the rights of the holders of such notes, debentures, bonds, or other obligations. The Secretary of the Treasury, in his discretion, is authorized to purchase any obligations of the corporation to be issued hereunder, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities hereafter issued under the second Liberty bond act, as amended, and the purpose for which securities may be issued under the second Liberty bond act, as amended, are extended to include any purchases of the corporation's obligations hereunder. The Secretary of the Treasury may, at any time, sell any of the obligations of the corporation acquired by him under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of the obligations of the corporation shall be treated as public-debt transactions of the United States. Such obligations shall not be eligible for discount or purchase by any Federal reserve bank."

Section 13 is amended to read as follows:

"SEC. 13. Upon the expiration of the period of one year within which the corporation may make loans, or of any extension thereof by the President under the authority of this act, the board of directors of the corporation shall, except as otherwise herein specifically authorized, proceed to liquidate its assets and wind up its affairs: Provided, however, That nothing herein contained shall be deemed to prevent the corporation from completing any projects begun within said period or any extension thereof. It may, with the approval of the Secretary of the Treasury, deposit with the Treasurer of the United States as a special fund any money belonging to the corporation or from time to time received by it in the course of liquidation or otherwise, for the payment of principal and interest of its outstanding obligations or for the purpose of redemption of such obligations in accordance with the terms thereof, which fund may be drawn upon or paid out for no other purpose. The corporation may also at any time pay to the Treasurer of the United States as miscellaneous receipts any money belonging to the corporation or from time to time received by it in the course of liquidation or otherwise in excess of reasonable amounts reserved to meet its requirements during liquidation. Upon such deposit being made, such amount of the capital stock of the corporation as may be specified by the corporation with the approval of the Secretary of the Treasury but not exceeding in par value the amount so paid in shall be canceled and retired. Any balance remaining after the liquidation of all the corporation's assets and after provision has been made for payment of all legal obligations of any kind and character shall be paid into the Treasury of the United States as miscellaneous receipts. Thereupon the corporation shall be dissolved and the residue, if any, of its capital stock shall be canceled and retired."

Section 16 is amended by adding thereto the following subsections (f) and (g): "(f) The corporation may acquire by proceedings in eminent domain or otherwise all lands, rights of way, and other property necessary for the purposes of the corporation.

"(g) Notwithstanding any other provision of law it shall be lawful for the corporation to construct or commence the construction under the provisions of this act of any bridge, dam, dike, or crossway over or in any port, roadbed, haven, harbor, canal, navigable river, or other navigable waters of the United States."

The CHAIRMAN. The first witness will be Secretary Mills. Mr. Secretary, you may proceed.

STATEMENT OF HON. ODGEN L. MILLS, SECRETARY OF THE TREASURY, WASHINGTON, D. C.

Secretary MILLS. Mr. Chairman, and gentlemen of the committee S. 4755, the so-called Wagner bill, as I read it, seeks to accomplish four objects:

(1) To make grants or loans to the States aggregating $300,000,000 to furnish relief and work relief to the needy;

(2) To authorize the Reconstruction Finance Corporation to make loans in the aggregate amount of $1,460,000,000 (a) to political subdivisions and States and quasi public corporations to finance projects self-liquidating in character; (b) to private limited dividend corpora

tions to finance projects self-liquidating in character; and (c) to private corporations to carry out certain specified projects, likewise selfliquidating in character;

(3) To authorize the Reconstruction Finance Corporation to advance $40,000,000 to the Secretary of Agriculture for the purpose of financing sales of agricultural products in the markets of foreign countries;

(4) To provide for the construction of authorized public works through the creation of an emergency construction fund of $500,000,000 to be financed through a special bond issue.

I approve of the above-menioned first three objects sought to be accomplished, subject to certain important suggestions as to structure and protective provisions.

That is a pretty good start, Mr. Chairman, when I can agree with 75 per cent of a Democratic bill.

Senator WAGNER. Well, it means that you are 75 per cent right. Senator WATSON. Well, Mr. Secretary, I am beginning to suspect

you.

Senator BARKLEY. There is hope yet for you, Mr. Secretary. Senator BLAINE. That is more than 75 per cent in the matter of

amount.

Senator WATSON. Yes, perhaps that is so.

Secretary MILLS. The fourth proposal, however, is open to very. serious objection. To reduce to the simplest terms the very complex provisions, what is actually contemplated is the creation of a special or extraordinary Budget in the amount of $500,000,000, to be covered by a special bond issue, the spending of approximately $300,000,000 additional for public works, and under certain conditions permitting the capitalization of approximately $200,000,000 of public-work items otherwise included in our ordinary Budget for the fiscal year 1922.

