1938: United States

Economic Resume.

Broadly speaking, the economic history of the United States in 1938 was the reverse of that of 1937. During the first half of 1937 business activity and economic prosperity continued to mount. Suddenly in August the movement was reversed and an economic decline set in which, by Jan. 1, 1938, had carried business indices and unemployment figures down almost to the 1934 levels. This downward movement continued during the first six months of 1938 but at a less accelerated speed. Late in June the trend was again reversed; slowly but steadily the economic situation improved until by the end of the year at least half of the losses sustained between June 1937 and June 1938 had been recovered. This improvement continued despite serious war scares and the disturbing influence of the autumn elections.

Although business had a long way to go to return to the levels of early 1937, there was a distinct improvement for the year as a whole.

What brought the reversal in June and started a revival it is impossible to state with certainty. Most economists are agreed, however, that the decline had overreached itself, and that the renewed program of government spending may have helped. It is also possible that Congressional opposition to further New Deal reforms may have indicated a 'breathing spell' long demanded by businessmen.

The economic situation in January 1938 made it evident enough that both the Administration and Congress would attempt again to turn the economic tide. One group of Presidential advisers urged a repetition of the plan adopted in 1933 — pump priming by heavy government expenditures through work relief; public works, including housing; and by loans to industry. Another group insisted that the surest way to bring back prosperity was to restore business confidence by balancing the budget, changing the system of taxation to meet the demands of big business, and halting the reform legislation of the New Deal. In the last analysis the method to be pursued rested with the President, for Congress during the early months of the session had shown little initiative. The President himself spent almost six months studying the situation before acting, during which period he interviewed scores of businessmen, big and little, labor leaders, economists and government officials. Finally, at a press conference on April 8, he outlined his program and, in a message to Congress a few days later, presented it in greater detail.

It was obvious that he had adopted the theories urged by the pump-primers and that he would attempt to some extent, at least, to duplicate his policies of 1933. These included a continuation of relief, expenditures for public works and an expansion of credit. The first two of these policies were made possible by the Work Relief and Public Works Corporation Act, passed at the close of the session (see below). To expand credit the President suggested that the Federal Reserve Board reduce its reserve requirements for member banks by $750,000,000, a move which would increase excess reserves from $1,700,000,000 to some $2,400,000,000 and would support a credit expansion of around $15,000,000,000. He also announced a reversal of the Treasury's gold sterilization policy which would release $1,400,000,000 for further credit facilities.

That the President's program would considerably increase the national debt, there would be no question. He insisted, however, that a return to prosperity would increase the national income and thus neutralize that national debt, and suggested two minor methods of adding to the income from taxation — elimination of tax-exempt government bonds and the subjection of public salaries to income taxation. That Congress in addition to a pump-priming spending program was also anxious to make gestures of good will toward business is evident from the modifications in the Revenue Act of 1938 of the undistributed profits and capital gains taxes.

The new depression which developed during the last half of 1937 had both surprised and confused the administration. Unable to point with certainty to any cause, unless it was a partial let-up of the spending program, the Roosevelt administration, as had other administrations in previous years, placed the blame on monopoly practices. Secretary Ickes castigated the control exercised by 'America's Sixty Ruling Families'; Solicitor General Robert H. Jackson insisted that monopolies had 'priced themselves out of the market and into a depression,' and finally President Roosevelt in his Jackson Day address, Jan. 8, 1938, went after monopoly practices with hammer and tongs and pointed to the fact that 4 per cent of the security holders of public utilities controlled the other 96 per cent. 'Here,' he said, 'is a 96-inch dog being wagged by a 4-inch tail.' These speeches were preliminary to the special message of April 29 in which the President pointed out the growing concentration of wealth and economic power and asked Congress to appropriate $200,000 to enforce existing laws and $500,000 for an investigation to guide Congress in tightening the anti-trust legislation. The President's message included suggestions regarding problems to be considered — methods of improving anti-trust procedure; methods for a more rigid scrutiny of corporation mergers, consolidations and acquisitions to prevent their consummation when not in the public interest; and the elimination of abuses now existing in the operation of financial controls with special study of investment trusts and bank holding companies. Study was also urged of trade associations to provide more effective supervision and publicity, and an inquiry as to the possibility of amending the patent laws to prevent their use to suppress inventions and create monopolies. The money for investigation was granted (see below) and the committee, headed by Senator J. C. O'Mahoney, commenced work in an unusual, thorough and detached manner.

Many evidences during the last half of the year 1938 pointed to a sound and continuous recovery. Compared with its low mark of the spring the industrial production index number rose from 84 to 100 and stock market averages from 69.70 to 110.74. Industrial employment, which fell almost 14 per cent during the first half of 1938, rose 11 per cent thereafter. Except for 1936, monthly steel production, which decreased last spring to the lowest point since 1934, reached, in November, the highest record for the month since 1929. Building construction awards were the largest of any November since 1929, a record due in part to the various results of the Federal housing program. Except for 1936, the weekly railway loadings at the year end were the largest of any corresponding period since 1930.

