as I understand them to have been presented to the committee, and I should be glad to read that statement.

Senator MORGAN. That is outside of the type?

Secretary TAFT. Yes, sir. Then if the committee desires me at any other time to consider any of the issues more fully or to subject myself to examination at any time, I shall be glad to do so.

Senator MORGAN. That is all right.

The CHAIRMAN. I will say that it was expected that the officers of the railway would appear here Tuesday of last week, but for some reason they did not come, and they have been asked to come next week. After they are through, we will ask you to come before the committee again, Mr. Secretary.

Secretary TAFT. Yes, sir.

The CHAIRMAN. I think we are ready, now, for you to proceed.

Secretary TAFT. Gentlemen of the committee, the transactions of the Government in respect to the Panama Canal, with which, either by reason of personal participation or by reason of examination of reports made to me, I am familiar, and with respect to which I infer that the committee desires my evidence, cover a period beginning May 9, 1904, and continuing down to the present date. In order that I may make my evidence with respect to them intelligible, it is necessary for me to refer to a great many documents, laws, orders, and correspondence. The different transactions to be touched upon are numerous. I shall have to test your patience by detail, and I fear that my statement will be quite long. I have written out my statement, and it is being printed, with exhibits.

I crave the indulgence of the committee, that I be not interrupted by questions until my statement is concluded; then I shall be glad to submit to the cross-examination of the committee upon every subject touched upon in the statement, or any other connected with the Panama Canal, or the Panama Railroad, in respect to which I can furnish the committee any information. I am quite sure that if the committee will postpone its questions, it will be found that the range of crossexamination will be much more limited than if questions are put in advance of my completed statement. This method will certainly, therefore, shorten the valuable time of the committee, of which I shall, in any event, have to consume more than I would wish.

TYPE OF CANAL AND NECESSITY FOR PROMPT DECISION.

In the first place, I shall not attempt to discuss at all the engineering and technical questions with reference to the type of the canal. I have expressed my opinion in a letter to the President in favor of a lock canal and strongly adhere to it. This committee has had before it able engineers on both sides of the question, and has had full expla nations made to it thereon.

With respect to the type of the canal I can only urge with great deference that it is of the highest importance that the question be decided with as much promptness as the subject will permit. Senator MORGAN. May I venture to ask you, just there, whether that ought not to be settled in a separate bill, disconnected from every other consideration?

Secretary TAFT. Yes, sir; I think so.

The present law-the Spooner Act, so called-certainly intended to provide for the construction of a lock canal. The extent of the financial provision made in the act, when compared with the recommendations of the first Walker Commission, leave no doubt that the intention of Congress was to appropriate money for a canal at a 90-foot level, with the necessary locks. If Congress decides to reverse this policy and votes in favor of a sea-level canal, then the President is anxious to know it as soon as possible and to begin the work at once.

If Congress decides in favor of a lock canal, or if it chooses not to make any decision at all and is willing to leave the situation as it is upon the law as it is, the President will not hesitate to adopt the plan recommended by the minority, with some possible modifications, and proceed to the speedy construction of the great waterway at an 85-foot level. I am advised from the Isthmus that Mr. Stevens's work has so far progressed that he will soon be in a position where he must delay all work, or substantially all, until the decision is reached. I have been advised by Mr. Tawney that the time is near at hand when we must be ready with our estimates for the money needed in the construction of the canal for the year ending June 30, 1907. They must be included in the sundry civil bill. Mr. Shonts and Mr. Stevens think that the character of the estimates will materially differ as the type of canal fixed upon is lock or sea-level.

I am quite aware of the gravity of the question and of the serious character of a mistake, if mistake it be, in the recommendation of the minority of the consulting board as to the Gatun dam, and while I do not share, I sympathize with the anxiety which must affect any member of this committee if he has real doubt in regard to the stability of the structure which is the distinguishing and indispensable feature of that plan. But however great the responsibility it must be met, and I submit with great respect that it must be promptly met, in order that there shall be no unnecessary delay in pushing the work.

SUBJECTS TO BE DISCUSSED.

The subjects which I shall discuss are:

First. The government of the Zone; its judicial system, and what is needed in the way of additional legislation by Congress.

