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President[ William H. Taft

         Date[ December 5, 1911

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This message is the first of several which I shall send to Congress during

the interval between the opening of its regular session and its adjournment

for the Christmas holidays. The amount of information to be communicated as

to the operations of the Government, the number of important subjects

calling for comment by the Executive, and the transmission to Congress of

exhaustive reports of special commissions, make it impossible to include in

one message of a reasonable length a discussion of the topics that ought to

be brought to the attention of the National Legislature at its first

regular session.

THE ANTI-TRUST LAW-THE SUPREME COURT DECISIONS.

In May last the Supreme Court handed down decisions in the suits in equity

brought by the United States to enjoin the further maintenance of the

Standard Oil Trust and of the American Tobacco Trust, and to secure their

dissolution. The decisions are epoch-making and serve to advise the

business world authoritatively of the scope and operation of the anti-trust

act of 1890. The decisions do not depart in any substantial way from the

previous decisions of the court in construing and applying this important

statute, but they clarify those decisions by further defining the already

admitted exceptions to the literal construction of the act. By the decrees,

they furnish a useful precedent as to the proper method of dealing with the

capital and property of illegal trusts. These decisions suggest the need

and wisdom of additional or supplemental legislation to make it easier for

the entire business community to square with the rule of action and

legality thus finally established and to preserve the benefit, freedom, and

spur of reasonable competition without loss of real efficiency or

progress.

NO CHANGE IN THE RULE OF DECISION-MERELY IN ITS FORM OF EXPRESSION.

The statute in its first section declares to be illegal "every contract,

combination in the form of trust or otherwise, or conspiracy, in restraint

of trade or commerce among the several States or with foreign nations," and

in the second, declares guilty of a misdemeanor "every person who shall

monopolize or attempt to monopolize or combine or conspire with any other

person to monopolize any part of the trade or commerce of the several

States or with foreign nations."

In two early cases, where the statute was invoked to enjoin a

transportation rate agreement between interstate railroad companies, it was

held that it was no defense to show that the agreement as to rates

complained of was reasonable at common law, because it was said that the

statute was directed against all contracts and combinations in restraint of

trade whether reasonable at common law or not. It was plain from the

record, however, that the contracts complained of in those cases would not

have been deemed reasonable at common law. In subsequent cases the court

said that the statute should be given a reasonable construction and refused

to include within its inhibition, certain contractual restraints of trade

which it denominated as incidental or as indirect.

These cases of restraint of trade that the court excepted from the

operation of the statute were instances which, at common law, would have

been called reasonable. In the Standard Oil and Tobacco cases, therefore,

the court merely adopted the tests of the common law, and in defining

exceptions to the literal application of the statute, only substituted for

the test of being incidental or indirect, that of being reasonable, and

this, without varying in the slightest the actual scope and effect of the

statute. In other words, all the cases under the statute which have now

been decided would have been decided the same way if the court had

originally accepted in its construction the rule at common law.

It has been said that the court, by introducing into the construction of

the statute common-law distinctions, has emasculated it. This is obviously

untrue. By its judgment every contract and combination in restraint of

interstate trade made with the purpose or necessary effect of controlling

prices by stifling competition, or of establishing in whole or in part a

monopoly of such trade, is condemned by the statute. The most extreme

critics can not instance a case that ought to be condemned under the

statute which is not brought within its terms as thus construed.

The suggestion is also made that the Supreme Court by its decision in the

last two cases has committed to the court the undefined and unlimited

discretion to determine whether a case of restraint of trade is within the

terms of the statute. This is wholly untrue. A reasonable restraint of

trade at common law is well understood and is clearly defined. It does not

rest in the discretion of the court. It must be limited to accomplish the

purpose of a lawful main contract to which, in order that it shall be

enforceable at all, it must be incidental. If it exceed the needs of that

contract, it is void.

The test of reasonableness was never applied by the court at common law to

contracts or combinations or conspiracies in restraint of trade whose

purpose was or whose necessary effect would be to stifle competition, to

control prices, or establish monopolies. The courts never assumed power to

say that such contracts or combinations or conspiracies might be lawful if

the parties to them were only moderate in the use of the power thus secured

and did not exact from the public too great and exorbitant prices. It is

true that many theorists, and others engaged in business violating the

statute, have hoped that some such line could be drawn by courts; but no

court of authority has ever attempted it. Certainly there is nothing in the

decisions of the latest two cases from which such a dangerous theory of

judicial discretion in enforcing this statute can derive the slightest

sanction.

FORCE AND EFFECTIVENESS OF STATUTE A MATTER OF GROWTH.

We have been twenty-one years making this statute effective for the

purposes for which it was enacted. The Knight case was discouraging and

seemed to remit to the States the whole available power to attack and

suppress the evils of the trusts. Slowly, however, the error of that

judgment was corrected, and only in the last three or four years has the

heavy hand of the law been laid upon the great illegal combinations that

have exercised such an absolute dominion over many of our industries.

Criminal prosecutions have been brought and a number are pending, but

juries have felt averse to convicting for jail sentences, and judges have

been most reluctant to impose such sentences on men of respectable standing

in society whose offense has been regarded as merely statutory. Still, as

the offense becomes better understood and the committing of it partakes

more of studied and deliberate defiance of the law, we can be confident

that juries will convict individuals and that jail sentences will be

imposed.

THE REMEDY IN EQUITY BY DISSOLUTION.

In the Standard Oil case the Supreme and Circuit Courts found the

combination to be a monopoly of the interstate business of refining,

transporting, and marketing petroleum and its products, effected and

maintained through thirty-seven different corporations, the stock of which

was held by a New Jersey company. It in effect commanded the dissolution of

this combination, directed the transfer and pro rata distribution by the

New Jersey company of the stock held by it in the thirty-seven corporations

to and among its stockholders; and the corporations and individual

defendants were enjoined from conspiring or combining to restore such

monopoly; and all agreements between the subsidiary corporations tending to

produce or bring about further violations of the act were enjoined.

In the Tobacco case, the court found that the individual defendants,

twenty-nine in number, had been engaged in a successful effort to acquire

complete dominion over the manufacture, sale, and distribution of tobacco

in this country and abroad, and that this had been done by combinations

made with a purpose and effect to stifle competition, control prices, and

establish a monopoly, not only in the manufacture of tobacco, but also of

tin-foil and licorice used in its manufacture and of its products of

cigars, cigarettes, and snuffs. The tobacco suit presented a far more

complicated and difficult case than the Standard Oil suit for a decree

which would effectuate the will of the court and end the violation of the

statute. There was here no single holding company as in the case of the

Standard Oil Trust. The main company was the American Tobacco Company, a

manufacturing, selling, and holding company. The plan adopted to destroy

the combination and restore competition involved the redivision of the

capital and plants of the whole trust between some of the companies

constituting the trust and new companies organized for the purposes of the

decree and made parties to it, and numbering, new and old, fourteen.

SITUATION AFTER READJUSTMENT.

The American Tobacco Company (old), readjusted capital, $92, 000,000; the

Liggett & Meyers Tobacco Company (new), capital, $67,000,000; the P.

Lorillard Company (new), capital, $47,000,000; and the R. J. Reynolds

Tobacco Company (old), capital, $7,525,000, are chiefly engaged in the

manufacture and sale of chewing and smoking tobacco and cigars. The former

one tinfoil company is divided into two, one of $825,000 capital and the

other of $400,000. The one snuff company is divided into three companies,

one with a capital Of $15,000,000, another with a capital of $8,000,000,

and a third with a capital of $8,000,000. The licorice companies are two

one with a capital Of $5,758,300 and another with a capital of $200,000.

There is, also, the British-American Tobacco Company, a British

corporation, doing business abroad with a capital Of $26,000,000, the Porto

Rican Tobacco Company, with a capital of $1,800,000, and the corporation of

United Cigar Stores, with a capital of $9,000,000.

Under this arrangement, each of the different kinds of business will be

distributed between two or more companies with a division of the prominent

brands in the same tobacco products, so as to make competition not only

possible but necessary. Thus the smoking-tobacco business of the country is

divided so that the present independent companies have 21-39 per cent,

while the American Tobacco Company will have 33-08 per cent, the Liggett &

Meyers 20.05 per cent, the Lorillard Company 22.82 per cent, and the

Reynolds Company 2.66 per cent. The stock of the other thirteen companies,

both preferred and common, has been taken from the defendant American

Tobacco Company and has been distributed among its stockholders. All

covenants restricting competition have been declared null and further

performance of them has been enjoined. The preferred stock of the different

companies has now been given voting power which was denied it under the old

organization. The ratio of the preferred stock to the common was as 78 to

40. This constitutes a very decided change in the character of the

ownership and control of each company.

In the original suit there were twenty-nine defendants who were charged

with being the conspirators through whom the illegal combination acquired

and exercised its unlawful dominion. Under the decree these defendants.

will hold amounts of stock in the various distributee companies ranging

from 41 per cent as a maximum to 28.5 per cent as a minimum, except in the

case of one small company, the Porto Rican Tobacco Company, in which they

will hold 45 per cent. The twenty-nine individual defendants are enjoined

for three years from buying any stock except from each other, and the group

is thus prevented from extending its control during that period. All

parties to the suit, and the new companies who are made parties are

enjoined perpetually from in any way effecting any combination between any

of the companies in violation of the statute by way of resumption of the

old trust. Each of the fourteen companies is enjoined from acquiring stock

in any of the others. All these companies are enjoined from having common

directors or officers, or common buying or selling agents, or common

offices, or lending money to each other.

SIZE OF NEW COMPANIES.

Objection was made by certain independent tobacco companies that this

settlement was unjust because it left companies with very large capital in

active business, and that the settlement that would be effective to put all

on an equality would be a division of the capital and plant of the trust

into small fractions in amount more nearly equal to that of each of the

independent companies. This contention results from a misunderstanding of

the anti-trust law and its purpose. It is not intended thereby to prevent

the accumulation of large capital in business enterprises in which such a

combination can secure reduced cost of production, sale, and distribution.

It is directed against such an aggregation of capital only when its purpose

is that of stifling competition, enhancing or controlling prices, and

establishing a monopoly. If we shall have by the decree defeated these

purposes and restored competition between the large units into which the

capital and plant have been divided, we shall have accomplished the useful

purpose of the statute.

CONFISCATION NOT THE PURPOSE OF THE STATUTE.

It is not the purpose of the statute to confiscate the property and capital

of the offending trusts. Methods of punishment by fine or imprisonment of

the individual offenders, by fine of the corporation or by forfeiture of

its goods in transportation, are provided, but the proceeding in equity is

a specific remedy to stop the operation of the trust by injunction and

prevent the future use of the plant and capital in violation of the

statute.

EFFECTIVENESS OF DECREE.

I venture to say that not in the history of American law has a decree more

effective for such a purpose been entered by a court than that against the

Tobacco Trust. As Circuit judge Noyes said in his judgment approving the

decree:

"The extent to which it has been necessary to tear apart this combination

and force it into new forms with the attendant burdens ought to demonstrate

that the Federal anti-trust statute is a drastic statute which accomplishes

effective results; which so long as it stands on the statute books must be

obeyed, and which can not be disobeyed without incurring far-reaching

penalties. And, on the other hand, the successful reconstruction of this

organization should teach that the effect of enforcing this statute is not

to destroy, but to reconstruct; not to demolish, but to re-create in

accordance with the conditions which the Congress has declared shall exist

among the people of the United States."

COMMON STOCK OWNERSHIP.

It has been assumed that the present pro rata and common ownership in all

these companies by former stockholders of the trust would insure a

continuance of the same old single control of all the companies into which

the trust has by decree been disintegrated. This is erroneous and is based

upon the assumed inefficacy and innocuousness of judicial injunctions. The

companies are enjoined from cooperation or combination; they have different

managers, directors, purchasing and sales agents. If all or many of the

numerous stockholders, reaching into the thousands, attempt to secure

concerted action of the companies with a view to the control of the market,

their number is so large that such an attempt could not well be concealed,

and its prime movers and all its participants would be at once subject to

contempt proceedings and imprisonment of a summary character. The immediate

result of the present situation will necessarily be activity by all the

companies under different managers, and then competition must follow, or

there will be activity by one company and stagnation by another. Only a

short time will inevitably lead to a change in ownership of the stock, as

all opportunity for continued cooperation must disappear. Those critics who

speak of this disintegration in the trust as a mere change of garments have

not given consideration to the inevitable working of the decree and

understand little the personal danger of attempting to evade or set at

naught the solemn injunction of a court whose object is made plain by the

decree and whose inhibitions are set forth with a detail and

comprehensiveness.

VOLUNTARY REORGANIZATIONS OF OTHER TRUSTS AT HAND.

The effect of these two decisions has led to decrees dissolving the

combination of manufacturers of electric lamps, a southern wholesale

grocers' association, an interlocutory decree against the Powder Trust with

directions by the circuit court compelling dissolution, and other

combinations of a similar history are now negotiating with the Department

of justice looking to a disintegration by decree and reorganization in

accordance with law. It seems possible to bring about these reorganizations

without general business disturbance.

MOVEMENT FOR REPEAL OF THE ANTI-TRUST LAW.

But now that the anti-trust act is seen to be effective for the

accomplishment of the purpose of its enactment, we are met by a cry from

many different quarters for its repeal. It is said to be obstructive of

business progress to be an attempt to restore old-fashioned methods of

destructive competition between small units, and to make impossible those

useful combinations of capital and the reduction of the cost of production

that are essential to continued prosperity and normal growth.