Despite the fact that the interest-bearing United States public debt exceeded $38,000,000,000 at the end of the year, in comparison with $36,715,387,000 at the end of 1937, the financial situation of the nation seemed reasonably sound. Federal revenue in the fiscal year 1938 was $6,241,061,226, the largest on record except for $6,694,565,389 in the fiscal year 1920. The Federal expenditure in the fiscal year 1938 was $7,766,374,277, some $338,784,033 below the previous fiscal year, but expenditure for the second half of the calendar year 1938 was about $4,500,000,000, a high mark for any corresponding period since 1918. During the calendar year gold imports approximated $2,000,000,000, exceeding the previous high record of $1,740,979,000 in 1935; gold in the Treasury reached $14,500,000,000 as against $12,760,150,000 at the end of 1937. In December the reserve in member banks in excess of legal requirements reached $3,480,000,000, an all-time record.

With such a strong banking situation and with improved business conditions, the money market showed signs of greater activity. New capital issues exceeded 1937 by $108,000,000. This new activity, however, did not all accrue to the benefit of bond houses, for many of the bonds issued by corporations in 1938 were placed privately without the use of investment banking machinery. In dollar volume these private sales reached a new peak of $590,000,000 or 31.1 per cent of the total of about $1,890,000,000. Life insurance companies reported an increase in the average amount of life insurance to a new high mark ($1,725), and the growth to a new high level of total life insurance coverage for the nation ($110,300,000,000). The Bureau of Foreign and Domestic Commerce reported that the total income payments to all persons in this country rose in November for the sixth consecutive month, showing the largest increase for any month during the current recovery. For the first eleven months of 1938 income payments amounted to $58,244,000,000, a decline of 7 per cent from the $62,519,000,000 of the previous year. This decline was in part compensated for by the fact that the cost of living at the end of November 1938 was 4 per cent lower than a year earlier.

American agriculture during 1938 was characterized by bumper crops in the major commodities which tended to lower prices, decrease the income of farmers and stimulate agrarian discontent. The yield of wheat was the third largest on record, leaving at the end of the year a probable world surplus of 1,165,000,000 bushels, the second largest on record and pushing down the year-end wheat prices 23 cents a bushel below the price at the end of 1937. In similar manner the price of rye was down 25 cents and corn 9 cents. The cotton situation for the farmers was even more serious. Carryover in the United States for the season 1937-38 was 11,925 bales in comparison with 3,968 for the season 1936-37. On the other hand, the situation for tobacco and rice growers was much better. When the Government submitted on Dec. 10 a referendum to the southern farmers under the AAA Act of 1938, the farmers voted for control of cotton but opposed control of flue-cured tobacco and rice. Toward the end of December, Department of Agriculture officials estimated that the cost for control of the 1940 crop would run close to $750,000,000. About a month earlier the administration planned a reduction of 275,000,000 acres for the AAA program of 1939.

The foreign trade position at the close of the year was highly favorable, with surplus of merchandise exports at the end of November approximating $1,036,000,000. This was the largest of any year since 1921. It should be noted, however, that the very large export balance in foreign trade during 1938 was not due to increasing exports, which for eleven months were actually $200,000,000 below 1937, but to a $1,094,800,000 decrease in imports, the latter chiefly the result of the depression on American manufacturing.

Pump-priming through PWA commenced with vigor late in June. By July 24 Secretary Ickes announced that PWA was spending $5,432,510 an hour and every effort was being made in conjunction with WPA to speed expenditure. On August 13 PWA announced that it had approved $1,009,000,000 worth of non-Federal contracts within less than 40 days, and a few days later reported that work was under way on 80 per cent of the new Federal projects. By Dec. 10, according to Mr. Ickes, 4,800 PWA projects were under construction.

In the meantime, on June 18, the WPA, on an order from President Roosevelt, increased wages in thirteen southern states and on June 24 added 200,000 jobs in the South. In July large-scale clothing and relief distribution was carried on in New York City. On Sept. 8 WPA reported a new peak of 3,063,903 on the rolls as of Aug. 27, while the Social Security Board disclosed a record relief outlay of $258,478,000 for July. In September the WPA rolls increased to over 3,100,000. On Oct. 13 President Roosevelt ordered WPA to make the $764,000,000 on hand last until March 1, but on Dec. 21, Acting Administrator Aubrey Williams warned that WPA would be forced to close down completely by February unless Congress appropriated more money. The financial difficulties of WPA were due not only to delayed business recovery, but also to special appropriations made in the hurricane affected regions of New England, and Charleston, South Carolina. In December the retirement of David C. Roper from the Department of Commerce brought the appointment of WPA Administrator Harry L. Hopkins to the Cabinet as Secretary of Commerce, the promotion of Colonel F. C. Harrington to be the new head of the WPA, and the advancement of Deputy Administrator Aubrey Williams to be head of the National Youth Administration.

SEVENTY-FIFTH CONGRESS

In view of the waning popularity of the President, the fiasco of the Special Session, the impending mid-term elections and the economic recession in the fall of 1937, the prospects of important legislation during the third session of the Seventy-fifth Congress (Jan. 3-June 16) were by no means bright. The President, nevertheless, retreated but slightly from the reform program presented a few weeks earlier to the Special Session. Generally conciliatory and temperate in tone, his message of Jan. 3, insisted that the 'misuse of the powers of capital' must be ended 'or the capitalist system will destroy itself through its own abuses.' Asserting that 'power and responsibility go hand in hand,' he called upon both capital and labor to cooperate with the Government for the welfare of the nation. The specific recommendations in the message were what were generally expected. Adequate self-defense was urged 'in a world where civilization is actually threatened.' He also urged the revival of the Wages and Hours Bill, enactment of the Government Reorganization Bill, the 'all weather' farm bill then pending before the joint committee, a continuation of the 'none shall starve' policy, an expansion of purchasing power to a point at which taxes should produce adequate government revenue, and tax revision without impairing income. Concerning the important problem of revision of the anti-trust laws, the President promised a special message. As to the budget the President doubted if it could be cut much below $7,000,000,000, which meant another year of deficit.

