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the steamship company and the railroad. His report is at the service of the committee, and probably, although long, ought to be embraced in your record. I hand it herewith to your secretary.

Some suggestion has been made that the question of the effect upon the cost of transportation over the eastern and the western seaboard by transcontinental lines plays a part in our rates on the Isthmus. I beg to say that this is altogether contrary to the fact so far as the Commission, the Panama Railroad Company, and the Administration are concerned. The intimation is that we have drawn our executive officers, Mr. Shonts, Mr. Stevens, Mr. Ross, and Mr. Benson from railroads, and that some of them have been connected with the transcontinental railroads. We did not consider when they were appointed what roads they had been connected with. What we were anxious to do was to secure the best men, and while doubtless they were loyal to the roads they left while they were in their service, there is not the slightest reason to suspect that any one of them has any bias whatever which would lead him in his official capacity to oppose any traffic policy of the Panama Railroad Company which might affect injuriously in a competitive way transcontinental lines. I am informed-I do not know how correctly—that the rates to San Francisco via the Isthmus are now about 30 per cent less than the transcontinental rates. If we find that we can, without running the railroad and the steamship lines at a loss, reduce these rates, we shall do so.

I hope that nothing will be done to merge the corporate entity of the railroad company into that of the Government or the Commission. Under the present arrangement, it is just as easy to have close supervision over the management of the railroad as if it were nominally operated by the Commission, and the corporate form secures the utmost convenience and elasticity of control.

Senator MORGAN. Right there I would like to ask you a question. Have you ever considered the question whether the Hay-Varilla treaty does not repeal and abolish that corporation?

Secretary Taft. No, sir; I do not think it does. That question never occurred to me, Senator.

Senator MORGAN. It is a very formidable question, in my judgment, and my opinion is a fixed one, that that treaty has repealed that charter, necessarily. Whenever we acquired all the property of every kind and character belonging to this defunct corporation, it disappeared, under the supremacy of the treaty, which is the supreme law of the land.

Secretary Taft. Well, I should regard that as a very unfavorable result, if that is the case. I think it ought to be sustained if it can be.

Senator MORGAN. I think it is the reverse; that it is the most favorable result.

Secretary Taft. I am sorry

Senator MORGAN. We would not get rid of any of our obligations. Our duties are the same toward it, morally and perhaps legally. But, at all events, I can not conceive that that company could sue any agent of the United States Government for anything whatever or could sue anybody else for anything that was done by permission of the canal authorities in the Zone. I think it would go out of court at once, for the reason that its charter is absolutely exterminated by the act of ratification of the Hay-Varilla treaty. beg pardon for disturbing you.

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Secretary Tart. I would be glad to come back to a discussion of that, Senator, later on.

Senator MORGAN. It is a very important question, you see.

I am in receipt of a letter from Senator Allison suggesting the wisdom of the purchase by the Government of the bonds owed by the Panama Railroad Company, which are a lien on the company's property, and the interest on which constitutes a fixed charge, on the ground that it would be a saving of interest for the Government to redeem them now. The interest is 44 per cent on the mortgage bonds. The following is a table of the fixed charges of the company:

The company's fixed charges at the present time are $501,290 per annum made up as follows: Interest on $2,251,000 first mortgage 4) per cent bonds outstanding . $101, 290 Sinking fund requirement of first mortgage bonds

150,000 Annual rental or subsidy to Republic of Colombia under contract

of concession and represented by annual drawings of subsidy bonds and payment of interest

$225,000 Annual rental or subsidy to the United States as successor to Republic of Panama under the treaty.

25, 000


501, 290

Senator KITTREDGE. You mean to the Republic of Panama instead of to the United States, do you not, Mr. Secretary?

Secretary Tart. No; that $25,000 was paid to the United States. These fixed charges will be reduced each year to the extent of the amount of interest on the number of outstanding 45 per cent first mortgage bonds that are annually purchased by the trustees or drawn for redemption by the regular sinking fund appropriation of $150,000; the maximum annual reduction would be $6,345, i.e., interest of $45 each on 141 bonds.

