and equal facilities for securing denatured alcohol. I believe that this object can be accomplished without the establishment of a denaturing bonded warehouse at the place of business of every wholesale dealer handling this product and manufacturer using it in his processes. The expense of governmental supervision of these proposed denaturing bonded warehouses will be borne by the Government. For the protection of the revenue it will be necessary that close and continued surveillance of same be had. This is the rule abroad, as must be here. In Great Britain denaturing is done in the presence of two Government officers. The expense to the Government of maintaining at each denaturing warehouse proper supervision for the adequate safeguarding of the revenues, provided denaturing bonded warehouses are established at each wholesale dealer's and manufacturer's place of business, as contemplated by the bills as introduced, would be exceedingly large, and it is not believed that a compensating benefit to dealers and consumers would follow.

I suggest in lieu of said two sections the second section of the office bill submitted herewith.

This proposed substitute contemplates the establishment of centrally located denaturing bonded warehouses, but fixes the limit of same in each collection district at five. These will be in addition to any denaturing warehouses on distillery premises. Under the substitute proposed there could be established in the United States 325 central denaturing bonded warehouses, as there are 65 collection districts in the United States. These would be locaed at such manufacturing and distributing points as the interested consumers of and dealers in the denatured product might demand.

In view of the fact that under existing law a denaturing bonded warehouse can be established at each distillery producing alcohol, it is believed that with the number of central warehouses increased, as is proposed in the substitute, ample facilities will be furnished all consumers, and that the conflicting inter ests of the several classes of consumers can be protected, and at the same time the expenditures of the Government in this line of work kept within reasonable limits, and that the scheme is sufficiently elastic and comprehensive to afford full protection to all interests.

SECTIONS 3 AND 4.

Sections 3 and 4 of the proposed substitute bill cover the general provisions embraced in the other sections of the two House bills noted.

Section 3 of the proposed bill provides fully and distinctly for the transfer from receiving cisterns to denaturing bonded warehouses or to closed metal storage tanks in distillery bonded warehouses, or from these tanks to the denaturing house, and for the transportation of denatured alcohol by means of pipes, tanks, tank cars, packages, etc. The object of this is to secure cheapness in the production and handling at the distillery and the warehouses, and also to secure reduced transportation charges.

Section 4 of the proposed substitute bill refers more directly to what is commonly termed the farm distillery, or a distillery operated for the production alone of alcohol for denaturing. The provosions of this section are, to a certain extent, a reversal of the general internal-revenue laws with regard to the production of distilled spirits, but it is believed and hoped that at these small plants there may be some relaxation of the close and continued surveillance of distillery operations necessary at larger plants, and where alcohol is produced both for commercial and denaturing purposes.

At any rate, to meet the demand it is not deemed unwise by this office to make the test, and to allow alcohol to be produced for denaturing purposes alone at these small plants without the constant presence of a Government official. Therefore, locked cisterns or tanks are provided for, into which the alcohol may pass, and under the provision that these distilleries, limited in daily producing capacity of not exceeding 100 proof gallons, may be exempted from such provisions of existing law relating to distilleries as may be deemed expedient by yourself and this office.

If Congress adopts this legislation, then for the purpose of releasing the Government from the heavy charge of having a subordinate official stationed at each distillery where alcohol is produced for denaturing purposes alone, the test would be made as to the use of locked tanks and receiving cisterns with the presence only of a Government official, to be called an inspector, when the distillery begins operations, when the tank is filled, when the owner of the distillery desires to remove the same from the tank for denaturing purposes

alone, and at such other times as may be necessary either to the distiller or to the Government in its work of supervision.

Being of opinion that the proposed substitute contains every provision necessary for the purposes desired, and presents them in a somewhat better form for administrative purposes, I recommend to you its passage.

I am, very respectfully,

JOHN W. YERKES,

Commissioner.

TREASURY DEPARTMENT, Washington, January 19, 1907.

MY DEAR SIR: Replying to your favor of January 15, inclosing H. R. 24131, to amend an act known as the denatured alcohol law, I beg to submit a copy of a substitute bill prepared by the Commissioner of Internal Revenue and a copy of his letter explaining the reasons therefor, all of which I indorse and approve. L. M. SHAW.

Very truly, yours

Hon. SERENO E. PAYNE,

Chairman Committee on Ways and Means,

House of Representatives.

The purpose and general scope of this supplementary legislation and its direct relation to the farming interests of the country is shown by the following letter from ex-Governor Nahum J. Bachelder, master of the National Grange, and chairman of the legislation committee of that organization:

Hon. SERENO E. PAYNE, Chairman

Committee on Ways and Means,

CONCORD, N. H., January 22, 1907.

House of Representatives, Washington, D. C.

DEAR SIR: Complying with your suggestion, on the occasion of the recent interview had with you by the legislative committee of the National Grange, we would respectfully submit the following memorandum in regard to the legisla tion amending the laws governing the distillation and denaturing of untaxed industrial alcohol, which we are urgently desirous of having enacted at the present session of Congress.