In the recent decisions the Supreme Court makes clear that there is nothing

in the statute which condemns combinations of capital or mere bigness of

plant organized to secure economy in production and a reduction of its

cost. It is only when the purpose or necessary effect of the organization

and maintenance of the combination or the aggregation of immense size are

the stifling of competition, actual and potential, and the enhancing of

prices and establishing a monopoly, that the statute is violated. Mere size

is no sin against the law. The merging of two or more business plants

necessarily eliminates competition between the units thus combined, but

this elimination is in contravention of the statute only when the

combination is made for purpose of ending this particular competition in

order to secure control of, and enhance, prices and create a monopoly.

LACK OF DEFINITENESS IN THE STATUTE.

The complaint is made of the statute that it is not sufficiently definite

in its description of that which is forbidden, to enable business men to

avoid its violation. The suggestion is, that we may have a combination of

two corporations, which may run on for years, and that subsequently the

Attorney General may conclude that it was a violation of the statute, and

that which was supposed by the combiners to be innocent then turns out to

be a combination in violation of the statute. The answer to this

hypothetical case is that when men attempt to amass such stupendous capital

as will enable them to suppress competition, control prices and establish a

monopoly, they know the purpose of their acts. Men do not do such a thing

without having it clearly in mind. If what they do is merely for the

purpose of reducing the cost of production, without the thought of

suppressing competition by use of the bigness of the plant they are

creating, then they can not be convicted at the time the union is made, nor

can they be convicted later, unless it happen that later on they conclude

to suppress competition and take the usual methods for doing so, and thus

establish for themselves a monopoly. They can, in such a case, hardly

complain if the motive which subsequently is disclosed is attributed by the

court to the original combination.

NEW REMEDIES SUGGESTED.

Much is said of the repeal of this statute and of constructive legislation

intended to accomplish the purpose and blaze a clear path for honest

merchants and business men to follow. It may be that such a plan will be

evolved, but I submit that the discussions which have been brought out in

recent days by the fear of the continued execution of the anti-trust law

have produced nothing but glittering generalities and have offered no line

of distinction or rule of action as definite and as clear as that which the

Supreme Court itself lays down in enforcing the statute.

SUPPLEMENTAL LEGISLATION NEEDED--NOT REPEAL OR AMENDMENT.

I see no objection-and indeed I can see decided advantages-in the enactment

of a law which shall describe and denounce methods of competition which are

unfair and are badges of the unlawful purpose denounced in the anti-trust

law. The attempt and purpose to suppress a competitor by underselling him

at a price so unprofitable as to drive him out of business, or the making

of exclusive contracts with customers under which they are required to give

up association with other manufacturers, and numerous kindred methods for

stifling competition and effecting monopoly, should be described with

sufficient accuracy in a criminal statute on the one hand to enable the

Government to shorten its task by prosecuting single misdemeanors instead

of an entire conspiracy, and, on the other hand, to serve the purpose of

pointing out more in detail to the business community what must be

avoided.

FEDERAL INCORPORATION RECOMMENDED.

In a special message to Congress on January 7, 1910, I ventured to point

out the disturbance to business that would probably attend the dissolution

of these offending trusts. I said:

"But such an investigation and possible prosecution of corporations whose

prosperity or destruction affects the comfort not only of stockholders but

of millions of wage earners, employees, and associated tradesmen must

necessarily tend to disturb the confidence of the business community, to

dry up the now flowing sources of capital from its places of hoarding, and

produce a halt in our present prosperity that will cause suffering and

strained circumstances among the innocent many for the faults of the guilty

few. The question which I wish in this message to bring clearly to the

consideration and discussion of Congress is whether, in order to avoid such

a possible business danger, something can not be done by which these

business combinations may be offered a means, without great financial

disturbance, of changing the character, organization, and extent of their

business into one within the lines of the law under Federal control and

supervision, securing compliance with the anti-trust statute.

"Generally, in the industrial combinations called 'trusts,' the principal

business is the sale of goods in many States and in foreign markets; in

other words, the interstate and foreign business far exceeds the business

done in any one State. This fact will justify the Federal Government in

granting a Federal charter to such a combination to make and sell in

interstate and foreign commerce the products of useful manufacture under

such limitations as will secure a compliance with the anti-trust law. It is

possible so to frame a statute that while it offers protection to a Federal

company against harmful, vexatious, and unnecessary invasion by the States,

it shall subject it to reasonable taxation and control by the States with

respect to its purely local business. * * *

"Corporations organized under this act should be prohibited from acquiring

and holding stock in other corporations (except for special reasons, upon

approval by the proper Federal authority), thus avoiding the creation under

national auspices of the holding company with subordinate corporations in

different States, which has been such an effective agency in the creation

of the great trusts and monopolies.

"If the prohibition of the anti-trust act against combinations in restraint

of trade is to be effectively enforced, it is essential that the National

Government shall provide for the creation of national corporations to carry

on a legitimate business throughout the United States. The conflicting laws

of the different States of the Union with respect to foreign corporations

make it difficult, if not impossible, for one corporation to comply with

their requirements so as to carry on business in a number of different

States."

I renew the recommendation of the enactment of a general law providing for

the voluntary formation of corporations to engage in trade and commerce

among the States and with foreign nations. Every argument which was then

advanced for such a law, and every explanation which was at that time

offered to possible objections, have been confirmed by our experience since

the enforcement of the antitrust, statute has resulted in the actual

dissolution of active commercial organizations.

It is even more manifest now than it was then that the denunciation of

conspiracies in restraint of trade should not and does not mean the denial

of organizations large enough to be intrusted with our interstate and

foreign trade. It has been made more clear now than it was then that a

purely negative statute like the anti-trust law may well be supplemented by

specific provisions for the building up and regulation of legitimate

national and foreign commerce.

GOVERNMENT ADMINISTRATIVE EXPERTS NEEDED TO AID COURTS IN TRUST

DISSOLUTIONS.

The drafting of the decrees in the dissolution of the present trusts, with

a view to their reorganization into legitimate corporations, has made it

especially apparent that the courts are not provided with the

administrative machinery to make the necessary inquiries preparatory to

reorganization, or to pursue such inquiries, and they should be empowered

to invoke the aid of the Bureau of Corporations in determining the suitable

reorganization of the disintegrated parts. The circuit court and the

Attorney General were greatly aided in framing the decree in the Tobacco

Trust dissolution by an expert from the Bureau of Corporations.

FEDERAL CORPORATION COMMISSION PROPOSED.

I do not set forth in detail the terms and sections of a statute which

might supply the constructive legislation permitting and aiding the

formation of combinations of capital into Federal corporations. They should

be subject to rigid rules as to their organization and procedure, including

effective publicity, and to the closest supervision as to the issue of

stock and bonds by an executive bureau or commission in the Department of

Commerce and Labor, to which in times of doubt they might well submit their

proposed plans for future business. It must be distinctly understood that

incorporation under Federal law could not exempt the company thus formed

and its incorporators and managers from prosecution under the anti-trust

law for subsequent illegal conduct, but the publicity of its procedure and

the opportunity for frequent consultation with the bureau or commission in

charge of the incorporation as to the legitimate purpose of its

transactions would offer it as great security against successful

prosecutions for violations of the law as would be practical or wise.

Such a bureau or commission might well be invested also with the duty

already referred to, of aiding courts in the dissolution and recreation of

trusts within the law. It should be an executive tribunal of the dignity

and power of the Comptroller of the Currency or the Interstate Commerce

Commission, which now exercise supervisory power over important classes of

corporations under Federal regulation.

The drafting of such a Federal incorporation law would offer ample

opportunity to prevent many manifest evils in corporate management to-day,

including irresponsibility of control in the hands of the few who are not

the real owners.

INCORPORATION VOLUNTARY.

I recommend that the Federal charters thus to be granted shall be

voluntary, at least until experience justifies mandatory provisions. The

benefit to be derived from the operation of great businesses under the

protection of such a charter would attract all who are anxious to keep

within the lines of the law. Other large combinations that fail to take

advantage of the Federal incorporation will not have a right to complain if

their failure is ascribed to unwillingness to submit their transactions to

the careful official scrutiny, competent supervision, and publicity

attendant upon the enjoyment of such a charter.

ONLY SUPPLEMENTAL LEGISLATION NEEDED.

The opportunity thus suggested for Federal incorporation, it seems tome, is

suitable constructive legislation needed to facilitate the squaring Of

great industrial enterprises to the rule of action laid down by the

anti-trust law. This statute as construed by the Supreme Court must

continue to be the line of distinction for legitimate business. It must be

enforced, unless we are to banish individualism from all business and

reduce it to one common system of regulation or control of prices like that

which now prevails with respect to public utilities, and which when applied

to all business would be a long step toward State socialism.

IMPORTANCE OF THE ANTI-TRUST ACT.

The anti-trust act is the expression of the effort of a freedom-loving

people to preserve equality of opportunity. It is the result of the

confident determination of such a people to maintain their future growth by

preserving uncontrolled and unrestricted the enterprise of the individual,

his industry, his ingenuity, his intelligence, and his independent

courage.

For twenty years or more this statute has been upon the statute book. All

knew its general purpose and approved. Many of its violators were cynical

over its assumed impotence. It seemed impossible of enforcement. Slowly the

mills of the courts ground, and only gradually did the majesty of the law

assert itself. Many of its statesmen-authors died before it became a living

force, and they and others saw the evil grow which they had hoped to

destroy. Now its efficacy is seen; now its power is heavy; now its object

is near achievement. Now we hear the call for its repeal on the plea that

it interferes with business prosperity, and we are advised in most general

terms, how by some other statute and in some other way the evil we are just

stamping out can be cured, if we only abandon this work of twenty years and

try another experiment for another term of years.

It is said that the act has not done good. Can this be said in the face of

the effect of the Northern Securities decree? That decree was in no way so

drastic or inhibitive in detail as either the Standard Oil decree or the

Tobacco decree; but did it not stop for all time the then powerful movement

toward the control of all the railroads of the country in a single hand?

Such a one-man power could not have been a healthful influence in the

Republic, even though exercised under the general supervision of an

interstate commission.

Do we desire to make such ruthless combinations and monopolies lawful? When

all energies are directed, not toward the reduction of the cost of

production for the public benefit by a healthful competition, but toward

new ways and means for making permanent in a few hands the absolute control

of the conditions and prices prevailing in the whole field of industry,

then individual enterprise and effort will be paralyzed and the spirit of

commercial freedom will be dead.

PART II.

The relations of the United States with other countries have continued

during the past twelve months upon a basis of the usual good will and

friendly intercourse. ARBITRATION.

The year just passed marks an important general movement on the part of the

Powers for broader arbitration. In the recognition of the manifold benefits

to mankind in the extension of the policy of the settlement of

international disputes by arbitration rather than by war, and in response

to a widespread demand for an advance in that direction on the part of the

people of the United States and of Great Britain and of France, new

arbitration treaties were negotiated last spring with Great Britain and

France, the terms of which were de signed, as expressed in the preamble of

these treaties, to extend the scope and obligations of the policy of

arbitration adopted in our present treaties with those Governments To pave

the way for this treat with the United States, Great Britain negotiated an

important modification in its alliance with Japan, and the French

Government also expedited the negotiations with signal good will. The new

treaties have been submitted to the Senate and are awaiting its advice and

consent to their ratification. All the essentials of these important

treaties have long been known, and it is my earnest hope that they will

receive prompt and favorable action.

CLAIM OF ALSOP & CO. SETTLED.

I am glad to report that on July 5 last the American claim of Alsop & Co.

against the Government of Chile was finally disposed of by the decision of

His Britannic Majesty George V, to whom, as amiable compositeur, the matter

had been referred for determination. His Majesty made an award of nearly

$1,000,000 to the claimants, which was promptly paid by Chile. The

settlement of this controversy has happily eliminated from the relations

between the Republic of Chile and the United States the only question which

for two decades had given the two foreign offices any serious concern and

makes possible the unobstructed development of the relations of friendship

which it has been the aim of this Government in every possible way to

further and cultivate.

ARBITRATIONS--PANAMA AND COSTA RICA--COLOMBIA AND HAITI.

In further illustration of the practical and beneficent application of the

principle of arbitration and the underlying broad spirit of conciliation, I

am happy to advert to the part of the United States in facilitating

amicable settlement of disputes which menaced the peace between Panama and

Costa Rica and between Haiti and the Dominican Republic.

Since the date of their independence, Colombia and Costa Rica had been

seeking a solution of a boundary dispute, which came as an heritage from

Colombia to the new Republic of Panama, upon its beginning life as an

independent nation. Although the disputants had submitted this question for

decision to the President of France under the terms of an arbitration

treaty, the exact interpretation of the provisions of the award rendered

had been a matter of serious disagreement between the two countries, both

contending for widely different lines even under the terms of the decision.

Subsequently and since 1903 this boundary question had been the subject of

fruitless diplomatic negotiations between the parties. In January, 1910, at

the request of both Governments the agents representing them met in

conference at the Department of State and subsequently concluded a protocol

submitting this long-pending controversy to the arbitral judgment of the

Chief justice of the United States, who consented to act in this capacity.

A boundary commission, according to the international agreement, has now

been appointed, and it is expected that the arguments will shortly proceed

and that this long-standing dispute will be honorably and satisfactorily

terminated.

Again, a few months ago it appeared that the Dominican Republic and Haiti

were about to enter upon hostilities because of complications growing out

of an acrimonious boundary dispute which the efforts of many years had

failed to solve. The Government of the United States, by a friendly

interposition of good offices, succeeded in prevailing upon the parties to

place their reliance upon some form of pacific settlement. Accordingly, on

the friendly suggestion of this Government, the two Governments empowered

commissioners to meet at Washington in conference at the State Department

in order to arrange the terms of submission to arbitration of the boundary

controversy.

