We regard present situation as extremely serious, and in case a fair agreement can not be made with these people, believe we should control arrangement, either through some reputable banking company or through subtreasury.

The most essential thing is maintenance of parity.

I answered the above by the following dispatch:

SHONTS, Panama:

SHONTS.

Your cable of April 10 received, also your letter of April 1 and Williams's reports. Present bankers' contract does not prevent our importing gold or United States currency, if we desire, but my difficulty in making effort to renew it is more serious. It is quite evident that bankers are not satisfied with profits they have made out of present contract and that we can not renew it on same terms. I should be willing to renew on somewhat better terms for them, and request under our arrangement from the Government of Panama the issue of another million pesos to relieve increasing scarcity of silver if it offered permanent remedy for conditions we must anticipate. This would be less expensive, probably, than any other course, but it would not be permanent. Silver would again become scarce as our operations grew, and more would soon be needed.

Another remedy commends itself. By our currency arrangement with Panama, it has made our American gold dollar the legal monetary standard in the Republic. The Panama peso, although largest coin now actually in use, is by law equivalent to 50 cents gold, our money. No objection, therefore, can exist to actual introduction American gold dollars into circulation. Williams's reports show impatience with bankers' agreement natural in disbursing officer upon whom present arrangement places so much responsibility. He seems to be in error as to cost under renewed agreement. But he does show that gold can be used now with native labor, and that time has arrived for following his suggestion of abolishing distinction between gold and silver rolls. We can import gold from United States. On the Isthmus we can take in or obtain as much silver as is easily available without special bankers' agreement, and thus aid in maintaining parity. To secure reasonable rates of exchange for employees, we can sell postal money orders on United States at same as domestic rates here.

This arrangement, while more costly to Government than present arrangement, will, I think, meet situation until Congress can give us authority necessary to secure establishment in the Canal Zone of American bank as Government depository, through which we can conduct financial transactions and in which we may safely allow disbursing officers to keep money needed. If you, after conference with Stevens, Magoon, and Williams, concur with these suggestions, issue immediate orders for shipment of necessary gold next payment. I have submitted your dispatch to President and Secretary of Treasury, and they approve of this answer. Magoon show this dispatch to President Amador before action.

I have a reply to the above from Mr. Shonts as follows:

SECRETARY OF WAR, Washington:

TAFT.

Let

Referring to your cable of April 11. In the absence of any agreement with bankers, all agree that your suggestion we use American gold brought by us from the United States must be adopted. Am of opinion that we can use gold for not less than twothirds amount required, the remainder to be Panama silver, which we will secure by selling Williams's drafts on subtreasury New York, and later by sale of post-office money orders as soon as system is inaugurated. This will undoubtedly secure required amount of silver. Determination will be communicated to President Amador before being put into effect. Williams has sufficient funds on hand for April pay rolls.

SHONTS.

I do not know that I need to elaborate what I stated in my telegram to Mr. Shonts. My information that the native laborers will receive the five-dollar gold pieces is based on the statement of Mr. Williams, the disbursing officer.

I recommend that Congress authorize the establishment of the branch of some American bank upon the Isthmus, subjecting it to an examination by one of the bank examiners under the Comptroller of the

Currency, and that the President or the Secretary of War be authorized to direct the deposit of Government funds, both of the Commission and of the railroad company, in the bank, taking from the bank ample security, the President or the Secretary of War to fix the proper rate of exchange in the fiscal operations of the Commission and the railroad company. In this way we can relieve our disbursing officers of a great burden in the custody of funds, pay many of the salaries in checks on the bank, and in every way relieve ourselves from the cumbersome methods now imposed on us in making our payments.

AUTHORITY OF THE PRESIDENT, ACTING THROUGH THE COMMISSION OR OTHER AGENT, TO MAKE TEMPORARY ARRANGEMENTS WITH THE REPUBLIC OF PANAMA.

I think that I have sufficiently indicated the ground on which, by my advice, the President authorized the entering into and execution of the various revocable or temporary arrangements made with the authorities of the Republic of Panama as to the currency; as to the stipulations of the bankers' agreement; as to the delimitation of the boundaries of the Zone; as to the establishment of ports, the arrangement for customs, the terms for conducting the hospitals in and out of the Zone, and other matters.

The suggestion is that in the making of these arrangements the President or his agents usurped the treaty-making power, which, by the Constitution, is intrusted to the President and the Senate. As I have already said, I do not think that Senator Bailey, of the finance committee, or any of his colleagues regard such arrangements as violative of the Constitution. On the contrary, I gathered from the discussions in the finance committee, contained in the hearings of that committee as printed, that the committee was unanimously of the opinion that such arrangements could be lawfully made and executed by the Executive in pursuance of the duties imposed by statute and by treaty upon him. By the Spooner Act the President was authorized and directed to construct the canal across the Isthmus of Panama if certain conditions were fulfilled. By the treaty with Panama the governmental control over an undefined zone, and a zone in certain respects undefinable (except by further adjustment and agreement with the Panamanian authorities), was ceded by the Republic of Panama to the United States.

