This letter certainly furnished but little light on the real state of Mr. Wallace's intentions, except that he wished to be absent from the Isthmus on vacation for July and August, at the very time of all others when he ought to have been there. He had then been just twelve months and a half in the employ of the Commission, of which he had spent nine months on the Isthmus and three and a half in the United States or on the ocean, and part of this three months and a half, he had devoted to matters not governmental. In a day or two I received light in the following letters from Governor Magoon:

[Personal and confidential.]

ISTHMIAN CANAL ZONE,
Executive Office, June 11.

MY DEAR MR. SECRETARY: Mr. Wallace has had two conversations with me of such character that I feel obliged to communicate the substance to you. He says he has received an offer of employment in the States that affords him more pay and better opportunities than his present position. He is going to the States (as you have been advised by cable) to resign as chief engineer, to take effect September 1, but is willing to remain as a member of the Commission. He further wishes to take a vacation until September 1, and prepare his annual report at his home in Chicago, and not return to the Isthmus. 66 "Here ended the first lesson."

I was anxious, of course, to probe the matter further and ascertain if there were anything back of it, and therefore sought another interview the next day, told him of my anxiety as to the situation, and asked if there were anything in his relations with me, personal or official or our relative standing, etc., that was objectionable. He said, "No. The trouble lies in another direction;" and proceeded to object to the requirement that he should remain on the Isthmus except when given permission to leave; to receiving less salary than Shonts; and to being placed in a position subordinate to the chairman, who was getting the credit of bossing the job."

It was plain, by this time, that there was something deeper yet, and so I asked him if any arrangement could be made that would satisfy him and induce him to remain and he said "there might be, but I don't know." He went on to say that the only thing that would induce him to remain was to make him chairman, combine the two departments of which he and Shonts are the heads, and give him full power over all the work, complete and unrestricted; fix his salary at between $50,000 and $60,000, he to come to the Isthmus when he saw fit and depart as his discretion determines. The plan he has in mind is, that he is to be so completely vested with all authority that no one can doubt or question that the entire credit of the enterprise in all branches belongs to him. He said nothing as to his plan being the more efficient, but confined himself to statements that such was what he wanted.

I asked him if he intended to talk to you as frankly and candidly as he did to me. He said he wrote you a letter last March, in which he told you what he wanted done, but his wishes were not carried out; that he made it a rule in dealing with his superiors to let them know what he wanted and "leave it to them." He made a further statement, to which I attached grave significance-that he left the Illinois Central twice without telling them, directly, what he wanted, and was sent for and given three times as much as would have induced him to remain at the time he left. Evidently he considers himself essential to this enterprise, and, for the immediate present, he is. He has never secured an assistant engineer competent to take his place or keep the work going at a decent pace for sufficient time to enable a new chief engineer to master the situation. His department is not organized, i. e., the machine is not built and therefore can not run itself. I have urged him several times since we came here to appoint some big men in his department and put them at work on his organization; but he said it was difficult for him to secure the men he wanted. The data he has collected is scattered through his files and he said he could incorporate enough of it in his report to enable his successor to understand and utilize the substance of it all. I doubt it.

Speaking of his desire to be the head of the enterprise, he told me that he figured from the first that Admiral Walker would not last more than two years and he had intended to have things in such shape by that time that he would be made chairman; but the old Commission went to pieces too quickly for him. When to the present development is added numerous incidents occuring during the past two months, incidents that appeared to be trivial at the time but now appear important indices, I can not escape the conviction that he is trying to "pull off” a carefully

contrived coup d'etat.

I think he expects to go, but to be recalled in the future. I hope I am doing him a grave injustice, for personally I like him and our relations have been very pleasant. I can readily understand that from his point of view the action and motive I attribute to him is entirely justifiable. In railroad circles, as on the stock exchange, it is entirely justifiable and even commendable to "squeeze" friend or foe when you have the chance and can profit by it.

That something like this is in his mind is indicated by his telling me when I urged him to have a full and free talk with you that he had thought of going to Shonts and "putting it to him straight." I am very sorry this complication has arisen on the eve of your departure for the Philippines. I had hoped to advise you before you started that everything here was in smooth sailing. It is of course unnecessary for me to say that I have urged upon him every argument I could muster to induce him to maintain the status quo, at least until your return. I have written you thus fully that you may have a few days to turn the matter in your mind before the matter presses for determination.

I have no objection to this letter being read by the President and Mr. Cromwell, but request that no one else be permitted to know of its existence. Very truly, yours,

CHARLES E. MAGOON.

ISTHMIAN CANAL ZONE, Executive Office, June 13, 1905.

MY DEAR MR. SECRETARY: I have had another talk with Wallace and am inclined to think I judged him too harshly in concluding that he was attempting to "squeeze” you.

He seems to be fully prepared to quit, but willing to remain upon terms that seem to him justifiable as compensation for the sacrifice he feels he would make in continuing in the public service. There is no difference in its effect on the public service, but there may be considerable difference between the two mental attitudes. You will, however, have opportunity to judge that matter for yourself.

