The main source of these unexampled blessings lies in the integrity and character of the American people.  They have had great faith, which they have supplemented with mighty works.  They have been able to put trust in each other and trust in their Government.  Their candor in dealing with foreign governments has commanded respect and confidence.  Yet these remarkable powers would have been exerted almost in vain without the constant cooperation and careful administration of the Federal Government.

We have been coming into a period which may be fairly characterized as a conservation of our national resources.  Wastefulness in public business and private enterprise has been displaced by constructive economy.  This has been accomplished by bringing our domestic and foreign relations more and more under a reign of law.  A rule of force has been giving way to a rule of reason.  We have substituted for the vicious circle of increasing expenditures, increasing tax rates, and diminishing profits the charmed circle of diminishing expenditures, diminishing tax rates, and increasing profits.

Four times we have made a drastic revision of our internal revenue system, abolishing many taxes and substantially reducing almost all others.  Each time the resulting stimulation to business has so increased taxable incomes and profits that a surplus has been reduced.  One-third of the national debt has been paid, while much of the other two-thirds has been refunded at lower rates, and these savings of interest and constant economies have enabled us to repeat the satisfying process of more tax reductions.  Under this sound and healthful encouragement the national income has increased nearly 50 per cent, until it is estimated to stand well over $90,000,000,000.  It gas been a method which has performed the seeming miracle of leaving a much greater percentage of earnings in the hands of the taxpayers with scarcely any diminution of the Government revenue.  That is constructive economy in the highest degree.  It is the corner stone of prosperity.  It should not fail to be continued.

This action began by the application of economy to public expenditure.  If it is to be permanent, it must be made so by the repeated application of economy.  There is no surplus on which to base further tax revision at this time.  Last June the estimates showed a threatened deficit for the current fiscal year of $94,000,000.  Under my direction the departments began saving all they could out of their present appropriations.  The last tax reduction brought an encouraging improvement in business, beginning early in October, which will also increase our revenue.  The combination of economy and good times now indicates a surplus of about $37,000,000.  This is a margin of less than I percent on out, expenditures and makes it obvious that the Treasury is in no condition to undertake increases in expenditures to be made before June 30.  It is necessary therefore during the