker of the House op Repeesentatives. ' [H. E. 31857, Sixty-first Congress, third session.) A BILL To amend section six of the currency ^ct of March fourteenth, nineteen hvmdred, as amended by the act approved Match fourth, nineteen hulidred and seven. Be it enacted by the Senate and 'House of Representative^ of the United States of America in Congress assembled, That section six of an act to define and fix the standard of value, to mairitain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for othel: purposes, approved March fourteenth, nine- teen hundred, as amended by the act approved March fourth, nineteen hundred and seven, be, and the same is hereby, further amended so as to read as follows: "Sec. 6. That the Secretary of the Treasury is hereby authorized and directed to receive deposits of gold coin with the Treasurer, or any assistant treasurer of the United States, ill sums of not less than twenty dollars, and to issue gold certificates therefor in dehdminationS of not less than ten dollars, and the coin so deposited shall be retained in the Treasury and held for the payment of such certificates on demand, and used for no other purpose. Such certificates shall be receivable for customs, taxes, and all public dues, and when 60 received may be reissued, and when held by any rlational banking association may be counted as a part of its lawful reserve: Pro- vided, That \t-henever and so long as the gold coin and buUioh held in the reserve fund ih the Treasury for the redemption of United States notes and Treasury notes shall fall and remain below one hundred million dollars the authority to issue cer- tificates aS herein provided shall be suspended: And provided further, That whenever and so lon^ afl the aggregate amount of United States notes and silver certificates in the general fund of the Treasury shall exceed sixty million dollars the Secretary of APPENDIX. 2-71 the Treasury may, in his discretion, suspend the issue of the certificates herein pro- vided for: And provided further, That of the amount of such outstanding certificates one-fourth at least shall be in denominations of fifty dollars or less: And provided fur- ther, That the Secretary of the Treasury may, in his discretion, issue such certificates in denominations of ten thousand dollars, payable to order: And provided further. That the Secretary of the Treasury may, in his discretion, receive, with the assistant treasurer in New York and the assistant treasurer in San Francisco, deposits of foreign gold coin at their bullion value in amounts of not less than one thousand dollars in value and issue gold certificates therefor of the description herein authorized: And provided further, That the Secretary of the Treasury may, in his discretion, receive, with the Treasurer or any assistant treasurer of the United States, deposits of gold bullion bearing the stamp of the coinage mints of the United States, or the assay office in New York, certifjdng their weight, fineness, and value, in amounts of not less than one thousand dollars in value, and issue gold certificates therefor of the de- scription herein authorized . But the amount of gold bullion and foreign coin so held shall not at any time exceed one-third of the total amount of gold certificates at such time outstanding. And section fifty-one hundred and ninety-three of the Revised Statutes of the United States is hereby repealed." o IMPORTATIONS FOR EXHIBITION HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS OF THE HOUSE OF REPRESENTATIVES 6 1st congress, 3d SESSION ON H. E. 30281 JANUARY 20, 1911 WASHINGTON SOVERNMENT PRINTING OFFICE 1911 1 ill COMCMITTBK ON W^YS AND MBJ^I*"S, HOUSE OF REPRESENTATIVES, SiXTY-Fmsi Congress, Third Session. rOHN DALZELL, SAMUEL W. McCALL, EBENEZER J. HILL, HENRY S. BOUTELL, JAMES C. NEEDHAM, WILLIAM A. CALDERHEAD, JOSEPH W. FORDNEY, JOSEPH H. GAINES, NICHOLAS LONGWOETH, SERENO E. PAYNE, CHAiRMAir. JOHN W. DWIGHT, WILLIAM R. ELLIS, CHAMP CLARK, OSCAR W. UNDERWOOD, EDWARD W. POU, CHOICE B. RANDELL, ROBERT F. BROUSSARD, FRANCIS BURTON HARRISON, WILLIAM G. BRANTLEY. THUR E. Blauvelt, Clerk. C N T E i\ T S , Bill under consideration (H. R. 30281 ) 23S Statement of: Parsons, Hon. Herbert 233 Spratt, Charles E 233-237 Secretary of Treasury, Opinion 23S III IMPORTATIONS FOR EXHIBITION. Committee on Ways and Means, House of Representatives, Washington, D. C, Friday, January 20, 1911. The committee met at 10 o'clock a. m., Hon. Sereno E. Payne in the chair. Present: The chairman and Messrs. Dalzell, Hill, Needham, Cal- derhead,' Fordney, Longworth, Ellis, Clark, Underwood, Poii, and Randell. The committee then proceeded to the consideration of the bill (H. R. 30281) to provide for the entry under bond of exhibits of arts, sciences, and industries. PRELIMINARY STATEMENT OF HON. HERBERT PARSONS, A REPRESENTATIVE FROM NEW YORK. Mr. Parsons. The object of this bill is to enable the ilerchants and Manufacturers Exchange of New York to hold expositions in the buildings that it