Yours, sincerely,

CHAS. E. MAGOON.

I took these two letters to the President at once. I told him that I thought there must be some mistake. I could not believe that Mr. Wallace, under the circumstances that existed on the Isthmus, with the loyalty and gratitude for the new arrangement he had gone out of his way to express, would thus desert us without notice or time to select a successor. Mr. Wallace's own letter, while it had some ambiguous phrases in it, certainly did not give the impression that he was leaving the Isthmus for the last time with no intention of returning as chief engineer. Yet, of course, Judge Magoon had no motive for misrepresenting what Mr. Wallace had said to him; he had detailed the conversation in Mr. Wallace's words immediately after the conversations.

Assuming the situation to be, however, as Judge Magoon stated it, I said to the President that the departure of Mr. Wallace from the Isthmus would be the most demoralizing thing that could happen in a state of demoralization already existing, that there was a crisis on the Isthmus, and that if Wallace had purposely selected the time when his leaving and desertion would be most injurious to the public interest he could not have succeeded better. For that reason I requested of the President the authority, if Wallace's statement to me was in accord with Magoon's report, that I might dismiss Wallace at once and demand his resignation both as Commissioner and as vice-president and general manager of the railway. I expressed the opinion to the President that it was of the highest importance that we should stop the desertions which were going on upon the Isthmus, and that we

should mark our disapproval of the disloyalty to the job involved in running away from the Isthmus under the circumstances and conditions that prevailed there, especially in him upon whom rested the greatest responsibility. I need hardly say that the President fully concurred in my views and gave the authority which I requested, with the emphasis which such a condition was likely to evoke from him.

In spite of the very conclusive evidence as to Mr. Wallace's state of mind and intentions found in Judge Magoon's letters, I was still not satisfied, and therefore requested Mr. Cromwell, when he returned to New York, to use the Western Union cipher and inquire of Judge Magoon by cable whether he confirmed his letters.

As I was exceedingly busy making ready for my trip to the Philippines, and had an engagement to deliver an address before the Yale Law School on Monday, the 26th, and to attend the Harvard commencement on Wednesday, the 28th of June, at Cambridge, where I was to meet President Roosevelt, it was economy of time for me to have the interview with Mr. Wallace in New York City. I went to New York Saturday afternoon, and met Mr. Cromwell at the Manhattan, when he handed me the following telegram which he had received from Governor Magoon:

CROMWELL, New York:

[Confidential, Western Union Code.]

PANAMA, June 22, 1905.

As result of all interviews, I believe he retires in good faith prompted by attractiveness of new position, salary, residence in New York, business connection with financial magnates, opportunity to demonstrate administrative ability instead of working at construction exclusively; also fear of yellow fever on the part of himself and wife. He desires to become an engineer member of Commission, basing it on desire to assist and prevent embarrassment if any question should arise direct, he said. Can not say whether he would remain in any other capacity nor on what terms until after (he has) interview with New York parties, but (he) will not continue as construction engineer merely. (His) wife told intimate friends here they would not return. They have taken or sold all of their belongings.

My impression, based on interviews and (one word illegible), is that personal advantage and (word illegible) overcome public consideration involved; that he is not attempting a squeeze, but honestly thinks he is entitled to supreme place and power. (He is) unwilling to remain without it and not particularly anxious to remain without (with ?) it provided new position is what he considers it. He asked me to telegraph Secretary (advising) his retention on Commission as one of four engineer members. I will comply, believing retention advisable.

MAGOON.

Mr. Schwerin came in to see me in regard to the Pacific mail contract with the Panama Railroad. After Mr. Schwerin left, Mr. Wallace and his son came in. After some little conversation young Mr. Wallace withdrew. I recollect telling Mr. Cromwell in Mr. Wallace's hearing that I desired him to stay.

I did this for the reason that I wanted a witness to the interview. I knew it would be of a serious character, and I had asked Mr. Cromwell to make notes of the interview so that I might take those notes to the President and submit to him the condition of things as it was revealed by what Mr. Wallace had to say. After the interview with Mr. Wallace, I had to hurry to catch the train for New Haven. Mr. Shonts, who had come to the hotel after the interview, traveled with me to Bridgeport, in the vicinity of which he was staying for the summer. As the result of the interview with Mr. Wallace, I directed Mr. Shonts to do his best to find another engineer at once.

I met the President at Cambridge and gave him notes of the interview, and said to him that the correspondents of the newspapers were pressing me for the facts in regard to Mr. Wallace's leaving; that many different reasons were being given, and that the facts unexplained could not but have a most detrimental effect upon the discipline and esprit of all our employees on the Isthmus. In view of this, the President was strongly of opinion and I agreed with himthat the interview ought to be published, for the purpose of discouraging in the future such an act of disloyalty as that of which we both considered Mr. Wallace guilty. Accordingly I returned to Washington and prepared the published statement.

