Archives consist of articles that originally appeared in Collier's Year Book (for events of 1997 and earlier) or as monthly updates in Encarta Yearbook (for events of 1998 and later). Because they were published shortly after events occurred, they reflect the information available at that time. Cross references refer to Archive articles of the same year.

1938: United States

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.

Learn More •  Important Notice: MSN Encarta to be discontinued. Learn more. Liberia: history, geography, and culture •  Scientifically seeking Bigfoot •  Need a break? Dozens of fun quizzes

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.

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.

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.

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.

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.)

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.

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.)

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.

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)

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.

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.

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.

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.)

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.

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.

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.

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.

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.

One of the most important had to do with the question as to whether the salaries of officers of the Port of New York Authority (set up by the states of New York and New Jersey) were subject to the Federal income tax. In a 5 to 2 decision (McReynolds and Butler dissenting) the Court insisted that such taxation 'does not curtail any of those functions which have been thought hitherto to be essential to their continued existence as states.' Justice Butler in his dissenting opinion declared that the decision 'overrules a century of precedents.' In any case it somewhat modified the wide interpretation heretofore given to John Marshall's dictum that 'the power to tax is the power to destroy.'

Another important case of this type concerned the right of the Federal Government to collect taxes on admissions to football games sponsored by state universities. Contending that they were not liable because they were state institutions, the University of Georgia and the Georgia School of Technology, acting officially or unofficially for many other such institutions, took the question to the highest tribunal. In a 6 to 2 decision (Butler and McReynolds dissenting) the Court held that 'when a state embarks in a business which would normally be taxable, the fact that in so doing it is exercising a governmental power does not render the activity immune from Federal taxation.'

Other cases in this category included (1) a 5 to 2 decision (McReynolds and Butler dissenting) which held private operators of state-owned oil leases subject to Federal taxation; (2) a unanimous decision holding state bank and insurance liquidators not to be strictly state officials, and therefore subject to Federal income tax; (3) a decision, 6 to 3 (McReynolds, Sutherland and Butler dissenting), which found taxable, dividends received by Americans from investments abroad; (4) a decision, 5 to 4 (McReynolds, Sutherland, Butler and Roberts dissenting) which held valid state taxes on the income of Federal Government contractors; (5) a unanimous decision upholding the right of New York City to tax utilities for unemployment relief.

On the other hand, the Government lost in its effort to tax bonuses given to employees of the Universal Oil Products Company. The decision was 5 to 4 with Brandeis, Stone, Cardozo, and Black objecting.

Perhaps the most widely discussed legal case of the year was that of Morgan v. United States, which arose from an alleged violation of the Packers and Stockyards Act (1921). This Act gave the Secretary of Agriculture power, 'after full hearing,' to prescribe 'just and reasonable' commissions for dealers in livestock. After an investigation, begun in 1930 by Secretary of Agriculture Arthur M. Hyde, the Department under Secretary Wallace issued a new schedule of commission rates. On the grounds that the lower rates were confiscatory and would put them out of business, and that they had been arrived at without a 'full hearing,' the Commission men brought suit in the Kansas City District Court. The District Court struck out the paragraph regarding 'full hearing' and decided against the plaintiffs. Appealed to the Supreme Court, that body on May 25, 1936, sent the case back to the District Court to determine whether there had been a 'full hearing.' A second time the District Court dismissed the case, and a second time it was appealed to the higher body. Finally on April 25, 1938, the Supreme Court by a 6 to 1 decision (Black dissenting) decided against the Government. Admitting that Secretary Wallace was sufficiently informed to prescribe rates, the Court insisted, nevertheless that 'a full hearing — a fair and open hearing — requires more than that . . . Those who are brought into contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes before it issues its final command.'

Since a great number of quasi-judicial bodies had been established to implement Congressional legislation, it was evident that this decision might have far-reaching results. The battle immediately widened from the court room to the forum of public opinion. Secretary Wallace declared that 'an attempt is being made to have the courts invade the administrative field by taking over the rate-making and regulatory functions of administrative agencies.' Shortly afterwards Solicitor General Jackson declared that the Supreme Court's decision of April 25 was 'directly opposite' to that of 1936 and demanded a rehearing. On his part, Chief Justice Hughes struck back indirectly in a speech before the American Law Institute, asserting that 'the multiplication of administrative agencies is the outstanding characteristic of our time' and that 'they call for a particular type of experience and special methods of inquiry, but the spirit which should animate that action . . . must be the spirit of the just judge.'

By a 6 to 1 decision (Black dissenting) the Court on May 31 insisted that its rulings had not been inconsistent and refused a rehearing. The problem of what should happen to the accumulated $700,000 — the difference between the old commission rates and the rates of Secretary Wallace — the Court referred back to the District Court. As this reopened the case by allowing the Department of Agriculture to provide for 'full hearing,' the Department considered it as a partial victory.

The quasi-judicial body which at the moment seemed most closely affected by the Stockyard's decision was the National Labor Relations Board, which had held scores of hearings and had issued orders without, in some cases, acquainting defendants with tentative reports. Fearing that they had not lived up to the strict interpretation of the term 'full hearing,' the Board had asked the District Courts in several instances to allow them to reopen cases. A petition asking for the withdrawal of an order against the Republic Steel Corporation was refused by the Third Circuit Court of Appeals. The latter, however, was overruled on May 31 by the Supreme Court which permitted the withdrawal, thus allowing the NLRB to correct its procedure, if necessary.

That the Court had no intention of deliberately entangling the work of quasi-judicial bodies was clearly demonstrated two weeks earlier (May 16) when, in a case involving the Mackay Radio and Telegraph Company, it unanimously upheld the procedure of the NLRB. Although an examiner's report had been omitted at one stage of the procedure, the Board had in other ways provided 'in the substantial sense, a full and adequate hearing.'

