are acquiring a knowledge of American methods and an equipment for the duties of administration which enables them to fill positions of a higher grade as from time to time they are vacated by Americans. The Commission, by Act No. 1040, enacted on January 12, 1904, has systematized and brought into compact shape the laws relating to the hours of labor, leaves of absence, and transportation of officers and employees in the Philippine civil service; and by Act No. 1072, enacted on March 3, 1904, it has still further clarified and simplified the original civil-service act and its amendments. In addition, the civilservice board, with the approval of the civil governor, has revised and brought into better shape the civil-service rules. These recent acts and revised rules, taken in conjunction with existing law, create, it is believed, a civil-service system which will stand the test of time and criticism.

It may not be unimportant to note in passing that the President of the United States by Executive order has declared that officers and employees of the Philippine civil service, after three years' continuous and steady performance of duty, shall be eligible to appointment to positions in the civil service of the United States by transfer. The effect of this order is to make the Philippine civil service more attractive to Americans, and furnishes an additional incentive to them for the zealous performance of their duties.

The policy of providing for a system of retirements and pensions for faithful and efficient civil officers and employees who have passed their entire life in the service has been the subject of discussion between the chairman of the civil-service board and myself, and at my instance he has given the matter considerable study and investigation. While in the United States such a system has been often a topic of discussion, it has never passed that stage, but it has been adopted in some form by Great Britain and the nations of continental Europe. I shall not attempt at this time to enter into a discussion of the subject or to give the arguments pro and con, or to make any specific recommendation, inasmuch as the finances of the islands do not now warrant our incurring obligations for increased expenditures and the matter is not pressing. I may say, however, that it is a subject which at some future time should be taken up and fully considered upon its merits. We can only expect to establish a stable and efficient civil service in the islands by offering inducements to well-educated young men of high character to make their life career in the insular service.

Appended hereto as Exhibit C will be found the report of the Philippine civil-service board covering the period between October 1, 1903, and June 30, 1904, which will be found exceedingly interesting and instructive to those interested in the important subject with which it deals.

INSULAR PURCHASING AGENT.

The office of the insular purchasing agent was established by Act No. 146, enacted on June 21, 1901. Its purpose was to enable the insular, provincial, and municipal governments to purchase in an economical and expeditious manner such supplies as they might need for their various bureaus and offices. Each head of a bureau or office and each provincial supervisor was required by the act to make a semiannual estimate of such goods and supplies as he would probably need for the ensuing six months in order to guide the insular purchasing agent in making the necessary purchases. Wherever practicable, all purchases exceeding $1,000 in amount were required to be made under contract after advertisement, the civil governor being authorized to dispense with such contract and advertisement in any case of emergency. By later amendment to the act the various municipalities of the archipelago were also authorized to make purchases through the insular puchasing agent. He was empowered to make purchases only upon proper requisition and certificate that the necessary money to pay for the goods was in the hands of the bureau, office, or municipality giving the order. He was required to make purchases and deliveries at the actual cost to his office plus 10 per cent. In cases of emergency, when the civil governor was satisfied that supplies could be purchased directly by the bureau or office needing the same more economically without the intervention of the insular purchasing agent, he was authorized to make the necessary order to that effect. The volume of business handled by this office has steadily grown from the beginning, and the theory upon which it was created has been shown by actual experience to be of practical benefit in enabling the various bureaus and offices of the government to buy their goods or supplies in an economical way. The duties which devolve upon the insular puchasing agent are quite analogous to those of the head of a large department store in the United States. Whilst at first the methods of operating the agency were more or less crude, owing to the difficulty of obtaining employees with the proper training, and the further and more serious difficulty of purchasing the needed goods and supplies in the archipelago and the consequent necessity of ordering them from the United States and other countries-experience has, in my judgment, demonstrated the value of this agency and vindicated its creation.

The total sales of the office for the fiscal year 1902 amounted to P1,970,549.78, and for the fiscal year 1903 to P3,134,141.98, an increase of 59.5 per cent. For the fiscal year 1904 the sales amounted to P5,309,474.37, an increase over 1903 of 69.41 per cent. The Commission has been compelled to make very considerable appropriations from time to time as a working capital for this institution. As

the salaries and wages of the officers and employees of the bureau are paid out of general appropriations and the 10 per cent charged above the cost of goods and supplies is more than sufficient to meet the expenses incident to delivery to purchasers, a considerable sum is being realized in the way of profits from this source. The financial condition of the insular purchasing agent is shown by the following statements:

Additional accounts payable, unsettled claims, etc., not audited (estimated)

Total

Surplus

579, 725. 04

151, 023. 85

212, 225. 66

23, 233. 92

11, 389. 55

2, 610, 773. 69

1, 500, 000. 00 709, 293. 25 110, 963. 45

100, 000. 00

2, 420, 255. 70 190, 516.99

Its actual as distinguished from its nominal assets, however, will be considerably reduced by the deterioration or loss in the stock of merchandise on hand and by a number of suspended debts from provinces and municipalities. These suspended debts are for goods purchased upon proper certificate of provincial and municipal officials that the money to pay therefor was on hand and available at the time of making the order, but in many instances before delivery of the goods the money had been appropriated to other purposes and there was not sufficient funds on hand to pay the insular purchasing agent when the bills were sent in. This defect in the original act creating the office of the insular purchasing agent was remedied by Act No. 820, which requires, in effect, not only a certificate that the money is on hand, but that it shall be set aside in the treasury of the province or municipality for the specific purpose of paying for the goods when received.