CHAMIZAL ARBITRATION NOT SATISFACTORY.

Our arbitration of the Chamizal boundary question with Mexico was

unfortunately abortive, but with the earnest efforts on the part of both

Governments which its importance commands, it is felt that an early

practical adjustment should prove possible.

LATIN AMERICA. VENEZUELA.

During the past year the Republic of Venezuela celebrated the one hundredth

anniversary of its independence. The United States sent, in honor of this

event, a special embassy to Caracas, where the cordial reception and

generous hospitality shown it were most gratifying as a further proof of

the good relations and friendship existing between that country and the

United States. MEXICO.

The recent political events in Mexico received attention from this

Government because of the exceedingly delicate and difficult situation

created along our southern border and the necessity for taking measures

properly to safeguard American interests. The Government of the United

States, in its desire to secure a proper observance and enforcement of the

so-called neutrality statutes of the Federal Government, issued directions

to the appropriate officers to exercise a diligent and vigilant regard for

the requirements of such rules and laws. Although a condition of actual

armed conflict existed, there was no official recognition of belligerency

involving the technical neutrality obligations of international law.

On the 6th of March last, in the absence of the Secretary of State, I had a

personal interview with Mr. Wilson, the ambassador of the United States to

Mexico, in which he reported to me that the conditions in Mexico were much

more critical than the press dispatches disclosed; that President Diaz was

on a volcano of popular uprising; that the small outbreaks which had

occurred were only symptomatic of the whole condition; that a very large

per cent of the people were in sympathy with the insurrection; that a

general explosion was probable at any time, in which case he feared that

the 40,000 or more American residents in Mexico might be assailed, and that

the very large American investments might be injured or destroyed.

After a conference with the Secretary of War and the Secretary of the Navy,

I thought it wise to assemble an Army division of full strength at San

Antonio, Tex., a brigade of three regiments at Galveston, a brigade of

Infantry in the Los Angeles district of southern California, together with

a squadron of battleships and cruisers and transports at Galveston, and a

small squadron of ships at San Diego. At the same time, through our

representative at the City of Mexico, I expressed to President Diaz the

hope that no apprehensions might result from unfounded conjectures as to

these military maneuvers, and assured him that they had no significance

which should cause concern to his Government.

The mobilization was effected with great promptness, and on the 15th of

March, through the Secretary of War and the Secretary of the Navy, in a

letter addressed to the Chief of Staff, I issued the following

instructions: It seems my duty as Commander in Chief to place troops in

sufficient number where, if Congress shall direct that they enter Mexico to

save American lives and property, an effective movement may be promptly

made. Meantime, the movement of the troops to Texas and elsewhere near the

boundary, accompanied with sincere assurances of the utmost goodwill toward

the present Mexican Government and with larger and more frequent patrols

along the border to prevent insurrectionary expeditions from American soil,

will hold up the hands of the existing Government and will have a healthy

moral effect to prevent attacks upon Americans and their property in any

subsequent general internecine strife. Again, the sudden mobilization of a

division of troops has been a great test of our Army and full of useful

instruction, while the maneuvers that are thus made possible can occupy the

troops and their officers to great advantage.

The assumption by the press that I contemplate intervention on Mexican soil

to protect American lives or property is of course gratuitous, because I

seriously doubt whether I have such authority under any circumstances, and

if I had I would not exercise it without express congressional approval.

Indeed, as you know, I have already declined, without Mexican consent, to

order a troop of Cavalry to protect the breakwater we are constructing just

across the border in Mexico at the mouth of the Colorado River to save the

Imperial Valley, although the insurrectos had scattered the Mexican troops

and were taking our horses and supplies and frightening our workmen away.

My determined purpose, however, is to be in a position so that when danger

to American lives and property in Mexico threatens and the existing

Government is rendered helpless by the insurrection, I can promptly execute

congressional orders to protect them, with effect.

Meantime, I send you this letter, through the Secretary, to call your

attention to some things in connection with the presence of the division in

the Southwest which have doubtless occurred to you, but which I wish to

emphasize.

In the first place, I want to make the mobilization a first-class training

for the Army, and I wish you would give your time and that of the War

College to advising and carrying out maneuvers of a useful character, and

plan to continue to do this during the next three months. By that time we

may expect that either Ambassador Wilson's fears will have been realized

and chaos and its consequences have ensued, or that the present Government

of Mexico will have so readjusted matters as to secure tranquillity-a

result devoutly to be wished. The troops can then be returned to their

posts. I understood from you in Washington that Gen. Aleshire said that you

could probably meet all the additional expense of this whole movement out

of the present appropriations if the troops continue in Texas for three

months. I sincerely hope this is so. I observe from the newspapers that you

have no blank cartridges, but I presume that this is an error, or that it

will be easy to procure those for use as soon as your maneuvers begin.

Second. Texas is a State ordinarily peaceful, but you can not put 20,000

troops into it without running some risk of a collision between the people

of that State, and especially the Mexicans who live in Texas near the

border and who sympathize with the insurrectos, and the Federal soldiers.

For that reason I beg you to be as careful as you can to prevent friction

of any kind. We were able in Cuba, with the army of pacification there of

something more than 5,000 troops, to maintain them for a year without any

trouble, and I hope you can do the same thing in Texas. Please give your

attention to this, and advise all the officers in command of the necessity

for very great circumspection in this regard.

Third. One of the great troubles in the concentration of troops is the

danger of disease, and I suppose that you have adopted the most modern

methods for preventing and, if necessary, for stamping out epidemics. That

is so much a part of a campaign that it hardly seems necessary for me to

call attention to it.

Finally, I wish you to examine the question of the patrol of the border and

put as many troops on that work as is practicable, and more than are now

engaged in it, in order to prevent the use of our borderland for the

carrying out of the insurrection. I have given assurances to the Mexican

ambassador on this point.

I sincerely hope that this experience will always be remembered by the Army

and Navy as a useful means of education, and I should be greatly

disappointed if it resulted in any injury or disaster to our forces from

any cause. I have taken a good deal of responsibility in ordering this

mobilization, but I am ready to answer for it if only you and those under

you use the utmost care to avoid the difficulties which I have pointed

out.

You may have a copy of this letter made and left with Gen. Carter and such

other generals in command as you may think wise and necessary to guide them

in their course, but to be regarded as confidential. I am more than happy

to here record the fact that all apprehensions as to the effect of the

presence of so large a military force in Texas proved groundless; no

disturbances occurred; the conduct of the troops was exemplary and the

public reception and treatment of them was all that could have been

desired, and this notwithstanding the presence of a large number of Mexican

refugees in the border territory.

From time to time communications were received from Ambassador Wilson, who

had returned to Mexico, confirming the view that the massing of American

troops in the neighborhood had had good effect. By dispatch of April 3,

1911, the ambassador said: The continuing gravity of the situation here and

the chaos that would ensue should the constitutional authorities be

eventually overthrown, thus greatly increasing the danger to which American

lives and property are already subject, confirm the wisdom of the President

in taking those military precautions which, making every allowance for the

dignity and the sovereignty of a friendly state, are due to our nationals

abroad.

Charged as I am with the responsibility of safeguarding these lives and

property, I am bound to say to the department that our military

dispositions on the frontier have produced an effective impression on the

Mexican mind and may, at any moment, prove to be the only guaranties for

the safety of our nationals and their property. If it should eventuate that

conditions here require more active measures by the President and Congress,

sporadic attacks might be made upon the lives and property of our

nationals, but the ultimate result would be order and adequate protection.

The insurrection continued and resulted In engagements between the regular

Mexican troops and the insurgents, and this along the border, so that in

several instances bullets from the contending forces struck American

citizens engaged in their lawful occupations on American soil.

Proper protests were made against these invasions of American rights to the

Mexican authorities. On April 17, 1911, I received the following telegram

from the governor of Arizona: As a result of to-day's fighting across the

international line, but within gunshot range of the heart of Douglas, five

Americans wounded on this side of the line. Everything points to repetition

of these casualties on to-morrow, and while the Federals seem disposed to

keep their agreement not to fire into Douglas, the position of the

insurrectionists is such that when fighting occurs on the east and

southeast of the intrenchments people living in Douglas are put in danger

of their lives. In my judgment radical measures are needed to protect our

innocent people, and if anything can be done to stop the fighting at Agua

Prieta the situation calls for such action. It is impossible to safeguard

the people of Douglas unless the town be vacated. Can anything be done to

relieve situation, now acute? After a conference with the Secretary of

State, the following telegram was sent to Governor Sloan, on April IS, 1911

9 11, and made public: Your dispatch received. Have made urgent demand upon

Mexican Government to issue instructions to prevent firing across border by

Mexican federal troops, and am waiting reply. Meantime I have sent direct

warning to the Mexican and insurgent forces near Douglas. I infer from your

dispatch that both parties attempt to heed the warning, but that in the

strain and exigency of the contest wild bullets still find their way into

Douglas. The situation might justify me in ordering our troops to cross the

border and attempt to stop the fighting, or to fire upon both combatants

from the American side. But if I take this step, I must face the

possibility of resistance and greater bloodshed, and also the danger of

having our motives misconstrued and misrepresented, and of thus inflaming

Mexican popular indignation against many thousand Americans now in Mexico

and jeopardizing their lives and property. The pressure for general

intervention under such conditions it might not be practicable to resist.

It is impossible to foresee or reckon the consequences of such a course,

and we must use the greatest self-restraint to avoid it. Pending my urgent

representation to the Mexican Government, I can not therefore order the

troops at Douglas to cross the border, but I must ask you and the local

authorities, in case the same danger recurs, to direct the people of

Douglas to place themselves where bullets can not reach them and thus avoid

casualty. I am loath to endanger Americans in Mexico, where they are

necessarily exposed, by taking a radical step to prevent injury to

Americans on our side of the border who can avoid it by a temporary

inconvenience. I am glad to say that no further invasion of American rights

of any substantial character occurred.

The presence of a large military and naval force available for prompt

action, near the Mexican border, proved to be most fortunate under the

somewhat trying conditions presented by this invasion of American rights

Had no movement theretofore taken place, and because of these events it had

been necessary then to bring about the mobilization, it must have had

sinister significance. On the other hand, the presence of the troops before

and at the time of the unfortunate killing and wounding of American

citizens at Douglas, made clear that the restraint exercised by our

Government in regard to this Occurrence was not due to lack of force or

power to deal with it promptly and aggressively, but was due to a real

desire to use every means possible to avoid direct intervention in the

affairs of our neighbor whose friendship we valued and were most anxious to

retain.

The policy and action of this Government were based upon an earnest

friendliness for the Mexican people as a whole, and it is a matter of

gratification to note that this attitude of strict impartiality as to all

factions in Mexico and of sincere friendship for the neighboring nation,

without regard for party allegiance, has been generally recognized and has

resulted in an even closer and more sympathetic understanding between the

two Republics and a warmer regard one for the other. Action to suppress

violence and restore tranquillity throughout the Mexican Republic was of

peculiar interest to this Government, in that it concerned the safeguarding

of American life and property in that country. The Government of the United

States had occasion to accord permission for the passage of a body of

Mexican rurales through Douglas, Arizona, to Tia Juana, Mexico, for the

suppression of general lawlessness which had for some time existed in the

region of northern Lower California. On May 25, 1911, President Diaz

resigned, Senor de la Barra was chosen provisional President. Elections for

President and Vice President were thereafter held throughout the Republic,

and Senor Francisco I. Madero was formally declared elected on October 15

to the chief magistracy. On November 6 President Madero entered upon the

duties of his office.

Since the inauguration of President Madero a plot has been unearthed

against the present Government, to begin a new insurrection. Pursuing the

same consistent policy which this administration has adopted from the

beginning, it directed an investigation into the conspiracy charged, and

this investigation has resulted in the indictment of Gen. Bernardo Reyes

and others and the seizure of a number of officers and men and horses and

accoutrements assembled upon the soil of Texas for the purpose of invading

Mexico. Similar proceedings had been taken during the insurrection against

the Diaz Government resulting in the indictments and prosecution of persons

found to be engaged in violating the neutrality laws of the United States

in aid of that uprising.

The record of this Government in respect of the recognition of constituted

authority in Mexico therefore is clear.

CENTRAL AMERICA-HONDURAS AND NICARAGUA TREATIES PROPOSED.

As to the situation in Central America, I have taken occasion in the past

to emphasize most strongly the importance that should be attributed to the

consummation of the conventions between the Republics of Nicaragua and of

Honduras and this country, and I again earnestly recommend that the

necessary advice and consent of the Senate be accorded to these treaties,

which will make it possible for these Central American Republics to enter

upon an era of genuine economic national development. The Government of

Nicaragua which has already taken favorable action on the convention, has

found it necessary, pending the exchange of final ratifications, to enter

into negotiations with American bankers for the purpose of securing a

temporary loan to relieve the present financial tension. III connection

with this temporary loan and in the hope of consummating, through the

ultimate operation of the convention, a complete and lasting economic

regeneration, the Government of Nicaragua has also decided to engage an

American citizen as collector general of customs. The claims commission on

which the services of two American citizens have been sought, and the work

of the American financial adviser should accomplish a lasting good of

inestimable benefit to the prosperity, commerce, and peace of the Republic.

In considering the ratification of the conventions with Nicaragua and

Honduras, there rests with the United States the heavy responsibility of

the fact that their rejection here might destroy the progress made and

consign the Republics concerned to still deeper submergence in bankruptcy,

revolution, and national jeopardy. PANAMA.