As a whole this session of the Supreme Court had upheld both the NLRB and the contentions of labor. Particularly to be noted were two rulings on January 31 involving the power of district courts to enjoin the NLRB from holding hearings. A unanimous decision held that Federal District Courts could not enjoin hearings by the Board because 'Congress had power to vest exclusive jurisdiction in the Board and the Circuit Court of Appeals.' The employer, in other words, must wait until the Board has made its findings before he can seek relief in the Federal Courts.

Among other labor cases was one involving a California packing company, decided March 28 by 5 to 2 (Butler and McReynolds dissenting) in which the Labor Board was granted jurisdiction over local manufacturing, if a product is sold to purchasers in other states f.o.b. at points within the state of origin. In another case (Butler and McReynolds dissenting) the Court refused injunctive relief to an employer picketed for refusal to require employees to join a union. Efforts in the fall to persuade the Supreme Court to accept jurisdiction in the Mooney Case failed.

The Department of Justice received a setback in its methods when the Court in a 7 to 2 decision (McReynolds and Butler dissenting) forbade the use of wire-tapping evidence by Federal agents in criminal prosecution.

Civil liberties were given a helping hand on March 28 when the Court invalidated a municipal ordinance of Griffin, Georgia, which required the licensing of persons distributing circulars or advertising on the ground that it violated freedom of the press. This decision was followed quickly by efforts of labor unions to test ordinances in various cities preventing them from distributing labor circulars.

On April 25 the Court refused to review a new test case to determine whether citizenship should be denied aliens who refuse to bear arms in defense of the United States.

A constitutional interpretation long considered settled was called into question on January 31 by Justice Black, when in a dissenting opinion he declared: 'A constitutional interpretation that is wrong should not stand. I believe that this Court should now overrule previous decision which interpreted the Fourteenth Amendment to include corporations. . . . No word in all this amendment gave any hint that its adoption would deprive the states of their long-recognized power to regulate corporations.' The case involved was one in which the Supreme Court ruled that a tax laid by California on a Connecticut insurance company, licensed to do business in California, with respect to premiums on reinsurance policies effected and payable in another state, deprives the Connecticut corporation of its property without due process of law, in violation of the Fourteenth Amendment.

It is rare for a mid-term election to arouse the interest which surrounded the political battle of 1938. This was due in part to certain important factors: (1) the active participation of the President in the primaries; (2) the question as to the future of the Republican party, and (3) the fate of the New Deal. As a minor element were the prospects of a new third party launched by the La Follettes.

After a series of carefully planned preliminary moves, Governor Philip La Follette of Wisconsin gathered together many of his adherents in a large mass meeting at Madison, Wisconsin, on April 28 and formally launched his National Progressive Party. Asserting that 'for ten years both Republicans and Democrats have been fumbling the ball' and that old-fashioned capitalism had demonstrated its inability to meet the needs of modern times, he announced a five-point statement of principles; (1) public ownership and control of money and credit; (2) restoration 'to every American of the absolute right to earn his living by the sweat of his brow;' (3) granting 'the Executive branch power to get things done' with guarantees against abuse of such power; (4) security for all, 'founded on a definite, decent annual income'; and (5) no more 'coddling or spoon-feeding . . . Restore to every American the opportunity to help himself.'

Insisting that Socialism was not the way out, and utterly repudiating both Communism and Fascism, LaFollette was attempting to draw together into a new progressive party those who still believed in the ideology of the Populists of the nineties and the Progressives of 1912 and 1924. Despite considerable national publicity the National Progressive Party made little headway except in Wisconsin, and Governor La Follette's own defeat in the autumn elections further injured its prospects.

Although the President announced on May 17 that he would not interfere in any of the primaries, he soon modified this decision in an effort to aid friends of the New Deal and eliminate from Congress certain Senators and Representatives who had opposed New Deal legislation, particularly the Supreme Court and Reorganization Bills. Late in June he announced that 'As head of the Democratic party . . . charged with the responsibility of carrying out the definitely liberal declaration of principles set forth in the 1936 Democratic platform, I feel that I have a right to speak in those few instances where there may be a clear issue between candidates for a Democratic nomination involving these principles, or involving a clear misuse of my own name.' He went even farther than this on September 2, when he stated, 'If there is a good liberal running on the Republican ticket I would not have the slightest objection to his election. The good of the country rises above the party.'

Starting out on July 7 for a Western trip taken mainly for political purposes, the President gave his support to Senator Robert J. Bulkley of Ohio, to Senator Alben W. Barkley of Kentucky, to Senators Elmer Thomas of Oklahoma and Hattie Caraway of Arkansas. In Colorado and Nevada, where Senators Adams and McCarran, opponents of the Court Bill, were seeking renomination, he remained silent. In California he supported Senator McAdoo.

For a time the 'purge,' as the President's opponents called his policy, had not been pursued with any great intensity. In August, however, as the President was returning from a fishing trip in the Caribbean, he spoke against the renomination of Senator Walter F. George in Georgia, and shortly thereafter attacked the conservative Senator Ellison D. Smith of South Carolina. Reaching Washington he announced his opposition to the renomination of Senator Millard Tydings of Maryland and of Representative John J. O'Connor of New York, the latter chairman of the powerful House Rules Committee.

As the primary elections drew to a conclusion it was by no means easy to determine the attitude of the nation with regard to the New Deal. Few Democratic candidates had the temerity to oppose the general policy of the President and many campaigns were dominated by local issues. Senators George, Smith and Tydings, whom the President had made a real effort to defeat, were renominated, but Representative O'Connor was defeated. Senator McAdoo was defeated in California by Sheridan Downey (also an advocate of the New Deal) running on a platform of '$30 every Thursday' for all unemployed over fifty years of age in the state. In Texas, Representative Maury Maverick, ardent progressive leader in the House, went down to defeat. On the other hand, the great majority of the Democrats endorsed or not opposed by the Administration succeeded in the primaries.

