rins WILLIAM GIBBS McADOO The second liberty loan WM 6")TH CONGRESS I 1st Session i SENATE IRS'T LOS ANGEUE9^- 112 STATE NO R MAL SCHOOL THE SECOND LIBERTY LOAN AND THE CAUSES OF OUR WAR WITH GERMANY ADDRESS OK ■ Hon. W. G. McADOO SECRETARY OF THE TREASURY DELIVERED AT THE ANNUAL CONVENTION OF THE AMERICAN BANKERS' ASSOCIATION, AT ATLANTIC CITY, N. J. September 28, 1917 G# PRESENTED BY MR. SHAFROTH SEPTEMBER 29, 1917.— Ordered to be printed WASHINGTON GOVERNMENT PRINTING OFFICE 1917 THE SECOND LIBERTY LOAN AND THE CAUSES OF OUR WAR WITH GERMANY. Mr. GOEBEL AND GSNTLEKEN 01 Mil AMERICAN Mam. JOCIATION ! It would be difficult for me to express adequately to yon my gratitude tor the pouh introduction of your president and Cor the cordiality of this reception. i should like to repeal here whal r said In Kansas <'ity, Cans., Mr. Goebel's honte tov n, when I bad the pleasure of speaking then on the Qrsl Liberty Loan. I should like to testit % \ here, as I did there, to my admiration of the sturdy and virile patriotism <>f tliis adopted citizen of the Onited States. He Is a man whose unswerving Integrity of character, unbending courage, and love for America bave sel an example t<> men even of native birth. 1 would that some men who claim to have been born American citizens could be infected with bis splendid qualities <>i' patriotism. It is a ureal pleasure, gentlemen, to ineel you here in this convention, and to thank you in person, and to express to you mj deep appreciation of the lance that the American bankers bave given to the Treasury Department during ibis last year of stress and trial. The responsibilities of that depart men( ran not in discharged, my friends, without your support ami without the sin. jioii o! every American citizen. We lace a time in the history of America when, with the cooperation of everyone, the humbles) as well as the highest, we can do the impossible. Hut without that kind of support, without seeminglj alted patriotism animating at all times the people, and animi particularly men of your stamp and character, who must he load"i-s in the business life of your respective communities, these great tasks can nol be per- formed. 1 know, however, that the American people will respond to the of their country, that they intend to make America more than she lias ■ been in her history — regnant for right, for justice, for democracy throughout the world. 1 would also take advantage of this occasion to express my appreciation of the splendid work the American bankers did in helping to provide that monu- mental fund of mercy, the Med Cross war fund. You not only contributed your money, but your services, and you had the opportunity — and you discharged it well of rendering another great and creditable service to' your country. The credit of the Federal r.overuinent throughout its history has been main- tained inviolate: its obligations bave always been scrupulously observed engagements have always been honorably fulfilled. The national credit is the fir>t bulwark of defense of the Nation's rights. If that credit be impaired, the whole economic and financial structure of the country is imperiled. Finance is so fundamental to war that the first duty of every nation upon the outbreak of hostilities is to conserve its financial resources and to make the national credit Impregnable and sufficient for all the purposes of the war. In all of the great financial operations in which the Cxovornmont has been engaged in the past, and in all of those in which it must engage in the future the American banker must because of his knowledge, experience, ability, and influence, become the first line of defense and offense. His thorough coopera- tion with the Government relieves the task, however stupendous, of any doubt. To you. the patriotic bankers of America, has conie a great responsibility am! a great opportunity — the responsibility of helping your Government solve it< huge financial problems sine;, study and the opportunity to serve your country in ways peculiarly useful and effective at this time. THE CAUSES 01 rHE WAS. It is perhaps important that the reasons why we are at war with Germany should be restated as often as possible. There are some noisy agitators and disloyal writers in this country who have persistently endeavored to confuse the issue and to carry on a seditious and subtle propaganda for the purpose of 88293"— 17 3 45i.(» 4 THE SECOND LIBERTY LOAN. producing discontent among the people and of giving aid and encouragement to the enemies of the United States. A large part of this propaganda was un- doubtedly financed by the German Government directly, from the outbreak of the European war, August, 1914, until America entered the war, April 6, 1917. Much of this same propaganda has probably been carried forward since America entered the war by German money left in the United States for that purpose by Von Bernstorff, the adroit and malevolent German ambassador, before he was dismissed. With that money and with money provided by German sym- pathizers and certain disloyal elements in the United States the propaganda has continued, but in a modified form. It would be difficult to ascertain ex- actly how much money has been expended for this purpose, but some of the recent disclosures by the State Department indicate bow active were Germany's own representatives while in this country. It is well for the American people to realize the hypocrisy and disloyalty of all these efforts, and to determine to stamp them out relentlessly and remorselessly, because the interests of the Na- tion must at no time be imperiled more by the traitors within our walls than by the enemies without. It has been repeatedly stated that America entered this war to make liberty and democracy secure throughout the world. While that is true, it must always be remembered that America entered the war