Our relations with the Republic of Panama, peculiarly important, due to

mutual obligations and the vast interests created by the canal, have

continued in the usual friendly manner, and we have been glad to make

appropriate expression of our attitude of sympathetic interest in the

endeavors of our neighbor in undertaking the development of the rich

resources of the country. With reference to the internal political affairs

of the Republic, our obvious concern is in the maintenance of public peace

and constitutional order, and the fostering of the general interests

created by the actual relations of the two countries, without the

manifestation of any preference for the success of either of the political

parties.

THE PAN AMERICAN UNION.

The Pan American Union, formerly known as the Bureau of American Republics,

maintained by the joint contributions of all the American nations, has

during the past year enlarged its practical work as an international

organization, and continues to prove its usefulness as an agency for the

mutual development of commerce, better acquaintance, and closer intercourse

between the United States and her sister American republics.

THE FAR EAST.

THE CHINESE LOANS.

The past year has been marked in our relations with China by the conclusion

of two important international loans, one for the construction of the

Hukuang railways, the other for carrying out of the currency reform to

which China was pledged by treaties with the United States, Great Britain,

and Japan, of which mention was made in my last annual message.

It will be remembered that early in 1909 an agreement was consummated among

British, French, and German financial groups whereby they proposed to lend

the Chinese Government funds for the construction of railways in the

Provinces of Hunan and Hupeh, reserving for their nationals the privilege

of engineering the construction of the lines and of furnishing the

materials required for the work. After negotiations with the Governments

and groups concerned an agreement was reached whereby American, British,

French, and German nationals should participate upon equal terms in this

important and useful undertaking. Thereupon the financial groups, supported

by their respective Governments, began negotiations with the Chinese

Government which terminated in a loan to China Of $30,000,000, with the

privilege of increasing the amount to $50,000,000. The cooperative

construction of these trunk lines should be of immense advantage,

materially and otherwise, to China and should greatly facilitate the

development of the bountiful resources of the Empire. On the other hand, a

large portion of these funds is to be expended for materials, American

products having equal preference with those of the other three lending

nations, and as the contract provides for branches and extensions

subsequently to be built on the same terms the opportunities for American

materials will reach considerable proportions.

Knowing the interest of the United States in the reform of Chinese

currency, the Chinese Government, in the autumn of 1910 sought the

assistance of the American Government to procure funds with which to

accomplish that all-important reform. In the course of the subsequent

negotiations there was combined with the proposed currency loan one for

certain industrial developments in Manchuria, the two loans aggregating the

sum Of $50,000,000. While this was originally to be solely an American

enterprise, the American Government, consistently with its desire to secure

a sympathetic and practical cooperation of the great powers toward

maintaining the principle of equality of opportunity and the administrative

integrity of China, urged the Chinese Government to admit to participation

in the currency loan the associates of the American group in the Hukuang

loan. While of immense importance in itself, the reform contemplated in

making this loan is but preliminary to other and more comprehensive fiscal

reforms which will be of incalculable benefit to China and foreign

interests alike, since they will strengthen the Chinese Empire and promote

the rapid development of international trade.

NEUTRAL FINANCIAL ADVISER.

When these negotiations were begun, it was understood that a financial

adviser was to be employed by China in connection with the reform, and in

order that absolute equality in all respects among the lending nations

might be scrupulously observed, the American Government proposed the

nomination of a neutral adviser, which was agreed to by China and the other

Governments concerned. On September 28, 1911, Dr. Vissering, president of

the Dutch Java Bank and a financier of wide experience in the Orient, was

recommended to the Chinese Government for the post of monetary adviser.

Especially important at the present, when the ancient Chinese Empire is

shaken by civil war incidental to its awakening to the many influences and

activities of modernization, are the cooperative policy of good

understanding which has been fostered by the international projects

referred to above and the general sympathy of view among all the Powers

interested in the Far East. While safeguarding the interests of our

nationals, this Government is using its best efforts in continuance of its

traditional policy of sympathy and friendship toward the Chinese Empire and

its people, with the confident hope for their economic and administrative

development, and with the constant disposition to contribute to their

welfare in all proper ways consistent with an attitude of strict

impartiality as between contending factions.

For the first time in the history of the two countries, a Chinese cruiser,

the Haichi, under the command of Admiral Ching, recently visited New York,

where the officers and men were given a cordial welcome.

NEW JAPANESE TREATY.

The treaty of commerce and navigation between the United States and Japan,

signed in 1894, would by a strict interpretation of its provisions have

terminated on July 17, 1912. Japan's general treaties with the other

powers, however, terminated in 1911, and the Japanese Government expressed

an earnest desire to conduct the negotiations for a new treaty with the

United States simultaneously with its negotiations with the other powers.

There were a number of important questions involved in the treaty,

including the immigration of laborers, revision of the customs tariff, and

the right of Americans to hold real estate in Japan. The United States

consented to waive all technicalities and to enter at once upon

negotiations for a new treaty on the understanding that there should be a

continuance throughout the, life of the treaty of the same effective

measures for the restriction of immigration of laborers to American

territory which had been in operation with entire satisfaction to both

Governments since 1908. The Japanese Government accepted this basis of

negotiation, and a new treaty was quickly concluded, resulting in a highly

satisfactory settlement of the other questions referred to.

A satisfactory adjustment has also been effected of the questions growing

out of the annexation of Korea by Japan.

The recent visit of Admiral Count Togo to the United States as the Nation's

guest afforded a welcome opportunity to demonstrate the friendly feeling so

happily existing between the two countries. SIAM.

There has been a change of sovereigns in Siam and the American minister at

Bangkok was accredited in a special capacity to represent the United States

at the coronation ceremony of the new King.

EUROPE AND THE NEAR EAST.

In Europe and the Near East, during the past twelve-month, there has been

at times considerable political unrest. The Moroccan question, which for

some months was the cause of great anxiety, happily appears to have reached

a stage at which it need no longer be regarded with concern. The Ottoman

Empire was occupied for a period by strife in Albania and is now at war

with Italy. In Greece and the Balkan countries the disquieting

potentialities of this situation have been more or less felt. Persia has

been the scene of a long internal struggle. These conditions have been the

cause of uneasiness in European diplomacy, but thus far without direct

political concern to the United States.

In the war which unhappily exists between Italy and Turkey this Government

has no direct political interest, and I took occasion at the suitable time

to issue a proclamation of neutrality in that conflict. At the same time

all necessary steps have been taken to safeguard the personal interests of

American citizens and organizations in so far as affected by the war.

COMMERCE WITH THE NEAR EAST.

In spite of the attendant economic uncertainties and detriments to

commerce, the United States has gained markedly in its commercial standing

with certain of the nations of the Near East. Turkey, especially, is

beginning to come into closer relations with the United States through the

new interest of American manufacturers and exporters in the possibilities

of those regions, and it is hoped that foundations are being laid for a

large and mutually beneficial exchange of commodities between the two

countries. This new interest of Turkey in American goods is indicated by

the fact that a party of prominent merchants from a large city in Turkey

recently visited the United States to study conditions of manufacture and

export here, and to get into personal touch with American merchants, with a

view to cooperating more intelligently in opening up the markets of Turkey

and the adjacent countries to our manufactures. Another indication of this

new interest of America in the commerce of the Near East is the recent

visit of a large party of American merchants and manufacturers to central

and eastern Europe, where they were entertained by prominent officials and

organizations of the large cities, and new bonds of friendship and

understanding were established which can not but lead to closer and greater

commercial interchange.

CORONATION OF KING GEORGE V.

The 22d of June of the present year marked the coronation of His Britannic

Majesty King George V. In honor of this auspicious occasion I sent a

special embassy to London. The courteous and cordial welcome extended to

this Government's representatives by His Majesty and the people of Great

Britain has further emphasized the strong bonds of friendship happily

existing between the two nations.

SETTLEMENT OF LONG-STANDING DIFFERENCES WITH GREAT BRITAIN.

As the result of a determined effort on the part of both Great Britain and

the United States to settle all of their outstanding differences a number

of treaties have been entered into between the two countries in recent

years, by which nearly all of the unsettled questions between them of any

importance have either been adjusted by agreement or arrangements made for

their settlement by arbitration. A number of the unsettled questions

referred to consist of pecuniary claims presented by each country against

the other, and in order that as many of these claims as possible should be

settled by arbitration a special agreement for that purpose was entered

into between the two Governments on the 18th day of August, 1910, in

accordance with Article 11 of the general arbitration treaty with Great

Britain of April 4, 19o8. Pursuant to the provisions of this special

agreement a schedule of claims has already been agreed upon, and the

special agreement, together with this schedule, received the approval of

the Senate when submitted to it for that purpose at the last session of

Congress. Negotiations between the two Governments for the preparation of

an additional schedule of claims are already well advanced, and it is my

intention to submit such schedule as soon as it is agreed upon to the

Senate for its approval, in order that the arbitration proceedings may be

undertaken at an early date. In this connection the attention of Congress

is particularly called to the necessity for an appropriation

to cover the expense incurred in submitting these claims to arbitration.

PRESENTATION TO GERMANY OF REPLICA OF VON STEUBEN STATUE.

In pursuance of the act of Congress, approved June 23, 1910, the Secretary

of State and the joint Committee on the Library entered into a contract

with the sculptor, Albert Jaegers, for the execution of a bronze replica of

the statue of Gen. von Steuben erected in Washington, for presentation to

His Majesty the German Emperor and the German nation in recognition of the

gift of the statue of Frederick the Great made by the Emperor to the people

of the United States.

The presentation was made on September 2 last by representatives whom I

commissioned as the special mission of this Government for the purpose.

The German Emperor has conveyed to me by telegraph, on his own behalf and

that of the German people, an expression of appreciative thanks for this

action of Congress. RUSSIA.

By direction of the State Department, our ambassador to Russia has recently

been having a series of conferences with the minister of foreign affairs of

Russia, with a view to securing a clearer understanding and construction of

the treaty of 1832 between Russia and the United States and the

modification of any existing Russian regulations which may be found to

interfere in any way with the full recognition of the rights of American

citizens under this treaty. I believe that the Government of Russia is

addressing itself seriously to the need of changing the present practice

under the treaty and that sufficient progress has been made to warrant the

continuance of these conferences in the hope that there may soon be removed

any justification of the complaints of treaty violation now prevalent in

this country.

I expect that immediately after the Christmas recess I shall be able to

make a further communication to Congress on this subject. LIBERIA.

Negotiations for the amelioration of conditions found to exist in Liberia

by the American commission, undertaken through the Department of State,

have been concluded and it is only necessary for certain formalities to be

arranged in securing the loan which it is hoped will place that republic on

a practical financial and economic footing.

RECOGNITION OF PORTUGUESE REPUBLIC.

The National Constituent Assembly, regularly elected by the vote of the

Portuguese people, having on June 19 last unanimously proclaimed a

republican form of government, the official recognition of the Government

of the United States was given to the new Republic in the afternoon of the

same day.

SPITZBERGEN ISLANDS.

Negotiations for the betterment of conditions existing in the Spitzbergen

Islands and the adjustment of conflicting claims of American citizens and

Norwegian subjects to lands in that archipelago are still in progress.

INTERNATIONAL CONVENTIONS AND CONFERENCES.

INTERNATIONAL PRIZE COURT.

The supplementary protocol to The he Hague convention for the establishment

of an international prize court, mentioned in my last annual message,

embodying stipulations providing for an alternative procedure which would

remove the constitutional objection to that part of The Hague convention

which provides that there may be an appeal to the proposed court from the

decisions of national courts, has received the signature of the governments

parties to the original convention and has been ratified by the Government

of the United States, together with the prize court convention.

The deposit of the ratifications with the Government of the Netherlands

awaits action by the powers on the declaration, signed at London on

February 26, 1909 of the rules of international law to be recognized within

the meaning of article 7 of The Hague convention for the establishment of

an International Prize Court.

FUR-SEAL TREATY.

The fur-seal controversy, which for nearly twenty-five years has been the

source of serious friction between the United States and the powers

bordering upon the north Pacific Ocean, whose subjects have been permitted

to engage in pelagic sealing against the fur-seal herds having their

breeding grounds within the jurisdiction of the United States, has at last

been satisfactorily adjusted by the conclusion of the north Pacific sealing

convention entered into between the United States, Great Britain, Japan,

and Russia on the 7th of July last. This convention is a conservation

measure of very great importance, and if it is carried out in the spirit of

reciprocal concession and advantage upon which it is based, there is every

reason to believe that not only will it result in preserving the fur-seal

herds of the north Pacific Ocean and restoring them to their former value

for the purposes of commerce, but also that it will afford a permanently

satisfactory settlement of a question the only other solution of which

seemed to be the total destruction of the fur seals. In another aspect,

also, this convention is of importance in that it furnishes an illustration

of the feasibility of securing a general international game law for the

protection of other mammals of the sea, the preservation of which is of

importance to all the nations of the world.

LEGISLATION NECESSARY.

The attention of Congress is especially called to the necessity for

legislation on the part of the United States for the purpose of fulfilling

the obligations assumed under this convention, to which the Senate gave its

advice and consent on the 24th day of July last.

PROTECTION OF INDUSTRIAL PROPERTY UNION.

The conference of the International Union for the Protection of Industrial

Property, which, under the authority of Congress, convened at Washington on

May 16, 1911, closed its labors on June 2, 1911, by the signature of three

acts, as follows:

(I) A convention revising the Paris convention of March 20, 1883, for the

protection of industrial property, as modified by the additional act signed

at Brussels on December 14, 1900;

(2) An arrangement to replace the arrangement signed at Madrid on April 14,

1891 for the international registration of trade-marks, and the additional

act with regard thereto signed at Brussels on December 14, 1900; and

(3) An arrangement to replace the arrangement signed at Madrid on April 14,

1891, relating to the repression of false indication of production of

merchandise.

