Letter to American Legion Commander Garland R. Farmer on the Soldiers' Bonus Issue.
Dear Commander Farmer:
I appreciate your letter of recent date, and it is particularly interesting in that it confirms an impression that I have had for some time; that is, that the bonus question is not well understood even among the veterans themselves.
I am also particularly impressed with one paragraph of your letter which confirms another conviction I have that the service men generally have the interests of their country and Government at heart. I have had prepared for me a memorandum which outlines in detail exactly what the Congress did in 1924 when they authorized the issuing of the Adjusted Service Certificates known generally as the "bonus." This memorandum I am inclosing herewith. I am sure that you will find in this memorandum sufficient information to enable you to decide for yourself the stand you should take on this issue as well as to be in a position, as I feel you should be, to advise legionnaires who come to you seeking information in regard to the immediate payment of the balance due on the Adjusted Service Certificates.
It is quite apparent from your letter in which you advise me of the reasons why the service men are demanding immediate payment of the bonus, that there is a general misunderstanding in regard to the Government's obligation in this matter. When, in 1924, the Congress decided to issue the Adjusted Service Certificates, they actually authorized a bonus of $1,400,000,000, but because of the stand taken at that time by those advocating the measure who felt that it would be in the interest of the service men themselves, this cash outlay was not made immediately, but was deferred for twenty years. Because of this deferment the initial bonus was increased 25 percent so that the $1,400,000,000 invested for the service men at 4 percent compounded annually, would mature in twenty years at $3,500,000,000. Or putting it another way, suppose that a veteran's original grant by the Congress in 1924 was $400 and that the veteran did not borrow on his certificate, permitting the interest to accumulate to maturity. The $400 would grow so that it would pay the veteran $1,000 when due in 1945. In other words, the amount which is printed upon the face of every Adjusted Service Certificate is not the amount of the basic or original bonus voted by the Congress, but is an amount plus 25 percent added for deferred payment which, with interest at 4 percent compounded annually over a twenty-year period, will produce the face or maturity value. This would seem to dispose of the question as to whether the obligation is immediately due.
There is another feature in connection with this matter that impresses me, and that is the fact that out of 3,500,000 certificates outstanding, 3,038,500 veterans have borrowed thereon approximately $1,690,000,000. In other words, some have borrowed more than the present worth of their bonus certificates. This is brought about by the action of the Congress permitting a veteran to borrow up to 50 percent of the face or maturity value of his certificate, even though that certificate may have been issued only a few days before the loan is made. Of course, all the certificates were not issued at the same time in 1925, but have been issued from that date up to the present time, so their present value or earned value, as we may put it, is not the same in all cases, but taking the aggregate of all the certificates issued they have a present value of $2,100,000,000, whereas their face value is $3,500,000,000. Then, too, I believe it has been suggested that the interest paid or now accumulated be canceled or remitted. If this plan were carried out the total amount would increase to $3,720,000,000; or putting it another way making the cost $1,620,000,000 over and above the present value and $2,320,000,000 above the amount which the Congress fixed as the original basic adjustment.
I feel sure that many of the veterans have not given the question sufficient study to realize the vast sums required to meet the demands suggested.
Your statement advising me that those who favor the immediate payment of the bonus feel that a good reason for doing so is because the Government has spent millions of dollars on the recovery program, and that much of these funds will not be repaid, while by the payment of the bonus the Government will be discharging an obligation, and by so discharging this obligation the money spent by the veterans will do much in a practical way of stimulating recovery, is interesting.
I know that you appreciate that all expenditures for relief have been made in the interest of recovery and for all our citizens, non-veterans as well as for veterans. All citizens in need have shared in the direct distribution for relief, and in employment, as you no doubt are aware, a very definite and distinct preference is given to veterans. I am advised that at the time the issue of paying the balance of the bonus was up and a compromise was made by increasing the loan value to 50 percent of the face value, there resulted a distribution of approximately a billion dollars, and at that time the same argument was advanced that the expenditure of such a large amount of money by the veterans would greatly stimulate business and aid recovery. A survey of the results showed otherwise. This large payment resulted in little stimulation of business, and in many of the larger cities no material change was indicated at all. It was found that indebtedness created by the veterans prior to the payment was liquidated, and the money advanced to veterans went to clear that indebtedness rather than to create new business. No doubt the same results would obtain if the balance were now paid. However, in this connection what to me is very important, having in mind that the bonus certificate is a paid-up endowment policy payable either to the veteran upon its maturity or to his beneficiary, generally the wife and children in the event of his death, is the fact that of the veterans who die, approximately 85 percent of them leave no other asset to their family but the Adjusted Service Certificate or the balance due on the certificate. I feel, therefore, that those who advocate the payment of these certificates at this time for the purpose of stimulating business certainly cannot have given the interests of the veterans much thought.
I appreciate your truly patriotic interest in desiring to obtain full information on an issue so vital to the service men and our country. I am giving you this information with the hope that it will be useful in enabling you to reach a conclusion in your own mind regarding the matter as well as helping others to determine the fair thing to do.
Very sincerely yours,
Commander Garland R. Farmer American Legion Post Henderson, T
Franklin D. Roosevelt, Letter to American Legion Commander Garland R. Farmer on the Soldiers' Bonus Issue. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/208342