Mr. HULL. The English $5,000,000,000 loan is practically on the same basis as we propose in this one, and they left out the conversion privilege as they did in Canada. Secretary McADOO. Our conditions are not precisely the same, and I think it would be a mistake if we should adopt the plan I have suggested here of issuing a 4 per cent bond with a modified exemption to exclude the conversion privilege at this time. Mr. DIXON. Mr. Secretary, you stated the expense of floating this liberty loan was $2,568,000. Did that include the cost of engraving and the mechanical work connected with it? Secretary MCADOO. Yes, sir; $1,000,000 out of the $2,568,000. (The committee thereupon adjourned until Wednesday, August 29, 1917, at 10 o'clock a. m.) COMMITTEE ON WAYS AND MEANS, HOUSE OF REPRESENTATIVES, Washington, D. C., August 29, 1917. The committee met at 10 o'clock a. m., Hon. Claude Kitchin (chairman) presiding. Present: The chairman and Messrs. Rainey, Dixon, Hull, Garner, Collier, Dickinson, Oldfield, Crisp, Helvering, O'Shaunessy, Carew, White, Fordney, Moore, Green, Sloan, Fairchild, Sterling, and Martin. The CHAIRMAN. The committee will come to order. STATEMENT OF HON. WILLIAM G. McADOO, SECRETARY OF THE TREASURY-Resumed. Mr. MOORE. Mr. Secretary, I think we had concluded section 1 of the bill yesterday and we are now up to section 2. I think you said about all you cared to say on the question of commissions under section 1, did you not? Secretary McADOO. Yes; I think so. Mr. MOORE. Of course that is a complete change of law and grants entirely new authority to the Secretary of the Treasury. Secretary McADOO. I do not consider it a change of law so much as I consider it as relieving of all doubt the power of the Secretary to apply these funds in whatever way may be necessary to sell these bonds. In other words, if we should be confronted with a situation where, as I said before, it will be necessary to make some arbitrary allowance of uniform application for expenses incurred, it would have to be on a percentage basis on the bonds so it would have uniform application, and the Treasury Department would not have to undertake the audit of an infinite number of little accounts which, of course, we could not follow. Therefore, in order to accomplish that I should have to put it on a percentage basis, and so long as the word "commission" is in the bill it might look as if I was paying it as a commission which, of course, would be compensation, when as a matter of fact it would merely be an allowance for actual expenditures. That is the only reason I prefer to have the word "commission " eliminated. 10137-17- 4 Mr. GARNER. You have a provision in this bill that these bonds can not be sold for less than par? Secretary MCADOO. Yes. Mr. GARNER. And you also have a limitation as to the amount of money you can spend in selling the bonds? Secretary MCADOO. Precisely. Mr. GARNER. And you want to be absolutely free in using that money to the best advantage in selling the bonds? Secretary McADOO. Exactly. Mr. MOORE. Mr. Secretary, I would like to know to whom this commission or compensation would accrue. Would it accrue to the banks particularly? Would they be the agencies through which you would operate? Secretary McADOO. I would not pay a commission, as I said before. Mr. MOORE. You said compensation. Secretary McADOO. No; I said an allowance for expenditures or expenses which would have to be on a rule of universal application. Mr. MOORE. That would mean clerk hire and the extra meals and things of that kind which you referred to yesterday. Secretary McADOO. Yes. Mr. MOORE. I recall the meals part of it particularly. Mr. MOORE. That would mean the banks would be reimbursed to a certain extent for the expenses to which they were put in aiding you to dispose of the loan? Secretary MCADOO. Yes; to the extent any allowance we would make would reimburse them for what they call out-of-pocket expenses incurred. Let us take the item of postage alone in circularizing a district by a bank or department store. The department stores, for instance, have done a great deal of work in connection with this loan as well as various other agencies. The banks alone do not do all of this work. We enlist every agency we can that is responsible. If you circularize thousands of people, and you do it frequently in the course of a campaign, the item of postage alone is a very considerable one. They have asked me if Congress would not grant the franking privilege, for instance, on matter connected with the issues of liberty bonds. I think it would perhaps be a dangerous experiment to be allowing the use of the franking privilege in such instances, because we would have no control over it. I think it would be much better for the Government to make an allowance for expenses which would cover postage and printing of circulars and