for a more immediate reason. Noble and idealistic as is her championship of universal democracy, she entered this war primarily because of the persistent insults and aggressions of Germany, the wanton disregard of American rights within our own borders as well as upon the high seas, the contemptuous violation of international law, and the ruthless destruction of American life and property. WANTON MI'EDEK AND DESTITUCTION ON THE HIGH SEAS. Before this war broke out, every civilized nation accepted and honored the rule that in time of war a merchant vessel, neutral or belligerent, should not be sunk by an enemy war vessel unless the lives of the passengers and crew were first made safe. Under this long-observed law an American citizen had the right to travel upon a British or a French merchant ship with the full knowledge that that ship would not be sunk by a German war vessel until the passengers and crew were taken from the ship and their safety secured. Civilized warfare has always respected the lives of noncombatants. If a German regiment should capture a French town or city, and, while marching through the streets, should fire upon a crowd of unarmed and helpless men, women, and children, killing a great number of them, crippling and wound- ing others, the whole world would gasp with horror ; and yet this would be far less inhuman than to sink a ship at sea containing noncombatant men, women, and children, because on land those who are wounded may be rescued, taken to the hospitals, and saved, while many who are not hit by bullets may actually escape. The reason the rule of the sea has always been rigidly enforced by every civilized nation is that if you sink an unarmed ship without giving the noncombatants a chance to escape, they are thrown into the water and all must perish. There is no chance for the wounded or the uninjured to escape. The remorseless sea engulfs them all and obliterates life " without a trace." What, therefore, would be a crime of the first order in the killing of noncombatants on land is a crime of colossal and inexcusable proportions when it is committed upon the high seas. Yet this is exactly what Germany has done consistently since the outbreak of the war. She has destroyed merchant vessels on the high seas without warning, killing noncombatant men, women, and children without mercy and in the most brutal and ruthless fashion, in defiance of all international law and every ac- cepted rule of humanity and civilization. The rights of Americans upon the high seas have been wantonly disregarded. It is not an answer to say that Americans should not have sailed on merchant ships bearing the British or the French flag. They had a right to sail on those vessels, and were compelled to sail on them because there were not enough mer- chant ships under the American flag to furnish transportation for American busi • ness men, American consular and diplomatic officers, and others engaged in peace- ful and rightful pursuits to go upon their legitimate errands. They were forced to sail under foreign Hags and were entitled to the protection accorded by univer- sally accepted international law and the mandates of civilization and humanity, viz. that the ships would not be sunk by an enemy vessel until the safety of passengers and crew was first assured. THE SECOND LIBEBTY LOAN. PIJSDGES iln! ITEU VVI1 il IMPUNITY. On September I, L915, the German Government gave the following assurance to the United States : "Liners will not be Mink by submarines without warning and with. nit gafetj of the lives of Doncombatants, provided thai the liners do aol try to escape or offer resistance." Tiiis promise was promptly violated. <>n October 15, six weeks thereafter, the British steamship Irabie wafl Mink and three American i lost The German Government said to the United States: "The Imperial German Government regrets and disavows the act and bus aotlfled Commandei Schneider accordingly." Scarcelj bad this assurance i>< en received before the Italian steamer Atu was torpedoed without warning and seven American lives were destroyed the L".ith of November, 1915, the American vessel William I'. Frye was in violation of Internationa] law. Following that, attacks were made upon era] American vessels In gross violation of these promises, and on Decembi the British liner Persia was sunk In the Mediterranean without warning and more than .'Iiki passengers and members of the crew were lost, among them being an American consul traveling to ids post This American consul was obliged to sail on this British vessel because there was do American vessel upon which be could travel, and he was killed while In the line of duly, tx aring upon bis person the Hau r of the American Republic. He was entitled to pr< under international law, as well as under the repeated assurances of the Government. On January 7. 1016. the German Government again assured the United SI that German submarines in the Mediterranean would not sink em hant vessels, except In accordance with the general principles of Internationa] law, and "only after passengers and crews had been accorded safety." ary it'.. 