In the end, the President's recommendations resulted in most cases in some sort of legislation. The continued depression brought further requests from the administration for 'pump-priming' appropriations which Congress in an election year was not averse to passing. In fact, the session altogether voted a total of $12,321,635,000, over $2,000,000,000 more than Congress had voted in 1936, and forecasting a deficit for the fiscal year 1938-39 of $3,722,000,000. New Deal victories in several state primary elections weakened opposition to presidential policies while the persistence of reform sentiment on the part of many Congressmen helped to insure some legislation. Attempted legislation which failed in this Congress included acts for thorough government organization and regional planning.

The month of January was largely occupied by the Senate in a filibuster against the Wagner-Van Nuys Anti-lynching Bill, which had already passed the House in the last session but which was finally laid aside to make way for the Housing Bill. Later much time was taken up in defeating the Reorganization Bill. The session, however, ended in a burst of legislation which led the President to congratulate Congress. 'Much constructive legislation for the benefit of the people,' he declared, had been enacted and 'definitely, we are making progress.' A few days later in a broadcast to the nation he declared that the Seventy-fifth Congress had 'achieved more for the good of the country than any Congress between the end of the World War and the Spring of 1933.' For particular mention he singled out; (1) legislation to aid farmers and agriculture; (2) the Wages and Hours Act; (3) the authorization of an inquiry into business practices; (4) creation of a Civil Aeronautics Authority; (5) the attacks on slums and inadequate housing; (6) reforms in taxation and credit; (7) the Relief and Recovery Act; and (8) appropriations for increased rearmament. He nevertheless criticized Congress for its failure to enact his reorganization plan for the Executive Department, and to provide aid for the railroads.

Agricultural Legislation.

The most important piece of farm legislation of the session was the Farms Agricultural Adjustment Act (approved February 16). Accurately characterized as 'the most comprehensive system of crop control in American history,' the Act had been the chief concern of Congress throughout 1937, and conflicting bills had been passed by the House and Senate during the special session. In its final form it came out of conference committee early in February, was passed by the House by a vote of 263 to 135 on Feb. 9, and by the Senate by a vote of 56 to 31 on Feb. 14. An extremely complicated measure, this Act can be understood only in relation to its historic background, for it is a combination of various methods tried since 1933 — the voluntary control used in the Agricultural Adjustment Act of 1933 (declared unconstitutional in 1936), the compulsory control established in the Bankhead Cotton Act of 1934 and the Tobacco Control Act of the same year, and finally the voluntary system established through the Soil Conservation and Allotment Act of 1936. It is in part an amendment of the last-named Act. Like the previous farm legislation of the New Deal, it aims to restore agricultural prices to a level that will give agricultural commodities a purchasing power, with respect to articles bought by farmers, equivalent to that prevailing during the base period 1909-1914. In addition, it aims to establish an 'ever-normal granary,' that is, a situation in which commodities may be stabilized to prevent great surpluses or shortages.

This program the Act attempts to carry out in five important ways: (1) soil conservation is maintained as a part of a permanent policy to insure a future abundance of agricultural commodities; (2) national acreage allotments are established for each crop and payments are made to encourage farmers to produce up to the allotments; (3) commodity loans are to be granted in order to encourage the storage of surpluses to keep commodities off the market when prices are too low, these being the so-called 'parity payments' to make up the difference between the prevailing market prices and the purchasing power these products would have commanded in 1909-1914; (4) marketing quotas, backed by penalties on rates in excess of quotas, are provided for, but they are subject to approval of a two-thirds vote of the producers voting; (5) crop insurance for wheat is established, beginning with the 1939 crop, to give wheat producers protection against drought and the nation against a shortage; the accumulation of wheat paid in by farmers as insurance premiums contributing to the maintenance of the 'ever-normal granary' in that commodity. To aid in this program the Federal Surplus Commodities Corporation is continued until June 30, 1942, and a Federal Crop Insurance Corporation is established within the Department of Agriculture with an eventual capital stock of $100,000,000. The Act applies only to rice and to the basic commodities, wheat, corn, cotton and tobacco.

Other agricultural legislation of this session was in part to amend or supplement the new AAA Act of 1938. The Wheat Acreage Act (approved June 20), for example, amended Section 333 of the AAA Act to provide that the national acreage allotment for wheat for 1939 should be not less than 55,000,000 acres.

The Lee Caraway AAA Act (approved May 31) amended the AAA of 1938 to give the Secretary of Agriculture power to ascertain and distribute the individual farm allotment for cotton for 1938 more effectively. It also amended Section 313 of the same Act to increase the poundage for additional allotments for state quotas for 1938 in the case of flue-cured tobacco from 2 per cent to 4 per cent. For the dark air-cured and burley tobacco the percentage of increase was placed at 2 per cent for the purpose of state allotments for the 1938 crop.

Sugar, which had been separately handled by a special act, the Sugar Act of 1937, was further provided for by the Sugar Appropriations Act (approved February 4). This made funds available until June 30, 1939, for investigations and for crop production and harvesting loans.