Second. The Hay-Varilla treaty and the political relations between the United States and the Republic of Panama, and the necessity and reasons for the issuing of the Executive order of December 3, with its modifications, as a modus vivendi.

Third. The Executive order or modus vivendi of December 3, 1904; the reasons for its necessity and adoption.

Fourth. The currency agreement of June 20, 1904, and the bankers' agreement of April 9, 1905; the necessity for them; their effect, and the proper course to be taken with respect to the future financial operations of the Government on the Isthmus.

Fifth. Authority of the President, acting through the Commission or other agent, to make temporary arrangements with the Republic of Panama.

Sixth. The old Commission; its work, and the reasons for its retirement; the reorganization; the new Commission and its work.

Seventh. The Panama Railroad; its condition at the time of the transfer; the acquisition of the outstanding shares of stock by the

Government in the spring of 1905; the question of the continuance of the steamship line; the question of rates; the congestion of traffic, and the Pacific Mail.

Eighth. The relations of William Nelson Cromwell to the Government's construction of the canal and the assistance which he has rendered.

Ninth. The circumstances leading to the severance of Mr. Wallace from the canal enterprise.

Tenth. The Markel contract.

Eleventh. The revocable license to the Union Oil Company for the construction of a pipe line from Panama to Colon.

Twelfth. The question of labor.

Thirteenth. Shall the canal be built by contract?

CHRONOLOGY.

With the permission of the committee I shall take the foregoing subjects up in their order, but before doing so it would be of assistance, I think, to give a short chronology of the events which are met in the consideration of the subjects above outlined for consideration.

June 28, 1902.-The Spooner Act, providing for the construction of the canal, was approved. Appended hereto for convenience, and marked "Exhibit I."

February 26, 1904.-Ratifications of the Hay-Varilla treaty were exchanged at Washington and the treaty took effect. Appended hereto and marked "Exhibit 2."

March 3, 1904.-The President appointed and the Senate confirmed the seven members of the Isthmian Canal Commission under the Spooner Act, with Admiral Walker as chairman. The Commission immediately organized.

April 28, 1904.-Congress by law directed the President to take possession of the zone of land, the control of which was ceded, under the Hay-Varilla treaty, to the United States, and directed that until the expiration of the Fifty-eighth Congresss, i. e., March 4, 1905, the government of the Zone and the exercise of the powers under the Hay-Varilla treaty should be vested in the persons and exercised in the manner which the President should direct. April 28, 1904.-The Fifty-eighth Congress adjourned its first session. May 4, 1904.-The tangible property of the French Panama Canal Company on the Isthmus was transferred to the United States and possession given.

May 7, 1904.-The French Panama Canal Company assigned to Messrs. Day and Russell, agents of the United States in Paris, 68,887 shares of the stock of the Panama Railroad Company out of a total of 70,000 shares. May 9, 1904.-The President, exercising the powers conferred upon him by the act of April 28, 1904, directed that the Isthmian Canal Commission should constitute the legislature of the Zone, and Governor Davis should be its executive, and that all of the powers exercised by the Commission under either the Spooner Act or the act for the government of the Zone should be exercised under the supervision and direction of the Secretary of War.

May 17, 1904.-Governor Davis arrived on the Isthmus and began his duties as governor, and for a time took general charge of the engineering work and the canal properties.

May 18, 1904.-Messrs. Day and Russell assigned the 68,888 shares of the railroad stock to the Secretary of War. June 14, 1904.-John F. Wallace was appointed chief engineer, the appointment taking effect on June 1. He arrived on the Isthmus the 29th of June, and entered on his duties the 1st of July. June 20, 1904.--The currency agreement between the Isthmian Canal Commission, represented by the chairman, and the Secretary of War, and the fiscal commissioners of the Republic of Panama, was made. June 22, 1904.-General Davis, as governor, concluded with the Panama authorities a provisional agreement delimiting the Zone and determining the boundaries of Colon and Panama carved out of the Zone by the Hay-Varilla treaty. The towns of Colon and Panama until then had never had defined boundaries.