Although the Democrats had scored overwhelming victories in the three successive national elections of 1932, 1934 and 1936 they realized that 1938 would in all probability tell a somewhat different story. Republicans were counting on a natural reaction after six years of New Deal legislation, on rural dissatisfaction over the collapse of farm prices, on charges of corruption and politics in the administration of relief and on a growing public distrust that New Dealers were 'radicals,' 'visionaries' and 'reckless spenders.' They were also counting on the opposition of many Democrats to certain Democratic candidates and bosses, such as James M. Curley in Massachusetts, Mayor Frank Hague of Jersey City, and Governor George H. Earle of Pennsylvania.

On their part the Democrats were counting on the known popularity of President Roosevelt, on the gradual improvement of business conditions, on the widespread support of the New Deal program on the part of Labor and other groups, and on the popular distrust of the Republicans as 'stand patters' or reactionaries during a period of rapid change.

Whatever may have been the hopes upon which each side rested, it was widely felt that the elections would be a test of New Deal popularity and it was on this score that the elections were generally interpreted. That the Republicans would register substantial gains were nowhere doubted by competent political prognosticators. Such were the usual results in a mid-term election. Most close followers of American politics were agreed that a House increase of 40 or 50 Republican members and a Senate increase of 2 or 3 could hardly be considered significant. Any substantial increase beyond these figures meant a Democratic setback.

That such a setback was suffered, there can be no doubt. In brief, the Republicans gained 81 seats in the House, 8 in the Senate and 15 state governorships — Colorado, Connecticut, Idaho, Iowa, Kansas, Massachusetts, Michigan, Minnesota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Wisconsin, and Wyoming. The Democrats took California and Maryland from the Republicans and North Dakota from Independent rule.

What this means in the Federal legislature can be seen by the fact that prior to the election the Senate was composed of 77 Democrats, 15 Republicans, 2 Farmer-Laborites, 1 Progressive and 1 Independent; the new Senate will contain 69 Democrats, 23 Republicans, 2 Farmer-Laborites, 1 Progressive and 1 Independent. Formerly the House of Representatives contained 334 Democrats, 89 Republicans, 5 Farmer-Laborites and 7 Progressives; the new House will number 262 Democrats, 170 Republicans, 1 Farmer-Laborite and 2 Progressives. Of the votes cast for candidates for the House, the Democrats won 49 per cent (17,559,081), the Republicans 47.8 per cent (17,129,557), and all others 3.2 per cent (1,127,082).

Although in the Seventy-Sixth Congress, Democrats will hold 263 out of 435 seats in the House and 69 out of 96 in the Senate as well as 30 of the 48 governorships, the prospects for Democratic legislation may not be too bright. The new Republican bloc needs only the addition of 48 anti-New Deal Democrats to prevent further Administration legislation. Since more than this number deserted the Administration on several issues in the last Congress, anti-New Dealers took hope from the election results. On the other hand, the severe Democratic reverses may tend to soften the factional fights and cement party unity in the face of rising Republicanism — at least to the extent of preventing repeal or radical modification of New Deal legislation now on the statute books.

Although by no means limited to New England and the agricultural Middle West, Republican gains were strongest in those sections. Following the tide of the Maine elections in September, which returned a Republican Governor and three Congressmen, the November elections in New England swept into office five more Republican Governors and three Senators. The highlights of the campaign were many. After eight years of wandering in the political wilderness, the Republicans of Massachusetts, aided by anti-Curley Democrats, cracked down for the third time in two years, on James M. Curley (candidate for Governor) and secured the election of Leverett Saltonstall. In Connecticut, four-times Democratic Governor, Wilbur L. Cross, was narrowly defeated by Raymond Baldwin, chiefly because Socialist candidate Jasper McLevy, who polled 164,000 votes, evidently took more votes from the Democrats than from the Republicans. The amazing showing of McLevy was due to the desire of many voters to administer a merited rebuke to the political machines of both parties in Connecticut. Down to defeat with Cross went Democratic Senator Augustine Lonergan. Rhode Island, which had not had a Republican governor since 1932, also returned to the Republican fold, under William H. Vanderbilt.

Although Governor Herbert H. Lehman's victory in New York over District Attorney Thomas E. Dewey was by a small margin, the fact that both Democratic Senatorial candidates were easily elected and that Senator Wagner ran considerably ahead of Lehman would make it appear that New York at least was still committed to the New Deal. Liberalism in New York was also aided by the election to Congress of Vito Marcantonio and by the defeat of John J. O'Connor. In New Jersey the reactionary regime of Mayor Frank Hague of Jersey City suffered a severe blow when W. Warren Barbour, Republican nominee for United States Senator, easily defeated William H. J. Ely, the Hague candidate, and did so despite the fact that the National Democratic administration had sent Secretary of War Woodring to Jersey City to speak for Ely.

Rock-ribbed Republican Pennsylvania, which had enjoyed a brief Democratic interlude under Governor George H. Earle, returned to its customary allegiance by large majorities. Senator James J. Davis, running against Governor Earle, as candidate for the Senate, easily retained his seat while Arthur H. James, Republican candidate for Governor, defeated in similar fashion his Democratic opponent, Charles A. Jones. In Maryland, however, Herbert R. O'Conor, Democrat, succeeded in defeating the Republican incumbent Governor Nice.

Both Ohio and Michigan returned to the Republican fold. In Ohio New Deal Democrat Robert J. Bulkley was defeated for the Senate by his Republican opponent, Robert A. Taft, son of the former President, and Charles Sawyer, Democratic candidate for governor, was beaten by John W. Bricker. One of the hardest blows sustained by the New Deal was the defeat in Michigan by F. D. Fitzgerald of Governor Frank Murphy, who had returned from the Philippines two years ago at the request of the President to run for Governor, and had again received strong Presidential endorsement just before the recent election. On the other hand Senator Frederick Van Nuys, a mild New Deal Democrat, was reelected from Indiana, and Scott Lucas, a moderate Democrat, was elected to the Senate from Illinois.