Several of the poorer provinces and municipalities are now found to be in arrears on this account, and some time must elapse before they will be in funds to pay these obligations, and in a few instances, where provinces are being aided by the central government, it may be necessary to charge them off altogether. The propriety of the insular purchasing agent keeping on hand so large a stock of goods as he

does may well be open to question, not only because of the large amount of money tied up for a considerable period of time thereby, but also because of the deterioration of all kinds of merchandise, unless very carefully looked after, especially in this climate. Still it is obvious that there must always be kept in stock a considerable supply of goods to meet legitimate demands with reasonable promptitude and to prevent grave inconvenience to the various branches of the government because of failure to obtain supplies when and as needed, which would in many instances have the effect of seriously crippling their operations. It is believed, however, that with the increase in the size and variety of the stocks of goods kept by Manila merchants in their stores the insular purchasing agent may gradually reduce his stock of merchandise, as he can then readily obtain necessary articles from private sources when needed.

In order to induce merchants in the archipelago to increase their stocks, something over a year ago a conference was held by the civil governor with the leading merchants of Manila, and it was agreed that the insular purchasing agent should, as far as practicable, buy all supplies purchased by him in Manila, and that the merchants should sell supplies at a profit of 10 per cent above the cost of importation, this to include freight, insurance, lighterage, etc. Theretofore a very large proportion of the goods purchased by the insular purchasing agent had been bought in the United States through the Bureau of Insular Affairs of the War Department, an office and agency for that purpose having been established in New York City. This was a source of frequent and bitter complaints on the part of Manila merchants, who insisted, with considerable show of reason it seemed, that as they were residents and taxpayers of the islands, from whom the government drew a large portion of its revenues, it ought not to expend the very revenues thus derived from them in making purchases in the United States, and that if the government would give them the benefit of its trade they would be enabled to carry much larger and more varied stocks of goods. Aside from this consideration, it was believed that trading wherever possible with Manila merchants would have a tendency, by increasing the volume of their business, to create an active competition among them and thereby lower prices generally to all their customers and, as a consequence, to add to the general prosperity of the country. It was further considered that the increased cost of not exceeding 10 per cent would be, to a considerable extent, if not entirely, offset by the fact that deliveries of all goods purchased would be made in Manila instead of in New York or some foreign city, and that losses from breakage, from tardiness in delivery, and from other causes, and disputes relating thereto, would be eliminated. In consequence of

this agreement largely increased purchases were made during the fiscal year 1904 from local merchants, naturally to their satisfaction, and, it may be added, to the equal dissatisfaction of New York and other merchants who lost the sale of these goods.

The insular purchasing agent states in his annual report that the effect of this change of programme in the matter of purchasing goods has not been generally to increase the amount of stocks carried in Manila except in a few lines. He states that the bulk of all the contracts awarded were given to agents and brokers who carried no stocks or to the old English firms who are willing to do business on a smaller margin of profit than Americans can afford, as the latter as a rule have little capital and therefore have to make larger profit. He states that in his opinion there should be some discrimination in favor of merchants who actually carry stocks of goods as against agents and brokers in the matter of staple articles, because, as he says, the broker is satisfied with 5 per cent and in many cases 2 per cent profit, and can deliver as quickly as the regular merchant unless the article is in stock. He says also that when it is considered that the purchase of supplies by the bureau amounts to more than 4 million pesos per annum it can be seen at once that Manila merchants can not meet his various demands from stock on hand nor are they justified in very materially increasing their stocks if they must be forced into competition with brokers and agents. He points out further that the great need of the islands is reliable wholesale merchants with capital and stock sufficient to carry on a large business. Conceding the correctness of his statements, I am unable to concur in the soundness of his view that discrimination should be made in favor of merchants who have stocks of goods on hand. In the first place, such a course would inevitably cause criticism and charges of favoritism, and, besides, would increase the cost of goods to the government. It should not be overlooked, moreover, that the merchant with stock on hand and the broker are competitors, and that the policy suggested would have a tendency generally to raise the range of prices. It will be seen that it is not undesirable in the absence of, or, perhaps even with, large wholesale merchants on the ground to have a number of brokers representing wholesale merchants or manufacturers in the United States or elsewhere to compete for the business. Not only do they perform a most useful function, but also they are residents and taxpayers of the islands and swell the general volume of business. Moreover, the tendency of successful brokers is gradually to keep certain lines of goods on hand. The insular purchasing agent must necessarily for a long time to come buy large quantities of goods in the United States which can not be obtained here. During the year 1904 his purchases in the United States amounted to $931,250.36.