1916, the German Government said to the United Stab "Germany has limited her submarine warfare because of her long-standing friendship with the United Stales, and because by the sinking of the i which caused the death of citizens of the United States, the Gei oan r affected neutrals, which was not the intention, as retaliation should be confined to enemy subjects." The German Government promptly proceeded to disregard aces, sinking numerous ships without warning, injuring a number of A citi- and Imperiling the lives of many more. Whereupon the Ami . tuetit notified the German Government on the 18th of April, 1911 onths the; ■•■ tei", t ll.'U — "If it is still (he purpose of the Imperial German Government to prosecute relentless and indiscriminate warfare against vessels of commerce by thi of submarines, without regard to what the Government of the must consider the sacred and indisputable rules of interna': id the universal 1 tized dictates of humanity, the Government of the United States is at last forced to the conclusion that there is but one course I pursue I uless the Imperial Government should new immediately declare and effeel an abandonment of its present methods of submarine warfare against passenger and freight carrying vessels, the Government of the United States can have do choice but to sever diplomatic relations with the German Em altogt i her." Whereupon the German Government, on the 4th of .May, 1916, about two weeks thereafter, gave definite assurances to this Government that orders had been issued h> German naval officers "in accordance with the era! principles of visit and search in the destruction of merchan sized by international law." in. and in spite of these repeated assurances, the German < lovernment pro- ceeded to sink merchant vessels without warning and without securing the of the lives of passengers and, crew. One American was killed on the h steamer CabOskO; on October _' i iiu.i; l J loan. 7 .his war, that it was aot essential to protect America's Integrity and honor, then yellow blood runs in ids reins; there la not a drop of the red blood ol our ancestors in 1dm. ii' there be a man, woman, or child In America who has the slightest doubt about the rectitude of your Government, I wanl them to know this record, to realize the patience and forbearance under the mosl extreme provocation of your noble President—] wanl them to know thai record, because, knowing it, they <-;m look any man In the face, thej can face their God, with the i i u that America went to the utmost Hunt in it> endeavor to preserve an bono peace. The outrages committed upon American rights through ■ structlon of American life and propertj during the years 1915, 1916, an< were provocation enough, i>ui when the German Government under Its em , i 1917, to mark off hundreds of miles of the higl surrounding Great Britain, France, and Italy, and to declare that ll ■■ on sight every American vessel which entered these prohibited waters, in pursuance of lawful commerce and of International right, and actui ceeded to carry out the threat, there wa left for Amerl* M or else submit to this tyrannical and tnonstrou military despot. ! POSSIBLE. We chose to fight— and why? Because, first, national honor and self- Imperatively demanded it, and. second, because we can never concede the of any nation, however powerful, to order American vessel and citizens to keep off the high seas and prevent America from selling her products of the farm, the factory, and the mine to other nations If we had tamely submitted to thai order it would have brou and ruin to the American people. Not only would it have '■•■ ■ to their honor, self-respect, and standing as a nation, but it would hav( ■ irreparable injury, loss, and suffering to our people. If an. this war could with impunity order vessels of the United of any portion of the high seas, which are the common property o nations of the earth, and if we had submitted, we would have i fateful precedent In a future war some other nation might concl idi American vessels carrying American citizens and American commerce Should be Ordered Off Of some other portion of the high seas, and we v obliged to submit or to fight under all of the disadvantages of havinj in the first instance. If we had been submissive, it would not b next step for the nation which ordered us off of 500 mil< - of the Atlai io order OS to Keep off the entire Atlantic Ocean except that part withit from our own shores, over which we have acknowledged jurisdlcti could never submil t" such a destruction of our vital rights. AGKIcn.Tfct, AND OTHEB [NDUSTBIE8 THKEATENED. On the material side the disaster of submission is most striking. Th< order forbade our ships from carrying our people and our commerce t- • Britain, France, and Italy. Our prosperity and our welfare as Inseparably connected with our right of free and unmolested intercourse with those nations. In the fiscal year 1917 our total exports to G lain. France, Belgium, and Italy were s:'..4.".T.000.000, in round numbers; in 1916 they $2,247,000,000, in round numbers. Our exports to those countries con- stltute more than one-half of our expert trade with the entire world. Tl exports represent the surplus products of our farms, of our mines, of oui tories. If we are denied a market for them, these farm products would ro waste upon our own soil, the production of our mines and factories w he greatly reduced, labor would be thrown out of employment, stagnation of In- dustry would result, and suffering and want would stalk in the land. Our pro- duction always has exceeded the home demand, and if we are denied foi markets and attempt to sell the whole of our products at home, the result be demoralized prices, with returns far below (he cos' ,,f production, and c< quent injury to every man. woman, anil child in America. No one more than our farmers, the grain growers and the cotton growers particularly, would ' injured by obedience to the Kaiser's order. While our export trade would be destroyed, our import trade would disappear. Certain imports are essential to our national life ami existence. "We must have them, and we can never submit to any tyrant who forbids us to sail the hi^h seas in the peaceful pursuit of our 8 THE SECOND LIBERTY LOAN. legitimate Interests and In the unmolested enjoyment of the rights we won by the blood and courage of our ancestors: If we bad yielded to this insolent order signed by the Kaiser in his palace in Berlin, he would have destroyed by one stroke of his pen more than $3,400,- 000,000 of our commerce, and American vessels and American