Title: Constructive Economy
Date: January 30, 1926
Location: Washington, D.C.
Context: In the speech, President Coolidge describes its context as “the executive heads of the various departments and bureaus of the United States Government meet[ing] twice a year for receiving a report of the results of their efforts to make the business of the Government more successful.” Essentially, this is a speech to government officials about the federal budget.
Members of the Government’s Business Organization:
As would be the practice in any well-managed concern, the executive heads of the various departments and bureaus of the United States Government meet twice a year for receiving a report of the results of their efforts to make the business of the Government more successful. This is primarily a meeting to consider the Federal financial operations. But it approaches that problem not from the side of the finding and the raising of revenue but from the opposite side of the conservation and the expenditure of revenue. It is an eternal challenge to which we respond, of how to secure a more efficient government with a smaller expenditure of money. It is a great test of engineering skill in the constant elimination of waste, in the making of every dollar count, and in the conserving of national energy. On the success with which we meet these requirements depends the welfare of the Government and the prosperity and happiness of the American people.
It is for these reasons that the greatest emphasis should be placed on constructive economy. Merely to reduce the expenses of the Government might not in itself be beneficial. Such action might be only the discontinuance of a wholly necessary activity. No civilized community would close its schools, abolish its courts, disband its police force, or discontinue its fire department. Such action could not be counted as gain, but as irreparable loss. The underlying spirit of economy is to secure better education, wider administration of justice, more public order, and greater security from conflagration, all through a superior organization which will decrease the unit of cost. It is all reducible to a question of national efficiency.
Each one of you may sometimes feel that you are performing a small and ineffective part and that the expenditures in your department will make so little difference that it is not worth while to put forth much effort. Pausing long enough to remind you that in the first place the character of the manhood and womanhood which you develop will depend entirely on the amount of effort that you put forth, I pass over that consideration to the fact that though each of you may contribute a comparatively small share to the general result, yet in a concern so vast as the Government of the United States the aggregate is very large. I want to see the public service of my country make a large contribution to the character of those who are employed in it and become the most efficient instrument of organized government in the world. Before you admit that your own part is small and ineffective you should remember that the whole is equal to the sum of all the parts and take a survey of the broad plan which is gradually being framed in accordance with the system of constructive economy for the conduct of the Federal business.
It happens that this is the tenth Budget meeting. If you will look back at the situation which existed in June, 1921, only four and one-half years ago, when your first meeting was held, you will be able better to understand the tremendous results of a policy of constructive economy. At that time 5,000,000 of our people were without employment, trade and commerce were despondent, transportation was unable to finance itself, the loss of buying power on the part of the wage earner depressed the price of all agricultural products, our foreign relations were in an uncertain state, we were threatened with an inundation of alien goods and alien peoples, about $7,000,000,000 of unfunded public debt was shortly to mature. It was almost impossible to secure private credit. The burden of taxation was overwhelming.
The action of the Government was prompt and effective. It is for us to see that it remains sustained. The flood of immigration and importations was checked by legislation.
Our own people began to find work. Our own goods began to find a market. Taxes were enormously reduced. Federal expenditures, which then amounted to $5,538,000,000 for that fiscal year, it is now estimated will be cut down to $3,619,000,000 for this fiscal year. That is a saving of $1,919,000,000. Our short-term obligations were so skillfully funded that instead of embarrassing business the operation actually stimulated it. The public debt then was $23,997,000,000. At the end of this fiscal year it is estimated it will be less than $20,000,000,000. This is a payment of about $4,000,000,000 and represents a yearly saving in interest of $179,000,000.Credit was extended to agriculture and transportation through the War Finance Corporation.
With the return of employment and high wages the consumption of agricultural products increased 18 per cent. Our foreign reactions were adjusted in a manner which added to the peace and stability of the world. The enormous debts due to us from abroad have been steadily adjusted until but one of urge importance remains. The system of foreign loans has increased foreign purchasing powers. Economies in production have decreased our domestic costs. Our exports and imports for the last year were about $9,000,000,000, the highest mark ever reached in time of peace. With our assistance the economic condition of the whole world has been very greatly improved.
To eliminate competition in armaments and prevent the friction and suspicion which inevitably arises from that practice, the Washington Conference provided treaties which not only afford great financial relief but are very effective in the promotion of international good will and confidence. Before us is the prospect of another conference which holds the promise of further advance in this most attractive field. These accomplishments mean international peace, economic prosperity, and financial stability.
In your own peculiar field the most impressive action was the adoption of the Budget system. With the cooperation of the Congress, with your loyal support, and under the forceful leadership of General Dawes, it was put into operation. In a little over two years it became apparent that largely because of its efficient continuance under General Lord it was possible again to reduce taxes. Such a bill was enacted by the Congress which convened in December, 1923. Due to the same moving factors, we have been enabled to propose another reduction in taxes, which is now pending before the Congress and promises to be speedily enacted. This is your record. It is due to your individual action. Measured in its entirety, it is not small or inconsequential,but tremendous in its results and of overwhelming significance in its implications. It has been a large contributing factor to prosperity at home, and to peace, reparation, and restoration abroad.
It is my belief that we should supplement these achievements, round out the accomplishments, and reinforce this same general policy of constructive economy, enlarged prosperity, and peace by adhering to the Permanent Court of International Justice. When accompanied with proper reservations I can see in such action no diminution of our sovereignty, no increase in our national peril, but rather an instrument which will add more securities to human rights and more guaranties to international tranquillity. We have not reached these domestic results without struggle and sacrifice and the encountering of opposition. We shall not be able to do much good to ourselves or make much contribution to the welfare of the world unless we continue the same struggle and make increasing sacrifices.