The Agricultural Appropriations Act (approved in June) carried $745,790,279 in direct appropriations for the Department of Agriculture and for the Farm Credit Administration for the fiscal year ending June 30, 1939, plus $189,405,000 in reapportionments from unexpended funds and $154,525,000 in permanent appropriations. Besides appropriations to the various agricultural bureaus and to carry out certain agricultural legislation, the Act contained the large appropriation of $500,000,000 to make effective the AAA Act of 1938. This tremendous appropriation was made necessary because of the Supreme Court ruling (1936) that the processing taxes under the original Agricultural Adjustment Act (of 1933) were unconstitutional. Whether this large amount would pay the costs of agricultural adjustment planned for by the act, it was impossible to know. It was generally believed, however, that it would be inadequate.

Two acts relating specifically to agricultural credit were passed. The first, the Steagall Commodity Credit Act (approved March 8) directs the Secretary of the Treasury to appraise annually the assets and liabilities of the Commodity Credit Corporation to determine its net worth and at that time to maintain its net worth at $100,000,000. With the approval of the Secretary of the Treasury the outstanding obligations of the Corporation may total $500,000,000, which obligations shall be guaranteed as to principal and interest by the United States, and shall be lawful investments for all fiduciary and public funds under the control of the United States. The second piece of legislation, the Bierman Farm Loan Act extends until July 1, 1940, the 3½ per cent interest rate on loans made through national farm loan associations which were to terminate on July 1, 1938. It also extended until July 22, 1940, the 4 per cent interest rate on Land Bank Commissioner loans made under section 32 of the Emergency Farm Mortgage Act. This Act the President vetoed, but his veto was overridden June 15-16. This was the only major veto of the session.

Housing.

Despite congressional encouragement of legislation going back to the Hoover administration, building had lagged behind the general recovery. With the recession in the autumn of 1937, the President again directed attention to this situation in a special message of Nov. 29. In an effort to encourage particularly small-home building, the Special Session prepared amendments to the National Housing Act of 1937 which was in conference committee when the regular session began. The new Steagall National Housing Act of 1938 was taken out of conference on Jan. 31, passed immediately, and approved by the President Feb. 4. It was the first major legislation of either the special or regular session. Opposition to the bill had coalesced behind an amendment sponsored by Senator Lodge that building projects covered by this law should pay the 'prevailing wage,' in the belief that this amendment would render the bill useless. The amendment, however, was thrown out in the conference committee.

Briefly the significance of the new Act was to liberalize government insurance of mortgages in the hope of inducing a flow of capital into building construction. The new Act provided that down payments on homes costing $6,000 or less would be cut 10 per cent, with the remainder paid out over 25 years (formerly 20 years). The Federal Housing Administration was instructed to insure mortgages covering 90 per cent of the cost for one-fourth of one per cent of the diminishing balance. Interest charges were to be 5 per cent, plus the insurance premium. On homes costing between $6,000 and $10,000 the FHA would insure mortgages covering 90 per cent of the cost below $6,000 and 80 per cent of the remainder. Previously the FHA would insure only 80 per cent of the cost of large or small houses. It was also provided that mortgage associations with a minimum capital of $2,000,000 might be authorized by the FHA with power to make direct loans for building purposes, buy and sell FHA insured mortgages, or issue bonds or debentures against these mortgages up to 20 times their paid-up capital and surpluses, these obligations to be tax-exempt. Although this Act by no means started a building boom, it eased the credit situation and undoubtedly encouraged building during the spring and summer months.

Labor.

One of the most important pieces of legislation passed by Congress in 1938, and the only significant labor legislation, was the Fair Labor Standards Act (approved June 25), better known as the Wages and Hours Act. Urged repeatedly by the President, such an act had been presented to the special session where it was killed by a coalition of Southern Democrats and Northern Republicans who voted to recommit the bill to the Labor Committee. Revived in the regular session, it was brought to the floor early in May only by petition to discharge the Rules Committee from further consideration. To the surprise of many it eventually passed, but only after alterations which would ease its effect on Southern industries.

In an opening declaration of policy the Act states that the existence of labor conditions detrimental to the maintenance of the minimum standards of living necessary for the health, efficiency, and well-being of workers burdens commerce, constitutes an unfair method of competition, leads to labor disputes obstructing the free flow of goods in interstate commerce, and interferes with the orderly marketing of goods. To put the Act into application a Wage and Hour Division has been created in the Department of Labor, with an administrator who shall appoint for each industry a committee representing the public, industry, and employees. These committees shall make studies of their respective industries and recommend to the administrator their decisions regarding wages and hours. The Act provides that every employer shall pay to each of his employees who is engaged in commerce or the production of goods for commerce; (1) during the first year not less than 25 cents an hour; (2) during the next six years not less than 30 cents an hour, and (3) after the expiration of seven years not less than 40 cents an hour, or the rate (not less than 30 cents an hour) prescribed by the administrator. At any time after the Act goes into operation the minimum wage must follow the orders of the administrator.

With regard to maximum working hours, the limit is placed at 44 hours for the first year, 42 for the second, and 40 hours thereafter. Exceptions to the 40-hour week rule are made for an employer paying not less than time and a half, and for seasonal industries with a limit of not more than 14 weeks, and a limit of 12 hours a day and 56 hours a week. Exceptions are also made with respect to agreements between employers and representatives of employees certified as bona fide by the National Labor Relations Board, but even in such cases limits as to hours are set. The Committee for any industry shall recommend for each industry reasonable classification, and for each classification the highest minimum wage rates that will not substantially curtail employment or give a competitive advantage to any group in the industry. Court review is provided for; any person aggrieved by an order of the administrator may obtain a review of such order in the Circuit Court of Appeals. (See also LABOR LEGISLATION; WAGES AND HOURS ACT.)