In Wisconsin the LaFollette Progressives received their first major setback in forty years when Philip LaFollette lost the governorship to Julius P. Heil, Republican, in a three-cornered race. Republican senatorial candidate Alexander Wiley was also elected. Farmer-Laborite control of Minnesota was broken when Governor Elmer A. Benson was defeated by thirty-two year old Harold Stassen, who carried with him a full slate of Republicans. Among other overturns in the states west of the Mississippi, the Republicans captured Iowa (although Democratic Senator G. M. Gillette was reelected), Kansas, Colorado, Wyoming, Idaho, and Oregon; and the Democrats were successful in California. In the latter state Sheridan Downey, after defeating McAdoo in the primaries, won the Senatorial contest while Cuthbert T. Olson (pledged to pardon Mooney) won the governorship.

In addition to voting for candidates, many states included on their ballots referenda covering various issues. Although Downey was elected in California, the citizens of that state defeated by 100,000 majority the '$30 every Thursday' pension scheme. Oregon also turned down a 'citizens retirement annuity plan,' but North Dakota approved pensions of $40 a month, and Colorado rejected an amendment repealing its present $45 a month pensions. Labor gained by defeating drastic anti-picketing ordinances in California, Washington and Oregon, although in the latter state a (regulatory act) was adopted. Oregon also voted to require medical examinations for marriage licenses.

Political leaders interpreted the results in different fashion. 'In general,' said Alfred M. Landon, 'the immediate effect is a return to the two-party system.' Glen Frank, head of the Republican party's national policy-making committee, hailed the LaFollette defeat as 'symbolic of revolt against bogus liberalism, evident elsewhere as well.' Secretary Ickes commented that 'this election means that the people are interested in individual security' while Secretary Wallace asserted that the 'outstanding conclusion is that people do not like business depression.' At his first press conference after the election, the President insisted that the returns were 'all right' and that he did not believe that the results of the election constituted any threat to the continuation of 'liberal government.' He did not, he said, anticipate 'coalition opposition' to the legislative program of the next Congressional session. Wall Street's interpretation was a sharply rising stock market on the following day, with the heaviest buying in more than a year. Speaking for Labor, John L. Lewis, remarked that if the Democratic party expected the full support of Labor, it would be necessary to clean house of the Hagues, Daveys and similar politicians.

Whatever may have caused the Democratic defeats of 1938 and whatever the interpretation, the fact remains that many liberal Northerners deserted the Democrats, while masses of farmers, who had carried the Middle West for Roosevelt in 1936, left his party in 1938. For the moment at least, the Democratic party appeared to be certain only of the solid South. Nevertheless local issues and conditions were in some sections quite as powerful in determining results as were broad national policies.

Except for Latin America where the 'Good Neighbor Policy' was consistently developed, America's foreign policy during 1938 was by no means clear-cut. From the statements of the President and Secretary Hull, however, it would appear that the Government was anxious to take a more positive position in the protection of nationals abroad, in the defense of democracy, in cooperation with other nations having 'common interests and common objectives,' in the promotion of 'world order based on law and international cooperative effort,' and in providing 'adequate means of security' against attack.

In his message to Congress of Jan. 4, the President condemned the 'trend in the world away from the observance both of the letter and the spirit of treaties' and insisted that in a 'world of high tension and disorder . . . it becomes the responsibility of each nation which strives for peace at home and peace with and among others to be strong enough to assure the observance of those fundamentals of peaceful solution of conflicts which are the only ultimate basis for orderly existence.' Definitely placing the responsibility for the world situation and for the violation of treaties upon the dictators, he said, 'Disregard for treaty obligations seems to have followed the surface trend away from the democratic, representative form of government. It would seem, therefore, that world peace through international agreements is most safe in the hands of democratic, representative governments — or, in other words, peace is most gravely jeopardized in and by those nations where democracy has been discarded or has never developed.'

The general attitude of the administration can be seen in various ways; opposition to the Ludlow Amendment, lack of enthusiasm toward the Neutrality Act, the strong demand for increased military and naval appropriations, the willingness to extend for a longer period protection over the Philippines, the 'assurance' given by the President on Aug. 18 'that the United States will not stand idly by if domination of Canadian soil is threatened by any other Empire,' and the frequent emphasis upon 'revitalizing the spirit of international cooperation and making use of every practicable means of giving it substance and reality.' (Secretary Hull's Nashville speech of June 3.)

Notable advance was made during 1938 in furthering the trade agreement policy of Secretary of State Hull, by the signing of pacts with Ecuador, Czechoslovakia and Great Britain, and by a renewal of the Canadian treaty. The signing of the Anglo-American Trade Agreement on November 17 brought the number of reciprocal treaties to nineteen. Up to 1938 the following trade treaties had been concluded in the following order: Cuba, Belgium, Haiti, Sweden, Brazil, Canada, the Netherlands and colonies, Switzerland, Honduras, Colombia, France and colonies, Guatemala, Nicaragua, Finland, Costa Rica and El Salvador.

Undoubtedly the most important achievement of the entire Hull program of reciprocal tariffs came to fruition on November 17 with the renewal of the Canadian Trade Agreement and with the signing of such a treaty with the United Kingdom of Great Britain and Northern Ireland, Newfoundland, and the British Colonial Empire. The treaties were signed in the presence of President Roosevelt by Prime Minister William Lyon Mackenzie King for Canada, Ambassador Sir Ronald Lindsay for Great Britain, and Secretary Hull for the United States.

Concessions by Great Britain were mainly on American agricultural products, especially the removal of duties on wheat, lard, canned grapefruit and certain fruit juices, and the reduction of duties on rice, apples, pears and certain other fruit juices. The quota on American hams was expanded while pork, corn, and cotton were put on the free list. Duties were also reduced on some machinery.

