business of the board of which he is a member, unless the board meets on the Isthmus, as I contend it ought to do, save as respects the stockholders' annual meeting.

If the present Commission should be abolished, and the whole direction, control, and supervision should be turned over to the Secretary of War, I would say that the best organization would be a commission of three, their headquarters here, and the general counsel here also.

I am more and more convinced every day that the home for the Isthmian Canal Commission should be on the Isthmus, as is the home of the Philippine Commission in the Philippines. A commission of three or five-the chief engineer one of the number-would be a much better working board than a larger number; and a quorum never absent.

There should be a purchasing agent and a disbursing officer of the Commission somewhere at home, but I see no reason for any other office of the Commission in the United States, and if the whole work-everything devolved upon the Commission-were turned over to the War Department, the purchases and forwarding of supplies and persons would go on without a hitch.

One of the members should be an officer of the Corps of Army Engineers. I regard Mr. Wallace as a very superior man, and he ought to be retained.

This is not written with any thought of obtruding my views, but in the past you have honored me from time to time with your confidence, and with a request for my individual opinion. I therefore respectfully submit this.

Very sincerely,

Hon. Wм. H. TAFT,

Secretary of War, Washington, D. C.

GEO. W. DAVIS.

EXHIBIT 16.-Report of subcommittee of Committee on Interstate and Foreign Commerce on investigation of affairs of Panama Railroad Company.

A resolution approved January 12, 1905, authorized the Committee on Interstate and Foreign Commerce, or any subcommittee thereof, to investigate the affairs of the Panama Railroad Company. On January 13, 1905, a subcommittee was appointed, consisting of the following: Mr. Shackleford, Mr. Lovering, Mr. Esch, Mr. Townsend, and Mr. Adamson.

Said committee herewith submits a report of the evidence taken by it: Owing to the shortness of the session and the great press of business before the Committee on Interstate and Foreign Commerce, the subcommittee has not been able to take all the testimony which it otherwise would have taken. It was especially desired to investigate the relationship, if any, existing between the Pacific Mail Steamship Company and the transcontinental railroads.

The testimony shows that the management by the officers and directors of the Panama Railroad has been conspicuously able, progressive, and businesslike. When the United States became the owner of a majority of the stock of the railroad company seven of the directors resigned and the seven canal Commissioners were elected in their places. This was done in pursuance of a letter from the President to Secretary Taft. Said letter, among other things, contained the following:

"No salary or per diem allowance of compensation, in addition to the stated salary and per diem allowance of the members of the Isthmian Canal Commission, will be allowed to any member of the Commission by reason of his services in connection with the civil government of the Canal Zone, or his membership of any board or commission concerned in or connected with the construction of the canal, or by reason of his services as an officer or director of the Panama Railroad."

Notwithstanding this positive direction of the President several members of the Commission accepted and retained fees for attendance upon the meetings of the board of directors and the executive board, as follows: Commissioner Walker, for attendance as a director_ Commissioner Burr, for attendance as a director_.

Commissioner Grunsky, for attendance as a director..

Commissioner Parsons, for attendance as a director_.

Commissioner Parsons, for attendance as member of the executive board__
Commissioner Harrod, for attendance as a director__.

$250

250

250

175

220

125

The committee is of the opinion that under the direction of the President, as contained in the language quoted above, the Commissioners exceeded their authority in accepting said sums.

In the course of the hearings it developed that during the first six months after the Government took charge of the canal property the Canal Commission directed the officers of the railroad company to purchase supplies for the Commission. Requisitions for such supplies were made by Chairman Walker and other members of the Commission. No public advertisement for such supplies was made nor any competitive bidding sought. No general opportunity for bids was given. These purchases amounted to about $233,000. These purchases were said to have been made on emergency orders, but the evidence discloses that a very large portion of such supplies were not actually needed at the time of the purchase and have not yet been used. In fact, supplies were received in such quantities and so much more rapidly than needed that the terminal facilities of the railroad were inadequate to care for them, and some of them had to be rehandled and reshipped at extra expense to the Government. It is the opinion of the committee that the best interests of the Government would be subserved by advertisement for competitive bidding by responsible persons.

An examination of the evidence will disclose that the Panama Railroad, with its connecting line of ships, is a very valuable property. It has shown its capacity to earn substantial dividends for many years. Undoubtedly the traffic over the line could be greatly increased by improving the ship service connected with it. There ought to be prompt and direct connecting lines of steamers running on regular schedules between Colon and New York, between Colon and some Gulf port, and between Panama and San Francisco. By such arrangement the time between San Francisco and Gulf ports could be reduced to fifteen days, and between San Francisco and New York to seventeen days. must be apparent to everybody that such a reduction in through time would greatly increase the amount of the traffic.

It

The successful construction of the Panama Canal demands that the United States shall own and operate the Panama Railroad. In doing this, however, neither its earning capacity nor its efficiency as an artery of commerce should be impaired.

Under careful management the railroad is worth many millions of dollars. To discontinue its use as a public highway would be the wanton destruction of this vast asset.

