American independence. In connection with this event it is designed to commence the erection at Caracas of a statue of Washington, and to conduct an industrial exhibition which will be open to American products. I recommend that the United States be represented, and that suitable provision be made therefor. The elevation of the grade of our mission in Central America to the plenipotentiary rank, which was authorized by Congress at its late session, has been since effected. The war between Peru and Bolivia on the one side and Chili on the other began more than three years ago. On the occupation by Chili in 1880 of all the littoral territory of Bolivia, negotiations for peace were conducted under the direction of the United States. The allies refused to concede any territory, but Chili has since become master of the whole coast of both countries and of the capital of Peru. A year since, as you have already been advised by correspondence transmitted to you in January last, this government sent a special mission to the belligerent powers to express the hope that Chili would be disposed to accept a money indemnity for the expenses of the war and to relinquish her demand for a portion of the territory of her antagonist. This recommendation, which Chili declined to follow, this government did not assume to enforce; nor can it be enforced without resort to measures which would be in keeping neither with the temper of our people nor with the spirit of our institutions. The power of Peru no longer extends over its whole territory, and, in the event of our interference to dictate peace, would need to be supplemented by the armies and navies of the United States. Such interference would almost inevitably lead to the establishment of a protectorate-a result utterly at odds with our past policy, injurious to our present interests, and full of embarrassments for the future. For effecting the termination of hostilities upon terms at once just to the victorious nation and generous to its adversaries, this government has spared no efforts save such as might involve the complications which I have indicated. It is greatly to be deplored that Chili seems resolved to exact such rigorous conditions of peace and indisposed to submit to arbitration the terms of an amicable settlement. No peace is likely to be lasting that is not sufficiently equitable and just to command the approval of other nations. About a year since, invitations were extended to the nations of this continent to send representatives to a peace congress to assemble at Washington in November, 1882. The time of meeting was fixed at a period then remote, in the hope, as the invitation itself declared, that in the mean time the disturbances between the South American republics Would be adjusted. As that expectation seemed unlikely to be realized, I asked in April last for an expression of opinion from the two houses of Congress as to the advisability of holding the proposed convention at the time appointed. This action was prompted in part by doubts which mature reflection had suggested whether the diplomatic usage and traditions of the government did not make it fitting that the Executive should consult the representatives of the people before pursuing a line of policy somewhat novel in its character, and far-reaching in its possible consequences. In view of the fact that no action was taken by Congress in the premises and that no provision had been made for necessary expenses, I subsequently decided to postpone the convocation, and so notified the several governments which had been invited to attend. I am unwilling to dismiss this subject without assuring you of my support of any measures the wisdom of Congress may devise for the promotion of peace on this continent and throughout the world, and I trust that the time is nigh when, with the universal assent of civilized peoples, all international differences shall be determined without resort to arms by the benignant processes of arbitration. Changes have occurred in the diplomatic representation of several foreign powers during the past year. New ministers from the Argentine Republic, Austria-Hungary, Brazil, Chili, China, France, Japan, Mexico, the Netherlands, and Russia have presented their credentials. The missions of Denmark and Venezuela at this capital have been raised in grade. Switzerland has created a plenipotentiary mission to this government, and an embassy from Madagascar and a minister from Siam will shortly arrive. Our diplomatic intercourse has been enlarged by the establishment of relations with the new Kingdom of Servia, by the creation of a mission to Siam, and by the restoration of the mission to Greece. The Shah of Persia has expressed his gratification that a chargé d'affaires will shortly be sent to that country, where the rights of our citizens have been hitherto courteously guarded by the representatives of Great Britain. I renew my recommendation of such legislation as will place the United States in harmony with other maritime powers with respect to the international rules for the prevention of collisions at sea. In conformity with your joint resolution of the 3d of August last, I have directed the Secretary of State to address foreign governments in respect to a proposed conference for considering the subject of the universal adoption of a common prime meridian to be used in the reckoning of longitude and in the regulation of time throughout the civilized world. Their replies will, in due time, be laid before you. An agreement was reached at Paris in 1875 between the principal powers for the interchange of official publications through the medium of their respective foreign departments. The admirable system which has been built up by the enterprise of the Smithsonian Institution affords a practical basis for our co-operation in this scheme, and an arrangement has been effected by which that institution will perform the necessary labor, under the direction of the Department of State. A reasonable compensation therefor should be provided by law. A clause in the act making appropriations for the diplomatic and consular service contemplates the reorganization of both branches of such service on a salaried basis, leaving fees to inure to the benefit of the Treasury. I cordially favor such a project, as likely to correct * abuses in the present system. The Secretary of State will present to you at an early day a plan for such reorganization. A full and interesting exhibit of the operations of the Treasury Department is afforded by the report of the Secretary. It appears that the ordinary revenues from all sources for the fiscal year ended June 30, 1882, were as follows: From customs ... From internal revenue From sales of public lands. From tax on circulation and deposits of national banks. From repayment of interest by Pacific Railway Companies. From