This statement needs a little explanation. In the 41 per cent mortgage there is a provision requiring the redemption of about $150,000 of bonds a year, constituting in effect a compulsory sinking fund provision. There is in the mortgage provision a right to take up any of the bonds or all of them on the first of any April or October upon three months' notice at a premium of 5 per cent. I believe it would be wise and profitable to take up the outstanding bonds at this premium, and I recommend to this committee and the Appropriations Committee that it be done.

With respect to the subsidy it should be explained that under the original concession to the Panama railroad it agreed to pay an annual rental charge for the franchise and privileges conferred on it by the Colombian Government of $250,000 a year. Twenty-five thousand dollars of this per year was assigned to the Department of Panama. Two hundred and twenty-five thousand dollars was reserved to the Government of Colombia, and the Government of Colombia desiring to realize in advance upon this subsidy induced the railroad company to issue what were called subsidy bonds, paying 6 per cent interest, which were so arranged that the amount of interest paid on them, together with the principal, would be equal to the payment of the subsidy down to 1908, and would effect the cancellation of a certain number of bonds a year, to be drawn by lot, so that all of the bonds would be canceled by 1908.

When this is done the subsidy under the agreement with Panama will become due to the United States, as indeed the $25,000 a year

which was assigned to the Department of Panama has already become due to the United States and has been paid over. After 1908, therefore, the whole subsidy will be due to the United States. I am not sure that the subsidy bonds could be purchased. Possibly they could be, but they are not many in number now, and as they are to be retired at any rate in 1908 it is perhaps not worth while to attempt to purchase them. The amount of these bonds outstanding is $533,000.

Senator HOPKINS. You say that $25,000 has inured' to the United States. By what process?

Secretary Taft. It just goes into the Treasury of the United Statesincreases the miscellaneous receipts.

Senator HOPKINS. Yes; I know. But under what theory of law does it


there? Secretary TAFT. Under the Hay-Varilla treaty. Senator HOPKINS. Oh, yes.

Secretary Taft. Upon coming into relation with Panama Canal matters I found Mr. Cromwell acting as general counsel and director of the Panama Railroad Company. He was also counsel for the Republic of Panama and for its resident minister in Washington. In the discharge of his duties as counsel for the railroad company he brought to the service of the company, and therefore to the Government, an immense fund of valuable information with respect to the history of the railroad and affairs on the Isthmus of Panama. He was a lawyer of great experience and ability, and I considered it my duty to secure the benefit of his services for the United States by continuing him in his position as counsel for the railroad company. As counsel for the Republic of Panama he rendered much service in bringing about both the currency agreement of June 20, 1904, and the modus vivendi of December, 1904. As counsel for the railroad company and at my direct instance he was able to effect a union between all the bankers of any importance on the Isthmus in making the bankers' agreement of April 29, 1905, which worked so well for the benefit of every body concerned, except possibly the bank

As counsel for the railroad company he was the chief instrument by which I was able to purchase on behalf of the Government all the shares of the capital stock of the Panama Railroad Company outstanding. I conferred with him in respect to the form of the order of April 1 reorganizing the old Commission. His intense interest in the success of the Panama Canal has been evident at every point; and he has rendered most loyal, efficient, and valuable service for the comparatively meager compensation which he receives as general counsel for the railroad company.

The impression sought to be given that he has attempted to inter'fere in canal matters or to exercise great influence in controlling the policies to be pursued is wholly unfounded. So far as I have asked his assistance, he has sought to find out what the Government policy was and loyally to carry it out. If Mr. Shonts or Mr. Stevens or Judge Magoon were interrogated as to whether Mr. Cromwell had interfered in any way with their work or had of his own motion volunteered to do anything except what has been his legitimate duty as counsel for the railroad company, the answer would be an emphatic negative. I never have had the slightest reason to suspect any other motive on his part than a loyal desire to help along the construction of the canal, and I am glad to express in this public way my gratitude for his valuable and patriotic service.


Senator MORGAN. I wish to ask you a question there: Against whom do you intend to aim this eulogy upon Mr. Cromwell? Is it against the men who have testified here or against the Senator who has asked questions about it?

Secretary TAFT. I intend, sir, to deal with all the issues which have come before this committee, and I considered, both because of the character of the questions and the character of the answers by Mr. Wallace and others, that it was necessary for me to go into this question.

Senator MORGAN. Well, then, you bring him forward as a subject of investigation.

Secretary Taft. I have not brought him forward as a subject of investigation, sir.