citizens would have been excluded from all intercourse with the great and friendly nations Of Great Britain. France, and Italy. By one stroke of the Kaiser's pen he would have accomplished more destruction on our farms, in our factories, and in our mines than he could achieve with all the armies and navies of the German Empire. It is a monstrous edict, and it would be a monstrous thing for America to submit to it. And so we had to fight for our rights, and so it is that we are engaged in a righteous war — a war which we intend to bring to a successful Issue by the organized might of this Nation. We intend to match organization against organization, science against science, American skill against German si ill, American valor against German valor, and I have not the shadow of a doubt thai the victory will be complete, that America's honor will be vindicated, thai America's vital rights will be preserved, that peace upon a stable and just basis will he reestablished, and that democratic institutions will be extended throughout the earth. MONEY THE FIRST ESSENTIAL. When war comes to a nation the first essential is money. We must keep our soldiers and sailors armed and equipped with the best that money can buy and American skill devise. We must constantly provide them with necessary clothing and food; we must pay their wages; we must, as a humane and just Nation, support their dependent families while they are risking and giving their very lives for us; we must supply them with a reasonable amount of life insurance. The first duty of the Nation to its gallant sons who go forth to die upon the field of battle to protect your lives, your property, and your honor is that it shall restitute to them what it destroys when it drafts them into the service of their country or when they volunteer to go into the service of their country. Do you realize that when the Government reaches out its hand and takes the young man who is earning $1,200, $1,500. $2,400, $5,000 a year, more or less, it not only says, "You must put your. life in the balance and give it, if need be," but it conscripts that man's income and earning power down to $396 a year, because that is all it pays to a soldier? Not only that, but if he has loved ones at home whom he must support, can you imagine his emotions when he is taken out, to die perhaps, knowing that his wife and his babies may starve behind him or be dependent upon charity? The Nation also destroys the insurability of that man. He finds instantly that no matter how healthy his sinews, nor how strong his heart, no matter how good a risk he would be in peace time, he can get no insurance. With his earning power reduced, he is at the same time unable to make any sort of insurance provision for those dependent upon him. Is it asking too much of the generous, just, and humane people of America to restitute also the insurability of that soldier, to give him the opportunity of buying insurance from his own Government at reasonable rates, so that he may make the last loving provision that every man should make for his family if he has to face death? The House of Representatives has answered that question by passing the war insurance bill by a unanimous vote, and the Senate, I am satisfied, will soon follow suit; so that our brave defenders will go forth with the knowledge that everything that the love, affection, and sense of justice of a great people can do for them has been done. We must Increase, strengthen, and maintain our Navy; we must provide a predominant fleet of aeroplanes and air fighters; we must build a great mer- chant fleet, so that our long line of communication with our gallant soldiers in France may be maintained and our commerce carried across the high seas in defiance of the German Kaiser and his submarines; we must succor our noble compatriots in arms — the British, the French, the Italians, the Belgians, and the Russians — by lending them money with which they can buy arms and food and other supplies in our markets. All these things must be done and done quickly. The money that We are raising by taxation and by bond issues is being de- voted to these purposes, and to no other purposes. More than $1,000,000,000 of the money that you are going to provide this fiscal year is being expended or Will be expended upon your Army, upon from 1,800,000 to 2,500,000 of the THE SECOND LIBERTY LOAN. 9 bravest and the most gallant soldiers thai ever donned the uniform. And four Navy, recruited i<» the lull with brave tars under whose uniforms beat the true hearts of American freemen, is being built up, equipped, and manned with this money. After this war is over all of these expenditures will not be lost, because the greal fleet of merchant ships we are now going to construe! at last and put Into operation will give American commerce the one thing thai it lias needed all these years. We shall spend more than $1,000,000,000 tor merchant ships. It is a most unhappy fad -and I allude to it not as criticism but simply to show thai 11 Is not always wise to form hasty judgments upon measures that seem at the moment radical it Is a most unhappy fad thai when we endeavored in September, 19] l, one month after this war in Europe broke out, to make the beginnings of a Governmenl merchanl marine t<» proted our conm and our people, 11 was filibustered to death, and thai it was only after the lapse of two years of hard struggle that a bill was finally passed. Bui ve have gOl the MM now. and we have go1 the Shipping Board, and we have gol in" money. American skill and Ingenuity are giving an example to the world of what an aroused nation can do. We are going to turn out ships and more ships, standardized and perfected, and put them on the high sea- with more rapidity than has ever been done before in the history of the world. It is upon the Treasury of *he United States