For more than fifty years the Panama Railroad has been used as an international highway. The nations have acquired an interest in its use, and it would be impolitic and unjust for the United States to now close it to the commerce of the world.

It should also be kept in mind that the Panama Railroad and connected ship lines have had a marked effect in reducing the rates of the transcontinental railroads. Further reductions could be secured by reducing the charges by the isthmian route, which could be done materially and still keep within the limit of fair and remunerative rates. If the Panama Railroad were to be discontinued as a public highway it would undoubtedly result in the raising of the rates on the transcontinental lines.

Then it must not be forgotten that the United States will have to transport great numbers of men and large quantities of material during the construction of the canal. If the ships belonging to the railroad are disposed of, then the Government will be at the mercy of the ship trust.

The committee, therefore, is of the opinion that the Government should operate the Panama Railroad as a public highway, and in connection therewith should operate lines of ships between Colon and New York, between Colon and some Gulf port, and between Panama and San Francisco. A fair and remunerative rate should be charged. Such a plan would not only return to the Government a fair revenue, but in addition would regulate many rates of transportation in the interest of the people.

In carrying out the policy herein outlined some of the Government transports could be used to supplement the steamers now owned by the Panama Railroad Company.

The Panama Canal when completed is to be owned and operated by the Government. During its construction the Government may with equal propriety operate the railroad and connected ship lines.

The committee believes that for the present it is best to continue the general offices of the railroad at New York, and that this can be done at a great reduction

of the present expense. It is the point of origin of a large amount of the freight carried over the Isthmus. It is well connected by telegraph with every part of the country.

The committee is of the opinion that the United States should secure ownership of the entire stock of the Panama Railroad Company.

All of which is respectfully submitted.

DORSEY W. SHACKLEFORD.

WM. C. LOVERING.

JOHN J. ESCH.

CHAS. E. TOWNSEND.

W. C. ADAMSON.

EXHIBIT 17.

APRIL 9, 1906.

MY DEAR MR. WALKER: I am directed by the Secretary of War to inclose you herewith copies of papers complaining of the rates on the Panama Railroad Company, and to ask that you send the Secretary a report at once. He is very anxious to obtain it at the earliest possible date.

MY DEAR MR. CARPENTER: Complying with your request of the 9th instant, I beg to report on the letter from Mr. D. O. Lively, March 19, to Hon. W. F. Sands, chargé d'affaires, American legation, Panama, as follows:

Our passenger tariff from New York to Colon compares favorably with the passenger tariffs of other lines between New York and the West Indies. Our rates are $75 for staterooms in cabins on the main deck and $90 for staterooms in cabins on the upper deck on the steamers Advance, Finance, and Allianca. The steamers Colon and Panama have no staterooms on the lower deck, hence the first-class fare on those boats is $90, and this particularly is warranted by the express service. The Royal Mail Steam Packet Company charge $75 from New York to Puerto Colombia and $80 from New York to La Guaira. They told us when making their rate $70 to Colon that the figure was necessary to secure any travel in competition with our direct service.

Mr. Lively mentions the stop-over at Jamaica as a privilege. This, you will note, is contrary to the general view. As to the boats being better, faster, and giving a better service in every particular, I think that is a matter of opinion. Their steamers sail but once a fortnight. Our steamers Colon and Panama sail on an average of every twelve and one-half days, and they are making the trip in less than six days. We are receiving a fair share of patronage for the express service, and I think it will grow as it becomes more known. In this connection the inclosed copy of my letter to Mr. Pepperman, March 8, gives more extended particulars.

We get very few passengers between New York and San Francisco, even at the low fare of $105. We could not afford to handle the whole passenger business on any such basis, and the few that we do take really represent clear profit, as they do not add to the expense of the voyage between New York and Colon.

The local passenger fares on the Isthmus are maintained on the basis that a passenger without baggage should not pay so much as a passenger with baggage, and in February, 1905, the local first-class rate between Colon and Panama was reduced from $4 gold to $2.40 gold and the rate for baggage was reduced from 3 to 2 cents per pound. Passengers are allowed to carry a reasonable amount of hand baggage without charge.

The six new passenger coaches of large capacity which have just been completed and are about to be forwarded to the Isthmus should soon relieve the crowding of the first-class cars, to which Mr. Lively makes reference.

In the matter of freight rates, the local tariff for Isthmus transit must necessarily appear disproportionate to the mileage by the steamships. The entire cost of operation on the Isthmus, including the franchise tax of $5,000 per mile per annum, is very much higher than the cost in the United States, and material reductions have been made in the rates since the United States became owners of the road.

In the item of rice the rate from 1892 to 1905 was $12 per ton for any distance. Now the rates vary from $3.40 for 10 miles to $4.60 across the road; but rice is not likely to move across the road, as Colon should supply half the route and Panama the other half, Panama getting its supply via the Pacific and Colon receiving its supply from New York or from Europe.

Our tariff makes brick, loose, in less than carload lots, second class, and our second-class rate varies from $5 to $8.80 per ton, according to the distance; but if the bricks are put in packages, saving the labor of handling, we charge from $2.60 to $4 per ton. Shipper can save the cost of packages by loading and unloading the cars.