is erecting on the new New York Central site, along Lexington Avenue at Forty-sixth and Forty-seventh Streets. It is an organization for profit ; and therefore such goods as might be exhib- ited there could not be exhibited there under bond, as the tariff act provides. Either a special bill such as this is necessary, or some change in the general law is necessary. Mr. Spratt, of the company, is here to explain to the committee just what the Merchants and Manufacturers' Exchange proposes to do. Mr. Dalzell. Mr. Parsons, we passed several bills oi the same character as this in connection with other expositions. Is this drawn in the same language ? Mr. Parsons. It is; it is drawn in the same language. The Chairman. Only one, I think — the Jamestown Exposition bill. Mr. Dalzell. There were similar ones in connection with Chicago and St. Louis. Mr. Parsons. I think the language is taken from the Jamestown Exposition bill. Mr. Spratt has here a copy of a letter from the Secretary of the Treasury, addressed to the chairman of the com- mittee, which says in effect that the form of the bill is all right; it is simply a question of policy. I will asK that Mr. Spratt be heard at this point. STATEMENT OF MR. CHARLES E, SPRATT, OF NEW YORK CITY, VICE PRESIDENT OF THE MERCHANTS AND MANUFACTURERS, EXCHANGE OF NEW YORK. Mr. Spratt. This bill provides for nothing beyond what is granted by the present tariff law; but the law makes a single exception — that the privilege shall not be extended to corporations organized for profit. It permits the introduction of works of art, and collections 233 234 IMPORTATIONS FOR EXHIBITION. of illustrations of the progress of arts, sciences, and manufactures, when imported for exhibition by any society or institution estab- lished for the encouragement of arts and sciences and education, or municipal corporations, providing such privilege shall not be allowed to associations or corporations engaged in or connected with business of a private or commercial character. It is only because of this exception that this bill becomes necessary. You will find that the expositions which we propose to hold are mostly of a scientific and educational character. But it is impossible to hold them excepting for profit, because there are no organizations sufficiently interested in the subjects to hold these expositions for any other purpose than profit. For instance, the Engineering and Machinery Exposition, which would be held at the same time as the convention of engineers to be held in New York next year, is educational and scientific and neces- sary, and has been a part of every convention held by this organiza- tion ia other parts of the world. But it must be conducted for profit. It can not be conducted without such a privilege as is asked for in this bill, because much of the machinery is experimental, and is brought here from abroad for exposition purposes only, and then returned, and would not be brought here if duty had to bepaid on it. Then there is the International Labor and Allied Trades Exposition, which is held annually in London, and which would be commercial in that it would be mostly an exhibit of manufactured rubber goods. Of course, that part would all be domestic; but the interesting character of the exposition, and what gives it a public interest, is a large display of rubber in its crude form, showing its process of production and preparation for manufacture. That must come from the rubber-producing countries, and it is all crude raw material. If duty must be paid upon it, it will not be brought here. Mr. LoNGWORTH. There is not any duty on raw rubber. Mr. Spratt. I mean, for instance, the display as it is gotten up — the trees, the rubber in its various states, etc. In London it occu- pied about 15,000 square feet of floor space, showing the rubber from the tree to the manufactured product, the machinery and every- thing of that sort, and all the processes. The International Association of Chemists will meet in New York next spring, at the invitation of Congress. At all of their conven- tions — the one at Berlin, the one in Paris, and the one in London — they were surrounded by a complete exposition of the latest devel- opments in chemistry. That will be impossible at their convention here, unless some provision is made whereby those exhibits can be admitted temporarily free of duty. An exposition is being prepared of traffic and travel. It consists almost entirely of reproductions of scenes in all parts of the world. It is practically an advertisement for the railroads and the munici- palities of the world who want to attract tourists. The Norwegian Government, for instance, have an exhibit amounting to perhaps 50 feet square — a reproduction of some of the scenery in Norway. All of that it would be impossible for them to bring over here if duty had to be paid on it. The principality of Monaco have a re- production of Monte Carlo, about 50 feet long and 25 feet high, which cost them over $50,000, which they have shown in various parts of the world, and whicli must be returned immediately at the IMPORTATIONS FOE EXHIBITION. 