The purpose of the desired legislation is to still further reduce the cost of denatured alcohol, by giving greater facilities for its production and distribution. While the act approved June 7, 1906, providing for untaxed denatured alcohol, is in most respects satisfactory, there are some defects which tend to limit the production and distribution of the denatured product. With one or two exceptions these defects are not found in the untaxed alcohol law, but in the revenue laws relating to distilled spirits, which were not amended or changed in any way by the act of June 7, 1906.

The nature of the amendments to the laws governing the distillation and denaturing of alcohol, which we advocate, are:

First. Giving the Commissioner of Internal Revenue power to authorize farmers or other persons wishing to produce alcohol on a small scale to distill it in suitable locked stills, and to have it denatured without the expense of a denaturing bonded warehouse. It is believed that the conditions at present imposed on parties wishing to engage in the distillation of alcohol for industrial purposes tend to limit its production to large distillers, and that the expense of the required distillery warehouses and bonded denaturing warehouses adds considerably to the cost of the alcohol.

We believe that it is entirely feasible for the Commissioner of Internal Revenue to devise regulations which will effectively protect the Government against fraud on the revenues, and at the same time permit small producers of alcohol to have their alcohol denatured under the supervision of an internal revenue officials, without being put to the expense of a specially bonded de

naturing warehouse. The Commissioner of Internal Revenue should certainly have the power to prescribe such regulations, and there would seem to be no good reason why Congress should not give him this authority.

Second. The establishment of denaturing bonded warehouses in various sections of the country into which alcohol may be transferred from distilleries without payment of tax, under proper bonds and official supervision. There is absolutely no reason why the denaturing of alcohol should not be separate and distinct from the distilling of alcohol, where and wherever the commercial distribution of the product makes such separation desirable. As the law now stands it is manifestly impossible for a small distiller to supply alcohol for manufacturing purposes which would require special denaturing owing to the expense and difficulty of complying with the regulations. The law as it now stands tends to give the large distillers a monopoly of supplying alcohol for manufacturing purposes. The proposed changes, therefore, are necessary in order to make it profitable for the small producers to supply the manufacturing and city demand, by enabling a number of them to ship their alcohol to a conveniently located central denaturing plant, where all the advantages of a special denaturing or shipping in bulk to distant points can be fully utilized. The advantage to the Government in simplifying and reducing the cost of supervision is obvious.

Third. Authorizing the Commissioner of Internal Revenue to prescribe regulations fixing the kind and capacity of the packages, including tank cars, and other methods of transportation for denatured alcohol. The present law limits the size of the packages containing alcohol, and thus prevents its shipment in tank cars, a method of transportation which would effect a material reduction in its cost. Regulations governing the use of such tank cars can easily be prescribed, which will effectually guard against any loss in revenue through the sale of denatured alcohol as a substitute for taxed spirits.

This question of tank cars is a matter of prime importance in reducing the price of alcohol for fuel uses to a competitive basis with kerosene, gasoline, and other liquid fuels. Without tank cars the market of small distilleries must of necessity be local, and the tank car is absolutely necessary to give the smaller distilleries the opportunity of securing a share in supplying the alcohol to be used in a more widely extended area.

The importance of the tank car will be fully appreciated, as also the other provisions called for, if the natural order of development of the denaturedalcohol industry is clearly understood.

Before local distilleries can be profitably built and operated a local demand must have been created, and that demand can only come after there shall have been a considerable local distribution of alcohol lamps, stoves, heaters, engines, and other alcohol-consuming appliances. As long as the demand in any locality is only for a few gallons or barrels weekly it is manifest that that locality must depend on some outside source of supply. The true order of precedence is, first the large central distilleries supplying a scattered demand over a wide territory; then the development of the manufacturing industries supplying alcohol apparatus; and finally, the local distilleries. Consequently, the farmer has a grave concern in providing by all possible ways for the cheap distribution of the alcohol from the large central distilleries. We are not opposed to the latter distilleries because they are large, but simply urge the enactment of legislation which will give small distilleries an equal show before the law, which the law, as it now stands, is believed not to do.

Fourth. Under the present law no provision can be made for pumping alcohol from the distillery cistern to the distillery warehouse or from that warehouse to the denaturing bonded warehouse. There is no good reason why distillers should not be allowed to pump their product from the cisterns to the warehouses through suitable locked pipes, the keys to which could be kept in pos session of the internal-revenue officials charged with the supervision of the distillery. The adoption of such a system would save considerable expense in filling and emptying casks in the process of denaturing.

Fifth. Provision for the use of untaxed alcohol in the manufacture of ether, chloroform, and other definite chemical substances in which alcohol does not appear in the finished product, but is changed into some other substance. The Commissioner of Internal Revenue has ruled that the provision of the untaxed alcohol law prohibiting the use of that material in the manufacture of liquid medicinal preparations" applies to ether, collodion, and other products which are sometimes to a small extent used as a medicine. The effect

of this ruling has been to shut out numerous important industries from the benefits which the untaxed alcohol law was expected to give them and it becomes necessary to amend the law, so that these manufacturers can use denatured alcohol in the production of these materials.