Cement is necessarily in barrels, and pays the same rates as brick in packages, from $2.60 to $4, varying with the distance.

The rates on lumber and timber are in proportion to the other rates of the tariff, and have been materially reduced from 50 cents per 100 pounds for the haul of any number of miles on the road to 13 cents per 100 pounds in carload lots for 10 miles to 20 cents per 100 pounds for 50 miles, shippers to load and unload, while small shipments of inch boards, requiring much handling, are charged from 21 to 34 cents.

Cedar, mahogany, and cocobolo of local production pay from 103 cents per 100 pounds to 17 cents per 100 pounds, varying with the distance—that is, one-half of the tariff rates-in accordance with our contract with Panama.

Stoves are third class, whether crated, boxed, or not, and this is somewhat lower than the trunk lines class them hereabouts, as they must be crated or boxed to get the third-class rate.

Furniture is first or second class, according to its value, and this rate is not high, comparatively, when the room it takes up in cars is considered.

The local commercial traffic on the railroad in 1904 was governed by the tariff of 1892 and various reductions which had been made from time to time to meet the needs of particular traffic. This tariff yielded an average revenue of $4.41 per ton. The present tariff, which went into effect July last, has yielded an average revenue of $3.89 a ton, being a reduction of 52 cents per ton. The cost of handling the traffic during the same period has been $3.06 per ton. A further general reduction is therefore not advisable until the modern equipment now being supplied to the road demonstrates how much cheaper we can handle the traffic.

The question of billing freight through from the United States or from Europe to local points on the line of the road has received attention from time to time on our own initiative, but the custom-house difficulties and the limited facilities at the Isthmus for holding freight on the wharves while customhouse entries are passed proved obstacles in the way of a general arrangement of the kind.

However, there has been no pressing demand for such an arrangement. In fact, I recall but one request regarding the matter, and we arranged to hold that consignee's freight on the wharf at Colon and ship it out direct from the wharf, provided he made his custom-house entry immediately upon arrival of the steamer carrying his goods. The consignee could not get more favorable arrangements than this in the United States. Of course the same facility would be granted to anyone else making application for such accommodation.

Yours, truly,

Mr. FRED W. CARPENTER,

R. L. WALKER,
Traffic Manager.

Private Secretary to Secretary of War,

Washington, D. C.

Mr. W. LEON PEPPERMAN,

MARCH 8, 1906.

Assistant Chief of Office Isthmian Canal Affairs,

Washington, D. C.

DEAR SIR: Mr. Drake has asked me to follow up his letter to you March 2 with particulars regarding the Royal Mail competition in the passenger traffic. The comparison is as follows:

Cabin passengers to Colon and west coasts of Central and South America.

Cabin passengers from Colon and west coast of South America.

Our steamers from New York, between October 28 and December 9, were absolutely unable to meet applications of the public for passage. We had to redeem the return portion of many excursion tickets, so that the passengers could go to the Royal Mail, undoubtedly paying more money than the amount refunded by us. The result of this condition is shown in the 127 passengers carried by the Royal Mail against 83 carried by us.

Since December 9 we have been able to take care of the general public, and you will note that we have carried on the average more than 11 passengers per trip, while the Royal Mail have carried but 9 passengers per trip.

From October 26 to December 8 you will note that the Royal Mail in four trips carried 62 passengers, while on seven trips we carried but 43 passengers. I attribute this particularly to the fact that at that time we had no published schedule, and travelers could seldom learn far in advance the dates on which our steamers would leave Colon, whereas the Royal Mail were advertising fixed dates. The fact that the line had just started also probably directed some extra business to them.

Since December 12 both the Royal Mail and our company have averaged 7 cabin passengers per trip. I think it is fair to draw the conclusion that we would not have had more passengers had our rates been lower. The Royal Mail being in the business, with a less frequent service, would undoubtedly have to maintain rates lower than ours in order to secure a share of the patronage. The rates of the Red “D” Line between New York and La Guaira vary from $70 to $80. The rate of the Atlas Line to Savanilla and Cartagena is $75, and to Port Limon $80. The rates by the Royal Mail Steam Packet Company are to Porto Colombia $75; La Guaira, $80; Trinidad, $85, and Barbados, $90. I look upon the rates charged for our service as fair and reasonable in comparison.

Yours, truly,

R. L. WALKER, Traffic Manager.

PANAMA RAILROAD COMPANY,
Washington, April 11, 1906.

DEAR SIR Supplementing the copy of the letter of January 18, 1906, addressed to Mr. Pepperman, I beg to confirm the statements that I made to you this morning.

Since the Panama Railroad Company became the property of the United States we have reduced the freight rates from New York to Panama on most goods 33 per cent or more. The through rates are divided 45 per cent to the railroad and 55 per cent to the steamship line.

We have admitted as connections at Colon two steamship lines from New York-the Royal Mail Steam Packet Company and the Atlas Line. A line from New Orleans to Colon also connects with us. From all of these steamship lines