235 close of this exposition; but if duty had to be paid on it it could not be brought here. I have here a picture that will show you how the different munici- palities illustrate their attractive features in the travel exposition at London. Those things are absolutely worthless at the close of the exposition; they are not even worth returning. They are destroyed. They are nothing but framed pictures and things of that sort. But if duty was demanded on them, they could not be shown here. That is something that is educational. It enables the people of the country to have an ocular demonstration of European sights that otherwise they might not see. Yet such expositions as that, which are con- stantly being held in the other capitals of the world, are impossible in this country under the present restrictions, because they can only be held for profit. There is a proposition to make very extensive exhibits of the resources and industries of South America. That would be impossi- ble if duty was exacted. An exposition of women's work in arts and crafts would attract dis- plays of the development of women's work in all the different coun- tries of the world. A very extensive exhibit was made in ^'ienna last summer along those lines; and it would be not only educational but of vast value to the working women of this country. That can only be made possible by surrounding it with a paying exposition of merchandise bought by women, which would be domestic: but the exposition can not be given a public interest without attracting all these international exhibits, and that is impossible under the present law. An exhibit of furniture and decorations illustrating the history of the old and the development of the modern schools of design calls for the importation of examples of different schools of design, the owners of which are perfectly willing to exhibit;. but of course they would not want to pay duty and return tliese examples after the close of the exposition. The only commercial expositions contemplated are as follows: First, the one which is designed to reproduce the Leipzig Fair in New York; and perhaps seventy-five per cent of those exhibits would be unsalable and would be returned. The others would probably be sold, and duty paid. Second, the exposition of French arts and in- dustries, which is designed for 1912. In reporting to the committee on this bill, the Treasury Depart- ment mentions the fact that it will grant to an individual corpora- tion a special privilege not granted tc all olher_ corporations organ- ized for similar purposes. There is no intention on our part to ask for a monopoly. VCe had two alternatives: One to bring in a private bill such as this regarcUng our own building ; or, the other, a general bill amending paragraph 715, which we were advised against doing. The period of this privilege is limited by the bill to this year and next year. We hope that by that time something will be done with the present law that wiU permit the Secretary of the Treasury to extend to private institutions such as ours the privilege? thal:^ the law now permits him to extend to municipalities and etlucational institutions. We have no desire to create a monopoly; and we should be just as well satisfied with a general bill, if in th.e opinion of the committee it is desirable. 236 IMPORTATIONS FOB EXHIBITION. Mr. FoEDNEY. Mr. Spratt, would permission of the kind asked by you deprive the Treasury of any revenue ? That is to say, is it true that unless those goods can come free they will not come at all 1 Mr. Spratt. They will not come at all. Mr. FoRDNEY. Therefore the Treasury Department will not lose any money if this bill is passed ? Mr. Spratt. No, sir. Mr. FoRDNEY. If the goods are sold they must pay duty ? Mr. Spratt. If the goods are sold they must pay duty, or if the goods disappear at all. The regulations of the Treasury Department provide for the admission of these goods under an inventory. At the conclusion of the exposition the inventory is checked by the custom- house officers. The very fact of an article being missing indicates that it has been sold and removed, and the duty becomes payable. Our organization would have to give to the Treasury Department satisfactory bond to insure the payment of such duties when they were declared due. Mr. FoRDNEY. The only concession that you are asking, then, is to be permitted to bring those goods over here for exhibit without the payment of duty if they are returned ? Mr. Spratt. That is quite right, sir. The Chairman. Do you offer any premiums by way of inducement for the entering of these goods ? Mr. Spratt. Premiums ? The Chairman. Yes; any competitive premiums — any premiums to be given on the exhibits ? Mr. Spratt. No, sir; do you mean in the way of medals and com- petition ? The Chairman. Is there a premium offered to people as an induce- ment to them