In return for this the United States has reduced tariff on high grade cotton, wool, flax and hemp manufactures, as well as on certain earth, pottery, glassware and leather products. The present duty on whiskey is bound and the duty on British books is reduced 50 per cent. British concessions covered American trade approximating $200,000,000 in 1936, while American imports from Great Britain upon which we had made concessions amounted in 1937 to about $141,500,000. One effect of removing the British duty on American wheat may be to promote the shipping of Canadian wheat through Boston and New York, to the advantage of those ports. Wheat was formerly duty-free in Great Britain only when shipped from a Canadian port.

Under the new Canadian agreement the benefits enjoyed by both countries under the 1936 treaty are considerably enlarged. Canada reduced duties on fruits and vegetables, fish products, paper products, certain chemical, wood, iron and steel products, machinery, aircraft engines and textiles; guaranteed against any increase in duties on automobiles and removed a special 3 per cent import tax from all goods on which concessions were made and which comprise 57 per cent of the total imports from the United States. On its part the United States bound on its free list all Canadian goods now duty free; reduced duties on Canadian live cattle, hogs, pork products, cheese, eggs, grain other than wheat, potatoes, certain metals such as aluminum, nickel and zinc, and a variety of other products, and removed the quota on certain types of lumber. Estimates show that Canada lowered duties on American products it imported in 1937 to the value of $241,000,000, while American concessions covered products, the trade in which in 1937 was valued at $121,000,000.

Economists and political scientists joined in emphasizing the significance of the Anglo-American Trade Agreement. As Great Britain has long been America's chief customer, the whole policy of reciprocal tariffs could have but limited effect without the inclusion of that nation. With Great Britain included in the orbit of the trade pacts it was hoped that not alone might commerce be stimulated, but also a certain political solidarity among the democratic countries. (See also CANADA; GREAT BRITAIN.)

Throughout the year the Roosevelt Administration persistently maintained its policy of the 'Good Neighbor' toward Latin America. In addition to earlier sound reasons for supporting this policy there was now added the growing propaganda and influence of the Fascist nations in that region. This effort to tie Latin America into the Fascist orbit was undoubtedly an influence behind certain actions of the United States Government. An effort in the first place was made to strengthen and enlarge our diplomatic representation. On Feb. 1 the Federal Communications Commission, with the approval of President Roosevelt, allocated four unused short-wave frequencies for broadcasting non-commercial radio programs to Latin America. On February 18 the Maritime Commission announced that it had under consideration a project to improve trade relations with Latin America by the establishment of a fast luxury-line service between New York and the east coast of South America. Throughout the year it was made perfectly clear that a chief argument for speeding armament was to maintain the Monroe Doctrine. In November Colonel Fulgencio Batista, the power behind the Cuban government, was elaborately entertained on a trip to this country.

The whole 'Good Neighbor' policy for the year was pointed toward the Eighth International Conference of American States which met in Lima, Peru, on December 9. In addition to Secretary of State Hull, the American delegates included Adolf A. Berle, Jr., Assistant Secretary of State; Mrs. Elise F. Musser, a member of the 1936 conference; Professor Charles G. Fenwick of Bryn Mawr; Dan W. Tracy, President of the International Brotherhood of Electrical Workers; Emilio del Toro Cuevas, Chief Justice of the Supreme Court of Puerto Rico; R. Henry Norweb, Minister to the Dominican Republic; Lawrence A. Steinhardt, Ambassador to Peru; Rev. John F. O'Hara, President of Notre Dame University; G. H. Hackworth, legal adviser of the State Department; Alfred M. Landon, Republican candidate for the Presidency in 1936; and Miss Katherine Lewis, daughter of the C.I.O. leader. On the agenda were seven chapters — the organization of peace, international law, economic problems, political and civil rights for women, intellectual cooperation and moral disarmament, relations between the Pan-American Union and the International Conference of American States, and reports. The most ambitious proposal to come before the conference was the creation of a League of Association of American Nations.

Although the conference, when it adjourned on Dec. 27, had adopted no treaties, conventions or protocols, it had approved some 110 declarations, recommendations or resolutions. Among the recommendations was one for the enactment of legislation denying special rights to minority groups or the exercise by foreigners of political rights conferred by the countries of their origin. Among the resolutions was one endorsing Secretary Hull's reciprocal trade agreements as opposed to Germany's barter system. Most important of all perhaps, was the resolution known as the Declaration of Lima, which reaffirmed the loyalty of the American nations to their own republican institutions, proclaimed 'their common concern' in the presence of new dangers, and pledged, in the event that the peace or security or territorial integrity of any of them is threatened, 'to make effective their solidarity, coordinating their respective sovereign wills by means of the procedure of consultation . . . using measures that in each case circumstances may make advisable.'

Except for the difficulties with Mexico over the expropriation of American oil properties, relations with Latin America during 1938 remained satisfactory. Despite pressure at home and considerable provocation in Mexico, the extremely moderate tone followed by the State Department gave convincing evidence of the sincerity of the 'Good Neighbor' policy. The problem over American-owned petroleum, which had originated with the revolution and the Mexican Constitution of 1917, had been temporarily ironed out in 1927 by President Calles and Ambassador Dwight Morrow. The revival of the difficulty developed from a demand in 1936 on the part of the Syndicate of Petroleum Workers for higher pay. Failing to reach a compromise a strike was called in May 1937. Upon the urging of President Cárdenas the strike was called off and the controversy was referred to the National Labor Board as a conflict of 'economic order.' (See also MEXICO.)

On Dec. 18, 1937, the Labor Board made its award, providing increases in wages and welfare benefits of 26,329,393 pesos, with other regulations regarding pay, vacations and working conditions. Foreign oil companies insisted that they could not afford this and filed a petition for an injunction against the findings of the Labor Board with the Mexican Supreme Court. On March 1, 1938, the Court upheld the Labor Board. The companies offered to compromise, but when this was not accepted President Cárdenas issued on March 18 a decree expropriating the properties of seventeen British and American companies, representing chiefly the Royal Dutch-Shell, the Standard Oil and the Sinclair groups. The value of the American properties was somewhere between $125,000,000 and $175,000,000, with the lower figure nearer the probable amount.