sinking fund for Pacific Railway Companies . $220, 410, 730 25 146, 497, 595 45 4,-753, 140 37 8, 956, 794 45 840, 554 37 796, 271 92 From customs fees, fines, penalties, &c From fees-consular, letters patent, and lands.. From deposits by individuals for surveying public From revenues of the District of Columbia From miscellaneous sources ... Total ordinary receipts The ordinary expenditures for the same period wereFor civil expenses For foreign intercourse For Indians For pensions For the military establishment, including river and harbor improvements, and arsenals.... For the naval establishment, including vessels, ma- For miscellaneous expenditures, including public build- For interest on the public debt. Total ordinary expenditures Leaving a surplus revenue of Which, with an amount drawn from the cash balance in the Treasury of .. Making Was applied to the redemption— Of bonds for the sinking fund .. Of fractional currency for the sinking fund Of loan of July and August, 1861... Of loan of March, 1863 Of funded loan of 1881.. Of loan of 1858 Of loan of February, 1861 Of Oregon war debt Of old demand, compound-interest, and other notes. $1,343, 348 00 2,638, 9.0 97 314, 959 85 4, 116, 693 73 5,705, 243 22 2,052, 306 36 1,715, 176 41 3, 383, 445 43 403, 525, 250 28 $18,042, 386 42 1,307,583 19 9,786, 747 40 61,345, 193 95 The foreign commerce of the United States during the last fiscal year, including imports and exports of merchandise and specie, was . as follows: This excess is less than it has been before for any of the previous six years, as appears by the following table: During the year there have been organized 171 national banks, and of those institutions there are now in operation 2,269, a larger number than ever before. The value of their notes in active circulation on July 1, 1882, was $324,656,458. I commend to your attention the Secretary's views in respect to the likelihood of a serious contraction of this circulation, and to the modes by which that result may, in his judgment, be averted. In respect to the coinage of silver dollars and the retirement of silver certificates I have seen nothing to alter but much to confirm the sentiments to which I gave expression last year. A comparison between the respective amounts of silver-dollar circulation on November 1, 1881, and on November 1, 1882, shows a slight increase of a million and a half of dollars. But during the interval there had been in the whole number coined an increase of twenty six millions. Of the one hundred and twenty-eight millions thus far minted, little more than thirty-five millions are in circulation. The mass of accumulated coin has grown so great that the vault room at present available for storage is scarcely sufficient to contain it. It is not apparent why it is desirable to continue this coinage, now so enormously in excess of the public demand. As to the silver certificates, in addition to the grounds which seemed last year to justify their retirement may be mentioned the effect which is likely to ensue from the supply of gold certificates, for whose issuance Congress recently made provision, and which are now in active circulation. You cannot fail to note with interest the discussion by the Secretary as to the necessity of providing by legislation some mode of freeing the Treasury of an excess of assets, in the event that Congress fails to reach an early agreement for the reduction of taxation. I heartily approve the Secretary's recommendation of immediate and extensive reductions in the annual revenues of the government. It will be remembered that I urged upon the attention of Congress at its last session the importance of relieving the industry and enterprise of the country from the pressure of unnecessary taxation. It is one of the tritest maxims of political economy that all taxes are burdensome, however wisely and prudently imposed. And though there have always been among our people wide differences of sentiment as to the best methods of raising the national revenues, and, indeed, as to the principles upon which taxation should be based, there has been substantial accord in the doctrine that only such taxes ought to be levied as are necessary for a wise and economical administration of the government. Of late the public revenues have far exceeded that limit, and unless checked by appropriate legislation such excess will continue to increase from year to year. For the fiscal year ended June 30, 1881, the surplus revenue amounted to one hundred millions of dollars; for the fiscal year ended on the 30th of June last the surplus was more than one hundred and forty-five millions. The report of the Secretary shows what disposition has been made of these moneys. They have not only answered the requirements of the sinking fund, but have afforded a large balance applicable to other reductions of the public debt. But I renew the expression of my conviction that such rapid extinguishment of the national indebtedness as is now taking place is by no means a cause for congratulation; it is a cause rather for serious apprehension. If it continues, it must speedily be followed by one of the evil results so clearly set forth in the report of the Secretary. Either the surplus must lie idle in the Treasury, or the government will be forced to buy, at market rates, its bonds not then redeemable, and which, under such circumstances, cannot fail to command an enormous premium, or the swollen revenues will be devoted to extravagant expenditure, which, as experience has taught, is ever the bane of an overflowing treasury. It was made apparent in the course of the animated discussions which this question aroused at the last session of Congress that the policy of diminishing the revenue by reducing taxation commanded the general approval of the members of both houses. I regret that because of conflicting views as to the best methods by which that policy should be made operative none of its benefits have as yet been reaped. In fulfillment of what I deem my constitutional duty, but with little hope that I can make valuable contribution to this vexed question, I shall proceed to intimate briefly my own views in relation to it. Upon the showing of our financial condition at the close of the last fiscal year, I felt justified in recommending to Congress the abolition of all internal revenue taxes except those upon tobacco in its various forms and upon distilled spirits and fermented liquors; and except also the special tax upon the manufacturers of and dealers in such articles. I venture now to suggest that, unless it shall be ascertained that the probable expenditures of the government for the coming year have been underestimated, all internal taxes, save those which relate to distilled spirits, can be prudently abrogated. Such a course, if accompanied by a simplification of the machinery of |