that every demand in time of war focuses, because everything goes back to the gold pile. I should like you to realize that every dollar that is paid to a soldier, every pair of Bhoes he puts on his feet, every piece of clothing he wears, every gun he carries, every cartridge he tires, every 18-inch shell that is hurled from the monster guns of our battleships, and every shovelful of coal that is consumed iii their boilers, everything that touches this war and involves a Government expendi- ture, depends Upon the money in the United States Treasury. When you turn on the electric light in tins building, and turn it on in other buildings miles from here, it must come from the power plant. The strain is there, and unless that power plant is constantly supplied with fuel with which to keep those lights burning, you have darkness. And so, in the same way, unless you keep the gold pile in the Treasury of the United States sufficient for the demand, unless you keep it so large and so ample that what- ever strain your Government puts upon it for the purposes of tins war will find a ready response, then the light of liberty goes out in the world and where is America? The problem of the American Treasury is the problem of the American banker and the problem of the American people; it is the problem of keeping the Treasury supplied with the means to carry forward these great objects under the direction of the Commander in Chief of the Army and Navy of the United States, your President, whose glorious stand for America's honor and America's rights, for justice, civilization, and democracy have made him one of the greatest of the world's outstanding figure-. The problem is twofold: To supply essential credits to the allied Govern- ments, because it is vital to the cause that their strength and credit shall be sustained; and, secondly, to meet our own requirements. BETWEEN $13,000,000,000 AND $14,000,000,000 IN BONDS. Roughly speaking, and after allowing for the amount of revenue to be raised by taxation for the fiscal year ending June 30. ibis, we shall have to raise by additional bond issues between thirteen and fourteen billions of dollars. Ir is estimated that .$5,000,000,000 will represent additional loans to the allied Gov- ernments, which, in turn, will give us their obligations hearing interest. This $5,000,000,000 will not, therefore, represent expenditures ; it will represent loans based upon the good faitli and honor of these foreign Governments— loans which will ultimately he repaid to the American people. Bui as we must finance these loans, they are an integral part of our general financial opera- tions. To raise thirteen to fourteen billions of dollars on or before the 30th June, 1918, by the sale of bonds in recurring installments seems to some people an impossible task. It is a stupendous undertaking, hut it is not impossible for America. It is not easy, but it can be done. Our resources are adequate; our will is perfect; our spirit is Indomitable; and our success is certain. We have only to pull together — bankers, lawyers, doctors, manufacturers, farmers, wage earners, laborers, men and women alike, Girl Scouts and I'.oy Scouts, and every Other classes of our people- and we can do the Job. Already we have demon- strated what a united people can do when partisanship is subordinated to 10 THE SECOND LIBERTY LOAN. patriotism; when love of country becomes supreme. I look forward, therefore, with confidence to the success of the recurring campaigns we must make for the s.-ileof Liberty Bonds, and I am comforted by the reflection that the Government lias the solid and unswerving support of the patriotic men who compose the American Bankers' Association. THE BONDS OF THE SECOND LIBERTY LOAN. 'I'lic new bonds bear 4 per cent interest and are exempt from all State, municipal, and local taxation, except estate and inheritance taxes, and all federal taxes except superincome taxes, excess-profits taxes, and inheritance taxes. They are convertible into another issue of bonds, if authorized by the Congress, bearing a higher rate of interest than 4 per cent. 1 shall not enter into the details, because Treasury circulars and regulations will explain them fully. 1 do desire, however, to advert briefly to the taxation feature of I bonds. The first Liberty Bonds bore 3£ per cent interest and were exempt also from supertaxes. These bonds did not make the widest appeal. To be successful with recurring issues of Liberty Bonds, it is necessary that they should appeal to i he masses of the people. In order to give the exemption from supertaxes on the first Liberty Bonds, it was necessary to make the rate of interest corre- spondingly Low. 'die returns show that of the 4,000,000 subscribers to the first Liberty loan 3,960,000 subscribed in amounts of $10,000 and less. The aggregate of such subscriptions was approximately $1,300,000,000, or 62^ per cent of the first offering. To most of these subscribers exemption from the supertaxes was of no value, or in any case of little value, whereas to the 40,000 subscribers who bought large blocks of Liberty Bonds the exemption from the supertaxes gave an undue advantage. In order that they might have this advantage, the small holder was obliged to receive a lower rate of interest. L was estimated that under the pending House bill the exemption from supertaxes would make a 3£ per cent Liberty Bond in the hands of a man with a Large Income equivalent to a taxable bend bearing 9& per cent interest per annum for that part of his income in excess of $::, 000,000. The inequality of this plan is obvious. L at naught the principle now firmly grounded in our national policy, that gradu- ated taxes shall be laid upon wealth in order that the burden of taxation may be equitably distributed and made to bear more heavily upon the rich than upon the poor. No one now challenges