Judiciary.

Three acts were passed during the session with respect to the judiciary. The first, the Murray Judicial Retirement Act (approved Feb. 11) provides that the requirement that a Federal judge reside in a particular district or circuit shall not apply to a judge who has retired. The second, the McLaughlin Judicial Retirement Act (approved Feb. 11) authorizes the chief Justice to call upon retired Justices of the Supreme Court to perform judicial duties in the District of Columbia as well as in any judicial circuit. The third, the Hatch-Ashurst Judgeship Act (approved May 31) authorizes the appointment of four additional circuit judges, one additional associate justice for the United States Court of Appeals for the District of Columbia, twelve additional district judges and three additional associated justices for the District Court for the District of Columbia.

Taxation.

The Revenue Act of 1938 which became law at midnight, May 29, without presidential signature, was designed to equalize taxation and to raise an estimated $5,280,000,000 for the coming fiscal year. Certain parts of the Act were bitterly fought, particularly those parts concerned with undistributed profits and capital gains, which the President desired to retain and which representatives of business were anxious to abolish. These controversial issues were eventually compromised. The excess profits taxes of the Revenue Act of 1936, which had ranged from 7 to 27 per cent, were abolished and in their place were substituted a flat 16½ per cent on corporate profits, plus 2½ per cent surtax on those undistributed, but with exceptions for corporations with an income of less than $25,000. As for capital gains, the Act narrows the definition of capital assets and group capital gains and losses for individuals into two classes — those arising from sale or exchange of short term assets (18 months or less), and those arising from assets held more than 18 months. As a whole the rates were reduced and allowances made for losses. The rates might go as high as 79 per cent for assets held less than 18 months and were cut to 20 per cent on assets held from 18 months to two years and 15 per cent on those held more than two years.

As far as individuals are concerned, the normal and surtaxes remain unchanged except for changes in the treatment of capital gains and losses, and except for the fact that husband and wife making a joint return are to be jointly and severally liable for the tax computed on their aggregate income. The Act makes no change in the estate tax and gift tax rates of the Act of 1932 but permits the Commissioner of Internal Revenue to extend the time of payment of the estate tax from the present 8 years to a maximum of 10 years in case of undue hardship. As for excise taxes the following were repealed effective June 30, 1938: those on (1) tooth and mouth washes, dentifrices, tooth pastes and toilet soaps; (2) furs; (3) phonograph records; (4) sporting goods; (5) cameras and lenses; (6) chewing gum; (7) brewers wort and malt syrup; (8) petroleum and the refining of petroleum, imposed by the Revenue Act of 1934; (9) matches (except certain types). The tax on admissions to theatres imposed by the Revenue Act of 1926 is amended so that the tax on tickets sold at reduced rates shall conform with the price sold. On the other hand, beginning July 1, 1938, the tax on distilled spirits, except brandy, is increased from $2 to $2.25 per wine gallon.

When this Bill came before the President he announced that it was unsatisfactory and served notice that Congress in the next session would be called upon for a complete revision of the Federal tax system. 'Our whole tax system,' he declared, 'must be greatly improved in the coming year.' Insisting that some parts of the measure had forsaken the American principle of progressive taxation, he announced that he would allow it to become law without his signature. 'If I sign the bill,' he said, 'many people will think I approve that abandonment of an important principle of American taxation. If I veto the bill, it will prevent many of the desirable features from going into effect. Therefore . . . I am going to take the third course open to me.' (See also TAXATION.)

Budgetary.

The first important budgetary legislation of the session was the Taylor Relief Deficiency Act (approved March 2) which appropriated $250,000,000 to continue relief, and work relief on useful public projects, authorized by the Emergency Relief Appropriation Act of 1937. This was followed almost immediately by the First Deficiency Appropriation Act (approved March 5) which appropriated $28,089,037.97 to supply deficiencies in certain appropriations for the fiscal year ending June 30, 1938, and to provide supplemental appropriations.

The first of the usual supply bills was the Treasury-Post Office Supply Act (approved March 28) which appropriated for the coming fiscal year $610,912,627 for the Treasury Department, and $792,770,899 for the Post Office Department. No part of these appropriations may be used in continental United States to pay any one who is not a citizen or who has not declared his intention of being one. The State-Justice Appropriation Act (approved April 27) appropriated $130,589,795 for the Departments of Commerce and Labor, of which $16,638,750 went to the State Department; $42,337,155 for the Department of Justice and the Judiciary; $47,280,940 for Commerce; and $24,332,950 for Labor. The Interior Department Appropriation Act (approved May 9) was for $129,678,460.84 and among the many projects included in it were; $3,270,000 for Bonneville Dam; $3,500,000 for Boulder Dam, plus $500,000 from power and other revenues; $9,000,000 for Central Valley, California; and $13,000,000 for Grand Coulee Dam. (See also CIVIL ENGINEERING.) Two of the largest appropriations in this act were $20,932,672 for the National Park Service and $12,500,000 for the further endowment of vocational education. There was also an appropriation of $1,800,000 for vocational rehabilitation. Appropriations for the legislative branch of the Government, made in the Legislative Appropriation Act (approved May 17) amounted to $21,663,783.