The United States is a signatory of the first convention only, and this

will be promptly submitted to the Senate.

INTERNATIONAL OPIUM COMMISSION.

In a special message transmitted to the Congress on the 11th of January,

1911, in which I concurred in the recommendations made by the Secretary of

State in regard to certain needful legislation for the control of our

interstate and foreign traffic in opium and other menacing drugs, I quoted

from my annual message of December 7, 1909, in which I announced that the

results of the International Opium Commission held at Shanghai in February,

1909, at the invitation of the United States, had been laid before this

Government; that the report of that commission showed that China was making

remarkable progress and admirable efforts toward the eradication of the

opium evil; that the interested governments had not permitted their

commercial interests to prevent their cooperation in this reform; and, as a

result of collateral investigations of the opium question in this country,

I recommended that the manufacture, sale, and use of opium in the United

States should be more rigorously controlled by legislation.

Prior to that time and in continuation of the policy of this Government to

secure the cooperation of the interested nations, the United States

proposed an international opium conference with full powers for the purpose

of clothing with the force of international law the resolutions adopted by

the above-mentioned commission, together with their essential corollaries.

The other powers concerned cordially responded to the proposal of this

Government, and, I am glad to be able to announce, representatives of all

the powers assembled in conference at The Hague on the first of this

month.

Since the passage of the opium-exclusion act, more than twenty States have

been animated to modify their pharmacy laws and bring them in accord with

the spirit of that act, thus stamping out, to a measure, the intrastate

traffic in opium and other habit-forming drugs. But, although I have urged

on the Congress the passage of certain measures for Federal control of the

interstate and foreign traffic in these drugs, no action has yet been

taken. In view of the fact that there is now sitting at The Hague so

important a conference, which has under review the municipal laws of the

different nations for the mitigation of their opium and other allied evils,

a conference which will certainly deal with the international aspects of

these evils, it seems to me most essential that the Congress should take

immediate action on the anti-narcotic legislation to which I have already

called attention by a special message.

BUENOS AIRES CONVENTIONS.

The four important conventions signed at the Fourth Pan American Conference

at Buenos Aires, providing for the regulation of trademarks, patents, and

copyrights, and for the arbitration of pecuniary claims, have, with the

advice and consent of the Senate, been ratified on the part of the United

States and the ratifications have been deposited with the Government of the

Argentine Republic in accordance with the requirements of the conventions.

I am not advised that similar action has been taken by any other of the

signatory governments.

INTERNATIONAL ARRANGEMENT TO SUPPRESS OBSCENE PUBLICATIONS.

One of the notable advances in international morality accomplished in

recent years was an arrangement entered into on April 13th of the present

year between the United States and other powers for the repression of the

circulation of obscene publications.

FOREIGN TRADE RELATIONS OF THE UNITED STATES.

In my last annual message I referred to the tariff negotiations of the

Department of State with foreign countries in connection with the

application, by a series of proclamations, of the minimum tariff of the

United States to importations from the several countries, and I stated

that, in its general operation, section 2 of the new tariff law had proved

a guaranty of continued commercial peace, although there were,

unfortunately, instances where foreign governments dealt arbitrarily with

American interests within their jurisdiction in a manner injurious and

inequitable. During the past year some instances of discriminatory

treatment have been removed, but I regret to say that there remain a few

cases of differential treatment adverse to the commerce of the United

States. While none of these instances now appears to amount to undue

discrimination in the sense of section 2 Of the tariff law of August 5,

1909, they are all exceptions to that complete degree of equality of tariff

treatment that the Department of State has consistently sought to obtain

for American commerce abroad.

While the double tariff feature of the tariff law of 1909 has been amply

justified by the results achieved in removing former and preventing new,

undue discriminations against American commerce it is believed that the

time has come for the amendment of this feature of the law in such way as

to provide a graduated means of meeting varying degrees of discriminatory

treatment of American commerce in foreign countries as well as to protect

the financial interests abroad of American citizens against arbitrary and

injurious treatment on the part of foreign governments through either

legislative or administrative measures.

It would seem desirable that the maximum tariff of the United States should

embrace within its purview the free list, which is not the case at the

present time, in order that it might have reasonable significance to the

governments of those countries from which the importations into the United

States are confined virtually to articles on the free list.

RECORD OF HIGHEST AMOUNT OF FOREIGN TRADE.

The fiscal year ended June 30, 1911, shows great progress in the

development of American trade. It was noteworthy as marking the highest

record of exports of American products to foreign countries, the valuation

being in excess of $2,000,000,000. These exports showed a gain over the

preceding year of more than $300,000,000.

FACILITIES FOR FOREIGN TRADE FURNISHED BY JOINT ACTION OF DEPARTMENT OF

STATE AND OF COMMERCE AND LABOR.

There is widespread appreciation expressed by the business interests of the

country as regards the practical value of the facilities now offered by the

Department of State and the Department of Commerce and Labor for the

furtherance of American commerce. Conferences with their officers at

Washington who have an expert knowledge of trade conditions in foreign

countries and with consular officers and commercial agents of the

Department of Commerce and Labor who, while on leave of absence, visit the

principal industrial centers of the United States, have been found of great

value. These trade conferences are regarded as a particularly promising

method of governmental aid in foreign trade promotion. The Department of

Commerce and Labor has arranged to give publicity to the expected arrival

and the itinerary of consular officers and commercial agents while on leave

in the United States, in order that trade organizations may arrange for

conferences with them.

As I have indicated, it is increasingly clear that to obtain and maintain

that equity and substantial equality of treatment essential to the

flourishing foreign trade, which becomes year by year more important to the

industrial and commercial welfare of the United States, we should have a

flexibility of tariff sufficient for the give and take of negotiation by

the Department of State on behalf of our commerce and industry.

CRYING NEED FOR AMERICAN MERCHANT MARINE.

I need hardly reiterate the conviction that there should speedily be built

up an American merchant marine. This is necessary to assure favorable

transportation facilities to our great ocean-borne commerce as well as to

supplement the Navy with an adequate reserve of ships and men It would have

the economic advantage of keeping at home part of the vast sums now paid

foreign shipping for carrying American goods. All the great commercial

nations pay heavy subsidies to their merchant marine so that it is obvious

that without some wise aid from the Congress the United States must lag

behind in the matter of merchant marine in its present anomalous position.

EXTENSION OF AMERICAN BANKING TO FOREIGN COUNTRIES.

Legislation to facilitate the extension of American banks to foreign

countries is another matter in which our foreign trade needs assistance.

CHAMBERS OF FOREIGN COMMERCE SUGGESTED.

The interests of our foreign commerce are nonpartisan, and as a factor in

prosperity are as broad as the land. In the dissemination of useful

information and in the coordination of effort certain unofficial

associations have done good work toward the promotion of foreign commerce.

It is cause for regret, however, that the great number of such associations

and the comparative lack of cooperation between them fails to secure an

efficiency commensurate with the public interest. Through the agency of the

Department of Commerce and Labor, and in some cases directly, the

Department of State transmits to reputable business interests information

of commercial opportunities, supplementing the regular published consular

reports. Some central organization in touch with associations and chambers

of commerce throughout the country and able to keep purely American

interests in closer touch with different phases of commercial affairs

would, I believe, be of great value. Such organization might be managed by

a committee composed of a small number of those now actively carrying on

the work of some of the larger associations, and there might be added to

the committee, as members ex officio, one or two officials of the

Department of State and one or two officials from the Department of

Commerce and Labor and representatives of the appropriate committees of

Congress. The authority and success of such an organization would evidently

be enhanced if the Congress should see fit to prescribe its scope and

organization through legislation which would give to it some such official

standing as that, for example, of the National Red Cross.

With these factors and the continuance of the foreign-service establishment

(departmental, diplomatic, and consular) upon the high plane where it has

been placed by the recent reorganization this Government would be abreast

of the times in fostering the interests of its foreign trade, and the rest

must be left to the energy and enterprise of our business men.

IMPROVEMENT OF THE FOREIGN SERVICE.

The entire foreign-service organization is being improved and developed

with especial regard to the requirements of the commercial interests of the

country. The rapid growth of our foreign trade makes it of the utmost

importance that governmental agencies through which that trade is to be

aided and protected should possess a high degree of efficiency. Not only

should the foreign representatives be maintained upon a generous scale in

so far as salaries and establishments are concerned, but the selection and

advancement of officers should be definitely and permanently regulated by

law so that the service shall not fail to attract men of high character and

ability. The experience of the past few years with a partial application of

civil-service rules to the Diplomatic and Consular Service leaves no doubt

in my mind of the wisdom of a wider and more permanent extension of those

principles to both branches of the foreign service. The men selected for

appointment by means of the existing executive regulations have been of a

far higher average of intelligence and ability than the men appointed

before the regulations were promulgated. Moreover, the feeling that under

the existing rules there is reasonable hope for permanence of tenure during

good behavior and for promotion for meritorious service has served to bring

about a zealous activity in the interests of the country, which never

before existed or could exist. It is my earnest conviction that the

enactment into law of the general principles of the existing regulations

can not fail to effect further improvement in both branches of the foreign

service by providing greater inducement for young men of character and

ability to seek a career abroad in the service of the Government, and an

incentive to those already in the service to put forth greater efforts to

attain the high standards which the successful conduct of our international

relations and commerce requires.

I therefore again commend to the favorable action of the Congress the

enactment of a law applying to the diplomatic and consular service the

principles embodied in section 1753 of the Revised Statutes of the United

States, in the civil-service act of January 16, 1883, and the Executive

orders of June 27, 1906, and of November 26, 1909. In its consideration of

this important subject I desire to recall to the attention of the Congress

the very favorable report made on the Lowden bill for the improvement of

the foreign service by the Foreign Affairs Committee of the House of

Representatives. Available statistics show the strictness with which the

merit system has been applied to the foreign service during recent years

and the absolute nonpartisan selection of consuls and diplomatic-service

secretaries who, indeed, far from being selected with any view to political

consideration, have actually been chosen to a disproportionate extent from

States which would have been unrepresented in the foreign service under the

system which it is to be hoped is now permanently obsolete. Some

legislation for the perpetuation of the present system of examinations and

promotions upon merit and efficiency would be of greatest value to our

commercial and international interests.

PART III.

THE WHITE HOUSE, December 20, 1911. To the Senate and House of

Representatives:

In my annual message to Congress, December, 1909, I stated that under

section 2 of the act of August 5, 1909, I had appointed a Tariff Board of

three members to cooperate with the State Department in the administration

of the maximum and minimum clause of that act, to make a glossary or

encyclopedia of the existing tariff so as to render its terms intelligible

to the ordinary reader, and then to investigate industrial conditions and

costs of production at home and abroad with a view to determining to what

extent existing tariff rates actually exemplify the protective principle,

viz., that duties should be made adequate, and only adequate, to equalize

the difference in cost of production at home and abroad.

I further stated that I believed these investigations would be of great

value as a basis for accurate legislation, and that I should from time to

time recommend to Congress the revision of certain schedules in accordance

with the findings of the Board.

In the last session of the Sixty-first Congress a bill creating a permanent

Tariff Board of five members, of whom not more than three should be of the

same political party, passed each House, but failed of enactment because of

slight differences on which agreement was not reached before adjournment.

An appropriation act provided that the permanent Tariff Board, if created

by statute, should report to Congress on Schedule K in December, 1911.

Therefore, to carry out so far as lay within my power the purposes of this

bill for a permanent Tariff Board, I appointed in March, 1911, a board of

five, adding two members of such party affiliation as would have fulfilled

the statutory requirement, and directed them to make a report to me on

Schedule K of the tariff act in December of this year.

In my message of August 17, 1911, accompanying the veto of the wool bill, I

said that, in my judgment, Schedule K should be revised and the rates

reduced. My veto was based on the ground that, since the Tariff Board would

make, in December, a detailed report on wool and wool manufactures, with

special reference to the relation of the existing rates of duties to

relative costs here and abroad, public policy and a fair regard to the

interests of the producers and the manufacturers on the one hand and of the

consumers on the other demanded that legislation should not be hastily

enacted in the absence of such information; that I was not myself possessed

at that time of adequate knowledge of the facts to determine whether or not

the proposed act was in accord with my pledge to support a fair and

reasonable protective policy; that such legislation might prove only

temporary and inflict upon a great industry the evils of continued

uncertainty.

I now herewith submit a report of the Tariff Board on Schedule K. The board

is unanimous in its findings. On the basis of these findings I now

recommend that the Congress proceed to a consideration of this schedule

with a view to its revision and a general reduction of its rates.

The report shows that the present method of assessing the duty on raw

Wool--this is, by a specific rate on the grease pound (i. e., unscoured)

--operates to exclude wools of high shrinkage in scouring but fine quality

from the American market and thereby lessens the range of wools available

to the domestic manufacturer; that the duty on scoured wool Of 33 cents per

pound is prohibitory and operates to exclude the importation of clean,

low-priced foreign wools of inferior grades, which are nevertheless

valuable material for manufacturing, and which can not be imported in the

grease because of their heavy shrinkage. Such wools, if imported, might be

used to displace the cheap substitutes now in use.

To make the preceding paragraph a little plainer, take the instance of a

hundred pounds of first-class wool imported under the present duty, which

is 11 cents a pound. That would make the duty on the hundred pounds $11.