Official action in this country began on March 27 when Secretary of the Treasury Morgenthau announced that monthly purchases of Mexican silver would end after April 1, and when Secretary Hull sent a note of protest and issued a public statement. In the latter he did 'not undertake to question the right of the Government of Mexico in the exercise of its sovereign power to expropriate properties within its jurisdiction,' but the United States did insist that when its nationals were expropriated they receive fair compensation. Cárdenas replied (March 31) that 'Mexico will know how to honor its obligations of today and its obligations of yesterday.' Here the matter rested, as far as the United States was concerned, until July 21, when Secretary Hull in a communication devoted exclusively to agrarian seizures, contended that expropriation unaccompanied by prompt payment was contrary to international law. 'The taking of property,' he declared, 'without compensation is not expropriation. It is confiscation. It is no less confiscation because there may be an expressed intent to pay at some time in the future.' Replying on August 3, Mexico declared that 'no principle, universally accepted in theory nor realized in practice, is found in international law which makes obligatory the payment of immediate compensation, nor even deferred compensation, for expropriations of a general and impersonal character.'

While the oil controversy between the United States and Mexico made little headway beyond this point, real progress was made with respect to agrarian expropriation. In an exchange of notes made public on Nov. 12, it was made known that the two nations had reached an accord whereby Mexico agreed to pay the United States $1,000,000 in May 1939, and at least as much each year until the obligation is discharged. Valuation of land expropriated since 1927 is to be determined by a commission composed of nine representatives from each government. Should the two groups of representatives fail to agree, a third commissioner is to be appointed from the permanent commission set up under the Gondra treaty.

Relations between the United States and Japan continued difficult throughout the year. This country attempted to maintain its traditional open-door policy, while Japan asserted adherence to it until November 18 when she virtually discarded any pretense of following it.

On Feb. 12 the Japanese government in reply to an American protest of Jan. 17 against attacks on Americans in the war zone, admitted that the discipline of her army had broken down at Nanking, apologized for the affronts and promised their 'best efforts' to prevent a recurrence of the attacks. A second note received from Japan on the same day regarding naval armaments was of even greater significance. On Feb. 5 this country had joined with Great Britain and France in serving notice on Japan that the three Powers would scrap existing limitations on battleship and cruiser building unless Japan by Feb. 20 agreed to abide by the quantitative limits of the London Naval Treaty of 1936. In her reply on Feb. 12 Japan refused to reveal any plans, holding that 'quantitative building' could not be discussed until 'qualitative building' was settled, thus maintaining her position at the conference of 1936. The Japanese reply intensified propaganda for increased naval building in this country. On March 31 Great Britain, France and the United States formally announced their intention to abandon the quantitative restrictions of the London Treaty.

What amounted virtually to a showdown on America's long-cherished 'open-door policy' came on Nov. 18 in answer to an American note of Oct. 6. In the American note the State Department had pointed out specific instances in which Japan had discriminated against American trade in Manchuria and in the areas in China now under Japanese domination, calling attention to the 'disparity between the treatment accorded American nationals and their trade' in China and that 'accorded Japanese nationals and their trade' and implying that the United States did not intend to recognize Japan's new position. The issue was raised with even greater clarity shortly after, when foreign vessels were debarred from the Yangtze River, and France, Great Britain and the United States protested on Nov. 7. To these protests Japan insisted that because of military operations and guerilla attacks 'the time has not yet arrived to warrant a general opening of the river to foreign shipping.'

Although Japan, in her note of November 18, rebutted the charge that the new currency and foreign control measures in Northern China discriminated against Americans, and insisted that changes in the Chinese tariff and the establishment of Japanese controlled development companies were necessary, and that restrictions on residence, trade and travel of American citizens were due entirely to the military situation, she eventually stated her fundamental position. 'Japan,' said the note, 'is devoting her energy to the establishment of a new order based on genuine international justice throughout East Asia. . . . It is the firm conviction of the Japanese Government that, in face of the new situation fast developing in East Asia, any attempt to apply to the conditions of today and tomorrow inapplicable ideas and principles of the past would neither contribute toward establishment of a real peace in East Asia nor solve immediate issues.'

This reply was interpreted as a repudiation of both the 'open-door policy' and the Nine Power Treaty. It left the United States with the option of abandoning a long-held policy or else attempting to enforce it. On Dec. 7 the United States government recalled Minister Nelson T. Johnson to consult with him about the Chinese situation. Later in the month it announced an extension of $25,000,000 credit to the Chinese government, a move which aroused much resentment in Japan. On the last day of the year the United States apparently spoke her last word in the diplomatic debate regarding the 'open-door policy.' 'This government,' said the note delivered to Japan, 'reserves all rights of the United States as they exist and does not give assent to any impairment of these rights. . . . The people and the Government of the United States cannot assent to the abrogation of any of this country's rights or obligations by the arbitrary action of agents or authorities of any other country.'

There seems to be no doubt that the political situation in Eastern Asia has had some influence on the relations between the United States and the Philippines, particularly in the attitude of Philippine leaders toward the question of early independence. It was no surprise, therefore, when an agreement was reached in April that full tariff duties would not be assessed on each others' products in 1946, but that the two countries would extend their special economic relations for another 14 years (until 1960) by gradually raising duties, beginning at 25 per cent of prevailing rates and increasing 5 per cent annually until the close of the year 1960.

Early in the year Japan made one gesture toward more amicable relations when on March 25 she assured the United States that she would restrain her vessels from salmon fishing in the Alaskan waters. (See also JAPAN.)