One of the largest appropriation measures of the session was the Independent Offices Appropriation Act (approved May 23), a catchall not only for the Executive Office but for numerous executive bureaus, boards, commissions and offices. Among the larger appropriations included in this act were $77,457,750 for the Civil Service Commission; $226,331,000 for the Civilian Conservation Corps; $120,465,000 for the Railroad Retirement Board; $329,300,000 for the Social Security Board, and $547,917,500 for the Veterans Administration. The TVA received $40,000,000 and the Rural Electrification Administration $41,702,000.

After months of study of the new economic depression, the President announced early in April that he favored dealing with it by a new 'pump-priming' program. He asked for large Congressional appropriations to carry this out with the result that Congress, during the last days of the session, passed the Work Relief and Public Works Appropriation Act which carried a total of $2,915,605,000 in new money, plus reappropriations and authorizations of about $835,000,000 for relief, and work relief, and otherwise to increase employment. Divided into six sections the act dealt with; (1) WPA and allied agencies and certain small administrative grants; (2) WPA's new pump-priming program; (3) a Federal public building program; (4) rural electrification loans; (5) farm parity payments as provided in a price adjustment section; and (6) the United States Housing Authority. Under the first section mentioned the appropriations were for $1,712,545,000, of which $1,425,000,000 went to WPA with the remainder distributed among the National Youth Administration ($75,000,000), Farm Security Administration ($175,000,000), and other agencies. Of the $1,425,000,000 appropriation for WPA, not more than $484,500,000 was to be used for highways and streets and not more than $655,500,000 for public buildings, parks, utilities, water systems, sewer systems, etc., and not more than $285,000,000 for miscellaneous non-construction projects, except that any of the foregoing classes might be increased 15 per cent by transfer amounts from other classes and that the Works Progress Administration might use $25,000,000 for direct relief. Under the second section mentioned, the Public Works Administration was granted a total of $1,465,000,000 of which $965,000,000 was a direct appropriation for financing Federal projects, grants and loans to states, etc. No grant might be made in excess of 45 per cent of the cost of any non-Federal project. The Federal public buildings section of the Act increased the total cost of the 3-year Federal building program from $70,000,000 to $130,000,000. The Rural Electrification Loan Section allowed that agency to borrow $100,000,000 from the RFC for the fiscal year 1938-39, to carry out its purposes. The United States Housing Authority Section increased the bond-issuing authority of this agency from $500,000,000 to $800,000,000 and authorized contracts for contributions aggregating not more than $28,000,000 annually. The Farm Parity Section appropriated $212,000,000 to enable the Secretary of Agriculture to make parity payments to producers of wheat, cotton, corn, rice and tobacco, pursuant to provisions of the AAA Act of 1938.

Commerce and Banking.

Under this heading a number of minor acts were passed. The Frazier Farm Bankruptcy Act (approved March 4), extended for two years (until March 4, 1940) the agricultural composition and extension agreements under the Bankruptcy Act and provided that cases dismissed under the belief that the second Frazier-Lemke Bankruptcy Act was unconstitutional be reinstated. The Withrow Automobile Inquiry Act (approved April 13) authorized a $50,000 appropriation for the Federal Trade Commission to investigate policies of manufacturers in distributing motor vehicles, accessories and parts, and the policies of dealers in retailing them. The Copeland Confidential Information Act (approved Jan. 27) sought by severe penalties to safeguard the secrecy of statistical information furnished in confidence to the Bureau of Foreign and Domestic Commerce. The Barkley Federal Trade Commission Act (approved March 21) included in the term 'corporation,' trusts and so-called Massachusetts Trusts issuing certificates of interest as well as capital stock for profit of their members, and specifically included in 'documentary evidence' books of accounts and financial and corporate records. The Robinson-Patman Amendment (approved May 26) exempted eleemosynary institutions from the Robinson-Patman Anti-discrimination Act of June 19, 1936, by providing that the latter shall not apply to purchases of supplies for their own use by schools, colleges, public libraries, hospitals, etc., not operated for profit. For Chandler Bankruptcy Act and Maloney Act (securities), see SECURITIES AND EXCHANGE COMMISSION. (See also BANKS AND BANKING; INTERNATIONAL BANKING)

Reconstruction Finance Corporation.

The Steagall RFC Relief Obligations Act (approved February 24) directed the Secretary of the Treasury to cancel notes representing obligations of the RFC incurred in supplying funds for relief and similar purposes to an amount equal to outstanding funds disbursed by it for agricultural relief acts ($33,177,491.82). Under the Glass RFC Recovery Loan Act (approved April 13), Section 5d of that RFC Act is amended to authorize loans to public agencies and to provide credit facilities for business enterprises. No loans to railroads, however, may be made without the consent of the Interstate Commerce Commission.

Veterans.

As usual the legislative hopper ground out a certain number of veterans' bills. The Ashurst Veterans Insurance Act (approved February 24) authorizes the Attorney General to compromise suits brought under the World War Veterans Act on contracts of yearly renewable term insurance. Formerly there had been a limit to suits filed up to June 16, 1933. The Rankin World War Widows Act liberalizes provisions of existing laws governing death compensation benefits for widows and children of World War Veterans and redefines 'widow' to include women who married the veterans prior to the enactment of this Act. For earlier veterans, the Gasque Spanish War Pensions Act provides for 90-day service pensions of $65 a month for soldiers, sailors and nurses of the War with Spain, the Philippine Insurrection or the China Relief Expedition, upon reaching 65 years of age. The same pension would be granted to those who served less than 90 days if they were discharged for disability incurred in the service in line of duty.

Post Office.