The merchantable part of the wool thus imported is the weight of the wool

of this hundred pounds after scouring. If the wool shrinks 80 per cent, as

some wools do, then the duty in such a case would amount to $11 $11 on 20

pounds of scoured wool. This, of course, would be prohibitory. If the wool

shrinks only 50 per cent, it would be $11 on 50 pounds of wool, and this is

near to the average of the great bulk of wools that are imported from

Australia, which is the principal source of our imported wool.

These discriminations could be overcome by assessing a duty in ad valorem

terms, but this method is open to the objection, first, that it increases

administrative difficulties and tends to decrease revenue through

undervaluation; and, second, that as prices advance, the ad valorem rate

increases the duty per pound at the time when the consumer most needs

relief and the producer can best stand competition; while if prices decline

the duty is decreased at the time when the consumer is least burdened by

the price and the producer most needs protection.

Another method of meeting the difficulty of taxing the grease pound is to

assess a specific duty on grease wool in terms of its scoured content. This

obviates the chief evil of the present system, namely, the discrimination

due to different shrinkages, and thereby tends greatly to equalize the

duty. The board reports that this method is feasible in practice and could

be administered without great expense. The scoured content of the wool is

the basis on which users of wool make their calculations, and a duty of

this kind would fit the usages of the trade. One effect of this method of

assessment would be that, regardless of the rate of duty, there would be

an increase in the supply and variety of wool by making available to the

American market wools of both low and fine quality now excluded.

The report shows in detail the difficulties involved in attempting to state

in categorical terms the cost of wool production and the great differences

in cost as between different regions and different types of wool. It is

found, however, that, taking all varieties in account, the average cost of

production for the whole American clip is higher than the cost in the chief

competing country by an amount somewhat less than the present duty.

The report shows that the duties on wools, wool wastes, and shoddy, which

are adjusted to the rate Of 33 cents on scoured wool are prohibitory in the

same measure that the duty on scoured wool is prohibitory. In general, they

are assessed at rates as high as, or higher than, the duties paid on the

clean content of wools actually imported. They should be reduced and so

adjusted to the rate on wool as to bear their proper proportion to the real

rate levied on the actual wool imports.

The duties on many classes of wool manufacture are prohibitory and greatly

in excess of the difference in cost of production here and abroad.

This is true of tops, of yarns (with the exception of worsted yarns of a

very high grade), and of low and medium grade cloth of heavy weight.

On tops up to 52 cents a pound in value, and on yarns of 65 cents in value,

the rate is 100 per cent with correspondingly higher rates for lower

values. On cheap and medium grade cloths, the existing rates frequently run

to 150 per cent and on some cheap goods to over 200 per cent. This is

largely due to that part of the duty which is levied ostensibly to

compensate the manufacturer for the enhanced cost of his raw material due

to the duty on wool. As a matter of fact, this compensatory duty, for

numerous classes of goods, is much in excess of the amount needed for

strict compensation.

On the other hand, the findings show that the duties which run to such high

ad valorem equivalents are prohibitory, since the goods are not imported,

but that the prices of domestic fabrics are not raised by the full amount

of duty. On a set of 1-yard samples of 16 English fabrics, which are

completely excluded by the present tariff rates, it was found that the

total foreign value was $41.84; the duties which would have been assessed

had these fabrics been imported, $76.90; the foreign value plus the amount

of the duty, $118.74; or a nominal duty of 183 per cent. In fact, however,

practically identical fabrics of domestic make sold at the same time at

$69.75, showing an enhanced price over the foreign market value of but 67

per cent.

Although these duties do not increase prices of domestic goods by anything

like their full amount, it is none the less true that such prohibitive

duties eliminate the possibility of foreign competition, even in time of

scarcity; that they form a temptation to monopoly and conspiracies to

control domestic prices; that they are much in excess of the difference in

cost of production here and abroad, and that they should be reduced to a

point which accords with this principle.

The findings of the board show that in this industry the actual

manufacturing cost, aside from the question of the price of materials, is

much higher in this country than it is abroad; that in the making of yarn

and cloth the domestic woolen or worsted manufacturer has in general no

advantage in the form of superior machinery or more efficient labor to

offset the higher wages paid in this country The findings show that the

cost of turning wool into yarn in this country is about double that in the

leading competing country, and that the cost of turning yarn into cloth is

somewhat more than double. Under the protective policy a great industry,

involving the welfare of hundreds of thousands of people, has been

established despite these handicaps.

In recommending revision and reduction, I therefore urge that action be

taken with these facts in mind, to the end that an important and

established industry may not be jeopardized.

The Tariff Board reports that no equitable method has been found to, levy

purely specific duties on woolen and worsted fabrics and that, excepting

for a compensatory duty, the rate must be ad valorem on such manufactures.

It is important to realize, however, that no flat ad valorem rate on such

fabrics can be made to work fairly and effectively. Any single rate which

is high enough to equalize the difference in manufacturing cost at home and

abroad on highly finished goods involving such labor would be prohibitory

on cheaper goods, in which the labor cost is a smaller proportion of the

total value. Conversely, a rate only adequate to equalize this difference

on cheaper goods would remove protection from the fine-goods manufacture,

the increase in which has been one of the striking features of the trade's

development in recent years. I therefore recommend that in any revision the

importance of a graduated scale of ad valorem duties on cloths be carefully

considered and applied.

I venture to say that no legislative body has ever had presented to it a

more complete and exhaustive report than this on so difficult and

complicated a subject as the relative costs of wool and woolens the world

over. It is a monument to the thoroughness, industry, impartiality, and

accuracy of the men engaged in its making. They were chosen from both

political parties but have allowed no partisan spirit to prompt or control

their inquiries. They are unanimous in their findings. I feel sure that

after the report has been printed and studied the value of such a

compendium of exact knowledge in respect to this schedule of the tariff

will convince all of the wisdom of making such a board permanent in order

that it may treat each schedule of the tariff as it has treated this, and

then keep its bureau of information up to date with current changes in the

economic world.

It is no part of the function of the Tariff Board to propose rates of duty.

Their function is merely to present findings of fact on which rates of duty

may be fairly determined in the light of adequate knowledge in accord with

the economic policy to be followed. This is what the present report does.

The findings of fact by the board show ample reason for the revision

downward of Schedule K, in accord with the protective principle, and

present the data as to relative costs and prices from which may be

determined what rates will fairly equalize the difference in production

costs. I recommend that such revision be proceeded with at once.

PART IV.

THE WHITE HOUSE, December 21, 1911. To the Senate and House of

Representatives:

The financial condition of the Government, as shown at the close of the

last fiscal year, June 30, 1911, was very satisfactory. The ordinary

receipts into the general fund, excluding postal revenues, amounted to

$701,372,374.99, and the disbursements from the general fund for current

expenses and capital outlays, excluding postal and Panama Canal

disbursements, including the interest on the public debt, amounted to

$654,137,907-89, leaving a surplus Of $47,234,377.10.

The postal revenue receipts amounted to $237,879,823,60, while the payments

made for the postal service from the postal revenues amounted to

$237,660,705.48, which left a surplus of postal receipts over disbursements

Of $219,118.12, the first time in 27 years in which a surplus occurred.

The interest-bearing debt of the United States June 30, 1911, amounted to

$915,353,190. The debt on which interest had ceased amounted to

$1,879,830.26, and the debt bearing no interest, including greenbacks,

national bank notes to be redeemed, and fractional currency, amounted to

$386,751,917-43, or a total of interest and noninterest bearing debt

amounting to $1,303,984,937.69.

The actual disbursements, exclusive of those for the Panama Canal and for

the postal service for the year ending June 30, 1911, were $654,137,997.89.

The actual disbursements for the year ending June 30, 1910, exclusive of

the Panama Canal and the postal service disbursements, were

$659,705,391.08, making a decrease Of $5,567,393.19 in yearly expenditures

in the year 1911 under that of 1910. For the year ending June 30, 1912, the

estimated receipts, exclusive of the postal revenues, are $666,000,000,

while the total estimates, exclusive of those for the Panama Canal and the

postal expenditures payable from the postal revenues, amount to

$645,842,799.34. This is a decrease in the 1912 estimates from that of the

1911 estimates of $1,534,367-22.

For the year ending June 30, 1913, the estimated receipts, exclusive of the

postal revenues, are $667,000,000, while the total estimated

appropriations, exclusive of the Panama Canal and postal disbursements

payable from postal revenues, will amount to $637,920,803.35. This is a

decrease in the 1913 estimates from that of the 1912 estimates of

$7,921,995.99.

As to the postal revenues, the expansion of the business in that

department, the normal increase in the Post Office and the extension of the

service, will increase the outlay to the sum Of $260,938,463; but as the

department was self-sustaining this year the Postmaster General is assured

that next year the receipts will at least equal the expenditures, and

probably exceed them by more than the surplus of this year. It is fair and

equitable, therefore, in determining the economy with which the Government

has been run, to exclude the transactions of a department like the Post

Office Department, which relies for its support upon its receipts. In

calculations heretofore made for comparison of economy in each year, it has

been the proper custom only to include in the statement the deficit in the

Post Office Department which was paid out of the Treasury.

A calculation of the actual increase in the expenses of Government arising

from the increase in the population and the general expansion of

governmental functions, except those of the Post Office, for a number of

years shows a normal increase of about 4 per cent a year. By directing the

exercise of great care to keep down the expenses and the estimates we have

succeeded in reducing the total disbursements each year.

THE CREDIT OF THE UNITED STATES.

The credit of this Government was shown to be better than that of any other

Government by the sale of the Panama Canal 3 per cent bonds. These bonds

did not give their owners the privilege of using them as a basis for

bank-note circulation, nor was there any other privilege extended to them

which would affect their general market value. Their sale, therefore,

measured the credit of the Government. The premium which was realized upon

the bonds made the actual interest rate of the transaction 2.909 per cent.

EFFICIENCY AND ECONOMY IN THE TREASURY DEPARTMENT.

I In the Treasury Department the efficiency and economy work has been kept

steadily up. Provision is made for the elimination of 134 positions during

the coming year. Two hundred and sixty-seven statutory positions were

eliminated during the last year in the office of the Treasury in

Washington, and 141 positions in the year 1910, making an elimination Of

542 statutory positions since March 4, 1909; and this has been done without

the discharge of anybody, because the normal resignations and deaths have

been equal to the elimination of the places, a system of transfers having

taken care of the persons whose positions were dropped out. In the field

service if the department, too, 1,259 positions have been eliminated down

to the present time, making a total net reduction of all Treasury positions

to the number of 1,801. Meantime the efficiency of the work of the

department has increased.

MONETARY REFORM.

A matter of first importance that will come before Congress for action at

this session is monetary reform. The Congress has itself arranged an early

introduction of this great question through the report of its Monetary

Commission. This commission was appointed to recommend a solution of the

banking and currency problems so long confronting the Nation and to furnish

the facts and data necessary to enable the Congress to take action. The

commission was appointed when an impressive and urgent popular demand for

legislative relief suddenly arose out of the distressing situation of the

people caused by the deplorable panic of 1907. The Congress decided that

while it could not give immediately the relief required, it would provide a

commission to furnish the means for prompt action at a later date.

In order to do its work with thoroughness and precision this commission has

taken some time to make its report. The country is undoubtedly hoping for

as prompt action on the report as the convenience of the Congress can

permit. The recognition of the gross imperfections and marked inadequacy of

our banking and currency system even in our most quiet financial periods is

of long standing; and later there has matured a recognition of the fact

that our system is responsible for the extraordinary devastation, waste,

and business paralysis of our recurring periods of panic. Though the

members of the Monetary Commission have for a considerable time been

working in the open, and while large numbers of the people have been openly

working with them, and while the press has largely noted and discussed this

work as it has proceeded, so that the report of the commission promises to

represent a national movement, the details of the report are still being

considered. I can not, therefore, do much more at this time than commend

the immense importance of monetary reform, urge prompt consideration and

action when the commission's report is received, and express my

satisfaction that the plan to be proposed promises to embrace main features

that, having met the approval of a great preponderance of the practical and

professional opinion of the country, are likely to meet equal approval in

Congress.

It is exceedingly fortunate that the wise and undisputed policy of

maintaining unchanged the main features of our banking system rendered it

at once impossible to introduce a central bank; for a central bank would

certainly have been resisted, and a plan into which it could have been

introduced would probably have been defeated. But as a central bank could

not be a part of the only plan discussed or considered, that troublesome

question is eliminated. And ingenious and novel as the proposed National

Reserve Association appears, it simply is a logical outgrowth of what is

best in our present system, and is, in fact, the fulfillment of that

system.

Exactly how the management of that association should be organized is a

question still open. It seems to be desirable that the banks which would

own the association should in the main manage it, It will be an agency of

the banks to act for them, and they can be trusted better than anybody else

chiefly to conduct it. It is mainly bankers' work. But there must be some

form of Government supervision and ultimate control, and I favor a

reasonable representation of the Government in the management. I entertain

no fear of the introduction of politics or of any undesirable influences

from a properly measured Government representation.

I trust that all banks of the country possessing the requisite standards

will be placed upon a footing of perfect equality of opportunity. Both the

National system and the State system should be fairly recognized, leaving

them eventually to coalesce if that shall prove to be their tendency. But

such evolution can not develop impartially if the banks of one system are

given or permitted any advantages of opportunity over those of the other

system. And I trust also that the new legislation will carefully and

completely protect and assure the individuality and the independence of

each bank, to the end that any tendency there may ever be toward a

consolidation of the money or banking power of the Nation shall be

defeated.

It will always be possible, of course, to correct any features of the new

law which may in practice prove to be unwise; so that while this law is

sure to be enacted under conditions of unusual knowledge and authority, it

also will include, it is well to remember, the possibility of future

amendment.