the correctness of this principle. It is, there- fore, essential that Government bonds should be issued upon a basis which will be equally just to the poor man and the rich man, so that each may pur- chase these bonds upon practically the same interest basis after allowing for the different scales of taxation. The present law accomplishes that object. It should be borne in mind, moreover, that if the Government should con- i ue to exempt from supertaxes bonds issued during this war. tlie time would come when there would be created in this country a class of people of great wealth, enjoying great incomes wholly free from tax burden. A grave risk would be invoLed in such a policy. It would be fraught wuth great danger to the State and would be well calculated to produce disconte;it with tax burdens falling thus heavily on the many to the exclusion of the few. For the purpose of illustration, let us suppose that the war continues so long that $20,000,000,000 of bonds, bearing 4 per cent interest, should be out- tding, and that they were exempt from all taxation, including supertaxation. Tl interest charge on these bonds would be $800,000,000 per annum, almost as much as the entire expenses of the Government at the outbreak of this v. ;. . Let us suppose that half, or $400,000,000, represented the exemption from ill] ertaxes which was accorded to people of great wealth. Bear in mind that am taking arbitrary figures merely for the purpose of illustration. This . i 1 1* -< I resources of the banks were estimated to be $1,500,000,000 I with these limited banking resources the Union Government raised $3,000,000,000 by bond sale-, or twice the amount of the banking resources of the country. Upon the same basis we Bhould now be able to raise $74,000,000,000 through Government loans. J am i that this may be for Governments, Is largely, If not wholly, spent within the limits of the United states; only a small fraction of it Is expended iii any other direction. T operations involve in very considerable measure merely transfers of cr< and the proceeds of these bonds are rapidly being sent back Into the channels of business for the purpose of promoting and enhancing the prosperity of the people of the United states. There lias been much speculation as to what are the annual savings In the United states, as to whether or not they are large enough to lands Of the Government In this war, and as to how much will he left after the D of the Government are satisfied, t have myself been greatly confused by the many conflicting estimates and theoretical observations with which I . been favored. Recently there was placed in my hands an Interesting and illumi- nating paper on this subject by Col. M. W. Thompson, now in charge of Finance Division of the Signal Corps of the United States Army. The argu- ment and the figures arrayed hi this statement are impressive. I quote two I i-aphs therefrom : "Careful Investigation of the present available supply of capital suggests the conclusion that the present needs of the Government may be adequately met. and that the entrance of the Government into the market as a competitor for capital need not prevent necessary expansion. The needs of the country must be and will be first served, but there will be sufficient capital left for industrial purposes. Patriotic response to the needs of the country need not force bankers into a policy of retrenchment. Those conclusions are striking. Indeed, they are at variance with the general attitude of financiers, but they are soundly based upon accurate statistical information. "In a normal year, savings from all sources in the United States, from corporations, business men, farmers, and investors generally, amount to from $5,< 1(10,000,000 to $6,000,000,000. In 1916 the supply of capital in the United States was about two and a half times the normal amount. In thai year sav- ings in this country, Including those reinvested by corporations in their own enterprises, amounted to $15,000,000,000. Conservative estimates for the cur- rent year indicate that the aggregate for 1917 available for the use of the Covernment in prosecuting the war and for the general purposes of financing industry may reach $18,000,000,000." I have not had opportunity yet to study the elaborate tables and the argument which have been submitted to me in support of these conclusions, but I have examined them sufficiently to convince me that they are worthy of deep study. I am greatly indebted to Col. Thompson for the service he has rendered in mak- ing this analysis, and for the privilege he has given me of making use of it. I hope to be able to publish Col. Thompson's statement in the near future. Whatever differences of view there may he about the annual savings of the American people, it is undoubtedly true that they are so large that with the other resources of the country upon which we may draw, there can be no doubt whatever of the ability of the people of the United Slates to finance every de- mand which the Government may make upon them for the purposes of this war. If the ordinary savings which have been made heretofore voluntarily are now augmented by the savings which can be effected under the pressure of patri- otism and necessity, by prevention of waste, the practice Of genuine economy. the cutting off of luxuries during the period Of this war. what may not the American people bo able to do? No one can gauge the latent power Of the peo- ple <>f the United States in that respect. Already the country is aroused to the importance of the situation, and there is a spirit of determination and co- operation throughout the land which augurs well for the success of every financial undertaking of the Government, and for the continued maintenance of our industrial and commercial situation unharmed and unimpeded by the essen- 451U 14 THE SECOND LIBERTY