An important extension of the Civil Service regulations was accomplished in the Postmasters' Civil Service Act which provides that postmasters of the first, second and third class hereafter shall be appointed in the classified service without term by the President, with Senate confirmation. Present postmasters, however, may serve out their terms before the provisions of this proposal become effective. The appointments to positions of postmasters at first, second and third class post offices shall be made by reappointment and classification, non-competitively, of the incumbent postmaster; or by promotion from within the Postal Service in accordance with the provisions of the Civil Service Act and Rules; or by competitive examination in accordance with the Civil Service Act and Rules. That this Act was not without political ramifications is seen by the fact that Congress coupled this Act with the confirmation of 2,072 new postmasters of the first, second and third classes. By the Mead Air Mail Extension Act the Postmaster General was authorized to extend air mail routes from an aggregate of 32,000 to 35,000 miles.

Aviation.

Probably no more important legislation regarding aviation has been passed for many years than the Lea-McCarran Civil Air Authority Act (approved June 23). This Act provided for the creation of a Civil Aeronautics Authority of five members, to be approved by the President, for six-year terms and presided over by an administrator. The new Authority was vested with almost complete administrative power over civil aviation, including air-mail service, and should go far to rectify an earlier situation in which aviation was supervised by various bureaus and departments. In addition to the direction of various phases of aviation, the Authority is instructed to make a field survey of the existing system of airports, and report definite recommendations to Congress by Feb. 1, 1939, as to whether or not, and how, the Government should help create a national system of airports. (See also AVIATION.)

Miscellaneous.

Several interesting Acts were passed which do not seem to fall under any of the divisions listed above.

The Propaganda Agency Act (approved in June) provides that every person now or hereafter an agent of a foreign principal shall file periodically with the Secretary of State a registration statement under oath, giving full information as to whom he is working for, what sort of work he is doing, compensation paid, and other pertinent information.

The Saratoga National Park Act (approved June 1) provides that when title to all lands, structures and other property upon which the Battle of Saratoga was fought is vested in the United States it shall be known as the Saratoga National Historical Park, and developed under the direction of the Secretary of the Interior by the National Park Service.

Under the Gearhart Armistice Day Act (approved May 13) Armistice Day, November 11, is established as a national legal holiday.

To protect both the United States government and foreign embassies from embarrassment the Pittman Embassy Picketing Act (approved May 15) was passed. It forbids in the District of Columbia the displaying (without police permit) of any banner or device designed to bring to public notice any party, organization or movement, or the economic, political or social views of any individual or group, within 500 feet of any premises used by a foreign government for official purposes.

To add to the facilities of American diplomacy abroad, the McReynolds Foreign Service Building Act (approved May 26) authorizes $5,000,000 additional for the Foreign Service Buildings Act of 1926.

A recognition of a nation-wide campaign against social diseases was made by the LaFollette Venereal Disease Act (approved May 24) which appropriated to states and territories for prevention, research, training of personnel, etc., $3,000,000 for the fiscal year 1939; $5,000,000 for 1940; $7,000,000 for 1941, and for each fiscal year thereafter such sum as may be necessary. The allotments shall be made annually by the Surgeon General of the Public Health Service.

Investigations.

The fiscal session of the 74th Congress set in motion two important investigating committees who were busily at work in the months after Congress adjourned. The first was authorized by the Barkley TVA Investigation Act (approved April 4) which resulted from the failure of the members of the Authority to work together amicably, and from the charges made by Chairman Arthur E. Morgan against his colleagues, Harcourt A. Morgan and David E. Lilienthal. The Chairman had accused his colleagues of lack of cooperation, bureaucratic manipulation and resistance to 'honesty, openness, decency, and fairness in government,' and demanded a 'fair and open hearing, which is full and impartial, and without any predilection for or against any person or against the TVA itself.' Morgan's failure to substantiate his charges upon request of the President brought his dismissal. Opponents of the TVA, hoping to discredit it, demanded an investigation, while friends cooperated in the demand to prove its usefulness. The Committee was to report by Jan. 3, 1939.

The monopoly investigation, implemented by the O'Mahoney monopoly Inquiry Act, originated from a special message to Congress on April 29, in which the President presented statistics to show the growing concentration of wealth and economic power and the decline of competition with the effect of curtailing employment. The President asked for $520,000 for an inquiry. This was granted, — $100,000 to be immediately available for expenditures by the committee set up to make the investigation, and $400,000 to be allocated by the President to the department and commissions represented on the Committees. The Committee was to be composed of 12 members, 3 from the Senate appointed by the President of the Senate, 3 from the House appointed by the Speaker, and one representative each designated by the heads of the Departments of Justice, Treasury, Labor, the Securities and Exchange Commission and the Federal Trade Commission. Up to December most of the work of this Committee was in the form of research. Public hearings were not commenced until December 1. During December interesting testimony which was given wide publicity was presented by Willard L. Thorp, Leon Henderson, Edsel Ford and others.

THE SUPREME COURT

Unlike the session from 1934 to 1936, the Supreme Court session of 1937-38 was marked by a spirit of harmony between the administrative and judicial branches of the Government. As a whole, New Deal legislation was supported, particularly in the fields of taxation, labor and public utilities. A report compiled by the Department of Justice showed that of 114 cases argued and decided on their merits, the Government won 92 and lost only 22. In addition the Government persuaded the Court to grant 55 out of 75 petitions submitted by the Administration for review of lower court verdicts. It was not until toward the end of the session, when the Court in the stockyards case criticized the procedure of the Department of Agriculture in determining commission rates, that any real friction developed. By the close of the session, the only important issue involving New Deal legislation, not yet fully decided by the Court, was a conclusive test of certain powers of the Tennessee Valley Authority.