With the present prospects of this long-awaited reform encouraging us, it

would be singularly unfortunate if this monetary question should by any

chance become a party issue. And I sincerely hope it will not. The

exceeding amount of consideration it has received from the people of the

Nation has been wholly nonpartisan; and the Congress set its nonpartisan

seal upon it when the Monetary Commission was appointed. In commending the

question to the favorable consideration of Congress, I speak for, and in

the spirit of, the great number of my fellow citizens who without any

thought of party or partisanship feel with remarkable earnestness that this

reform is necessary to the interests of all the people.

THE WAR DEPARTMENT.

There is now before Congress a Dill, the purpose of which is to increase

the efficiency and decrease the expense of the Army. It contains four

principal features: First, a consolidation of the General Staff with the

Adjutant General's and the Inspector General's Departments; second, a

consolidation of the Quartermaster's Department with the Subsistence and

the Pay Departments; third, the creation of an Army Service Corps; and

fourth, an extension of the enlistment period from three to five years.

With the establishment of an Army Service Corps, as proposed in the bill, I

am thoroughly in accord and am convinced that the establishment of such a

corps will result in a material economy and a very great increase of

efficiency in the Army. It has repeatedly been recommended by me and my

predecessors. I also believe that a consolidation of the Staff Corps can be

made with a resulting increase in efficiency and economy, but not along the

lines provided in the bill under consideration.

I am opposed to any plan the result of which would be to break up or

interfere with the essential principles of the detail system in the Staff

Corps established by the act of February 2, 1901, and I am opposed to any

plan the result of which would be to give to the officer selected as Chief

of Staff or to any other member of the General Staff Corps greater

permanency of office than he now has. Under the existing law neither the

Chief. of Staff nor any other member of the General Staff Corps can remain

in office for a period of more than four years, and there must be an

interval of two years between successive tours of duty.

The bill referred to provides that certain persons shall become permanent

members of the General Staff Corps, and that certain others are subject to

re-detail without an interval of two years. Such provision is fraught with

danger to the welfare of the Army, and would practically nullify the main

purpose of the law creating the [missing text].

In making the consolidations no reduction should be made in the total

number of officers of the Army, of whom there are now too few to perform

the duties imposed by law. I have in the past recommended an increase in

the number of officers by 600 in order to provide sufficient officers to

perform all classes of staff duty and to reduce the number of line officers

detached from their commands. Congress at the last session increased the

total number of officers by 200, but this is not enough. Promotion in the

line of the Army is too slow. Officers do not attain command rank at an age

early enough properly to exercise it. It would be a mistake further to

retard this already slow promotion by throwing back into the line of the

Arm a number of high-ranking officers to be absorbed as is provided in the

[missing text].

Another feature of the bill which I believe to be a mistake is the proposed

increase in the term of enlistment from three to five ears I believe it

would be better to enlist men for six years, release them at the end of

three years from active service, and put them in reserve for the remaining

three years. Reenlistments should be largely confined to the

noncommissioned officers and other enlisted men in the skilled grades. This

plan by the payment of a comparatively small compensation during the three

years of reserve, would keep a large body of men at the call of the

Government, trained and ready for [missing text].

The Army of the United States is in good condition. It showed itself able

to meet an emergency in the successful mobilization of an army division of

from 15,000 to 20,000 men, which took place along the border of Mexico

during the recent disturbances in that country. The marvelous freedom from

the ordinary camp diseases of typhoid fever and measles is referred to in

the report of the Secretary of War and shows such an effectiveness in the

sanitary regulations and treatment of the Medical Corps, and in the

discipline of the Army itself, as to invoke the highest commendation.

MEMORIAL AMPHITHEATER AT ARLINGTON.

I beg to renew my recommendation of last year that the Congress appropriate

for a memorial amphitheater at Arlington, Va., the funds required to

construct it upon the plans already approved.

THE PANAMA CANAL.

The very satisfactory progress made on the Panama Canal last year has

continued, and there is every reason to believe that the canal

will be completed as early as the 1st of July, 1913, unless something

unforeseen occurs. This is about 18 months before the time promised by the

engineers.

We are now near enough the completion of the canal to make it imperatively

necessary that legislation should be enacted to fix the method by which the

canal shall be maintained and controlled and the zone governed. The fact is

that to-day there is no statutory law by authority of which the President

is maintaining the government of the zone. Such authority was given in an

amendment to the Spooner Act, which expired by the terms of its own

limitation some years ago. Since that time the government has continued,

under the advice of the Attorney General that in the absence of action by

Congress, there is necessarily an implied authority on the part of the

Executive to maintain a government in a territory in which he has to see

that the laws are executed. The fact that we have been able thus to get

along during the important days of construction without legislation

expressly formulating the government of the zone, or delegating the

creation of it to the President, is not a reason for supposing that we may

continue the same kind of a government after the construction is finished.

The implied authority of the President to maintain a civil government in

the zone may be derived from the mandatory direction given him in the

original Spooner Act, by which he was commanded to build the canal; but

certainly, now that the canal is about to be completed and to be put under

a permanent management, there ought to be specific statutory authority for

its regulation and control and for the government of the zone, which we

hold for the chief and main purpose of operating the canal.

I fully concur with the Secretary of War that the problem is simply the

management of a great public work, and not the government of a local

republic; that every provision must be directed toward the successful

maintenance of the canal as an avenue of commerce, and that all provisions

for the government of those who live within the zone should be subordinate

to the main purpose.

The zone is 40 miles long and 10 miles wide. Now, it has a population Of

50,000 or 60,000, but as soon as the work of construction is completed, the

towns which make up this population will be deserted, and only

comparatively few natives will continue their residence there. The control

of them ought to approximate a military government. One judge and two

justices of the peace will be sufficient to attend to all the judicial and

litigated business there is. With a few fundamental laws of Congress, the

zone should be governed by the orders of the President, issued through the

War Department, as it is today. Provisions can be made for the guaranties

of life, liberty, and property, but beyond those, the government should be

that of a military reservation, managed in connection with this great

highway of trade.

FURNISHING SUPPLIES AND REPAIRS.

In my last annual message I discussed at length the reasons for the

Government's assuming the task of furnishing to all ships that use the

canal, whether our own naval vessels or others, the supplies of coal and

oil and other necessities with which they must be replenished either before

or after passing through the canal, together with the dock facilities and

repairs of every character. This it is thought wise to do through the

Government, because the Government must establish for itself, for its own

naval vessels, large depots and dry docks and warehouses, and these may

easily be enlarged so as to secure to the world public using the canal

reasonable prices and a certainty that there will be no discrimination

between those who wish to avail themselves of such facilities. TOLLS.

I renew my recommendation with respect to the tolls of the canal that

within limits, which shall seem wise to Congress, the power of fixing tolls

be given to the President. In order to arrive at a proper conclusion, there

must be some experimenting, and this can not be done if Congress does not

delegate the power to one who can act expeditiously.

POWER EXISTS TO RELIEVE AMERICAN SHIPPING.

I am very confident that the United States has the power to relieve from

the payment of tolls any part of our shipping that Congress deems wise. We

own the canal. It was our money that built it. We have the right to charge

tolls for its use. Those tolls must be the same to everyone; but when we

are dealing with our own ships, the practice of many Governments of

subsidizing their own merchant vessels is so well established in general

that a subsidy equal to the tolls, an equivalent remission of tolls, can

not be held to be a discrimination in the use of the canal. The practice in

the Suez Canal makes this clear. The experiment in tolls to be made by the

President would doubtless disclose how great a burden of tolls the

coastwise trade between the Atlantic and the Pacific coast could bear

without preventing its usefulness in competition with the transcontinental

railroads. One of the chief reasons for building the canal was to set up

this competition and to bring the two shores closer together as a practical

trade problem. It may be that the tolls will have to be wholly remitted. I

do not think this is the best principle, because I believe that the cost of

such a Government work as the Panama Canal ought to be imposed gradually

but certainly upon the trade which it creates and makes possible. So far as

we can, consistent with the development of the world's trade through the

canal, and the benefit which it was intended to secure to the east and west

coastwise trade, we ought to labor to secure from the canal tolls a

sufficient amount ultimately to meet the debt which we have assumed and to

pay the interest.

THE PHILIPPINE ISLANDS.

In respect to the Philippines, I urgently join in the recommendation of the

Secretary of War that the act of February 6, 1905, limiting the

indebtedness that may be incurred by the Philippine Government for the

construction of public works, be increased from $5,000,000 to $15,000,000.

The finances of that Government are in excellent condition. The maximum sum

mentioned is quite low as compared with the amount of indebtedness of other

governments with similar resources, and the success which has attended the

expenditure of the $5,000,000 in the useful improvements of the harbors and

other places in the Islands justifies and requires additional expenditures

for like purposes. NATURALIZATION.

I also join in the recommendation that the legislature of the Philippine

Islands be authorized to provide for the naturalization of Filipinos and

others who by the present law are treated as aliens, so as to enable them

to become citizens of the Philippine Islands.

FRIARS' LANDS.

Pending an investigation by Congress at its last session, through one of

its committees, into the disposition of the friars' lands, Secretary

Dickinson directed that the friars' lands should not be sold in excess of

the limits fixed for the public lands until Congress should pass upon the

subject or should have concluded its investigation. This order has been an

obstruction to the disposition of the lands, and I expect to direct the

Secretary of War to return to the practice under the opinion of the

Attorney General which will enable us to dispose of the lands much more

promptly, and to prepare a sinking fund with which to meet the $7,000,000

of bonds issued for the purchase of the lands. I have no doubt whatever

that the Attorney General's construction was a proper one, and that it is

in the interest of everyone that the land shall be promptly disposed of.

The danger of creating a monopoly of ownership in lands under the statutes

as construed is nothing. There are only two tracts of 60,000 acres each

unimproved and in remote Provinces that are likely to be disposed of in

bulk, and the rest of the lands are subject to the limitation that they

shall be first offered to the present tenants and lessors who hold them in

small tracts.

RIVERS AND HARBORS.

The estimates for the river and harbor improvements reach $32,000,000 for

the coming year. I wish to urge that whenever a project has been adopted by

Congress as one to be completed, the more money which can be economically

expended in its construction in each year, the greater the ultimate

economy. This has especial application to the improvement of the

Mississippi River and its large branches. It seems to me that an increase

in the amount of money now being annually expended in the improvement of

the Ohio River which has been formally adopted by Congress would be in the

interest of the public. A similar change ought to be made during the

present Congress, in the amount to be appropriated for the Missouri River.

The engineers say that the cost of the improvement of the Missouri River

from Kansas City to St. Louis, in order to secure 6 feet as a permanent

channel, will reach $20,000,000. There have been at least three

recommendations from the Chief of Engineers that if the improvement be

adopted, $2,000,000 should be expended upon it annually. This particular

improvement is especially entitled to the attention of Congress, because a

company has been organized in Kansas City, with a capital of $1,000,000,

which has built steamers and barges, and is actually using the river for

transportation in order to show what can be done in the way of affecting

rates between Kansas City and St. Louis, and in order to manifest their

good faith and confidence in respect of the improvement. I urgently

recommend that the appropriation for this improvement be increased from

$600,000, as recommended now in the completion of a contract, to $2,000,000

annually, so that the work may be done in 10 years.

WATERWAY FROM THE LAKES TO THE GULF.

The project for a navigable waterway from Lake Michigan to the mouth of the

Illinois River, and thence via the Mississippi to the Gulf of Mexico, is

one of national importance. In view of the work already accomplished by the

Sanitary District of Chicago, an agency of the State of Illinois, which has

constructed the most difficult and costly stretch of this waterway and made

it an asset of the Nation, and in view of the fact that the people of

Illinois have authorized the expenditure Of $20,000,000 to carry this

waterway 62 miles farther to Utica, I feel that it is fitting that this

work should be supplemented by the Government, and that the expenditures

recommended by the special board of engineers on the waterway from Utica to

the mouth of the Illinois River be made upon lines which while providing a

waterway for the Nation should otherwise benefit that State to the fullest

extent. I recommend that the term of service of said special board of

engineers be continued, and that it be empowered to reopen the question of

the treatment of the lower Illinois River, and to negotiate with a properly

constituted commission representing the State of Illinois, and to agree

upon a plan for the improvement of the lower Illinois River and upon the

extent to which the United States may properly cooperate with the State of

Illinois in securing the construction of a navigable waterway from Lockport

to the mouth of the Illinois River in conjunction with the development of

water power by that State between Lockport and Utica.

THE DEPARTMENT OF JUSTICE.

Removal of clerks of Federal courts.

The report of the Attorney General shows that he has subjected to close

examination the accounts of the clerks of the Federal courts; that he has

found a good many which disclose irregularities or dishonesty; but that he

has had considerable difficulty in securing an effective prosecution or

removal of the clerks thus derelict. I am certainly not unduly prejudiced

against the Federal courts, but the fact is that the long and confidential

relations which grow out of the tenure for life on the part of the judge

and the practical tenure for life on the part of the clerk are not

calculated to secure the strictness of dealing by the judge with the clerk

in respect to his fees and accounts which assures in the clerk's conduct a

freedom from overcharges and carelessness. The relationship between the

judge and the clerk makes it ungracious for members of the bar to complain

of the clerk or for department examiners to make charges against him to be

heard by the court, and an order of removal of a clerk and a judgment for

the recovery of fees are in some cases reluctantly entered by the judge.

For this reason I recommend an amendment to the law whereby the President

shall be given power to remove the clerks for cause. This provision need

not interfere with the right of the judge to appoint his clerk or to remove

him.