Assuming that the Congress adopts a revenue measure which will produce $1,125,000,000 of new revenue, and reduces expenditures below the Budget figures by approximately $350,000,000, we should balance our Budget for the fiscal year 1933 exclusive of provision for the sinking fund. If, however, this particular provision should become law, it will automatically unbalance that Budget by $300,000,000.

The device of creating an extraordinary Budget does not conceal this result; it accentuates it. And in the minds of all those who have knowledge of the unfortunate experiences of other countries with the doubtful expedient of an extraordinary Budget it raises fears and fears which are justified-out of all proportion to the amount involved in this particular case. The reason for this is plain enough. For if we are justified in unbalancing our Budget by $300,000,000 through the creation of an extraordinary Budget, why not by $500,000,000, and if by $500,000,000, why not $1,000,000,000? Once we concede away the principle of a balanced Budget, all our defenses are down. With the sinking-fund provisions applicable to the existing debt inoperative for the fiscal years 1931, 1932, and 1933, there can be no conceivable justification for capitalizing these expenditures, leaving aside all other basic objections to the abandonment of the policy consistently followed by the Federal Government.

At noon to-day the Senate, in completing the Budget balancing task, will resume the enormously difficult task of trying to reduce the

cost of Government by means of an emergency economy program approximating $238,000,000. Yet this very morning this committee is contemplating undoing all of the work of the Special Economy Committee and adding over $300,000,000 to our actual expenditures for the fiscal year 1933.

Providing for a special issue of bonds does not eliminate the deficit. It recognizes its existence. For how otherwise does a government neet a deficit save by borrowing? From the standpoint of the public finances and of cost it would be infinitely preferable, instead of limiting us to the issuance of special bonds, frankly to acknowledge the creation of this deficit and then permit the Treasury to borrow the $300,000,000 as part of its current financing program through the issuance of the most suitable securities.

There is another inconsistency to which your attention should perhaps be directed. The day before yesterday the Senate passed a tax bill with surtax rates so high as to invite the purchase of taxexempt securities. To-day, with gracious generosity it is proposed to make them available in the form of 25-year tax-exempt bonds.

This, however, is but an incidental objection. The fundamental objection to this section is that it unbalances the Budget; that it resorts to the unsound device of an extraordinary Budget; that it breaks down a sound financial policy pursued since the beginning of the Government; and opens a breach which I am fearful will be only too promptly widened.

Senator HULL. Mr. Secretary, are you now referring to the first section of the bill?

Secretary MILLS. I am referring to the public-works section, which I think is section 4.

Senator HULL. Pardon me for interrupting you, but I was unfortunate in being a little late arriving at the committee room.

Secretary MILLS. And for what purpose? For the humane and righteous purpose of creating employment. But does it actually accomplish that purpose in a way commensurate with the sacrifice of sound financial principles and commensurate with the expenditure of public funds involved? Let us consider the three main items of public works for which these funds are to be expended:

The bill provides approximately $136,000,000 for roads and trails. I have not the detailed figures covering the $16,000,000 for the construction of forest highways and trails, but I am submitting with this statement a table showing the allotment of $120,000,000 of road funds by States, the allotment per capita, and the total labor that would be employed directly.

The expenditure of $120,000,000 for road-building purposes would give employment directly to but 33,193 men.

Senator GORE. I didn't catch that number.

Secretary MILLS. I said it would give employment directly to but 33,193 men.

Senator WAGNER. Who were those figures given to you by?
Secretary MILLS. The Department of Agriculture.

Senator WAGNER. By Mr. McDonald?

Senator MILLS. I think they are Mr. McDonald's figures.
Senator WAGNER. Then he gave other figures to me.

Secretary MILLS. The maximum number of men who would_receive employment in any one State is 2,130 in Texas, 1,683 in New York, 1,461 in Pennsylvania, 1,410 in Illinois, and 1,051 in Michigan;

and so on down to 216 in Connecticut-I do not see Senator Walcott here.

Senator GORE. And how many for Oklahoma?

Secretary MILLS. And 167 in Delaware.

The CHAIRMAN. Mr. Secretary, I note that you use the words "direct employment." Is that on the theory that only 15 per cent of the money will be used in the employment of labor?

