The Fiscal Policy of Herbert Hoover: "Opening Up the Spigot"--NOT!! Hoover Lobbies Against (and Subsequently Tries to Veto) the 1931 Veterans' Bonus Bill
From John T. Woolley and Gerhard Peters, The American Presidency Project: http://www.presidency.ucsb.edu/ws/?pid=22981
Honorable Reed Smoot, Chairman, Senate Finance Committee, United States Senate, Washington, D.C.
My Dear Senator Smoot:
I have given thought to your request that I should express to you and to the Senate Finance Committee my views upon the bill passed by the House of Representatives, increasing the loans to World War veterans upon the so-called bonus certificates. In view of the short time remaining in this session for its consideration I shall comply with your request.
The proposal is to authorize loans upon these certificates up to 50% of their face value. And to avoid confusion it must be understood that the "face value" is the sum payable at the end of the 20 year period (1945) being based on the additional compensation to veterans of about $1,300,000,000 granted about six years ago, plus 25% for deferment, plus 4% compound interest for the 20 year period. As the "face value" is about $3,423,000,000, loans at 50% thus create a potential liability for the government of about $1,712,000,000, and, less the loans made under the original Act, the total cash which might be required to be raised by the Treasury is about $1,280,000,000 if all should apply. The Administrator of Veterans Affairs informs me by the attached letter that he estimates that if present conditions continue, then 75% of the veterans may be expected to claim the loans, or a sum of approximately $1,000,000,000 will need to be raised by the Treasury.
I will not undertake to enumerate all of the grounds for objection to this proposal. There are a number of most serious objections, some of which are matters of method and some of which are matters of fundamental principle affecting the future of our country and the service men themselves.
I have supported, and the nation should maintain, the important principle that when men have been called into jeopardy of their very lives in protection of the nation, then the nation as a whole incurs a special obligation beyond that to any other groups of its citizens. These obligations cannot be wholly met with dollars and cents. But good faith and gratitude require that protection be given to them when in ill health, distress and in need. Over 700,000 World War Veterans or their dependents are today receiving monthly allowances for these reasons. The country should not be called upon, however, either directly or indirectly, to support or make loans to those who can by their own efforts support themselves.
By far the largest part of the huge sum proposed in this bill is to be available to those who are not in distress.
The acute depression and unemployment create a situation of unusual economic sensitiveness, much more easily disturbed at this time than in normal times by the consequences of this legislation, and such action may quite well result in a prolongation of this period of unemployment and suffering in which veterans will themselves suffer with others.
By our expansion of public construction for assistance to unemployment and other relief measures, we have imposed upon ourselves a deficit in this fiscal year of upwards of $500,000,000 which must be obtained by issue of securities to the investing public. This bill may possibly require the securing of a further billion of money likewise from the public. Beyond this, the Government is faced with a billion dollars of early maturities of outstanding debts which must be refunded aside from constant renewals of a very large amount of temporary Treasury obligations. The additional burdens of this project cannot but have damaging effect at a time when all effort should be for the rehabilitation of employment through resumption of commerce and industry.
There seems to be a misunderstanding in the proposal that the government securities already lodged with the Treasury to the amount of over $700,000,000 as reserve against these certificates constitute available cash to meet this potential liability. The cash required by the veterans can only be secured by the sale of these securities to the public.
The legislation is defective in that this $700,000,000 of government securities is wholly inadequate to meet either a potential liability of $1,280,000,000 or approximately $1,000,000,000 estimated as possible by the Administrator of Veterans' Affairs, and provision would need to be made at once for this deficiency.
The one appealing argument for this legislation is for veterans in distress. The welfare of the veterans as a class is inseparable from that of the country. Placing a strain on the savings needed for rehabilitation of employment by a measure which calls upon the government for a vast sum beyond the call of distress, and so adversely affecting our general situation, will in my view not only nullify the benefits to the veteran but inflict injury to the country as a whole.
And Frank Hines:
The Honorable, The President of the United States
My Dear Mr. President:
You have requested that I advise you as to the estimated number of veterans who would be eligible for loans, and the amount which would be borrowed on adjusted service certificates in the event H.R. 17054 becomes a law.
When I appeared before the Committee on Ways and Means, House of Representatives, February 12, 1931, in connection with this measure, I made the following statement in reply to Congressman Ramseyer:
RAMSEYER: Based on your experience and knowledge of the ex-service men, are you prepared to make any estimate as to the increased borrowers that a bill like this would probably bring about?
GENERAL HINES: Well, it depends a great deal, Congressman, on whether the present employment conditions are going to continue. If there is a period still of another year where unemployment is not going to improve, it would be my judgment that there would be an increase of at least 25 per cent in the men who would borrow." In accordance with the above, it is my estimate that 2,550,000 veterans will avail themselves of the full loan value under the proposed measure, and that the total amount of such loans will be $1,283,625,000. From the amount there should be subtracted the $325,000,000 which has previously been borrowed, making a total additional amount which will be borrowed of $958,625,000 or approximately $1,000,000,000.
FRANK T. HINES,
Administrator of Veterans' Affairs