distribution of circulars. Any allowance on a uniform scale would, of course, not compensate everybody. Many concerns would find any allowance I might make, I am sure, inadequate to reimburse them for actual expenditures, whereas others might find it exceeded their actual expenditures a little bit. In any case the allowance would have to be a very small percentage on the amount of subscriptions that were turned in; but in no case would it be a commission, Mr. Moore. Mr. MOORE. Are you able at this time, by way of estimate, to differentiate between the cost of promotion in that respect and the cost of advertising? Secretary McADOO. No; I am not. A thorough analysis of the expenses of the last campaign has not been made, as I said yesterday, but we have in sight the actual costs already realized and the estimated costs in the expenditure of the two and one-half million dollars on this issue. I am satisfied that if we could get an accurate return from the entire country of what was voluntarily contributed by individuals and banks and organizations of all kinds toward that campaign we would find that probably two and a half million dollars more was expended in actual value. Mr. GARNER. If you had to pay for the services of every little local committee Secretary McADOO (interposing). No; I am not speaking of services at any time, but of actual expenditures. I should say that perhaps $2,500,000 more might not be an excessive estimate of the additional cost contributed in the last campaign by patriotic people all over the country. That would be $5,000,000 to sell $2,000,000,000 of bonds. That would be more than one-fifth of 1 per cent. It would be one-fourth of 1 per cent to sell that issue on that basis. Of course, there will never be a time when the Government will reimburse fully, or can reimburse fully, the expenses incurred by voluntary organizations in the sale of these liberty bonds, and if we are limited to one-fifth of 1 per cent any allowance we might make as actual reimbursement for actual expenditures would be very small, and perhaps insufficient. Mr. Moore, will you permit me to call attention to Canada's experience. Canada makes an actual allowance to the bankers and brokers for floating her war loans, and here is what she does: The Dominion of Canada, in offering its war loan under date of March 12, 1917, allowed a commission of three-eighths of 1 per cent on allotments made with respect to applications by recognized bond and stock brokers doing business in Canada. That is three-eighths of 1 per cent, you see, and that is just the commission to the bankers and brokers. Now, we understood that the last loan by Great Britain provided for a commission to the distributors of the bonds. Threeeighths of 1 per cent on a billion-dollar issue would require an expenditure of $3,750,000 for that one item alone, which does not include, of course, the cost of printing and engraving the bonds and other expenses necessarily incurred by the department. I should like to reemphasize the point, gentlemen, that if the Government of the United States is to continue to sell its bonds by popular subscription, including the cost of engraving and of conversion and the other expenses that are inseparable from an operation of such magnitude, at a cost of not exceeding one-fifth of 1 per cent we will do a phenomenal thing. Mr. GARNER. And you think it is better to leave you as free as possible to use that one-fifth of 1 per cent in the sale of the bonds. without any limitation. Secretary McADOO. Yes; I think it is going to become increasingly essential that I should have a free hand in that respect. Mr. MOORE. I give the department credit for having made a very decided saving on the sale of the liberty bonds. You asked originally for $12,000,000 to dispose of the $2,000,000,000 of bonds. The CHAIRMAN. Oh, no. Mr. MOORE. Twelve million dollars was the total asked for in the first bill which Congress cut to $7,000,000. Now, the Secretary got through, according to his statement yesterday, on about two and a half million dollars. Secretary McADOO. That was for two billions of bonds, Mr. Moore. Mr. MOORE. But the original bill contained a provision which would have given you $12,000,000 to have disposed of the $2,000,000,000 of bonds. The CHAIRMAN. Oh, no; five billions of bonds and two billions of certificates. Mr. MOORE. Mr. Fitzgerald offered an amendment on the floor of the House, which was carried Mr. GARNER (interposing). And which is in the law now, and which is one-tenth of 1 per cent of the bonds sold, which is a total available for the selling of bonds of $7,000,000. The CHAIRMAN. Of the entire issue of bonds and certificates. Mr. MOORE. And the Secretary has made a saving, and whether he feels he ought to recompense the people who have voluntarily helped him now is the question before the committee; but he