to come and exhibit their goods ? Mr. Spratt. Yes — tlio possibility of creating trade in the commer- cial expositions; and in the scientific expositions, the possibility of creating new trade in the future. The Chairman. You give no premiums directly ? Mr. Spratt. No, sir. Mr. Parsons. I just wish to call Mr. Fordney's attention to this part of the letter of the Secretary of the Treasury. He says: It is believed that the provisions of the bill can be enforced without danger to the revenue at a comparatively small expense, which will probably be more than equaled by the additional revenue to be collected. Mr. FoRDNEY. I want to ask again, Mr. Spratt, when you propose to open your exposition ? Mr. Spratt. On the 6th of next May. Otherwise I would not be here during this short session. Mr. FoRDNEY. Then, unless you get this bill passed at this session, you can get little or no benefit from it ? Mr. Spratt. None at all until another year. Mr. Dalzell. Is this bill subject to tariff amendment? Mr. Spratt. This is a copy of the act passed in connection with the Jamestown Exposition. Mr. Dalzell. I understand; it has the same text. Mr. LoNGWORTH. Would it not be subject to the amendment to strike out this particular merchants and manufacturers exchange, and make it available to all ? I think it would. ■ IMPORTATIONS FOR EXHIBITION. 237 •Mr. FoRDNEY. To everybod}'. Mr. LoNGWORTH. Mr. Dalzell, is that second proviso usual in these bills ? Mr. Dalzell. Yes; yes. The Chairman. Does this association own the large building, a picture of which is in this exhibit ? Mr. Spratt. No, sir. It is owned by the New York Central Rail- road and the New York, New Haven & Hartford Railroad, and is leased to this corporation for 50 years. The Chairman. This, unlike the Jamestown corporation, is a sol- vent corporation, as I understand ? Mr. Spratt. I hope so; I believe so. Mr. Dalzell. What is its capital stock, Mr. Spratt ? Mr. Spratt. Ours ? Mr. Dalzell. Yes. Mr. Spratt. $1,400,000— $400,000 of which is real, and a milhon of which is Mr. Dalzell. Water ? Mr. Spratt. Water. Mr. Dalzell. It ought to float pretty well. Mr. Spratt. We purchased several businesses to incorporate in this. The reason I state that is because, being a leasing corporation, it would be unnecessary for the corporation to have that much capital; but in order to answer you correctly I must give you the total amount. Mr. Calderhead. That is a good, honest statement. Mr. Dalzell. Does it own the building of which you have a picture here? Mr. Spratt. No. We have a 50-year lease made by the New York Central and the New York, New Haven & Hartford Railroad Co., who own the property, and whose railroad tracks run under the build- ing. It is a part of the new terminal station. The Chairman. The reason of Mr. Dalzell's inquiry is that we are trying to find out whether there is any probability of the company dropping from under, and the Government becoming liable to any- body in order to keep the good faith of the Nation. Mr. Spratt. We provided the New York Central Railroad Co. with a bond of $400,000, issued by three of the largest bonding companies in the country, insuring the carrying out of our obligations under that lease. We have been able to satisfy them, Mr. Chairman, as to our solvency. The business is not new, you understand. It has been conducted for 20 years on the corner of Forty-third Street and Lexington Avenue, which property was taken by the New York Cen- tral as part of their terminal; and to keep the institution alive the railroad companies have provided these new and improved quarters. We are now trying to extend our business and make it international, as is done in the case of the Palais Royal and the Grand Palais in Paris, the similar institution in Berlin, and the Olympic and Crystal Palace in London. They take care of the expositions of this kind that are held in those capitals, but which now can not be held in the United States, and never are, by reason of this provision. The Chairman. Are there any further questions ? If not, I think that is all. (The committee then proceeded to the consideration of other matters pending before it, after which it adjourned.) 238 IMPORTATIONS FOE EXHIBITION. APPENDIX. Treasury Department, Office op the Secretary, Washington, January 11, 191 1. 