June 24, 1904.-An Executive order was issued putting into force on the Isthmus the Dingley tariff act, the effect of which was to make the Zone for tariff purposes a part of the United States and to exclude it from the Republic of Panama by a tariff wall. July 14, 1904.-Commissioners Walker, Burr, and Grunsky were made directors of the Panama Railroad Company; Commissioner Parsons was made a director September 15, and Commissioners Davis, Harrod, and Hecker were made directors on October 27. August 3, 1904.-The Commission reached the Isthmus and held daily sessions until September 7, when it returned to the United States. During this period it considered and adopted a great many important laws.

September 14, 1904.-Chief Engineer Wallace left the Isthmus for the United States, returning to Isthmus November 16.

November 17, 1904.-The Secretary of War left for Panama, arriving on the Isthmus November 27, and returning thence December 7, arrived in Washington December 14.

December 3, 1904.-The Executive order to establish a modus vivendi under the Spooner Act and the Hay-Varilla treaty with the authorities of Panama was issued. Subsequent slight modifications were made in December and January following, including a revocation of the order of June 24 (Dingley Act order). March 4, 1905.-The Fifty-eighth Congress expired, and the legislative power of the Commission over the Zone, by the terms of the act of April 28, 1904, ceased.

That should be, strictly speaking, the power of the President to give legislative power.

Senator KNOX. Read that again, will you please?

Secretary TAFT (reading): "March 4, 1905.-The Fifty-eighth Congress expired, and the legislative power of the Commission over the Zone, by the terms of the act of April 28, 1904, ceased."

The act of April 28, 1904, provided, as the Louisiana act originally did, in 1903, that the district should be governed by the President, or by persons designated by the President, and the manner in which he should designate them.

Senator KNOX. How has it been governed since?

Secretary TAFT. I am coming to that.

Senator KNOX. Very well. Go ahead.

Secretary TAFT. March 29, 1905.-The resignations of the old Commission were requested and accepted.

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March 29, 1905.-Mr. Wallace left the Isthmus, summoned to Washington to take part in the reorganization of the new Commission and to confer.

April 1, 1905. The new Commission was appointed and an order issued defining the organization.

April 15, 1905.-The annual meeting of the stockholders of the Panama Railroad Company was held and the Government first elected the full directory and a new set of officers, with Mr. Shonts as president and Mr. Wallace as vice-president and general manager. May 6, 1905.-General Davis was ordered home from the Isthmus, ill. May 16, 1905.-Mr. Wallace and Governor Magoon, under the new organization, sailed for the Isthmus; arrived on the Isthmus May 24.

June 5, 1905.-Mr. Wallace applied for and was granted leave to return for a conference as to his relations as chief engineer of Commission. June 22, 1905.-Mr. Wallace arrived at New York.

June 25, 1905.-Mr. Wallace and the Secretary of War had an interview at the Manhattan Hotel, in which Mr. Wallace's resignation was requested.

June 29, 1905.-The account of the interview between Mr. Wallace and the Secretary of War was published.

June 30, 1905.-Mr. Stevens was appointed chief engineer of the

canal.

June 30, 1905.-The Secretary of War left for the Philippines.

July 26, 1905.-Mr. Shonts, the chairman of the Commission, and Mr. Stevens, the chief engineer, reached the Isthmus.

September 1, 1905.-The Consulting Board of Engineers met and continued in sessions until December.

October 2, 1905.-The Secretary of War reached Washington from the Philippines.

October 27, 1905.-The Secretary of War left Washington for Panama, arriving at Colon November 2, and returning thence November 7, reached Washington November 15.

February 19, 1906.-The reports of the consulting engineers and of the Canal Commission on the type of the canal were submitted to Congress by the President.

THE GOVERNMENT OF THE ZONE, ITS JUDICIAL SYSTEM, AND WHAT IS NEEDED IN THE WAY OF ADDITIONAL LEGISLATION BY CONGRESS.

Under the painstaking and efficient administration of General Davis, together with the very satisfactory laws which were enacted by the Walker Commission, with the assistance and on the recommendation of their general counsel, Judge Magoon, the government of the Zone has been in every way satisfactory. Although the population has grown from two or three thousand people to 30,000, the public order maintained has been excellent, taxes have been collected honestly and honestly expended, schools have been established and are being established as rapidly as conditions permit.

Under the order of the President of May 9, 1904, power was given to exclude undesirable characters coming into the Zone from its territory, and this has been exercised, in cases of extradition of fugitives