LOAN. tial financial operations of the Government. This sounds at variance with what I am going to say subsequently about the necessity of stopping unnecessary i apital expenditures during the war, but it is not. That action is none the less desirable, because, as ;i matter of prudence and Of wisdom, we should conserve the resources of the Nation in every possible direction. WAR SAVINGS CERTIFICATES. In the matter of savings, which are of such prime importance, the Treasury proposes to issue in the near future and to sell to the people war savings certificates in as .small denominations as $5, maturing in five years, and upon such a reasonable plan that the humblest person in the land may be encouraged to save all that he can and to invest in an absolutely safe security bearing interest, while at the same time doing his part to sustain the Government aud help win the war. I have appointed a War Savings Committee to take charge, under the direction of the Secretary of the Treasury, of this important branch of the work. This committee consists of Messrs. Frank A. Vanderlip, chair- man ; Frederick A. Delano, of the Federal Reserve Board; Henry Ford, of Detroit; Charles L. Baine, of Boston; Eugene Meyer, of New York; and Mrs. Elizabeth Bass, of Chicago. It will not be possible to offer the war savings certificates during the forthcoming liberty loan campaign, but as quickly as certificates will be made available for the people of the country through the post offices, internal-revenue offices, customs offices, the banks, ■iicies that may be designated by the Government. The value of this campaign for war savings certificates is nol alone in the amount of money that may be saved, but in teaching the people of the United States on a nation-wide scale and through an intelligent presentation of the tacts, the value of thrift and saving. Its beneficial effects ought to survive the war and have a permanent influence upon the future economy of the country. Upon the bankers rests a peculiar duty and responsibility at this time. They can render inestimable service, not alone in promoting savings, but also in exercising a wise discrimination as to loans involving new capital expendi- tures and in discouraging every unnecessary undertaking involving fixed in- vestments until after the close of this war. We must realize, my fellow country- men, that the gravity of the situation for the Nation and for the entire world is so impressive that the Government must preempt and occupy exclusively, if necessary, until this war is over the entire investment field in the United States. THE CONSERVATION OF FINANCIAL RESOURCES. It should be the first duty of every citizen to invest gladly his available means in Government bonds, and it should be the duty of the patriotic governors of oar States, the mayo s of our cities, and the controlling authorities in every political subdivision in the country to discontinue unnecessary public works and improvements until this war is over. Private enterprise should be governed by the same principle. I do not mean to have you infer that this is a de suggestion that an immediate attempt be made upon any organized scale to discourage unnecessary capital expenditures ; but I do wish to urge that you, the bankers of America, make a deep study of this question so that if the time comes when it is desirable to take action, you will be prepared to cooperate quickly with the Governi snt It should be remembere that the National Government has no power, through legislation, to regulate or control capital expenditures of States, municipalities, or political subdivisions of Slates, nor has it the power to legislate with regard to such investments by private corporations, except those engaged in interstate commerce. Through the • ooperation of the States, effective measures could in time be concerted, no doubt, to meet this question if the necessity arises. But that would take time. In the absence of State action it is possible, however. for the bankers of the country to discourage, to a very great extent, unnecessary or unwise investment of capital in private and public enterprise? during the period of this war. I hope that this association will appoint a committee to study this problem and be prepared to act as the public interest may require. It* is also a matter of great importance that the bankers of America shall conserve their own resources, having always in mind the supreme necessities of the State, so that they may be able, as the first bulwark of the Government'.". credit, to respond quickly and effectively to any calls the Government may make upon them. In this connection it is most important, gentlemen, that interest STATE NORMAL SCHOOl rilF. SECOND LIBERTY LOAN. 15 ratal should be kept at ;i reasonable level throughout the country, that suffi- cienl expansion of credll should be bad to carry on the great commercial industrial operations of the Nation and to assist in the flotation of suece Issues of Government bonds. Proper credit expansion at this tremely essential to the Government in this war — and 1 emphasize and y.ui men of knowledge, ability, and experience are the best Judge* of tiiar. Proper credit expansion la Jusl as essential to carrying these greal opei forward as food is oecessary for human life. Von nnisi not be afraid o oust not be afraid to break old dogmas; we must nol i><- afraid I i 9 that arc manifestly Bound things; we must not, gentlemen— if you will permit me to assume for a moment that I am a banker— we must not hug this poor dogma of do! rediscountlng when it is essential that banks should r< count to carry forward the legitimate operations of the war. \ er wanl to keep himself in a vise when your Government and yon have framed the law which gives you the opportunity of making disaster impos TBEAsiky ( } i: oi INDEBTEDNESS. I should like to Impress