Alcohol is distilled from farm products, and the farmer's interest in alcohol used in manufacturing is only second to his interest in that used in the rural districts as fuel. Every additional gallon used in manufacturing means an additional market for farm products, and the cheaper the manufacturers can secure their alcohol the more they will use.

The chemical industry of Germany consumes many millions of gallons annually made from the products of the German farms, and we desire that Congress provide every possible facility for the development of the chemical industries in this country.

Ether is a material extensively used in various manufacturing processes, and if it could be produced with untaxed alcohol its industrial uses would be very largely increased. Cheap ethyl chloride and other alcohol and ether compounds will, for example, make possible the development of new and superior methods of artificial refrigeration. Another large industry which would be greatly benefited by cheaper ether is the manufacture of photographic plates and films.

The supplementary legislation desired to be enacted during the present session is absolutely necessary to place alcohol on a competitive basis with kerosene and other liquid fuels, and inasmuch as the merit and desirability of this additional legislation is conceded by the members of the committee with whom we discussed the subject, and no objection to action advanced except the crowding of appropriation bills, an objection which can hardly be seriously consid ered. we respectfully urge that the committee report the bill with recommendation for immediate passage. Being purely supplementary legislation providing for administrative changes only, there is no need for the time of the committee or the House being consumed in lengthy consideration of the matter. Yours, truly,

NAHUM J. BACHELDER, Chairman Legislative Committee.

The proposition to limit the denaturing plants to five in any one collection district did not meet the approval of the committee and was stricken out.

The original free-alcohol law as passed by the House of Repre sentatives in 1906 provided as follows:

Such denaturing to be done in denaturing bonded warehouses specially desig nated or set apart for denaturing purposes only, and under conditions prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury.

This was in accord with the European practice of locating these denaturing plants in large manufacturing centers where the demand for the product existed and where public convenience and commercial necessities justify their location. The character and standing of the applicants, their financial responsibility, and the necessities of each case could all be considered by the Treasury authorities and discretion exercised accordingly.

In England, Germany, and France the denaturing of ethyl alcohol is largely an independent business, like any other manufacturing process, the owner of the plant buying his raw material wherever he pleases and shipping it in bond to the denaturing plant, there to be prepared in accordance with the regulations, released from bond and offered for sale. There is no more necessary connection between the distillation of the spirit and the methylation and distribution of the denatured product than there is in this country between the raising of sheep and the manufacture and sale of woolen cloth.

It is difficult to understand how the discretionary power to designate such denaturing plants could be better lodged than in the Government authorities directly responsible for the collection of the revenues, but the provision was subsequently amended by inserting in the clause quoted above after the word "done" the words "upon the application of any registered distillery," with the apparent intent of broadening the scope of the law and compelling the granting of a denaturing license to every distiller who applied for it.

The real effect of the amendment was directly the reverse, for it took away from everyone but the distiller the right to engage in the business and practically amended the discretionary power intended to be placed in the Treasury authorities. Under our law anyone can engage in the distillation of spirits without limit as to the amount produced, so that it follows that the owner of any registered distillery, no matter how small its daily capacity, having, for example, a product of 5 gallons a day and only for a short portion of the year, can engage in the manufacturing and distribution of denatured alcohol during the entire year, and yet the independent methylator and large consumer and distributer in our great manufacturing centers is denied the privilege. But the effect of this restriction upon the discretion of the Commissioner was even more drastic and far-reaching, for while the law in specific terms does not prescribe that the denaturing warehouse designated "upon the application of any registered distillery" shall necessarily be located upon the distillery premises, and while it is even claimed that they can be located anywhere upon such application, it is a fair inference that proximity was intended and it has thus far been so construed.

It follows, therefore, that while anyone can legally engage in the distilling business, the expense involved in the construction and maintenance of the distillery, with the bonded warehouse and separate denaturing warehouse, even though all of the cost of supervision is placed upon the Government, will tend to discourage the farmer and other small producers and concentrate the whole production in the hands of the large distillers of beverage spirits, and not only result in more or less of a monopoly, but it will deprive those sections of the country away from central points of distribution of a constantly renewed and cheap source of supply of fuel, light, and power.

Judging from the experience of other countries where the right to use denatured alcohol freely has been conceded for twenty-five to fifty years, probably two-thirds of the entire consumption will be of what is known as "completely denatured" spirit. This is what is used for domestic purposes, for heating, cooking, lighting, for all kinds of internal explosion engines, and for many manufacturing u-es. It is purchased and consumed at the will of the buyer, as freely as oil or coal can be, and no records are required to be kept by him and no license needed, except in the case of the manufacturer using an average of more than 50 gallons per month.

The completely denatured spirit in England is made by adding to 90 parts of ethyl alcohol 10 parts of wood alcohol and three-eighths of 1 per cent of mineral naphtha.

In Germany the mixture consists of 97 per cent ethyl alcohol, 2 per cent wood alcohol, and one-half of 1 per cent of pyridine bases. In this country practically both methods have been adopted, as