By the act of April 28, 1904, the President was directed to take possession of this undefined zone and to govern the same through his agents. It was impossible for him to comply with the directions of Congress under these circumstances unless he could effect such temporary arrangements as he has effected. He was enjoined through the Commission to send agents who were to organize a large force of engineers, employees, and laborers in a strip of country in the midst of a foreign people and in the middle of a foreign State; to exercise complete and exclusive jurisdiction in an undefined territory, and to exercise a limited jurisdiction for the enforcement of sanitary ordinances in cities of the Republic of Panama. He was directed to build the canal and carry on very large fiscal operations in a country where there was an insufficient currency and one with a different monetary standard from our own. He must employ to pay a large part of the laborers the local money of Panama. He must secure that in some

way. By agreement with Panama it could be done temporarily at least. The power to establish a modus vivendi in respect of the many matters in which the two jurisdictions must come into contact was indispensable to the execution of the mandates of Congress.

THE OLD COMMISSION, ITS WORK AND THE REASONS FOR ITS RETIREMENT; THE REORGANIZATION; THE NEW COMMISSION AND ITS WORK.

The Commission which was appointed on the 3d of March, 1904, with Admiral Walker at its head, did a great deal of very hard work. It was composed of able and honest men, and in certain directions it secured admirable results. Messrs. Burr, Parsons, Grunsky, and Harrod were excellent engineers, and were well adapted to direct the engineering surveys which were projected and begun before a chief engineer was appointed. General Davis, although not by profession an engineer, is nevertheless much better qualified to speak on engineering subjects than most engineers.

General Davis was an admirable man for the organization of the government of the Zone-painstaking, hard-working, clear-headed, economical, courageous, and loyal. He was generally absent from the deliberations of the Commission, which usually met at Washington, and he exercised no authority on the Isthmus other than as governor and supervisor of the sanitation measures. He is not, therefore, to be held responsible for such shortcomings of the Commission as may appear. Admiral Walker had had a great deal of experience in the investigation of both the Nicaraguan and the Panama canals, knew the Isthmus well, and had been an able naval officer. In the selection of the chief engineer, and in the organization of the government of the Zone and the preliminary engineering work, in the organization of the sanitary force, the selection of the chief sanitary officer, in the enactment of the laws for the Zone, the Commission showed itself well adapted to the work which lay before it.

The old Commission organized the sanitary department under Colonel Gorgas, and it is entitled to credit for the success which has attended Colonel Gorgas's efforts, although of course Colonel Gorgas himself is the chief agent in having brought this about. I have been at times inclined to doubt whether the Colonel's plans were best adapted to the speedy sanitation of the Isthmus, and whether he had the executive ability which would lead to satisfactory results; but I am entirely willing to admit that he has vindicated his theories and has carried them to a logical conclusion and has wrought a wonderful change in the health conditions on the Isthmus.

The Commission also began under Mr. Wallace the work of reconstructing the old French houses in which it is intended that the employees and laborers shall live and had reconstructed about 350 out of 2,100 when Mr. Wallace left. They constructed a hotel at Corizal and a hotel at Culebra, and they projected and almost completed before they were retired the water supply for the city of Panama, and for many of the other towns in the Zone. They attempted to secure the needed employees to make the working force on the Isthmus. The application of the civil service law in a modified form and their reliance on the Civil Service Commission to furnish employees did not result fortunately. I append statements by Mr. Pepperman and Mr. Cooley on this subject, marked "Exhibit 11." The truth is that neither the

Washington bureau of the Commission nor the Civil Service Commission was able to furnish the skilled workmen and "outside" employees that were required. The Civil Service Commission did not have eligibles of the kind needed or machinery to secure them. This country was prosperous, most people who would have been useful on the Isthmus had employment, and it was difficult to secure the kind of men who were wanted. Mr. Wallace complained greatly of the incompetency of the men who were sent to him, and I am bound to say that his complaints were well founded. I do not think that in this respect the Commission met the situation. The application of the civil service law could have been modified to meet the exigencies, as it has been since. It would have been better if they had sent out competent, professional employers of labor to secure the proper men, as the new Commission has since done. As the work expanded and the demand for men grew greater, the defect of its organization in this respect became more apparent.