Senator MORGAN. But you do now?

Secretary Tart. He has been brought forward, and I am simply dealing with that subject as I am dealing with others.

Senator MORGAN. You bring him forward now as a subject of investigation

Secretary TAFT. I do not bring him forward.

Senator MORGAN (continuing). In these remarks that you are now making about him?

Secretary TAFT. No, sir; I am simply covering the subjects which were discussed before.

Senator MORGAN. Then you are answering what has been stated by witnesses and by Senators here!

Secretary Taft. Yes, sir.
Senator MORGAN. In regard to Mr. Cromwell?
Secretary TAFT. Yes, sir.

Senator MORGAN. And in answering those matters you are testifying in his behalf as an officer of the Government?

Secretary Taft. I am.
Senator MORGAN. Yes. Now, is he an officer of the Government?
Secretary Taft. He is counsel for the Railroad Company.

Senator MORGAN. Does that make him an officer of the Government of the United States?

Secretary Tatt. No, sir; but it brings him into such relation that, dealing with the property of the Government, he necessarily has relation to the Government of the United States.

Senator MORGAN. If he is not an officer of the Government, is he an agent of the Government?

Secretary TAFT. In some capacities he is; in some matters.
Senator MORGAN. In what capacities?

Secretary Tatt. He is the agent for the Government in everything connected with the Panama Railroad Company.

Senator Morgan. Everything?
Secretary TAFT. Yes, sir.

Senator MORGAN. Yes. Well, that, of course, under the action of the Senate, based upon the President's message, would make Mr. Cromwell's conduct a proper and legitimate subject of inquiry before this committee.

Secretary Tatt. That is a question for the committee to determine. Senator MORGAN. What do you think of it?

Secretary TAFT. It is not for me to express such an opinion. I am attempting to aid the committee upon questions which have been

mentioned before it, and I have assumed that the committee, by hearing those questions, considered that it is a subject for proper inquiry.

Senator MORGAN. I have supposed-as I am responsible for the examination to which you are now evidently referring-I have supposed that the action of every member of the board of directors of the Panama Railroad was open to inquiry.

Secretary Taft. I am not disputing that, Senator. It is not a question for me. It is a question for the committee and the Senate that has authorized the committee to act.

Senator MORGAN. You are not trying to forestall it, then, by eulogies on Cromwell ?

Secretary Taft. No, sir; I am not stating a eulogy. I am stating facts.

Senator MORGAN. Very good.

Senator HOPKINS. You are referring to instrumentalities that you have used in connection with this work?

Senator MORGAN. I would like to be interrupted in the regular way, if I am to be interrupted at all.

Senator HOPKINS. I am not interrupting you at all; I am speaking to the Secretary.

Senator MORGAN. You are interrupting me, though, in the questions that I am asking.

Senator HOPKINS. I did not interrupt your questioning. You were not asking any question at the time.

Senator MORGAN. I have no objection to interruptions, provided they are regular. Senator HOPKINS. I think I am quite as regular as you are, Senator.

Senator MORGAN. If you will allow me, Mr. Secretary, I have supposed that under the resolution we are acting under here the conduct of every man who was connected through an agency or an office with the work on the Isthmian Canal at Panama is not only open to inquiry, but that the President has demanded that it shall be made. Do you understand it the same way?

Secretary Taft. Well, in the presence of the committee, in reference to its own jurisdiction, I should hesitate to express an opinion. I have an opinion, and if the committee desires it I will express it, but I think if I am drawn into a discussion as to what the jurisdiction of this committee is, or what it ought to do in view of the policy of the Government, in view of the situation of affairs, it will put me in rather an embarrassing situation. That is all.

Senator MORGAN. You are at liberty, so far as I am concerned, to proceed to state anything that you want to.

The CHAIRMAN. Proceed, Mr. Secretary.

Secretary Taft. Suggestions have been made in this hearing of two motives which Mr. Cromwell has had. One is that he represents the new French Panama Canal Company in a claim against the United States for $2,000,000 or more for work which was done by the Panama Canal Company in the canal construction between 1902, in January, when the inventory was taken, and May, 1904, when the property was turned over to the United States, and the intimation is that he has sought to acquire influence over the Commission by making himself useful to them in order that he might obtain from them a decision in his favor with respect to that claim.

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