To me, all these proposals for conservation and economy do not seem either selfish or provincial, but rather they reveal a spirit dedicated to the service of humanity. If these things are not important, then there are no earthly considerations that are important.
Although these accomplishments are past history and ought to be known of all men, yet it is well that they be recalled and reiterated, in order that we may better understand the general plan which not only all the people in the Government but all the people in the country are engaged in putting into effect. The penalty for achievement is always a demand for even greater achievement. In this effort for retrenchment you have not disappointed the people or the President, and it is my firm conviction that you never will. If you at times grow weary of the constant stress put on economy, you will see that something more is involved than can be measured in dollars and cents. The spirit of real constructive economy is something higher and nobler. It does not imply so much a limitation as an attempt to be free from limitation. It does not contemplate curtailing ample supplies for worthy purposes and real needs, but it is the enemy of waste and the ally of orderly procedure. It is an attempt to increase and enlarge the scope of the individual and the life of the Nation.
How great a need exists to emphasize the homely fundamental virtue of government economy is seen when we contemplate the mounting tide of expenditure and indebtedness of municipal and State governments. This tendency is one of great concern. The very fact that the Federal Government has been able to cut down its expenditures, decrease its indebtedness, and reduce its taxes indicates how great is the accomplishment which you have made in behalf of the people of the Nation. These results are all monuments to you and to the Congress. It has been your work and your cooperation that has brought forth these fortunate conclusions.
Heretofore I have expressed the opinion that we can not look for further reductions in the cost of the actual transacting of the business of the Government. It is only natural that the normal growth of the Nation would produce some expansion. But constant scrutiny is necessary to prevent fossilization and decay. Careful oversight of personnel is always required. The pay roll represents the largest single item in the business of the Government. During the past calendar year this has been reduced locally by more than 5,000 names–an annual saving of $8,000,000–although when persons are dropped from one department they are always taken care of in another wherever possible.
Past experience has shown that a reduction of taxes has been followed by increased prosperity. As the volume of business increases the Federal revenue increases. If we are moderate in our expenditures, the natural increase in profits ought within the next few years to furnish us again with a surplus revenue which will permit a further tax reduction.
We were the first nation in recent years to adopt a plan to reduce our debt and put the plan into operation. We are maintaining our sinking fund and applying the payments made on our foreign loans to the retirement of our debt. As a result this Nation has to-day the best credit in the world. We have lowered our interest costs not only by reducing our debt, but by so improving our credit that we can borrow at lower rates. Since interest is 22½ per cent of our total Federal expenditures, a reduction in interest is a most fruitful field or permanent saving. If we continued this plan during the postwar depression, there is certainly little reason for changing it in these days of prosperity.
Very soon you will have your appropriations for the next fiscal year. It would be wise early to lay out a carefully prepared program in making the apportionment over the several periods of the year, as is required by the law. If all our expenditures are wisely planned and wisely made, retrenchment will take care of itself. You should not forget to lay aside an emergency fund. Something unexpected usually happens, but if it does not a real saving is made. The reserve set up in this way for the last fiscal year has an unexpended balance of $24,000,000. It is of the utmost importance to remember that constructive economy means preparation for the future. Our country is in need of internal improvements and developments. A new building bill is under way, and our great interior should be provided with river and waterway facilities. These two projects represent a capital investment on which the returns will undoubtedly justify the costs. But we should beware of increased permanent commitments.
When the Government rents privately owned buildings it pays a high rate of interest, all the taxes, and some profit. When it occupies its own buildings the interest represented is very low, and taxes and profits are eliminated. The opening up of waterways means the development of commerce, less cost for freight on raw materials, and a large saving to our agricultural regions. The extent to which these projects can be undertaken in the immediate future awaits the outcome of the pending tax bill.
What all these efforts mean would be greatly underestimated if it be thought that they begin and end with the saving of money. Considered in their entirety, they play an important part in the wonderful American experiment for the advancement of human welfare. It is not only the method by which we have built railroads, developed agriculture, created commerce, and established industry, not only the method by which we have made nearly 18,000,000 automobiles and put a telephone and a radio into so large a proportion of our homes, but it is also the method by which we have founded schools, endowed hospitals, and erected places of religious worship. It is the material groundwork on which the whole fabric of society rests. It has given to the average American a breadth of outlook, a variety of experience, and a richness of life that in former generations was entirely beyond the reach of even the most powerful princes.
All of this effort not merely the keeping of our money but the keeping of our faith. One of the chief dangers to the success of popular government is that it will throw away self-restraint and self-control and adopt laws which, being without sound economic foundation, bring on such a financial distress as to result in want, misery, disorder, and the dissolution of society. America has demonstrated that self-government can be so administered as fairly to protect each individual in all his rights, whether they affect his person or his property. Under constitutional authority we tax everything, but we confiscate nothing. It is not through selfishness or wastefulness or arrogance, but through self-denial, conservation, and service that we shall build up the American spirit. This is the true constructive economy, the true faith on which our institutions rest.
Our chief of staff in the direction of all this work is General Lord. It is because of his continuing efforts and your constant cooperation that our Government service to-day is a greatly improved service. It is more efficient and better able to function. The day of administration without coordination has passed. Our country has adopted a system of ordered finance. While much of the inspiration for his great achievement is furnished by the words of General Lord, the action has been furnished by yourselves. I present him to you not as your opponent or your critic, but as your most loyal friend and your most sympathetic defender.
Citation: Everett Sanders Papers, LoC
The Coolidge Foundation gratefully acknowledges the volunteer efforts of John Sullivan III who prepared this document for digital publication.