'Chairman of the Committee on Ways and Means, House of Representatives. Sir: I haAe the honor to acknowledge the receipt of your letter of the 9th instant, transmitting, for an expression of my views, a copy of H. R. 30281, entitled "A bill to provide for the entry under bond of exhibits of arts, sciences, and industries." Said bill provides, in effect, that all articles imported from foreign countries for exhibition at expositions to be held in 1911 and 1912 by the Merchants and Manu- facturers' Exchange of New York shall be admitted free of duty under such regula- tions as the Secretary of the Treasury shall prescribe, and that such articles may be sold or withdrawn for consumption upon the payment of duty thei;eon, and that duty shall be assessed on articles so sold or withdrawn according to their appraised value at the time of withdrawal for consumption or use. Paragraph 715 of the tariff act of August 5, 1909, which is identical in all respects with paragraph 702 of the tariff act of July 24, 1897, provides for the free entry of "works of art, collections in illustration of the progress of the arts, sciences, or manu- factures, photographs, works in terra cotta, parian pottery or porcelain, antiquities and artistic copies thereof," when imported for exhibition at a fixed place by any State or by any society or institution established for the encouragement of the arts, sciences, or education, or J"r a municipal corporation, provided that such privilege "shall not be allowed to assiiciations or corporations engaged in or connected with business ot a private or commercial character." The department's records show that under date of March 18, 1910, the Merchants and Manufacturers' Exchange of New York requested that the department authorize the admission free of duty of all articles to be imported for exhibition purposes at international mercantile expositions to be given by said exchange at New York, and that on March 24 last the said company was informed that as it appeared from the record to be engaged in, or connected with business of a private or commercial char- acter, it was not entitled to the privilege granted by paragraph 715 of said act of August 5, 1909, and that there was no provision of the tariff laws under which articles could be imported for the purpose mentioned without the payment of duty thereon. The said bill, if enacted, will constitute a new departure in the customs laws in the following respects: 1. It will grant to an institution established for commercial purposes the privilege of importing merchandise free of duty for exhibition at expositions conducted as a private enterprise and in part, at least, for profit. 2. It will grant to an individual corporation a special privilege not granted to all other corporations organized for similar purposes. AATiether or not it is advisable to pass the said bill is solely a matter for determina- tion by Congress, but if it is enacted it is believed that its provisions can be enforced without danger to the revenue at a comparatively small expense, which will probably be more than equaled by the additional revenue to be collected. Respectfully, Franklin MacVeagh, Secretary. [II. E. 30281, Sixty-ftrst Congress, third session.] A BILL To provide for the entry under bond of exhibits of arts, sciences, and industries. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That all articles which shall be imported from foreign countries for the sole purpose of exhibition at expositions of the arts, sciences, and industries and products of the soil, mine, and sea, to be held in expositions to 'be held in nineteen hundred and eleven and nineteen hundred and twelve by the Merchants and Manu- facturers' Exchange of New York, in the buildings in the city of New York owned or controlled by the Merchants and Manufacturers' Exchange, a corporation organized under the laws of the State of New York, upon which there shall be a tariff or customs duty, shall be admitted free of the payment of such duty, customs, fees, or charges, under such regulations as the Secreatry of the Treasury shall prescribe; but it shall be lawful at any time during the exposition to sell, for delivery at the close thereof, any goods or property imported for and actually on exhibition in the exposition build- IMPORTATIONS FOR EXHIBITION. 239 ings, subject to such regulations for the seciu-ity of the revenue and for the collection of import duties as the Secretary of the Treasury may prescribe: Provided, That all such articles, when sold or withdrawn for consumption or use in the United States, shall be subject to the duty, if any, imposed upon such articles by the revenue laws in force at the date of withdrawal; and on articles which shall have suffered diminu- tion or deterioration from incidental handling and necessary exposm-e the duty, if paid, shall be assessed according to the appraised value at the time of withdi-awal for consumption or use; and the penalties prescribed by law shall be enforced against any person guilty of any illegal sale or withdrawal: Provided further, That nothing in this section contained shall be construed as an invitation, express or implied, from the Government of the United States to any foreign government, state, municipality, corporation, partnership, or individual to import any such articles for the purpose of exhibition at the said exposition. Sec. 2. That the Secretary of the Treasury may, in his discretion, extend the time of the expositions for a period not exceeding six months after December thirty-first, nineteen hundred and twelve. Cornell University Library HJ 9.A5C98 1911 Payment of import duties by certified ch 3 1924 005 749 449 r^%w wt" -.• ^'