French spoliation awards.

In my last message, I recommended to Congress that it authorize the payment

of the findings or judgments of the Court of Claims in the matter of the

French spoliation cases. There has been no appropriation to pay these

judgments since 1905. The findings and awards were obtained after a very

bitter fight, the Government succeeding in about 75 per cent of the cases.

The amount of the awards ought, as a matter of good faith on the part of

the Government, to be paid.

EMPLOYERS' LIABILITY AND WORKMEN'S COMPENSATION COMMISSION.

The limitation of the liability of the master to his servant for personal

injuries to such as are occasioned by his fault has been abandoned in most

civilized countries and provision made whereby the employee injured in the

course of his employment is compensated for his loss of working ability

irrespective of negligence. The principle upon which such provision

proceeds is that accidental injuries to workmen in modern industry, with

its vast complexity and inherent dangers arising from complicated machinery

and the use of the great forces of steam and electricity, should be

regarded as risks of the industry and the loss borne in some equitable

proportion by those who for their own profit engage therein. In recognition

of this the last Congress authorized the appointment of a commission to

investigate the subject of employers' liability and workmen's compensation

and to report the result of their investigations, through the President, to

Congress. This commission was appointed and has been at work, holding

hearings, gathering data, and considering the subject, and it is expected

will be able to report by the first of the year, in accordance with the

provisions of the law. It is hoped and expected that the commission will

suggest legislation which will enable us to put in the place of the present

wasteful and sometimes unjust system of employers' liability a plan of

compensation which will afford some certain and definite relief to all

employees who are injured in the course of their employment in those

industries which are subject to the regulating power of Congress.

MEASURES TO PREVENT DELAY AND UNNECESSARY COST OF LITIGATION.

In promotion of the movement for the prevention of delay and unnecessary

cost, in litigation, I am glad to say that the Supreme Court has taken

steps to reform the present equity rules of the Federal courts, and that we

may in the near future expect a revision of them which will be a long step

in the right direction.

The American Bar Association has recommended to Congress several bills

expediting procedure, one of which has already passed the House

unanimously, February 6, 1911. This directs that no judgment should be set

aside or reversed, or new trial granted, unless it appears to the court,

after an examination of the entire cause, that the error complained of has

injuriously affected the substantial rights of the parties, and also

provides for the submission of issues of fact to a jury, reserving

questions of law for subsequent argument and decision. I hope this bill

will pass the Senate and become law, for it will simplify the procedure at

law.

Another bill 11 to amend chapter II of the judicial Code, in order to

avoid errors in pleading, was presented by the same association, and one.

enlarging the jurisdiction of the Supreme Court so as to permit that court

to examine, upon a writ of error, all cases in which any right or title is

claimed under the Constitution, or any statute or treaty of the United

States, whether the decision in the court below has been against the right

or title or in its favor. Both these measures are in the interest of

justice and should be passed.

POST OFFICE.

At the beginning of the present administration in 1909 the postal service

was in arrears to the extent Of $17,479,770.47. It was very much the

largest deficit on record. In the brief space of two years this has been

turned into a surplus Of $220,000, which has been accomplished without

curtailment of the postal facilities, as may be seen by the fact that there

have been established 3,744 new post offices; delivery by carrier has been

added to the service in 186 cities; 2,516 new rural routes have been

established, covering 60,000 miles; the force of postal employees has been

increased in these two years by more than 8,000, and their average annual

salary has had a substantial increase.

POSTAL-SAVINGS SYSTEM.

On January 3, 1911, postal-savings depositories were established

experimentally in 48 States and Territories. After three months' successful

operation the system was extended as rapidly as feasible to the 7,500 Post

offices of the first, second, and third classes constituting the

presidential grade. By the end of the year practically all of these will

have been designated and then the system will be extended to all

fourth-class post offices doing a money-order business.

In selecting post offices for depositories consideration was given to the

efficiency of the postmasters and only those offices where the ratings were

satisfactory to the department have been designated. Withholding

designation from postmasters with unsatisfactory ratings has had a salutary

effect on the service.

The deposits have kept pace with the extension of the system. Amounting to

only $60,652 at the end of the first month's operation in the experimental

offices, they increased to $679,310 by July, and now after 11 months of

operation have reached a total of $11,000,000. This sum is distributed

among 2,710 banks and protected tinder the law by bonds deposited with the

Treasurer of the United States.

Under the method adopted for the conduct of the system certificates are

issued as evidence of deposits, and accounts with depositors are kept by

the post offices instead of by the department. Compared with the practice

in other countries of entering deposits in pass books and keeping at the

central office a ledger account with each depositor, the use of the

certificate has resulted in great economy of administration.

The depositors thus far number approximately 150,000. They include 40

nationalities, native Americans largely predominating and English and

Italians coming next.

The first conversion of deposits into United States bonds bearing interest

at the rate of 2.5 per cent occurred on July 1, 1911, the amount of

deposits exchanged being $41,900, or a little more than 6 per cent of the

total outstanding certificates of deposit on June 30. Of this issue, bonds

to the value of $6,120 were in coupon form and $35,780 in registered form.

PARCEL POST.

Steps should be taken immediately for the establishment of a rural parcel

post. In the estimates of appropriations needed for the maintenance of the

postal service for the ensuing fiscal year an item of $150,000 has been

inserted to cover the preliminary expense of establishing a parcel post on

rural mail routes, as well as to cover an investigation having for its

object the final establishment of a general parcel post on all railway and

steamboat transportation routes. The department believes that after the

initial expenses of establishing the system are defrayed and the parcel

post is in full operation on the rural routes it will not only bring in

sufficient revenue to meet its cost, but also a surplus that can be

utilized in paying the expenses of a parcel post in the City Delivery

Service.

It is hoped that Congress will authorize the immediate establishment of a

limited parcel post on such rural routes as may be selected, providing for

the delivery along the routes of parcels not exceeding eleven pounds, which

is the weight limit for the international parcel post, or at the post

office from which such route emanates, or on another route emanating from

the same office. Such preliminary service will prepare the way for the more

thorough and comprehensive inquiry contemplated in asking for the

appropriation mentioned, enable the department to gain definite information

concerning the practical operation of a general system, and at the same

time extend the benefit of the service to a class of people who, above all

others, are specially in need of it.

The suggestion that we have a general parcel post has awakened great

opposition on the part of some who think that it will have the effect to

destroy the business of the country storekeeper. Instead of doing this, I

think the change will greatly increase business for the benefit of all. The

reduction in the cost of living it will bring about ought to make its

coming certain.

THE NAVY DEPARTMENT.

On the 2d of November last, I reviewed the fighting fleet of battleships

and other vessels assembled in New York Harbor, consisting of 24

battleships, 2 armored cruisers, 2 cruisers, 22 destroyers, 12 torpedo

boats, 8 submarines, and other attendant vessels, making 98 vessels of all

classes, of a tonnage Of 576,634 tons. Those who saw the fleet were struck

with its preparedness and with its high military efficiency. All Americans

should be proud of its personnel.

The fleet was deficient in the number of torpedo destroyers, in cruisers,

and in colliers, as well as in large battleship cruisers, which are now

becoming a very important feature of foreign navies, notably the British,

German, and Japanese.

The building plan for this year contemplates two battleships and two

colliers. This is because the other and smaller vessels can be built much

more rapidly in case of emergency than the battleships, and we certainly

ought to continue the policy of two battleships a year until after the

Panama Canal is finished and until in our first line and in our reserve

line we can number 40 available vessels of proper armament and size.

The reorganization of the Navy and the appointment of four aids to the

Secretary have continued to demonstrate their usefulness. It would be

difficult now to administer the affairs of the Navy without the expert

counsel and advice of these aids, and I renew the recommendation which I

made last year, that the aids be recognized by statute.

It is certain that the Navy, with its present size, should have admirals in

active command higher than rear admirals. The recognized grades in order

are: Admiral of the fleet, admiral, vice admiral, and rear admiral. Our

great battleship fleet is commanded by a rear admiral, with four other rear

admirals under his orders. This is not as it should be, and when questions

of precedence arise between our naval officers and those of European

navies, the American rear admiral, though in command of ten times the force

of a foreign vice admiral, must yield precedence to the latter. Such an

absurdity ought not to prevail, and it can be avoided by the creation of

two or three positions of flag rank above that of rear admiral.

I attended the opening of the new training school at North Chicago, Ill.,

and am glad to note the opportunity which this gives for drawing upon young

men of the country from the interior, from farms, stores, shops, and

offices, which insures a high average of intelligence and character among

them, and which they showed in the very wonderful improvement in discipline

and drill which only a few short weeks' presence at the naval station had

made.

I invite your attention to the consideration of the new system of detention

and of punishment for Army and Navy enlisted men which has obtained in

Great Britain, and which has made greatly for the better control of the.

men. We should adopt a similar system here.

Like the Treasury Department and the War Department, the Navy Department

has given much attention to economy in administration, and has cut down a

number of unnecessary expenses and reduced its estimates except for

construction and the increase that that involves.

I urge upon Congress the necessity for an immediate increase of 2,000 men

in the enlisted strength of the Navy, provided for in the estimates. Four

thousand more are now needed to man all the available vessels.

There are in the service to-day about 47,750 enlisted men of all ratings.

Careful computation shows that in April, 1912, 49,166 men will be required

for vessels in commission, and 3,000 apprentice seamen should be kept under

training at all times.

ABOLITION OF NAVY YARDS.

The Secretary of the Navy has recommended the abolition of certain of the

smaller and unnecessary navy yards, and in order to furnish a complete and

comprehensive report has referred the question of all navy yards to the

joint board of the Army and Navy. This board will shortly make its report

and the Secretary of the Navy advises me that his recommendations on the

subject will be presented early in the coming year. The measure of economy

contained in a proper handling of this subject is so great and so important

to the interests of the Nation that I shall present it to Congress as a

separate subject apart from my annual message. Concentration of the

necessary work for naval vessels in a few navy yards on each coast is a

vital necessity if proper economy in Government expenditures is to be

attained.

AMALGAMATION OF STAFF CORPS IN THE NAVY.

The Secretary of the Navy is striving to unify the various corps of the

Navy to the extent possible and thereby stimulate a Navy spirit as

distinguished from a corps spirit. In this he has my warm support.

All officers are to be naval officers first and specialists afterwards.

This means that officers will take up at least one specialty, such as

ordnance, construction, or engineering. This is practically what is done

now, only some of the specialists, like the pay officers and naval

constructors, are not of the line. It is proposed to make them all of the

line.

All combatant corps should obviously be of the line. This necessitates

amalgamating the pay officers and also those engaged in the technical work

of producing the finished ship. This is at present the case with the single

exception of the naval constructors, whom it is now proposed to amalgamate

with the line.

COUNCIL OF NATIONAL DEFENSE.

I urge again upon Congress the desirability of establishing the council of

national defense. The bill to establish this council was before Congress

last winter, and it is hoped that this legislation will pass during the

present session. The purpose of the council is to determine the general

policy of national defense and to recommend to Congress and to the

President such measures relating to it as it shall deem necessary and

expedient.

No such machinery is now provided by which the readiness of the Army and

Navy may be improved and the programs of military and naval requirements

shall be coordinated and properly scrutinized with a view of the

necessities of the whole Nation rather than of separate departments.

DEPARTMENTS OF AGRICULTURE AND COMMERCE AND LABOR.

For the consideration of matters which are pending or have been disposed of

in the Agricultural Department and in the Department of Commerce and Labor,

I refer to the very excellent reports of the Secretaries of those

departments. I shall not be able to submit to Congress until after the

Christmas holidays the question of conservation of our resources arising in

Alaska and the West and the question of the rate for second-class mail

matter in the Post Office Department.

COMMISSION ON EFFICIENCY AND ECONOMY.

The law does not require the submission of the reports of the Commission on

Economy and Efficiency until the 31st of December. I shall therefore not be

able to submit a report of the work of that commission until the assembling

of Congress after the holidays.

CIVIL RETIREMENT AND CONTRIBUTORY PENSION SYSTEM.

I have already advocated, in my last annual message, the adoption of a

civil-service retirement system, with a contributory feature to it so as to

reduce to a minimum the cost to the Government of the pensions to be paid.

After considerable reflection, I am very much opposed to a pension system

that involves no contribution from the employees. I think the experience of

other governments justifies this view; but the crying necessity for some

such contributory system, with possibly a preliminary governmental outlay,

in order to cover the initial cost and to set the system going at once

while the contributions are accumulating, is manifest on every side.

Nothing will so much promote the economy and efficiency of the Government

as such a system.

ELIMINATION OF ALL LOCAL OFFICES FROM POLITICS.

I wish to renew again my recommendation that all the local offices

throughout the country, including collectors of internal revenue,

collectors of customs, postmasters of all four classes, immigration

commissioners and marshals, should be by law covered into the classified

service, the necessity for confirmation by the Senate be removed, and the

President and the others, whose time is now taken up in distributing this

patronage under the custom that has prevailed since the beginning of the

Government in accordance with the recommendation of the Senators and

Congressmen of the majority party, should be relieved from this burden. I

am confident that such a change would greatly reduce the cost of

administering the Government, and that it would add greatly to its

efficiency. It would take away the power to use the patronage of the

Government for political purposes. When officers are recommended by

Senators and Congressmen from political motives and for political services

rendered, it is impossible to expect that while in office the appointees

will not regard their tenure as more or less dependent upon continued

political service for their patrons, and no regulations, however stiff or

rigid, will prevent this, because such regulations, in view of the method

and motive for selection, are plainly inconsistent and deemed hardly worthy

of respect.

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