With respect to European affairs two points of view were apparently evident in the State Department during 1938. One took the more definite position that aggressor nations should be checked and that this country should take action for the defense of democracy; the other held to a more cautious isolationist position. At one time or another each viewpoint seemed dominant. In the serious Czecho-Slovakian crisis, however, certain facts were evident; (1) that the United States did not stand aloof in the face of a major world catastrophe; (2) that the American Government and people, while refraining from making any commitments and determining not to be drawn into a European war, were anxious to support any effort to preserve peace.

Although there was much dissatisfaction in this country with regard to the operations of the Neutrality Acts in the Spanish Civil War, the Administration took no action, the President intimating on April 22 that a change in American policy would be inopportune as it would alter completely our impartiality toward armed conflict occurring anywhere.

Relations with Germany, the chief disturber of European peace, remained unsatisfactory throughout the year. The resignation of Ambassador William E. Dodd, unsympathetic with the Nazi regime, brought the appointment in his place (Jan. 7) of Assistant Secretary of State Hugh R. Wilson. The latter was instructed on November 14 to return to Washington for 'consultation and report,' and was not sent back. On November 15 the President at a press conference declared that 'the news of the past few days from Germany has deeply shocked public opinion' and added. 'I myself could scarcely believe that such things could occur in the twentieth century.' Germany replied by calling back her Ambassador to inform the foreign minister 'in detail regarding public sentiment in the United States, and the singular attitude toward domestic events in Germany manifested in various declarations by President Roosevelt and other important United States personalities.'

As early as March 24 this country had taken some official cognizance of German persecutions, when it sent to 29 nations appeals for a cooperative effort to aid political refugees in leaving Austria and Germany. To an Inter-Governmental Committee the President appointed Mr. Myron Taylor and he was sent back to Europe in November to aid in expanding the program. The intensified Nazi persecutions in November were followed in this country by numerous mass meetings of protest, increased drives for financial aid to persecuted Germans and by pressure upon Washington to extend its humanitarian efforts for victims of German persecution. On November 19 President Roosevelt announced that he had instructed Secretary of Labor Perkins to extend the visitors' permits of political refugees from Germany for a period of six months, which the law permits her to do, and for other like periods as long as necessary.

On March 10 the United States protested against the application to American citizens of the German decree of April 28 ordering Jews of all nationalities to declare their property holdings to the Reich. On June 9 a note was sent insisting on German responsibility for Austrian debts, to which Germany replied on June 16 repudiating the Austrian debt but indicating some willingness to negotiate. On December 15 a sharp note, which was regarded as a final statement of the position of the United States, was sent to Berlin. It demanded that our citizens should not be subjected to anti-Jewish decrees. On her part Germany, late in December, instructed her Chargé d'Affaires at Washington to protest against a speech delivered by Secretary Ickes and requested an official expression of regret by the United States Government. The request was refused, acting Secretary of State Sumner Welles suggesting that, as long as attacks against American officials occurred in the German-controlled press, similar attacks against Germany were apt to occur in America. Relations were further strained by the activities of Nazi 'bunds' in this country, by the discovery and conviction of military spies in the employ of Germany, and by the intense propaganda against the United States carried on by Nazi-Fascist groups in Latin America.

How important was the participation of the United States in the Czech crisis cannot yet be determined. Calling the attention of both Germany and Czechoslovakia to their countries' obligations under the Kellogg-Briand Pact, President Roosevelt made a personal appeal early on September 26 to both Chancellor Hitler and President Benes to settle the controversy by negotiations. At the height of the crisis on Tuesday, Sept. 27, at 2 P.M. President Roosevelt transmitted a 'personal and confidential appeal' to Mussolini in behalf of peace. One hour later urgent instructions were sent to American representatives abroad to express the opinion of this Government that no step should be omitted which might contribute to peace. At 10 P.M. a message of similar tenor was sent to Hitler.

To practiced observers the President's first message to Congress left no doubt that some effort would be made to increase armaments. In his message the President referred 'specifically to the possibility that, due to world conditions over which this nation has no control, I may find it necessary to request additional appropriations for national defense.' This belief was confirmed on Jan. 28 when, in a special message to Congress, he called for a 20 per cent increase in naval authorizations for new buildings and replacements, and for the laying down this year of two additional battleships and two more cruisers, — the program to cost about $800,000,000. In calling for this increased armament the President stressed the fact that world 'armaments increase today at an unprecedented and alarming rate,' and that 'at least one-fourth of the world's population is involved in merciless, devastating conflict.' He believed it his 'constitutional duty to report to the Congress that our national defense is, in the light of the increasing armaments of other nations, inadequate for purposes of national security and requires increase in that direction.'

After this message increase in armaments became a major policy of the Administration during 1938. It involved; (1) the largest regular military appropriations in peace-time history ($1,065,000,000); (2) the passing of a special naval appropriations bill for $1,156,000,000; (3) the approval by the Maritime Commission of the largest peace-time shipbuilding program in the history of the American Merchant Marine, a program calling for immediate construction of 20 ocean-going vessels and completion of plans for 23 more, in addition to previous arrangements for construction of 12 large freighters and 12 high speed tankers. These ships, of course, are to be convertible for naval purposes and are to be built on long term subsidies at a cost of $185,000,000.

Although there seemed little doubt that Congress would respond to the request for larger appropriations, it was necessary for the Naval Affairs Committee to assure that body that the expansion program 'is not for the purpose of policing the world or to make the world safe for democracy' and to emphasize the testimony of Admiral Leahy that the 20 per cent increase was not sufficient to permit aggressive naval operations on the other side of the Pacific. Nevertheless the increased armament program, along with the extension of American control over Enderbury and Canton Islands in the Pacific and many other moves, indicated clearly the intention of the Government at least to extend a defense line in the Pacific from Alaska to Hawaii and to Samoa.