did effect a saving from the amount available as between that amount, which I say was $7,000,000, and the $2,500,000 or thereabouts which he spent. Mr. GARNER. But he only sold $2,000,000,000. Mr. HELVERING. And he has not completed the work yet. Mr. MOORE. I want to get the facts. Mr. HELVERING. He has not completed the job yet. The CHAIRMAN. The fact is the original bill asked for one-fifth of 1 per cent to sell the $5,000,000,000 of bonds and one-tenth of 1 per cent to sell the $2,000,000,000 of certificates of indebtedness. Now, the House cut it down and made it one-tenth of 1 per cent. The $12,000,000 that asked for was to sell the whole $7,000,000,000 worth of securities, $2,000,000,000 of certificates of indebtedness and $5,000,000,000 of bonds. The House cut it down to one-tenth of 1 per cent on the bonds and left the certificates of indebtedness at onetenth of 1 per cent. Mr. MOORE. That is correct. The Secretary has not completed the work delegated to him by that act, but he had authority under that act to spend $7,000,000. Secretary McADOO. On the whole issue. Mr. MOORE. Yes; on the whole issue, and you have not disposed of the entire issue. Secretary MCADOO. NO. Mr. MOORE. But you have spent approximately $2,500,000 on the work that has thus far been done. Secretary McADOO. Yes. Mr. MOORE. Now, that would seem to me to have been a saving, since you are covering into this new bill the unfinished work provided for by the old bill. Secretary McADOO. You say you consider it a saving? Mr. MOORE. Yes. Secretary MCADOO. Perhaps we do not understand each other, but let me say this: The amount available is a percentage on whatever amount is offered. For instance, we will say on these two billions we had the right to expend $2,000,000, and we had the right to expend on the certificates of indebtedness, which we issued in furtherance of it, of course, one-tenth of 1 per cent more. Now, we placed, I think, $900,000,000 of certificates prior to the bond issue, and they were absorbed subsequently in the bond issue, so that the total operation involved $2,900,000. We could only have spent in any case $2,900,000 in that operation. Mr. MOORE. Let us get at it in this way: If you had finished up the entire work placed in your hands by that act, how much money would you have spent in the operation? Secretary McADOO. We could have spent $7,000,000. Mr. MOORE. That is, on the plan which you adopted? Secretary McADOO. We could have spent $7,000,000 on the entire operation. Mr. MOORE. You could have done it, but would you have done it on the plan you adopted of using the voluntary agencies which came forward to assist you? Secretary McADOO. I think it would have cost us more, but that in turn depends upon several factors. We shall have to make certain assumptions. For instance, we sold $2,000,000,000, which was twofifths of the entire issue. Now suppose we were obliged to offer not more than $2,000,000,000 for the second installment. Supposing for any reason the conditions were such that we might find it inadvisable to offer more than $2,000,000,000 for the next installment, then we would certainly have incurred as much expense, in my judgment, and more, perhaps. Assuming that would have cost $2,500,000 more, that would mean $5,000,000 to sell $4,000,000,000 of these bonds. Then we would have to have made exactly the same kind of campaign to sell $1,000,000,000 more. That would be three installments, and that certainly would have cost $2,500,000 more, because the expense does not relate so much to the size of the issue as to the work that must be done to sell any issue. Now, that would have brought us up, on the very best possible basis, to $7,500,000 to sell the $5,000,000,000 of bonds. Now, if we had not facilitated the process with the issue of certificates upon which we are allowed to expend one-tenth of 1 per cent, we would be short in our actual expenditures on the sale of the bonds. Now let me say another thing Mr. MOORE (interposing). With the voluntary services thrown in as they were? Secretary MCADOO. I am assuming they would be on that basis. Mr. MOORE. And you assume there was no real saving on the total amount allowed for the disposition of the entire issue. Secretary McADOO. I am allowing for voluntary contributions in all of the estimates I have just made. I am still assuming we shall have all the volunteer assistance without any reimbursement except to the extent that we authorize expenditures under the other plan. Mr. MOORE. Then if we have to pay for this voluntary service in the next issue, the cost will be still greater? Secretary McADOO. Of course, it would be. If you had to pay for voluntary services, but we would not pay for voluntary service in any case, Mr. Moore. What we would attempt to reimburse for would be actual out-of-pocket expenditures on the part of the agencies |