The Reed Appointment. The second resignation from the Supreme Court during the Roosevelt administration took place on January 15th, when Associate Justice George Sutherland announced his resignation effective on January 18. A member of the Court since 1922, Justice Sutherland had been one of the rock-ribbed conservatives who had opposed almost every piece of New Deal legislation. For the vacancy the President nominated, on January 15, Solicitor General Stanley Reed of Kentucky. A distinguished lawyer, Mr. Reed had already served the administration as general counsel of the RFC, as Assistant Attorney General and Solicitor General. Unlike the Black nomination six months earlier, which encountered bitter and continued criticism, that of Reed was greeted with Senate approval. His nomination was confirmed on January 25 without discussion or dissenting vote. His appointment to the Court, it was believed, would definitely strengthen the liberal majority of that body. He was succeeded as Solicitor General by Assistant Attorney General Robert H. Jackson of New York. The latter's position was filled by Thurman G. Arnold, a professor in the Yale University Law School.

A second vacancy on the Supreme Court was occasioned on July 9, by the death of Associate Justice Benjamin Nathan Cardozo at the age of 68. Appointed by President Hoover in 1933, Justice Cardozo was one of the liberal group in the Supreme Court, and was widely esteemed for his high legal scholarship.

Public Utilities.

No part of the New Deal program with regard to public utilities has been more bitterly opposed by utility interests than the granting of WPA funds for the construction of utility plants which might compete eventually with private interests. When WPA granted funds to four Alabama communities to establish such plants, the constitutionality of the procedure was attacked by the Alabama Power Company and by the Duke Power Company. Denied injunctions in the lower court, the cases came before the Supreme Court. In a unanimous and clear-cut decision delivered on January 3, the Court upheld, in the Alabama Power Company case, the right of the Government to grant funds for such purpose and announced that it would dispose of the Duke Case on similar grounds. 'While the loan might frustrate complainants' hopes of a profitable investment,' ruled the Court, 'it would not violate any legal right. . . . Each of the municipalities in question has authority to construct its power plant and distribution system in competition with petitioner, and to borrow money, issue bonds, and receive grants for that purpose.'

The Public Utilities Holding Company Act of 1935 required public utilities doing an interstate business to register with the Securities and Exchange Commission or lose the privilege of the mails and other channels of interstate commerce. About half of such concerns had registered, but fifty-two holding companies, led by the Electric Bond and Share Company, refused to obey the law until the Supreme Court had passed on it, and had brought suit to enjoin the Government from enforcing the provision. By a 6-to-1 decision, March 28 (McReynolds dissenting, and Reed and Cardozo not participating), the Court upheld that section of the act requiring registration. Said Chief Justice Hughes: 'Without attempting to state the limits of permissible regulation in the execution of this declared policy, we have no reason to doubt that from these defendants, with their highly important relation to interstate commerce and the national economy, Congress was entitled to demand the fullest information as to the organization, financial structure and all the activities which would have any bearing upon the exercise of Congressional authority.' The result of this decision was to compel holding companies to furnish broad data on their financial structures, operations and business.

Another decision handed down on the same day may have important influence on the whole question of utility rates. Since 1898, the Supreme Court has upheld the point of view that rates should be determined on valuations based on 'reproduction costs.' Opponents of this theory hold that the basis of rate making should be determined by the principle of 'prudent investment.' The case at issue concerned an order of the California Railroad Commission in 1933 ordering the Pacific Gas and Electric Company to reduce its rates. Contending that the Commission had not properly considered 'reproduction costs,' the company obtained an injunction from a Federal Court enjoining enforcement of the order. When the injunction was appealed to the Supreme Court, that body in 1937 upheld the injunction by a 4 to 4 decision, Sutherland not voting. As the complexion of the Court changed, that body voted to review its decision. In the new decision the Court by a vote of 6 to 2 (Butler and McReynolds dissenting and Sutherland not voting) ignored the issue of reproduction costs asserting that 'the main issue in this litigation is whether the rates as fixed by the commission's order are confiscatory.'

Few decisions in a minor Federal Court have attracted as much interest as that handed down by a three-judge Federal Court (Circuit Judge Florence Allen, and District Judges John J. Gore and John D. Martin) on January 21 at Chattanooga, Tennessee. In an effort to halt the operation of the TVA, eighteen utility companies challenged the constitutionality of the enabling act on various grounds, including the assertion that the TVA's low rates would destroy their property without just compensation. In upholding the Act the Court concluded, 'These complainants have no immunity from lawful competition, even if their business be curtailed or destroyed . . . We conclude that, since none of the complainants claim to operate under an exclusive franchise, no fraud, malice or conspiracy exist; since the authority is not exceeding its statutory powers and since the statute is constitutional, the competition with these complainants is lawful.' On April 18 the complainants filed an appeal with the Supreme Court, but the appeal came too late for any decision on this important case during the spring session of 1938.

Taxation.

Even before the President in his radio talk to the nation suggested the end of tax-exempt bonds and the taxation by the Federal government of state salaries (and vice versa) it was evident that the administration was committed to a policy of extending the base of taxation. It was also evident by the end of the Supreme Court session that that body was in the mood to support such a policy. Under the heading of 'taxation' at least eight cases should be mentioned.