The report of the interview of course is not verbatim, but it is as nearly accurate as it is possible without stenographic notes to make it. Mr. Wallace, says that he did not state that he had already accepted the employment which had been offered him. My recollection is quite distinct that he did, but whether he did or not he certainly gave me to understand with emphasis that he proposed to accept it, and that he would not go back to the Isthmus to take charge of the work as chief engineer. He intended to remain in New York. His new employment required it, and he would not go back to the Isthmus.

At the time that I gave out for publication the interview I did not include the remarks of Mr. Wallace on general conditions, but I deemed it wise, for purposes of record, that a statement should be made, while the interview was fresh in our minds, of just what was said by Mr. Wallace with reference to conditions, and I append, as Exhibit 22, both the statement as given out and the statement dictated by me of the remainder of the interview.

Mr. Wallace says that I was very angry at the interview. I can not and do not deny that I was deeply indignant at what I regarded as his desertion of the Government work at the most critical time in its history, but what I said was not the result of a hasty outburst of anger. It was the deliberate opinion formed tentatively after receiving Judge Magoon's letters and telegram, and confirmed by all Mr. Wallace's statements in the interview.

I do not stop to discuss Mr. Wallace's legal right to quit under his contract. That is aside from the real point. Mr. Wallace knew that a crisis was at hand in the business of the Government at the Isthmus and that his desertion at that time might mean disaster. He was under the highest moral obligation not to leave his post until he had given the Government an ample opportunity to replace him. His obligation in this regard was commensurate with his great responsibility and the difficulty of suddenly finding a substitute for him. Mr. Wallace seems to recognize some such obligation. He says in his testimony that it was his undoubted personal right to resign whenever he thought it necessary to do so, provided, of course, that he took abundant care that the work in his charge would suffer no harm by reason of his resignation. His justification for his course is contained in his letter of June 8, already quoted, in which he says:

I know of no time during the next year when the work will be in better condition to permit my absence. It is thoroughly organized, everything possible that can be foreseen provided for, and a feeling of loyalty and enthusiasm now permeates the entire personnel.

Again, he said in the interview which he gave out in New York June 30, and which is quoted in his evidence, in regard to the situation at Panama:

At no time during the progress of the work could my relations have been severed more opportunely than now and with less damage to the work. A complete organization of departments and bureaus has been effected. Mr. W. E. Dauchy, a gentleman of high engineering attainments, who had been chief engineer of the Chicago, Rock Island and Pacific Railroad Company and who had occupied the position of division engineer in charge of the Culebra division, was, upon my leaving the Isthmus, placed in charge of the work as acting chief engineer, he having occupied a similar position during my absence from the Isthmus at the call of the Secretary during the month of April and having satisfactorily conducted the work through the demoralization attendant upon the change in organization. The only work which can be performed, until after Congress at its next session shall take some decided action, is the gradual increase in the organization and the addition of units of machinery along a well-defined plan, which Mr. Dauchy thoroughly understood.

These statements are untrue. Upon this point Judge Magoon, who was a member of the executive committee, which had to approve Mr. Wallace's plan of reorganization, says in his letter of June 11 already quoted:

Evidently he considers himself essential to this enterprise and for the immediate present he is. He has never secured an assistant engineer competent to take his place or keep the work going a decent pace for sufficient time to enable a new chief engineer to master the situation. His department is not organized-i. e., the machine is not built and therefore can not run itself.

It is true that Mr. Wallace raised the wages of all the employees, black and white, on the Isthmus, and this doubtless gave some satisfaction, but in no way stopped the panic or checked the demoralization. That he perfected the organization in the time between the 24th of May, when he reached the Isthmus, and the 16th of June, when he left there, is without foundation. Mr. Wallace and Governor Magoon were the majority of the executive committee, and at the meeting of June 14, 1905, two days before Mr. Wallace left the Isthmus, he submitted the organization of the department of construction and engineering, effective June 1, 1905, which I append as Exhibit 23.

In this plan of organization provision was made for seventeen constructing engineers, who were the chief engineer, the assistant chief engineer, the principal assistant engineer, five division engineers, five assistant division engineers, and four resident engineers, and of these the positions of assistant chief engineer, of principal assistant engineer, three division engineers, and five assistant division engineers, or ten in all, were vacant. Mr. Dauchy in this plan was assigned temporarily to fill three division engineerships and in addition became acting chief engineer when Mr. Wallace left. Mr. Maltby was assigned temporarily to two assistant engineerships. The other vacancies were not even temporarily filled.

The four positions created by this plan, of superintendents of transportation, of excavation, of mining, and of dumps at Culebra, the only division where such positions were provided, were all vacant.

Mr. A. M. Burtt, supervising architect, who was to have charge of the most important work that the Commission had on hand, to wit, that of constructing buildings for their laborers, had been a draftsman in the office of Mr. Johnson, the previous supervising architect, who had died of yellow fever. He was promoted by Mr. Wallace to the position of the chief of the bureau in June, and when Mr. Stevens