The regular Naval Appropriation Act (approved April 26, 1938) appropriated $546,866,494 for the fiscal year ending June 30, 1939. Of this amount $117,363,150 was for construction of vessels previously authorized and for the commencement of two battleships, two cruisers, eight destroyers and six submarines authorized by the Act of March 27, 1934; for other vessels authorized by the Act of July 30, 1937, and also $20,700,000 for armor, armament and ammunition for these vessels. Other important items in this Act included $224,617,450 for the Bureau of Supplies and Accounts, $44,200,000 for the Bureau of Aeronautics, $27,683,580 for the Marine Corps, $26,849,000 for the Bureau of Ordnances, and $25,137,000 for the Bureau of Engineering.

On May 17 the President approved the Vinson Naval Expansion Act. It contained a declaration that the United States would welcome an international conference, and, in the event of an international treaty of which the United States is signatory, authorized the President to suspend as much naval construction as necessary to come within the limitations agreed upon. It provides that in addition to the tonnage agreed upon in early treaties the President may at his discretion authorize the building of underage tonnage of capital ships up to 660,000 tons, of aircraft carriers up to 175,000 tons, of cruisers to 412,524 tons, of destroyers to 228,000 tons and of submarines to 81,956 tons. The President is also authorized to acquire or construct additional naval airplanes, including patrol planes, parts and equipment so as to bring the total of useful naval planes to no fewer than 3,000. The Secretary of the Navy is instructed to appoint a board of not fewer than five naval officers to investigate and report to the next session of Congress upon the defense needs for additional submarines, destroyers, mine and naval air bases on the coast of the United States, its territories and possessions. The net effect of the Act, it is believed, will be to increase American naval strength 20 per cent above existing treaty limits, thus definitely scrapping the last of the naval limitation pacts. The cost of this expansion program would be $1,156,000,000.

It was not until the end of the session that Congress passed the Military Appropriation Act and the Non-Military Appropriation Act. The former called for appropriations of $450,401,254; a commissioned personnel of 12,574, and a body of enlisted men of 168,436. The larger items in the Act included appropriations of $167,043,837 for pay and $30,022,750 for subsistence; $70,556,972 for the Air Corps plus authority to contract additional obligations of $19,126,894; $42,205,321 for the National Guard Bureau and $38,282,034 for ordinary service and supplies plus additional authorizations.

The Non-Military Appropriation Act carried appropriations for $198,962,867, of which flood control amounted to $82,900,000 and the maintenance and prosecution of authorized river and harbor projects, $70,200,000. For sanitation, operation, maintenance and civil government of the Panama Canal and the Canal Zone the Act appropriated $10,250,125.

Six other Acts of a military nature were passed by this session of Congress:

The Walsh-Sheppard Anti-Photo Act (approved January 12) provided fine or imprisonment for the making without permission or the publication without censoring, of photographs, sketches or maps of vital military or naval installations.

The Sheppard Army Medical Act (approved January 29) provided for two additional assistants to the Surgeon General with the rank of brigadier general, one of whom was to be an officer of the Dental Corps, and authorized a total of 1,183 officers in the Army Medical Corps and 258 in the Dental Corps.

The May Army Officer Strength Act (approved April 13) increased the commissioned strength of the army from 12,374 to 14,659 and authorized the President to increase or diminish the officers assigned to any branch by not over 30 per cent, except that the Air Corps should be increased from 1,650 to 2,092.

The Sheppard Army General Staff Act (approved April 22) amended the National Defense Act, to provide that in time of peace no officer of the line should be detailed or remain detailed to the General Staff Corps unless he has served two of six years on duty other than staff duty.

The Sheppard Army Reserve Act (approved April 25) reestablished the Regular Army Reserve, under rules prescribed by the President, to be organized and maintained as a part of the Regular Army and in addition to the authorized Army strength. Enlistments are limited to persons who have served in the Regular Army, who have been honorably discharged and who are less than 36 years old. Pay was established during inactive status at $24 per year.

The Munitions Educational Orders Act authorized the Secretary of War to place educational orders for war munitions of special or technical design needed in the military service with commercial concerns in order to familiarize such establishments with such manufacture. For this $2,000,000 was appropriated for each of the next five years.

Although there was a notable increase in unemployment during the first half of 1938, an increase which pushed unemployment and relief rolls to a figure approximating that of 1933, Labor had much to place on the credit side of the ledger. Most notable of the legislative gains was the Wages and Hours Act which became effective on October 24 under the direction of Administrator Elmer Andrews. This Act was significant of Labor's increased influence in politics, which had naturally followed upon increased membership and more aggressive political activity. Furthermore, Labor could point to an almost unbroken series of favorable Supreme Court decisions, particularly those which had upheld the National Labor Relations Act.

Among the victories won by Labor during the year was the renewal in March of the contract between the United States Steel Corporation and the United Mine Workers, which continued the basic $5 a day and the 40-hour week with time and a half for overtime, seniority and paid vacations. The contract, however, might be reconsidered on 10 days’ notice. Important also for railroad labor was the failure of the railroads to put in force a contemplated 15 per cent wage reduction.

As far as the domestic scene was concerned, the general attitude at the end of the year was one of hopefulness. Economists, business men, and political leaders were virtually unanimous in predicting a continuation of the economic revival. There were, however, disturbing elements in the economic situation: the low prices of farm products presaged a continuation of the curtailment program; employment during the last months of the year failed to rise in the same ratio as production; the railroads' net income during the first nine months of 1938 fell short of fixed charges. Failure of bank credits to expand with increased bank surpluses was discouraging, as was the decline in export trade during the year. The mounting Federal debt, which could only mean increased taxation, was likewise disturbing. Quite as serious was the foreign scene, where dictator governments had more than once during 1938 brought Europe to the verge of war. In 1938 the United States definitely joined in the race of armaments and seemed committed to continue this policy. See also REARMAMENT; NATIONAL PARKS AND MONUMENTS; RELIEF IN THE UNITED STATES; WORLD ECONOMICS; WORLD PEACE.

Appears in

United States (Government)