The work of excavation which was done by Mr. Wallace under the old Commission at Culebra was carried on largely for the purpose of experiment. I do not feel competent to pass judgment on the wisdom of what was done there. The use of the Belgian engines and the French tracks and the small cars and the old French dumps, which were not well placed, and the lack of the element of the long haul, which will probably enter largely into the cost of most of the excavation, created such a difference between the experimental and the actual conditions to be met that I am inclined to think that the data obtained are not very valuable and that the time and attention spent might better have been put on the construction of houses and the sanitary construction work of which there was so much needed. But I venture this opinion with great hesitation and with deference to the judgment of Mr. Wallace and the professional engineers of the old Commission. Certainly the excavation of 700,000 cubic yards is an excavation that will not have to be done again.

I am sorry to have been misled into the incorrect statement of Mr. Stevens's views which Mr. Wallace regards as a slur upon his work. From Mr. Stevens's reports, and from his evidence until the question was definitely put, I had supposed that he intended to say that some of the dumps used by Mr. Wallace would have to be moved, and so some members of the committee understood Mr. Stevens's statement to mean this, but when the direct question was put it appeared that while some of the old French dumps where material was deposited by Mr. Wallace would have to be moved, none of the material which Mr. Wallace placed there would have to be removed. I regret the mistake very much.

The chief defect of the old Commission, if I may say so, became apparent when it essayed the tremendous executive task of perfecting an organization to furnish the equipment, the material, and the supplies required in increasing quantity on the Isthmus as the work expanded, with promptness and dispatch. This was a complaint which Mr. Wallace might most justly make and which he did make. It was one of the chief obstacles in the performance of his task.

I do not mean to say that under any circumstances and under any management the opening of the canal project and the ordering of equipment, supplies, and construction material at such a long distance would not have been attended with exasperating delays, but it is quite

apparent that the methods of the Commission for this purpose were not businesslike, expeditious, or systematic.

The purchasing department was conducted by Mr. Redfern, who was a secretary or clerk in the office with but little previous experience as a purchasing agent. While he was a hard and faithful worker and did all he could, he was swamped with the requisitions which came to him; so that on February 1, 1905, when Major Gallagher took hold he found a great number of requisitions in the office of the Commission that had not even been opened. Major Gallagher testified before this committee as follows:

Senator GORMAN. During that time, from the time of your employment to the date of the expiration of the old Commission, what was the character of the complaints of failure to act upon requisitions for material on the Isthmus, made from the Isthmus? Was it very great?

Major GALLAGHER. I think there was considerable complaint that there was delay in receiving material. There was an accumulation of business there; there is no doubt about that. The gentleman who was acting, Mr. Redfern, was overwhelmed with work. He had a few clerks trying to do this work, and there was a great accumulation of these requisitions. I found requisitions there nearly four months old that had not been acted upon, and the principal work then, of course, was to get these out, to get them advertised, and to try to get the material down there. During the month of April we opened bids on twenty-two days, showing the amount of material we were purchasing at that time.

Senator GORMAN. Then the fault was the fault of the organization rather than the failure of the contractors to comply?

Major GALLAGHER. There is no doubt that the lack of a purchasing department was responsible for a good deal of the delay. If that department had been established earlier, say when the Commission began work, I do not think there would have been anything like the accumulation of requisitions that I found there.

In my opinion, the principal delay was due to the fact that there was no regularly organized purchasing department, although there has been some delay, due to contractors not delivering material on time. But the principal delay was due to the fact that there was no regularly organized department to handle those requisitions as soon as they came in. It has been thoroughly organized since.

*

*

*

I append a list of thirty-two requisitions found by Major Gallagher, unacted on when he entered the office of the Commission, February 1, and a list of those on hand when Mr. Ross, the present purchasing agent, came on June 1, marked "Exhibit 12."

General Davis, when I was on the Isthmus, pointed out instance. after instance in which he had submitted matters to the Commission for decision which were delayed so long that he could not understand it. I sent an inspector from the Surgeon-General's department to Panama for the purpose of making a report upon the sanitary measures begun and carried on there. I directed that he report to General Davis, to Colonel Gorgas, and to the chief engineer, but that he exhibit his instructions to no one else.

The report of Major Mason, I think, is of sufficient interest to the committee to publish it in full, and I therefore append it as Exhibit 13. In this report Major Mason states that the principal large requisition for medicine and medical supplies was made about the 1st of August, 1904, and at the date at which he wrote (February 8, 1905) not one item had been received, and that other large requisitions had met the same fate, and that Governor Davis told him that these requisitions were approved by him and went forward promptly, and that he had done all in his power to get them filled, and what the trouble was he did not know. Meantime, he said, he had bought what was most urgently needed through the local markets, and even articles purchased