upon you the Importance of a prompt and wide- spread response on the pari of the bankers of the United states to the i imrs of short-time Treasury certificates which will be made from time to time. e certificates, as you know, have maturities of from thirty days to four months, and are sold in anticipation of bond offerings and the paymen Through their use, the necessities of the Government during the intervi tween recurring bond issues arc met, and the process of financing these bond issues is not only eased but simplified. Undue strain upon the credi sources of the country is avoided because payments are spread over a period and adjusted in such a way as to prevent disturbance and inconvenience. The banks can render highly valuable and patriotic service to the Government by purchasing promptly, and to the extent required, these Treasury certifl as offered. THE GREAT VALUE OF THE FEDERAL RESERVE SYSTEM. We are fortunate in having the Federal Reserve System, whose usefulness is now becoming increasingly manifest. This system is demonstrating every day its tremendous importance and value to the banks and to the American e. It not only gives strength and security to our financial structure, but it offers the essential means of legitimate credit expansion and flexible note issues, for which the country has so long stood in dire need. This system has already won the approval of the bankers and people Of the United States. I wish that the State banks would realize I opportunity they now have of promoting their own interests by joining the Federal Reserve System, and by doing so to make that great system more impregnable for their I and ommon interest of the country. It would consolidate the linancial strength of the Nation in such a way that the operations of the Government in this war could not be put in question. It is a commanding duty of self-interest and patriotic service to the country. The next offering of the Liberty loan has just been announced. The amount 000,000,00< ». With the right reserved to allot 50 per cent of the oven scription. 1 should like you to understand, gentlemen, thai in the determina- tion of the amount of these offerings I am controlled by Inexorable facts. These facts are the actual necessities of your Government. I do not determine these questions arbitrarily. We are face to face with a situation where the needs of the < lovernmenl must be met. When I announce the amount of an offering of Liberty bonds, please remember that it is the minimum with which the Government's business can be carried on and the war effectually conducted. It is the first duty of patriotism, gentlemen, that the needs of your Govern- ment for this war shall always he met. because it' you fail once, disaster will Overcome the entire Nation, and we can not contemplate that. I should happier if the loan were larger, but I have endeavored to make it as small as possihle in order that the least possible strain may lie put upon the country's resources during the crop-moving season. Tilt: SECOND I D3ERTV LOAN MUST BE A - We must make this loan a success. We can make it a success. The failure of a Single issue of Government bonds would be worse for America than a dis- aster upon the field of battle. We must never let that happen. 16 THE SECOND LIBERTY LOAN. A few days ago T read the following manifesto issued in Berlin by the League of German .Municipalities: "If money talks, the President of tlic United States may learn by October 18, when the subscription lists close, thai the echo of the new war fund given by the German people will have drowned out completely the clamor of unending protests to which his reply to the Tope has given stimulus." Let us meet that challenge by a subscription to our Second Liberty Loan on the 27th day of October, nine days after the close of the German loan, which will make clear to the German military despotism that America marshals not alone her brave soldiers upon the held, her invincible Navy upon the high seas. her industries throughout the length and breadth of this land, but, as well, her financial resources, and that she is determined to use them all without stint and regardless of sacrifice to vindicate American rights, outraged too fre- quently by German infamies. Let us answer this challenge by making Hear to the world that the American people, with transcendent love of justice and of country, stand solidly behind their great President and support unequivocally the purposes of this war. America's responsibility. Fellow countrymen, we are at one of those great points in the progress of civilization where pregnant issues for the whole human race are to be deter- mined. It is an inspiring thought that noble, free, peaceful, and liberty-loving America has been called by God to powerfully influence, if not to determine, the course of future events. We have a grave responsibility, and I know that we shall discharge it worthily, of American patriotism and American ideal- ism. These problems are of unparalleled novelty and magnitude. The means of determining action must frequently be more instinctive than logical. We are traversing unknown and uncharted seas. Our compass must be the steadfast cooperation of the best wisdom and intelligence of the country, inspired by a lofty patriotism which neither obstacles can discourage nor death defeat. Amer- ica's sacred rights must be vindicated ; a just and lasting peace must be es lished ; democracy must be triumphant; despotism must be destroyed; and, when these great things have been accomplished, everywhere throughout length and breadth of the civilized world men shall proclaim noble America as the valiant knight who came upon the scene in the blackness of the night and rescued civilization. o UNIVERSITY ot CALIFORNIA AT - ANGELES LIBRARY This book is DUE on the last date stamped below JUN2 5 1951 DCTgO ■■■