Secretary MILLS. Direct employment does not include transportation of material to be used there, and road machinery, and so forth. It is the actual work in the making of roads. But I am not an expert on the roads program, and should much prefer, if you want to test out these figures, that you get someone who is conversant with them. The CHAIRMAN. Of course, I think the figures are wrong. I think that the situation is covered up by using the words "direct employment" instead of using the word "employment."

Secretary MILLS. That may be so, but that is for you to develop. I do not pretend to be an expert on road building. Far from it. I am here presumably to speak on the whole bill, and I am giving you a table which was not prepared in the Treasury Department and which you are at liberty, of course, to test out as to accuracy in any way you see fit. However, I am going to give you some figures from our own department which I will stand on, in connection with public buildings, and they are more startling than those just given to you.

Senator GORE. What are the figures for Oklahoma?

Secretary MILLS. In Oklahoma under the road provision you would give direct employment to 804 men.

Senator COUZENS. For how long a period?

Secretary MILLS. For one year.

Senatore GORE. The point I wish to make on that is, that indirectly in the way of production of materials and transportation there is additional employment of labor.

Secretary MILLS. Senator Gore, might I complete this statement, and then I will be glad to be cross-examined.

Senator GORE. Yes, but relating to roads, I want to ask a question before you pass that subject.

Secretary MILLS. Very well.

Senator GORE. Here is my point on that: We are trying in the Senate to-day to effect economies that will mean about $250,000,000. Can you think of anything that the American people could do without better than these trails?

Secretary MILLS. Well, I don't know. I think, however, Senator Gore, I might say that

Senator GORE (interposing). I do not want you to have to make invidious comparisons, but that thought occurs to me.

Secretary MILLS. As far as roads are concerned I think we are somewhat overbuilt in this country.

Senator GORE. I think so, too.

The CHAIRMAN. You may proceed, Mr. Secretary.

Secretary MILLS. Paragraphs 3 and 4 of section 4 provide $45,500,000 for river and harbor and flood-control projects.

The expenditure of this $45,500,000 would give employment to only 18,150 men. And that figure I got from General Pillsbury of the War Department, directly from him.

Senator WAGNER. You say directly. Therefore you do not consider the employment that goes into the machinery that is used in connection with this work.

Secretary MILLS. Senator Wagner, I think you had better examine General Pillsbury on that. However, I think you will find out that the machinery has to a large extent already been purchased, and that this is a very true figure as far as actual employment to be afforded when it comes down to taking mud out of ditches.

Senator WAGNER. What does the other money go for if you do not think the $45,000,000 would afford employment to more than 800 men?

Secretary MILLS. I said 18,150 men.

Senator WAGNER. Well, 18,150 men. Are they going to get the $45,000,000?

Secretary MILLS. No.

Senator WAGNER. Where then does the other part of the money go? Secretary MILLS. I should prefer that you would ask General Pillsbury to answer that.

Senator WAGNER. Isn't it obvious to anyone that it is not possible the entire $45,500,000 is to be distributed among 18,150 men?

Secretary MILLS. Senator Wagner, please do not cross-examine me as to the figures of the Agricultural Department, or the figures of the War Department. If you want to challenge them call down here the men who made them up. I asked the War Department to tell me how much employment would be afforded by the $45,500,000, and General Pillsbury came to my house last night at 9 o'clock and gave me the figures, 18,150 men. Will you ask him how he makes it up?

Senator WAGNER. I am trying to make the point that is so obvious to you, or anyone else, that those figures can not be accurate, that $45,500,000 is to be distributed in one year among 800 men.

Secretary MILLS. 18,150 men.

Senator WAGNER. Well, 18,150 men. Why, that is preposterous. Secretary MILLS. It may be preposterous, but your quarrel, if any, is with General Pillsbury. And I will say that you are dealing with one of the leading engineers of the country, and that you and I, who have no experience in engineering and you will have to admit it unless you have picked up sone experience along that line that I know nothing about. I would suggest that you ask General Pillsbury about that matter.

The CHAIRMAN. But he does not claim that it covers it all.

Secretary MILLS. Now, let us come to my own department, and you will be even more surprised at the figures, and we have the men here to prove them.

Senator WAGNER. Well, I am surprised by the figures you have given.

Secretary MILLS. I am submitting herewith a table showing the expenditures and per capita expenditure per State, as well as the number of men to be employed in each State.

Senator COUZENS. Which item do you refer to?

Senator GORE. Let me ask you

Senator WAGNER (interposing). That is under your discretion. You select the particular buildings to be constructed.

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